Tuesday, February 16, 2010
"We're fed up with Washington! The Government can't get anything done! It apparently takes a supermajority to pass anything! Let's make sure no-one has that!"No, no, no, no, NO! For goodness sake, people, listen to what your opponents are saying instead of projecting your desires upon them. What the people who just voted a Republican into Ted Kennedy's seat are saying is this:
"We're fed up with Washington! The Government is doing things we don't like! Fortunately, it takes a supermajority to pass anything! Let's make sure the bad guys don't have that!"Not that I think the Democrats are the bad guys - I voted for them - so let's just say that this is my creative way of making the point that it's pretty darn stupid to imagine that the people who voted out the Democrats are motivated by what Democratic voters want. If you need a reminder, in general, excluding social conservative and military issues, it's Democrats who want government action and Republicans who want to stop the government from acting.
Wednesday, January 20, 2010
Today a colleague at the Search Engine that Starts With a G forwarded me a new riff on that image:
"I'm feeling watched" indeed. Apparently this cartoonist is not alone in using that image to talk about issues with Google and China, though the sense today in the picture above is far different from the sense in 2005 when it was first riffed on:
So ... are you feeling lucky today that you are allowed to read this?
Saturday, January 16, 2010
Ouch. More data here. My man John Garrison of Carolina Home Automation hooked me up with this data.
Monday, November 17, 2008
I bumped into a couple African Americans in a Safeway line the other day. All three of us were looking at a magazine cover with Barack Obama's family on the cover. As the line moved and I turned forward, one of the men behind me said, "Wow, it still hasn't hit me," and the other said, "Yeah, I know, I can't believe it either". I couldn't help but smile.
Then the first man said "Yeah, and the big thing is, it isn't the big story---" And his friend jumped in and said, "No, Proposition 8 is. And when that fails in the courts, they're going to look at it, and say, California, which is so liberal, didn't pass it twice ... so maybe that will make 'them' think twice."
I was dumbfounded, and had bought my pound cake and mouthwash and walked out of the store before I could think of an adequate comeback: "Did getting turned away from one or two schoolhouses make the civil rights movement stop? No. And this isn't going to go away either."
Monday, November 10, 2008
The election season has been difficult for all of us, but especially for conservatives that bring a rational rather than partisan approach to the table. I was speaking to a good friend tonight who's quite frustrated about how things turned out, and he mentioned how irritated he was at a demand by the ACLU that Obama close Guantanamo Bay "with the stroke of a pen".
We talked about it for a while, with things getting quite heated, but from my perspective it was clear that our differences about how to treat the enemy combatants in Guantanamo Bay were the result of real substantive disagreement on issues that were not simple, as opposed to the frothing cariactures of the right that I have often heard from those on the left.
However, there was one little quip that bugged me. When I said I voted for Obama because "McCain's choice of Palin demonstrated his values to me", my friend told me that I was "smarter than that" and that I should realize that the choice of a VP is always a bone thrown to a minority member of the party.
Well, that is one theory, but it isn't the whole story. In my recent memory, at least two Presidents have picked running mates designed to enhance their experience (Bush+Cheney, Obama+Biden), one picked them to appeal to their fan base (Bush+Quayle) and at least three picked running mates that reflected part of their values.
Yes, Palin was more conservative than McCain, and Gore was more liberal than Clinton, but both McCain and Clinton spoke louder than words by selecting someone that reflected key positions that they held: Palin is a sterling, if even heroic defender of the pro-life cause, and we all know how Gore turned out as a proponent of environmentalism.
I think the best example though is Reagan's selection of ex-CIA director Bush: to me, that was a clear reflection of the values Reagan expressed after his service on the Rockefeller Commission's review of U.S. intelligence agencies in 1975, something that arguably later reflected some of Reagan's actions in office. A VP may be designed to appeal to a group of voters, but the choice of a VP still reflects the P's values. The candidates can say a lot, but who they pick for that slot says a lot to me about what they care about and what they're likely to do.
