Conspicuous Musings

Most Interesting Timing

2011-12-14T20:02:00.000-05:00

The mortgage settlement being worked on between nearly all state attorney generals and the five largest mortgage services is coming to the close. As pointed out on Naked Capitalism here, here, and here this settlement is looking like a slap on the wrist for the servicers with an extra helping of moral hazard. The state is absolving them of further liability and prosecution. This stinks of more state shielding of [bankers, bond holders, unions] with large bailouts, little consumer relief and no criminal investigations.

How many prosecutions have there been during this entire crisis? Subpoenas?

Most interesting is the timing of the settlement - before Christmas. The best way to give bad news is to do it before a holiday when it will get forgotten. That is Public Relations 101 - give the bad news when nobody will notice it.

I expect to see the settlement next Wednesday or Thursday of next week.

Further Reading:
Calculated Risk
Mish's Global Economic Trends Analysis

Obama Failed Math

2011-09-10T09:57:00.000-04:00

Obama proposes to spend 3% of GDP to get a 2% boost - no thank you.

Obama's big jobs plan, according to economists at Goldman, Moody's, and JPMorgan, will boost GDP 2%. What happened to the 1.5 multiplier in the 2009 mega stimulus, which never materialized. The 2009 plan projected further that unemployment would not go over 8% with the ARRA. Notice the bold claims from the administration are not quite so specific. Expect to hear the stories of roads to nowhere, pet projects, programs that cost $400,000 per job, and an unemployment rate that does not go down to the claimed 7%. This program will NOT create 1.9 million jobs and unemployment will go up when labor force participation is factored in.

Government jobs plans don't materially create jobs on net. This plan spends over 3% of GDP to get a hoped for 2% GDP boost – there is no money back guarantee. We are borrowing the economy toward insolvency. The ability to print money does not change this.

References:

Bloomberg Article

Greek Bonds

2011-09-08T11:49:00.000-04:00

Greek bonds are priced in expected recovery - not a borrowing rate.

Here is a 3 year chart of 1yr Greek Government Bonds:

Whither thy Euro?

Giant Phillipine Salty

2011-09-06T22:46:00.000-04:00

Video of a very large salt water crocodile captured alive in the Phillipines

State Insurance Subsidies for the Wealthy

2011-08-24T22:06:00.000-04:00

North Carolina and other states create a situation where private insurance are disallowed to charge rates commensurate with coastal property risk. With the rate restrictions, the insurance companies stop issuing policies since it is a huge liability. To supplant private insurance, NC and other states step in as the insurance provider of last (only) resort. The state provides below cost risk, backed by taxpayers, to coastal property owners. The state, being the rule maker, creates reserves that will likely prove inadequate in a bad year.

The outcome is to subsidize risk by lowering the cost of ownership thus creating moral hazard. With the artificially reduced rates, more people are encouraged to develop coastal properties. This means the taxpayers are on the hook for ever bigger payouts. According to the Wall Street Journal article below, these taxpayer backed policies are up 82% since 2005. Homeowners and taxpayers far from the coast and damage pay to rebuild, generally wealthy property owners, beachfront vacation homes.

Here is a quote from this article

Homeowners insured through companies other than the Beach Plan would have to bail out the Beach Plan only if a "one-in-134-year" storm hits, officials estimate.

Still, critics say the worst-case scenarios underscore deeper problems with insurers of last resort. Many of the pools are in the same uncomfortable spot as North Carolina, with capital cushions that could be wiped out by one mega-storm, or several midsize ones.

In addition, by trying to keep rates affordable for homeowners, the last-resort insurers help fuel coastal development that puts homeowners across the state at financial risk, some critics say.

Recoveryless Recovery

2011-07-31T10:14:00.000-04:00

Last week's Q2 and Q1 GDP were, in a word, ugly. We appear to be in a recoveryless recovery. Below a chart from Calculated Risk highlighting unemployment compared to other recessions going back to 1948.

David Rosenberg of Gluskin Sheff & Associates, predicts a 99% chance of recession by 2012. He left the 1% margin for wiggle room. This is a balance sheet recession and he views this more of a continuation of the recession absent the massive fiscal stimulus covering up the downturn. Watch David here.

Linux to Mac Using AFP

2011-07-24T18:14:00.000-04:00

I needed to move many files from my Fedora 14 Linux machine to my iMac. Samba, also known as SMB or Windows File Sharing, was being difficult trying to connect from Fedora to my iMac. The solution it seemed was to use AFP (Apple Filing Protocol). By default Fedora does not appear to have this enabled. So off to Google to find the answers.

First, I found that Linux supports AFP. On Fedora 14, it involves three utilities/services, netatalk, avahi, and afpd. To install these services, perform the following commands. I expect you have sudo or su access and know how yum works.

sudo yum install avahi netatalk

Once yum installs those packages you must configure the services.

Add the following to the end of your /etc/netatalk/afpd.conf file:
- -tcp -noddp -uamlist uams_randnum.so,uams_dhx.so,uams_dhx2.so -nosavepassword -advertise_ssh

Next, edit /etc/netatalk/netatalk.conf to ensure proper configuration. The following values need to be set:

ATALKD_RUN=no
PAPD_RUN=no
TIMELORD_RUN=no
A2BOOT_RUN=no
CNID_METAD_RUN=yes
AFPD_RUN=yes

To configure sharing of folders edit the AppleVolumes.default file. For example to configure the sharing of a folder named "Pictures" in the user Tom's home directory (/home/tom/Pictures) add the following line to AppleVolumes.default:

/home/tom/Pictures allow:tom rwlist:tom options:usedots,upriv

The AppleVolumes.default, as well as the other files mentioned, is well documented regarding options and settings.

Apple's Bonjour service is called mDNS on Fedora. To configure mDNS by defining a service for Avahi by creating the file /etc/avahi/services/afpd.service:

<?xml version="1.0" standalone='no'?>
<!DOCTYPE service-group SYSTEM "avahi-service.dtd">
<service-group>
<name replace-wildcards="yes">%h Xserve</name>
<service>
<type>_afpovertcp._tcp</type>
<port>548</port>
</service>
<service>
<type>_device-info._tcp</type>
<port>0</port>
<txt-record>model=Xserve</txt-record>
</service>
</service-group>

Then add mDNS to the hosts: line:
hosts: files mdns mdns4_minimal [NOTFOUND=return] dns
Configure the services for system startup with the following:

#chkconfig netatalk on
#chkconfig avahi-daemon on

Start the services:

#service netatalk start
#service avahi-daemon start

If either was already running change "start" above to "restart".

Open firewall ports 548 tcp to allow connections. Run "nbplkup" to ensure the Netatalk service is running. For me it displayed nothing although others have gotten the following:

"localhost:AFPServer"                         65280.31:128
"localhost:netatalk"                          65280.31:4
"localhost:Workstation"                       65280.31:4

References

Eurozone in Debt Crisis

2011-07-03T22:51:00.000-04:00

Reuters has some beautiful charts and graphics on the Eurozone Debt Crisis. Hava a look.

Hat tip to Kathy Lien

Bicycle

2011-07-03T22:43:00.000-04:00

Most would say you should not, some try, and a few make it look easy. This is one of the few.

Killing Mac Defender

2011-05-23T19:18:00.000-04:00

Mac Defender (and Mac Protector) is malware it is not a virus familiar to most Windows users. It is installed only with the approval (usually through artifice) of the user. Mac Defender is successful in that it has achieved a bit of social engineering and that is about it. Ask anyone who has had to remove a windows virus. That process can take many, many hours and an in-depth understanding of many aspects of the Windows operating system. Even expert users may submit and resort to familiar "format and re-install".

To stop the Mac Defender malware you simply close the application and delete the ".app" from the applications folder and either restart or logout and login.

Be safe kids and don't install stuff just because your friendly web page banner ad says you need to or it is free.

CDC Zombie Preparedness

2011-05-19T13:54:00.000-04:00

Prepare for the zombies! The CDC has a preparedness page for when zombies attach.

http://emergency.cdc.gov/socialmedia/zombies_blog.asp

No Love on Valentine's Day [MERS]

2011-02-14T17:24:00.000-05:00

So MERS cannot act as an agent of the banks in mortgage transfers on Bloomberg.

Merscorp Inc., operator of the electronic-registration system that contains about half of all U.S. home mortgages, has no right to transfer the mortgages under its membership rules, a judge said.

MERS holds about 50% of all residential mortgages in the US so the impact is non-trivial. This is bad timing because, according to Case-Shiller, housing is starting to turn negative again. The Case-Shiller Index is a very lagging indicator so price depreciation is probably further along than indicated in the index.

Business Unfriendly Government

2011-02-12T20:21:00.000-05:00

Seahawk Drilling has filed for bankruptcy protection. Seahawk is an offshore oil and gas service and drilling company working in the Gulf of Mexico. They do not do deep water drilling. In fact, they specialize in contract drilling and exploration of depths up to 300ft. Seahawk employs 494 people and many jobs may be lost.

The reason for the filing:

Houston-based Seahawk said it's been hurt by a slowdown in Gulf of Mexico drilling following the BP oil spill last April. The government has imposed tough new rules and standards that have sharply slowed offshore drilling.

Read more: Seahawk Drilling

The impact is being felt thanks to the heavy hand of a government moratorium on all drilling in the Gulf. A ban that has landed the Obama Administration's Interior Department in contempt of court for failing to rescind the moratorium. The Interior Department continues a de facto ban by failing to approve any new projects. The insult in all of this is the Interior Department, read taxpayers, are required to pay the legal fees of the group that brought the suit. The outcome of the (implicit) moratorium will be even more dependence on foreign oil and the exit of valuable capital and expertise to other countries.

This is the problem when your funding is other people's money. Ignoring a judge's order by any private company risks that organizations' own capital - their choice, at their peril. Wasting taxpayer money is not acceptable but is beginning to be a pattern of behavior with the current administration. The administration continues to push forward with ObamaCare after being struck down in Federal Court (see references) as well.

References:
Bankruptcy
http://www.newsobserver.com/2011/02/12/985468/summary-box-seahawk-drilling-seeks.html
Contempt on Moratorium
http://www.bloomberg.com/news/2011-02-03/u-s-administration-in-contempt-over-gulf-drill-ban-judge-rules.html
Ignoring Ruling on ObamaCare
http://www.csmonitor.com/USA/Justice/2011/0131/White-House-vows-to-implement-health-care-reform-despite-judge-s-ruling.

2011-01-24T17:46:00.000-05:00

From an article on WebMD I would re-word this:

The costs of treating heart disease are expected to triple by the year 2030, creating an “enormous financial burden” for millions of Americans, the American Heart Association says in a new policy statement.

To this:

The costs of treating heart disease are expected to triple by the year 2030, creating an “enormous financial burden” for millions of Americans, many of whom don't even have heart disease, the American Heart Association says in a new policy statement.

Since we are trying to shift the cost of care from the individual to the taxpayer.

Still Want a CFL?

2010-12-31T12:13:00.000-05:00

The EPA has updated cleanup guidelines for broken CFL bulbs in a house. Considering that incandescent light bulbs are soon to be banned and LEDs are less than compelling at this point you may want to stock up. The nasty part of the mercury in the CFLs is an inhaleable form that is released when a CFL breaks. Respiratory inhalation of mercury in any amount is not good regardless of what the EPA or other pro-CFL groups present.

Mercury has long term negative physiological effects.

In humans, approximately 80% of inhaled mercury vapor is absorbed via the respiratory tract where it enters the circulatory system and is distributed throughout the body.[16] Chronic exposure by inhalation, even at low concentrations in the range 0.7–42 μg/m3, has been shown in case control studies to cause effects such as tremors, impaired cognitive skills, and sleep disturbance in workers.

