Make better cars.
I know the problem is a bit more complicated than that. As I understand it, GM's problems are not making cars, but making cars at a price low enough so people are willing to pay, but high enough to cover their expenses (much of which are in the form of pensions).
If we have to have a bailout so to speak why not do it by buying out the automakers' pension plans in exchange for stock? If they still can't compete, sell the stock to Toyota as part of a takeover; if they can now compete, sell the stock to investors to recoup the money.
It's still a bit too socialist for me, but better than throwing money down a rathole. This way the problem might actually be solved.
Tuesday, November 18, 2008
Implications of multiple Government Market Interference Attempts
Political science has taught me several things about government decisionmaking. Most importantly in relation to the current market situation is the fact that we are clearly on a slippery slope toward massive and ill-advised government interference. Unlike many slippery slopes this one is not likely to take a long time.
Almost every day we hear: “We have already done this; why should we not do that?” Spencer called this is a “blank form of an inquiry.” Just fill in the relevant blanks for “this” and “that” and you get an argument of sorts.
One of the most important of these mechanisms is the “cost-lowering” slippery slope. Once the $700 billion bailout fund for the Treasury was created it became cheaper for particular interests to lobby for their share of the pot. (After all, the pot is already there.) What was little noticed by the general public in the discussion of that legislation was that the Treasury was permitted to do much more than buy troubled assets with the $700 billion.
More exactly, troubled assets were defined not only as mortgages or securities based on mortgages but any other financial instrument necessary to promote financial market stability. Buying preferred stock in exchange for capital infusion in any company is permitted. In fact, the original plan of buying mortgage-backed securities has been abandoned! Treasury Secretary Hank Paulson now sees financial stability needs in the sectors that provide auto loans, student loans and credit cards. Of course, the large industrial lenders like GE Capital and GMAC (financing part of General Motors) will probably be included when they reclassify themselves as banks or bank-holding companies.The next Administration has sent clear signals that financial stability requires saving declining manufacturing like the auto industry.
Cost-lowering slopes can be supplemented by “attitude-altering” slopes. This is what Herbert Spencer referred to as “the blank form of an inquiry.” We have heard for weeks now that if Wall Street can be bailed out, then why not Main Street? The implication is, of course, that the first idea was a good one. Why else would the Congress and the president have approved it? (Poor argument.) And that the second idea is sufficiently similar in its economic impact. (Shall we invoke systemic risk again? Populism? Dime-store ethics? ) So now there is a proposal from the Bush Administration to have Fannie Mae and Freddie Mac alter the mortgage terms for homeowners in danger of default. But since only 20 perecent of so of the distressed mortgages are with these giants, the government is urging other mortgage lenders to change the terms. But can they alter the terms when the mortgages have been bundled and resold? Must these new investors approve? Clearly, this will be a legal nightmare. Any remaining obstacles to the impairment of the original contractual obligations may well fall.
Those of us who put stock in slippery slope arguments used to say that that the slope proceeds little-by-little – as if we were on a continuum. But now the steps are big, the sliding will be fast and the costs will be big. It is one thing to try to avoid a deflation by preventing the collapse of the monetary base; it is quite another thing to try to avoid the discipline of the market and the necessary reallocation of resources by insulating firms and individuals from losses. This is tantamount to trying to annul the market. It will not be successful but, in the meanwhile, we must worry about the consequences of the attempt. More to come I fear.
Almost every day we hear: “We have already done this; why should we not do that?” Spencer called this is a “blank form of an inquiry.” Just fill in the relevant blanks for “this” and “that” and you get an argument of sorts.
One of the most important of these mechanisms is the “cost-lowering” slippery slope. Once the $700 billion bailout fund for the Treasury was created it became cheaper for particular interests to lobby for their share of the pot. (After all, the pot is already there.) What was little noticed by the general public in the discussion of that legislation was that the Treasury was permitted to do much more than buy troubled assets with the $700 billion.
