Monday, December 22, 2008

Not going to live in California forever

Reason #n why I'm not going to be in California forever: this ruling. The most recent in a long line of idiotic rulings from California's idiot brigade (aka our "Supreme" Court) has found again that you can indeed be sued for trying to save someone's life in an emergency. This after the last time they found the same thing, and the Legislature passed a law giving people immunity (a "Good Samaritan" law). Apparently, the idiots decided that the law doesn't apply to people who are not being good enough helpers, decided after the fact by the idiots, thus circumventing the entire purpose of the law.

California: nice place, except for the people.

Thursday, December 18, 2008

Zero-day budget creation

So I had an idea this morning for how California could pass a balanced budget in about one day of work. Now, I'm sure this is not a new idea, or restricted to just California, but I think it could work pretty well. Of course, like all other good ideas for helping a government function effectively, it's doomed to be ignored... but I'll post it anyway.

See, the problem in California is that the current process never works. You need a 2/3 majority to raise taxes/fees here (which is great), which means it's near-impossible to draft a partisan budget and ram it though the other party. Since politicians rarely negotiate with the other party, this means we have no budget for a long time, until enough time passes that enough people can get on-board with the "work around the law" plan. At no point does the system really produce a viable budget, or produce the desirable negotiation or compromise; moreover, it typically results in shortfalls, delays, and months of wasted time/effort.

So, here's my thought/proposal:

On the last day before a budget is due, if no balanced budget has been passed, the legislature will do a "zero-day budget". To do this, take all the major categories for the budget, and put them in a list in random order. Set whatever minimums are required by law for each category, and compute the total (which we'll call the "running total"). You also need the budget total, derived from the income projection for the next year, which we'll call the "limit". In addition, you need an "increment", which can be a fixed fraction of the total budget for all categories (eg: 1/1000), possibly rounded to a round number. Finally, you want some fast voting mechanism (eg: electronic, 30 sec timeout), which we'll call a "quick vote".

Now, starting with the first category in the list, and at its minimum budget value:

1. Increase the budget value by the increment, and hold a quick vote. While 2/3 of the legislature approves, increase the running total and repeat step 1.
2. When you fail a 2/3 vote, move to the next category and go to step 1.
3. If the running total plus one increment exceeds the limit, you are done. The totals allocated for every category are the budget for the next year, to be further subdivided by the administration for each category. This includes categories you didn't reach in the first round (if any).
4. If you reach the end of the list of categories, and you're under the limit, you can do one additional pass through the categories using the same mechanism, starting with the totals from the previous round. If the second round is also goes to completion, you have a budget (and a surplus for the year).

- The zero-day budget has no provision for increasing taxes/fees as part of the budget process, as designed. These should be approved independent of the budget itself by the normal 2/3 vote plus executive approval.
- The process doesn't have to occur on the last day before the budget is due, if the state wants to have a budget sooner.

That's my thought, anyway.

Tuesday, December 16, 2008

Important PR for the government

I expect that in light of the recent Fed rate changes, the implicit effects those will have on inflation, and the [obvious] statement that the Fed will have to very carefully contain inflation expectation, this page will be very important PR for the government in the next few years. On it, the BLS quotes a couple of BLS economists spewing utter BS about how the CPI is not bogus, and all the complete lies and statistic manipulation introduced over the year to keep the CPI artificially and incorrectly low is actually not utter BS.

Really, though... they might want to consider hiring a marketing team to advise them on how to appear credible. I'd guess if you're going to try lying to normal people, use pretty graphs and stay away from directly lying about simple, easy-to-understand facts. For example, when you say that hedonic regression is totally valid and not a blatant manipulation of the data, it just destroys your credibility with anyone who can understand the obvious lies you're spewing. Stick with time-tested, higher-level BS that everyone can relate to, like: "we're the government, we're here to help." Lies, PR, and statistics are hard to pull off credibly, and if you're going to convince people that inflation is under control as you print and spend trillions more every year, you might need more than this frankly pathetic first effort.

Monday, December 15, 2008

Opportunity to actually fix stuff

By now, pretty much everyone with an internet connection and a passing interest in the economy has heard about the Madoff hedge fund Ponzi scheme, and it's global fallout. Rather than dwell on this as an unmitigated disaster in financial oversight on the part of the SEC (it certainly is), or as a referendum on the utter failure of governmental oversight in preventing fraud (yep, that too), or even as a parallel to the pitfalls of non-transparent investment of enormous amounts of money in extremely questionable vehicles for ulterior motives (see: the Fed), I thought I'd instead hypothesize about how we could productively learn from this meltdown, and try to prevent future disasters when there inevitably is fraud.

Rather than get into the obvious (eg: effective oversight, which may be near impossible), or abolishing hedge funds in general (which does nothing, since the problem is fraud not hedge funds), I figure the best way to prevent fallout in the future is to take this opportunity to more clearly define who can, should, and cannot participate in "unsafe" investments such as unregulated hedge funds. See, they are already available only to "qualified" investors, which basically means people with enough assets that they can lose a lot and still be fine. That, as a basis, works well; it's in the secondary markets where it seems to break down.

See, the SEC doesn't track who invests in hedge funds, which effectively allows companies to "launder" the risk associated with them. For example, say a public company puts some of its assets in a hedge fund, and a pension fund buys shares in the public company. Now the public company meets the criteria of a "qualified" investor, so it's allowed to buy into hedge funds. However, the pension fund almost certainly should not be making risky investments, so it's buying public company stock instead of hedge funds. However, we have created a problem: if the hedge fund goes under, the public company loses lots of money, and thus so does the pension fund. In effect, the pension fund is investing in risky assets.

How to fix this? Well, I'd suggest a tracking qualification of "risk level", tracked by the SEC, based on underlying asset classes and purchases. As an entity offering an investment (company, fund, etc.), you should be required to maintain and publish your risk level, based on your investments and level of disclosure. This would allow every entity which should not be gambling in risky investments (eg: pension funds, banks, public corporations with retained assets, etc.) to be precluded from doing so at the organization level, without substantially increasing the regulatory or oversight burdens, which (as demonstrated) has no beneficial effects. Plus, if done correctly, you wouldn't have bubble explosions of risk like the most recent one, as ultra-risky investments like RMBS's backed by hopes of dreams (unrealistic ones at that) would be marked as "ultra-risky", and thus be precluded from ending up indirectly on the balance sheets of "essential" financial corporations or the government itself through risk laundering.

Simple solutions are usually the best.

Great video on government spending and the economy

Ever question if increased government spending might actually help the economy, rather than hurt it like every other time it has happened? Well, then this video is for you. You can learn many valuable things, like how wealth redistribution is not actual economic stimulus, and how big government causes the economy to grind to a virtual halt.

Of course, none of this is new, or particularly rocket science. What's amazing is that there are still people, in this country, today, who believe that big government will help them be more prosperous, and wonder why the government fabricating trillions of dollars to hand out to people could possibly be bad. I mean, it's like finding people who really do still believe the earth is flat: yeah, I'd guess they exist, but in America? Now? Roughly 50% of the voters? Boggles the mind.

Stay in school, kiddies; learn the basics of how the world works so you don't grow up dumb. When the nice man on TV talks about enormous "stimulus packages" of government deficit spending and how it's supposedly going to help you, ask your parents how socialist wealth redistribution helps you. Then hold onto that thought until your old enough to vote, and don't repeat the mistakes our generation is saddling you with.

Wednesday, December 10, 2008

Why banks aren't lending

Feel free to gloss over this post if the reasoning is also blatantly obvious to you, but it seems some [dense] people in the world are baffled that although banks have received upwards of $500 billion in direct cash injections from the government, as well as more than $2 trillion in US currency "loans" for their secret (and presumably worthless) collateral, yet private credit is still very tight, and most of the bank money is either in deposit at the Fed, or invested in Treasuries paying 0%. Well, let me explain why this is expected and easily predictable.

See, the country has been running on borrowed time/money for a while. We have destroyed our industrial base while simultaneously running up huge consumer debt. This combination has allowed people to continue living "the good life", despite the fact that our country runs a huge trade deficit, and policies which actively discourage industrial production, development, and wealth creation (eg: environmental restrictions). Add to that our large tax burden, unfunded long-term social service liabilities, and massive leveraging in the financial sector enabled by cheap money (ie: Greenspan's Fed policies, continued by Bernanke), and you have a very unstable and unsustainable system. Once it starts to crack a little, there's very little to stop the decline, until the whole system "bottoms out".

Now, there would be a number of things we could do better to stabilize the system. For example, we could encourage saving and people living within their means, instead of encouraging people to spend more than they earn, and convincing them that everyone is entitled to "the good life" without earning it. We could reduce the tax burden on individuals and private businesses, to encourage economic growth. We could encourage industrial growth and competition, to be competitive in global trade, and close the trade deficit. We could fix our long-term social liabilities in some manner. We could force the various local governments to balance their budgets, to stop deferring their liabilities with accounting tricks and relying on cheap borrowing to perpetuate their debt. We could raise the borrowing rates from the government to slow monetary expansion and discourage massive leveraging, as well as reduce tangible asset prices (such as housing prices), making those assets more affordable for everyone, while simultaneously reducing systemic risk in the financial industry. We could do any or all of those things, or other things, to make our future prosperity more viable.

