Coyote Blog

Yes, its stupid, but perhaps for a different reason than has been mentioned.  The tax is on producers, and is meant to fund a promotion and marketing campaign.  Really.  Because Christian families in the US might forget to buy a tree this year if the government did not remind them.  Seriously, do any of these folks have kids.  "Dad, can we get the tree today, can we, can we, please?"

By the way, this kind of taxation authority that bypasses Congress is actually fairly often used by the Department of Agriculture.   If you see random TV ads for avocados or almonds, you probably are seeing one of these government marketing forced-cooperatives.

I propose two lessons learned from the last five years:

• There is no such thing as a risk-free return
• There is no such thing as a perfect hedge

I found this fascinating, if unsurprising, via Zero Hedge:

Ran Duchin and Denis Sosyura of the University of Michigan looked at the U.S.’ Capital Purchase Program. You may recall that this became the centerpiece of TARP once Hank Paulson decided that the money would be better spent directly buying into the banks as opposed to overpaying them for dodgy asset-backed bonds. (Mind you, other parts of TARP were spent overpaying for dodgy asset-backed bonds.)

The CPP lasted a little more than a year and invested $205 billion of taxpayer funds into various qualifying institutions. Not every bank that filled out the 2-page application was successful in gaining access. Others were approved but ultimately decided not to take the funds (probably because of the attached restrictions on pay and on paying out dividends.) In the end, 707 financial institutions received the funds.

Duchin and Sosyua looked at a sample of 529 public firms that were eligible for CPP and slotted them into categories based on whether they applied, whether they were approved and whether they ultimately took the money. They controlled for non-random selection (via measures of the banks’ financial condition, performance, size and crisis exposure); for changes in national and regional economic conditions; and finally for potential distinctions in credit demand.

They then viewed the banks’ CPP participation status in comparison with their subsequent risk appetite as demonstrated by (1) their consumer mortgage credit approvals or denials (viewed on a risk-profile controlled, application-by-application basis); (2) their participation in syndicated corporate loans for riskier credits and; (3) the risk profile of their investment asset portfolios. What did they find?

They found more risk, across the board.  There is a lot of detail, so I will leave it to you to go to the source for more, but Zero Hedge concludes:

The bail-out itself increased our chances of having the bail the banks out all over again. Moral hazard is no longer in the realm of the abstract

A few months ago I went through an unbelievable hassle refinancing my loan.  Based on current appraisals, my loan to value was less than 50%, but I still ended up coming to the table with more equity to reduce the new loan size.  I was staggered at how hard it was to close what should have been a dead-safe loan, given the LTV and my income and credit history.  The study actually has a finding related to that:

For mortgages the bailed-out banks increased their risk–

“after CPP capital infusions, program participants tilted their credit origination toward higher-risk loans by tightening credit standards for the relatively safer borrowers and slightly loosening them for riskier borrowers.”

–while at the same time ensuring that they didn’t trip off any alarms

“This pattern would be consistent with a strategy aimed at originating high-yield assets, while improving bank capitalization ratios, since the key capitalization ratios do not distinguish between prime and subprime mortgages.”

This is a fascinating sort of metric manipulation.  Having my loan go from 45% to 40% LTV does nothing, really, for the overall safety of the bank, but it improves their averages and makes them look safer, while all the way they are actually engaging in more risky behavior.

Its absolutely critical that you run over and sign this online petition.  Go now.

via

I have been reading a lot of the data flying around of late about income inequality and mobility.  And it struck me that income mobility may be a large part of what is driving many OWS protesters.

Despite assumptions to the contrary on the Left, wealth is not a zero-sum game.  Steven Jobs got richer by making me better off.  But the one thing that is zero-sum is presence in the top 1%.  When someone joins the club, someone, by operation of basic math, drops out.

That does not mean that the other person who drops out is poorer, it just means that they are no longer as rich relative to their peers.  This same effect works int he top 10% and 20%, etc.