More exactly, troubled assets were defined not only as mortgages or securities based on mortgages but any other financial instrument necessary to promote financial market stability. Buying preferred stock in exchange for capital infusion in any company is permitted. In fact, the original plan of buying mortgage-backed securities has been abandoned! Treasury Secretary Hank Paulson now sees financial stability needs in the sectors that provide auto loans, student loans and credit cards. Of course, the large industrial lenders like GE Capital and GMAC (financing part of General Motors) will probably be included when they reclassify themselves as banks or bank-holding companies.The next Administration has sent clear signals that financial stability requires saving declining manufacturing like the auto industry.
Cost-lowering slopes can be supplemented by “attitude-altering” slopes. This is what Herbert Spencer referred to as “the blank form of an inquiry.” We have heard for weeks now that if Wall Street can be bailed out, then why not Main Street? The implication is, of course, that the first idea was a good one. Why else would the Congress and the president have approved it? (Poor argument.) And that the second idea is sufficiently similar in its economic impact. (Shall we invoke systemic risk again? Populism? Dime-store ethics? ) So now there is a proposal from the Bush Administration to have Fannie Mae and Freddie Mac alter the mortgage terms for homeowners in danger of default. But since only 20 perecent of so of the distressed mortgages are with these giants, the government is urging other mortgage lenders to change the terms. But can they alter the terms when the mortgages have been bundled and resold? Must these new investors approve? Clearly, this will be a legal nightmare. Any remaining obstacles to the impairment of the original contractual obligations may well fall.
Those of us who put stock in slippery slope arguments used to say that that the slope proceeds little-by-little – as if we were on a continuum. But now the steps are big, the sliding will be fast and the costs will be big. It is one thing to try to avoid a deflation by preventing the collapse of the monetary base; it is quite another thing to try to avoid the discipline of the market and the necessary reallocation of resources by insulating firms and individuals from losses. This is tantamount to trying to annul the market. It will not be successful but, in the meanwhile, we must worry about the consequences of the attempt. More to come I fear.
Monday, November 17, 2008
Thoughts on Bureaucracy: Fannie Mae and Freddie Mac
These government sponsored enterprises like Freddie and Fannie are curious, because there’s no obvious reason for them to exist in the form they do: instead of creating private companies to do all these jobs, the government could just do them itself. In fact, that’s how Fannie Mae got started, back in 1938: originally, it was a government agency endowed with the authority to buy mortgages, in the hope that this would expand the supply of credit to homeowners. It wasn’t until 1968 that Fannie was privatized. (Freddie Mac was created two years later, and was private from the start.) The main reason for the change was surprisingly mundane: accounting. At the time, Lyndon Johnson was concerned about the effect of the Vietnam War on the federal budget. Making Fannie Mae private moved its liabilities off the government’s books, even if, as the recent crisis made clear, the U.S. was still responsible for those debts. It was a bit like what Enron did thirty years later, when it used “special-purpose entities” to move liabilities off its balance sheet.
...
Do we need Fannie and Freddie at all? Their supposed reason for being is that their ability to borrow money at low rates lowers borrowing costs for homeowners. But a paper by the economist Wayne Passmore, of the Federal Reserve, suggests that in fact Fannie and Freddie have only a small effect on the interest rates that homeowners pay, saving them less than one-tenth of a percentage point. More important, if the last few years have taught us anything, it’s that homeownership is not an unalloyed economic good, and that we should be cautious about using gimmicks to make it more attractive. The government already offers homeowners a subsidy, in the form of a mortgage tax break. Given everything else we could be spending taxpayer money on, does the government really need to be in the mortgage-buying business, too?
...
