Friday, July 31, 2009

Torturing Children...

Mohamed Jawad was ordered released from Guantanamo Prison today. You should know who this person is, because there are a great number of people around the world who do, and many of them understandably hate our country for the way we've treated him.

Jawad is an Afghan citizen, who was picked up by the Afghan military in 2003. After being told by his Afghan captors that, unless he confessed to throwing a hand grenade at US troops, he would be killed, and then his whole family would be killed, he confessed.

He was then given to US forces, who accepted this confession without question, and was shipped to Guantanamo Bay Prison, where he was then literally kept in a cage for the next 6 years (he's still there) and unquestionably tortured. (More details here.)

He was tortured, as the torture defenders say, because it was vital to get national security information from him. A 12 year old boy? Vital to the national security of the United States? This rationale is so ludicrous that it barely merits repeating, and yet it is repeated by people daily in the highest levels of our government.

He was finally ordered released today by a federal judge, who ruled that not only was there insufficient evidence to convict him, but there was insufficient evidence to even detain him, although the United States has in fact caged and tortured this boy for 6 years.

The saddest and most outrageous part of this habeas corpus hearing was when the Obama administration (that is not a typo; I did not mean to say Bush) actually argued that the court should rely upon the confession; a confession given by a 12 year old, under extreme duress, who was told that if he did not confess to this act, he would killed! And they would kill his mother, and father, and brothers and sisters too!

This is the confession that the Obama administration wanted to use to convince the judge that they could lock this boy away literally for the rest of his life, without another hearing, without a trial, without any sort of most basic legal protection that any civilized country on earth would give an adult defendant in a case with actual evidence.

If you are still operating on the assumption that the Obama administration is fundamentally different from the Bush administration on basic human rights, then you clearly have not been paying attention to what has happened since the election. The only difference is that Obama is claiming powers that Bush didn't dare to ask for. If this boy had an Obama "Hope" poster on the wall of his cage for inspiration and the hope that one day he would be freed, it should be torn down today.

It is imperative that we defend our civil rights, and those of others. It will not compromise our national security; in fact, our national security is compromised by our horrific treatment of others. And a nation that treats people in this way deserves no security at all.

Victims Surcharge for Pot Possession?

If you don't know what a Victim Surcharge is, according to the Wyoming Division of Victim Services:

Surcharge is an assessment imposed on the offender in addition to any fines fees, or other penalties prescribed by law. As of July 1, 2008, the surcharge on first time offenses range from $150.00 to not less than $350.00. For second and subsequent offenses the surcharge ranges from $200 to not less than $400. The court imposes the surcharge during sentencing. The assessment is then deposit (sic) in the State of Wyoming’s surcharge revenue fund. The surcharge fund is then used to pay the expenses of the Crime Victims’ Compensation Program.

Yesterday, two people were each sentenced in Wyoming Circuit Court to, among other things, $350 in Victim Surcharges for pleading guilty to possessing small amounts of pot.


Who, exactly, is the victim in this case? These two guys were at home minding their own business when they were arrested. The only victims I can see in this case are them. And they're victims of extortion. And all of my fellow citizens of Wyoming who support these laws, or who refuse to speak out against them, are guilty of that extortion.

You cannot be in the middle on this issue. You cannot claim that you're not involved. As a citizen and a voter, you are either in favor of turning people into criminals for using harmless drugs, or you are not.

Healthcare Profits Good? Think Again

Baseline Scenario is back with another great post on health care. James Kwaak talks about the significance of profits, and why we should be suspicious of them when they are industry-wide. Free-marketeers will find this excerpt interesting:

I agree that the pursuit of high profits is a good thing. That is what makes a free-market capitalist system work, and it’s what made me start a company eight years ago. But basic microeconomics says that high profits themselves are generally not a good thing.

In a competitive market, if one company is earning high profits, then other people will want to start new companies to compete with it. By entering the market, they increase competition, reducing profit margins for the original market leader; more companies and more competition also mean more innovation; both of these factors increase overall social welfare. In a true competitive market, one without barriers to entry or market power, companies should not earn any profits at all, because competition will drive price down to marginal cost. (Steve Goldman, one of my economics professors, once said that if you wake an economist up in the middle of the night and ask him or her, “what is price?,” he should answer, “marginal cost.”)

The real world is different, of course. Companies have to earn profits sufficient to cover their cost of capital. And if you invent a successful new product, you will earn excess profits for some period of time; but over time your competitors will catch up and those excess profits will go away (see the IBM personal computer, for example).

So if you see a company that has very high profits over a sustained period, there are two possibilities: either it is benefiting from a non-competitive market (e.g., it is a monopoly), or it is simply exceptional at innovating and staying ahead of the competition for years on end. If you see a whole industry that has sustained high profits, however, the latter explanation cannot hold, and you should immediately suspect a lack of competition.

