Black Dynamite
November 30, 2008, 3:14 pm
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Hilarious, and not safe for work.

Who You Gonna X-Ray
November 30, 2008, 2:06 pm
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Because so few common words start with the letter X, some children’s alphabet books use “x-ray” as their example X word, showing it alongside a cartoon white skeleton on black. Because of this, M. now basically thinks that the word for skeleton is “x-ray”. This is why the following question she just asked me makes sense:

“Do ghosts have x-rays?”

False Alarms
November 30, 2008, 4:18 am
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In every place I’ve ever lived that had smoke alarms, I’ve caused the alarm to go off by cooking something in the oven. Every place.

Till a few years ago I used to get phone calls from Discover freaking out about “potential suspicious activity on my card and we just want to verify” anytime I charged something more than a couple hundred bucks, till it got to the point that I yelled at the lady in annoyance. All cars I’ve ever had with that irritating “Check Engine” light have had their oh so informative “Check Engine” light come on at some point or another, forcing me to take it in to the shop to get it “Checked” (no, there’s never been anything seriously wrong). And of course like everyone else my car alarm has gone off for no reason.

The problem with false alarms is not only that they’re irritating. It’s that by being irritating they actively do more harm than good, lulling you into ignoring them.

In statistics jargon these tests all have a ton of sensitivity but not nearly enough specificity.

I’m not sure where I’m going with this so let me try to make it relevant to current events. People are fond of blaming the financial crisis on this or that; you hear that there should have been more “regulation” (whatever that means), or better “risk management”. Why didn’t the people who were supposed to watch out for these things watch out? Why did all the regulations and risk controls and warning flags fail?

I have reason to believe that there was no lack of controls and warnings and regulations at all. Seems to me the financial world is regulated and risk-measured up the wazoo and that any entity within it must navigate a labyrinthe of interlocking regulations and employ giant teams of folks to measure and flag everything in sight, while business heads are flooded daily with risk measurements, warning flags, reams of reports filled with numbers, and endless red tape.

And maybe that’s the problem.

At one point I just took out the batteries of the smoke alarm near the kitchen. Of course, I survived, but a less sensitive/more specific smoke alarm would have been far preferable.

Quarter Of The Way There
November 29, 2008, 4:27 pm
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Here’s a list of The Supposed Top 100 Movies according to a magazine called Movie Notebooks (Les Cahiers du Cinema, if you speak Frog).

By my count I’ve seen only 25 of them so I can’t argue with most of it. I can make these observations though:

  • The inclusion of five Charlie Chaplin films seems a bit overmuch. Nothing against Chaplin of course but are all five really among the top 100 or is this some sort of Jerry Lewis-esque French fascination with Chaplin?
  • Ever notice that ’70s movies almost have to have been about the Vietnam War (Apocalypse Now, Deer Hunter) in order to be “great”? I’m not sure I’d put Deer Hunter on this list. I didn’t even like Apocalypse much, although I can acknowledge its “great” ness.
  • Citizen Kane and Les Regles du Jeux (“Rules of the Game”) are always, always high on these lists (top 5 at least). I know I’ve seen both of them but I remember almost nothing about either one. I know that Citizen Kane ended with “Rosebud” and I know that “Rules” almost put me to sleep when I watched it at a friend’s house. I’m thinking neither can have been that great (top 100 ok but not top 10). I guess both could have been “innovative” or something and that’s why they’re considered so great, but what good does “innovative” do for the modern viewer?
  • Rewatched Singin’ in the Rain recently. Seems underrated to me now, so I’m glad to see it here.
  • I liked Talk to Her a lot and all, but I can’t help but think they just put it on the list cuz they thought they needed to include an Almodovar movie.
  • Same goes for Mulholland Drive and David Lynch. Although in this case I do think that Mulholland Drive will come to be considered to have been a great enough movie that it merits consideration.
  • I hate to say it but I really did not like Once Upon A Time In America. Well done and all (mostly) and transcendent in parts, but somehow twisted, with its heart in the wrong place. If you need a Sergio Leone movie why not Once Upon A Time in the West, which would be in my top 10 in any case?
  • No Spielberg! Intentional slight? I’m not a total Spielberg-phile or anything but it’s hard to understand how you exclude Schindler’s List and Saving Private Ryan, or even more genre pictures such as Jaws, E.T., the underrated A.I., or Close Encounters. And Empire of the Sun actually seems tragically overlooked/underrated by everyone. That’s a pretty monstrous list to be leaving all of them off (and including five Chaplins, or second-string Fellini like Amarcord). Do all these Spielberg monsters cancel each other out or something?
  • More obviously looks like they meant to exclude everything from the blockbuster era, so I guess that’s why Jaws is out (and Star Wars, obviously, which in my mind somehow achieves the trick of being a great movie without actually being a very good movie). But how do you leave out Raiders of the Lost Ark? And George Lucas’s name does deserve to be up there for one movie: American Graffiti.
  • No Scorsese. Again, not the hugest Scorsese fan, but Goodfellas is there at least. Come on.
  • No Coen Brothers either. Which is ok with me (the Coen Brothers have become overrated nowadays, and their best movie remains The Big Lebowski), just interesting to note.
  • Harder to put my finger on but it seems like they left out a whole era/genre of romantic comedy pictures. Where’s Audrey Hepburn? Roman Holiday – at the very least.
  • And of course both recent movies and “children’s” movies get short shrift. In the past 10 years I don’t think I’ve seen very many movies that are better than Babe or even The Incredibles. Why do we ignore such movies when compiling “great” ones? Babe can’t be a great movie because it’s too kiddie?
  • Some directors seem to be getting second-string material onto the list that really shouldn’t be there, just because the directors are big names. I can’t argue with Fellini’s 8 1/2 or La Dolce Vita since I haven’t seen them, but if they both need to be there, then Amarcord kinda doesn’t. By the same token if you’re going to double up on directors, what about Billy Wilder (The Apartment, in addition to Some Like It Hot) or John Ford (The Man Who Shot Liberty Valance, in addition to The Searchers)?
  • Just a few names to toss out: The Bridge On The River Kwai, Casablanca, The Great Escape, On The Waterfront. And of course Pulp Fiction. I originally loved Pulp Fiction, then got tired of the hype, but now I think the wheel may have turned back to the point where we may be taking it for granted. It was a great movie by any reasonable definition.

