Monday Highlights

Good morning.

  1. Mr Obama’s new people, here is one and … it looks like I can’t find the link for the second which was about Ms Warren. I haven’t seen liberal/progressive blogs criticizing that appointment. Have you? Because if you don’t that’s a sign of partisanship trumps consistency.
  2. Targeted killing.
  3. For the Mr Krugman fans (or anti-fans), a first round knockout.
  4. On marriage.
  5. Also on marriage.
  6. Institute ala squirrel.
  7. Uhm, perhaps he’s talking about dance because school killed the notion of creativity linked with math so completely it doesn’t even enter the picture.
  8. Why are the Democrats so against Mr Soros and the like?
  9. Silly things said by Delaware pols.
  10. On the pundit simplification.
  11. Charity.
  12. Newsworthy or not?
  13. Well, the left has lost all standing with respect to their claim the “we’re behind small business.”
  14. Dropping the “weather is not climate” position on AGW.
  15. For the Palin fans which continues here.
  16. So … will the lunatic fringe come back in fashion?
  17. I have to disagree a bit, the Eastern Roman empire used a mix of force and appeasement with some success for centuries before the Crusaders sacked Constantinople. But there has to be a strategy.

Update: #17 links fixed

24 Responses to Monday Highlights

  1. Well, the left has lost all standing with respect to their claim the “we’re behind small business.”

    Hmmm, seems its the GOP that has no standing as not one of them opted to cross the line and vote for a Democrat’s bill to fix the 1099 provision

    http://www.usmoneytalk.com/finance/health-care-reform-no-repeal-on-1099-provisions-909/
    I’d be curious to know if the Republican bill even bothered to seriously offset the $17B with spending cuts.

  2. For the Mr Krugman fans (or anti-fans), a first round knockout.

    I read both and it’s hardly a knockout IMO. Rajan seems just as likely to fall into the ‘politization’ trap. For example, his cites glowing press releases from HUD praising the increase in homeownership as evidence that the 00’s were about a gov’t push for reluctant banks to relax mortgage standards. But a political economist would at least consider the probability that HUD was simply doing what politicans do, praise their policies for making the sun come up. What neither emphasize enough, though, is that subprime != poor. Subprime means high risk, not poor. A carpenter making $30K a year who buys a $100K house with $3K down may not be subprime while a $175K yr doctor buying a home for $950K that sold just two years ago for $650K and is putting only $5K down and taking out an interest only mortgage is a subprime loan. Krugman is right that the right is running with a meme that somehow the mortgage crises was about ‘poor brown people’ getting mortgages at the behest of Clinton and Barney Frank’s social engineering. Sorry low & even middle class Americans did not receive over $9T in funding in the latter half of Bush’s reign.

    Likewise he doesn’t really explain why interest rates should have been higher in the 00’s. Inflation was low and unemployment high. Most importantly of all, though, he ignores Krugman’s most powerful point, bubbles have been observed accross economic history under numerous policy regimes and scales. Rajen explains that Europe saw a Spanish bubble because their uniform interest rates were right for Germany but low for Spain. Fine but why would Germany buy billions of junk CDO’s? Were German politicans also trying to boost American lower-class ownership rates?

    It’s a good debate but the problem with Krugman partisanship is more often not on Krugman’s part but those suffering from Krugman Derangement Syndrom.

  3. #17 has the link from #5

  4. Boonton,
    That’s not the case (regarding the Democrat bill) as it didn’t actually remove the new tax on small business, just raised the accounting threshold.

  5. Boonton,

    Rajan seems just as likely to fall into the ‘politization’ trap

    I disagree. He has strong criticisms for both parties in his book … and he notes the same in his rebuttal (if I recall) to Krugman.

    . Fine but why would Germany buy billions of junk CDO’s? Were German politicans also trying to boost American lower-class ownership rates?

    Because Germany, like China is an economy driven by production. Currently the USA was the “consumption” sink for the world. Production based states, banks and entities were willing to make arms-length loans (CDO purchases) because they saw driving USA consumption as something forced markets for their production. Rajan points the issues arms-length investments had in the third world and later draws parallels to foreign investors doing the same thing regarding CDO swaps for which the risk was mistakenly set too low.

    I think it’s less a KDS problem than a Krugman Can Do No Wrong problem.

  6. The link in #17 should be here. (I’ll fix it).

  7. Boonton,
    You say “Krugman is right that the right is running with a meme that somehow the mortgage crises was about ‘poor brown people’ getting mortgages at the behest of Clinton and Barney Frank’s social engineering” …

    so what? Rajan is saying that the one of the four or so causes of the crises was the political push to sell mortgages at the behest of Clinton, Barney Frank, and GW Bush.

  8. That’s not the case (regarding the Democrat bill) as it didn’t actually remove the new tax on small business, just raised the accounting threshold.

    Actually this is not a tax but a reporting requirement. The $17B in revenue its being scored at taking in is taxes that are legally owed but are dodged. In terms of difficulty I think it’s being overstated, especially if you raise the exempt amount. Also if you allowed purchases made by debit or credit cards to be treated as not being reported because technically its the bank that is issuing the funds to the supplier (I don’t think there’s much point for contractors issuing 1099’s to Home Depot).

