The latest sign that almost nobody who writes the news understands what's going on with the economy: even the folks who support the bailout think it's going to cost $700bn. (see: http://www.newsweek.com/id/161529).
There are a couple of reasons for this. First is that no one seems to have actually tried to sell the idea to the public. Bush's speech focused on selling the idea that the economy is in trouble, not that the bailout is the way to fix it. (Michael Kinsey notes that this may be the first economic collapse in which our leadership has worked to convince us that it is in fact a collapse.) When Bush finally gets to the bailout, the first thing he mentions is that he's putting "$700bn on the line." Well, that's true, technically, but only in the same sense that when you buy a house, you've put whatever you paid "on the line." You don't expect to lose your down payment, and, if you can afford not to sell your house for a while -- i.e., if you have a mortgage that you can afford -- you are very unlikely to lose that "on-the-line" money.
The situation that might worry a new homeowner is what has bondholders dealing with massive losses -- what if no one wanted to buy? In that situation it might make sense for the government to take action to make sure that normal homes that would trade in a liquid market are once again trading. And while a fund for that might take lots of money, it would not have a price tag anywhere near the size of the fund.
This is not to say that giving Paulson -- where was he on explaining the situation to the public, by the way? He must have thought the crisis wasn't too hard to figure out since he thought the solution was 2.5 pages long -- should be crowned king and handed money to sprinkle at will on the banks. But other than creating oversight procedures, allowing congress to quickly suspend the program if it smells a rat, and giving congress upside in the banks who use the relief fund by forcing them to sell non-voting shares or senior debt to the government -- all of which are in the bill that was defeated yesterday! -- there's just not much that can be done. (I suppose you could complain about not allowing judges to rewrite mortgages on the fly to help homeowners, but that doesn't sound like what Republicans normally get mad about.) At the end of the day, someone has to name a bid for the bonds that's high enough for a bank to hit it, and that level clearly isn't where the market is right now.
The alternative is to risk asset lock, credit freezes, and deposit runs. In which case we should all go get our money from the bank, go to Wal-Mart, buy a stack of canned goods and a Smith & Wesson, and wait for the next congressman who voted "no" to walk by.
Tuesday, September 30, 2008
Friday, March 28, 2008
the 2008 primary is the 1994 baseball strike
http://www.gallup.com/poll/105691/McCain-vs-Obama-28-Clinton-Backers-McCain.aspx
in the above link, gallup explains that there are an increasing number of democratic voters who say they would rather vote for mccain if their prefered democratic candidate doesn't get the nomination. this sounds disastrous: if either 28% or 19% of democratic voters don't vote democratic, john mccain will be in the white house in 2009.
the good news is that these people who promise to vote against their own policy preferences are lying. or, not lying exactly, but unable to predict their future behavior.
my favorite example of people claiming en masse that they would act against their own preferences is in the run-up to the 1994 baseball strike. "i love baseball. if you strike, and then start playing again later, i will not watch baseball." the threat to act against one's own future interest is what game theorists call a non-credible threat. and it turns out to be a pretty good name, since baseball fans didn't hold out after players stopped holding out.
as long as the democratic nomination gets settled without an actual no-holds-barred convention cage match, there should be no problem. the same democratic voters who find the other democratic choice so appalling right now probably won't once their candidate is no longer an option. then the question will be "would you like most americans to have affordable health care?" i don't see a lot of internal dissent once the debate returns to policy issues in august and september.
in the above link, gallup explains that there are an increasing number of democratic voters who say they would rather vote for mccain if their prefered democratic candidate doesn't get the nomination. this sounds disastrous: if either 28% or 19% of democratic voters don't vote democratic, john mccain will be in the white house in 2009.
the good news is that these people who promise to vote against their own policy preferences are lying. or, not lying exactly, but unable to predict their future behavior.
my favorite example of people claiming en masse that they would act against their own preferences is in the run-up to the 1994 baseball strike. "i love baseball. if you strike, and then start playing again later, i will not watch baseball." the threat to act against one's own future interest is what game theorists call a non-credible threat. and it turns out to be a pretty good name, since baseball fans didn't hold out after players stopped holding out.
as long as the democratic nomination gets settled without an actual no-holds-barred convention cage match, there should be no problem. the same democratic voters who find the other democratic choice so appalling right now probably won't once their candidate is no longer an option. then the question will be "would you like most americans to have affordable health care?" i don't see a lot of internal dissent once the debate returns to policy issues in august and september.
