Tuesday, September 30, 2008

It's Back

It looks like the bailout is back.

Fat is Good

Here is an interview with the Author of Fat, a sorta popular science health/recipe book.  I will probably read it some point and will report back later.  The book is centered on the basic point that animal fat is basically good for you and really tasty.

Thoughts on Paulson

Matt Yglesias has a great post on how Paulson has bungled the bailout among other things.  His basic argument is that the sensible thing for Paulson to have done was quietly go around congress and try to gin up support for a plan before announcing his bailout as opposed to pulling a plan out of his rear and then yelling from the rooftops that all hell would break loose if the plan was not adopted. 

Next Step

Apparently Senator Dodd is proposing expanding the FDIC's authority to deal with insolvent banks.  This is actually something they do quite well so this is an encouraging step.  

Retail Banking Sector

The Finance sector has consolidated significantly.  Now with Wachovia being bought by Citigroup (though it appears that Citigroup is going to fold their retail banking business under Wachovia) there are only a handful of players.  JPMorganChase (which has eaten up Bank One and WaMu), Bank of America (Countrywide, though it was basically a thrift without much of a deposit base), Citgroup, and Wells Fargo.  Nat City is surely going to fail and maybe Fifth Third as well.  WalMart has been flirting with the idea of opening up a commercial banking practice for years but has been stymied.  I wonder if regulators will be more receptive to WalMart's entrance into the industry now that there are so few players.


Light Sabers for the Wii.  I am very pro-Wii conceptually, but anti-Wii in practice.  I prefer games like Grand Theft Auto, actually, that is the only game I like.  But honest to goodness light sabers might be enough to bring me around.

Bailout Failed

I still don't understand why traditional stimulus tools haven't been discussed.   There are roads and bridges to be fixed, mass transit to be built, and local governments to be bailed out.  In the meantime we can pass another stimulus package along the lines of the one passed last year.  I think the goal should be to pump enough money in the economy to soften the blow the contraction of the financial industry, a contraction that should occur.

Thursday, September 25, 2008

Bailout Plan Breaks Down

At least I hope this is true.

Mighty McCain

John McCain has just demonstrated the power of preemption.  What a feat!  McCain suspended his campaign to get back to d.c. to take on the task of saving financial markets (of course with a detour to NYC over to the Clinton Global Initiative so that Bill Clinton could himself be a post-partisan figure/exceedingly ungracious loser).  And whaddya know, the mere threat of McCain's participation has compelled Republicans and Democrats, House and Senate to iron out their differences and finalize bailout legislation. I suppose he can attend that debate after all.  Here is the key graf:

That's real power right there.

hat tip: Felix Salmon

Android: iPhone Killer?

Probably not but it is a welcome development for consumer electronics geeks anyhow.  T-Mobile is launching the first Android based phone, the G1, in October.  Android is an open source, linux based operating system and it has been launched by Google. Anyhow, I have demonstrated total incompetence in forecasting consumer trends (see Smart Car, T-Mobile Wifi extender), so I won't venture to do so here.  

A Bailout For Everyone

The big three and their suppliers are getting $25 billion in subsidized loans from the taxpayer.  I don't get why keeping the big three in business is so vital. If one of them goes out of business, Toyota, Hyundai or Nissan will simply open up more plants in the South and build more cars (better cars at lower prices).  In the meantime, the surviving "American" auto companies might try to do things a little differently.  

The New New York

Here is Felix Salmon on what New York will look like now that it is deleveraging.  It sounds like more naughty shops, the met stays, less bottle service at clubs.  Not necessarily a bad trade-off.

Peter Orzag on the Bailout

Here's the money quote:
"However, institutions that gave up equity would presumably expect to receive higher prices for their assets, and an equity stake in the firms might not offer any better upside to taxpayers than direct purchases of the assets on a risk-adjusted basis. Furthermore, healthy institutions might be deterred from participating, which could make it more likely that the federal government would overpay for assets by limiting the potential number of sellers—and the potential dilution for existing shareholders if asset prices declined in the future might make it challenging for financial institutions that issued such equity to the government to raise private capital in the future."
Go read the whole thing.