    Because Germany, like China is an economy driven by production. Currently the USA was the “consumption” sink for the world. Production based states, banks and entities were willing to make arms-length loans (CDO purchases)

    Here’s the problem, though. If banks were being pushed to make loans to people they didn’t really trust that wouldn’t really make finance companies eager to buy their CDO material and wouldn’t make Germany, China and other companies eager to buy the CDO’s. They could have brought safe things like US Treasuries or funded investment in their home countries. They brought CDO’s because they had good returns and they had good returns because people thought they were safe investments, not bad loans to deadbeats.

    If you asked a group of free market oriented economists five or ten years ago what would be the result of the gov’t doing a serious crackdown on bank lending focusing on increasing minority and low income loans they wouldn’t say a housing boom or a finance boom. They would say that banks would have lower profitability and they would pull back lending to everyone else resulting in higher interest rates and depressed housing prices as it would be harder to obtain a mortgage. This is a serious problem for the “Barney Frank” did it meme….that plus the fact that housing booms appeared around the world. Did every gov’t suddenly adopt a Clintonite ‘do goodism’ approach to bank regulation?

    Rajan points the issues arms-length investments had in the third world and later draws parallels to foreign investors doing the same thing regarding CDO swaps for which the risk was mistakenly set too low.

    This sounds like Rajen and Krugman are converging on the ‘savings glut’ hypothesis which basically says that countries like China earned lots of income through their exports but did not want to increase consumption or domestic investment. As a result anything that they could buy that seemed like it would a halfway decent return they brought, lowering rates in the US accross the board.

    so what? Rajan is saying that the one of the four or so causes of the crises was the political push to sell mortgages at the behest of Clinton, Barney Frank, and GW Bush

    A case that I think Rajan does not really make, even if its reduced to just one out of four.

  9. Boonton,

    A case that I think Rajan does not really make, even if its reduced to just one out of four.

    A point he doesn’t make where? In Krugman’s caricature of his book or in his reply. Because in his book he makes it very very clear that the Government program was one of a number of causes. His whole thesis is that “fracture lines” are the ultimate cause, a number of industries or movers (such as the Fan/Fred housing push) which each individually made sense … but each move done by the different people when taken alongside the other actions worked somewhat disastrously.

    Rajan’s hypothesis is not a “savings glut” hypothesis. If you take that away from the debate, Mr Krugman has done you a great disservice. By caricaturing and not engaging Mr Rajan’s thesis he’s cheated you.

    They brought CDO’s because they had good returns and they had good returns because people thought they were safe investments, not bad loans to deadbeats.

    Hmm. Sounds like you don’t know how the CDO’s where structured (I just finished that chapter of Rajan’s book, it was I must say, interesting how at an arms length how dumb the banks were w.r.t. CDOs and risk).

  10. Newsworthy or not?

    About a dozen people protested something in the US one evening, holding up pictures of people they don’t like with Hitler mustaches painted on them? I understand you come from a very small town, I can assure you living in a shadow of a vast metropolis of the NYC area that this is hardly newsworthy.

  11. A point he doesn’t make where? In Krugman’s caricature of his book or in his reply. Because in his book he makes it very very clear that the Government program was one of a number of causes.

    Your brother-in-law getting his real estate license can also be said to be ‘one of the causes’ of the housing bubble if we define ‘one of’ in a sufficiently loose way. “One of four”, though, implies at least a serious degree of causality. As I said I don’t think Rajen addresses the fact that his evidence of a ‘gov’t housing push’ can just as clearly be read as evidence of a housing push pulling gov’t along with it.

    Rajan’s hypothesis is not a “savings glut” hypothesis. If you take that away from the debate, Mr Krugman has done you a great disservice.

    I’m taking that away from your description of the reason why countries opted to buy CDOs even though they were supposedly bad. They had nowhere else to put their money other than in US consumption. But that’s basically a savings glut, you have all this money you don’t want to spend so you buy whatever investment vehicle you can find.

    Hmm. Sounds like you don’t know how the CDO’s where structured (I just finished that chapter of Rajan’s book, it was I must say, interesting how at an arms length how dumb the banks were w.r.t. CDOs and risk).

    From what I read it sounds like the little ditty Krugman posted in his review sums it up nicely:

    Mary had a little lamb,
    And when she saw it sicken,
    She shipped it off to Packingtown,
    And now it’s labeled chicken

    What is amazing about them is that so many seemed absolutely horrible resulting in losses greater than even the foreclosure rate. It’s almost as if, ala The Producers, the quants were trying to design an investment to generate losses.

  12. Boonton,
    I see, a Democratic candidate has a few dozen supporters dress like Nazis go to a Tea Party gathering to discredit the opposition isn’t newsworthy? Hmm.