Here are some highlights for cleaning broken CFL bulbs.

Open a window and leave the area
Turn off the HVAC for several hours

I recommend you read the document below as it is informative and very short.

cflcleanup -

Fannie Creates Moral Hazard

2010-12-27T22:34:00.000-05:00

According to Bloomberg today Ally Financial, Inc. and Fannie Mae have settled on repurchase claims from Fannie in the amount of $292 BILLION for a hefty fine of $492 million.

Ally Financial Inc., the auto and home lender majority owned by the U.S. government, said its mortgage unit reached a $462 million settlement to resolve repurchase claims by Fannie Mae on $292 billion in home loans.

Excuse me, but a fine that low is insulting. Let's tell originators to go ahead and take the chance with shoddy paper - even if you get caught you'll only get a minor slap on the wrist. Where are the subpoenas? What about an appropriate level of penalty for the problem? Why can't we charge people in the financial industry for creating paper that had to be knowingly fraudulent?

Turning to "Why" points to the fact that Ally wants to have a share sale. Well we can't have a sale when there are major questions about put-backs. No problem, we'll have the government controlled mortgage backer basically give a pass to the government owned/backed mortgage originator. Great, we have now made sure that bankers get to take excessive risks (again) and possibly even commit fraud. Based on this the penalties would seem to say take the chance.

Normally I worry about government policies and the unintended consequences. This appears to just stupid policy.

Why Mass Transit Isn't Better

2010-11-28T11:48:00.000-05:00

"Airline travel has become nearly as energy efficient as Amtrak." From the Coyote Blog.

The report linked in his post is from the Department of Energy and is 385 pages. It is very interesting because it shows that energy intensity (BTUs per passenger mile) for buses is decreasing while passenger cars are getting better. If the trend continues it will be less energy intensive for vehicle travel. This is not surprising and does not take into account the economic loses of inflexible routes and the schedule costs versus on-demand travel for an automobile.

The beneficial claims of rail efficiency and high-speed rail in particular are very suspect from the information report. Airline efficiency is encroaching on rail efficiency and, again, if the trend continues the energy benefits of air travel may exceed rail travel. Rail will never replace longer trips across the country. I don't intend to spend four days of a seven day vacation traveling by rail just from Detroit to Washington, D.C. - ignoring the insane prices as well. Business travelers will surely not travel more than a few hours by rail even with the kabuki theatre we call the TSA.

Rail has economic losses besides energy intensity. Rail can work but show me it works without subsidy. Amtrak has some very successful lines in the Northeast that would survive unsubsidized. Rail is more inflexible once the high speed routes are established. Business and industry shift geographically over time. The rust belt (note the name) once was the economic engine of the United States. Now different industries in different regions are our economic drivers. There is no reasonable way high-speed rail would substantially supplant air travel for vacationers nor business travelers. Federal rail initiatives will be an expensive long-term subsidized boondoggle that will cost the taxpayers dearly.

Quote of the Day

2010-11-26T16:10:00.000-05:00

If You're Not Paying for It; You're the Product

Hat Tip: Lifehacker

Famous Last Words

2010-11-26T16:06:00.000-05:00

Regarding the sovereign debt crisis that appears to be heading away from Ireland towards Spain with a stopover in Portugal.

From Portugal we from the Financial Times:

Portugal has denied as "totally false" reports that it is under pressure ... to request an international financial bail-out.

And also from the Financial Times we are told by Spain:

Jose Luis Rodriguez Zapatero, Spanish prime minister, on Friday ruled out any rescue package for the country ... "I should warn those investors who are short selling Spain that they are going to be wrong and will go against there own interests," Mr. Zapatero said

For a refresher below are some other not so prescient quotes.

First we have Ireland and this quote from the Irish Times:

Asked about the four-year plan, Mr Cowen said: “In coming weeks it will be finalised and then we will deal with it, and then we’ll have the budget”.

Asked to comment on reports, citing eurozone sources, that negotiations were going on behind the scenes for emergency funding for Ireland from the EU, he said: “We have made no application whatever for funding.

And that was November 13th, 2010. About a week before bail-out talks were admitted.

Then we had these quotes on January 29th 2010 from Business Week:

European Union policy makers have no “plan B” to help Greece, the bloc’s top economic official said, and Greek Finance Minister George Papaconstantinou said he’s not aware of talks of a possible rescue.

and this gem, while still true is unlikely to last.

“There is no bailout problem,” Monetary Affairs Commissioner Joaquin Almunia said today in an interview with Bloomberg Television at the World Economic Forum’s annual meeting in Davos, Switzerland. “Greece will not default. In the euro area, default does not exist.”

In the not so distant future that comment will leave a mark.

Moving to this side of the pond we have Dick Fuld's "I'm gonna burn the shorts" comment on CNBC before Lehman Brothers blow up.

New Light Bulb Technology

2010-11-23T09:38:00.000-05:00

There is a new threat to CFL bulbs besides LED. It is call Electron Stimulated Luminescence or ESL for short. It recently got UL Laboratories approval and could be on sale in the US in early 2011. This technology appears to have a lot of benefits.
- No mercury or disposal problems
- Long life
- Dimmer support from standard dimmers
- Cheaper than LED solutions

Have a look at VU1 Corporation's website. I expect to be an early adopter. I hate those CFLs and LEDs are still quite expensive.

Currency War

2010-10-14T16:47:00.003-04:00

So as we debase our currency we are holding China to account for basically offsetting our devaluations. If China devalues just to keep level with the US dollar is their fault and the US is blameless?

Currency Devaluation Non-Solution

2010-10-14T11:00:00.003-04:00

On the October 13th "Breakfast with Dave", David Rosenberg correctly points out that currency revaluation by the Chinese will not likely have the outcome desired.

Since 1985, dollar-yen has sunk nearly 70% and yet the US has the same bilateral deficit with Japan today as it had then. So why does everyone think that a Chinese revaluation will necessarily clear out any perceived imbalances? Maybe if U.S. policy encouraged thrift over asset-based consumption growth, these trade imbalances would dissipate more quickly.

Voting is Not the Will of the People

2010-10-12T00:34:00.002-04:00

Imagine four people choosing three types of fruit from a menu. They decide to be democratic and vote. If 2 people like bananas and each of the other participants choose an apple and pear then, accordingly, the will of the people will be to eat bananas for this meal. For the two people who did not get their primary choice - the will of the people is not so great. Voting for a politician is very similar. One side wins and claims "the will of the people" therefore it is just.

Additionally, this type of voting does not reflect intensity of desire. If the two people causing the majority like bananas slightly more than the other two fruits, they would have been content with any choice. Further, what if the two people left out despise bananas and adore their respective choices? As we see in voting the will of the people is not always reflective of intensity of desire.

Democratic voting is preferable than a dictatorial situation but I present this for educational purposes. With the election coming up - regardless of who wins it will not be the will of the people.

The Tennessee Municipal Fiasco Applied

2010-10-12T00:04:00.004-04:00

There was a recent problem in Tennessee where to have municipal fire service you must pay a $75 annual fee. A man did not pay his fee and the fire department did not put out the fire even though they arrived on scene and the victim offered to pay (at least the $75). Put aside for this conversation he had pets in the house. This was not a free market failure. I don't know too many businesses that would, in a non-monopoly position, would refuse to extinguish the fire. This was a municipal policy failure. As an aside, the quick fix would be that the fire department in this case would put out the fire but for a unsubsidised price of $5000 or cost which ever is lower. That was not a choice in this situation which I find odd.

Suffice it to say that Krugman, et. al. have said what a horrible society we would have if the above fire department policy was in practice more broadly. To some degree I agree and feel content to pay taxes to provide municipal fire and police but that is for each municipal entity to define.

For a thought experiment, let us say that not only could you not insure for the $75 payment after the fact. Presume also that a home owner could not hire and pay the cost of the fire department services in the event of a fire. Now imagine a situation where you could not hire a different department to extinguish the fire nor attempt to resolve the problem amongst neighbours by law with penalty of fine and/or incarceration - even if equipped with both knowledge and equipment. Finally, even if health or life could be in danger, alternative means of handling the fire would be illegal.

Would not that be an even more horrible society than what many critics of the Tennessee municipality claim?

Readers from Canada may recognize this as their single-payer health care system. The single payer system can actually act to bar a person from alternative or paid medical care by force of law. The analogy is not perfect but the flaw is not that you can pre-pay but that while you have coverage demand exceeds supply and thus causing queuing with mechanism to equalize. It is a system that actively prevents the resolution of the supply/demand imbalance.

Hat tip: David Henderson for the clarity http://econlog.econlib.org/archives/2010/10/krugman_tenness.html

The Paperwork Problem

2010-10-10T10:16:00.004-04:00

The banks and services have filed 10's of thousands of affidavits regarding loan documentation, etc and apparently with some fraudulent documentation. What the CNBCs and CNNs have mis-characterized as paper work problems are completely wrong. There is also an incorrect belief by analysts and delinquent mortgage holders will lead to free houses. In a few cases maybe but in general these home owners are severely delinquent and the house will be foreclosed unless it cures - who has standing in the foreclosure is not clear currently. This is a problem where the holders of the mortgage backed security may be able to unwind the contracts and "put back" the securities and the IRS may be looking for some money from improperly conveyed REMICs that normally allow for tax pass through when legal and proper.

Regarding the "paperwork" problem, this is a comment from a reader named "Ella" on the Naked Capitalism blog regarding affidavits.

Affidavits, perjury and fraud on the court.
An affidavit is a legal document which can substitute for live witness testimony in court. All testimony in court is governed by the rules of evidence or by statute. All testimony requires that the witness swears to tell the truth, is competent and has personal knowledge of the facts they are testifying about. An affidavit is no different, in most if not all jurisdiction, the affiant swears to tell the truth by being placed under oath by the notary, the affiant states in the affidavit that they were sworn, are competent and that they have personal knowledge of the facts in the affidavit. The notary attests to the oath of the affiant and that the affiant is who they claim to be.

If a witness lies in court or in an affidavit then they could be charged with perjury. Perjury is lying to the court.

The affidavit issue is being portrayed in the MSM at a paper work problem. Lying to the court is not a paper work problem. Attorneys are prohibited from making a material misrepresentation to the court of fact or law. Further, attorneys in most jurisdictions have an affirmative duty to report known perjury by their clients to the court.

The problem with the affidavits is perjury on behalf of the affiants and possibly the notaries depending on the notaries’ knowledge that the affiants had not reviewed the files, the promissory notes, the mortgages, or the records of default.

Further, you can reasonably argue that the entities pursuing foreclosure (banks or servicers) have perpetrated a fraud on the court by submitting perjured affidavits. If the attorneys representing the entities have knowledge of the fraud or are preparing questionable documents then they may also be involved and subject to penalties.

At the heart of any trial or hearing is the determination of the truth of the matter. It is the very purpose of the rules of evidence and what law and fact is presented to the court. If the affiants lied, as it appears, then the truth of whether they owned the note and held the mortgage and the borrower was in default is at issue. Courts, Attorneys General, and bar associations need to serious consider actions that will assure compliance with the rule of law.

This country cannot stand as a democracy if there is one set of law for the banks, corps, elites and another set of law for the rest of us. Perjury and fraud on the court is very serious matter. It is not a mere paper work problem.

What are the impacts going to be?