All-In: Bailout Supporters and Iraq War Supporters

The beginning of this post by Megan McArdle fits an increasing pattern I’ve been noticing. While the bulk of the post is actually quite interesting and informative, about what went right and wrong in the government’s approaches to the Depression, the beginning of the post is a defensive, mealy-mouthed equivocation designed to admit that the bailout has gone haywire without admitting she was wrong to support the bailout.

More and more it’s beginning to seem like the ’08 financial bailout is the financial equivalent of the ’03 Iraq invasion. Financial-world junkies and hangers-on play the role of “neocons” in supporting the controversial measure for (some would say) misguided ideological reasons; we got Henry Paulson instead of Colin Powell as the pitchman; we got the spectre of this or that market “freezing up” instead of the spectre of “a nuke detonated in a major American city”; in each case the action was pitched with (what detractors say were) dishonest arguments; and in both cases when results appeared to go off the rails, the supporters had to struggle with acknowledging reality and confronting their own thought process in their own initial support.

As someone who supported the Iraq invasion and has never felt the need to backtrack, reading Megan McArdle and others gives me an idea of what people who vehemently disagree must feel like. “Argh! Just admit you were wrong!!”

Of course I believe there’s an important difference between the two (but then I would, wouldn’t I?). Namely, the Iraq invasion had one fundamental purpose and it has achieved that purpose: to dethrone Saddam Hussein from rule in Iraq. Obviously other potential positive outcomes were sometimes bandied about by supporters of the invasion, not all of which have come to pass (but not all of which haven’t!), but the invasion itself had a clear goal and achieved it. The fact that Iraq didn’t become a stable democracy (etc.) may be disappointing but it’s not a result that compels me to decide I was wrong to support the 2003 invasion, because I did not support it specifically because of that kind of result.

While the goals of the bailout may have been a bit fuzzier, it’s a lot more clear that we’re very far away from achieving any of them. At this point as far as anyone can tell the money is just being thrown at friends of Hank Paulson – given to companies he likes (Goldman, Citi), not given to companies he doesn’t like (Lehman). What financial or social goal this is achieving, no one can say.

What there is not in the bailout case is anything resembling the achievement of “dethroning Saddam Hussein”. I know by this point nobody considers the dethroning of Saddam Hussein a big deal but it actually was. What is there to point at that the bailout has achieved? You got me. Why it should be difficult, then, for people like Megan McArdle to admit that it’s just a boondoggle at best and a disaster at worst, is beyond me.

But it does lead to a fascinating parallel. In both cases we’ve got committed supporters who are all-in this hand they’ve played. Unfortunately, while even supporting the Iraq invasion may have been a losing hand (let’s say, a pair of eights), it seems to me that bailout supporters are sitting there with, like, a 10-high. Their bluff should be called.

The Twelve-Word Biography Of Henry Schmidt
November 22, 2008, 6:01 pm
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Because Mike Mussina took the rare step of retiring after a 20-win season, the tantalizing case of Henry Schmidt of Texas, a one-year 20-game-winning major league pitcher (for the Brooklyn Superbas in 1903), seems to have been making the rounds. Wiki:

The Superbas wanted him back for 1904, but he declined, sending a note to the team (with the unsigned contract for the 1904 season) that declared, “I do not like living in the East and will not report.

A man after my own heart.

I’d totally read a full biography of this guy, whoever he was. Heck, they should turn his life story into a movie. I can’t find any real details about the guy (if you see any do let me know!) but there just seems like there’s gotta be so much behind those twelve fascinating words.

The Little Orphan Myth
November 22, 2008, 2:06 pm
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M. recently has been watching the ’80s movie version Annie. Some trenchant observations already:

“Annie sings a lot.”

“There’s too much kids!” [in the orphanage]

For some reason I now find ‘Annie’ to be a fascinating artifact of the Depression. Notice how the rich guy who adopts her is called ‘Warbucks’ – he was a war profiteer in WWI, presumably. The creator of Annie seems to have thought this just swell. Wiki also has some fascinating stuff on the original comic:

It was also about this time that Gray, whose politics seem to be either conservative or libertarian, introduced some of his more controversial storylines. He would look into the darker aspects of human nature, such as greed and treachery. The gap between rich and poor was an important theme.