If McCain had selected Condoleeza Rice, I would have voted for him without a second thought --- but the slice of the party McCain was reaching out to was not centrists worried about national security (and pleased to have the chance to vote for a black man or a woman or both). The slice of the party McCain picked was the religious conservative wing, a group whose influence I feel is corrupting on the entire body politic. I would feel about the same if Obama had picked an actual Communist, a group that had a similar corrupting influence on an earlier era.
And, admittedly, it's only because McCain and Obama were such a toss-up up on issues that mattered to me that could I afford to let the decision rest on the choice of the VP. When the case was more clear - as in Bush vs Dukakis - I sucked it up and voted for Bush, even though I didn't approve of Quayle.
But the candidates were very close. I did a lot of research on this campaign. I read the bios of both candidates. I researched their tax policies, the economic effects, their foreign policy stances, their decisions. I followed up on information provided by partisan friends on the left and on the right, and read sources as diverse as the National Review Online and the New Yorker. I went through the positions of both candidates with a blue pen ticking off what I did and didn't like, and they came damn near close to even. So I didn't make this decision blind, or just on the basis of Palin.
But she sure didn't help. Left or right, you're never going to win me over appealing purely to your base.
Saturday, November 08, 2008
I voted for Barack Obama; despite my long-standing desire to see John McCain become president, I didn't agree with his choice of Sarah Palin as she does not reflect my values. But I don't agree with Obama on everything either, of course, and there has been a fair amount of back and forth on The Edge mailing lists on what's good and bad about Obama's views.
But sometimes it isn't the politician's proposals that are scary; it is what the people who are allied with them believe. Recently I came across this commentary by someone more sympathetic to Obama's views than I am:
Obama raises a long-neglected concept: sacrificeNow, let me not exaggerate: what Loren Steffy is saying here is not crazy and much of it is very sensible. Even in this snippet, there are many points to agree with that have already been discussed on the Edge mailing list:
At some point, higher taxes are inevitable to bring the deficit back in line, and Obama’s plan to limit the increases to the rich aren’t likely to be enough. That is the sort of sacrifice we must make to resolve the crisis. The economy is too precarious to endure tax increases to stabilize our finances right now, and some of the ambitious programs outlined on the campaign trail will have to be sacrificed to fiscal prudence.
We must make sacrifices at the personal level, too, by reducing our use of credit and curtailing our spending, building our savings so that we are better prepared. This is a crisis spawned, in large part, by our own delusion. We wanted to believe in ever-rising stocks, in a shop-till-the-terrorists-are-defeated foreign policy and homes that were worth whatever our mortgage broker told us.
For eight years, our government borrowed to pay for wars, tax cuts and prescription drugs, while we borrowed to pay for HDTVs, iPhones and Xboxes. Buy now, pay later wasn’t just a sales pitch, it was fiscal policy. Later is now. To fix our economy we first must change our views of debt and savings.
That will take sacrifice, the one word from the president-elect’s speech that we must hear before all others. Sacrifice, after all, is the prefix for change.
- taxes can't be raised right now because it will damage the economy
- taxes should be raised when the economy is more healthy so we can balance the budget
- consumers and the government should learn to pay their own way and not skate on credit
But the attitude of "sacrifice is required" is what I find disturbing - because deep down I don't think he isn't proposing that he make a sacrifice. I seriously doubt he sees himself as one of "the rich" whom he wants to tax, or that he has an HDTV that he paid for on credit. Instead he's proposing that others make sacrifices he thinks they ought to to make the economy more healthy. As one commenter to the article said:
I agree that in tough times success often requires sacrifices. But the great concern is who will be selected to make those sacrifices, and if it isn't voluntary, is "sacrifice" really the right word? If it is only the wealthy and companies who are volunteered, then that indicates another round of partisan politics. But if ALL Americans are asked to put some skin in the game, then it will be a chance for bonding, healing, and real change.
This is why I think the language of responsibility is so more important than the language of sacrifice. Most of the issues that Steffy raises in the article have been raised by my friends in The Edge. But if both the language of "sacrifice" and the language of "responsibility" led to similar policy recommendations, why should it matter?