Banks are going to have a lot to write down

Bank earnings and stock prices will take a big hit

State budgets will be impacted due to the likely pause in foreclosures (no taxes paid by delinquents)

Short term home inventories may look better as distressed properties don't come to market

Longer term there is going to be a surge in inventories and an offsetting drop in prices when the foreclosures do clear - the housing downturn is not going to be over for a few more years.

Current foreclosure sales are going to fall through reducing near term home sales

Some lawyers are going to make out from all this very well on both sides of the problem

We Don't Need No Stinking QE

2010-08-21T11:35:00.002-04:00

David Merkel over at The Aleph Blog explains the quandary created by quantitative easing (QE) and the negative impact on yield seeking investors. Here is a sample.

QE leaves investors in an awkward spot. There are no safe places to place money with any yield. So, you can earn zero, or take risks that seem uneconomic to gain yield. Almost makes me want to be a trader, because there is little logic to where I invest. There is no obvious place for me to invest.

If the government thinks that QE will force investors to invest, I have news for them — yes, some will take more risks, but they will lose through their investing. Risky assets are only good at a fair or fear price, not at one dragged low by QE. Trying to tweak our psyche as a whole is ridiculous, and deserves only scorn by voters and investors.

Ben Bernanke take your hand of the print button and then go back and start your dissertation over with what you have learned in the last few years.

Rent Seeking

2010-07-05T12:59:00.002-04:00

At Kids Prefer Cheese Blog Mike Munger (yes NC gubernatorial candidate) provides a great concise definition of rent seeking.

In private markets you can only make money if you produce something other people value.

But in the presence of artificial rents like this drug enforcement subsidy, the link between "make money" and "produce something of value" is broken. It is an artificial rent. And the resources devoted to seeking the rent, to the extent that such resources are taken away from other useful purposes (preventing property crimes, protecting citizens) are wasted.

Rent-seeking isn't really about the rent, which is a transfer. The cost of rent-seeking is the wasted resources devoted to capturing the rent.

Emphasis mine.

Monstrously Dumb

2010-05-21T13:56:00.004-04:00

An interesting post over at The Aleph Blog on FED policy actions.

The Fed always delays trouble in the modern era. Slow to tighten, quick to loosen. No wonder that we built up a mountain of debt, because the Fed would always ride to the rescue of crises, but never let the pain settle in that would liquidate poor investments.

We need fewer banks, fewer homebuilders, and fewer auto companies. But guess what we bailed out? We bailed out the very things that were the least productive in our economy, and taxed those more productive to do so. Monstrously dumb.

Extremely Over Stimulated

2010-03-14T16:16:00.003-04:00

An interesting post over at The Economics of Oil Empire and Peak Oil pointing out that extreme government borrowing only gives the appearance of economic growth.

Thus, properly perceived, the private sector of the US economy is not growing and cannot grow with the price of oil above $40-$60. Gov't deficits of 10%+ of GDP (and 5-6% less the decline in receipts) merely give the appearance that the overall GDP is no longer contracting, whereas the private sector continues contracting yoy at a rate which occurred during the worst recessions of the 20th century.

A "double dip" for the US private sector will likely occur from a growth rate at or below zero.

My hope is that the government cuts spending, reduces "entitlements", and consumers de-leverage as orderly as possible as soon as possible. Then we can borrow again.

BFF

2010-03-05T18:39:00.003-05:00

Bank Failure Friday (BFF) is where the FDIC shuts down banks due to violations of regulatory capital requirements. The bank is unable to honor its liabilities (your deposits) and its assets are given to another more solid bank with funds to cover the losses from the FDIC's Deposit Insurance Fund.

Even though the rate of failures is increasing the loss rate appears to be diminishing. Losses in excess of 30% were not uncommon meaning the bank was allowed to be severely broken before action was taken. Recent weeks, however, have losses to the FDIC falling below 25%. Sun American Bank in Boca Raton, FL, for instance, was seized today with $535M in assets and cost to the FDIC deposit insurance fund of $105M. Less than 20%. This is good news. The FDIC is taking prompt corrective action and following its mandate and insuring the safety of customer deposits.

iPad Pro

2010-02-02T10:03:00.003-05:00

With speculation beginning on an iMac Touch and now on a Mac OS-X version of the iPad I'll throw my bet out there.

My hunch is we'll see the OS-X iPad in the fall refresh and expect it to be called the iPad Pro. It will have a larger screen, faster processor, at least one camera.

Time will tell.

Build America Bond Program

2010-01-31T14:13:00.003-05:00

The Obama Administration is providing a further tacit bailout of the states and the guaranteeing of more debt by the federal government and thus the tax payers. Bloomberg indicates that the administration is seeking to extend and expand the Build America Bond Program indefinitely. It was to end this year.

Sadly the taxpayer is on the hook for ever more debt while increasing the level of moral hazard. As Bastiat wrote "Everyone wants to live at the expense of the State. They forget that the State lives at the expense of everyone."

Michigan's Budget Woes?

2009-11-07T11:30:00.002-05:00

For all of Michigan's budget woes spending less appears to not be an option:

2003 Total Budget: $38,546,223,200
2004 Total Budget: $39,236,530,900
2005 Total Budget: $40,224,217,400
2006 Total Budget: $41,672,547,100
2007 Total Budget: $42,791,804,000
2008 Total Budget: $43,827,383,200
2009 Total Budget: $44,500,000,000 (tentative)

The governor has claimed to have cut more services than any other governor of Michigan - that may be true but it is more akin to shuffling deck chairs on the Titanic

Voter Fraud (by the legislature)

2009-11-06T18:29:00.004-05:00

You can't make this stuff up.

Home Buyer Tax Credit

2009-10-21T22:36:00.002-04:00

Now that the new home buyer tax credit dissipation is winding down it is time to review the results. The claims are 355,000 homes were purchased that would not have been otherwise purchased. That puts the cost to you and I as the taxpayers at about $43,000 for each supposed house sold above expectations. That is a lot.

We probably sold lots of those 355,000 homes to twenty year old people with three jobs and no college plans to buy $155,000 that is immediately underwater at $183,000 after additional government loans for improvements. See more here.

The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She's paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments.

Emphasis mine.

This loan is almost certain to fail - would you loan a hard working friend that kind of money with those risks? Guess who is holding the bag? The mirror is in the bathroom if you need to clear that up.

As bad as this is we now find the IRS is investigating about 100,000 loans for fraudulent filings for the first time buyers tax credit. It should be interesting to see how this will be clawed back since the FHA let buyers use the credit as the down payment on these homes. Does this mean the government is "nudging" lenders to perform foreclosure avoidance and the IRS to perform foreclosures? Time will tell but it looks bad for the tax payer either way.

Boycott TARP Banks

2009-10-21T22:27:00.002-04:00

After all the outrageous behavior of the TARP banks Denninger is calling for a boycott of Bank of America, Citi, Wells Fargo/Wachovia, and JP Morgan/Chase. I am joining him in this call, actually already implicitly doing this. You can see Karl Denninger's rant at the Market Ticker.

I might add GMAC/Ally bank and Capitol One Finance. So look at the back of your credit cards and see who is the sponsoring bank. Move bank accounts to a local credit union. You'll probably be happier anyway.

Global Consensus

2009-10-18T19:26:00.002-04:00

I have been thinking a lot about many of the alarmist endeavours that have consumed society and the press over the last several decades. Global warming feels like one of those situations. We hear much about scientific consensus and that concerns me. Oddly, I found the a comment on this article attached to an article on global warming by a commenter simply named "Mike" and have repeated a portion of it here:

Supporting or believing in [global warming] based on "consesus" is unscientific. Consesus told us that Newtonion physics was the final answer and for awile even Einstein was laughed at when he said it wasn't. Consesus told us that eugenics was sound science and the political advantages that it could provide didn't hurt in obtaining that consesus. Consesus told us that frontal lobotomies and recovered memory syndrome were sound science. Consensus and scientifically accepted methods told us that thalymide(and many other unsafe drugs) were safe. In short consensus isn't science. Peer review does not contest the result of a study based on it's findings. It reviews a study to determine if proper methods of measurement,data aquisition and analysis were used. When consensus is cited as a basis for acceptance it's particularly problematic when such consensus doesn't even exist.

Well put Mike.

Killing The Goose

2009-10-11T10:16:00.003-04:00

John Mauldin writes another great letter this week. This weeks letter is a little depressing considering Mr. Mauldin is an optimist. Either way a great read. Sign up and read more here. Don't worry its free.

Pent Up Inventory Unleashed in 2010

2009-10-11T10:09:00.002-04:00

I almost always enjoy reading Dr. Housing Bubble and his blog focusing on housing and particularly southern California Real Estate. Here is a quote from a recent article titled

"Shadow Inventory Case Study: Inventory in the Shadows Twice as Big as Normal Resale Inventory in Los Angeles and not on the MLS or for Public Viewing. Foreclosures and Distress Properties Clogging the System."

The pent up inventory is getting ready to unleash in 2010. The gigantic bet made by the bankers and Wall Street was that somehow by allowing banks to fudge numbers since the crisis started that housing would find its footing and the market would stabilize. Sweep the collapse under the bailout rug. This perceived grounding was then going to allow banks to unload these properties and avoid realizing institutional ending losses. Yet 21 months into this painful recession and trillions handed out to the banking sector, housing prices are not spiking. The tiny uptick in home prices is a mirage brought on by three major factors. First, the $8,000 tax credit lured additional home buyers into the market. Next banks have held back on the shadow inventory thus artificially lowering the supply of homes on the market. Finally, the U.S. Treasury and Federal Reserve have artificially kept mortgage rates low by buying up some $1.25 trillion in mortgage backed securities. All this and housing prices have barely stabilized in some regions while foreclosures are at record breaking heights.

Read the rest for some interesting investigative coverage.

OPEC was Trade Retaliation

2009-09-13T23:33:00.003-04:00

China's reaction [Bloomberg] to 35% tariffs by the U.S. on its tires has it investigating dumping and subsidies provided to U.S. automakers and chicken producers. We fired the first shot by applying a clause on China's entry into the WTO in 2001 that had not been previously invoked. The clause was regarding protecting existing industries.

How can you begin trading with a trading partner and not expect an existing industry to be impacted?

Let us not forget where these types of protectionist policies may lead to. Today is the 40th birthday of OPEC [Wikipedia]. OPEC's founding was triggered by protectionist quotas by Eisenhower on Venezuelan and Persian Gulf crude.

Simultaneous Tax and Subsidy

2009-09-08T15:21:00.002-04:00

So Obama and the Democrats will consider taxes on soda and sugary drinks. This is ironic because we already have the government doing so much wrong on sugar.

Currently we subsidize sugar growers to the tune of $1,200,000,000 ($1.2B) a year. I wonder if the beneficiaries of this subsidy even number in the thousands? We also have import quotas and tariffs on sugar which limit foreign supplies of sugar to U.S. consumers - reducing supply and raising prices.

It gets worse. We subsidize the growing of corn which, in turn, makes corn syrup a more attractive option to food producers. Wouldn't it be nice if we simplified all of this. Forget the tax, stop the corn and sugar subsidies and remove import quotas. Now isn't life simpler.

The Immortalized Peter Stark

2009-09-06T09:25:00.001-04:00

Congressman Peter Stark:

The more debt we owe, the wealthier we are...

This helps explain some of the reason the federal deficit is growing so rapidly.

Watch the entire episode here:

Best Title of the Week

2009-08-31T08:54:00.001-04:00

Reggie Middleton's BoomBustBlog.com had this article titled:

California is borrowing money to repay the money it is borrowing which was used to repay some IOUs

Entertaining Roddick Interview

2009-08-30T18:55:00.002-04:00

Here is an interview with tennis star Roddick - refreshingly honest and open .