Unfortunately, we have a government built on corruption and immediate gratification, and we're not doing any of those things. In fact, if you consider each of them, our government has not only chosen to not pursue any of the good plans, but has chosen to pursue exact opposite plans in most cases, which are assured to have at least no positive effects, and probably amplify the depression. But wait, that's not all! In addition to all our bone-headed policies, we the people have also elected a socialist leader to "fix" the problems by nationalizing industries, adding onerous health-care costs to private businesses, and distributing wealth away from the "evil" private businesses. In short, we've created the perfect storm of the exact wrong policies for every single element of fixing our economy and future prosperity: we have done everything possible to ensure economic failure.

Now, our economy is historically resilient despite governmental efforts to the contrary, but even optimistic people would concede that our economic suicidal obsession will probably win out this time. Banks see this clearly; it's their business after all. Why in the world would you loan money to a private business, when every short-term force and the vast power of the government are aligned to ensure that those businesses fail? Why would you loan money to individuals when most of them are already in massive debt, and the government is likely to eventually force you to forgive that debt (because you're an "evil" corporation)? It just doesn't make any sense at all.

Add to that various pseudo-government entities trying to lend money without respect to risk in order to keep asset valuations artificially inflated (eg: the FHA, because apparently non-affordable housing is a government priority worthy of spending your taxpayer money on), and you have a situation where private bank lending is not going to make sense while the government interference continues. Couple that with the government's strong desire to keep cheap credit flowing, and you'll get increasing cries for nationalization, as the banks continue to lose money because they are unable to lend in a way which makes business sense (being undercut by pseudo-government lending entities, which don't are about losing money). Some private businesses (eg: auto companies) will also be nationalized, to keep people "employed" in money-losing "industry" in a sort of unionized, above private sector employment welfare system. Eventually everything will need to be nationalized due to the inability to compete with the government (which is not concerned about making money), and outcries for equal compensation and benefits compared to previously nationalized workers. Soon thereafter we'll achieve the socialist "ideal", and we can all live happily ever after like everyone in all the previous socialist countries have.

Anyway, if you're curious why banks aren't lending, that's why; it's an easily predictable and inevitable consequence of our government policies, nothing more, nothing less.

Tuesday, December 9, 2008

"Paper" money and the financial games governments play

An interesting thing happened today: short-term Treasuries sold with negative returns (link). This means that you get less money back at maturity for them than you pay today; ie: worse than holding cash. "How can this happen?", you might be inclined to wonder. Therein lies a very interesting context and back-story...

See, in my mind it starts with the fractional reserve banking system and the Fed. The banking system is what allows currency in circulation to multiply, as banks loan out money based on fractional deposits. This allows the amount of loans outstanding (and consequently the amount of money outstanding) to be significantly larger than the actual sum of deposited "hard" money held by the banks as reserves on the loans. The mathematical maximum in additional money is 9x the "real" deposited money; in practice it's typically closer to 2x.

As an aside, derivatives also add "fake" money to the financial system. These are conditional debt instruments, where someone promises to pay someone else if something happens. Financial companies held these as assets, against liabilities they had incurred (borrowed money, other derivatives, etc.), which added to the total "fake" money in the system. This has disastrous effect if/when it comes to pay off all these debts and some player in the middle in insolvent, and the "unwinding" process makes everyone else also insolvent (eg: the financial meltdown in the US), but is tangential to the whole money game discussion.

Now enter the Fed. They print "real" money, in the form of federal reserve notes (aka US currency), which are one thing the banks are allowed to hold as "real" deposits. This is also what's used to "purchase" Treasury notes, which is what the government sells to finance its debt. So at long as the currency supply is relatively constant, it has meaning, and the financial system can function.

Only, recently, the Fed has been doing interesting things. For example, they have been making massive "loans" to undisclosed people/companies/nations for undisclosed terms and accepting undisclosed collateral, on the order of trillions of dollars. The money given out for these loans (from the Fed) is "real" money, US currency, accepted for banking reserves and able to be subsequently borrowed against. Also, the Fed isn't disclosing the interest rate it's charging, but the Fed officials have said they are expressly trying to "recapitalize" banks, so you can bet the rate is close to zero.

Now say you were an enterprising bank, with access to the secret backdoor Fed lending programs, and wanted to "recapitalize" yourself (ie: make more money to pay yourself with). You could borrow from the Fed, then buy US Treasuries! Whatever you make on the Treasuries is profit, with no risk. It's even better than that, though: you get to show the Fed's money on your balance sheet instead of whatever worthless collateral the Fed is [temporarily] laundering for you, and you can also borrow against that "real" money to buy more leveraged investments! Might as well, right... it's not like there's not more bailout money where that came from if it doesn't work out.

Which leads us to an interesting question: who exactly is funding our massive debt spending handout wealth-redistribution programs? Let's see: the Treasuries are being purchased by banks, who are borrowing the money from other banks, who are lending on the basis of fractional reserves of federal reserve notes, which are loans based on junk collateral held by the Fed. So in essence, the Fed, in coordination with the "paper" monetary expansion allowed by fractional reserve banking, is funding the massive national borrow and spend binge. Huh... interesting.

When does this end? When the Fed calls due the loans, which causes the same unwinding process which created the financial crisis in the first place; that is, never. So who's financing the debt? Nobody is; it's all "paper" money created by fractional reserve banking and loans of "real" money from the Fed. So can we continue to borrow/print money forever? Well, I think, technically yes, until the currency ceases to have any value at all. Cool, huh?

Saturday, December 6, 2008

On DRM and piracy

I'd like to point out that this article is pretty fricken funny: Spore was the top pirated game for 2008. If you're not laughing at the delicious poetic irony already, read on for the brief explanation...

See, Draconic Restriction Malware (DRM, also called Digital Rights Management by some marketing departments trying to distort the name to hide what it does) is software or other restriction devices which prevent purchasers from fully and arbitrarily using something they have purchased. Usually DRM is found in software, but the music industry is also well-known for abusing their customers with DRM, as are other well-known anti-consumer organizations.

Now, Spore was published by EA, and become fairly well-known not for the game itself, but for the particularly onerous DRM added by the publisher. In particular, one aspect of their Malware additions was the requirement that EA's servers be available online, your system communicate with them, and they allow you to play the game, every time you start the game (and possibly periodically while it was running). That means if EA ever had a system failure, or decided to shut off support, or wanted you to pay them more money later, or decided for any other reason to disable their server, you would no longer be able to play the game you purchased (due to the embedded Malware). Needless to say, potential purchasers were not amused, and EA lost an indeterminate amount of sales.

I should point out as an aside that the nominal reason people include DRM in their products is to prevent piracy. It's only a nominal reason, though, since studies have demonstrated conclusively that the piracy rate for games with DRM is identical to that of games without DRM, so in reality that rationale is non-existent. What DRM actually does is frustrate legitimate users, hamper sales, and build bad-will. I'm not sure why companies choose to add Malware to their products to accomplish this, but I'm also not running EA, so there could certainly be ulterior motives I'm not aware of.

Anyway, it comes as somewhat humorous irony, then, that Spore, possibly the most maligned DRM-infested game of the year, was also the most pirated game of the year, emphasizing all the previous points like a MAC-truck to the face of whoever made the DRM-inclusion decision at EA. Hope those ulterior motives were good, and enough to make up for the lost sales and good-will, otherwise that decision was probably one of the most colossal blunders of recent memory.

Friday, December 5, 2008

Idiot of the day

Today's nomination for Idiot of the Day goes to Tom Daschle, for his self-serving pronoucement that reforming health care will spur the US economy. Now, I'm sure Tom is as self-serving as any other [ex-]politician, but seriously, you'd have to be a moron to take that statement at face value.

Let's look at Obama's health-care reform plan, in a nutshell. He wants to make medical insurance mandatory for everyone, and he wants to make businesses pay for it (directly through penalties or indirectly through increased taxes). By socializing medial insurance, you'll get a standard baseline coverage plan for everyone, but at a higher overhead cost (because the government is horrible managing costs in enormous bureaucracies). So the change would increase health-care costs for businesses, while simultaneously increasing health-care taxation on businesses.

Maybe the great and mighty chosen one would like to explain how doubly increasing health-care costs is going to "spur the economy". Alternatively, maybe "spur" in this context means "trample and beat mercilessly until dead". All things considered, though, I'll go for option three: Tom Daschle is a self-serving, lying moron, and my nomination for Idiot of the Day.

Thursday, December 4, 2008

Bernanke is funny

So today, Bernanke commented that lenders were not doing what was in their best interest by modifying mortgages they service to keep people in homes they cannot afford. Now, I'm not sure when Benny became a comedian, but let's examine that pronouncement:

- By modifying the loans they don't own, banks would be violating the contracts with the owners of the securities, exposing themselves to lawsuit costs and judgments for the write-down value (normally the loss to the investor, which would become the bank's loss if they illegally modified the loans).

- The amount of write-down required to keep people in the houses they bought would, in many cases, be much larger than the current loss in value of the home, even subtracting the cost of foreclosure. Since foreclosure is still possible in the country (at least for two more months), it's still the most cost-effective option in those cases, even with the barriers the government is scurrying to erect. Strike two, Benny.

- Modifying loans keeps people in the house longer while the house continues to decrease in value, and if they default later (more than 50% of the loans modified so far have already defaulted again, something like 90% probably will eventually), the bank loses more money. No rational person thinks the housing market is going to magically stop correcting to where it should be any time soon, even the NAR (news flash: they lie). Moreover, the banks' situation is likely to get worse in a couple of months, when the socialists who don't give a rat's ass about preserving private businesses are running the country. Thus, the best thing the banks can do with obviously bad loans (financially speaking) is foreclose ASAP, while it's still possible. Strike three, Benny, you're a funny guy.