The problem is that sacrifice is easy in a political context, because the people who propose sacrifice rarely have to do it. One of my friends was talking about the BART expansion in glowing concerns about the jobs it will create. But who will pay for this? On another occasion I heard my friend talk about the glories of public transportation, and I know they don't have a great deal of income. So in the long run they'll gain more from being able to more quickly get to work than they'll lose in the (very modestly) increased taxes. So it's very easy to justify a sacrifice ... if you don't have any skin in the game. (Full disclosure: I voted for the BART expansion too).
Responsibility, on the other hand, never stops. I had to look at many different propositions on the ballot; none of them will raise California's taxes more than I can pay. From that perspective, I could easily say "we need to sacrifice in taxes to pay for these needed services". But I couldn't look at it that way: I had to look at the graph of the debt load of all the propositions on the ballot, and choose: which of these things can we actually afford? Yes on disaster relief, and, (based on my experiences in Japan, London, and Washington D.C.), yes on more extensive public transportation, which costs money but is AFAIK ultimately an economic lubricant. But no on everything else. Looking at the bond load over the next thirty years, I decided California couldn't afford all of it ... even if I personally was willing to make the "sacrifice".
That's why I prefer the language of responsibility over the language of sacrifice. Sacrifice is easy to make ... it's something you can do to someone else, after all. Responsibility is something you have to take on yourself.
(1) The Edge is a private group of friends, not to be confused with the Edge Foundation, even though just about everyone on the Edge would find what Edge Foundation discusses as interesting, and vice versa. Interestingly, the Edge Foundation and the Edge appear to have "officially" started at almost exactly the same time, though we didn't know about them and I'm pretty darn sure they didn't know about us.
Monday, October 27, 2008
I and a number of my friends have been arguing about Obama and McCain's financial packages ... one of them even asked, "So, which of these guys is going to win the war on pandering?"
In sum, looking at the economy as a whole:
- Spending equals income. The nation's net income - the GDP - sets the limit on the nation's net spending. The GDP is made up out of what consumers buy, governments spend, investors invest, plus our net exports (that last bit is a current net negative). This has a few corolloraries:
- If government spending goes down, the GDP goes down, and hence, so does the aggregate income of the nation. Put another way, if you lay off a cop, he buys less donuts.
- If government taxes go down, the GDP goes up, and hence, so does the aggregate income of the nation. Put another way, if you cut the cop's taxes by 10%, he buys more donuts.
- We consume less than we earn. If wages double, spending doesn't double - it goes up somewhat less. This doesn't hold for transient events like stimulus checks, which people tend to "discount" as a one time event, but it does hold for "permanent" tax cuts, which people tend to factor in to their long-term plans. If you measure this factor over the long term, it's roughly sixty percent or so, depending on how you measure it. Take that as an approximation.
- Spending changes have a multiplier effect. If the government cuts spending or raises taxes, there's a disproportionate effect that ripples through the economy. When you cut the cop's pay by 10%, he buys 6% less donuts (and other stuff), which leads the donut shop cutting its employees' hours 6%, which leads to 3.6% less other expenditures ... in total, that 10% becomes roughly a 25% hit on the economy. A tax cut of the same magnitude has a positive effect, also about 2.5x its initial value. This is also an approximation.
- Lack of liquidity increases the multiplier. If your income goes up 10%, but all of your money is tied up in long-term CDs, you can't buy that new house. If mortgages are not available, you can't buy that new house. If you don't have a credit card, you have to wait until after Christmas to buy gifts, even if your Christmas bonus is a sure thing.
The actual economic picture is MUCH more complicated than this Keynesian ideal (for example, net exports have an opposite effect, and this does not factor in investor confidence, etc), but at the 50,000 foot view, it seems like a few corolloraries in this crisis might be:
- Government services should be maintained. If the government does a radical belt-tightening or even a spending freeze relative to its current growth, there will be money in the government coffers that does not go out to the economy - and all those defense contractors, cops, social workers, civil engineers and so on that are out of work are not going to have money to spend or save, having a further impact on the economy.