Do we need Fannie and Freddie at all? Their supposed reason for being is that their ability to borrow money at low rates lowers borrowing costs for homeowners. But a paper by the economist Wayne Passmore, of the Federal Reserve, suggests that in fact Fannie and Freddie have only a small effect on the interest rates that homeowners pay, saving them less than one-tenth of a percentage point. More important, if the last few years have taught us anything, it’s that homeownership is not an unalloyed economic good, and that we should be cautious about using gimmicks to make it more attractive. The government already offers homeowners a subsidy, in the form of a mortgage tax break. Given everything else we could be spending taxpayer money on, does the government really need to be in the mortgage-buying business, too?
Sunday, November 16, 2008
Stat of the Day
In Nevada, one in every 118 households received a foreclosure-related notice in May, more than four times the national rate.
Saturday, November 15, 2008
Greenspan: Part of the Problem
So Alan Greenspan was on ABC about a month ago and once again reporters could not connect him to this mess. To introduce Greenspan ABC said, "For more on this we are now joined by the man who knows more about these problems than just about anyone else in the country, former chairman of the Federal Reserve, Alan Greenspan."
In retrospect, we would all be much better off right now if he'd known more about a few "potential" problems five or six years ago, rather than keeping the gas pedal pegged to the floorboard while looking the other way as all sorts of mischief began on Wall Street.
Looking back, maybe all that energy spent heaping praise on "financial innovation" and the "diversification of risk" - that same "innovation" and "diversification" that now seem to have brought the world just past the point where Wile E. Coyote realizes there is no ground beneath his feet - might have been better spent mustering just a small bit of skepticism.
The whole country believed there was such a thing as "a free lunch".
Now it turns out there isn't.
The former Fed chief once again identified home price stability as the key to financial market stability, an argument that could also have been made back when home prices were going up as fast as they are now going down.
That is, when everyone was growing rich beyond their wildest dreams without even breaking a sweat, simply because they owned a home.
Americans turned to their equally-rich neighbors and said, "What a country!"
Today, they are saying the same thing, but with a decidedly different tone.
His best guess for home prices leveling off is early-2009, so, anyone thinking about making a home purchase should adjust their buying plans accordingly (i.e., wait until late-2009 at least, since, over the past six years, the former Fed chairman is batting about 0-for-1,000 in his housing market predictions).
It is truly amazing the amount of hubris that is still in this man given what now lies in his wake. In his own revisionist history, he portrays himself as something of an innocent bystander, helpless to effect change at the time, yet lending a hand as best he can now.
While not entirely to blame for what is unfolding, he was a very big cog in the machine.
It is also truly amazing that so many in the media continue to be incapable of connecting some very large, simple dots over the last 25 years.
In retrospect, we would all be much better off right now if he'd known more about a few "potential" problems five or six years ago, rather than keeping the gas pedal pegged to the floorboard while looking the other way as all sorts of mischief began on Wall Street.
Looking back, maybe all that energy spent heaping praise on "financial innovation" and the "diversification of risk" - that same "innovation" and "diversification" that now seem to have brought the world just past the point where Wile E. Coyote realizes there is no ground beneath his feet - might have been better spent mustering just a small bit of skepticism.
The whole country believed there was such a thing as "a free lunch".
Now it turns out there isn't.
The former Fed chief once again identified home price stability as the key to financial market stability, an argument that could also have been made back when home prices were going up as fast as they are now going down.
That is, when everyone was growing rich beyond their wildest dreams without even breaking a sweat, simply because they owned a home.
Americans turned to their equally-rich neighbors and said, "What a country!"
Today, they are saying the same thing, but with a decidedly different tone.
His best guess for home prices leveling off is early-2009, so, anyone thinking about making a home purchase should adjust their buying plans accordingly (i.e., wait until late-2009 at least, since, over the past six years, the former Fed chairman is batting about 0-for-1,000 in his housing market predictions).
It is truly amazing the amount of hubris that is still in this man given what now lies in his wake. In his own revisionist history, he portrays himself as something of an innocent bystander, helpless to effect change at the time, yet lending a hand as best he can now.
While not entirely to blame for what is unfolding, he was a very big cog in the machine.