Wednesday, September 24, 2008

A Better Alternative

Here is an idea posted by Tyler Cowen:

"True just sending money is not incentive compatible. But there is no reason to bail out homeowners. Just intervene in any mortgage default. Seize the property and continue making the mortgage payments. In the short run rent the property back to the homeowner.
This is what I have been advocating to my colleagues. I don't know why it is not under discussion. Before going with the arbitrary implememtation that Paulson is proposing now there should be some convincing argument that it's more efficient than this alternative. It is clearly the most direct approach and therefore should be the default (so to speak.)"

Here is another post along the same lines from Cowen.

McCain Suspends Campaign

McCain is suspending his campaign ostensibly so he can roll up his sleeves and help solve the credit crisis.  Given that any legislation will be coming from the Senate Finance committee, of which McCain is not a member, this seems daft.

Health and Taxes

One of the obnoxious things about employer provided health care is that if you don't take it you don't get anything in return.  I carry my family's health insurance.  Thus, my wife is not enrolled in her employer's plan.  Does the employer cash out the value of her premium? No.  The only savings are realized in the form of her not having to make the employee contribution to the premium.  That's lame.

Tuesday, September 23, 2008

More on the Bailout

Read this post by Mark Kleiman.  He essentially breaks down the argument over pricing the assets between Brad DeLong and Paul Krugman.

VP Debates

Word is that the VP debates will be tightly structured and moderated, ostensibly to benefit Sarah Palin.  I agree with Mickey Kaus' take that this is a mistake on the McCain camp's part.  Biden's fatal flaw has always been his mouth.  Give him enough rope and he'll hang himself.   However, when given limited time and a more rigid structure Biden is actually pretty effective, as evidenced in the primary debates. 

George Will on McCain

George Will has never been a McCain fan but in this column he comes just short of endorsing Obama and stating that McCain is unfit for office.

Stop The Presses

Barack Obama has conceded that in light of recent events his spending plans would have to be curtailed.  A dose of reality in a presidential campaign.  What a concept.

Monday, September 22, 2008

I Wish This Were on Ebay

Pieces of the Berlin wall are being auctioned off.  I would totally buy one.  They would be great for my patio.

More Thoughts on the Bailout

I am still having difficulty wrapping my head around the mechanics of the bailout. It will be a reverse auction, thus, instead of having multiple buyers and one seller there will be multiple sellers and one buyer.  My first reaction was that it would be impossible to establish a "fair-market" value for the assets because they are too heterogeneous.  A lot of concern right now centers around the fed overpaying for toxic assets, essentially being gamed.  However, if you have many sellers and you are taking the lowest price it seems that the pricing could skew in the other direction.  Consider the following scenario: Healthy Bank inc. (didn't involve itself much in the subprime frenzy, pays a fat dividend, and as a result is currently doing well relative to other financial firms), Marginal Bank Corp. (they have a significant amount of toxic assets and are under captialized but not grossly so; given a moderate capital infusion they should be able to weather the storm), Slimy Brothers Investments (they are neck deep in toxic shit).   It would seem in such a scenario Slimy Brothers Investments has the greatest incentive to offload their assets onto the Fed, however, they also need a generous price to stay afloat.  Whereas Marginal Bank Corp. and especially Healthy Bank inc. can afford to price their assets at a bargain basement value just to get them off their books.

Mark Cuban's Thoughts on the Meltdown

You can basically boil Cuban's diagnosis of the meltdown to the following phrase "Risk and Reward have been decoupled."  Anyways, check it out, he has a lot of interesting things to say.

New World/New Media

Felix Salmon has a very interesting point about the defense of the Paulson plan and what that means for media relations folks moving forward.  It used to be, and in practice still is, that when the administration (any not just this one) needed to sell a policy it hit up the Sunday morning talk shows and other t.v. venues.  This is definitely effective for reaching a segment of the population but there is a clear generational divide, and for the younger generation this simply doesn't work.  I am guessing that those 10 years older and younger than me are consuming most of their news through the web and especially through blogs.  The only government agency that I can think of that does effectively uses a blog is the Congressional Budget Office with its use of the Director's Blog.  

Sunday, September 21, 2008

Congress Members Getting Hosed

Bloomberg has a roundup of which members of congress are getting wiped out from the AIG fallout ("a bailout" but I think the fed's line of credit at the libor + 850 basis points is really a forced, if not immediate, liquidation dressed up as a bailout). Anyhow, it looks like Pelosi and Kerry are getting creamed. But they have crap loads of money so they should be just fine. Not that this would ever happen, but I would love to see a requirement that members of congress put all of their assets in index funds as opposed to individual equities. You avoid conflicts of interest and as a bonus, they wouldn't get wiped out if you bet horribly wrong on a stock. Though, it's interesting to see that they didn't liquidate their positions. Given that congressional members typically have a reputation as some of the best traders (it would be an understatement to say they have insider information), this shows how much congress has been cut out of the loop on the government's response to the market meltdown.