- Taxes should be cut. If the government raises taxes, even for the "good" reason of being fiscally responsibile, individuals will have less money to spend or save, having a further impact on the economy.
So, shockingly, the two candidate's plans to cut taxes are not as horrible as I thought they were. I'm not completely sure about the above logic, as the economy is very complicated, but while I'm speculating I'm going to go further on a limb and try a few more ideas:
- If (if!) taxes are to be raised, perhaps they should be raised on the high end of the consumption curve. I'm not certain, but I strongly suspect that the consumption curve above is nonlinear - that the higher end of the curve flattens out, as Bill Gates and Warren Buffet do not have a million homes each. Since most of the money is on the high income end of the curve anyway, this is where you will have to raise taxes. It will hurt - don't kid yourself that it won't hurt - but it will have less impact than if you tried to get the same money out of the bottom end of the curve. (For example, at the bottom end of the curve people will go into debt rather than starve).
- A tax on consumption would directly impact the consumption curve, and should be avoided. Taxing consumption is like putting a brake on the relationship between national income and national spending - it will decrease the marginal rate of consumption (the 0.6 above) and raise the Keynesian multiplier (the 2.5 above) putting the brakes on the economy. This seems to indicate that sales taxes are a bad idea, and perhaps is bad news for the FairTax idea - the FairTax may be designed to make the system more fair, but it applies taxation to a place in the economy that will interfere with the growth of GDP. I haven't dug into the FairTax in detail, so they may have an answer which will ease my fears on this issue.
I'm not arguing here based on whether I think government should be big or small, or whether I want higher or lower taxes. I want lower taxes so I can buy more books, pay off my house more quickly, or get a new hybrid electric car; but more importantly, I want lower taxes because I think it will get the economy moving, as I've stated above. Speaking frankly, I have no desire to soak the rich: the rich pay most of our taxes (no, really) and do most of our investment upon which many of us rely for their jobs. So I don't want to make their lives harder; however, the rich have a greater ability to pay and still be able to invest and consume so if (if!) we were to raise taxes they should go up on the higher end. So based on these ideas ...
- Obama's tax cut idea is not horrible. It raises taxes on wealthy people, but overall it is a tax cut, and should stimulate the economy.
- McCain's tax cut idea is better. It lowers taxes on more people, for a larger overall total, and should stimulate the economy more.
- McCain's spending freeze is questionable. It's not a terrible idea, but it does suggest that we should focus on trying to grow the economy to the point it can pay for our services, rather than cut our services and thus stop pumping that money back into the economy.
- Obama's idea to back up states the way we are banks is not a horrible one. The biggest problem is the moral hazard it creates ... obviously all 50 states cannot do this forever, or basically we're draining our income taxes into our state budges. But if we allow governments to stop providing services, it will hurt the economy.
A few notes on things not completely covered by this model:
- McCain's mortgage plan is ... WTF? Seriously, as a friend put it recently, "if we're going to spend 700B we should think out of the box". The answer may or may not be McCain's plan, which is more complicated than my simple little model and my dime-store understanding of economics. It would save homeowners and reduce risk to lenders, which should help things ... but the moral hazard, and investment risk, worry me.
- Paulson's plan to buy into banks is ... not so bad? The capital injection into the banks, because it comes with a 5% dividend, sounds like a good idea. If the government is buying things at a steal, this could help the taxpayers.
Unfortunately, I think we are in "uncharted waters", as both the Google CEO Eric Schmidt and Google gadlfy Mark Cuban. We have a crisis of investor confidence, which has led to a severe drop in the amount of investment recently. Some bold people with liquid cash, like Warren Buffet, may make money ... unless we are on the high side of a slide down to the market losing 90% of its value, as another friend pointed out happened in the Great Depression.