Now, you could take from this that Benny is just an idiot, and I wouldn't fault you, but I'd guess that's not correct. More likely, Benny knows exactly what's going on, but he's doing the same thing the auto executives are doing when they extol why they deserve a piece of the wealth redistribution programs for their otherwise admirably-run businesses: lying. Tell me again, uncle Benny, how the secret undisclosed assets the Fed is holding as collateral for trillions in US dollar loans (and thus are "as backed as US currency" in the financial sense) are totally safe (even though you can't tell anyone what they are), and the US people are not getting screwed by your backdoor unregulated shadow-government financial machinations... I like that fairy tale...

Wednesday, December 3, 2008

Cost of college

In a surprise to nobody, the explosion of cheap private credit has made college ridiculously expensive and unaffordable for many people. I'm sure we'll have lots of opinions from pundits and politicians on how we can help people mortgage their futures to send their kids to college, but I have a novel solution to the problem:

How about we stop giving out cheap loans to everyone and subsidizing the risk with public debt? "How does that help" you ask? Well, I'll explain.

See, lots of cheap money means everybody can borrow for things they consider important investments. Many people think college education fits in that category, so there has undoubtedly been lots of borrowing (mortgages, etc.) to finance college. That, in turn, drives up college prices, due to simple supply and demand.

If we reduced the flow of cheap borrowing, there would be less money competing for college spots, so prices would go down. It would also have the added bonus of reducing prices for all the other essential assets (making everything thought of as "essential" more affordable for everyone), as well as reducing systemic risk in the financial system. And, as if that wasn't enough, as an added bonus it would save the country money, instead of inflating the national debt by trillions trying to pay off the people who caused the housing crisis as a great big "thank you" present for causing the current state of the economy! Basically, a solid win on all counts.

No surprise, then, that the talking heads are all talking about doing the exact opposite, "worst reaction possible" sort of plan. It might be funny, in a way, if it wasn't my future livelihood being destroyed by idiocy.

Monday, December 1, 2008

Money supply explanation

Just wanted to point people at this post, cause the video is interesting. I'd also like to plug my response on the post, because I've been meaning to write my own blog entry on it, but for now the response will suffice. I'm not sure how important it is for the average person to understand how the money supply works, and coincidentally inflation/deflation, but I'm pretty sure it's vital that if we want to preserve our monetary system and likely our country as a whole, we get some people who do understand it and care about preserving it making decisions about it, instead of the hopelessly corrupt blithering idiots in Congress currently.

Tuesday, November 25, 2008

How dumb are people?

So despite the title, this is more of a scientific question than a rant per-se. See, the debate this morning was about how dumb the American people really are, and how long could a politician do exactly the opposite of what he said he was doing (or promised to be doing) before the people notice and get upset about it (if ever)? On one side, there's the fundamental belief that people have some intelligence, and eventually even the densest people will figure out that something is wrong. On the other side, blind allegiance really could blind people forever.

Case in point: Obama's administration. During his campaign, he constantly promised change, a departure from politics as usual, working for bi-partisan compromise, cutting wasteful government spending... all the standard political promises made by everyone. Now that he's been elected, he's appointing Washington insiders and liberal extremists, drafting enormous wasteful spending plans, gearing up for partisan fights... again, all politics as usual. But, and here's the interesting question: will his supporters ever notice that he's doing the exact opposite of what was promised?

It's like my tax idea in the previous post. I maintain that people really are that dumb: if we're spending 2 trillion more than we take in next year already, people won't get too upset if we add another 2 trillion and suspend all taxes. In fact, they will probably be ecstatic about the tax cuts, and completely ignore the deficit problem, as they are likely to do about the first 2 trillion we're already planning to over-spend on payoffs and handouts.

It gets back to the education problem: the voting populace, on average, needs to be much more intelligent and educated to get competent leaders into office who can enact real solutions to America's problems (instead of 2 trillion dollar payout programs to fiscally doom the country). Since I don't harbor illusions about being able to raise the education level in general, the only way I can think of to accomplish this is to change the voting criteria in some way, to lesson the impact of the uneducated moronic masses on the political process. I think this is probably the best possible thing we could do for the next political system.

On a semi-related note, I had another radical idea for voting. At this point I'm not sure it would be good, but it's an interesting thought. What if your vote was weighted by the total amount you personally paid in taxes over the previous term for the office you're voting on? Food for thought...

Monday, November 24, 2008

Why do we have taxes any more?

So an interesting thought occurred to me today, and only partially in jest. Our government has spent roughly 33% more last year than it's expected to take in in taxes, and committed 300% more in potential losses. By all accounts, we're going to have a "stimulus" handout bill at the start of next year totaling the same amount in the first month alone, with untold trillions borrowed and spent later that same year. We have an unfunded $55 trillion projected future obligation for social security and medicare, and no hope of ever funding it or fixing it. Yet, there seems to be no political will to curtail spending at all; in fact, by all accounts everyone wants to run the printing presses at full tilt, with no regard for the consequences.

Given that, and the current economic problems, why is the government still collecting taxes at all? The total tax income next year is projected to be well less than half of what we're already planning to borrow and spend anyway... why not just borrow the whole thing? Nobody seems to care about long-term solvency anyway, and everybody likes lower taxes. Heck, it would probably even help the economy, bringing some industries back into the US for tax savings. Plus, you could simplify the tax code immensely by eliminating it entirely, eliminating all unfair tax breaks, loopholes, incentives, and other free market manipulation.

If we're terminally ill and dying anyway, why should we have to suffer through our last days? Fire up the morphine, abolish the IRS, and lets make the most of the time we have left.

Thursday, November 6, 2008

My solution to the gay marriage issue

Here's what I think California, and the country in general, should do to solve the issue of gay marriage, in a way which would be at least palatable to both sides.

The fundamental problem is that the concept a marriage is rooted in societal customs, which are themselves largely rooted in religion. America was founded as a country in which the laws would not involve religion, but it inherited some concepts which were indirectly tied to religion, and this is now causing friction. For example, most of the gay marriage opponents are fine with gay civil unions, they just consider "marriage" to be a fundamental religious institution which should be protected, and to some extent I agree. To that end, I'd propose the following solution:

All references in the state Constitution and laws to "marriage" are changed to "civil union", and the state ceases to recognize "marriage" as a legal or civil concept. All existing marriages are re-characterized as "civil unions", and all applicable laws and procedures are updated accordingly. Any provisions which are made "incorrect" after the change (such as the Prop 8 change, which would then violate equal protections and contradict other laws) are deleted. State workers are allowed to refer to civil unions as "marriages" by convention if they prefer to, but the term "marriage" would no longer have legal meaning. The law would request other jurisdictions honor the civil unions with full faith and credit, using whatever terminology is most appropriate for the other jurisdiction.

This would separate the legal concept of a civil union from the religious concept of a marriage, which would have lots of benefits. Any marriage from any church, recognized or otherwise, could also be a civil union, or you could have a civil union without a religious marriage. Each religion could maintain their marriage requirements without state interference, and all civil unions would be viewed equally under the law. Everybody wins.

As an aside, this represents a very rate political issue where there appears to be a solution which would make everyone reasonably happy... those don't come along very often. If only we had politicians with the brains and balls to implement it.

The aftermath

So it's official: the next president of the US will be the representative from the Socialist party, Barrack Obama. True to form, the spin has already begun, with Obama already saying that the promised "change" and "good times" might take longer than one administration. Way to get a head start on lowering expectations; you're gonna need it.

I like to look at the positives when I can, though, and there are some silver linings to the dark cloud of socialist reform which is about the envelope the country. Among the positives:

  • Supreme Court appointments: Chances are we won't see any right-wing religious wackos appointed by Obama, which has to be a good thing
  • No super-majority in the Senate: It doesn't look like the Democrats will get enough seats in the Senate to be able to pass bills without getting at least a tiny semblance of bipartisan support, which has to be a good thing. Of course, with the apparent ease of bribing Congressional members to pass obscenely idiotic legislation with pork payoffs (see the $810 billion payoff bill) this may not account for much, but at least it's something.
  • Backlash in 2012: In reality, the country wasn't going to get better in the near term even with an optimal government; we've had many years of excesses which need to be corrected for. Obviously the Democrats will try their best to blame the continued decline of the economy over the next few years on after-effects of the Bush administration, but the public is only so gullible. I can hope that by 2012, at least the more intelligent independent voters will be able to see that socialism doesn't make the economy better, or raise the overall quality of life in the country.

On the downside, though, I predict much higher taxation and overall economic malaise in the next four years. The taxation will be direct for higher income individuals, and indirect for everyone (eg: higher costs for businesses per-employee, which lowers the amount they can pay people, and higher overhead costs forcing businesses to collapse). Moreover, I predict a substantially higher debt after four years of uncontrolled spending; I'm guessing around $14 trillion, but we shall see.

I guess we get to live in "interesting times".

Tuesday, October 21, 2008

Americans need a tax revolt

It occurs to me more and more often recently that the problem with taxation is not going to be fixed without a revolt. I was reminded of this with a news report about how voters in Massachusetts (Txachusetts?) are voting to eliminate their state income tax, and how all the politicians are bemoaning it as it would be horrible for the state. But I don't think so...