In short, the thing that we should celebrate is not high profits, but competition. The pursuit of high profits is what motivates competition; but if a whole industry achieves high profits, then what you are seeing is not competition, but its opposite.

A market like this, that sustains high profits over the long run, is simply not competing on price. Insurance companies are not designing and patenting new drugs or procedures; they are essentially selling a commodity, and so the prices should converge to somewhere around marginal cost plus cost of capital.

And how could a market like this compete on price? Although they are essentially offering the same underlying service, in another sense, each company is operating as a monopoly in its own market.

How can this be? Because although they are putatively selling the same product (insurance) they are actually all selling different products (insurance which no one can understand). Because you cannot properly value the insurance, due to the complexity of the policy, the impossibility of properly assessing your own future financial risk regarding health care, and your inability to know if rescission will leave you with no health care at all, you really have no way of comparing the value of one policy to another. Which makes the idea of a competitive insurance industry a joke.

So what are they competing on, to the extent that there is any competition at all? They are competing on innovative ways to add complexity to their products in ways what will encourage people to make poor valuations, and consequently make poor policy choices that end up costing them money. They are competing on regulatory on political capture. But they are absolutely not competing on ways to offer a better product at a better price.

Welcome to the healthcare market. What's so great about it again?

Wednesday, July 29, 2009

The Wonders of Free-Market Health Care

Taunter has a nice post on health care rescission here, and here' a teaser...(the full post is definitely worth reading)

It is in the health insurer’s interest to have application fraud, not only because it saves time and expense on the front end, but also because it lets them get out of any policy that isn’t going well for them. If the health insurer had to verify the information – if, in essence the insurance company had to behave as an accredited investor with adequate expertise to make a decision without reliance – it wouldn’t have the opportunity to bail out. It would catch more genuine liars, but many of these liars would have turned out to be healthy, profitable customers, and what the carrier really wants is a population devoid of expensive claims, not devoid of liars.

A lot of people reflexively believe that the free-market system works for everything, and that it is fundamentally a good thing. Peggy Noonan wrote in the WSJ last week that a free-market health care system was intrinsically good; in other words, that, regardless of its efficacy, it was something we should strive for.

But the reality is that markets sometimes don't work. They work best when they are free from outside influence (in other words, they are actually free) and when people are able to make rational cost-benefit analysis using complete or nearly complete information.

These attributes are decidedly not to be found in the health care market. It is rife with political influence and rent-seeking. It is impossible to make rational cost-benefit analyses when it concerns your own health or even life, and most of the market participants simply have no chance of making informed choices, because they are not doctors.

This theoretical free-market in health care that we all want simply does not exist. But the health insurance companies are happy to indulge our fantasy that it does.

Saturday, July 25, 2009

A Judge's View

Judge H. Lee Sarokin weighs in on the New jersey corruption arrests.

Money Quote:

A banner headline in the New York Times reads: 44 Charged by U.S. in New Jersey Corruption Sweep. The assistant United States Attorney in announcing the charges simultaneously rendered a guilty verdict by concluding: "For these defendants, corruption was a way of life. They existed in an ethics-free zone." He went on to state that average citizens "don't have a chance against the culture of influence peddling the investigation unearthed." Hey, isn't this why we have juries? Has the presumption of innocence become a quaint old relic?

Those charged may well be guilty of serious crimes, but the time for summations is at trial not at a charging press conference. Unless prosecutors wish to allay fears by announcing the arrest of persons such as serial murderers or rapists, no legitimate purpose is served by a press conference outlining the evidence against the accused and pronouncing their guilt.

The idea that the justice system considers you innocent until proven guilty is pretty much a laugh at this point. They can assume near-total control over your life, including incarcerating you for long periods of time for non-violent offenses, without ever getting a verdict. And you won't even get an apology.

In reality, the state assumes that you are guilty, and acts accordingly.

Friday, July 24, 2009

Justice At the Barrel of a Gun

The Smoking Gun has the story and police report here.

This story illustrates why a large segment of the population (and I do not simply mean a large percentage of black men) do not like cops. And this is partly because of the laws we have passed, (especially regarding victimless, non-violent drug "crimes"), but also because cops in this country find it all too easy to arrest or to use deadly force at the first opportunity.

Here is a man, Professor Henry Gates, who is accosted in his own house and is understandably upset, and who undoubtedly is old enough to have experienced not only the current unofficial racism of profiling, but the official and overt racism of the past. He is upset. He feels he has been falsely accused. He follows the police officer outside and continues to insult him. At this point, Sgt. Crowley can take the high road and ignore it. He can get in his car and drive away. There will be no community harm. Mr. Gates does not pose a danger to himself or to the community. In fact, to whatever degree Prof. Gates is upset, it is as a result, rightly or wrongly, of this investigation. When the investigation ends, Prof. Gates will go back inside and contemplate his next move. Peace will be restored.

