Tis the season for financial oversight reform...

In the spirit of the season, I have a suggestion for the reformers who strive to make the financial world a level playing field for individuals and big-money insiders. How is it that it can be hard to tell how much exposure a public company has to various industries and financial commitments? Why should it require an insider analysis, usually after the fact, to inform investors that a company has more leveraged exposure to risky investments than actual capital?

I would suggest that it should not, in fact, be legal for public companies to obscure their financial records to the point where investors cannot tell exactly what the current financial state of the company is, including all investments and exposures. I suggest that company executives be personally liable for not only inaccurate financial disclosures, but also for incomplete or intentionally obfuscated financial disclosures.

Specifically, I would suggest two changes to the regulations to enforce this:
1. Create a standard quarterly financial reporting form, like a tax form, preferably available to investors and analysts in computerized (pure data) form, for easy presentation, comparison, and analysis. Include all types of investment and financial conditions in the standard.
2. Require public companies to disclose any additional financial information specifically requested by any shareholder after any quarterly report, to the level of individual holdings or obligations. These should be disclosed to all shareholders at a minimum, and preferably included in future quarterly reports.

Anyway, all this is kinda a thought experiment, since the chances of getting meaningful change to oversight which benefits anyone except lawyers is roughly the same as the chance of not having a public bailout of the mortgage industry. But that's probably what I'd do, if I were changing oversight.

Trend in Commercials

So, I don't know if anyone else has observed this, but it seems like there's a trend in commercials to target stupid people, or at least imply that products are intended for stupid people. Perhaps the marketing people have come to the conclusion that it's more profitable to explicitly target dumb people (larger market? easier to sell to?), I don't know; but I have definitely noticed the trend.

Case in point: Disneyland, and it's two-for promotional campaign. If you haven't heard the spots, it's basically an idiot calling up normal businesses which sell expensive items (cars, fine art, etc.) and asking if he can get a 2-for-1 deal like Disneyland has. Now obviously this is retarded, but that's the point of the commercial: the guy who bought the Disneyland tickets is a moron.

The part I don't understand is: why would you make a commercial for your product that implied that customers are morons? Is the market for idiots large enough (and stupid enough) that it's more profitable to say "only morons buy our stuff" rather than the more traditional "smart people buy our stuff"? Disneyland is not the only ones who are doing this; I see it more and more. It's a strange trend, to tell people they are idiots if they buy your product.

Anyway, just wanted to write about it, cause it puzzles me.

Clinton v Obama

Too funny not to repost... copied from a followup forum post on a news story about Dean saying they should resolve the nomination by July 1 (haha, yeah, right).

TWO SENATORS - SHOCKING COMPARISON OF PRODUCTIVITY

Senator Clinton, who served just one full term of 6 years and another year campaigning, managed to author and pass into law only 20 twenty pieces of legislation in all of her six years.

(These bills can be found on the website of the Library of Congress www.thomas.loc.gov)

1 . Establish the Kate Mullany National Historic Site.
2. Support the goals and ideals of Better Hearing and Speech Month.
3. Recognize the Ellis Island Medal of Honor.
4. Name a courthouse after Thurgood Marshall.
5. Name a courthouse after James L. Watson.
6. Name a post office after Jonn A. O'Shea.
7. Designate Aug. 7, 2003, as National Purple Heart Recognition Day.
8. Support the goals and ideals of National Purple Heart Recognition Day.
9. Honor the life and legacy of Alexander Hamilton on the bicentennial of his death.
10. Congratulate the Syracuse Univ. Orange Men's Lacrosse Team on winning the championship.
11. Congratulate the Le Moyne College Dolphins Men's Lacrosse Team on winning the championship.
12. Establish the 225th Anniversary of the American Revolution Commemorative Program.
13. Name a post office after Sergeant Riayan A. Tejeda.
14. Honor Shirley Chisholm for her service to the nation and express condolences on her death.
15. Honor John J. Downing, Brian Fahey, and Harry Ford, firefighters who lost their lives on duty.
16. Extend period of unemployment assistance to victims of 9/11.
17. Pay for city projects in response to 9/11
18. Assist landmine victims in other countries.
19. Assist family caregivers in accessing affordable respite care.
20. Designate part of the National Forest System in Puerto Rico as protected in the wilderness
preservation system.

HOWEVER...