Saturday, September 20, 2008

More Thoughts on the 1 Trillion Dollar Bailout

I have a basic problem with the notion of spending upwards to a $1 trillion (I think the proposed number is $700 billion right now) to bail out the top .01 percent of the income distribution. If we are going to piss away a trillion dollars to maintain employment and boost asset prices let's do so from the bottom up: fixing bridges, building transit, job retraining, etc. Yes, more financial institutions would fail; however, I am afraid they should. If we do this bailout this will simply be the biggest bailout of all times till the next one around the corner.

Friday, September 19, 2008

Obama Wins the Beer Test

Or in this case the football watching test.  Sadly, I think this is a metric every bit as important, if not more important in understanding voter preference than policy positions or experience.

1 Trillion Dollar Bailout

The administration is proposing a massive bailout of the entire finance industry.

Wednesday, September 17, 2008

Morgan Stanley Is On the Clock

The latest word is that Morgan Stanley might merge with Wachovia. Merrill Lynch is now the property of Bank of America, another commercial bank based in Charlotte. Lehman and Bear Stearns are gone. That leaves Goldman as the only independent investment bank. Megan McCardle has an interesting post on what this means for New York. What happens to the world's financial hub when it's financiers are relocating down South or dissapearing?

More Reading

David Leonhardt has a great column in the times. Check it out. Here is an excerpt:
"The Bush administration, the Fed and Congress, meanwhile, continue to focus on the immediate crises, with little attention to the underlying reasons that the economy has gotten into this mess — a stagnation of incomes, an explosion of debt and a decidedly outdated, and limp, approach to government oversight. Remarkably, the presidential campaign has gotten less serious, while the economy’s problems have become more so."

This Should Be Obama's Next Ad

Meltdown Coverage

If you want to follow the meltdown, the single best person to look to is Felix Salmon of portfolio.com. His blog is excellent. It looks like Washington Mutual and Morgan Stanley are next.

Tuesday, September 16, 2008


John McCain invented the blackberry.  Oh, and San Diego is German for a "Whale's Vagina".

Google Chrome

I just downloaded Google Chrome (Google's new browser) at work (I have a Mac at home and they don't have a Mac version yet).  So far I like it.  It's simpler, less cluttered than firefox or internet explorer.

Monday, September 15, 2008

Palin Needs Schooling ASAP

Here is a bit from her interview with Charlie Gibson:

"GIBSON: So let me summarize the three things that you’d change in the Bush economic plans. One, two, three.

PALIN: Reduce taxes, control spending, reform the oversight and the overseeing agencies and committees to make sure that America’s dollars and investments are protected.

GIBSON: So let me break some of those down. You talk about spending. How much smaller would a McCain budget be? Where would you cut?

PALIN: We’re going to find efficiencies in every department. We have got to. There are some things that I think should be off the table. Veterans’ programs, off the table. You know, we owe it to our veterans and that’s the greatest manifestation that we can show in terms of support for our military, those who are in public service fighting for America. …It’s to make sure that our veterans are taken care of and the promises that we’ve made to them are fulfilled.

GIBSON: So you’d take military off the table, the veterans’ benefits. That’s 20 percent of the budget. & Do you talk about entitlement reform? Is there money you can save in Social Security, Medicare and Medicaid?

PALIN: I am sure that there are efficiencies that are going to be found in all of these agencies. I’m confident in that."

Palin is pulling the whole fraud, waste and abuse line. Repeat after me: the government is an insurance company with a side business in defense. If you are going to try to bring the budget into balance on the spending side you will have to tackle a combination of defense, medicare, medicaid, and social security.

To be fair, this is not necessarily a fair reflection of Palin's knowledge or lack of knowledge. Many on the right have been peddling this bullshit for ages. This has been a pet peeve of mine for awhile.

hat tip: economist mom

Sunday, September 14, 2008

Palin About to Get Schooled...

by Douglas Holtz-Eakin, McCain's Economic and Domestic Policy Director. And thank god on two levels. First, it is clear that Palin has a very thin grasp of policy of all types and needs the preparation. This a crucial distinction between Obama and Palin, preparation, not experience (as neither really has any real experience). But it is preparation, getting up to speed on a wide range of issues which can serve as platform to demonstrate your judgment and thus overcome the experience deficit (at least in the minds' of voters). Second, this gets Douglas Holtz-Eakin out of the media spotlight where he has been peddling some serious b.s.