But no. This is not good enough for Sgt. Crowley. His feelings are hurt. Maybe he remembers what it was like when he was a kid, and the bullies picked on him. It was terrible. He felt helpless. But not today. He is grown up now. He has a gun and a badge. He doesn't have to take this. He knows that this is close enough to the technical description of disorderly conduct for him to make an arrest. Let this guy go to jail. Let him pay for a lawyer to defend himself from these charges. Let's make an example of him, because he dared to fucking question a police officer, and police officers, as we all know, are heroes.

And should anyone question his motives, he can just say that it's the law. Never mind that he's ignored a thousand cases like it without making an arrest. He's just doing his job. It can't be helped. No, Professor, of course this isn't personal. We arrest everyone that yells or causes a commotion.

This is the state of law-enforcement in our country today.

UPDATE: What exactly did Sgt. Crowley think that Gates was going to do that was going to render himself a danger to himself or the community? Was there some infinitesimally small chance that he would go crazy and shoot up the block? I suppose.

But this is another rationale that police use all the time. If there is any, ANY chance that something bad could happen, they feel justified using ANY level of response. Especially if there is ANY chance that a police officer could be hurt.

My idea of a police officer who is a true hero is one who, when he encounters a psychologically impaired man with an 11 inch household hammer, does everything he can to subdue the man without injuring him, even at risk of bodily harm to himself. That is a hero. I want to buy that cop a beer and a burger.

Unfortunately, the general mindset among police is perhaps best illustrated by this AP report on the killing of Gideon Busch in New York in 1999:

"At least five officers arrived and found Gideon Busch, 31, in the basement of his house, wearing a prayer shawl and leather pouches used to hold pieces of scripture, police said. The officers retreated onto the street and Busch followed them, carrying the hammer, said Detective Robert Samuel. Tear gas failed to subdue the man. One police sergeant stumbled to the ground and Busch struck him several times with the hammer, officers said. After Busch ignored several orders to drop the hammer, officers fired at least 12 shots, striking him in the torso at least seven times, police said."

Five officers. At least. And their response is to order him to drop the hammer. Why not tackle him? Don't want to get your hands dirty? Note that he did not begin to use the hammer as a weapon until AFTER they tear-gassed him. The police found a relatively harmless man in a non-violent situation, escalated it into a violent situation, and then shot the man to death. How is this different from surrounding a drunk guy, baiting him into swinging, and then killing him? Fundamentally, it really isn't.

I have personally subdued a violent drunk with a hammer in the course of my job. It's not so hard. But if you're itching for some action, or believe that your job entitles you to absolute safety from ANY bodily harm, no matter how this is achieved (and, by extension, from mental anguish brought on by perceived disrespect), then I suppose you should empty your guns into the suspect. Why not? You're a cop. These are just people. Crazy people, at that.

12 shots? Seven torso shots? What was this guy doing after the third or fourth round hit him in the chest? Bleeding in a disorderly manner? Insulting the cop heart by not dying fast enough?

These cops are not heroes. These cops are assholes whose primary concern is with their own well-being.

Rationalizing the Drug War

From a Huffington Post article on marijuana in California:

"For those of us who are on the front lines, it's not about pot is bad in itself or drugs are bad," said Meredith Lintott, district attorney in Mendocino County, one of the country's top marijuana-producing regions.

"It's about the negative consequences on children. It's about the negative consequences on the environment."

We're now at the point that the people on the front lines are not even able to claim that weed is bad. They're now inventing excuses for the war on our citizens.

The negative consequences on children? A black market exists in illegal drugs. Because it's illegal, the only people (outside of the limited number of medicinal marijuana dealers in a few progressive states) that are allowed to sell it are, by definition, criminals. In the whole universe of possible ways to sell marijuana, criminals are probably the one group that is most likely to try to sell to children. The drug war is exacerbating this problem, not solving it.

And the negative consequences on the environment? Because it's illegal, growers are resorting to using national forests and wilderness areas. Because it's illegal, there are criminal enterprises who defend their crops with booby traps and weaponry, and who have no regard for the environment or the safety of the citizenry.

Why does this happen? Because of the war on drugs. The war on drugs does not happen because of this.

Tuesday, July 14, 2009

Goldman Is Killing It

Goldman Sachs report record profits for the second quarter today. Glenn Greenwald has a great background post here. I don't want to excerpt from it as it's worth reading in its entirety.

The Wall Street Journal reports that Goldman earned $3.44 billion in the second quarter of 2009. If you haven't been following what's going on, you might be happy about this. You might think that it represents a turnaround in the economy.

You might not realize that it came as a result of taxpayer money being shoveled out the back door and into Goldman's trunk, because Goldman is the most connected company in the world, and what they are connected to is "your" government, the Treasury Department of which is being virtually run by ex-Goldman Sachs executives.