Senator Obama, in his 8 years in the Senate, has written 890 bills and co-sponsored another 1096.
In fact, in just his first year in the U.S. Senate, he authored 152 bills and co-sponsored another 427. These include **the Coburn-Obama Government Transparency Act of 2006 - became law, **The Lugar-Obama Nuclear Non-proliferation and Conventional Weapons Threat Reduction Act, - became law, **The Comprehensive Immigration Reform Act, passed the Senate, **The 2007 Government Ethics Bill, - became law, **The Protection Against Excessive Executive Compensation Bill
Among his many bills are:
233 regarding healthcare reform,
125 on poverty and public assistance,
112 crime fighting bills,
97 economic bills,
60 human rights and anti-discrimination bills,
21 ethics reform bills,
6 veterans affairs

That... is comedy gold.

Edit: Newsweek analyzed this distributed account, and found it inaccurate. In particular, while the Clinton facts are reasonably sound, the Obama legislation is incredibly exaggerated, including bills from his time in the state legislature and bills he just attached his name to. If you do an apples to apples comparison, Obama has pass two bills:

S. 2125, A bill to promote relief, security, and democracy in the Democratic Republic of the Congo.
S. 3757, A bill to designate the facility of the United States Postal Service located at 950 Missouri Avenue in East St. Louis, Illinois, as the "Katherine Dunham Post Office Building."

Maybe it's just me, but this makes the original story even more funny. Course, the whole judging a politician by bills sponsored is dumb, consider the obvious political bias of the source, and imagine the voice-over: "CRIPPLE-FIGHT!!!"

Cell phones and driving

I have to laugh when I read a story like this. Basically, a journalist has realized that driving while talking on a hands-free cellphone is equally as distracting as driving with a normal cell phone (which the rest of the intelligent world already knew). Moreover, there is a suspicion that people will be less attentive when talking on a hands-free, because it's supposed to be safer.

What's funny is that having an involved conversation on a hands-free is worse for driving performance than driving drunk; but hands-free is encouraged, and drunk driving is very much discouraged. Just goes to show how dumb politicians make dumb laws.

Side note: the "right" solution, imo, is to make neither one illegal on its face, but make fines and penalties multiplicatively worse if you're doing something illegal or dangerous while in any enumerated "distracted driving" state. So if you're driving like a moron, it's an 'x' dollar fine; if you're drunk or on a cell phone while doing so, it's '3x'. I have no problem with someone driving home drunk slowly, being very careful, and end-result driving more carefully than 99% of sober people, especially compared to someone weaving through traffic while conducting complex business deals on a hands-free. You should be cognizant that you're doing something more dangerous than un-distracted driving, knowingly take more responsibility for the end-result of your actions, and hopefully drive better during the times when you are driving distracted.

Forest for the trees

Sometimes it's useful to take a step back, and try to see the big picture. In this case, the musing is about the Fed's response to the housing credit "crisis", what we can reasonably expect in the near future, and who is most benefited/hurt long-term.

So start, I read this, which has an interesting section on Benny's analysis of the Bank of Japan's handling of their recession in the early 90's. His specific recommendations for what they should have done differently early in the correction were:

1. Devaluation of the Yen: If the BOJ devalued the Yen enough, import prices would start rising and consumers would be encouraged to start spending today for fear of higher prices down the road. Also demand for cheaper Japanese goods would rise, creating higher profits for Japanese companies. In Bernanke’s words, “a significant Yen depreciation would go a long way toward jump-starting the reflationary process in Japan.”
2. A “Helicopter Drop” of Money: This is where the term “Helicopter Ben” comes from. It refers to his comment that if consumers were given enough free money, “surely at some point the public would attempt to convert its real wealth into goods and services, spending that would increase aggregate demand and prices.”
3. Purchase of Assets: The BOJ could have begun purchasing assets from the private sector, buying corporate bonds, commercial paper and asset-backed securities in order to inject money into corporate balance sheets. This would encourage corporate spending the same way giving money to consumers would encourage consumer spending.

You can already see #1 and #2 in recent activities of the Fed, and #3 has been discussed already. I'd bet we'll see much more of all three of these, until we inflate our way to parity with speculative leveraged asset prices, or something else breaks (eg: the voting population's tolerance for massive, unmitigated inflation, or foreign investment funds dumping all their US dollar assets on the global market and refusing to buy US dept due to massive, unmitigated inflation).

The forest, though, in this case, is who ultimately gets hurt. Obviously Americans with savings take it no-lube style, as the value of their savings is obliterated by devaluing the currency it is based in. Similarly, taxpayers will struggle to remove their assets of the path of implicit robbery by taxation that intentional massive inflation creates. Ultimately, foreign businesses and governments will remove their dependencies on the US dollar as a stable currency basis for trade and investment, as it becomes obvious the US government actively destabilizes it.