This Week on Mauldin

2009-08-30T11:51:00.002-04:00

This week Mr Mauldin has a great piece of work describing some uncomfortable choices that need to be made by both consumers and policy makers. He rightly points out that we cannot borrow our way out of the current problems.

We ran up unfunded pension deficits at many local and state funds, to the tune of several trillion dollars and rising. We have a massive, tens of trillions of dollars, bill coming due for Social Security and Medicare, starting in the next 5-7 years, that makes the current crisis pale in comparison. We now seemingly want to add to this by passing even more spending programs that will only make the hole deeper.

This dovetails nicely with Washington's Blog article about our inability to inflate away debt without destroying the economy - here is one quote from the article:

Instead of taking steps to do this, the government is doing just the opposite. It is proposing to take bad debts onto the public-sector balance sheet, printing new Treasury bonds to give the banks – bonds whose interest charges will have to be paid by taxing labor and industry...

Now consider Keynes fascinating quote on my earlier post.

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat.

...

I really don't like where this is heading.

Read both
An Uncomfortable Choice by John Mauldin

Why we can't inflate away our debt at Washington's Blog

Keynes is Austrian

2009-08-30T11:39:00.003-04:00

From Munger's blog a fascinating Keynes piece:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

In the latter stages of the war all the belligerent governments practised, from necessity or incompetence, what a Bolshevist might have done from design. Even now, when the war is over, most of them continue out of weakness the same malpractices. But further, the governments of Europe, being many of them at this moment reckless in their methods as well as weak, seek to direct on to a class known as 'profiteers' the popular indignation against the more obvious consequences of their vicious methods. These 'profiteers' are, broadly speaking, the entrepreneur class of capitalists, that is to say, the active and constructive element in the whole capitalist society, who in a period of rapidly rising prices cannot but get rich quick whether they wish it or desire it or not. If prices are continually rising, every trader who has purchased for stock or owns property and plant inevitably makes profits. By directing hatred against this class, therefore, the European governments are carrying a step further the fatal process which the subtle mind of Lenin had consciously conceived. The profiteers are a consequence and not a cause of rising prices. By combining a popular hatred of the class of entrepreneurs with the blow already given to social security by the violent and arbitrary disturbance of contract and of the established equilibrium of wealth which is the inevitable result of inflation, these governments are fast rendering impossible a continuance of the social and economic order of the nineteenth century. But they have no plan for replacing it.

It is originally Keynes writing in 1919 in The Economic Consequences of the Peace.

We Are Turning Japanese

2009-08-30T11:34:00.002-04:00

Fascinating chart from Paul Kedrosky (Infectious Greed) showing the Nikkei and the S&P from there peaks. Originally sources from Bloomberg.

Four Stocks 37% Daily Volume

2009-08-25T22:55:00.002-04:00

Karl Denninger at The Market Ticker has some interesting data points regarding trading volume.

2.126 billion shares traded in four stocks, two of which that accounted for some 900 million of those shares are in companies that by any measure of accounting have absolutely zero common equity value whatsoever (and never will under any rational view of the future), yet NYSE Euronext continues to list them.
These four stocks represented thirty seven percent of all shares traded today.

These Guys Get it (C4C)

2009-08-25T22:48:00.002-04:00

There are many videos of cars being destroyed in the Cash 4 Clunkers program. The gentleman having to destroy a working automobile understand that C4C is fundamental wrong. Warning: foul language.

Destroy A Nice Mazda Truck [youtube]

Explaining the Green Shoots

2009-07-31T11:57:00.003-04:00

I believe Calculated Risk found out what happened to the green shoots that were sprouting this spring - my emphasis.

The restaurant business is still contracting, and although not contracting as fast as late last year, the pace of contraction has picked up over the last two months.

Someone must have eaten the green shoots.

Oxhorn Subsidies

2009-07-31T08:50:00.003-04:00

Money is fungible and income from one activity can be spent elsewhere while looking like it is unrelated. Stimulus money most certainly is being used for corporate subsidies regardless of how uninformed Ms. Oxhorn of the White House is about accounting, economics and unintended consequences. [Bloomberg]

Elizabeth Oxhorn, a White House spokeswoman, said she isn’t aware of any case in which states are directly using stimulus dollars to lure businesses. Any applications that would use funds in such a way would be rejected, she said. Competition among states “ensures that the taxpayers see the very best use of their money,” she added.
Technically she is correct, no stimulus money is being "directly" used but this is disingenuous Newspeak.

My complaint here is the stimulus packages (there were three so far) are sold as money going to mostly idealistic job-saving or economy-saving causes. What is needed is a deeper evaluation of the unintended consequences - by the public and policy makers. These are always present in any policy and the effects are usually minimized or outright ignored. The most recent stimulus was exaggerated as being imperative to avoid dire consequences. Well, we got the dire consequences and then some compared to stress test adverse scenario. Additionally, the economy is starting to turn the corner and yet the stimulus has not even spent $100B of $787B in the legislation. As many predicted, the stimulus would be delivered slowly, with poor feedback and ultimately arrive after recovery has started.

Health and Percent of GDP

2009-07-19T11:29:00.002-04:00

The actual consumption of food at home has gone from 20.3% of income in 1929 to a mere 5.6% today. Factoring in eating out it has gone from 23.4% in 1929 to a staggering 9.6% today. Just reviewing the numbers, and ignoring what we know, it appears Americans are eating much less than they did in 1920's. This is certainly not the case. You could even conclude from the numbers that maybe people don't value food as much and therefore are spending less. Reality is we both eat better and spend less which is great.

Now take medical care, just because we are spending more of GDP then in the past doesn't mean all is bad. We need to look at the value as well. Despite the fact we, as Americans, have some lifestyle improvements to make, get a very strong benefit from what we spend. The reason we know this is because if it didn't work we would not demand more and better health care. Lower demand means lower prices - basic economics.

This evaluation of how much of our GDP goes toward health care is misguided. This is not the metric that should be evaluated. The other thing is everyone loves to do straight line (simplistic) analysis of health care cost growth and how in year X it will consume 50% of GDP. Unlikely.

The focus should be on improving the incentive system in the medical care market. To provide insurance and medical savings plans (currently everyone wants a medical savings plan it seems but with the cost of insurance). To reward providers that have higher output per dollar of input - to establish feedback loops through a cost system. Government mandates will fail, in the sense of even less effectiveness as compared to market feedback and distributed knowledge. Providers should publish prices and keep prices consistent regardless of the payer. We don't need to mot towards nationalization of health care to improve it.

Is Massachusetts the Way To Go?

2009-07-19T11:21:00.003-04:00

Massachusetts mandated (under a Republican governor) health insurance basically for everyone. This was done just a few years ago and is considered a model for the current reform plans in Congress. It would be a wise idea to wait and see what happens in the next couple of years to the state plan - if nothing else we can improve the proposals.

As I expected, the Massachusetts plan is not so great is being revamped. It was not working so well and did little to control costs. The current plan appears to actually do little to control costs and will greatly exceed (50% or more) over the first 10 years even the pessimistic projections of the Congressional Budget Office that Schumer and others are scoffing at.

A good post to read a bit more at EconLog

DRM's Ugly Head

2009-07-18T14:54:00.002-04:00

As a Kindle owner I am very, very disappointed to find that Amazon can and will change purchased content on your Kindle. They have gone and removed (with an account credit) already purchased books from the purchaser's Kindle. Ironically, it was Orwell's 1984 and Animal Farm.

Read the details. http://www.tgdaily.com/content/view/43296/98/

-fishsticks

Glenn Beck Gets it Right

2009-07-18T08:52:00.002-04:00

I am not a Glenn Beck fan but he does a nice job of explaining one aspect of "crony capitalism" that we have going on in Washington and on Wall Street. For anyone thinking this is capitalism - this is not capitalism. This is a symptom of government largess. Companies cozy up to the lawmakers to ensure they stand to benefit from this largess.

We Are All Auto Experts

2009-07-08T23:18:00.002-04:00

I know my prescription for the ailing American auto industry is correct. So thought Daimler, followed by Cerberus Capital Management and currently Fiat. Fortunately, I don't run, nor will I run an auto maker. Daimler and Cerberus used there own money - I am good with that.

Unfortunately Congress gets to play with other people's money - your money. It seems they think they know which dealers are economically viable better than management or the accountants. Not it looks like they are going to try a new endeavour - running an auto maker.

More than 3,100 General Motors and Chrysler dealers could be in line for a new lease on life as a House bill to overturn dealer closing passed a House committee vote last night. The bill, part of larger spending bill, will move to the House floor next Wednesday.

Read more here.

Anyone who believed that a government run auto maker was going to be free to pursue economic rather than political choices was starkly wrong. These are the unintended consequences of bailouts. I expect that before the end of the next recession GM or Chrysler(Fiat) will be back to losing money on a massive scale. Again the taxpayer will be expected to be riding to the rescue (again). Can we get off this merry-go-round?

Health Care Chaos

2009-07-07T08:46:00.002-04:00

Nationalizing more of our health care is a very, very bad idea. The simpler solution to the (involuntarily) uninsured is to provide vouchers or cover them under Medicaid. We didn't need to nationalize grocery stores to provide food aid to the poor We did it in the form of food stamps. Creating a Byzantine, inefficient bureaucracy is overkill.

For those that think "public choice" health care is a good idea they should sign up. However, where profit is falsely believed to be "excess" this is their chance to enjoy the benefits of government. If nationalizing becomes a reality it should be funded just like private insurance - from the proceeds of the program and fees collected through payroll deduction (only from the covered). NO GENERAL FUND money should supplement the program. This is where it will be quickly discovered profit is neither guaranteed nor excess in a competitive market place. I concede that our current system is already very convoluted. A system where the employer decides who pays for coverage, the patient choose the provider, the insurance company decides how much to pay on the claim. The normal market incentive system is broken.

Regulation, wisely done, is a necessity for both a private or public option and should be unaffected by such legislation.

The Fearsome Barrel Monster

2009-06-19T14:01:00.002-04:00

This is definitely the most creative use of construction barrels I have seen. Hopefully the charges against the North Carolina State University student get dropped.

Arm Twisting for Chrysler

2009-06-08T16:46:00.002-04:00

The government wants to change the outcome of well established bankruptcy procedures. This is not about giving away Chrysler to another entity, foreign or otherwise. This is about property rights and may well impact everyone in the country.

Bondholders that are senior (vs. senior subordinated, unsecured, etc.) are entitled to being made whole before any junior creditor. This is screwing investors who accepted lower interest because they would be the first reimbursed even in bankruptcy. This was not necessarily a poor investment based on existing rules. By changing the rules the government is telling all bondholder that senior is the same as unsecured. Imagine the implications for future bond sales by other companies and the effect this will have on borrowing costs. Investors may tend to stay away from any corporate bonds or bond funds, particularly those holding industrial, unionized companies - at least until this is resolved.

The retort to the suit by the government is “this is better for the economy” must not stand otherwise any effective property right you may believe you have is moot. Tthe same argument about your how much you make, where you work, how much free time you have, where you live, etc.

This is not about protecting the common man, this is about protecting every man. It does not matter that the small investors are fighting back, that is their right. Be happy someone is fighting back. J.P. Morgan and other TARP (bailout) recipients hold a lot of automotive bonds, but don’t look for them to join the fight as a bond holder.

More Regulation?

2009-06-06T06:53:00.002-04:00

My concern is we have not enforced our existing regulations and we allowed lobbyists for banks to convince Congress to pass favorable laws. A Federal regulator have even allowed blatantly illegal activities regarding backdating capital on the balance sheet, from a bank regulator that did the same thing in the S&L crisis. See the Wall Street Journal for details.