See, politicians in America always spend more money than they have. We have no sense of fiscal discipline, and we've run deficits at every level for so long that restraining spending is not really even a consideration any more. Look at the recent and upcoming stimulus and insider payoff packages: we've spent over a trillion dollars we don't have, when we're already $10 trillion in debt, and the only complaint was that the bills didn't have enough pork for everyone.

Eventually, this usually leads to higher taxes. For example, I predict that by the end of Obama's term(s), we will have substantially higher taxes, all his empty rhetoric promises aside. It's a somewhat inevitable consequence of socialist policies (and, I should point out, not uniformly undesirable among those advocating socialist wealth re-distribution like Obama). This is a good thing if you're an insider sucking off the teet of the ruling socialist party, and sucks if you're an average person trying to make a living and being sucked dry by said party.

What we need, as a country, is a hard limit to the amount of taxes any person is required to pay. I would make it in terms of percentage of income, since that's the form of taxes currently, although if we had a more sensible taxation system based on consumption it could certainly be a hard limit on consumption tax percentage. I think the current amount necessary to fund the federal government is around 22%, but I could be off by a bit.

Would this stop the government from running up deficits and spending more than they take in? Certainly not. However, it would likely prevent the periodic expansions of socialism in the country from draining the life-blood of the American dream from the people in the process, and give people a sense of stability with respect to the financial parasite which is our government. Moreover, when the government eventually runs out of money entirely and collapses from the weight of generations of financial malfeasance, at least the citizens will not have suffered unduly in the interim, and possibly as a result the country's economy might still be strong when the next government emerges.

That's my opinion anyway.

Monday, October 20, 2008

Open Letter to Warren Buffet

Not that he would actually read anything posted on an unknown blog, but I'm going to write in this style anyway...

Dear Mr. Buffet,

Recently you submitted a NYTimes opinion piece about it being a good time to invest in American equities. I have long been a believer in your wisdom when it comes to investing, but this recommendation raises some interesting questions which were not directly addressed in your piece, and I'm wondering if you could/would provide some much needed clarifications to your position.

First, as a supporter and adviser of Obama, I assume you are intimately familiar with his proposed and likely economic policies. Furthermore, I think most people would agree that you have a very broad understanding of the current global economic situation, and particularly the US situation. Given this, it seems clear that you would realize that the US is likely headed for the largest expansion of both government function and government oversight since the last time the current economic and political factors prevailed here in the 1930's. Historically, massive expansion of government oversight and function, nationalization of industries, and vilification of capitalism and industry by the prevailing political party has been very detrimental for corporations in America. Why do you believe that this time it will be different?

Secondly, your investment philosophy espouses buying stock in companies only when their fundamentals justify a reliable dividend return in excess of what can be received from traditional "safe" alternatives such as bonds and savings accounts. Yet in the current market, there are still few companies which dividend returns which would meet this criteria, and many of these are in the financial industry. With many insolvent financial companies only being kept alive by unprecedented unilateral revolving lending now in excess of a trillion dollars by the Federal Reserve, it's hard to fathom that you would consider those companies "safe" potential investments. How has your investment philosophy changed such that you would recommend this now?

- Me

Thursday, October 9, 2008

Self-reinforcing trends

There's a lot of talk these days about how to "fix" the problems in the economy. One of the major causes of both the initial problems, and the problems with the proposed solutions, is the concept of self-reinforcing trends (or spirals). Often these can cause problems to get much worse, and its hard to prevent them if you don't know (or choose to ignore) what's going on.

For example, the housing bubble was such a trend. As prices went up, lenders figured they could give a loan to anyone with a pulse and the ability to make a teaser rate payment, even if they were accruing negative equity, because when they sold in a few years the rise in asset valuation would cover the balance of the loan and then some. Buyers figured the same thing, which led to many people speculating on the premise of getting rich quick with virtually no effort required.

The housing correction has a similar trend, only in reverse. As house values decline, speculators default. Their foreclosed homes are resold for market value, which pushes prices further down, causing more people to be underwater. Of course, it's only the speculators and people who couldn't afford the houses they purchased who are being affected, but it turns out that's a huge portion of the people who "own" houses in the current market, enough that the government feels it needs to pay off their reckless actions with responsible people's money.

Then we come to the stock market. All the powers that be are trying to stop the market from going down, with all the powers they have. Unfortunately, we're in a spiral, and here's why: the market will go down more the more investors think the economy will be bad and governments will be manipulating the markets. As the various government organizations work to try to manipulate the market, the market reacts by going down more (correctly interpreting that more government interaction is worse for private businesses). Hence the self-reinforcing trend.

The big problem is, like all spirals in the past, and in particular like the Great Depression, it's likely to get much worse. We're likely to elect a socialist leader who will enact large-scale government interaction and manipulation to "stabilize" asset values, which will of course destroy them further. This will force the government to intervene directly, paying off bad debts and mandating benefits demanded by people hurt by the declining businesses. This will be paid for indirectly by higher costs to American businesses and of American goods, which will drive more businesses to extinction, and hinder the formation of new businesses. This will cause more people to demand more from the government directly, which the socialist government will happily provide in a series of New Deal type initiatives.

The even bigger problem is that modern societies have a pretty bad track record of pulling themselves out of self-reinforcing negative spirals; usually it takes an external impetus to force the government away from their self-destructive policies. Some successful ones in the past have been external attack, internal revolt, or similar large-scale disruption. For a counter-example, look at Japan: they have been in a self-imposed economic standstill for the last 15ish years, with interest rates basically zero the whole time and essentially no progress.

I don't know what will happen in the US, but I'm pretty sure it'll get worse before it gets better; and unless the electorate gets a lot smarter in a very short period of time, it could be very bad. Self-reinforcing trends suck.

Tuesday, October 7, 2008

Bass ackwards policies on housing

I know I've probably mentioned this before, but reading about another example today made me want to bitch about it again. For reference, the article I read was about how Fannie Mae will now be buying up bad loans from the Federal Home Loan Bank of Chicago. The action is somewhat expected given the recent nationalization of the GSE's, and thus their renewed emphasis on wasting money instead of making money. However, it also emphasizes the utter idiocy of government policy in the housing market.

The FHLB of Chicago nominally exists to provide below-market loans to people to help them afford to buy houses. Now, helping people afford to buy houses is not a bad idea in and of itself. However, this, in a microcosm, was a huge factor which lead to the housing bubble. Let me explain...

When you have subsidized purchases of assets (of any kind, assets or subsidies), and the asset prices are not set by an authority (ie: any free market), the asset prices will rise to compensate for the subsidization. This is especially true if subsidized buyers are competing for a fixed amount of assets with non-subsidized buyers, or only subsidized buyers are buying.

Now let's apply that to the housing market. You have a government entity (Fannie Mae, FHA, FHLB, etc.) offering artificially low rates to "stimulate" housing demand, now that they're not concerned with losing money. This makes it so that borrowers can afford higher loan amounts, which pushes up the price of homes. This makes the homes less affordable for anyone who is not subsidized, who complain that they too need subsidies. As the government expands the subsidy program, house prices continue inflating artificially, and the government is effectively giving money to people who arbitrage houses. Meanwhile, everyone else is being squeezed out of the market, because the prices are artificially high, and very unaffordable, and the original people receiving subsidies still cannot buy anything.

So let's review. The point of the plan was to make housing more affordable. The effects of the plan are:
- Housing is less affordable for everyone
- The government pays people who arbitrage houses
- Nobody is helped afford a house


Wednesday, October 1, 2008

The sadistic joke that is Congress

Come one, come all... witness the glory that is the American system of government and "representation" of the people. This week we are being treated to a quintessential example of the American political system at its finest. Some of the great and noble acts already on display or expected to appear:

- The house taking a 4-page monumental power grab and gigantic corrupt payoff bill, and transforming it into a 104-page monumental power grab and gigantic corrupt payoff bill with riders, pork, subsidies, and even more filth

- The president lying about the scope of the problem and the effects of the proposed "solution", to pressure Congress to pass the bill

- Congressional leaders pushing to pass the bill once it had all the pork they could stuff into it in only a few days, even though the overwhelming majority of people in the country (90%+) opposed it on principle

- A "rousing" empty-headed partisan bash speech by Speaker of the House Nancy Pelosi just before the vote, after political leaders had worked day and night for the previous week to convince people to vote for the bill as a bi-partisan compromise which was not going to blame either side for the mess

- The House rejecting the bill in a surprise stand against their political and lobbyist masters, followed by the inevitable partisan blame game in the media; many Republicans noted Pelosi's highly partisan framing of the bill as motivation for finally listening to their constituents

- The Senate, barred from originating appropriations bills by the Constitution, originates the same bailout bill as a "amendment" to an unrelated bill (which deletes the unrelated bill in its entirety)

- The Senate inflates the bill to 400+ pages adding pork, subsidies, unrelated programs, more bailouts, more spending, pet projects, and [they hope] enough payouts for specific politicians to ensure passage

- The small business and banking lobby organizations are mobilized to literally buy enough votes to pass the now enormous and atrocious bailout and omnibus pork spending bill

- [Presumably] The Senate passes the bill, and sends it back to the House, where they hope their bribes and payouts have bought enough votes to force the House to go against the overwhelming will of the people they laughably "represent"

- The House votes again on the same bill they rejected, but this time with 300+ extra pages of crap, and we find out if Congress succeeds in blowing out the national debt by 10%, paying off the financial industry as a "thank you" for causing the housing bubble and meltdown, wrecks the financial future of the country for generations, gives a proverbial bitch-slap to anyone (personal or corporate) who tried to be financially responsible during the bubble, and passing quite possibly the most nationally despised bill in the history of the country.