It is also truly amazing that so many in the media continue to be incapable of connecting some very large, simple dots over the last 25 years.
Friday, November 14, 2008
The Wisdom of Ron Paul
Thursday, November 13, 2008
Factoid Day!!!
The second and third presidents - John Adams and Thomas Jefferson - both died on July 4th, 1826, exactly 50 years after the signing of the Declaration of Independence.
Wednesday, November 12, 2008
Spiderman, Spiderman, does whatever a spider can
Spiderman, Spiderman,Does whatever a spider can
Spins a web, any size,
Catches thieves just like flies
Look Out!
Here comes the Spiderman.
Is he strong?
Listen bud,
He's got radioactive blood.
Can he swing from a thread
Take a look overhead
Hey, there
There goes the Spiderman.
In the chill of night
At the scene of a crime
Like a streak of light
He arrives just in time.
Spiderman, Spiderman
Friendly neighborhood Spiderman
Wealth and fame
He's ignored
Action is his reward.
To him, life is a great big bang up
Whenever there's a hang up
You'll find the Spider man.
Tuesday, November 11, 2008
Monday, November 10, 2008
How to treat loose women
By the time I have a son they'll be pre-programing him with information before he is three so I figure I should have data ready to enter. Here is one of the first things my kid is going to learn:
When my son enters "Whore's Glore" he'll know how to handle these lovely ladies. Especially the lonely housewives and lesbians.
When my son enters "Whore's Glore" he'll know how to handle these lovely ladies. Especially the lonely housewives and lesbians.
Crocodile Plastic Box of Death
"The Australians, not content to dive in the ocean deep with a mere shark cage, have taken to hopping in the water with 19.6ft long salt water crocodiles using nothing but 4cm of acrylic plastic to keep them safe. As the croc gnashes its teeth against the cage, you piss your pants, the wife takes some pics, and we once again reaffirm why dolphins are actually the dominant species on the planet. The croc in question here, Choppa, was selected for this humiliating assignment because he lost two front teeth while fighting with some other 2,000lb. crocodiles at the Crocosaurus Cove amusement park.
"In the Northern Territory, the saltwater crocodile is an icon and is part of our life. They are always in the news, either in someone's swimming pool or killing someone's favorite horse," said Michael "That's not a knife, this is a knife" Scott, who opened the cage in July.
There have been no fatalities yet, although there are apparently some noticeable gashes in the plastic from the Choppa's remaining teeth."Home Prices: Death Spiral
The S&P Case Shiller Home Price Index shows nine new all-time records for annual price declines, ten areas with double-digit drops, and seven areas with losses exceeding 20 percent. 
The 10-City Composite posted a new record decline of 16.9 percent and the 20-City Composite recorded a record drop of 15.8 percent paced by Las Vegas and Miami, two former housing bubble hotspots that now appear to be in some sort of death match with both losing badly.
Phoenix looks likes it wants to get in there too and "mix it up".
The 10-City Composite posted a new record decline of 16.9 percent and the 20-City Composite recorded a record drop of 15.8 percent paced by Las Vegas and Miami, two former housing bubble hotspots that now appear to be in some sort of death match with both losing badly.
Phoenix looks likes it wants to get in there too and "mix it up".
Obama's Plan for GITMO Detainees
I just read the article announcing Obama's plan on detainees held at Guantanamo Bay, Cuba (GITMO). I have mixed feelings about this, but until I read about more details I have a rather positive overall view so far. From what I understand Obama plans on releasing some people at GIMTO (problem the Uighers). Another group he will criminally prosecute in U.S. civilian courts. And here is what the article has said about the third group:
A third group of detainees — the ones whose cases are most entangled in highly classified information — might have to go before a new court designed especially to handle sensitive national security cases, according to advisers and Democrats involved in the talks. Advisers participating directly in the planning spoke on condition of anonymity because the plans aren't final.I for one might have problems with Obama's plan for the thrid group of detainnes. Will U.S. citizens be tired in this new court as well? What are the due process rights for these individuals? Also, a new court implies that the U.S. civilian courts can't handle classified information. What about the pentagon papers in New York Times v. U.S.? Didn't civilian courts review that case? Not sure why Obama thinks it is necessary to establish a court for one group of detainees but use the civilian courts for another.