This would not bode well for the US, as they have no appreciable savings, are massively in debt, and are utterly dependent on foreign purchases and investment to continue their deficit-based economy. Exports will do good business because of the exchange rates, but businesses will look to base business outside of the US, because keeping up with inflation will decimate businesses with balance sheets denominated in US dollars. The US GDP (which is primarily composed of US consumer spending and service industries which are dependent on spending) will contract dramatically, and although the government will try hard to conceal it, insiders will know, and pull money out as best they can.

What happens after that is anybody's guess, although I'd guess it won't be good if you're living in the US. I'm not sure any country has ever been successful fighting inflation with currency devaluation and increased national debt, but that would seem to be the only course being considered. I'm sure whatever political party is in power will blame the other one as the ship is going down, but that won't really help the situation.

At the end of the day (or economy, as the case may be), the American people will only have themselves to blame. Partially, obviously, for not being intelligent enough to elect responsible officials who would address problems, even if it meant short-term pain for constituents, instead of pandering to whatever the popular opinion at the time was. Partially, also, though, for not having the foresight to put in place policies and institutions to promote election of officials who were smart enough to see the long term effect and patriotic enough to do the right thing for the country, instead of the right things to pay back your lobbyists and contributers, and get re-elected. Unfortunately, it seems these truths are immutable, and all the smart people can do is figure out how best to not get crushed when the building built, maintained, and largely populated by idiots collapses.

Anyway, that's the big picture, as I see it today. I'll get back to tree posts in the future. :)

Profound statement re inflation

This is a very insightful statement, imho (from here):

"There is increasing concern among some on the (Fed) that freewheeling rate cuts are creating a significant problem with the Fed's goal of anchoring inflation expectations," said Scott Anderson, senior economist at Wells Fargo Economics. If people, companies and investors believe inflation will pick up, they will act in ways that can make inflation worse.

"It is important that inflation expectations remain stable. If those expectations become unhinged, they could rapidly fuel inflation," Plosser said in February. "Moreover, as we learned from the experience of the 1970s, once the public loses confidence in the Fed's commitment to price stability, it is very costly to the economy for the Fed to regain that confidence."

Basically, the Fed's job with respect to inflation is to manage inflation expectations, and if people expect higher inflation they tend to take actions with compound economic slowdown. This in turn causes the government to spend more money to artificially churn the economy more, which causes more inflation, etc. This is called stagflation, and the Fed seems to be doing everything they can to cause it currently.

How to get more affordable housing

I thought today instead of ranting about the latest thefts perpetrated by Wall Street insiders in collusion with their insider buddies (read: the Fed), I'd write an educational piece for legislators who want to contribute positively to society. You see, it's good for society for people to own homes, but legislators don't always understand how to accomplish that noble goal. So, I will provide some insight.

In order for people to own homes, they need to be affordable. Now, contrary to what Greenspan might have said in flimsy defense of his flimsy oversight, that doesn't mean exotic 100 year 5/95 fixed to adjustable loans with ridiculously low intro rate, balloon payments, and pre-pay penalties. It means houses need to be priced where people can afford them, over the long run, at the current [real, documented, not made-up] salaries.

Now, we're a ways from there, but you can help get there. You know how? I bet you can figure it out if you think about it, but... I might be overly optimistic. I'll give you a hint: if the government tries to bail out lenders and keep the housing asset prices artificially inflated, does that help or hinder houses getting more affordable? That's right, it hinders (that's a fancy word for it's bad).

So I bet you're asking yourself, "self, what legislation could I pass that would help houses get more affordable sooner?" Well, for starters, you can make sure banks don't hold houses off the market waiting for values to go up, and make sure they unload them at market within a reasonable amount of time. Then, you can make sure foreclosures proceed as swiftly and efficiently as possible, to ensure that houses people cannot afford get back on the market ASAP, allowing their prices to correct sooner and helping the overall market get more affordable faster. You could also streamline the process of houses where the mortgages are held in securities and are in default getting foreclosed on and sold back on the market. Finally, you can push to make sure the government doesn't create excessive inflation to offload the bad debts on to everyone who was responsible and saved their money.

If you do these things, you're helping housing become more affordable, and helping society in the long run. Obviously, if you do the opposite of these things, you're hurting society, and you're a bad person. Only dumb people vote for bad legislators, so don't be a bad legislator, or a dumb voter.