If you did realize this, and you read Glenn's post above, and you read Matt Taibbi's Rolling Stone article which was linked to within Glenn's post, then you might also realize that Goldman's record profits are most assuredly not a good thing, as it means that they are now armed with the cash as well as the cognitive capture to make sure that the your government continues to make sure it consults them before any move. Especially moves which, while good for you, and the economy, might result in Goldman's inability to continue to make obscene amounts of money at the expense of taxpayers.

And do not doubt for one minute that they are making this money at your expense.

The irony is that many taxpayers will actually defend Goldman, and, while knowing absolutely nothing about them, will point to their record profits as proof that they are doing something well.

They are. They are masters of controlling goverment policy, of helping to create financial crises, profiting from it, and then swooping in, vulture-like, and profiting again from the chaos and carnage. They do this very, very well, in fact.

It is no accident that they are making more money now than they did at the height of the bubble 2 years ago. It is no accident that they received billions of dollars of bailout money, after laundering it through AIG so that they could claim innocence, even as they profited from betting against AIG. Nor is it an accident that they have had access to taxpayer-insured funds, directly from Treasury, at interest rates taxpayers can only dream about, and have used those taxpayer funds to conduct highly profitable principal risk trades. The risk for these trades, of course, is born by you and me, the taxpayers.

Goldman has now set aside over $11 billion to pay its employees for the first 6 months of the year. This amount is equal to over $380,000 for each employee, from executives right down to mail clerks and and janitors.

Where is the outrage? Republicans are outraged; they are outraged that we would even consider interfering in a free-market compensation system. And many people agree with them. It's shocking how many people actually agree with this.

If you're one of them, it's time to disabuse yourself of the notion that Goldman operates in a free-market system. They do not. They have taken huge risks, cashed in the profits, taken more risks, only to drive their company to the verge of insolvency, then had taxpayers bail them out, then had the government help them eliminate the competition, then borrowed huge amounts of taxpayer money (while paying taxpayers a ridiculously low rate of interest) and then used that money to gamble some more, knowing that taxpayers would get shafted if the bets went bad, just like they did the last time. So far their bets have paid off, and they're raking in billions. And so now they're paying themselves billions while they can, because sooner or later they'll take the while system down with them again.

And if you ask them why they think it's ok to pay themselves billions of dollars of your money, and if you wonder where the taxpayer cut is, since, after all, we're funding them, the answer you will get from all 29,400 of its millionaire employees will be a collective "Fuck You."

Ladies and Gentleman, Goldman Sachs!

Republicans Say Stimulus Hasn't Worked, Also Say It Hasn't Been Tried Yet

From an AP report...

"The reality is it hasn't helped yet," said Sen. John Kyl, R-Ariz. "Only about 6.8 percent of the money has actually been spent. What I proposed is, after you complete the contracts that are already committed, the things that are in the pipeline, stop it."

So on the one hand, he claims it hasn't done anything. On the other, he claims that almost none of the stimulus money has been spent yet.

Sort of like saying that the triple bypass hasn't worked yet, because we've only just made the incision. So let's sew the patient back up, and call it a day. This surgery looks expensive anyway.

Senator, please make an argument that stimulus doesn't work. Please wow us with your grasp of Keynesian economics. Please offer something constructive beyond your discredited free-market ideology. Or else shut up.

Monday, July 13, 2009

Lessons from Accra

I was just going over the text of Obama's recent speech in Ghana, and thought I'd excerpt a few things and comment on them...

No person wants to live in a society where the rule of law gives way to the rule of brutality and bribery. That is not democracy, that is tyranny, even if occasionally you sprinkle an election in there.

Note that his official policy is to ignore American brutality, authorized at the highest levels of the previous administration, and carried out by people who are still employed by the current government. You might also notice that the huge cash contributions of companies like Goldman Sachs are virtually indistinguishable from bribery.

In the 21st century, capable, reliable and transparent institutions are the key to success -- strong parliaments; honest police forces; independent judges ... an independent press; a vibrant private sector; a civil society. Those are the things that give life to democracy, because that is what matters in people's everyday lives.

An independent press is exactly what we do not have in America, at least as far as the mainstream media is concerned. In fact, our press prides itself on it close and cozy relationship with government.

Now, America will not seek to impose any system of government on any other nation.

Tell that to the Iraqis or Afghans.

Witness the extraordinary success of Africans in my country, America. They're doing very well.

Well, unless you count the fact that they we imprison them at nearly 10 times the rate of whites. Or that a black family's income is about half that of a similar white family's income on average.

I generally liked this speech. I just wish that we would take some of these lessons to heart ourselves.

Friday, July 10, 2009

Geithner Q&A

From the June 29 issue:

TIME: What you are suggesting is that because the system seems to be getting healthier, the banks think the price for the toxic assets is not high enough.

Geithner: The key test again for the system is, Are banks able to raise equity? Are investors confident enough in their ability to judge the strength of the banks' balance sheets that they're willing to put equity into a bank? We've seen substantial progress in that area

Geithner is right when he says that investors are confident in big banks. What he doesn't say, although he undoubtedly knows, is why.