Congress and the President want even more regulation. That means more regulators. That means more duds like the video below ensuring(???) we don't get burned as taxpayers. The Federal Reserve has committed over $9.7 TRILLION dollars that the taxpayers ultimately backstop. That is over $30,000 liability on every single person in this country. More regulators is very unlikely to help. How about better regulators? Lots of Wall Street people are without jobs and they know how business is done.

Watch the video and you decide if more regulators will help. By the way - stuff like this is quite common for our regulators for those who don't regularly see "how the sausage is made."

Sources:

Mises.org, The Fox Watching the Henhouse, http://blog.mises.org/archives/010086.asp

Wall Street Journal, Regulators Let IndyMac Backdate Infusion, http://online.wsj.com/article/SB122998621544328009.html

Nanny Knows Best

2009-05-25T08:52:00.003-04:00

I found an interesting blog called "Nanny Knows Best" and it highlights Britain's path towards a pervasive nanny state. Below is an excerpt from a recent post expounding on recent "expenses" by Members of Parliment:

Listening to our "walking dead" Prime Minister the other day, prattling on about how "the system" (wrt MPs' expenses) was at fault for the claims for floating duck islands, fake mortgages, moats etc I was struck by how what the PM said exemplifies the very heart of the problem of the Nanny state.

The PM ignored the fundamental issue, it is not the system that is at fault but the people. It was not compulsory for our MPs to claim for duck islands and moats, they did so voluntarily and with gusto!

The PM and these greedy MPs are using the "procedures" argument as a defence, in exactly the same manner that a doctor, social worker, police officer, teacher, FSA CEO or council officer uses "rules and procedures" to justify what they do and to justify their mistakes.

How many times have we heard the phrase "we followed the procedures"?

This should be an interesting blog to follow on occasion, mostly since I don't in Britain. Unfortunately things happening across the pond also wind up here in the USA. Let us hope not.

Stress Canary

2009-05-18T15:35:00.003-04:00

Stolen from JCG3

I have a new definition… I was surprised when wikipedia and even the urban dictionary didn’t have a definition for the term “stress canary”.

Stress Canary - noun

the person on a team or project that feels the effects of stress well before anyone else
a modern version of a canary in a coal mine, someone who reacts to stress as an early warning signal

Things That Shouldn't Happen

2009-03-08T11:51:00.002-04:00

Perusing the news I came across this gem. This article, about a girl poking fun at school staff on MySpace, is certainly scary:

Less than a minute into the hearing the gavel came down. "Adjudicated delinquent!" the judge proclaimed, and sentenced her to three months in a juvenile detention centre. Hillary, who hadn't even presented her side of the story, was handcuffed and led away.

The state has the legal authority to enforce its rules forcefully through violence and incarceration. This is a power that no private corporation or individual can legally do and must be monitored vigorously.

Judge Ciavarella plead guilty to the charges of bribery but this went on for seven years.

Last month the judge involved, Mark Ciavarella, and the presiding judge of the juvenile court, Michael Conahan, pleaded guilty to having accepted $2.6m (£1.8m) from the co-owner and builder of a private detention centre where children aged from 10 to 17 were locked up.The cases of up to 2,000 children put into custody by Ciavarella over the past seven years...

This dovetails in the risks the proposed government spending bring. The stakes are high for people to get there piece of the action. We have to count on our government officials to dole out unimaginable sums of money fairly and without favoritism or worse, outright bribery.

Who is going to regulate the regulators?

2009-03-02T08:51:00.002-05:00

Today in Bloomberg I saw what was a ridiculous statement from the Obama Administration regarding the plight of the auto industry.

White House Chief of Staff Rahm Emanuel said GM’s plight of is “a wakeup call to America” that signals the need to increase energy independence and overhaul the nation’s health care system.

Yes, that is it - he recognized that a recessionary economy simply needs energy independence and and health care. The economic team can go home we have "The Brilliance of Rahm"®

More disappointing comments to go with some seriously disappointing actions by the new administration.

Paradox of Spending

2009-02-01T10:46:00.002-05:00

The King Report has a great analogy of Keynes' Paradox of Thrift:

“The Paradox of Thrift (or saving) is a reductio ad absurdum by John Maynard Keynes that avers that if everyone saves, aggregate demand will decline, and this will imperil the economy. We’d like to contribute the ‘Paradox of Spending’ to Econ 101. This maxim holds that if everyone spends, there are no savings; debt surges and the implosion of that debt collapses an economy.”

Stimulus for the Employed

2009-02-01T10:06:00.001-05:00

Considering the richest counties 5 of the countries 10 wealthiest counties are around Washington, D.C., stimulus for this area should not be needed. And after the stimulus passes the wealth in these counties is sure to improve, regardless of "efficiency" and intent of the stimulus.

1	Loudoun County, Virginia	$107,207
2	Fairfax County, Virginia	$105,241
3	Howard County, Maryland	$101,672
4	Somerset County, New Jersey	$97,658
5	Morris County, New Jersey	$94,684
6	Douglas County, Colorado	$92,824
7	Montgomery County, Maryland	$91,835
8	Nassau County, New York	$89,782
9	Prince William County, Virginia	$87,243
10	Santa Clara County, California	$84,360

For a refresher on the horrible rate of unemployment for government and health and education workers in the Wall Street Journal by Allen Reynolds

Most of the spending is unlikely to be timely or temporary. Strangely, most of it is targeted toward sectors of the economy where unemployment is the lowest.

The December unemployment rate was only 2.3% for government workers and 3.8% in education and health. Unemployment rates in manufacturing and construction, by contrast, were 8.3% and 15.2% respectively. Yet 39% of the $550 billion in the bill would go to state and local governments. Another 17.3% would go to health and education...

Next, look at the supposed multiplier effect of government spending. The consensus seems to be around 1.57 - which, taken simplistically, results in $1.57 spent for every $1 of stimulus. Based on this we should borrow say $2T or $3T until this supposed multiplier gets just above 1. I say this in jest because the multiplier is not 1.57 and we will not grow our economy because of the stimulus. The government can always create jobs, but what it can't create is real wealth or improved living standard in the aggregate. North Korea is an example of government created wealth.

Finally, what are we going to do for an encore in two years when the money has been spent. Stimulate ourselves another $900,000,000,000? This is simply a massive shift of wealth from the prudent to the less prudent and a substantial growth in the power and reach of government. We should be reducing the cost of government not increasing it. We cannot stimulate our way out of credit contraction - the system needs to cleanse itself.

The Future Drag

2009-01-07T10:19:00.005-05:00

As noted in today's Wall Street Journal:

The federal government's budget deficit will widen to $1.186 trillion for the current fiscal year, an unprecedented number that will likely only get bigger after Obama's economic package.

Since debt is a "pull forward" of future consumption and investment it means a drag on future economic growth. This is important because the substantial "economic stimulus" is going to have hazardous long term implications for our economy. The effect of debt is particularly gruesome since interest paid is an exponential function.

This adds about $8500 per taxpayer in new obligations. This number is arrived at by the fact there are about 138 million people are in the labor force. It gets a lot uglier when you consider the top 50% of taxpayers pay approximately 97% of all income taxes collected. The fact half the labor force pays less than 3% of the income tax simply doubles the obligation on the "real" taxpayers. The disappointing thing is that the incoming Obama administration is warning of trillion dollar deficits for years to come. Extraordinary borrowing to fix our current problem, which was excessive borrowing, is not a path to affluence for the U.S. economy.

No good will come from this.

Taxpayer Losses are GMAC's Gain

2009-01-04T17:16:00.002-05:00

The GMAC bailout really is bothering me. Under TARP the government loaned GMAC $5,000,000,000 which, ironically, also allowed it to qualify as a bank. In lending, the Treasury received 8% dividend paying preferred shares. GMAC immediately began loaning out the money to consumers. On the surface this sounds good but this was a horrible deal - for the taxpayer. This isn't even a normal government policy that is not well thought out. It is downright wealth transfer. A sneaky end-run to subsidize the "American" auto industry.

I want to explain in simple terms what the government did. Say you borrow $100 from your mom and then loan a $1 to each of your 95 friends for 5 years, keeping $5 for yourself since it will take time to track who you loaned the money to. Great deal until you have to pay your 8% interest to mom since those were the terms on her preferred shares. And that 8% comes due every year. Your friends on the other hand got 5 year, 0% loans. And don't forget to factor in the friends who will never pay you back - say 3% - very modest considering you lowered your standards substantially almost ensuring your loan loss will be much higher than 3%.

Based on the above business model you would need to make at least 16% (5% yourself, 3% loss, 8% interest due) on those loans to break even. Not only is that not likely, that is not mathematically possible. So this means the government loaned an organization money that is guaranteed to produce a loss on the loans given. A loss exceeding $800,000,000 the first year if your origination costs are 5%. Even if GMAC paid itself nothing it still loses $550,000,000 in the first year alone.

It Gets Worse
Well, once GMAC loans out there initial $5,000,000,000 they are out of money. Unless, since they are now a bank, they can package those loans up and sell them. Guess who is buying consumer debt at low rates? It is not private investors, so that leaves the Federal Researve and the U.S. Treasury. GMAC will use the bundled loans to give as collateral to the Fed/Treasury who will value them at face value and allow another round of auto loan securitization. Once in the hands of the Treasury (taxpayers) any losses fall to them not GMAC, the loan originator. That would be you and I. This is just an ugly misuse of taxpayer money to ultimately subsidize GM.

Please consider joining the "DO NOT BUY AMERICAN" (GM at least) crowd. I can't imagine buying a car with 36 month warranty from a company with a 3 month lifeline anyhow. I might recommend Ford or one of the many other auto manufacturers. Many of which are build in America.

CRE Has Their Hand Out

2008-12-22T08:04:00.004-05:00

According to the WSJ this morning we find that commercial real estate now needs free money.

Big property developers are asking to be included in a new $200 billion loan program as a surge in commercial mortgages comes due.

These firms managed to leverage up too much and now are in a world of hurt. For some property developers extensive use of leverage was the business model. The (poor) choices by the management needs to run its course. Bankruptcy moves the underlying assets to the hands of people who are more competent business managers. If bailouts are given then we, as taxpayers, are allowing profits to flow to the owners in the good times while the loses flow to the taxpayers.

This is not capitalism.

The tacit moves towards the nationalization of so many industries is making me apprehensive. This is the sure way to establish more government intervention and inefficiency. An extreme example is North Korea of what happens when the government manages resource allocation (I don't expect that for us). What this means is in the years ahead we can expect much weaker economic growth as resources are allocated poorly. The problem with this outcome, lower growth, is that you can't see the growth we didn't get.

Also expect to see substantial increases in both interest rates and inflation in the years ahead especially as more bailouts (money printing) comes. This could have a serious cost to our currency as the world's reserve currency. The temptation to print away all this borrowing by the Fed is going to be strong.

The more the government bails the more drag that puts on future growth. Keep in mind that the government cannot create jobs the way private business does. The simplified explanation is that any money the government spends must come from any of three sources which means a decline in assets for investment elsewhere. If they tax income, it comes from the productive class (aka the entrepreneurs) and results in more asset hiding and less business creation/investment. Borrowing by the Treasury takes money from what may have gone into other investments, say corporate bonds, which may have expanded plants and equipment. The last possibility is "printing" money or credit which causes inflation. High inflation is a tax on everyone but particularly those with least access to money and credit. This is much to simple an explanation of the impact but hopefully your further research will help the understanding of the bailout cycle and it's effects, intended and unintended.