In this case, larger issues that the simple Keynesian model come into play:
- Moral hazard. What kinds of behaviors do our policies enable? As one friend. has repeatedly reminded me, "if this goes on" we would keep bailing people out forever. The solution to that is to increase regulation on the bailed-out industries ... which will slow them down. So do you not bail them out ... in which case the lack of a bailout will cause a certain amount of pain. How much pain is too much pain? If we avoid bailouts and regulation, is that saying that we as a nation have to depend entirely on the market and sort of hope that maybe it will do the things we need to supply our nation with the things it needs to defend itself and maintain its global position (which in turn enables the functioning of our market)?
- Investor confidence. As investor confidence drops, the amount of money invested in the economy drops ... causing multiplicative effects as we have seen above. In recent times these "factors" have become highly nonlinear and disruptive ... so we can't predict how much investment will happen from overall effects on the GDP. We have three big variables we as a nation can use to affect the economy: how much we tax, how much we spend, and how easy it is to lend money. The third factor has gone off the rails because of investor confidence ... it is looking like we have little control of this right now, though the TED spread is getting better. The tax and spend equation is also off the rails because of our huge debt, which means that some huge percent of our government income is not directly getting fed back into the economy in terms of goods and services, but instead is being paid off as debt, sometimes to people outside this country.
If we could wave a magic wand and fix things, we'd see a country with:
- No debt, and thus not driving with the parking brake on.
- If possible, less taxation overall, which would make it easier for people to spend/invest what they have.
- If possible, less government spending in relation to GDP, which will increase the rate of growth of the economy and over time give us the revenues we need to do a wide variety of useful government programs.
- Government spending close to government income, aaaaand...
- A large cash reserve. This would be used to smooth over the rough times when we need to drop taxes or expend services to jumpstart the economy. It could also be used for bailouts or to smooth over state budgets ... money that was loaned out at strict rules and/or with high interest. Which makes you wonder ...
- Is the idea of buying in to the banks a better one than we ever realized? Should the U.S. Government become a (safe, risk-averse) investor?
Right now I'm still researching, so these are more discussion points for ideas, not proposals at this point. But my big point here is I'm not talking ideology here. I'm not saying that big government is good or bad or saying that it would be wrong to redistribute wealth or wrong to encourage dependence on government. I'm saying, economically, some things will work and some things won't. Taxing the hell out of ourselves is going to slow the economy. Cutting government spending is going to slow the economy. Running with low taxes and high spending too long is going to raise debt and slow the overall growth rate of the economy, so when we get the economy running again we need to trim spending further to raise the investment rate - even if you want to ultimately provide more government services, you have to grow the economy first or you're trying to save the world with your hands tied.
If we want to have the resources available to us to do what we want - whether we want to buy guns or butter - we need to clean out the tank, release the parking brake, and drive the country's economy in the right direction.
Saturday, October 25, 2008
A few followup thoughts on the bailout, after discussion with friends:
- Why we're in this mess:
One of my friends pointed out that the real problem was banks buying toxic debt and not being willing to sell it for pennies on the dollar; because they sold us a story that they're "too important to fail" we now have a "no banker left behind" bill. He suggested that the money should go instead to augment the short-term commercial paper market. Well, this is now happening. Maybe this guy should be my financial advisor. Another friend had a similar idea and said it reminded him of Hamilton's Bank of the United States, a 20-year experiment that was used to put the new country's fiscal system on the right track by reducing speculation and increasing private commercial investment. So there is precedent for these experiments.
- The Fate of Libertarianism:
The same friend was discussing this situation and said (in his perspective) that it was the death knell of the Libertarian party. His friend said "try living without the FDA" and pointed out the current food crisis in China as an example; he then suggested that the same thing could be said of the financial markets - perhaps the argument might be "try saving without the FDIC", or "try investing without the Fed". Maybe that could work, but you'll find plenty of libertarians who'll tell you we weren't doing pure libertarianism before (see the Community Reinvestment Act) and so it's pointless to blame libertarianism for this problem. Nevertheless, the blame game is going around, and it's been difficult for me to get to the facts because so many people examining this situation are hopelessly partisan. More in a bit.