Investors are confident in big banks because they now know that the government will not let them fail, and that their investments are protected against downside for this reason.

Wednesday, July 8, 2009

Todd Zywicki Argues Against A Financial Products Safety Panel

Todd Zywicki thinks that the a Financial Products Safety Panel will lead to the demise of all the great financial innovations that we currently enjoy.

Here are a few excerpts from his column:

Virtually every credit product is valuable to some consumers. Low-documentation loans are a boon for homeowners with a lot of equity who want to refinance their mortgages (even as they are a dangerous thing to offer speculators)

What he doesn't address here is the fact that the costs (systemic risk, foreclosure, personal bankruptcy, etc) incurred by low/no-doc loans may outweigh the benefit of allowing some people to refinance their mortgage in certain limited situations. Nor does he consider the fact that it might be possible to allow the loans in certain situations, but not in other. A regulatory agency might be useful for making these decisions. Maybe a consumer financial product safety commission?

He then goes on to talk about the evils of banning pre-payment penalties, as though this was the main contributor to the financial crisis. I do not believe it was.

European home values have also fallen. But foreclosure rates are lower in Europe partly because homeowners there haven't stripped their homes of equity to the same extent. Similarly, adjustable-rate mortgages are standard in Europe and have been very common at times in the United States. It was the Federal Reserve's erratic monetary policy that made adjustable-rate mortgages here "explode," not the loans themselves.

Also a problem was the fact that unregulated lenders actively sold loans to consumers who could not afford them, fueling a real estate bubble that was bound to burst. No doubt Zywicki would fault borrowers, and admonish them to act more rationally, which is a little like asking a dog to be more like a cat. Maybe a consumer financial product safety commission could help.

This obsession with simplicity threatens innovation as well as competition. Thirty years ago credit cards were exceedingly simple. They charged high annual fees just to own them (often $40-$50), high fixed interest rates (approaching 20%), and offered no cash rebates.

Today credit cards are more complex, but they are also better. They offer no annual fees for no-frills cards, flexible interest rates, and more benefits. Competition is fierce and consumers have a wide range of choices.

One wonders whether the credit card revolution would have been possible under a consumer financial product safety commission.

Here he is trying to argue that financial innovation in credit cards has been a good thing. We now have credit cards rules that are, frankly, impossible for the consumer to understand, exorbitant penalties, zero meaningful disclosure, and card companies that will try to talk 18 year olds with no jobs into going deeply into debt. The management doesn't care about future defaults, because they will have already collected their bonuses. But hey, we get airline miles and sometimes don't have to pay a fee!

Again, in order for people to make good choices, they need to have good information. Complexity obscures information. Here's a financial innovation: Require simple credit card rules, so that people can make an informed choice about their card without having to hire a lawyer. What entity might be able to do this? Maybe a consumer financial product safety commission?

Our current problems are caused by misaligned incentives and the rational response of consumers and lenders to those incentives. It's not a crisis of consumer protection. A new agency premised on the erroneous belief what consumers need is to be protected from themselves is likely to do more harm than good.

Rational response? I know that neo-classical economics (and its notion that people act rationally, carefully weighing the costs and benefits of each decision) is a hard habit to shake, but it's very difficult to argue that people have been acting rationally.

We want people to make better choices. In order to make better choices, they need better information. Hidden in the enormous information asymmetry between consumers and huge corporate lenders is a perfect opportunity for credit card companies to take consumers for all that they have. These companies have access to government and power that the consumer can not possibly imagine. They have hordes of lawyers and marketers, all of whom are fixated on making sure that they get as much money from borrowers as they can. In this environment, setting rules to address this disparity is a good thing.

Do you know what might really help in addressing it? Corporate tax breaks!

Just kidding. Actually, a consumer financial product safety commission would be a good start.

Tuesday, July 7, 2009

Remind Me Why Your House Should Be Worth More Tomorrow?

Over at Economist's View, Mark Thoma discusses the widespread belief that housing prices will rise long-term, versus evidence that shows that this may not be true. Since I think many people would dismiss this evidence, I'd like to take a quick look at why this might be the case.

I'd start by asking why we would assume that a class of assets would appreciate over time. In order for this to happen, we would need the supply of them to decrease, or demand to increase, or both.

It occurred to me that it might be helpful to list the reasons that home prices might increase, as well as the reasons that they might decrease. Feel free to add to the list in the comment section.

Reasons for price increases:

1. The supply of homes on the market decreases, resulting in competition among buyers and a bidding up of prices.

I can see no reason why this would result in a long-term increase in prices, as the market would presumably respond by increasing the supply until the prices return to an equilibrium. Unless

2. There is a limited supply of new homes.

While in certain localized areas (Jackson Hole, where I live, for example), there is a limited amount of land available for new homes, overall, there is no reason to believe that we are on the verge of running out of room in the foreseeable future. Of course, if people believe that we will run out of room, this could certainly impact prices. But I don't think that it would impact them in the long-term, as market corrections would tend to make people recognize the reality.