What a week!

Saturday, September 27, 2008

Real reason for the Paulson bailout proposal?

NPR had an interesting analysis of the possible motivation for the bailout proposal (sorry, can't find the link), which was based on what happened in the money market space when Lehman went under. I know I'll do a poor job summarizing, so if you want more info, google around a bit.

Basically, when Lehman went under, there was a minor run on money market accounts; something like $80 billion was pulled out in one day. Now, money markets buy short term commercial paper, like what companies issue to fund daily operations until they can liquidate their assets to cover it. When Lehman went under, some money market funds "broke the buck", and that caused a massive withdraw.

Now, if you're a financial institution running a money market fund, and you get massive redemptions, your money isn't liquid (it's in short term commercial paper, or bonds, or other lending), so you need to borrow in the same manner. However, on that day there was no money to borrow, so basically the system froze for about 12 hours until people could redeem enough debts to pay out the money. Scary situation for the financial industry and the government; if it happens for days, the country basically shuts down.

Now, this got me thinking... don't we have a mechanism to front short-term cash to banks to prevent this kind of liquidity crisis? Why yes, it turns out we do: it's called the Federal Reserve. They have about a trillion dollars of cash, and they are supposed to front it to banks to cover withdraws while the banks liquidate positions, thus ensuring that this kind of thing doesn't happen. It's pretty much the main reason that the Fed exists. So what happened?

Well, it turns out the Fed has been lending out their cash to the banks already for toilet paper securities as collateral, basically to keep them alive long after they would have perished in a free market. As a result, the Fed doesn't have much currency left to lend out, so they can't do their job. Basically, their market manipulation and funneling money to the banks has put them in a position where they cannot help the market when it's really needed, and are not going to be able to recover without unwinding all their junk loans (which, of course, would cause the insolvent banks to get their due, which the Fed is trying to prevent at all costs).

So basically, as far as I can tell, the Paulson plan exists solely to have the taxpayers buy the toilet paper from the banks which is currently being held by the Fed, so the Fed can get its cash back, and actually be able to prevent the entire credit system in the financial markets from grinding to a halt the next time there's a revelation about the real state of the system. They view it as essential because the Fed can't back out of the mess they have created for themselves without collapsing all the insolvent banks, and they can't save the market if the banks collapse because they have exchanged all their cash which they were entrusted with for that purpose with toilet paper securities from the insolvent banks. Way to go, solid plan that was.

The sad part is, when presented like that, you can see where the government comes to the conclusion that this must be done, even though it's insane to 99% of the people in the country. A much better solution would have been to stop the Fed months ago from creating this situation, if not abolish the organization as a whole; but that would have taken intelligence and political fortitude, attributes which are currently in short supply amongst our politicians. For reference, I still don't think it's a good idea to pass the payoff plan, but given the current situation at the Fed, I'd have a backup plan ready to go if it doesn't pass, and it sure as hell should incorporate some measures to prevent the Federal Reserve from creating another credit crisis with their ridiculously irresponsible policies.

Thursday, September 25, 2008

Thoughts on the bailout

As everyone who reads any semblance of news (even really biased "news" like Newsweek, for example) knows, the government is currently hashing out the details of the inevitable bailout program. Although, in all fairness it should be phrased as 'another' bailout program, since there have been several already and will be more in the future, but this one is the largest and most public to date. As I'm rarely short of opinions, I have some on this...

First, the people pitching the bailout could use a good solid bitch-slap about calling things what they are and not hiding behind spin and double-talk. First, Paulson and Bernanke were careful not to use the term 'bailout', even though it was blatantly obvious their plan was one (judges would have also accepted 'crony payout' or 'taxpayer anal rape' as alternatives). Then, there was the BS about the government might not lose too much money, even though the explicit point of the bailout (in their words) was to "recapitalize" the banks. Hello, how dumb do they think people are? I mean, that may work for Bush (apparently so since he repeated it) or Congress, but average Americans know you can't give money to banks without somebody losing it; in this case, that's you or your children.

Side note: I've been normally pretty pro-Bush during the last few years (aside from his who right-wing wacko aspects), but he gets the big thumbs-down for backing this steam pile of horse manure. Don't forget to wipe after you're done flushing what's left of your credibility and legacy down the crapper, captain hand-puppet.

Second, I think that any "representative" who supports this bill should have to stand in front of a crowd of people who have lost their homes, and explain why the government is giving $700 billion to the organizations which created and fueled the housing meltdown, while they made billions for themselves in the process. The people should be armed. We'll give each rep a five minute grace period to make their case, then the people who got screwed by the mess created by the banks getting the payoff (which, BTW, comes to ~$2000 from every man woman and child in the entire country, for reference) can decide if the payoff plan is something they approve of, or if they should do the country a service and remove an obviously corrupt beyond redemption stain from this country.

Side note: I think the news media should stop calling the people in Congress "representatives", and start calling them "corrupt corporate stooges". The whole idea of one or more of these scum sucking morons representing the peoples' interests is obscenely laughable. Hey scum in Congress, we the people don't want this payoff at all.

Tangent: There's one point which I don't agree with for many of the people outraged about this payoff, and it's worth stating. Unlike many people, I don't think this will actually cost the taxpayers anything. What, you say, how could it possibly not? Well, I don't think the country will every pay down, much less pay off, the national debt; it's just not likely to happen ever. Given that, there's no reason for taxes to increase as a result of this, now or in the future. It's still a bad idea, but I don't think it'll actually be taxpayer money.

Tangent side note: I can hear you thinking, "But, but... that doesn't make sense! You have to pay the piper eventually, right?" Well, not really. See, it's much more likely the US will lose its credit rating rather than our elected officials actually growing enough balls to deal with the massive deficit spending, at which point we can't borrow any more to finance the debt upkeep. At that point the entire country collapses, you really hope you're not living here, and who knows what happens after that. However, there's one thing I'm reasonably certain of: whatever new country crawls out of the ruins of the once great United States after our government is done destroying it, probably won't honor the debts of the previous country, so these ridiculous payoff amounts will never actually be paid by taxpayers. It's a silver lining, I guess.

Anyway, we should have a bailout bill passed by next Monday, which will have no positive effects, but will put a crap-load of money in the pockets of those people most directly responsible for the housing market meltdown and national economic crisis. Large banks and investors are already betting on it, and they are rarely wrong (remember how Gross and Pimco made hundreds of billions the day after the GSE bailout, after Gross said it was necessary and inevitable). Ain't our country grand?

Thursday, September 4, 2008

Housing blog post

This post about price vs rental price makes basically the same point I was making, but with an interesting observation/speculation as an addendum. Following the logic that the market will drop until there is parity between the numbers, it stands to reason that you can work out exactly how much "loss" (as opposed to equity) is in each property, based on the sales price and rental value.

If you buy that as a concept, if the owner cannot make the payments for at least the next 5ish years, then someone needs to eat that loss (ie: lose that much money) in the next few years. It can either be the original owner entirely, or it could be shared with a bank (in the case of foreclosure or short sale), and/or with a knife catcher. Nothing can decrease the loss amount, it's just the owner's decision on how the total loss is distributed, based on how they act now.

An interesting perspective, I thought.

Just in case you needed another reason...

In case your on the fence about McCain/Obama, here's another cheery bit to help influence your decision:
Obama might pursue criminal charges against Bush administration

I know when I woke up this morning, I thought, "Gee, what could the next administration do to best help the country? I know: they could start an enormous partisan political fight which will consume billions of taxpayer dollars in legal fees, divide the country, exasperate the citizens, and at the very best accomplish nothing, while having the outside chance of crippling the ability of our government to function effectively. Yeah, that's a great idea!"

Dear god, what a horrible disaster Obama would be. I'm sorry: if you are aware of this and you still vote for Obama, you're either an enemy of the country, a partisan fanatic, or a blithering idiot; there's really no other way I can see it. This is quite possibly the stupidest partisan political plan ever, and that's a pretty high bar.

Wednesday, September 3, 2008

Funny for the day...

Just a quick funny, from the Washington Post:
Sen. Barack Obama on Wednesday dismissed the ongoing Republican National Convention as a substance-free spectacle...

At least Obama's weaving some levity into his substance-free rhetoric. :)

Thursday, August 28, 2008

Price to rent comparison info

This is kinda a PSA post, along the lines of the rent vs buy calculation. Lots of people have been clamoring about house prices getting back to normal, and although that's happening, they are far from there yet. Many people are confused as to where they should be, and there are lots of useful guidelines (3x annual household income, etc.), and here's another one:

A useful metric for calculating when prices are equivalent to rent amounts.

If the total ownership amount (mortgage + taxes + insurance + HOA + upkeep) minus the amount going into principle is equal to the rent, the price is about "right". The rationale is that if you were renting, you could be saving the principle amount in a bank account, and be accumulating just as much "equity" as the person paying a higher cost to own. For a 30-year mortgage, about 1/4 of the payment is principle during the first 10 years or so, and it's about $6.32/month per 1K borrowed (for a 6.5% mortgage).