I hope this has been educational. :)

Quote of the day

From: http://globaleconomicanalysis.blogspot.com/2008/03/liquidity-traps-myth-and-reality.html

Throwing money at the problem simply encourages more overcapacity, weakens the currency, and causes prices of necessities like oil to rise while not doing a thing for wages. If dropping money out of helicopters worked, Zimbabwe would be the greatest economic force on the planet.

Unfortunately, the Fed seems to be of the mindset that causing real, massive inflation is the way to stimulate the economy.

On fair value accounting

So, there's an interview from today with a guy who claims that fair market accounting (FAS 157) is largely to blame for the meltdown in the financial markets. See: http://www.housingwire.com/2008/03/17/quote-of-the-day/

What's awesome about the interview is the audacity to say that it's so unfair and disruptive to force financial institutions to value to assets to market, because all the banks and IB's with their current assets would be insolvent when assets bubbles collapsed if they had to do so. Yet, and let me emphasize this, that's the entire g-damn point!!! Banks should not be holding their fractional reserves in leveraged derivatives to inflate their profits; it was true when Buffet said it several years ago, it's still true today, and it'll be true long after all the taxpayer-expense inflation-fueled bailouts are done.

If a decrease in one asset market could cause you to become insolvent as a bank, you should not be allowed to hold people's money. If you're a public company, you should have to disclose exactly what assets you are holding, so your shareholders can examine them and be aware of the risks. Alternatively, you should be required to provide a risk analysis relative to various markets of your investments, and be accountable if the actual performance falls below that metric. It's deplorable that a public company can be insolvent due to leveraged holdings, and its shareholders be unaware. It's a failure of adequate disclosure in rules or practice (or both), and should be addressed.

Fed steals more of your money, explicitly

Bailouts are becoming more public and less behind-the-scenes... expect much more to follow at taxpayer expense. Today the Fed agreed to allow JP Morgan to purchase treasury notes in exchange for basically toilet paper coated in crap from Bear Sterns. In simpler terms, it's equivalent to taxpayers directly giving money to jobless people with terrible credit for no-doc loans on million dollar mansions, because you would do that right now with your money, right?

So full of hate for all these bailouts at taxpayer expense. When did we become the United States of corruption, collusion, theft, and abusing normal people to protect corporate executives? Who's job is it to throw the Fed officers in jail for stealing our money?

PS: Note to any politician who wants to take a bold, innovative, productive, and revolutionary step to prevent all this crap in the future: Push the idea that the federal government will not bail out the Federal Reserve Bank if they become insolvent due to intentional negligence, and in that case directors may be personally liable. Let all those f-ing crooks hang.

Addendum: IBD Article on Hazards of this Bailout
Essentially, they speculate that it's potentially sewing the seeds for the next crisis. Could you be more understating of the obvious consequences? It would be like giving a kid the new toy they wanted every time they threw a tantrum, and then saying it might be sewing the seeds for future tantrums. How about not pulling punches, and saying: The Fed directly caused the current financial crisis and is currently directly causing the next financial crisis, and anyone who thinks the current economic situation sucks should write their elected representatives and demand the Fed officials responsible be fired, fined, jailed, or all of the above. In addition, they should demand the representatives not join in precipitating the next crisis by using taxpayer dollars to bail anyone out in the current crisis, in any form.

Why are politicians morons?

From the "how could these people manage running to the bathroom, much less the country" comes this gem:
Another Brilliant Idea From Congress

Basically, give money to bribe people to buy houses, and thusly help prevent the prices from correcting themselves back to sane levels. This would make housing less affordable, prop up the real-estate industry, create inflation, increase the national debt, and encourage people to overextend themselves financially, again, when the country can least afford it, all in one monumental tribute to patron saint of drooling retard please-for-the-love-of-god-don't-breed brain-dead morons.

Is it too much to ask to appoint people with one brain cell to Congress? Is our country that far down the proverbial drain?

PS: This brain-dead individual (Senator Johnny Isakson, from GA) is a Republican, for everyone who thinks I get hate on liberals. Although liberals are the typical purveyors of brain-dead idiocy, in my experience, I'm actually an equal-opportunity hater of head-banging mentally challenged people from running the country (or anything else, really), and I call it like I see it. After all, it's just my opinion, I could be wrong.

Fed stealing your money for banks

Not that this should be news to anyone, but I guess the real story should be about how little people seem to care. If I was running the government and this was happening, the Fed would be gone, today, abolished, and it's executives on trail for treason.