3. There is a demand for bigger and more expensive homes.

If the trend is to buy more expensive homes, then the average price of all homes will increase. This could result in long-term price increases, but only if it's sustainable- in other words, only if consumer preferences stay the same and income levels remain sufficient to pay for them. If every homeowner believes that they need to buy a 6000 square ft home with a pool, then prices will increase.

4. New regulations, commodity, or labor increases increase the cost of building a new home.

This is certainly possible, although it cuts both ways. Builders are getting more efficient at building, as well.

Here are some reasons prices could or should fall.

1. A home should depreciate in value.

A 30 year old home should not be worth more than a new one, if for no other reason than wear and tear. It should be worth less, unless there is a greater increase in value due to one of the reasons above. So we should start with this premise. Every day, your home should be worth less, and you need an increase in value due to demand or supply changes just to keep up.

2. Homes become less expensive to build.

If builders become more efficient at building homes, and labor, material, and regulatory costs decrease or stay the same, homes could easily become less expensive to build. So the house that cost $300,000 to build 2 years ago now only cost $200,000. This could result in sustainable downward pressure on prices. As someone who has personally helped build a house, I can attest to that fact that technological advances are making home-building less costly.

If you think this is not possible, look at the recent prices decreases in computers, for example, or HDTV's. Increases in efficiency will be long-term. How much do you think that state of the art desktop you bought 5 years ago is worth today, even if it's never been used?

3. There could simply be a long-term trend away from preferences for expensive homes.

I think that this is not only possible, but likely. While we may not see large-scale use of these anytime soon, it's very likely that consumers will start to see the folly in wasting money on homes that are mostly for show and inconvenient and costly to live in. If this happens, then the prices on these large homes will continue to drop. The impact of changing attitudes towards environmental issues could devastate the market for large homes.

4. Demand could drop overall. There is no reason that population increases, which drive demand, will increase forever. Population growth rates are already negative in many European countries, and this is a trend that could easily affect us as well.

Taken together, it looks at first glance as though there are plenty of reasons for short-term gains in housing prices, but even more reasons for long-term decreases.

I think we need to stop looking at homes as investments. They generally do not produce marginal wealth. You can invest in a building that will be used as a factory, for example. But you purchase a home. Fundamentally, it's no different than buying a car or a computer or a boat, except that you pay for it over a much longer period of time. During bubbles, people have a tendency to look at these sorts of assets as investments. But they really are not. And this is a critical point that many people fail to see.

Having said all that, I think I should put my money where my mouth is and get my house listed.

Preventing Bubbles

Baseline Scenario touches on the Fed's newfound desire to manage asset bubbles here.

I'm a little bit skeptical of the Fed's ability to do this. They didn't seem to learn much from the dotcom and real estate bubbles.

There will always be bubbles, in the sense that, in the universe of capital allocation, there will always be some segment that is less efficient.

In other words, there will either be perfect equilibrium, or a bubble(s). So the idea that we can eliminate or prevent all bubbles is illusory.

Given that, the question before us should be how to minimize bubbles, and how to isolate their impact.

As always, I think we need to start with reducing leverage and complexity. Complexity feeds bubbles by obscuring their existence through a reduction in market information. Leverage is the mechanism by which they metastasize.

Focussing on these two problems would be a good place to start.

Monday, July 6, 2009

The Washington Post Doesn't Get it

From an NYT update on the Washington Post scandal I wrote about:

The publisher of The Washington Post apologized to the paper’s readers on Sunday after a controversy erupted over the company’s plans to organize sponsored meetings that would include Washington lobbyists, government officials and the paper’s own journalists.

The Post canceled the first of what it billed as exclusive “salons” at the home of the publisher, Katharine Weymouth, after critics accused the paper of seeking to profit from its access to members of Congress and administration officials.

Ms. Weymouth, in a letter to readers that appeared on the opinion page Sunday, wrote that “firm parameters” had not been followed in planning the events. These included having reporters and editors participate as moderators and not setting any limits on what questions they can ask.

“Our mistake was to suggest that we would hold and participate in an off-the-record dinner with journalists and power-brokers paid for by a sponsor,” she wrote.

No, Katharine, you didn't err by suggesting that you might do these things, as though you were planning something innocent and people got the wrong idea. You intentionally and consciously planned to sell access to your reporters- reporters who are supposed to be independent and adversarial. You got caught. Your newspaper is so much a part of the Washington political scene that you probably didn't even realize how obviously wrong this is, but that is not an excuse- that's a symptom of the problem. And to drive home that point,

She added that if The Post were to hold any such event, “everything would be at arm’s length — sponsors would have no control over the content of the discussions, and no special access to our journalists.”

"Arm's length?" What does that even mean?

"No special access to our journalists?" They should not be offering access to their journalists at all. Period.