The strip (and Gray, in interviews) glorified the American business ethic of an honest day’s work for an honest day’s pay. His hatred of labor unions was dramatized in the 1935 story “Eonite”. Other targets were the New Deal and communism. Corrupt businessmen often appeared as villains.

Gray was especially critical of the justice system, which he saw as not doing enough to deal with criminals. Thus, some of his storylines featured people unashamedly taking the law into their own hands.


Warbucks became much more ruthless in later years. After catching yet another gang of Annie kidnappers he announced that he “wouldn’t think of troubling the police with you boys”. The implication was that while Warbucks and Annie celebrated their reunion, the Asp and his men took the gang away to be lynched.


These views caused outrage from many quarters. The New Republic was especially critical, publishing an article by Richard L. Neuberger which described Annie as “Hooverism in the Funnies”. A later editorial went further in describing it as “Fascism in the Funnies”.

Betcha didn’t know there was ever so much controversy swirling around ‘Little Orphan Annie’. So weird. I wonder what weird artifacts our current recession will produce; it doesn’t seem to have quite hit our media yet (which still seems obsessed with mythologizing about how wrong the Iraq war was).

Of course, the ’80s film adaptation of “Annie” is also a fascinating artifact, in its own way: in Hollywood’s warped Reagan-era PC retelling, Warbucks ends up taking Annie to meet FDR, and they all sing “Tomorrow” together. The New Deal is presented as the sunny, optimistic choice, and Warbucks is a grump for being opposed to it; through Annie he appears to switch sides and then FDR nominates him to run it! Gray must have turned over in his grave.

Here’s a prediction: ‘Annie’ will be “rebooted” sometime in the next decade or so as a dark, dystopian comic-book action movie (in the same style as, say, V For Vendetta). The basic premise – girl adopted by bald rich guy – will be retained. But it will be “dark”. The girl’s age will be advanced somewhat so she can be played by a hot teenager with breasts and long legs who kicks the bad guys like Buffy, and it will be a seedy revenge story (with undercurrents of, say, rape or child abuse). And then it will become an interesting artifact of the ’00s as well.

Or maybe that’s what V For Vendetta was already like; I never actually saw it.

Change Fantasies
November 22, 2008, 3:34 am
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It’s never too early to start launching stupid criticisms at the incoming President, and surely Obama will be no exception. The one that’s been brewing for the past week is that Obama’s staff and appointments have too many “Clinton-era” people, or “Clintonites”, and that this somehow contradicts his promise of “change”.

First of all, just who in the heck from the civil service/bureaucracy/think tank world is Barack Obama, (D), supposed to bring into his administration that wouldn’t have been a “Clintonite” up through 2000? Someone under age 26, I suppose? Let’s just file this under Not A Real Criticism.

The deeper issue though, I suppose, is the idea that having lots of Clinton-era staffers somehow contradicts the promise of “change”. This is the sort of criticism that says more about the critic than about the target. Obama’s promises of “change” never connoted that he’d have a staff with no Clinton connections. For that matter, Obama’s promises of “change” never connoted anything whatsoever; they were completely and totally vague and undefined. This was a very good electoral strategy, of course – it worked.

But one of the ways it worked was that it allowed naive/incredulous people to project their own hopes/wishes onto the candidate and invent all sorts of fantasies for themselves regarding what “change” did or didn’t mean. For some people, it meant fantasizing they wouldn’t have to pay their mortgages or for gasoline. For others, I guess that meant fantasizing that Obama would bring in a staff made up of like, oh I don’t know, college kids and the Beastie Boys. And I’m afraid those are the people now feeling burned by the mundane/blah/Washingtonian nature of Obama’s appointments thus far; “hey! you promised change!” Well yeah, but that doesn’t mean you can just make up in your head what “change” means and then whine that Obama’s actions don’t match your fever-dream.

Not a real criticism. And believe me, I’ll be on the lookout for real criticisms of President Obama the next 8 years, and when I see one I’ll probably be among the first to come down with a roiling case of ODS. But this ain’t one.

By the way, I will say I’m thrilled by the leak of Obama’s latest Cabinet pick – Timothy Geithner for Treasury Secretary. Of course, that’s not saying much, cuz I don’t really know anything about Geithner; in my opinion Obama’s Treasury Secretary choice only had one real hurdle to clear: He had to not be Hank Paulson. ;-)

November 21, 2008, 2:17 am
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I starred this item from work just for later linkage and comment: Cobb explains how regulation screws the little guy. Punchline:

This is called progress. It is what Progressives pursue. It is not a Conservative priority. We Conservatives are not generally looking to find ways to declare the status quo untenable. This is the restless energy and bias for action and change that is the hallmark of Progressives, that illustrates how it screws the little guy.

My sense for a long time has been that “progressivism”/”liberalism” is essentially a coalition of the very rich/strong and the very poor/weak, against the middle class and nouveau-riche. Cobb’s post illustrates one dimension – “green”/environmental politics – along which this dynamic plays out.

MVPs and Laziness
November 19, 2008, 12:35 pm
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It’s baseball’s kinda-boring MVP-announcing time and every year we go through the same tiresome debate, whether you should give the MVP to the player who had the best overall season, or the player who “helped his team win the most”.

As if these are different! In fact, the whole idea behind collecting baseball stats is that they aren’t different.