Don't Look at Your 401(k) Anytime Soon

Because it is really hitting the fan this weekend. Lehman Brothers is about to be liquidated and Merrill Lynch is being purchased by Bank of America.

Earmarks, continued

Here is a pie graph courtesy of Mark Thoma that shows the portion of the federal budget that earmarks constitute (it's the barely visible sliver). McCain's plan to bring the budget into balance by eliminating earmarks is simply not credible. Remember, the government is an insurance company with a side business in defense. That is where the money is and thus where any savings will have to come from.

Friday, September 12, 2008

More on Attack Ads

I am surprised that nobody in the Obama camp has made any hay of McCain's involvement in the Keating Five.  One of the central ironies of McCain's personal narrative as a reformer is that he was caught with his pants down in a pretty large scandal.  Though, there is something to be said for keeping the powder dry till people are actually paying attention.

The Beginning of the Fall

This just begs to be a political ad. Apparently the Alaskan legislature had to ban municipalities and townships from charging rape victims for rape kits (kits used to prove the crime/find the criminal). Apparently these kits cost between $300-$1200 and there was only one city in Alaska that actually charged victims for these kits...yes, you guessed it, Wasilla, while Sarah Palin was the mayor.

hat tip: Ezra Klein

Thursday, September 11, 2008

Another One Bites the Dust

It looks like Lehman Brothers will cease to exist by this weekend.

Crappy Sports Names

The Oklahoma City Thunder it is, formerly the Seattle Supersonics. I think it is a craptastic name, but then again, my team is the Washington Wizards. I wish teams would make more of an effort to adhere to naming conventions that have something to do with the city they play in: such as, the Seattle Supersonics.

The People's History of the United States

...by Howard Zinn is about to be made into a documentary.  I have it but have never gotten around to reading it and now I don't have to...hahahaha.  Just kidding, I'll get around to it one of these days.

Wednesday, September 10, 2008

The Social Security Trust Fund

Arnold Kling describes the trouble with the social security trust fund pretty well in responding to Felix Salmon:

"Felix Salmon writes,

'the obligations of the [Social Security] trust fund aren't tangible obligations fungible with other government debt. But at the same time they are obligations: they oblige the government to issue debt in the future, insofar as its tax revenue won't be able to cover its pension promises.'

A trust fund = an obligation to borrow? If your uncle Louie told you he was setting up a trust fund for you, and its assets consisted of his obligation to borrow the money, how secure would you feel?

On the other hand, you may feel confident that Uncle Sam will always be able to borrow. Don't be so sure. A few months ago, one might have thought that Uncle Freddie and Aunt Fannie would always be able to borrow. That ended rather suddenly.

What do you like better about Sam? His balance sheet? His management team?"

This is one of the things I have never understood when those who claim that Social Security is not a problem or even has a strong financial position. The trust fund presently has $5 trillion dollars worth of obligations that we have pissed away. These are funds that will have to be paid out between 2018-2040. To state Social Security's finances are in sound shape presumes faith in the taxpayers willingness to accept higher marginal tax rates to redeem those bonds in the trust fund. I don't share that faith.

Earmarks and the Bridge to Nowhere

Sarah Palin's bit about saying "thanks but no thanks" to the "bridge to nowhere" is an outright lie. This is amazingly arrogant that the McCain team persists in using this line. However, what concerns me more about this is the fetish surrounding earmarks. Simply put, they aren't that big a deal. Earmarks are a miniscule part of the budget. The represent roughly $18 billion in outlays out of a budget of $3 TRILLION. In other words, 0.006 % of the federal budget. This is not to say that minimizing earmarks is not a worthy goal, we shouldn't make such a big deal about them. This was one of the things that drove me batshit crazy about Tim Russert. Russert, the great Daniel Patrick Moynihan's former chief of staff, who surely should have known better, always made earmarks one of his infamous gotcha!s, thereby raising their relative importance of earmark reform in our national discourse. But really, they are just a distraction.


The RNC says thank you.