So we are supposed to believe that lobbyist will pay tens of thousands of dollars to meet reporters, but, after cocktails and a long conversation by the pool about health care reform and defense contracting, these reporters will erase all memories of personal contact and go out and write stories about these people and what they do without being affected at all?

And keep in mind that this is giving them the benefit of the doubt, which they've clearly not earned. I can't think of any reason why we shouldn't assumer that The Post has made a deal whereby these lobbyists are promised favorable stories in return for cash.

Because that sure is what this looks like.

Sunday, July 5, 2009

Why The Fourth of July Bothers Me

July 4th has recently begun to bother me.

This isn't because I have a problem with a holiday that commemorates the founding of a country that has undeniably risen to a level of unprecedented prominence and power. Nor is it because it celebrates that founding as a good thing, which I believe it was.

No, the thing that's beginning to bother me is the mindless patriotic rhetoric which invariably accompanies the holiday, and the apparently complete lack of introspection, by huge segments of the population, on who, exactly, we Americans are today.

The Fourth of July is the day that we boldly proclaim our superiority to the world. "America stands for freedom!", we are told. "America is great!" We are told that we are the most free, most just, most peaceful, most equitable, most moral, richest and smartest people on the planet. Our soldiers are all heroes, and those we oppose are all terrorists. We are divinely endowed with these attributes, and charged with forcing them on the rest of the world. We believe that we are truly exceptional.

On this last point, at least, we may be correct. We are exceptional in our extremes and in our superlatives. But they aren't the ones we usually think of.

We are exceptional for imprisoning more people and at a greater rate than any other country on earth.

We are exceptional for having the largest war-making capacity in the history of mankind.

We are exceptional for our belief that the unprovoked killing of hundreds of thousands of Iraqis in their own country can be justified.

We are exceptional in our belief that it's not torture when we do it.

We are exceptional in the disparity of our wealth, and in the amount of power and wealth that we vest in an oligarchic and plutocratic elite.

We are exceptional in our position as a wealthy, industrialized nation that does not provide its citizens' health care.

We are exceptional, quite frankly, in our lack of humility. But pride, as they say, goeth before the fall.

In short, we really aren't that great any more. We've all been trained since birth, (in a way that's fundamentally not that different from how it's done in North Korea), to revere the United States, to idolize and accept it without question. But now is the time to question that- to fundamentally examine everything that we've been taught and have believed without the slightest bit of skepticism.

Ultimately, the greatness of a country is derived from the actions of its people. And if we are to become a great country, we will need to honestly and humbly examine our actions, and objectively compare them to our professed national system of beliefs. And then take action to realign the two.

I think it is the humility that will be the hardest to come by. But without the humility to admit our flaws, we will never correct them.

And maybe it's because humility seems to be in the shortest supply at this time of year that the Fourth bothers me so much.

Saturday, July 4, 2009

The Marketing Firm of Washington, Post and Weymouth

The Washington Post has been forced to cancel an event amid widespread criticism. has the full story here; and below are some highlights:


Washington Post publisher Katharine Weymouth said today she was canceling plans for an exclusive "salon" at her home where for as much as $250,000, the Post offered lobbyists and association executives off-the-record access to "those powerful few" — Obama administration officials, members of Congress, and even the paper’s own reporters and editors.

The astonishing offer was detailed in a flier circulated Wednesday to a health care lobbyist, who provided it to a reporter because the lobbyist said he felt it was a conflict for the paper to charge for access to, as the flier says, its “health care reporting and editorial staff.".......

Weymouth said the paper had planned a series of dinners with participation from the newsroom “but with parameters such that we did not in any way compromise our integrity. Sponsorship of events, like advertising in the newspaper, must be at arm's length and cannot imply control over the content or access to our journalists. At this juncture, we will not be holding the planned July dinner and we will not hold salon dinners involving the newsroom. “

"Underwriting Opportunity: An evening with the right people can alter the debate," says the one-page flier. "Underwrite and participate in this intimate and exclusive Washington Post Salon, an off-the-record dinner and discussion at the home of CEO and Publisher Katharine Weymouth. ... Bring your organization’s CEO or executive director literally to the table. Interact with key Obama administration and congressional leaders."


Just to make this clear, what the Washington Post was trying to do here was to hold an event where lobbyists would pay large sums of money to be allowed to attend a party where they could talk to reporters and editors of the paper.

In other words, reporters and editors, who are supposed to report objectively on and remain independent of the people whom they are covering, are accepting money from those people instead, and when caught, are claiming that they would not have allowed this to affect their reporting!

I'm sure this would have been news to the health insurance industry lobbyists who were supposed to pony up a quarter of a million dollars apiece for the chance to convince a Post reporter that the health of their customers is their number one priority, and that a public option will result in us all dying.

I honestly do not know how anyone could trust anything published by the Post at this point. They obviously have no integrity. They were literally planning to act as a marketing firm. I think Dan Froomkin might have quit at this point anyway.