But usually there’s a guy who had a great season for a subpar team, and people try to say that if his team was that bad, ‘he couldn’t have been that valuable’. This reasoning has probably robbed Alex Rodriguez of about 3 MVP awards. But it is wrong. If a guy hits 50 homers for a last-place team that wins 59 games, that just means it would have been that much worse without him. Right? Of course, what people can’t grasp of course is the idea of a last-place team being much much worse.

And in a sense, they’re right. Even the very worst teams are going to win at least 50-55 games. So you do a thought experiment of replacing the 50-homer guy with a AA minor leaguer all year and you figure they’d still win 55 games and come in last, and you conclude that the 50-homer guy ‘couldn’t have been that valuable’. The logic is superficially convincing.

Here’s where I think it goes wrong: When a team has an MVP-calibre player, that affects their other personnel decisions. So if the team didn’t have that star, they would have changed their roster strategy altogether; there’s no such thing as “replacing the 50-homer guy with a minor leaguer” and leaving the rest of the team unchanged. Were that 50-homer guy (and his salary) not there, the team probably would have said OMG, we need a home run hitter, and gone out and overpaid for some free agent or something.

We SF Giants fans saw this for 10 years with Barry Bonds. Because the Giants had a monster playing left field every year, a guy who cost a lot of money, this influenced their other decisions regarding free agency, trades, and minor league promotion. In the Giants’ case, it influenced those decisions for the worse, because their general manager Brian Sabean is an imbecile. The Giants constantly pursued a strategy of ‘building a team around Barry’ which involved yearly signings of over-the-hill ex-All-Star free agents, giving up draft picks, trading young players late in the season, and overpaying for mediocrity deemed to be ‘consistent’. This was all compounded by Barry’s large salary which induced a yearly ritual of complaining that they ‘don’t have a lot of room’ salary-wise which supposedly forced them to only sign over-the-hill players to play around him.

So here’s what I think often happens: when a team has one big well-paid superstar, the players they put around him have a tendency to get worse – both for salary reasons and due to silly ‘we just need to put role players around him and maybe we’ll win’ reasoning. Overall, it makes the general manager lazy and thus, the rest of the team gets worse. So in the grand scheme of things, then yes, maybe an A-Rod or a Barry Bonds doesn’t help the team win as much as his numbers would suggest.

But that’s not their fault! It’s the fault of the GM (for his laziness and flawed roster strategy), and the team owner (for his budget; notice that the Yankees haven’t had the struggles with A-Rod that Texas or Seattle had). I guess you could say that (unless the owner has deep pockets) a star player having such a big salary forces everyone’s hand in this regard. And so you could say something like, ‘A-Rod is great, but not for that salary’. But nothing about the MVP award suggests that it’s meant to be given to the guy who’s the best bang for the buck. It’s just MVP.

So there’s nothing wrong with giving it to a guy on a last-place team, if he deserves it. That won’t stop the yearly columns from appearing like clockwork, I realize.

Do Big Government Programs Cause Organized Crime?
November 18, 2008, 12:29 pm
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Something caught my eye in a news story that came across Bloomberg yesterday about an Israeli crime boss getting whacked:

Alperon was involved in bottle recycling, construction and a range of other businesses investigated by police for links with organized crime, the Haaretz newspaper reported.

Bottle recycling!?

Looks like the larger Haaretz story is here, and it sheds a bit more light:

Bottle recycling adds up to a $5 million-a-year industry, according to estimates by police and environmental groups. Police say criminals sell restaurants protection in exchange for empties, which leave no paper trail and offer crime families a relatively legitimate source of income.

So, the implicit government subsidy for bottle recycling allows criminals to launder their protection money. That said, the piece(s) of a $5-million-a-year industry that are presumably left to each criminal as they continue to fight over it doesn’t seem like it can really add up to a whole lot of money to me, but perhaps in Israel it’s enough to be considered a ‘crime boss’.

Don’t know why but I find all this fascinating.

What originally got me thinking was whether the industries that gangsters are attracted to and dominate have something in common. We already know they deal in black-market contraband – drugs and the like, or alcohol during Prohibition. At a more pedestrian level, some young guys near a subway station I often pass are always out there hawking “Newports” – cigarettes (which is profitable because of the high cigarette tax rates, I assume? i.e., they are probably bought in a different state and driven across…).

Beyond that, I can only go by what I see in TV/movies, and what they (and this incident) show is that gangsters also feed off of government in a big way. Tony Soprano was officially, of course, a labor leader in the garbage-collection business – garbage collection is a government function, and he was presumably siphoning a cut of the local government’s garbage budget either directly or by forcing restaurant owners, etc. to pay him extra. He was also intermittently getting into various construction projects, usually boondoggle-type developments that were (it was implied) subsidized by local or state government. As I recall, the drug dealers Avon Barksdale and Stringer Bell on The Wire also tried to use government-funded construction/developments as a way to siphon off money and legitimize their drug profits, which often brought them in direct partnership with high government officials. More generally, mafioso families in TV/movies are often fighting over this or that “contract” – i.e., government contract.

This is all fiction, of course, so I don’t know how much stock to place in any of it. But while a cut of whatever-amount of bottle recycling profits you can generate by intercepting the bottles from Israeli restaurants may seem like small potatoes, it does fit the pattern.

So if my hypothesis is correct, you should expect to often see the fingers of organized crime involved where there is money being thrown at ‘progressive’ government projects – construction of “affordable housing” developments for low-income folks, for example. And, yes, bottle recycling – although it would probably have to occur at a higher (e.g. factory/labor) level in the U.S., because as everyone knows, the actual collection and submission of bottles/cans here is already performed by homeless people.