Looking at OWS protectors, they seem to be disproportionately children of the upper middle class or even of the rich.  They have expensive college educations, live in nice homes, and have gobs of stuff (OWS must be the most iPhoned event in history).  My guess is that they are of the upper two quintiles, or at least their parents were.

I am wondering if the problem is not income inequality but too much income mobility.  After all, a third of the top two quartiles in 2001 had dropped into the bottom three in 2007 (while an equal number moved up). Are these the angry proletariat, or are they children of the well-off who are upset their college degree in puppetteering did not automatically keep them up with the Joneses?   Are they, in other words, Philip Rearden?

I don't have time today to link all the evidence, but the combination of crashing real estate markets and the Chinese government jamming liquidity into its banks tells me the China bubble is bursting as we speak.

This is an interesting test of the Austrian view of depressions vs. the Keynesian / Krugman / Thomas Friedman / MITI view of government-orchestrated prosperity.  If the latter are right, then China is doing more right to keep their economy going than any country in history and you should go invest all your money in Chinese real estate.

However, if one believes the Austrian model about government-enforced mis-allocation of capital and labor leading to bubbles and crashes; if one believes that the technocrat-beloved MITI was largely responsible for the Japanese lost decade; if one believes that the US govenrment through articially low interest rates and government-directed reductions in underwriting quality helped create the housing bubble -- then the mother of all crashes is looming in China.  Because no country has done more to reallocate resources and capital based on the whims of a few technocrats  and well-connected industrialists than has China.  After all, this is why Thomas Friedman loves China, that it does not rely on the judgement of millions of individuals to allocate capital, but instead on the finger pointing of a few at the top.

This is an interesting story on the AP and journalistic ethics

The Associated Press purchased an advanced copy of the book. It is set for release on Nov. 15.

Let's start with the second paragraph.  It's a lie, pure and simple--and the papers that reprinted the stories know it.  Giffords didn't sell any "advanced copy" of the book.  The book is strictly embargoed so that she can control the timing of the media stories that surround it.  Bookstores, however, have copies locked up in storage rooms so the copies can all be put on the shelves at the same time.  Someone stole one of those copies...or perhaps stole a proof text from the publisher...and then sold it to the Associated Press.

Rather than admit that they illegally purchased and then printed excerpts from a stolen copy, the Associated Press lied and said that they "purchased an advanced copy of the book."  That would be a big story by itself, but the newspapers that have contracts with the AP didn't want to blow a good story, so that meekly reprinted the lie.

What's worse is that the AP not only stole Giffords' book and disrupted the timing of her planned roll out...they botched the story and made Giffords issue a denial. ...

...faced with an ambiguous quote in a stolen book and no chance to verify it, the AP did just what they teach you in the ethics classes in Journalism school...they ran with the most tantalizing, headline grabbing interpretation and then made Gabby deny it.  Nice.

This is a fascinating tale, from Occupy Wall Street, demonstrating how a group with assumptions including

1. Its OK for one group to exercise power over another group
2. Its OK to redistribute money on some basis other than earning it through voluntary commerce

Perhaps I do not give Sarah Palin enough credit, because this is a really good passage, from one of her recent speeches (emphasis added by Mickey Kaus)

We sent a new class of leaders to D.C., but immediately the permanent political class tried to co-opt them – because the reality is we are governed by a permanent political class, until we change that. They talk endlessly about cutting government spending, and yet they keep spending more. They talk about massive unsustainable debt, and yet they keep incurring more. They spend, they print, they borrow, they spend more, and then they stick us with the bill. Then they pat their own backs, and they claim that they faced and “solved” the debt crisis that they got us in, but when we were humiliated in front of the world with our country’s first credit downgrade, they promptly went on vacation.

No, they don’t feel the same urgency that we do. But why should they? For them business is good; business is very good.  Seven of the ten wealthiest counties are suburbs of Washington, D.C. Polls there actually – and usually I say polls, eh, they’re for strippers and cross country skiers – but polls in those parts show that some people there believe that the economy has actually improved. See, there may not be a recession in Georgetown, but there is in the rest of America.