Tuesday, September 09, 2008

What I'm Listening to

Jacqueline du Pre: The Early BBC Recordings 1961-1965. I am a huge fan of Yo-Yo Ma but as far as cellists go he does not come close to Jacqueline du Pre. Here is her wikipedia.

Sunday, September 07, 2008

PeP Updates

I have added Greg Mankiw and Ta-Nehisi Coates to the blogroll. Professor Mankiw has one of the bigger econ blogs and is an Economics professor at Harvard. He was previously a chair of the CEA under Bush, he routinely writes economics columns for the NY Times, and writes the best selling economics textbook. He manages to write about complex issues in an accessible manner. I suppose this shouldn't be surpising given that he is a best selling text book author. Oh, and Professor Mankiw was kind enough to quote this very blog in one of his recent posts which has me positively tickled. Yes, I am a dork.

Ta-Nahisi Coates is a blogger for the Atlantic and blogs about anything and everything. I find him fascinating and he discusses race and culture extensively in a manner that is seldom found on the blog0sphere or elsewhere.

Friday, September 05, 2008

The Things Campaigns Do to You

"The most promising way to move forward in all three dimensions – coverage, cost, and
long-run fiscal situation – is to replace the employer exclusion with a tax credit, a step that has been proposed many times before (e.g., Butler 1991 and Pauly and Hoff 2002). Firms would still be allowed to deduct the cost of their contributions to employee premiums, just as they can deduct wages and other expenses today for the purpose of calculating taxable income. But workers would now have to include employer contributions to health insurance in their earnings for the purpose of calculating taxes (precisely which taxes is discussed below). In exchange for, workers who purchased qualifying insurance would get a refundable tax credit. Qualifying insurance would be along the lines proposed by the President in his standard deduction for health insurance, including limits on out-of-pocket payments, coverage of a general range of medical care, and guaranteed renewability by the provider (Treasury 2008)."

This is a pretty fair description of the McCain health care plan. The funny thing is, this is not be found in McCain campaign literature or on his senate website, but rather in a paper written by Jason Furman, Obama's Economic Policy Director, who now is arguing about the perils of this very plan. Now Furman would probably be right to respond that the McCain plan doesn't go far enough to facilitate risk pooling in the individual market and maybe that the tax credits are insufficient. But the general thrust of the McCain plan is one that he championed before he became an Obama staffer, now his job is to criticize that very plan.

Furman's counterpart in the McCain campaign, Douglas Holtz-Eakin, was a real deficit hawk and had a sterling reputation coming from the CEA and a stint as the CBO director. Now Holtz-Eakin's main task is defending the indefensible, McCain's tax policy. He surely knows that he will not bring the budget with the tax cuts McCain has proposed back into balance merely by curtailing earmarks. But that is the company line.

Both are incredibly intelligent men, highly accomplished in their fields, but their current job description is to say stupid and false things. That is politics.

Here is a video of the two going at it on CNBC and in Arnold Kling's words, "squandering their cognitive surplus."

hat tip: Greg Mankiw and Arnold Kling

random note: Mankiw was actually Furman's dissertation adviser.

Thursday, September 04, 2008

More Thoughts on Palin

It appears that Palin will be quite capable as an attack dog. The problem for McCain is that this isn't a particular need. What McCain needs is policy credentials and a credible governing narrative. For all of his years in the senate McCain seems remarkably weak when it comes to actual policy. His narrative is summed up in one word: Honor. However, this doesn't really translate into what to do about rising health care costs, the looming entitlement disaster, a decaying public education system, and a safety net with gaping holes when it is needed most.

Wednesday, September 03, 2008

My Thoughts on Palin

I was initially rather excited by the Palin pick, though for somewhat unconventional reasons. I think her pick is a disaster and simply shows how impulsive McCain is and one would argue on that basis alone ill-suited for the presidency. That said, I view this election as a throwaway for the Republicans. I don't think there is a snowflake's chance in hell that McCain wins. The electoral math just doesn't add up for Republicans. The Republican brand is so tarnished that you could submit a ticket of Jesus and Mother Theresa and it would be walloped. McCain's pick of Palin gives an up and coming politician a chance to get some national exposure that she would not get merely as the governor of Alaska. If Palin's basic defect were that she were inexperienced than all would be peachy in my book, though it looks like she might be a bit loony and ethically challenged.

On the plus side, she is a stone cold fox. I think Michelle Obama is immensely attractive and so is Governor Palin and that makes this election much more palatable.