So say you have a condo which would rent for $2000/month, and has $400/month HOA. If we assume $100/month for insurance, $100/month for upkeep, and 2% taxes, we could compute the "right" price 'p' relative to rent 'r':

***** Edit: charles pointed out my math is wrong; interestingly the "right" prices are even lower with the correct numbers. Numbers corrected below. *****

p * 0.00632 + p * 0.00167 + 100 + 400 + 100 - (0.25 * p * 0.00632) = r
p * 0.006416 + 600 = r
p * 0.006416 = r - 600
p = (r - 600) * 156

So with r = 2000, the "right" price should be ~$218,000.

For a house, the calculations are similar; figure $200 for insurance and upkeep instead (no HOA though), and you get:
p = (r - 400) * 156

With r = 2000, the "right" price would be a higher ~$250,000.

Note: Down payments are not included because then you'd also have to include lost opportunity cost on the down payment amount, which works out to be roughly equivalent to assuming 100% financing as far as the ratio goes.

Feel free to use this metric the next time someone tells you a property is affordable, and/or reasonably priced. This is above the amount that intelligent investors will buy property, but it's close enough to be a good measure for when prices are "right".

Saturday, August 2, 2008

Why I think Obama will win the election

Everybody has an opinion on politics, and I am no different. When it comes to the presidential election, I think Obama will take it, and not just cause he's ahead in the polls. There's historical precedent on his side, and moreover, the election is likely to reflect an underlying statistic, which is easier to make predictions about. I'll tell you what I think each are...

First, the historical precedent. America is entering a recession not unlike the one which preceded the Great Depression. I say preceded because the recession was just the economic correction of over inflated asset markets (sound familiar?), and would likely have been painful but short if not for the actions of the government in response to it. Instead of letting the markets correct and the participants take their losses, the people elected socialist leaning representatives to make the government solve their problems by nationalization. This, in turn, plunged the country into the depression, since they were intent on punishing "evil" industry while spending huge amounts of money the government didn't have on social programs the government couldn't afford. When that didn't work, they promised more spending and more socialism as the cure. It wasn't until WW2 that the government was forced to restart industry, and the country could actually recover.

Now, I'm not saying that Americans don't learn from history; I'm sure there are a few intelligent people out there who realize that socialism and more government spending do not help our economy at all. Unfortunately, those people are not in the majority at the moment, so it looks likely we'll get more socialism and more obscene amounts of government spending and anti-industry legislation.

Which brings me to the second point, the underlying statistic which is easier to predict. You see, it stems from a seemingly simple, yet understated principle: intelligent people think. In thinking, you can learn from history, you can analyze economic forces (at a high level, if not at an in-depth level), and you can recognize and filter through empty rhetoric and underlying socialism. You can extrapolate out potential effects of destroying what's left of our wealth generating industrial capability, converting to a nationalized industry of consumption and debt spending without production, and the likely outcomes of massive government interference and manipulation in every aspect of our economy. In short, an intelligent person can likely see past the pretty facades and flowery speeches, and see which candidate is more likely to cause less destruction to our country; which, in the case of this election, is not even very hard.

Given that, predicting the outcome of the election boils down to predicting if the majority of the independent "swing" voters (the 40% or so who are not hardcore supporters of either party) are intelligent, thinking people, or rather are more like automatons, swayed by flowery rhetoric and creative advertising. For that, one has to look no further than the campaign rhetoric, the proliferation of advertising in the country (and its relative success), and the voting patterns of the voters. Consider that in California, for example, we re-elected a Congress person after she has defaulted on a loan, defrauded the bank, stole the money to pay for her campaign, lied about it, bribed the bank to get it back, and payed off the investor who legally purchased it at foreclosure to cover it up. We have elected a Congress with a 9% approval rating, the lowest in recorded history. Americans are in debt up to their eyeballs, and are once again in virtual unison clamoring for the government to bail them out, like deja-vu.

I don't think it's too much of a stretch to say that given the above, Obama will win the election. As always, though, it's just my opinion, I could (and am holding out hope that I will) be wrong.

More thoughts on national RE database

The more I think about it, the more I think this would be a hugely beneficial thing to have (for consumers, at least... not so helpful for scam artists). A national database with all real estate information, even just sales information, would go a long way toward stabilizing the housing market and reassuring people. Some things it should have:

- Uniform monetary accounting
The total sales price, and all special considerations and circumstances, should be recorded in a standard, uniform way. For example, there should be a net sales price which is the gross price minus any seller considerations, kickbacks, or down payment assistance. All parties providing all assistance should be in the public record, all non-monetary considerations should be included with valuation approximations, and all special terms documented. It should be against the law to provide incorrect information or not include material information, and the all parties (buyer, seller, agents, etc.) should be jointly and severally liable.

- All party names recorded
As much information about all parties involved (as much as is public record for each state) should be recorded. Not only will this help identify questionable transactions by related or conspiring parties, but will provide valuable information for cities and municipalities if code violations are discovered. Most information is already in the public record, but a centralized search-able database would definitely help with transparency in the market.

- All transactions recorded
It should be required that any transaction involving the real estate property be recorded in the database. This would include public auctions, private sales, and any other transfers of ownership. It should be easy to include transactions to ensure there is not substantial cost in doing so.

- Data available to anyone
Any company or individual should be able to access any/all the data at any time. For individuals, this could be achieved via a simple web interface with very limited functionality. Businesses would need to work with the government agency to have regular database change exports on a feed-based system, so they could set up and maintain their own applications without putting significant load on the central database.

That would be my first-pass design specification. Now I just have to find someone in our government with enough brain cells to understand why this would be good, and not corrupt enough to actually do something which would benefit the people. Hm... that would probably be the most difficult part of the whole project. =/

Thursday, July 31, 2008

Arnold's bold move; good idea, not far enough

So today, our governator signed an executive order to force the state to pay all non-essential personnel federal minimum wage, lay off all temporary workers, and suspend all payment programs until the state passes a budget. Basically, this is what the California constitution requires (not spending money without a budget), but the legislature has been wink-nudge ignoring it for the last 5+ years of budget impasses, and this year looks no different. Arnold is hoping the order will prod the legislature to do their f-ing jobs (not likely), and the political backlash won't be inaccurately attributed to him instead of the legislature (also not likely).

It's a good idea, I think, overall, but I don't think it goes far enough. The order allows for back-paying of everyone's normal wages after a budget is passed, so it really only hurts the lower-class employees who are less financially secure. Personally, I'd like to see a constitutional amendment which provides this action as an automatic consequence of not passing a budget on time, and have no provision for paying back amounts once a budget is passed. In essence, all non-emergency state employees would get federal minimum wage while the legislature was wasting time with their partisan fighting and shirking their responsibilities. Maybe we could also strengthen the balanced budget amendment at the same time to prevent carrying multi-billion dollar deficits.

It's high time the California legislature was properly admonished for their years and years of abuse, out of control spending, corruption, and outright idiocy. If we implemented the amendment, we might actually get an on-time budget, and that in and of itself would be a huge victory over the status quo for California's government.

Wednesday, July 23, 2008

Useful things Congress could do with $300 billion

Rather than being down on Congress for being corrupt and acting against the interests of the American people, maybe I should offer some suggestions for what they could better spend $300 billion dollars on than giving it to the lenders who created the housing bubble and resulting recession. So, in no particular order, here are some things Congress could spend money on which could help:

  • Reform GSE oversight (cost guess: couple million)

  • I'd suggest restricting their loan buying to conforming loans (eg: 20% down, fully amortizing) with a cap of say 5x the average annual income for areas. Enough to finance houses at sustainable prices, but restrictive enough to not get them into the $5.2 trillion dollar debt disaster we are currently bailing them out from.

  • Develop national RE listing/info database (cost guess: hundred million)

  • A national database for real estate listing, freely accessible to anyone, with uniform data presentation and historical information, would greatly help illuminate the current RE market situation. It could also prevent the manipulation of sales prices (eg: DAP) by requiring uniform data organization (ie: record where all the money goes, sales price is net to seller, etc.).

  • Reform Fed oversight (cost guess: couple million)

  • Congress could make it clear to the Fed that their job is to control inflation, not pump taxpayer money into failing over-leveraged investment banks. They could also set up some rules to make sure the Fed is succeeding, and not diverging into supporting their insider business buddies.

  • Get rid of the FHA (cost guess: saves money)

  • Really, the FHA is a poor excuse the subsidize people who should not be getting home loans with taxpayer money. Eliminating it would benefit the country and save money.

    There are a couple other small things they could do, like firing Sheila Bair for going on personal crusades instead of doing her job, or reforming the SEC rules to eliminate off balance sheet accounting and market manipulation by the SEC, or investigating Dodd for corruption, but those are minor changes. All the changes above combined would leave roughly $299.8 BILLION dollars left over, which we could actually not spend, and thus not create another $1000 debt obligation for every man, woman, and child in the entire country to pay for paying off the banks which created the recession. That sounds like it would be a smarter plan to me, but then again that's probably why I'm not a corrupt scum-sucking Congressional representative.

    Congress hurts American people, again

    It boggles my mind that the only people who honestly and bluntly report what the US Congress is going is not the mainstream media, but rather the small blogs and whatnot. Something has to change; it's just ridiculous that our government so blatantly acts against the interests of the people, and our media ignores it. Or worse, acknowledges their actions but misrepresents them as neutral, or even worse as beneficial. I'm not sure if their actions or the general stupidity of the American people in analyzing them is a worse blight on the country, but they are both pretty horrible.

    Today's idiocy is Congress spending $300+ BILLION dollars on absorbing bank losses for giving out the bad loans which fueled the housing bubble and kept housing unaffordable for responsible Americans.