Are the falling home prices the root cause of the financial crisis?
No. Falling home prices are not the root cause of the current mess. The root cause of the problem in housing today is that, for the last twenty years, the U.S. has had a "bubble economy" where money flows from one asset class to another, inflating prices beyond any reasonable measure of fair value.
By any historical standard, home prices are still too high. To think that if we can just stop home prices from falling and then, maybe, get them to go back up is a child-like view of the fundamental problems facing us today.
Until more people realize this, progress toward real solutions will not be made.
By any historical standard, home prices are still too high. To think that if we can just stop home prices from falling and then, maybe, get them to go back up is a child-like view of the fundamental problems facing us today.
Until more people realize this, progress toward real solutions will not be made.
Sunday, November 09, 2008
Ballout Spending
For those too sozzled to track what we're spending on on bailouts these days, here's a quick tally:
# $29 billion for Bear Stearns
# $143.8 billion for AIG (thus far, it keeps growing)
# $100 billion for Fannie Mae
# $100 billion for Freddie Mac
# $700 billion for Wall Street, including Bank of America (Merrill Lynch), Citigroup, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman Sachs, and a lot more
# $25 billion for The Big Three in Detroit
# $8 billion for IndyMac
# $150 billion stimulus package (from January)
# $50 billion for money market funds
# $138 billion for Lehman Bros. (post bankruptcy) through JP Morgan
# $620 billion for general currency swaps from the Fed
# Rough total: $2,063,800,000,000
That's a little over $6,800 for every man, woman, and child, or just under $15,000 for each of America's 140 million taxpayers.
# $29 billion for Bear Stearns
# $143.8 billion for AIG (thus far, it keeps growing)
# $100 billion for Fannie Mae
# $100 billion for Freddie Mac
# $700 billion for Wall Street, including Bank of America (Merrill Lynch), Citigroup, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman Sachs, and a lot more
# $25 billion for The Big Three in Detroit
# $8 billion for IndyMac
# $150 billion stimulus package (from January)
# $50 billion for money market funds
# $138 billion for Lehman Bros. (post bankruptcy) through JP Morgan
# $620 billion for general currency swaps from the Fed
# Rough total: $2,063,800,000,000
That's a little over $6,800 for every man, woman, and child, or just under $15,000 for each of America's 140 million taxpayers.
Saturday, November 08, 2008
Why Obama and Democrats are wrong!
Obama supporters already feeling let down:
"I want my money today! It's my money. I want it right now!" yelled one former campaign worker.Eerie, isn't it? Like looking into the future.
The large gathering of around 375 people prompted police to call in extra officers and set up temporary barricades....Eventually people did start getting paid, but some said they were missing hours and told to fill in paperwork making their claim and that eventually they would get a check in the mail.
"Still that's not right. I'm disappointed. I'm glad for the president, but I'm disappointed in this system," said Diane Jefferson.
Comedians Declare They Just Can't Find Anything At All Funny About Barack Obama
So I guess the media is wondering if comedians will make fun of the Choosen One. Guess that is a negative by this account:
U.S. comedian Bill Maher said last month that having Barack Obama as the next president would make life difficult for comics because it was not easy to find things about the president-elect to make fun of.In fairness, Bill Maher can't find anything funny about pretty much any topic.
This Day in 1994
After a 40-year Democrat domination, the Republican Party gained control of the U.S. House of Representatives, as well as a Senate majority.
Remember party domination is neither assured or permanent.
Remember party domination is neither assured or permanent.
Friday, November 07, 2008
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