- The Fate of Capitalism:
Another group of friends were wondering about the fate of unrestrained capitalism in the face of this situation. A fair number of Republicans agreed with them over the past few years, calling for increased regulation which didn't happen while Democrats were arguing for less regulation - an odd flip of their normal positions. George Bush is being accused of being a "big government socialist" for the bailout by conservatives and liberals are calling for more regulation. Another friend was wondering if this would lead to fundamental changes in the capitalist system, and, shortly thereafter, the U.S. government started buying shares in banks. If successful, these shares will jump-start the flow of credit and, if the bailout is successful, will win for the taxpayers. If unsuccessful, we will be in the Second Great Depression, and the loss of that $250B will be the least of our worries.
So where do I stand? Right now everyone's too partisan to think clearly: the Republicans are blaming the Democrats, the Democrats are blaming the capitalists, the libertarians are blaming the government, the bankers are looking at their shoes, and no-one's trying to look at the many Americans we were encouraging to buy homes and who are now defaulting. I don't know if everyone's so scared they're grabbing for their favorite bugaboos or whether, more cynically, they're trying to use the crisis to get their favorite policy change implemented - or perhaps both.
But what I do know is that the amount of the bailout - seven hundred billion dollars - is only around 5 percent of our current GDP. At the "worst" point of the Great Depression, 1933, the GDP fell to about 50% of its pre-Depression levels. So at worst, the bet Bernanke is making is 10% of the GDP we should expect to have if things go really south. So ask yourself: is it worth it to take 5% of your income for a year --- roughly $2300 from each American --- to invest in a business upon which you depend for 50% of your income? Of course, the question isn't that simple: what help is the $2300? what's the chance that the business will fail anyway? what's the chance you will get it back? and, really, what's the likelihood that the $2300 is going to cause your crazy uncle to do something stupid again?
So I think it is worth it as long as we do the following things with the bailout money:
- Make it accountable: We need to know where the money is going and why.
- Don't throw good money after bad: If a business is going to fail anyway, don't prop it up.
- Put the money where it is needed: Whether this is buying short-term commercial paper, propping up mortgages, buying in to central banks to give them liquidity, it should be something that really helps in a material way with our real problems.
- Don't give the money away: The stakes we are buying in banks pay a hefty dividend. It goes up if the banks don't pay us back. All our other investments should have similar incentives for the taxpayer to be paid back.
- Don't get the government in the business of business: The government encouraging banks to do things they ought not to was a key part of this mess; we don't want the government meddling in the running of these businesses because what government officials think that businesses "ought" to do often has little to do with reality of the market.
- Don't let business get away from its fiduciary duty: Business leaders and individuals taking on more risk than they should was another part of this mess. Part of the game of people running businesses as businesses without being exposed personally to the businesses losses is the fiduciary duty of the people running the business: they are responsible for being responsible with the money that they have been given. Smart regulations should be put into place to discourage financial institutions from taking on the huge risks that they did in this crisis, without taking away their flexibility to do what they need to do to keep the market moving.
In short, if we carefully use this money responsibly, we may be able to blunt the impact of this downturn; if we're even more careful in how we invest it, as we appear to have done by investing in the major banks, the taxpayers may even come out ahead. We're not out of the woods yet, but there is reason to be hopeful that the bailout can help if we hang on to our principles.
Saturday, October 04, 2008
So the bailout of the financial system passed this week. And I breathed a sigh of relief, sort of, and wondered what I would have done if that was my decision to make. I'm torn by two conflicting feelings: first, that we cannot afford to let the financial system collapse, and second, that we cannot afford to throw good money after bad.
Sometimes, of course, we have to let things die. But the overall financial system is not one of them. Financial instability is a vicious cycle: once the system becomes unstable, investors become afraid to invest money, making it hard for people and businesses to get money, causing more failures and instability. Put another way, Main Street depends on the jobs provided by businesses that depend on Wall Street's ability to lend money.
As I understand it, currently many businesses large and small depend on short-term loans for everything from operating capital to pay for stock in their warehouses to emergency funds to pay for the roof busted in last month's storm. They get this money from banks, who in turn get that money from you and me; they pay these loans back with interest, which the banks shave off as their cut before paying you and me our interest.