Brian Williams and the White House Pajama Party

Dan Froomkin weighs in on NBC News at Watchdog Blog:


"What would you do if you — and your 32 camera crews — were granted unparalleled access to the White House for a day? And then you had two full hours of prime-time TV to fill?

There are many mysteries you might try to explore. How does President Obama actually make decisions? What if anything changes his mind? What blows his cool? How does he settle disputes among his advisers? Who is the last one to whisper in his ear? How does he treat his staff? How furious is the competition for his attention? Who wins? Why is he so sure, so confident, that thinking big is the solution to every problem? How do he and his staff really feel about the mess Bush left them? How does the former constitutional law professor reconcile his devotion to civil liberties with a handful of recent decisions that have horrified civil libertarians? Does he have second thoughts?

But sadly those were not the sorts of things that seemed to interest anchor Brian Williams and the more than two dozen NBC News producers responsible for the “Inside the Obama White House” special showing last night and tonight, a show that treats Obama like a celebrity rather than a president.

Part of the problem, most assuredly, was that the White House had the ultimate say in what the cameras were allowed to record, and what they weren’t. As Williams says at the show’s outset: “Our job is to show as much as we can of the inner workings, especially of the West Wing. The job of the White House is to show us what they want us to see.”


My response to Williams' idea of what his job entails is: No, no, and no! That is not your job! Your job is absolutely NOT to simply waste your time being spoon-fed tripe by the White House. You are supposed to be in an adversarial role as a high-ranking member of the press. Why are you wasting your time filming the president eating M&M's and ordering burgers? Is this really the best way that you could spend your time day?

Furthermore, your job is to find out the things that the White House DOES NOT want to show us. The White House does not need help with publicity, and if they did, then they should hire a PR firm.

Nor do I buy the argument that this is all that they would show him. This was a plum tossed Williams' way. This was the White House saying, "Let's be friends." And the problem with journalists today is that they all want to be friends with the people in power. And who wouldn't want to go to the White House for a once-in-a-lifetime opportunity? But if you have chosen a profession where you are supposed to be in an adversarial relationship with government, then you simply cannot do this.

If the White House wants to put together a video montage, showing how they would prefer to be perceived by the public, then let them do so. Let them post it on YouTube. Let them show you how much they all like candy and cuddly dogs. But do not put your seal of journalistic approval on it by producing it and slapping an NBC News logo on it.

If this was designed as test of Brian Williams' journalistic integrity, then his grade is no less than EPIC FAIL. And "journalists" wonder why the mainstream media is held in such low esteem.

Incidentally, Dan Froomkin is one of the few reporters who still takes his job seriously. He truly does consider himself as part of the adversarial press. Of course, although being one of the most popular of all the Washington Post writers, he was just fired by them for not toeing the company line, which, at the Post, means repeating whatever the current administration says without question.

Maybe Brian Williams can take Froomkin's job. He seems to be quite good at that.

Ex-Governor Palin, You are no President Nixon!

As you've probably heard, Sarah Palin is stepping down as governor of Alaska. She is reportedly doing this so she can focus on a presidential run in 2012.

What exactly is it that makes her think she is qualified to run for president?

This is not a rhetorical question. A CNN/Opinion Research poll in February showed that 29 percent of Republicans would support her as the nominee, which put her in first place among them.

What this means is that a large number of Republicans believe that the correct ideology can overcome just about any lack of experience or talent. They believe that Sarah Palin's belief system is so correct and perfect, that she can use it to make the right decisions on any matter, regardless of her knowledge of the subject at hand. In other words, she has a unified theory of the world which will direct her in any situation. Of course, any Republican could do this, but she has the advantage of being more personable and better looking than Gingrich or Cheney.

Need to know what do if Israel bombs Iran? Refer to the conservative manifesto. Or maybe the neo-conservative one. (I'm assuming she'll settle on one before the Iowa caucuses.)

What's the correct response to a global market crisis caused by unregulated derivative trading? Let's see. That's on page 3 of the 4-page Republican guide to running the universe. Page three is entitled "Economics." The only words on the page are "Free Market!" Never mind that she doesn't know what derivatives are. That's why we have a simplified guide to the world right here in our ideology! Free the markets!

How should we approach the absolute disaster that is the current war on drugs? Easy! Drugs are illegal. Therefore they are wrong. Why are they wrong? Because they are illegal! When people do illegal things, they are criminals. Criminals are a threat to freedom loving people everywhere. We have to put them all in jail!

For this subset of American voters, experience, wisdom and judgement are negatives. The world is simple; therefore nuance, and the ability to think for yourself is redundant, and, in fact dangerous. You might get it wrong. From this perspective, it was important that she resign immediately before getting tainted by too much experience for the job they want her to have.

If you think this is an unfair caricature, you haven't been paying much attention to the Republican Party lately.