In case it helps for google rankings or whatever, I'll like to a couple of the places other people talk about it:
Fed Giving Away Your Money To Banks
Moody's, S&P Defer Cuts on AAA Subprime, Hiding Loss

Note to CNN/others: How about a front page story about this, instead of the usual meaningless garbage? Or, to put it another way, which is more likely to affect your average readers personally: a politician getting laid, or the Fed stealing $200 billion (which, BTW, makes Enron seem like a round-off error)?

Organized religion getting on the global warming bandwagon

I think this is good news; kinda like a corporate merger. I imagine they could perhaps cut costs by eliminating redundancy between their organizations, thus streamlining their business and increasing profits for their shareholders.

"This merger makes a lot of sense," says this analyst, "it brings together old-school brick-and-morter religion with new age religion. The global warming religion will benefit from the years of experience at fear-mongering and guilting that long-established religions bring to the table, while the established religions can benefit from increased market exposure and more mainstream unfounded beliefs than the typical religious dogma. It will be a win-win for the shareholders."

It was unknown if there would be any response from rational thought, or if independent thinkers were considering any moves to strengthen their position in the mindshare space in response to this merger.

McCain's VP choice

From The New Yorker:

If McCain really wants to have it all—to refurbish his maverick image without having to flip-flop on the panderings that have tarnished it; to galvanize the attention of the press, the nation, and the world; to make a bold play for the center without seriously alienating “the base”—then he can avail himself of a highly interesting option: Condoleezza Rice.

I couldn't agree more; I think Condi would be a pretty ideal VP candidate in every conceivable way. In addition to everything else which was said in the original article, it would be a clear statement that you could elect someone black and female to a powerful position, without having to choose between an empty-rhetoric panderer or a socialist moron.

House prices to income

This chart is too awesome not to link:



(from http://piggington.com/this_just_in_san_diego_homes_are_overpriced)

Just... spot on.

A wacked idea

You know it's pretty radical when I label it a wacked idea, as opposed to all my other ideas that everyone else thinks are wacked but I think are pretty reasonable. I'm not even sure it's a good idea, but it's a thought, and since I write thoughts here...

I was thinking that votes should be weighted by both education (in lieu of intelligence, which is hard to objectively quantify) and experience. Not so much as, say, the super-delegates compared to the normal delegates in the democratic party, where one special person's vote is worth 100,000 normal people's votes. More like something on the order of 5-1, for a 60 year old with 40 years of work experience and a college degree vs an 18 year old high school dropout on welfare who barely speaks English.

Sure, this would have problems, like the arbitrariness of the qualifications and the inevitable politicizing of the criteria. But the whole equal vote thing just strikes me as doing a fundamental disservice to the country and the election process. Why should the vote of an educated, experienced, productive member of society who understands the issues and comprehends what's long-term beneficial for the country be canceled out by the vote of the high school dropout moron voting for the candidate with the best smile and the sweetest, nebulous, unrealistic, unfounded, and pandering rhetoric of change and prosperity for all?

Wouldn't the country be better off by biasing the electorate toward thinking people?

On Ben's Advice for Banks

So, uncle Benny, in his most recent spew of "wisdom", suggested banks should consider forgiving some principle on bad loans given to people who couldn't possibly pay them back for homes they couldn't possibly afford. Now normally, I think the Fed is generally bad for the country, bad at their job (controlling inflation, in case anyone forgot what that was), and bad in their advice. However, in this case, I think it's not actually that bad (regardless of how bad it sounds). I'll explain (in a shameless copy of a post made on The Mess That Greenspan Made)...

Banks and other lenders have a problem with all their bad loans which is going to get worse. As people figure out they can walk away from underwater loans with various levels of downside (from a simple defaulted "everybody did it then" debt to "many people did it then" bankruptcy), lenders will be left holding a lot of properties they can't unload. As states try to combat urban blighting, they will figure out ways to fine the lenders lots and lots of money to compensate for lost property tax revenue. Add in the foreclosure cost, chance of people declaring bankruptcy and keeping their homes while clearing their debt (which is certainly possible), and lawsuits over predatory lending, and lenders are staring down the proverbial abyss.

Given those considerations, it really might be cheaper for the lenders to write off some of the principle of the debt, and a prudent financial move. The goal of the lenders is to get people paying 100% of their income to the lenders, forever, without pushing the people who borrowed money to the point where bankruptcy or defaulting is seen as the better option. If giving people some phantom equity furthers that goal, it's certainly an option worth considering, compared to the probable alternatives for most of the "obvious default" loans.

I know, I feel dirty for agreeing with Benny... but that's just how I see this one.