But banks right now are afraid to lend money, because so many banks, funds and businesses have recently collapsed. On paper, the banks have enough assets to loan out, just the same way as the average American with a decent-priced home has enough assets to buy a Lamborghini. However, most Americans can't buy a Lamborghini at the drop of a hat, even if they wanted to, because their wealth is tied up in longterm IRAs or CDs or in stocks which have dropped or homes with heavy mortgages. SO on paper you have the money to spend on a midlife crisismobile, but in practice you don't.
The technical term for this is illiquidity, which is just a fancy way of saying that have wealth on paper, but can't turn it into money without incurring terrible losses. A lot of banks are in precisely this situation: they want to loan money to a potential new homeowner or to a businessman trying to repair his roof, but their money is all tied up in investments they can't move without losing big --- in this case, mortgage-backed securities.
These "mortgage backed securities" arose because over the past several years housing prices were going up and up, and the government encouraged banks to make loans to people who traditionally were at higher risk than normal. These so-called subprime mortgages were packaged up into "investment vehicles" and "sold off" --- essentially meaning the banks that made the loans sold the rights to the interest that the mortgages would make to other people. That was a good deal while the economy was great because people were paying their mortgages or trading up to better homes. Then the economy started to stall and the housing bubble burst ... and suddenly people aren't making those payments.
This led to a "liquidity crisis" which is just another big fancy word for "runs on the banks". Perfectly good banks with great track records and billions of dollars on their books that hit a few rocky patches suddenly saw their money dry up in a number of weeks, leaving them with large short-term debts which in theory they could easily pay off ... except they couldn't move their mortage-backed securities. One bank failed after the other and in the end banks got afraid to loan money to anyone.
So the point of the bailout: those mortgage backed securities are not actually worthless. If the economy gets back on its feet (which, eventually, it almost certainly will) and home prices start to rise again (which, eventually, they almost certainly will), some huge percentage of those securities will pay off. It's just a long waiting game, a game which banks can't play because they're constantly lending and spending, but which the government can play, because of its deeper pocketbooks and constant source of real income from taxpayers. So the theory behind the bailout is, the government will buy those illiquid securities, allowing Wall Street to start lending money again, so business owners can stay in business, and Main Street can keep its jobs.
Which goes to my second concern, throwing good money after bad. Our civilization has experienced Dark Ages. Our country has experienced a Great Depression. What if we go through ten or twenty years of economic depression, and most of those mortgage backed securities are essentially worthless? That's over two thousand dollars out of the pocket of every taxpayer, another $700B on top of our $10T debt. Or, worse, what if the problems in our economic system are more systemic, and other banks are about to fail for other reasons? We might need that $700B for something else.
So, as I understand it, the bailout is needed. But, as I understand it, the bailout is risky. So what would I do if I was in charge? Well, here are a few rough ideas:
- First, go before the American people, and explain in clear terms what we are doing. Main Street's jobs depend on Wall Street's ability to lend money to businesses, but that's crippled right now because Wall Street tied up a lot of money in mortgages Main Street is having trouble repaying in this weak economy after the housing bubble burst. If the government takes over those loans, banks can start lending money again to keep business doors open and paychecks flowing, ultimately paying off those loans so that the government (and the taxpayer) is paid off for its investment.
- Second, demand oversight and accountability. This is seven hundred billion dollars we're talking about here. That's a year and a half's worth of defense spending, or almost enough to pay for the fireworks at the opening ceremonies of the Beijing Olympics. The original version of this plan gave massive powers to Treasury Secretary Paulson and made his actions immune to court challenge. That's a non-starter --- we understand the need for swift action, but it should be open, transparent, and if necessary subject to legal challenges.
- Third, demand foresight and forebearance. A necessary step in this process is to not just review the needs of the banks with mortgage backed securities, but to look at the health of the entire financial industry and to make sure there are no other trees that are rotted to the core and about to fall down. If other big problems are discovered, Secretary Paulson should have the authority to delay or defer spending that money and should go back to Congress if need be to ensure he has the right to apply this money where needed.