Unless they, too, pay protection to the mafia to keep their routes? ;-)

Cause And Effect
November 15, 2008, 7:19 pm
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A while back was the New York City Marathon. I happened to be walking next to it with M. near 1st Avenue and she watched the runners (joggers/walkers..) going by with interest. We were a bit downstream of one of those places where they hand out water in paper cups, and evidently the throng of runners had been throwing the empty cups on the street as they finished, to the extent that by this point deep in the race the street was literally covered in trampled paper cups for hundreds of yards after the water station.

M. observed, “This isn’t a good place to run because there’s too much trash on the ground.”

She was right, of course.

The Bailout Was Wrong
November 15, 2008, 6:01 pm
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One reason I keep writing about the bailout is because it’s such an amazingly versatile counterexample to so many things I value in the political sphere.

1. Open and democratic decision-making, informed by public debate and a skeptical and active journalistic corps. The bailout was evidently sold to us with completely-phony arguments – i.e. that the $700bn would be used to buy troubled assets. Yet not a single “troubled asset” has been or will be bought with this money. And Congress apparently voted for it without understanding or even knowing what they were voting for – everything Paulson is now doing with the money (and authority) they gave him seems to be a complete surprise to our geniuses in Congress. Meanwhile journalists egged them on to approve the boondoggle, painting the issue as one of do-nothing, know-nothing Republicans (and by extension middle America) standing in the way of needed reform, which is ironic because while telling us this story virtually all journalists did nothing to investigate and obviously knew nothing of the subject they were lecturing us about.

2. A government that knows its limits. As far as I can tell, Mr. Paulson is now empowered to spend $700 billion on anything he damn well pleases, to accomplish ends (‘fixing the economy’) that I don’t believe to be in his or any one man’s or small group of men’s power. Nobody seems to mind though.

3. A free market reasonably undistorted by government meddling. Right now the government is basically the only thing going in the economy. Market actors are frozen because nobody knows what the government will do next. You can throw the entire notion of prices adjusting to actual supply/demand or anything remotely resembling a fundamental value when a company’s stock price can increase sixfold on the rumor that “Santa” Paulson might decide, on a whim, to bail them out. (Or not.) In many respects it is this whimsy of Paulson&co which has caused market stagnation. Imagine you ran a book of the ‘troubled assets’ that TARP was supposedly going to buy up, and you got some reasonable bids…did you take them and sell the assets, thereby keeping the market flowing, increasing liquidity and transparency? No you didn’t. Why? Because you’d be a fool to sell your stuff when “Santa” Paulson is going to come along anytime now and buy them off your book at inflated prices. (The preceding is a true story in at least one case I know of; most likely it is a story that has been repeated multifold.)

[UPDATE: Russell Roberts agrees with me:

When no one knows how the rules of the game are going to change — and they seem to change from week to week — who wants to take a risk? Who wants to borrow money? Who wants to invest? Business and consumers are hunkering down, waiting for the storm of change to pass.

The problem isn't liquidity.

It's uncertainty.

Paulson doesn't realize that his erratic attempts at creating liquidity are creating the uncertainty that makes liquidity meaningless.


It’s not just that I feel like some sort of odd fish swimming against the tide with my opinions on these matters. It actually seems like every new piece of news that comes out vindicates my stance and proves what I’ve been saying.

Now I think I know what it must feel like to be one of those the Iraq war was wrong people. ;-)

Financial Socialism: Yes We Can

The recent financial troubles have opened debates in certain quarters about something called “capitalism”. Do the bailouts mean the end of “capitalism”? Did the “free market” fail? Does this prove socialism is better?

I have some problems with the terms of this debate. For one thing, I think I agree with a point often made by James Bowman that there’s really no such thing as “capitalism”. There’s no “ism” about “capital” that embodies a philosophy or ideology that anyone seriously subscribes to. Bowman suggests that the term “capitalism” was an invention of early socialists, a label they could slap on what they opposed (primarily, private property) so they could oppose it more effectively. I suspect he is right.

If you think about it, what gets called “capitalism”, in most discussions, is really just freedom. Am I free to give you X in exchange for Y? Are you free to give me Y in return? All most “capitalists” really want is for the answer to be yes. That is not any kind all-pervading ideology about “capital” that justifies glorifying it with a separate “ism”; all that “capitalists” (such as myself) are saying is that people should be free to exchange their stuff with each other if they wanna. Don’t call me a fricking “capitalist” just for that, for crissakes. If anything, I’m a freedomist. If person 1 has X and wants Y more, and person 2 has Y and wants X more, and they decide to swap X and Y, then freaking LET THEM for crying out loud.

The people who espouse this supposedly antiquated and hard-to-defend concept (let them!) get called “capitalists” and are often painted as somehow evil and uncaring. The people who postulate that person 1 and person 2 sometimes shouldn’t be allowed to swap X and Y even if they wanna, well they get called enlightened or “liberal” or “progressive”. It’s truly bizarre, this inversion of language that has taken place. Somehow a person who wants to butt in and say “you guys, NO, you CAN’T swap X and Y, because I don’t want you to!!” is called a “liberal”.

Anyway, I’ve gotten sidetracked. My point is just that I find these debates to be loaded, misleading, and irritating from the get-go.