    ...but wait, that's not all! In addition, they are refinancing millions of borrowers who "own" properties they cannot possibly afford and most of whom will default on their home loans into taxpayer-backed loans. So the taxpayers can expect the ultimate cost to be higher than the amount Congress is immediately giving to the irresponsible lenders as a "thank you" for creating the housing bubble.

    ...but wait, that's not all! They are also giving $4 BILLION dollars to municipalities, to buy foreclosed properties at inflated values so the banks don't have to sell them at market and can offset some losses to taxpayers.

    ...but wait, that's not all! They are also writing a blank check to the Treasury to pump unlimited government money into supporting the GSE's, which have fleeced the country for billions while the housing bubble they helped create was going strong, and funneled that money directly into the executives' pockets. Moreover, this should help prop up their bonds, which is great for all the investors who have been getting a better return on them than Treasury bonds because of the greater risk, which the government is eliminating by putting it onto, you guess it, THE TAXPAYERS!

    I don't think I can express enough how much I hate our government right now, although in fairness, they are just doing what the blithering idiot voters and corrupt media apparently let them do. WTB government for the people, are there any countries which still uphold that principle?

    Tuesday, July 22, 2008

    Setting up for a stock market crash

    So an interesting thing is happening in the stock market, and I thought I'd blog about it cause it was interesting to me. If stock market stuff bores you, you might want to skip this post.

    So, recently (a week ago or so), the SEC made a new temporary rule that investors will not be allowed to naked short the stocks of select, large, financial institutions. Basically, this means in order to sell shorts on those stocks, the brokerage selling the short must own the stock shares. Since there's was not really an issue with defaulting on naked shorts, and it's very market specific, the rule is not designed to prevent any negative effects, but rather strictly to manipulate the market.

    Now, normally, a stock is pushed in both directions by stock buying and shorting. Buying pushes a stock higher, as more bids are fulfilled. Shorting pushes a stock lower, as it's basically the opposite pressure on the stock price (the brokerage is selling shares it holds for someone else onto the market, which pushes the price down).

    Now something interesting happened as a result of the SEC rule: brokerages have marked the affected stocks as short-restricted, which means they're not selling shorts on them. Presumably, this was done to minimize risk of violating the SEC rule. It has the effect of pushing up prices artificially, because the normally present opposite pressure is suddenly removed.

    All good? Well, not really. See, when the price would get pushed down by shorts normally, now it will widen the bid/ask spread until you have a transaction, at which point the price will plummet. It basically removes the force which smooths out the down trends in stock prices, and makes them fall off cliffs instead.

    Now ask yourself, if you get bad news in the industry, and suddenly most of the stocks take a large, immediate nose-dive, what's going to happen? Well, you trip more limit orders all at once, which causes a mass sell-off. Suddenly, instead of a normal orderly price reduction, you have a panic-induced market crash. Way to go SEC, if your job is to manipulate the market to create a crash... not so good if that's not your job.

    Anyway, it's interesting that such a small change could potentially have such a profound effect. In this case, a "small" market manipulation by the SEC could very well cause the next massive stock market crash.

    Thursday, July 17, 2008

    History about to repeat; are you ready?

    I was reading the wikipedia page in the New Deal today (; it makes for fascinating reading. In particular, if you massage the timeline a little, and replace FDR with Obama, you get a fairly accurate representation of what's likely to be the case in about 6 months. Which makes the New Deal a fairly good model of what the government is likely to enact to try to pull us out of the current mess they have created.

    Let's look at the surviving long-term programs from the New Deal:

  • Social Security

  • This Ponzi scheme is the pride and joy of the New Deal, providing retirement and disability benefits for all Americans. It will be bankrupting the country around 2040 if not substantially modified/abolished before then, because it's a financial disaster which is a Ponzi scheme. I think we can count that as a negative outcome.

  • The FDIC

  • This institution provides insurance to prevent runs on banks, and establishes rules to prevent them from over-leveraging and becoming insolvent. The oversight has been laughable, but it has been reasonably successful at preventing bank runs, not counting the bank runs when banks fail. On the downside, it's woefully short of funds when banks actually fail, so it costs taxpayers billions. Overall, a push.

  • The FHA

  • This is the organization currently wasting billions of taxpayer dollars giving out ridiculous 100% LTV loans, and is supposed to be helping affordability in the housing market. So, a complete and utter failure of an organization.

  • The SEC

  • On the upside, created uniform investment and disclosure rules to prevent market manipulation and ensure a free market for investment. On the downside, laughably fails at oversight, company financial disclosures are incredibly obtuse and off balance sheet investments are rampit, and sometimes participates in market manipulation itself. So on balance, probably another push.

    What's really interesting about the parallel, though, is not so much all the failed socialism programs which were enacted during the time (some of which are still around and still failing), but how utterly unsuccessful they all were in reviving the US economy. Not surprising, in hindsight, that you can't jump-start a capitalism-based economy with socialist programs and government spending, and the government is pretty bad at running businesses (although that lesson seems forgotten regularly by socialism proponents).

    No, what's really interesting is the thing which finally brought the US out of the depression was WW2, which forced the country to go back to the businesses they had been stepping on and berating as evil, and beg them to produce again. That created jobs, trained workers, got rid of red tape, pushed money into the private sector, halted government controls, and basically suspended all the socialist programs which were dooming the country to malaise. I suspect we'll need a similar large-scale event to pull the country out of the mess Obama is likely to create trying to socialize the country, which leads me to wonder if the world will survive another world war.

    However, I'm probably getting ahead of myself. There were ~10 years of failed socialist policies between the market correction and WW2, and you never know if/when the external event will come which will save us from the politicians and their policies. In the meantime, we the people need to find a way to survive as best we can, with as many of our rights and as much of our well-being intact as possible. Fortunately, in this case, we have a spot-on historical parallel to learn from, and we're about to go through the exact same motions which turned a market correction into the Great Depression. Are you ready?

    Friday, July 11, 2008

    GSE's collapsing; is anyone surprised?

    A quick recap, in case you're not familiar with the recent financial news. We're in a housing asset price correction, driven by a lack of easy risky credit and an unwillingness of big banks to continue to sponsor deficit consumer spending at their own loss. Fannie Mae and Freddie Mac, two enormous companies who have reaped massive profits for their executives and shareholders during the bubble, are now being forced to acknowledge their losses, and rely on their implicit government bailout, which looks likely to eventually cost US taxpayers trillions. I ask: is anyone surprised?

    This entire economic cycle has been about privatizing gains and socializing losses. Everybody has been operating under the assumption of bailouts, from the large investment banks, to the GSE's, to the individual consumers. The GSE regulators have either been completely asleep at the wheel, or letting the GSE's do whatever they want with a "wink-wink" for an eventual bailout.

    How dense are the people who didn't see this coming? I mean, let's consider for a moment the proposal to have the FHA insure another $300 billion on home loans with 97%+ LTV. Raise your hand if you think less than 90% of those will default leaving taxpayers on the hook. Anyone with their hand up fails, goodbye, do not pass go and please do not hold public office.

    Ok, next: raise your hand if you think that loans which nobody will buy except the GSE's are likely to be just as safe as those made by normal banks pricing in risk because they don't count on a bailout when they are insolvent. Anyone? Hm, I guess all those people already flunked out of the class on the first question; good for you if you're left. Oh, I see you Mr. GSE regulator, hiding in the back, you're supposed to be making sure the GSE's don't incur excessively more risk than normal banks... you're very fired also, and hopefully the administration will vote to hold you personally liable for the GSE losses. It won't cover much of their trillions of bad loans, but it'll be something.

    Here's a news flash for all the geniuses in Congress: companies and individuals who expect a bailout when things go wrong will take excessive risk to make as much as possible while things are going right. In bailing them out, you encourage this behavior. In not ensuring they operate for long-term viability, you allow this behavior. In creating, regulating, overseeing, and guiding these companies, YOU (Congress) are responsible for their failure, and the trillions it's going to cost taxpayers. Good thing America already thinks you're doing a horrible job, and your approval rating is already down to partisan supporters only, cause this is a f-up of historical proportions.

    Sunday, June 22, 2008

    Making online stuff less secure

    There's an interesting trend going on in the online world these days: people are making sites less secure. It's not so much the casual sites, where a simple email and password are enough for access; it's more the financial sites and wanna-be "secure" sites that are making themselves less secure and more annoying to access.

    I don't get it... why would you want to make yourself less secure, especially as a financial institution? What benefit does it have for your customers to make their identity and financial information more easily stolen? Are you even aware that your online services are being transformed this way?

    Perhaps an example will help. Today, I converted by 401k access account to their new access mechanism. Previously, I used my SSN and a user-chosen password; easy to remember, unique, reasonably secure. Now, they have a custom username, two backup reset questions, and a security image. Not only did I have to write down all that information on the online site where I keep all the access information I can't easily remember (which is not all that secure), but I had to create two backdoors with easier to guess information than a password. Overall, a substantial downgrade to the security of the account, and more annoying as an added bonus.

    Why are online sites doing this? What's the thinking (if any)? Is the current generation of online project managers just more retarded, or is there some other scheme behind the scenes to ensure that everyone's access information is more easily stolen? Seriously, I don't get it...

    Sunday, June 15, 2008

    Guantanamo ruling, thoughts

    First and foremost, I think the ruling is a mistake; there's nothing in the Constitution which would extend the protections afforded to US citizens to foreigners, especially those actively opposed to the US. The court is creating new Constitutional protections, and that's not their job. Moreover, the new protections are going to be nothing but trouble for the military in the future, and one of the worst things we can do as a country is make it more difficult for our military to keep us safe.