17 Billion is Not Enough

2008-12-19T21:53:00.002-05:00

The auto suppliers are already clamoring for their own bailout! The ink for the Chrysler/GM bailout is not even dry yet.

U.S. auto-parts suppliers want aid from the federal government, now that General Motors and Chrysler LLC have gotten approval for a $17.4 billion lifeline.
"The next critical phase is the supplier community, which is facing the exact same financial crisis as the manufacturers," said Neil DeKoker, CEO of the Original Equipment Suppliers Association in suburban Detroit. "We're requesting assistance from the presidential transition team."

The game to play is "Who gets the bailout?" Where the player try to guess the industry or company seeking a bailout next. My pick is the states and municipalities are next but I may be early on that. Their bailout will come in the form of the Pelosi stimulus package that Obama supports.

Too Big To Fail

2008-12-13T21:38:00.002-05:00

I posit that if all of these firms being bailed out are all too big to fail (AIG, Citi, GM, more coming) then should there not be effects to parcel these firms into smaller units?

Ludwig Von Mises, Socialism, p45

If the State takes the power of disposal from the owner piecemeal, by extending its influence over production... then the owner is left at last with nothing except the empty name of ownership, and property has passed into the hands of the State.

Addicted to Low Interest Rates?

2008-12-05T10:52:00.002-05:00

So the Fed is slashing interest rates to try and "stimulate" our way out of this recession, and it's not completely impossible that we'll see a Fed Funds Rate of zero percent. Then comes the news that the incoming administration wants to have the Treasury Department throw its financial support behind Fannie and Freddie, with the stated goal of lowering 30-year mortgage rates to an amazing 4.5%. Now the EU and the Bank of England have slashed their rates as well, by 0.75% and a full 1% percent, respectively. The Bank of England's rates are now at their lowest level in over four centuries.

I'm guessing that the unstated goal of all this rate-slashing is to "re-inflate the bubble" ... political and financial leaders are suddenly a lot more worried about deflation than they are about inflation. And with leverage controls certain to be tightened up in the near future (and rightfully so), lowering interest rates is the only way to prevent a collapse in the global money supply. But now I'm wondering two things. One, doesn't this mean we're trapped ... essentially, "addicted" to low interest rates? They're being pushed to such a low level that they're losing their effectiveness as a macroeconomic control. And two, is this a bad thing? Or at the very least, won't it mean a major shift in the way money, capital, and debt is allocated?

The Fossils Know How to Save the Dinosours

2008-11-20T22:21:00.003-05:00

So Detroit can't make it without a bailout. Congress proposes voting on a rescue once they see the Detoit automakers' magnificent plan before December's decision to bail them out. This implies that Congressional career politicians with less business experience than the average Americans know what a good plan is. First Daimler and then Cerberus bought Chrysler and could not make it work. This firmly cements to me, it is just not plausible that Congress would know a good plan from a bad. Pardon my cynicism but their track record is less than admirable.

The Ant and the Grasshopper

2008-11-15T20:07:00.004-05:00

Imagine your political leader proposes setting up a system that rewarded the people who squandered everything and penalized those who saved? Sounds like a real winner doesn't it?

If you were one of the to be penalized, how quickly would you sign up for such a program? How long would you stay in? You would be better advised to pursue the path of the squanderer. No penalty for risk since you can lay the cost of failure on those foolish enough to expect a raining day. I would not expect a program like this to last very long and I truly hope we stop before the penalties get too high.

Where Do I Sign Up?

2008-11-15T19:25:00.002-05:00

All these great loan modification programs and I keep getting turned down. I was reading about this great program from the FDIC about loan principal forbearance and reduced interest rates. I was thinking, "That sounds fantastic!". So I was looking for the registration link to get my deal but you can't but help to notice all the criteria for this special deal. Let us go through those criteria:

* Eligible Borrowers: The program will be limited to loans secured by owner-occupied properties.

CHECK

* Exclusion for Early Payment Default: To promote sustainable mortgages, government loss sharing would be available only after the borrower has made six payments on the modified mortgage.

OK Loss sharing after 6 payments - ok but I plan on paying so NOT APPLICABLE

* Standard NPV Test: In order to promote consistency and simplicity in implementation and audit, a standard test comparing the expected net present value (NPV) of modifying past due loans compared to the strategy of foreclosing on them will be applied. Under this NPV test, standard assumptions will be used to ensure that a consistent standard for affordability is provided based on a 31% borrower mortgage debt-to-income ratio.

OK have better then a 31% debt-to-income ration - GOOD

* Systematic Loan Review by Participating Servicers: Participating servicers would be required to undertake a systematic review of all of the loans under their management, to subject each loan to a standard NPV test to determine whether it is a suitable candidate for modification, and to modify all loans that pass this test. The penalty for failing to undertake such a systematic review and to carry out modifications where they are justified would be disqualification from further participation in the program until such a systematic program was introduced.

This applies to servicers so NOT APPLICABLE

* Reduced Loss Share Percentage for "Underwater Loans": For LTVs above 100%, the government loss share will be progressively reduced from 50% to 20% as the current LTV rises.1 If the LTV for the first lien exceeds 150%, no loss sharing would be provided.

CHECK - my LTV is well less than even 100% - this sure would be a horrible deal for the government (i.e. taxpayers) if they were crazy enough to take on loans with LTV rations even near 100%. Government isn't that stupid right?

* Simplified Loss Share Calculation: In order to ensure the administrative efficiency of this program, the calculation of loss share basis would be as simple as possible. In general terms, the calculation would be based on the difference between the net present value of the modified loan and the amount of recoveries obtained in a disposition by refinancing, short sale or REO sale, net of disposal costs as estimated according to industry standards. Interim modifications would be allowed.

Again, this applies to servicers and I plan on paying so NOT APPLICABLE

* De minimis Test: To lower administrative costs, a de minimis test excludes from loss sharing any modification that did not lower the monthly payment at least 10 percent.

Sweet, looks like I am going to be getting at least 10%. That sounds to good to be true!

* Eight-year Limit on Loss Sharing Payments: The loss sharing guarantee ends eight years of the modification.

Well in eight years - unless you modified loans in Las Vegas, California, or Florida how could there even be a need for loss sharing? NOT APPLICABLE

So, where is the sign up link? Weird! No Link. Hmmm, look at the "fine print" - you have to be 60-90 days past due! I am not past due. What a crappy deal for the people who pay their mortgages and anyone crazy enough to pay their taxes.

This is insane even for the government.

The FDIC thinks it is going to take on 2.2 million crappy loans and only lose 5%. Those sure are favorable estimates considering the median price is (was) well over $200,000. This is a great deal - for the imprudent.

And the really annoying thing is, that as a taxpayer, I get stuck with the (woefully underestimated) loss sharing.

GM Bankruptcy Deception

2008-11-14T00:29:00.004-05:00

The misinformation defending the huge bailout is that 2.5 million direct and indirect jobs will be lost. That is absurd!

The net purchase of vehicles is not going to change - besides cyclical change. The change will be where (and who) will build the cars. It is completely ridiculous to presume that anywhere near 2.5 million jobs will be lost and never return leaving people starving. Unemployment in a location dependent on one industry is going to be chaotic. Yes people will have to relocate or find new careers.

Production assets, brands, engineering talent, management talent, production line experience, and resources would be (re)allocated to more efficient producers and/or producers with better product mixes. Will there be dislocation, certainly, but that has been going on since the 70's in the auto industry. Places like Michigan and Ohio have watched this industry decline around them for 30 years. Yet they have not adapted there policies or re-tooled there economic policies.

All of the "lost" jobs will not occur in one geographic location either. It will be spread around from Canada to Michigan to California. Bankruptcy protection or liquidation will result in assets being purchased for more productive uses or even alternative uses. The woes of the American manufacturers is the direct result of poor management and stifling labor contracts. Nothing more.

Crappy Union Jobs

2008-11-14T00:26:00.002-05:00

Unionization, in the long run, makes for a terrible way to be employed. A non-senior union employee has much to fear because they know they are not going to find a replacement job similar pay. The reason is simple - in a competitive labor market those very high wages are bid down by the party seeking the job. Most people don't want to lose their job, but losing it is not the end of the world because they are paid MARKET wages. They will find a replacement job with a substantially similar wage. The union employee, in an industry such as the auto industry, has very much to fear indeed.

The Day After

2008-11-05T18:11:00.003-05:00

Well, in the words of Kent Brockman ... "I, for one, welcome our new Socialist Overlords." The election is finally over, which is reason enough in itself to be thankful. And the majority has spoken. Well, somebody once described democracy as three wolves and a sheep sitting down and voting on what to have for dinner. To get a little advance peek at what kind of tax hikes to expect next year, read this story about HENRYs ... as in, "High Earner, Not Rich Yet". Or as Obama would say, "Greedy Rich People who don't pay their fair share." That used to mean anybody who makes $250,000 a year or more, although that threshold seems to be floating downward as of late. In case this sounds like sour grapes, it's highly likely that McCain would have raised taxes too; he's certainly not going to fight against them, in his eagerness for a "bipartisan" Senate. Might be a good idea to read up on Limited Liability Companies. Just because I'm going to get plucked like a Christmas goose doesn't mean I need to make it easy for them. Think I'm paranoid? ... don't assume that your 401(k) is safe, either.

Be The Mac

2008-10-19T22:35:00.002-04:00

Well, I finally bought my first computer from Apple - not counting my very nice iPod Touch. I got a MacBook which had an nice upgrade announced Tuesday. At $1300, it is "expensive" for a machine with such a small screen and 5400RPM hard drive and only 2GB of RAM. My big fear was really the screen and the keyboard. I have a friend and (now fellow) Mac owner who bought a new MacBook Pro before the new ones because he disliked the "chicklet" keyboard on the new ones.

Sometimes you know in just a few minutes when your inner voice was correct and you just made an extremely expensive MISTAKE.

Well that turned out to not be the case - all I can say is WOW! This is by far the best laptop I have ever used. Half is the hardware, half is the software. Previously I believed Apple should sell just OS-X but without support to allow non-Apple owners to use it. I have turned 180 degrees on the belief. By making the hardware and controlling the decisions of what to support Apple creates a competitive, superlative product. My work computer is a Dell Precision M70 - a $2500 machine 3 years ago - big, powerful, overall a good machine. I had an mailer from Dell that I threw away today because I don't see myself buying one anytime soon.

Part of the problem for Dell was *cough* Vista - jeez what a steaming pile that is. While I am sure Windows 7 (Vista 2) will be a lot better - why wait? Why take your chances? Unless you require a Windows specific application I can't see going with Windows until they become competitive. Windows is a decent OS, durable, workable like a new Chevy on a smooth road - it works fine in the beginning but things start to go wrong with age. Windows, like the Chevy, has problems down the road. How many times have you heard, "try re-installing Windows"? For me, the NTFS file system slows with time and de-fragmenting (over and over) doesn't help. Having used my Mac for 2 days, Vista lost what little pizazz it had. The Apple product designers and software engineers are laudably anal.

I just want to say WOW and nice job to Apple.

Friends of Mozilo Powers Activate

2008-10-16T00:14:00.004-04:00

According to Bloomberg, the Federal Reserve is going to buy commercial paper at below market prices. And not 10 basis points either, the fed is going to buy commercial paper at 110 basis points below the market rates. Why? Really! WHY?

On October 10th GE's CFO Keith S. Sherin said GE Capital has been able to issue commercial paper without interruption. The Fed is distorting the commercial paper market and will drive out real risk sensitive investors. Maybe the investors are pricing commercial paper appropriately - more likely than the Fed. This entire boondoggle looks like a big power grab by the politicians and some payback for the "Friends of Mozilo" in my opinion.