But a more specific issue came up in private email discussions with a friend recently. The subject was the bailout of (we thought, at the time) the securities market, and what that meant for the free market. Were banks now being socialized? Was this national socialism? Was this the end of the free market?

In answering, I came up with a crazy hypothesis about the mortgage market that I’m afraid may actually be more correct than not: the mortgage market already was socialist, and had been for several decades.

Here’s the way that mortgage bonds seem to work, based on the on-the-job crash course I’ve had the past year. (This is not particularly original and I believe Arnold Kling regularly makes many of the same points.) Anyway, Local Bank makes a loan to a borrower who meets criteria XYZ (these criteria have to do with FICO and loan-to-value and such; details aren’t that important except to note in passing that they are numerical and, obviously, can be – and are – gamed). Is this because Local Bank thought making a loan to the borrower was a great idea and they objectively liked the cash flows they’d be getting from the borrower? And, did Local Bank create criteria XYZ themselves, as a guideline for loans they’d be willing to take on balance sheet?

In a truly free market, the answers would seem to have to be yes and yes. In reality, the answers are no and no. Criteria XYZ are actually specified by a quasi-private corporation, really an off-balance-sheet (but of course, now on balance-sheet) government agency, called FNMA or “Fannie Mae”, which says to Local Bank and all Local Banks like it: “If you make loans satisfying criteria XYZ, we’ll automatically buy them, sight unseen.” And of course, that’s why the Local Bank did it; because a government agency “government-sponsored enterprise” has been standing there, since the 1930s, ready to reimburse the Local Bank for making that loan, while letting the Local Bank keep a fee for their trouble. Free market!? So far, looks more like a funding subsidy. As a side note, yes Fannie was created during the New Deal. And if you ask Wall Street mortgage types why it should exist at all, you’ll likely hear something mumbled about ‘affordable housing’.

Yeah, housing sure has been ‘affordable’ these past 20 years has it not?

Anyway, it gets better.

Once the loan is delivered into a “qualifying” pool (i.e. meeting criteria XYZ) of loans, all bought by Fannie Mae (or possibly Freddie Mac, created later in the ’70s to “compete” with Fannie), it gets “securitized” and wrapped. In English this just means that investors can buy a stake in the cash flows of the loan pool, and Fannie guarantees against losses. If the borrowers in the loan pool start welching on their mortgages, Fannie – i.e., taxpayers – will make up the difference out of pocket. So this is actually more like a direct subsidy to cash-strapped homeowners from the government, funneled through banks. Free market!??

Now wait though. Why would investors want to buy a mortgage bond rather than just the loans themselves? Why would banks want to package and sell their loans this way? The texts all talk about leverage and being able to spread risk and participate in a more-predictable cash flow, but two things here are key: 1. the need to create “AAA”-rated securities because many investor types are only allowed to buy “AAA”. This is often a regulation at the government level, e.g. for state pension funds. (Free market?) 2. more importantly: because of capital requirements. Keeping a loan on your balance sheet causes the fedgov to charge you more “capital” than if you are able to securitize that loan and put it into a “vehicle”. These are insidery terms that I do not understand fully myself but the jist is: the federal government has regulations that, intentionally or not, give banks an incentive to turn loans into ‘securities’. (Much credit for making me aware of this to Arnold Kling.) So banks are just gaming the labyrinth of regulations that currently exist, best they can. They intentionally do X instead of Y not because X is inherently more profitable, but because a government regulation penalizes them and their ability to do business if they do Y. This is a free market?!?

Anyway, whatever the motive/incentives, once securitized, the loan pool becomes a bond and is traded on Wall Street. Here it becomes slice and diced, repackaged and resold, etc etc. Sexy! This is the part everyone seems to focus on when they talk about a “free market”, and this is the part whose failure is supposedly the death knell of same. Yes, there seems to be a “free market” in trading these products of huge amounts of government subsidy and regulation, in which those investment banks and hedge funds that are able to have better trading strategies (and of course more tricky slice ‘n dice strategies) are able to pocket profits from these government-subsidized products.

So my point was this. Suppose none of any of this existed and you wanted to set up a socialist program from scratch to fund housing in America. In the old-style USSR type system this might mean setting up a big government agency, with a giant budget, and then having the agency’s employees spend their days figuring out how to directly distribute the money/capital for people to buy homes. Or for builders to build them. Writing regulations and such, rules about who gets (qualifies for?) what homes where. Moving housing allocation from one district to another as overbuilding or underbuilding became evident. And so on. In the process they would surely amass a large amount of statistics, build models of income and employment and housing values, make projections of defaults and moves, reallocate funds/attention/capital/diktats from here to there, etc.

What many of those people would be doing with their days wouldn’t be all that different from what, say, mortgage-bond researchers at investment banks do with their days. And the net effect of their diktats would be similar to the net effect of what traders accomplish by selling bond A (say, a bond backed by too many Florida loans) and buying bond B (a bond backed by more diversified loans..). So if you wanted to build up this socialist program, and were creative and not too dogmatic about the egalitarian part of socialism, you might just wind up creating something like… what we have. Researchers, model-builders, and traders, all given personal incentives to allocate socialist distribution of housing more efficiently.