  13. Actually in the video it appeared more like a dozen, not few dozen. Also I’m not sure how this would discredit the Tea Party Gathering. If you’re carrying around a poster of Sarah Palin in Hitler guise are people really going to think you’re part of the Tea Party or part of a group protesting the Tea Party? Also I missed the link to the Democratic candidate. Did the candidate direct this group to do this or is this simply a group of people who don’t like the Tea Party?

  14. Boonton,
    The report was that the group was observed returning to a Democrat candidates campaign office afterwards. There may have been photographic evidence of that.

  15. Boonton,
    Confusing ditties aside, if I might try to summarize the Bank/CDO logic in a way that doesn’t assume they were trying to generate an investment designed to fail as follows.

    There is a lot of pressure on investment managers to “beat the market” on a regular basis. Now even if a few bright boys can regularly do this, because they have a special genius or something, most managers will not. But there is an enormous pressure to do so. The basic of the CDO makes sense. Take 10 “shares” with a 10% risk of failure, repackage into two pieces, one “higher risk” on the bet that “one or none fail” and another lower risk one that says less than two fail. This sort of formula works if the the failures of the pieces which are packaged are uncorrelated. They were not. Many bankers and managers knew this but … because ignoring that was a good way to get ahead of that curve, they did.

    Additionally the Fed was sending definite signals that if the pieces fell apart, the Fed would step in a “make it right,” which alas is how it basically turned out (to the taxpayers regret).

    You really really need to read the book. Trying to glean Rajan’s argument from Krugman’s caricature or even Rajan’s three paragraph summaries of an entire chapter of a book ain’t going to cut it. If you want to do justice to the argument you have to read it. Fault Lines: How Hidden Fractures Still Threaten the World Economy

  16. The report was that the group was observed returning to a Democrat candidates campaign office afterwards. There may have been photographic evidence of that.

    Odd that they managed to tape the protestors but no one bothered to record that nor was it mentioned in the story. More importantly that still doesn’t answer the question. Were they operating as part of the candidate’s campaign or were they simply people who didn’t like the Tea Party and operated on their own.

    In terms of newsworthy, look a dozen people doing a protest using giant pictures of famous people ‘Hitlerized’ by a dab of black paint is hardly much news IMO. I’m not quite getting the part about trying to ‘discredit the Tea Party’? If they were a ‘dirty tricks’ squad trying to make the Tea Party look like Nazis wouldn’t they carry Hiterized pics of Obama rather than Palin and the GOP candidate?

    CDO’s

    There is the motto that in a panic all correlations go to one. In other words assets that usually move in opposite directions will all crash if everyone runs for the hills at once.

    Additionally the Fed was sending definite signals that if the pieces fell apart, the Fed would step in a “make it right,” which alas is how it basically turned out (to the taxpayers regret).

    Well not quite. CDO investors got smashed. Stock holders of ‘bailed out’ companies likewise got smashed. If you owned lots of shares of Fannie Mae, GM, AIG you aren’t sending the TARP manager anything for Christmas this year. More importantly, Lehman Brothers was allowed to fail. Its failure revealed that the nest of contracts was so intwined that simply letting the market work to wipe out the financial firms would have generated a massive collapse.

    I will read the book when I can. Where are you with Battlestar Galactica?

  17. Boonton,
    On BSG I’m close to the end of the 2nd season. When the weather worsens and I stop riding outside … my voracious video consumption while biking will resume.

    AIG? Goldman? Smashed or recovered?

  18. Boonton,
    More details on the little Tea Party thing here.

  19. OK so we know:

    1. These weren’t plants, i.e. agent provakatours. (sp).

    2. You’ve shown that the people who like to hold up signs depicting Palin/Beck/or whoever the GOP candidate is as Hitler tend to be people who volunteer to work campaigns for Democrats. That’s actually a whole lot of nothing.

    3. It’s a dozen people as I count in the video posted, not ‘dozens’.

    4. Since when do house races get a lot of coverage anyway?

  20. Or maybe they were Tea Party supporters. After all if you think 40% of Tea Partiers are Dems then maybe they were Tea Partiers who wanted the Party to endorse the Democratic candidate in the house race and were made because people like Beck, Palin and the rest of the party didn’t. Take that Mr. 40%

  21. Boonton,
    As the link points out they were bussed to and from an opposing Democratic candidates campaign office makes your suggestion likely or not? Why do you resist the notion that this office decided to engaging in some election shenanigans that have sort of backfired?

  22. Bussed? Your link says:

    “Because the protestors climbed onto some buses, and they were followed.”

    This could be either a regular transit bus or a chartered bus. If it was a chartered bus the proper journalistic thing to do would be to ask who paid for it.

  23. Boonton,

    If it was a chartered bus the proper journalistic thing to do would be to ask who paid for it.

    And we started this with the note that a Joliet paper wasn’t doing its due diligence. It seems we agree.

  24. Well the phrasing seems to indicate that because they boarded a bus it was easy to follow them. To me that implies a public transit bus. Then again it’s not an amazing feat for 12 people to charter a bus, they don’t cost that much. Again as newsworthy things go this does not seem like a very impressive demonstration.

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