Tuesday, February 12, 2008
dunking girl
http://www.youtube.com/watch?v=tuDfRzY2Vqw
the wilt chamberlain of women is a junior in high school outside houston. apparently she's going to baylor, so i guess she doesn't like to dance. she has an 80" wingspan, but she's still growing. http://www.dallasnews.com/sharedcontent/dws/spt/highschools/topstories/stories/061207dnspobaylor.3a4c9adc.html
the wilt chamberlain of women is a junior in high school outside houston. apparently she's going to baylor, so i guess she doesn't like to dance. she has an 80" wingspan, but she's still growing. http://www.dallasnews.com/sharedcontent/dws/spt/highschools/topstories/stories/061207dnspobaylor.3a4c9adc.html
Monday, February 11, 2008
i was a day early on the home glut
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/10/AR2008021001971.html
in the washington post today, michael hill, the ceo of emerge homes says:
Today's crisis differs greatly from previous housing downturns. In past downturns, the housing market was influenced by and was an indicator of other economic issues. This time, millions of homes have been built around the country during the past few years using a financing option that no longer exists. There may never be enough capacity to absorb all of these homes and other existing homes using 30-year mortgages, because there simply aren't enough people with the incomes to meet the requirements.
he concludes that wall street needs to come up with a new financing option to make these homes affordable. wall street can't do that because wall street isn't the end user of the loans. only banks and pension funds can solve the problem, but i don't see them buying any type of new mortgage product in size within the next decade.
in the washington post today, michael hill, the ceo of emerge homes says:
Today's crisis differs greatly from previous housing downturns. In past downturns, the housing market was influenced by and was an indicator of other economic issues. This time, millions of homes have been built around the country during the past few years using a financing option that no longer exists. There may never be enough capacity to absorb all of these homes and other existing homes using 30-year mortgages, because there simply aren't enough people with the incomes to meet the requirements.
he concludes that wall street needs to come up with a new financing option to make these homes affordable. wall street can't do that because wall street isn't the end user of the loans. only banks and pension funds can solve the problem, but i don't see them buying any type of new mortgage product in size within the next decade.
best picture
man, i would love for juno to win best picture. for one thing, i think it was the best movie. but the other thing is, there has never been a george mason or villanova at the oscars. there's always the underdog best picture nominee, immediately identified, and everyone is supposed to be happy for it to be there, the ugly kid with the hot date. and they lose but they're smiling, and maybe they get a best screenplay award. (!) the academy awards need an upset victory.
whenever best picture awards look like mistakes after the fact, it's because they're either given to movies that nobody has a real urge to see ever again (a beautiful mind, crash), or to movies that are already becoming a national joke by march of the year after their release (titanic, forest gump). *
compare those movies to some of the sleepers from the same years. pulp fiction, brokeback mountain, good will hunting. these are movies you will want to see at least once every other year until you die. and they only have one thing in common: the story of these movies getting made seems like a joke. "you want to make a movie about gay cowboys?" "you want to make a movie about hit men? ok, and you are positive that john travolta is living?"**
doesn't that sound just like juno? a movie about a disaffected pregnant teen who has the kid, in a year that already saw a four star comedy about a full term unwanted pregnancy. it sounds like the description of a movie that would get its release date pushed back more times than vantage point.
when No Country wins in a couple sundays, i'll be happy for the coens, who should have won for fargo instead of losing to the english patient. (EP is still a great movie, fine, but...jesus, fargo! i'm not sure i agree with the academy 100% on their police work, there.) but as good as No Country is, it's going to fade from the national memory because of the ending. i understand that subverting the narrative is something that english majors really enjoy. hey, fine. but i don't know many people who pick up mrs. dalloway once a year. just compare it to the departed, which i probably watch accidentally more times in a month then i will ever watch No Country again.
* note: i'm not even using chicago or elizabeth in love here. i mean, those are not best pictures, right? but i figure they weren't marketed at me, so how can i judge? it would be like asking me what brand of bran flakes i like the best.
** making a movie about hit men doesn't seem like a big deal now, but that's because everyone was copying pulp fiction for about forever after that movie came out. remember "truth or consequences: new mexico?"
whenever best picture awards look like mistakes after the fact, it's because they're either given to movies that nobody has a real urge to see ever again (a beautiful mind, crash), or to movies that are already becoming a national joke by march of the year after their release (titanic, forest gump). *
compare those movies to some of the sleepers from the same years. pulp fiction, brokeback mountain, good will hunting. these are movies you will want to see at least once every other year until you die. and they only have one thing in common: the story of these movies getting made seems like a joke. "you want to make a movie about gay cowboys?" "you want to make a movie about hit men? ok, and you are positive that john travolta is living?"**
doesn't that sound just like juno? a movie about a disaffected pregnant teen who has the kid, in a year that already saw a four star comedy about a full term unwanted pregnancy. it sounds like the description of a movie that would get its release date pushed back more times than vantage point.
when No Country wins in a couple sundays, i'll be happy for the coens, who should have won for fargo instead of losing to the english patient. (EP is still a great movie, fine, but...jesus, fargo! i'm not sure i agree with the academy 100% on their police work, there.) but as good as No Country is, it's going to fade from the national memory because of the ending. i understand that subverting the narrative is something that english majors really enjoy. hey, fine. but i don't know many people who pick up mrs. dalloway once a year. just compare it to the departed, which i probably watch accidentally more times in a month then i will ever watch No Country again.