This led to my crazy hypothesis: our system for housing is, and has been for a long long time, a socialist one. There’s one key difference. Socialism has, notoriously, a “calculation problem” – under socialism the market is not free and so price discovery doesn’t take place. This is why you get bread lines on the one hand and overfilled warehouses full of shoes nobody wants on the other; the socialist bureaucrats, being so centralized, have an inherent difficulty in figuring out how and where to allocate resources.

So in the “capitalist” West, we’ve solved the socialist calculation problem, by letting Wall Street traders do it. And pocket a cut of the take. My theory, in short, is that the mortgage-bond market functions as the distribution/allocation system for what is an inherently socialist housing system.

Of course, we haven’t really solved the calculation problem, because as we have seen, Wall Street has done a notoriously bad job at pricing housing in the U.S. – overvaluing it by a huge amount in the past 20 years. That is after all why we now see the correction as a crash. But this gets to the heart of the matter; this bubble and crash, was it a failure of “capitalism” and the “free market”?

Or was it, instead, a failure of a socialist system piggybacking onto Wall Street (and the shadow financial system) as its distribution method? Because that, and not a “capitalist” “free market” is what we actually seem to have in practice. In some regards we have a socialism that is administered not by commissars who take bribes under the table but by financiers who take a huge cut out in the open; we have financial socialism.

This possibility is worth keeping in mind in the near future, because with the new administration taking office and a strengthened (D) majority, we are likely to be bombarded with political proposals for what will amount to yet more financial socialist proposals – proposals to achieve some socialist distribution, or end, by means of piggybacking off of (and in the process, enriching) the financial sector. “Cap and trade” proposals, e.g. capping ‘carbon’ output and then issuing tradeable ‘credits’, are the perfect example of this synergy between socialists and financiers; the latter are only too happy to have a new thing to trade (and pay themselves huge bonuses for trading) if only the former will write the onerous regulations that will make the creation of the artificially-spawned ‘assets’ necessary. There is no end to the pyramid schemes one can imagine by repeating this game over and over again – as long as enough people with capital to burn in the world are willing to play along. China was the mark when it came to U.S. housing bonds, now all we need to figure out is who’s got the spare cash to buy up ‘carbon credits’?

Meanwhile, don’t look now, but Obama won among the rich. Who’s the real party of the rich? Why are the rich so socialist nowadays anyway?

Because socialism pays. At least, it does the way we do it.

Where am I going with all this? Like I said: it’s just a crazy theory. I only half-believe it at the moment. But maybe the West won the Cold War not by resisting, fighting, and arguing against socialism; maybe we won it by figuring out a way to do it better and (for some of us, i.e. (D)s and (D)-supporters) to get rich in the process.

UPDATE: Good related post here.

Bailout Told You So
November 13, 2008, 3:30 am
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Oliver Kamm is a very smart British commentator/blogger whom I respect, and he supported and argued for the financial bailout that was passed in September (albeit reluctantly and preferring the British approach: of Paulson’s, he wrote after the first Nay vote that the Paulson plan was “undeniably flawed” but “ought to have been passed”).

I, meanwhile, am some dude with a blog virtually nobody reads, and I did not support the bailout.

This presented a problem for me at the time because, respecting the opinions of folks like Oliver Kamm as I do, I was forced to try to take seriously the (however unenthusiastic) arguments they put forth in favor of passing a bailout, and not to merely dismiss the whole thing as the stupid, unsupported, probably ill-motivated blunder that (I believed, and believe) it was.

For example, as I pointed out at the time, how on earth was the government supposed to figure out what price to pay? The argument that was made, which (it’s necessary to remind – because it now seems so silly) suggested Treasury would somehow buy troubled assets AND get value for taxpayers, made no sense because unless you could figure out the magic Exact Price, either you underpay (which doesn’t help banks) or overpay (which doesn’t help taxpayers).

How gratifying then it is to see Oliver Kamm start to come around to my way of thinking.

How could the Government have sensibly bid for the assets without knowing what they’re worth? And how could the Government estimate the market value of mortgage-related debt if there is no market in those instruments? The banks themselves have no idea what the assets are worth – hence their unwillingness to lend to each other in the interbank market.

Good points! And such familiar ones! Too bad Oliver Kamm did not see the sense of this counterargument to the bailout he now puts forth, at the time the bailout was actually proposed, and thus write something somewhere to the effect that it should not be passed in the first place. But maybe he’ll come around all the way, in due time.

Meanwhile, I guess we’ll all just have to wait and see to find out just exactly what the hell the money from the bailout that was actually passed, with the approval of even folks like Oliver Kamm who argued in favor of the bailout as it was claimed to be structured, will be used for. Maybe we’ll use the financial bailout money to buy up car companies now? Or maybe we’ll just use it buy a big pile of marshmallows and make a giant marshmallow pyramid? Yum! Only Henry Paulson knows for sure. He’s the one who gets to singlehandedly decide how to spend our money, apparently.

The one thing we know the money we gave to Henry Paulson won’t be used for, of course, is the purpose based on which its allocation was advertised and sold to us (and approved of by folks like Oliver Kamm): the buying of troubled assets at magically bank-saving, taxpayer-enriching prices, using reverse auctions (remember?) which somehow wouldn’t find the lowest prices. Et cetera. In other words, Congress and the public (and Oliver Kamm) debated and then approved money for doing X, and we have learned over time that that money – ALL of it – is in fact going to be used for not-X. Which just goes to show, as Homer Simpson once said, Democracy doesn’t work.