Inflation or Deflation

2008-10-15T23:03:00.003-04:00

As MindLikeWater commented in the post below, currently the economy is contracting (deflating) the money supply much faster then the bailouts can be printed. As mentioned, credit is being withdrawn at a rapid pace and new credit is being created at a very slow pace. This contraction exceeds the speed of the governments ability to create it (bailouts, rescues, deficit spending, and interest on reserves, etc.).

The detrimental effects of this (any?) government intervention is that they shoot late and overshoot - substantially. The money/credit creation is happening and soon it will exceed the credit contraction. This will be the cause of the inflation. Inflation is not caused by high prices in fuel or commodities or whatever, it is caused by an expansion of the money supply. As Milton Friedman said "Inflation is always and everywhere a monetary phenomenon."

Deflation or Inflation?

2008-10-15T08:06:00.002-04:00

I'm trying to educate myself on macroeconomic principles, because I believe they're more useful in making long-range predictions. And in light of our nation's recent bout of economic Tourette's, I'm trying to figure out what the long-range implications will be. At first glance, this seems simple - Washington politicians are wallowing around in more pork and corruption than ever, spraying trillions of dollars around as magic balm to soothe all our ills - sounds like textbook inflation, right? A few hundred billion here, a half trillion there ... what, didn't work? Banks still jittery? Here, have another $300 billion. The printing presses at the Fed must be smoking by now. Weimar Germany, here we come!

... but not so fast. The actual size of the Money Supply is shrinking, which is considered a classic symptom of deflation. After all, most money isn't printed, it's created electronically - by banks, allowing them to make loans out to businesses (and each other). The Fed's low-interest-rate policy of the past seven years created an environment of "easy money", and a swelling of the money supply, which led (in part) to the inflation in prices of things like houses. Now that banks aren't lending, and their obscene leveraging will likely be ratcheted back from 40:1 to something like 12:1, the amount of money in the system is going to decrease in the near future.

I'll continue to try and puzzle this out, but I'm open to comments, opinions, and education. What's going on? Inflation or Deflation?

USA - the socialist's paradise

2008-10-15T07:51:00.002-04:00

The Conservative Party has just won re-election in Canada, actually adding seats to strengthen the position of Prime Minister Stephen Harper. While nobody's going to mistake him for Ronald Reagan, Harper is seen as a tax-cutter and a friend of the private sector. Actually, in each of the G-7 countries, politics has drifted to the "right" in the past few years - leading to the election of Nicolas Sarkozy in France, and Angela Merkel in Germany. Well, I should say, each of the G-7 countries save one - the United States. We're either going to elect a gang of enthusiastic progressives led by a Cult of Personality, or a tired old Senate hack who never misses a chance to trash the free market and kick small-government advocates in the hoo-hahs. Again, no matter who wins, it's quite possible that by this time next year, the United States will have the highest corporate tax burden in the Western world - and one of the highest personal tax burdens too (heck, even Sweden is cutting taxes these days). Didn't somebody stage a Tea Party in Boston once, because of something like this?

Isn't this what started this mess in the first place?

2008-10-13T22:31:00.003-04:00

The markets enjoy their biggest one-day rally in history! Panic selling is replaced by panic buying! And what's the source of this sudden enthusiasm? A hastily slapped-together mega-plan, concocted over the weekend by the G-20 leaders, to drastically increase the role of government in every part of the world financial system. I'm still trying to sift through the details, but it seems like - at least in the short term - the government is going to "invest" $250 billion in tax money (*your* tax money - hey, where do you think it comes from?) into the financial system. And you can be sure this money will come with strings attached. No doubt the government will become intimately involved in everyday banking and business transactions to bring "stability" and "confidence" to the system. And yet everybody seems to love it. Why not? The government has just promised banks and businesses that it will magically prevent any of them from ever losing money on bad loans again. What a sweet deal! The whole concept of "risk" is so passe. Now the banks can just toss out that $250 billion in new loans to get the economy moving again. Oh, and I'm sure there won't be any political influence on who gets those loans. No, that would never happen. I think, in thirty years or so, our kids will look back at the past two weeks (provided they still teach history in 2038) and describe it as a Takeover, or even a Coup, of the world's free markets.

Oh, well, free enterprise was nice while it lasted. Embrace the future, Comrades. And by the way, with this recent spending orgy, the national debt has just added an extra digit, racing past $10 trillion with its foot on the accelerator. And that's not counting the impending nightmare of entitlement promises - those Boomers are just starting to cash their Social Security checks. As I said before, it's all well and good to raise a pint as we gather for Capitalism's wake - but I hope to also come up with strategies for the future. One thing I plan to do is research various western European economic systems, especially Britain, France, and Germany. They're further along the decaying spiral of cradle-to-grave Welfare Statism, and I think they'll give us clues as to what to expect in America in ten to fifteen years. Here's an easy call: no matter what Obama - or for that matter, McCain - is saying in their campaign ads, your taxes are going UP next year. That's simple math. The government needs a LOT more money now. A LOT more.

Misery Loves Company

2008-10-12T20:16:00.002-04:00

Well, I've been generously invited by the illustrious owner to be a guest poster here at Conspicuous Musings. I'm certainly not an Economist, nor do I play one on TV, but I am an amateur student of history. And, unfortunately folks, we are living in interesting times, and not in the good "First-Moon-Landing" kind of interesting. The economic crisis that is currently unfolding - which should not be coming as a surprise, to anyone who's been paying attention since last August's liquidity shock - is going to drastically alter the role that government plays in our lives. And, since my political philosophy can be summed up by "leave me alone and stop stealing my money", you can imagine that I do not expect the government to make things better.

Now, while I am no lover of the Democratic Party, the truth is that the Republicans are shared authors of this mess. For every Barney Frank, there's a Ted Stevens. Right now, this is no party of fiscal responsibility in Washington - just two candidates promising to buy us all a pony, paid for with somebody else's money. Asking me "who do you want to win the election" is a little like asking me "would you rather get beat over the head with a pipe wrench, or a nail-studded 2x4?" In fact, since the last thing that the Internet needs is another partisan pie-throwing website, I intend to take the stance that party affiliation is becoming increasingly irrelevant. It's foolish (and a little sickening) to listen to Obama and McCain boasting about steps they're going to take to "fix" the economy, as if it's a malfunctioning water heater in the basement of the White House that Bush is too lazy to fix. The economy is an extremly complex, global network of interactions, with millions of variables, billions of actors, and trillions of transactions, each piece affecting the whole in a non-linear manner. Voting for a politician because he says he can fix the economy is like picking a prom date because he says he's going to make it sunny and 75 degrees on Saturday.

So hopefully, I'll add something of value here, and hopefully in a way that'll make you laugh (and roll your eyes). I'll also try to post useful advice for the future, because that's something I'm trying to find out for myself. Yes, the economy, and our freedoms, are likely to degrade over the next ten to twenty years. But that doesn't mean we should all just passively sulk in our couches and accept the end of Western Civilization. If history is any guide (and I believe it is), a prepared individual will not only survive, but will thrive, in times of crisis. It's the poor saps with their hands in their pockets, waiting for the Government to save them, who are going to get flattened. Remember, in the worst year of the Great Depression, the unemployment rate reached 25%. Which is another way of saying, three out of every four people still had a job.

Plunging of the Baltic Dry Index

2008-10-12T15:13:00.001-04:00

I am not the first to notice this as a quick Google search will confirm, but declining consumer demand is probably not causing the plunge in the Baltic Dry Index (BDI). It may be much worse, though the demand reduction is certainly accelerating.

The credit lines cargo carriers use to purchase fuel and the Letters of Credit buyers/sellers of that cargo use to verify their financial worthiness could be hindered by the credit contraction. If Letters of Credit or short-term loans cannot be secured, then shipping does not happen. This could be more a symptom of supply disruptions then of demand destruction.

Let us hope the credit markets for non-financials don't come unglued.

Steps to a Depression

2008-10-12T10:01:00.001-04:00

Well, according to Bloomberg the federal government is going to force the purchase of bad mortgages by Fannie Mae and Fredie mac. Where are the fiscally responsible in government? Certainly there will be pressure to not just buy the bad debt but to perform more social engineering. Wait until Congress suspends or slows foreclosures. Non-performing loans will skyrocket.

The shallow (feel good) analysis is this will support the institutions with bad mortgages, help borrowers, and prop up the housing industry. Sounds good but it won't work. It will certainly appear to work. The unintended consequences will be people who have financial problems will support unsecured loans (car, credit card) and not pay the mortgage. This also makes homeowners upside down. If there is equity sharing, then at sales time the non-supported (responsible) borrower will build wealth substantially faster. Supported homeowners will also be less mobile since they will have covenants attached to there equity (if any). At least some of these borrowers will be very house poor even after discounting. The worst incentive to all this is that the prudent borrower (and taxpayer) supports the imprudent. Schemes like this have serious long term negative implications.

Let the loans fail. This is how the economy clears the excess and will start allocating resources away from bad and toward the good institutions. This policy distorts (capital) resource allocation into the poor performing and away from the (potentially) well performing.

Propping lenders and borrowers with taxpayer money is foolish. We tried this in the 1929 recession, did that turn out well? Nope, bad policy exacerbated the depression. Maybe we could look at Japan? Nope, zombie banks, zombie companies, and a lost decade. Ben Bernanke (Chairman of the Board of Governors of the U.S. Federal Reserve ) is a student of the depression yet we are heading down the path towards one.

Unintended Consequences

2008-10-07T21:47:00.000-04:00

Unfortunately, the free market is going to take the blame for this economic fiasco when interventionist government policies and lax regulation were significant contributors. The federal and state governments have been trumpeting their success in recent years of record high home ownership rates. This was a government fix and certainly at least part of the cause of our current situation.

Regardless, the government is under tremendous pressure to "fix" the deleveraging that the economy is experiencing. Nearly all government fixes, well intentioned or not, have less than desirable outcomes.

We'll look at just one policies I found reading Housing Wire.com. The policy is basically a foreclosure tax in New Jersey I ran across.

New Jersey Looks to Charge Lenders $2K Per Foreclosure

New Jersey is going to suffer in several ways, first, like nearly all "taxes" this one will ultimately be passed through to home buyers, particularly below prime. For the lenders clawing for survival, this could be the push off to bankruptcy resulting in the destruction of weak businesses at the margin. In Addition, Lenders will substantially tighten lending standards, avoiding the risk of default from home buyers buy requiring higher down payments, more fees and higher rates.

Fewer of the people this is designed to help will have access to mortgage credit. In the longer team, once this financial disaster unwinds some lenders will not expand or open in New Jersey. So, the unintended consequences are reduced number of servicers in the long run, tighter lender standards, higher down payments, higher interest rates and higher fees.

To many this seems obvious, but to many this isn't. New Jersey residents will never see the servicer that didn't open shop and they won't necessarily notice the higher costs for mortgages in there state since all lenders will pass this on. For the servicer's that don't survive some will even cheer. Over time mortgages will be a little more expensive in New Jersey.

Bailout Approval Coming

2008-10-01T00:07:00.001-04:00

The massive taxpayer funded wealth transfer will be approved sometime this week. Why am I so prescient? First congress was expected to adjourn this week. Second, this is an election year, many congressional office holders feel the necessity of campaigning for their job. Thinking through such a massive proposal seems to be, at best, secondary.

I hope to be proven a bad predictor of congressional action.

And They Can Save Us Now?

2008-09-23T12:49:00.000-04:00

The very same "experts" who didn't see the crisis coming (though warned), couldn't prevent it when it started, can't stop it once rolling, now tell us that if we jam through questionable legislation that will save us!!!???