* note: i'm not even using chicago or elizabeth in love here. i mean, those are not best pictures, right? but i figure they weren't marketed at me, so how can i judge? it would be like asking me what brand of bran flakes i like the best.
** making a movie about hit men doesn't seem like a big deal now, but that's because everyone was copying pulp fiction for about forever after that movie came out. remember "truth or consequences: new mexico?"
my fiber-optic housing fear...and immigration
i'm sure the scale is wrong here, but one thing i wonder about is the amount of over-investment we had in housing over the past couple of years. over-investment in fiber-optic cable in the dot com boom was great, after we got past the bust: communication and data transmission is really cheap now.
what if that happened in housing? cheap housing for a long period of time isn't a great thing. it's a disaster, because so many americans have their wealth wrapped up in their homes.
i doubt the inventory backlog is large enough to warrant the analogy i'm making, but demographic changes could make it worse. you can great a housing glut two ways. one is to build a lot of homes. (check.) the other is to move a lot of people (who tend to live in homes) out of the country. and one way to do that would be if somebody who was trying to prove that he really was a conservative agreed to round up 12mm illegal immigrants and told them that they can't live in america anymore. i wonder what would happen to home prices then....
what if that happened in housing? cheap housing for a long period of time isn't a great thing. it's a disaster, because so many americans have their wealth wrapped up in their homes.
i doubt the inventory backlog is large enough to warrant the analogy i'm making, but demographic changes could make it worse. you can great a housing glut two ways. one is to build a lot of homes. (check.) the other is to move a lot of people (who tend to live in homes) out of the country. and one way to do that would be if somebody who was trying to prove that he really was a conservative agreed to round up 12mm illegal immigrants and told them that they can't live in america anymore. i wonder what would happen to home prices then....
Sunday, February 10, 2008
somebody should do what bill gross says
ohio had the 6th highest 2007 foreclosure rate in the country.* when that primary rolls around on march 4th, obama is going to have to have something to say about the housing market if he wants to compete. it would also be a great opportunity for him to introduce a policy initiative to answer the complaint that he is the feeling and hillary is the substance.
luckily, pimco's bill gross just wrote his monthly outlook column** on what to do in the wake of the housing crisis. it turns out that the guy who runs the biggest bond fund in the world supports a fair amount of government involvement in cleaning up this mess. i'm shocked that neither clinton nor obama have seized this opportunity.
because gross is a bond market god, his commentary (or, better, a more formal arrangement for him to endorse a specific proposal) would insulate a democratic candidate from being labeled as anti-free market.*** at the same time, the candidate would be supporting governmental avenue for refi-ing out of subprime loans at reasonable fixed rates, something that would resonate both with low income voters and with centrists who want to see structural action taken other than a bailout.
this idea also looks better to wall street than the "subprime rate freeze" idea that hillary espouses. the rate freeze might sound like a great idea, but in practice it's more like something putin or hugo chavez would come up with. "there was a signed contract in a free market, sure, but we decided after the fact that it was against the good of the people. viva la revolucion!"
*http://realestate.msn.com/Buying/Article2.aspx?cp-documentid=6119868
**http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+February+2008.htm
*** or at least, it should. but of course when pols propose taxing hedge fund managers as steeply as we tax wage earners, that's apparently anti-growth. why tax hedge fund managers at all? luckily nobody wants to tax them since they're contributing to dems too now.
luckily, pimco's bill gross just wrote his monthly outlook column** on what to do in the wake of the housing crisis. it turns out that the guy who runs the biggest bond fund in the world supports a fair amount of government involvement in cleaning up this mess. i'm shocked that neither clinton nor obama have seized this opportunity.
because gross is a bond market god, his commentary (or, better, a more formal arrangement for him to endorse a specific proposal) would insulate a democratic candidate from being labeled as anti-free market.*** at the same time, the candidate would be supporting governmental avenue for refi-ing out of subprime loans at reasonable fixed rates, something that would resonate both with low income voters and with centrists who want to see structural action taken other than a bailout.
this idea also looks better to wall street than the "subprime rate freeze" idea that hillary espouses. the rate freeze might sound like a great idea, but in practice it's more like something putin or hugo chavez would come up with. "there was a signed contract in a free market, sure, but we decided after the fact that it was against the good of the people. viva la revolucion!"
*http://realestate.msn.com/Buying/Article2.aspx?cp-documentid=6119868
**http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+February+2008.htm
*** or at least, it should. but of course when pols propose taxing hedge fund managers as steeply as we tax wage earners, that's apparently anti-growth. why tax hedge fund managers at all? luckily nobody wants to tax them since they're contributing to dems too now.
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