Meanwhile, I have to hope we at least get some marshmallows out of the deal. Mmmm….marshmallows.

The Threat of David Gordon Green
November 13, 2008, 2:42 am
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A while back, Snow Angels showed up from Netflix and I watched it. It was a great drama, wonderfully done, touching at times, and yet painful to watch because of a central dramatic event that you can feel it building towards the whole way through.

I watched it twice.

I guess I’m working backwards through the canon of its writer-director David Gordon Green (who seems like a high school kid when you see him interviewed in DVD extras), because a week or so ago I got All The Real Girls.

It is a (non-tragic this time, just slightly sad but charming) love story in a sleepy North Carolina mill town between an immature town lothario, and his friend’s inexperienced pre-college sister who just got back into town from an all-girls boarding school. The world it creates is totally believable; the editing and characters get a bit ‘quirky’, but the relationship and the things that happen are SO REAL, that…I found it excruciating. Like digging into some old wound with a barbecue poker.

And I watched it twice.

But my point is that this guy David Gordon Green is some kind of filmmaking/writing genius when it comes to certain subjects, and for this reason, I declare him a menace to society. His movies are just too real and painful, and for the good of humanity he really should be forced to stop making them (or at least putting them out there for other people to watch).

And I’m not entirely joking.

Or maybe I’m just jealous….

If I Were President 1
November 13, 2008, 2:23 am
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If I were President….

….I would refuse to hire, employ, or appoint anyone to any office called, officially or unofficially, the “[Something] Czar“.

This steadily-growing use of “czars” in our government has always been offensive to me. I know, I know, it’s just a word. Well what if we had a bunch of appointed government posts that were each called the “[such-and-such] Fuhrer”?


It’s 2008, Where Are Our Jetson-Style Rocket Cars?
November 10, 2008, 1:10 am
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M., age 4: “Can we sometime go on a rocket ship?” (She had just seen one in some movie on TV or something.)

I think it’s so cool that she asked that question. I also hate that I had to answer it.

November 9, 2008, 1:13 am
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The only country where the clouds are interesting, according to the Stranglers.

My Problems With Obama And His Socialism
November 8, 2008, 6:46 pm
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For someone who is likely to be opposed to the vast majority of policies implemented and decisions made by President Obama, I feel like I’ve been pretty easy on him. I’m goin’ soft! Well, let’s correct that. Here are some problems I have with the guy and with his rise to electoral success; they are things to keep an eye on.

  • The cult of personality. This cult of personality that has been built around Barack Obama is very creepy. From the socialist-art one-word-slogan posters, to the black charter-school kids singing songs about him (do those kids learn any, like, actual school stuff in those schools? math, etc? or is it just songs and dancing?), to the hip Youtube videos, it seems that the “cool” opinion movers and shakers have decided to throw all their artistic weight behind promoting Obama’s coolness and glory.

    There is nothing wrong with people liking and supporting their Presidential candidate, but there is something wrong and indeed unmistakably Orwellian with the way Obama has been sold to us. The problem is simple: Obama, it seems, can do no wrong. Even if he does serious wrong. Let’s hope this never comes up, but what if it does?

  • The neediness of his supporters. This is a related point, but the truth touched on by the Onion video I linked a few posts ago is that Obama rode to power on a faction of people which appears to be very needy. And I don’t mean needy in the sense of needing money, physical things, food, shelter, etc. I mean emotionally needy.

    I dunno about you but who the President is doesn’t actually play a huge role in my life. I don’t derive a huge amount of happiness from having the President be “my” guy (or sadness if vice versa). Luckily, I seem to have other things going on. Not so, for much of the left, it seems. Why exactly were all these people so depressed and angrily obsessed in 2000 and 2004? Because: A guy they didn’t want to be President was President, instead of the guy they wanted to be President being President. Hmm.

    Ever ask yourself why it is so all-fired important to such people that their guy be President? Can this be explained rationally, objectively? What exactly is the tangible effect on the lives of all those now-ecstatic Bush-hating Obama-idolators of which dude sits in the Oval Office? I’ll be damned if I know. More to the point, I’ll bet they don’t know either.

    Look at what has just happened with Obama’s victory: Obama supporters celebrated in the streets as if utopia is now here. Did conservatives do that in 2000? 2004? Meanwhile, have large numbers of conservatives, upon losing, threatened to “move to Canada”? do large #s go around whining that Obama is “not my President”? Are there news stories of conservatives seeking therapy over post-election depression? Are there huge #s of conservatives refusing to accept the outcome, insisting the election was “stolen”, filing lawsuits, crying ‘impeach’?

    This is not to say that conservatives aren’t unhappy, or aren’t saying bad things about Obama. Of course that is going on. But there is a world of difference here and IMHO the President-obsession we are seeing mostly on the left in recent (decades? more?) is just not very healthy. Obama has come to power largely on the backs of people who (apparently) have a giant hole in their lives that is filled by party politics in Washington. For many of these people, politics plays the role of religion. For some, it may even play the role of family. Whatever the case, this political neediness is clearly more common on the left than on the right. And to my mind, that’s a problem. Aside from just being sad and pathetic, it’s not healthy and it’s a bit dangerous.

  • Obama is a socialist rooted in radical ideology with no real respect for the enduring insitutions of the U.S. Yeah, there’s that too. Hopefully this will be tempered by a pragmatism as he grows into the office. We’ll see.


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