    That said, I think Bush shares at least half of the blame for this idiotic ruling and precedent. As a blame Gore for politicizing Global Warming, turning it into a partisan battle, and thus allowing people to compartmentalize any actual evidence as political propaganda, so I blame Bush for creating a situation which forced the Supreme Court to make this ruling.

    It is against international law, and the spirit of America, to hold anyone indefinitely without a trial, the ability to rebut accusations, and ultimately seek justice for persecution. In holding the prisoners in Guantanamo indefinitely, the government was creating a situation which was morally reprehensible both to the international community and the domestic populace. Yes, the situation was abnormal: the prisoners didn't have a sponsor nation they could be released to, nor a formal army to claim allegiance to and thus appeal to be treated as prisoners of war, nor even a formal war to be prisoners of (other than the nebulous "war on terror"). Nevertheless, the US government did not do enough to avoid to perception of holding people indefinitely, nor did they offer any end-time conditions.

    As such, the Supreme Court of the US was the last resort against the morally reprehensible situation the Bush administration caused. They needed to do something, and they did; the consequences will be bad for the country, but it was an inevitable (and foreseeable) consequence of the handling of prisoners at Guantanamo Bay. Shame on the Bush administration for creating this situation and this precedent.

    Tuesday, June 10, 2008

    Funny Daily Show commentary

    Caught a little bit of the Daily Show yesterday (good show, bit liberal but funny); they had a funny bit about the senate report on the pre-war Iraq intelligence, and how it was basically ignored by the mainstream media. I found it funny on a couple levels. The take that the Daily Show had, which was that it was a really important revealing report which was ignored, was amusing.

    On the other hand, the subtext was more interesting, in my opinion. For the actual report, the democrats on the committee basically wrote the accusations, the the republicans disagreed with all of them. So basically, the report was nothing more than partisan business as usual coming out of Congress, wasting time whining about how they (the democrats) don't like Bush.

    Which leads back to the mainstream media basically ignoring it. Maybe they thought it was above the comprehension level of their audience, but that's doubtful; the democrats seemed careful to boil down the partisan accusations into simplified sound bites for public consumption. On the other hand, maybe partisan bickering and accusations aren't really news any more; maybe people have accepted the obvious lies and distortions as business as usual in our government, and it's not even worth covering because it's not interesting or news to people.

    Whatever the case, I thought it was pretty interesting.

    Friday, June 6, 2008

    Comments on global warming bill

    So the 500 page massive global warming bill, which nobody thought would actually get passed, and even if by some large-scale lapse of judgment did get passed, Bush would veto, got killed today. Proponents argued that it was important to codify their religious beliefs into US law so as to force them upon the rest of American. Opponents pointed out that the bill would do nothing to help man-made global warming even if it was a real problem, and would just export money and jobs out of the US. Both sides claimed victory, of course, with proponents expecting to re-launch another version of the bill when they have more believers in Congress, and a more liberal president.

    So far business as usual. However, one thing I found interesting was that one of the most accurate and insightful comments about the garbage legislation came not from a Republican, but from a moderate Democrat who voted against it. The Democrat, Sen. Sherrod Brown of Ohio, commented that the end-result of the bill would be to export pollution and US jobs. If he thought about it a bit more, he might have added "paid for by US businesses, kinda like forcing the rest of your industrial base to dig their own graves before jumping in."

    Man, you know your liberal legislation is bad for the country when even the Democrats can't stomach the obvious long-term negatives. Republicans, of course, ridiculed the bill, but were in turn ridiculed by the liberal media to marginalize their concerns as partisan. Meanwhile, both parties successfully continued to ignore the 800lb gorillas of massive debt, almost extinct industrial infrastructure, job losses, and inflation, not to mention the leveraged derivatives still off the books of various financial institutions totaling well over the entire national debt, and the complete inability to reduce systemic risk and/or prevent systemic collapse. Nice job guys, good to see it's business as usual, no matter what happens to normal people.

    Tuesday, May 20, 2008

    The danger of inaccurate characterizations

    There's a fine line between a misleading characterization and an outright lie, and the news media in particular seems to enjoy dancing between both sides. There is a certain danger in that, which is compounded by its subtlety and lasting effects.

    For example, consider religious suicide bombers. One could accurately characterize them as homicidal zealots. One could also characterize them as patriotic freedom fighters. The prevalent characterization among the respected figures in the society in which people decide to become suicide bombers can greatly affect people's decisions, and indeed their lives.

    It's disingenuous for people, and in particular for the American news media which typically claims unbiased reporting, to claim honesty in reporting while ignoring honesty in characterizations. Moreover, there's a long-term large risk involved in deceiving the public with repeated misleading characterizations, to the point where people think they are supporting one thing, but end up supporting the exact opposite, just because of inaccurate characterizations.

    Take, for example, a current topic: the housing bailout bill recently passed by the senate. Per CNN's characterization, the bill would:
    limit foreclosures [and] create affordable housing...

    The bill, in actuality, is a bailout for speculators and irresponsible lenders. It gives money to people who were financially irresponsible, and helps them stay in houses they should not have been able to purchase, thus making houses less affordable. It does nothing to limit foreclosures, although it does shift some liability for bad loans from the lenders to the taxpayers.

    ...a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes.

    Again, disingenuous at best to take the no-cost claim at face value, when the bill explicitly provides $300 billion dollars of taxpayer-backed loans for at-risk borrowers who are likely to default. That's 10x the amount shouldered to bail out Bear Sterns, and 2x the amount of the stimulus package, which was an explicit spending program of future tax revenue. How can you plan to give away twice as much money and claim no cost to taxpayers? I tell you how: by lying.

    The news media has (or should have) a social responsibility to be accurate in their reporting, and this is an example of the worst kind of inaccuracy: systemic, subtle, intentional, and fraudulent mis-characterization done intentionally do distort, mislead, and deceive the public. This kind of "reporting" is so far over the line, it really should be criminal to call it news.

    Monday, May 12, 2008

    Shelley Berkley

    This post dedicated to Rep Shelley Berkley, representing the state of Nevada. She's has the honor of being the latest person added to my growing list of blithering idiots representing people (who, I can only assume, are also blithering idiots) in our Congress.

    She makes the list for voting for all provisions of the taxpayer bailout of speculative housing purchases bill, with the following justification: “‘You cannot have row after row of unoccupied homes in neighborhoods,’ Berkley said in an interview. ‘It drives down values.’”

    Hey, news flash for ya Shelley, and I'll try to use small words: If you don't want row after row of unoccupied homes, figure out a way to encourage the owner to sell or rent them! Here's a humble suggestion, for example: impose a tax on the owners of unoccupied homes after a period of time, per-month that they sit there.

    Houses are sitting vacant because owners (banks, builders, speculators) are expecting a bailout. They are waiting for you to droll your way to the legislation you're voting for. YOU ARE CAUSING THE PROBLEM!!! Stop being part of the problem, and start being part of the solution!

    For being a glowing example of everything that's wrong with our Congress, for being presumably too stupid to even read the bailout bill, much less comprehend the effects, and for striving to interfere with the markets in a time honored government tradition unblemished by a hint of public benefit, Shelley Berkley is inducted into the Hall of Fame of Blithering Morons. Grats.

    Friday, May 9, 2008

    Housing market observations

    Just random musings about the current state. The housing market appears to be kinda in limbo right now, holding it's collective breath waiting for the next election and what shape the inevitable speculator bailout comes in.

    There are some buyers, but mainly these are people thinking they are getting a good deal based on the prices at the height of the bubble, and the irrational belief that prices will regain their inflated values sooner rather than later. These are mostly speculators, and in most cases will probably constitute an eventual additional wave of foreclosures and defaults. They are hedging that the bailout will come before they are insolvent, and the taxpayers will buy their homes for them.

    There are lots of people trying to sell, but REO inventories are still accumulating. This is partially due to increasing NOD/foreclosures, but also due to banks insisting on dishonest and deceptive pricing and sales practices, as they try to fool buyers into thinking they are getting deals while still selling over market. They are finding some fools, but just like in the bubble formation, chasing short-term profits will likely be worse for them in the long term, as people lose faith in their pricing, and eventually stop buying all together due to suspicion. At that point, the banks hope the bailout will have come, otherwise there's likely to be a massive fire sale as they all implode under the weight of the inventories they can't unload because they were too greedy, dishonest, and despicable (and people will cheer as they do so).

    Meanwhile, prices climb slowly downward in some middle ground approximation between the irrational optimist pricing and the real market value. Above market sales where people think they are getting a good deal because the price is below comps will slowly push prices down, even as inventory accumulates, both realized and unrealized (eg: people who are delinquent and underwater but not foreclosed on yet, due to the bank not wanting to show as much inventory in their books). As more people get pushed underwater, the unrealized pending inventory will continue to build, as lenders hope they can manipulate their books long enough to see the bailout socialize their losses from irresponsible lending.

    Best thing that could happen for the market? A good, solid, credible, non-revocable promise of no bailout, ever. Force everyone to act as if they need to cut their losses, because there's no multi-billion dollar taxpayer handout coming. Force the market to react like there's not going to be the massive government manipulation everyone expects, and is holding their breath (and housing affordability) hostage for. Until then, we will all wait, and see how stupid our government will be.