Yeah, the permanent political class – they’re doing just fine. Ever notice how so many of them arrive in Washington, D.C. of modest means and then miraculously throughout the years they end up becoming very, very wealthy? Well, it’s because they derive power and their wealth from their access to our money – to taxpayer dollars.  They use it to bail out their friends on Wall Street and their corporate cronies, and to reward campaign contributors, and to buy votes via earmarks. There is so much waste. And there is a name for this: It’s called corporate crony capitalism. This is not the capitalism of free men and free markets, of innovation and hard work and ethics, of sacrifice and of risk. No, this is the capitalism of connections and government bailouts and handouts, of waste and influence peddling and corporate welfare. This is the crony capitalism that destroyed Europe’s economies. It’s the collusion of big government and big business and big finance to the detriment of all the rest – to the little guys. It’s a slap in the face to our small business owners – the true entrepreneurs, the job creators accounting for 70% of the jobs in America, it’s you who own these small businesses, you’re the economic engine, but you don’t grease the wheels of government power.

So, do you want to know why the permanent political class doesn’t really want to cut any spending? Do you want to know why nothing ever really gets done? It’s because there’s nothing in it for them. They’ve got a lot of mouths to feed – a lot of corporate lobbyists and a lot of special interests that are counting on them to keep the good times and the money rolling along.

Mt Rushmore without the heads

I find the Left's opinions on Greece to be fascinating.  After all, Greece is essentially the logical end result of all of their love for deficit spending, so what kind of cognitive dissonance is necessary to write about Greece on the Left?  This kind:

OK, but they're spending too much money. Surely they know they have to cut back?

Sure, but the deals on offer are pretty unattractive. Europe wants to forgive half of Greece's debt and put them on a brutal austerity plan. The problem is that this is unrealistic. Greece would be broke even if all its debt were forgiven, and if their economy tanks they'll be even broker.

But that's the prospect they're being offered: a little bit of debt forgiveness and a lot of austerity.

Well, them's the breaks.

But it puts Greece into a death spiral. They can't pay their debts, so they cut back, which hurts their economy, which makes them even broker, so they cut back some more, rinse and repeat. There's virtually no hope that they'll recover anytime in the near future. It's just endless pain. What they need is total debt forgiveness and lots of aid going forward.

I certainly agree that Greece is now in a death spiral, but this analysis is just amazing.  The only way for other countries to avoid sharing Greece's fate is to, very simply, spend within their means.  If they do, problem avoided.  If they don't, and get hooked on deficit spending, then Greece is their future, the only question is when.

So what does Drum do?  He calls the spending withing their means strategy "unrealistic" and "brutal austerity."    So he occupies a long post lamenting what a totally SNAFU'd situation Greece is in, but takes off the table the only possible approach for other counties to avoid the same fate.   And in fact advocates a strategy that will push a few others over the cliff sooner, or even cause a few to jump on their own (after all, if the punishment for spending your way into financial disaster is to get, as Drum recommends, all your debt forgiven and years of aid payments, why the hell would anyone want to be fiscally responsible?)

And it is amazing to me that he calls forgiving half their debt, the equivalent in the US of our creditors erasing about $7 trillion, as "a little bit of debt forgiveness" while cutting government spending a few percent of GDP is "a lot of austerity."

His solution, of course, is not for Greece to face up to its problems but to transfer the costs of its irresponsibility to others and then remain nearly perpetually on the dole.

His mistake is to assume Greece faces endless pain.  It does not.  History has shown that countries that are willing to rip off the bandage quickly rather than over a few decades can recover remarkably quickly if sensible policies are put in place.  Heck, the Weimar Republic, which had inflation so bad people got paid 3 times a day so their family could buy something before the money became worthless a few hours later, got its house in order in a matter of months.

I wrote quite a while ago I wrote that there was no way the estimated $43 billion California high speed rail project would be completed for less than $100 billion.  Well, now the agency itself is estimating it will cost $100 billion (or $98 billion and change, but that is likely a number picked to avoid going to three digits).  So I now officially raise my estimate to $200 billion for the complete line from Anaheim to San Francisco.  Anyone want the under?