Bernanke said so to the banking committee:

``I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover,'' Bernanke told the Senate Banking Committee today. ``My interest is solely for the strength and recovery of the U.S. economy.''

My take, I believe credit markets are functioning, that jobs will be lost, the unemployment rate will rise, more houses will be forclosed upon, GDP will contract, BUT THE ECONOMY WILL BE ABLE TO RECOVER.

The last time we jammed through a piece of legislation it was called The Patriot Act. I didn't care how that turned out.

It is 30's All Over Again

2008-07-24T09:18:00.000-04:00

From Bloomberg

Federal Reserve Bank of New York President Timothy Geithner said the central bank should play a prominent part in regulating financial institutions and ensuring market stability after the biggest credit crisis in decades.

Let me translate, the crisis we had a big hand in creating needs an even bigger hand to be helped.

Give me a break!!!!!

Excuse me, but how are you going to fix this? More regulation, socializing loses? The fix is to unwind bad debt - not with taxpayer money. Stop using FRE and FNM for origination (at least only originate under ever stricter standards) , and wind them out of business when the last bond holders are paid back. Cuba is a great example of how well nationalization works - we are trying to emulate them.

What Dodd Didn't Know

2008-06-26T23:06:00.000-04:00

Senator Dodd didn't know he would be in such a pickle. Dodd is either incompetent or he is unethical - in my opinion. If he can't recognize an extremely favorable deal on a Countrywide mortgage he is incompetent and not fit to be the BANKING committee chair. Worse, if he was unethical and took such a deal knowingly, then he should resign from the Senate.

I could rail on the softball questions Mozilo received or question who wrote the bank bailout bill winding through Congress but those have been sufficiently covered. At a minimum, the senator should resign from the banking committee that he chairs.

My wish is for the good people of Connecticut to elect a new Senator to serve their state and the people of the United States.

Jakarta Commons HttpClient Digest Authentication

2008-04-10T14:17:00.000-04:00

Working with Apache Jakarta HttpClient to call a site to get protected content can be easily achieved. The example below includes both setting up your Apache Web server (2.0) to use .htaccess to a protected file. The example presumes an example Java client that will make a GET request to an Apache HTML file protected using .htaccess and Digest Authentication.

The protected resource:
http://localhost/fishsticks/hello.html

Apache Version:
Apache 2.0 on Fedora 8

Setting up Apache for .htaccess
Configure the httpd.conf file to allow .htaccess by editing the section that looks like:
#
# AllowOverride controls what directives may be placed in .htaccess files.
# It can be "All", "None", or any combination of the keywords:
# Options FileInfo AuthConfig Limit
#
AllowOverride None

Change the AllowOverride directive to be
AllowOverride AuthConfig

And then restart the Apache httpd (the web server). The httpd.conf on Fedora is located in /etc/httpd/conf directory and on windows it is generally on C:\Program Files\Apache Group\Apache\conf (or something close to that).

Next go to the content directory of the web server and add the .htaccess file. In my example, Apache serves files from /var/www/html directory. Therefore, I create the fishsticks directory, create a simple hello.html file that says "fishsticks". Make sure you can view this page in the browser. Simple go to http://localhost/fishsticks/hello.html. You should see the word "fishsticks" in your browser.

Creating the .htaccess File
The .htaccess file goes in the fishsticks directory that Apache serves content from (/var/www/html/fishsticks).

The .htaccess file needs to contain:
AuthType Digest
AuthName "realm"
AuthUserFile /usr/local/apache/passwd/digest
Require user corbin

The password file also needs to be created. This is done using the htpasswd utility, for example:
htpasswd -c /usr/local/apache/passwd/digest realm corbin

You will be requested to type and re-type the new password.

Adding password for corbin in realm realm.
New password:
Re-type new password:

Now you will have the file /usr/local/apache/passwd/digest which contains the following line:

corbin:realm:a8f9dac51f13bb1a0eb9ffe3aea281d6

Restart the Apache httpd and try to hit the url http://localhost/fishsticks/hello.html and you should be presented with an authorization dialog from your browser. This a controlled by the browser so there is not much you may do to make it pretty.

If you authenticate using username "corbin" and password "dallas" you should see the fishsticks page. If you fail authentication you will get a http 401 status page.

The code for the test client is:
package com.mindlinc.rx.integration.agent;

import java.io.IOException;

import org.apache.commons.httpclient.HttpClient;
import org.apache.commons.httpclient.UsernamePasswordCredentials;
import org.apache.commons.httpclient.auth.AuthScope;
import org.apache.commons.httpclient.methods.GetMethod;

public class TestAuthentication {

/**
* @param args
*/
public static void main(String[] args) {

HttpClient client = new HttpClient();
UsernamePasswordCredentials upc = new UsernamePasswordCredentials("corbin", "dallas");
AuthScope as = new AuthScope("localhost", 80, "realm");
client.getState().setCredentials(as, upc);

try {
GetMethod gm = new GetMethod("http://localhost/fishsticks/hello.html");
int status = client.executeMethod(gm);
System.out.println("Response Status: "+ status);
String result = gm.getResponseBodyAsString();
System.out.println(result);
} catch (IOException e) {
e.printStackTrace();
}
}

}

If you change the username or password the returned status will be 401 instead of 200 when you successfully authenticate.

SOLVED: Fedora or Redhat clock drift under VMWare server

2007-08-23T13:00:00.000-04:00

I stumbled upon an easy solution to clock skew or drift when, at least in my case, Redhat EL or Fedora 7 are a vmware server guest OS under Windows Server 2003.

Edit the /etc/grub.conf file and add to the end of the line that begins with "kernel /boot/vmlinuz-2.6.22.1-41.fc7.img ..."

These are the boot options for the kernel.

At the end of the above line add clock=pmtmr to the end of that line. Your kernel line in grub.conf should look similar to the following:

kernel /boot/vmlinuz-2.6.22.1-41.fc7 ro root=LABEL=/ rhgb quiet clock=pmtmr

Reboot and you clock drift should cease. Make sure to make a copy of the original just in case you cannot boot Linux. You can use either an alternate boot option or a rescue disk to recover to the original file.

JBoss 4.2 with Seam 1.2 using MyFaces

2007-05-15T08:35:00.000-04:00

JBoss stopped using MyFaces in JBoss 4.2 and started using a JSF 1.2 compliant deployment.
This creates problems when using Seam 1.2.1 and JBoss 4.2 together. The fix is quite simple and can be remedied in three easy steps.

Step One:
Remove the MyFaces entry in web.xml by commenting out the MyFaces listener as shown below by adding the blue text below:


Step Two:
Edit application.xml (usually in the project's resources directory) and remove by either deletion or comment the el-api.jar module.

You can comment it out as shown below:


Step Three:
The final step is to make sure the build.xml copies commons-digester and commons-beanutils to the WEB-INF/lib directory of the web application's war file.

Add the following two lines to build.xml that are highlighted below in blue in the build files "war" target:
<target name="war" depends="compile"
description="Build the distribution .war file">
<copy todir="${war.dir}">
<fileset dir="${basedir}/view" />
</copy>
<copy todir="${war.dir}/WEB-INF">
<fileset dir="${basedir}/resources/WEB-INF">
<include name="*.*"/>
<include name="classes/**/*.*"/>
<exclude name="classes/**/*.class"/>
</fileset>
<filterset>
<filter token="debug" value="${debug}" />
<filter token="jndiPattern" value="${project.name}/#{ejbName}/local" />
<filter token="embeddedEjb" value="false" />
</filterset>
</copy>
<copy todir="${war.dir}/WEB-INF">
<fileset dir="${basedir}/resources/WEB-INF">
<include name="lib/*.*"/>
<include name="classes/**/*.class"/>
</fileset>
</copy>
<copy todir="${war.dir}/WEB-INF/lib">
<fileset dir="${lib.dir}">
<include name="ajax4jsf*.jar" />
<include name="richfaces*.jar" />
<include name="oscache*.jar" />
<include name="jsf-facelets.jar" />
<include name="jboss-seam-*.jar" />
<include name="commons-digester-*.jar"/>
<include name="commons-beanutils-*.jar"/>
<exclude name="jboss-seam-gen.jar" />
</fileset>
</copy>
<copy todir="${war.dir}/WEB-INF/classes">
<fileset dir="${basedir}/resources">
<include name="messages*.properties"/>
</fileset>
</copy>
</target>

That should be sufficient to run the seam-gen generated applications to run on JBoss 4.2.0GA.

JBoss and Global JNDI Entries

2007-05-06T21:57:00.000-04:00

In Tomcat, global JNDI entries can be added to the server.xml file to allow for JNDI entries to be shared across all deployed applications needing them. Trying to find way to get global JNDI entries in JBoss 4 was difficult, but the solution was easy. Probably a Google search string issue, anyway on to the solution.

How do you add global JNDI entries to JBoss?
To add global JNDI entries you simply create (edit if it exists) an jboss-service.xml file and use the JNDIBindingServiceMgr MBean.

jboss-service.xml:

   <?xml    version="1.0" encoding="UTF-8"?>
<!DOCTYPE server    PUBLIC "-//JBoss//DTD MBean    Service    4.0//EN"
         "http://www.jboss.org/j2ee/dtd/jboss-service_4_0.dtd">
<server>
  <mbean code="org.jboss.naming.JNDIBindingServiceMgr"
        name="jboss.tests:service=JNDIBindingServiceMgr">
     <attribute    name="BindingsConfig" serialDataType="jbxb">
        <jndi:bindings
           xmlns:xs="http://www.w3.org/2001/XMLSchema-instance"
           xmlns:jndi="urn:jboss:jndi-binding-service:1.0"
           xs:schemaLocation="urn:jboss:jndi-binding-service:1.0 resource:jndi-binding-service_1_0.xsd">
           <jndi:binding name="urls/jboss-home">
              <jndi:value type="java.net.URL">http://www.jboss.org</jndi:value>
           </jndi:binding>

           <jndi:binding name="urls/scotts-test">
              <jndi:value type="java.lang.String">http://www.yahoo.com</jndi:value>
           </jndi:binding>

           <jndi:binding name="hosts/localhost">
              <jndi:value editor="org.jboss.util.propertyeditor.InetAddressEditor">127.0.0.1</jndi:value>
           </jndi:binding>
           <jndi:binding name="maps/testProps">
              <java:properties xmlns:java="urn:jboss:java-properties"
                 xmlns:xs="http://www.w3.org/2001/XMLSchema-instance"
                 xs:schemaLocation="urn:jboss:java-properties resource:java-properties_1_0.xsd">
                 <java:property>
                    <java:key>key1</java:key>
                    <java:value>value1</java:value>
                 </java:property>
                 <java:property>
                    <java:key>key2</java:key>
                    <java:value>value2</java:value>
                 </java:property>
              </java:properties>                
           </jndi:binding>
        </jndi:bindings>
     </attribute>
  </mbean>

</server>


</server>

Simply add/edit a jndi:binding to suit your needs and you will be able to access from either your EJB or web application. The Java code to access the entries in /urls including "scotts-test" above, simply perform the following in your enterprise application.

Retrieving Global JNDI Entries:
Context ctx = new InitialContext();
NamingEnumeration items = ctx.listBindings("/urls");
while ( items.hasMoreElements() ) {
System.out.println( items.next().toString() );
}

Some are probably wondering where the jboss-service.xml file goes. The place that worked for me was into <JBOSS_HOME>/server/default/deploy and then restart JBoss.

Related Links:
JBoss Wiki on JNDIBindingServiceMgr