- Fourth, think outside the box. Could this money be applied in other ways? Could we take $70B of the $700B and use it to help homeowners who face foreclosures? I understand that homeowners taking on responsibilities they weren't prepared to handle helped cause this, but the banks are also to blame for lending the money. If we make it possible for the homeowners to pay off the banks ... how does that hurt the banks?
Some people have decried the culture of greed and called to make sure that none of this money goes into CEO's parachutes. I empathize with that but ultimately don't understand it. The problem here wasn't greed --- it was risk. We want people to be "greedy" in the sense we want them to take actions that benefit themselves --- to make a profit, in short. But in business you have what's called a "fiduciary duty" to make sound decisions for your shareholders. Some of the people who are involved in this really fucked up --- be they homeowners who got too big for their britches or CEOs who chomped one too many expensive cigars. But many other people played by the rules and then got caught by extraordinary circumstances.
Like a response to a hurricane, we need to come in and help the survivors without recriminations --- and then make sure that when it is time to rebuild we don't encourage people to put themselves at risk.
Monday, September 15, 2008
I'm not in the market to sell my home, but thanks to the site Zillow I have a rough gauge of how my home is doing on the market. In the first year that I owned my home, I have reason to believe it appreciated between 1% and 2% of its value. More recently ... that's started to change for the worst.
Two months ago, according to Zillow's "zestimate", it had dropped 2% of its value.
Two days ago, it had dropped 10% of its value.
Today, it has dropped an additional 1% of its value.
Fun fun fun! I see "not moving anytime soon" in my immediate (and not-so-immediate) future.
Tuesday, September 13, 2005
Mayor Ray Nagin urged people to cross a bridge leading to the dry lands of the city's suburban west bank ... [but] evacuees who tried that route ... were met by police with shotguns who refused to allow them into Gretna, a nearby town on the other side.
We're not talking about refugees from a faraway land, desperately trying to reach the land of opportunity on leaky boats. Never mind why were we trying to stop them; these are our people. And our government has locked them in a box without food and water, refused to let them leave, and refused to let anyone deliver help.
It's time for a change. It's time to throw the bums out. And I don't mean the Republicans - I mean anyone in our current government who thinks that their high position means that they're "in charge" and they get to "make the decisions".
Well, you don't. We do not live in a dictatorship; we live in a democracy. You are not the owner of the organizations you control: you are their stewards. You are accountable to the people and the situations we live in as they're actuallly happening, NOT to some idealized image of what world you'd like us to live in. We have to break the hold that "one king rule" thinking has on our publically accountable institutions.
DO as you wish with your own stuff. If this was your house, or your personal business, or your wardrobe, you'd be well within your rights to make whatever stupid decision that you wanted, and to deal with the tragedy that resulted.
But government is not personal business; heck, even business isn't business: the leader of a corporation isn't an "owner in charge" but a hired hand beholden to the shareholder's fiduciary interests. Our businesses all too often forget this, imagining that managers need only pay lip service to their duty; the leaders of our governments cannot be allowed to forget this, as lip service is not clearly not cutting it.
Leaders! Only through some magical thinking could you imagine that it's acceptable for police could turn away refugees from a disaster, or that somehow providing relief services would make things worse. And we've had quite enough of magical thinking, thank you.
We've loaned you your power.
And now we're going to take it back.
Thursday, September 01, 2005
"On another note: I've just been told that we're being monitored in Iraq! To all the troops there, from one soldier to another, we're hanging tough here and you hang tough too. No matter what you're hearing, we love you guys and want you to know that we know how hard you've got it. Stay strong! "
That's right ... with corpses in the streets, dodging gunfire, keeping his blog running on diesel fuel, the Interdictor takes time to shout out to our soldiers in Iraq to let them know "how hard they've got it." And you know what? The soldiers in Iraq sure do have it hard ... but it takes a hell of a human to stand up and say so while his own world has collapsed into armageddon.
More power to you, man.