Marriage isn't a luxury, divorce is

Census report shows that more than half of the families in the area around DC are single-parent. Interesting.

Great article on the costs of single-parenting here. Kids suffer.

Remember, though, that divorce is considered an expensive luxury. How do I know? Because it's been shown over and over that divorce rates go up with wealth and income. It costs far more (in dollar terms) to divorce, and that doesn't measure the long-term costs to the kids.

So I wonder if we can conclude that the welfare system has become a substitute for the second parent? It's not working well, if that's in fact the case.

A question for the reporter, though: what is a "second-generation" Hispanic household? If you're Hispanic (self-identified) doesn't that stick?

Zombieland and Banks, Repost by request

[This was originally posted on 10/07/09; we're still dealing with the zombies.]

OK, so maybe the "zombie vs. possession" metaphor is lost on Washington these days. But after seeing Zombieland this week, I thought I'd use Columbus' rules to draw some conclusions about the current (and past) banking crises.

For those of you who haven't yet seen this cinematic masterpiece (which, alas, contains a few off-color swear words), the narrator and central character is Columbus, who is trying to get to Columbus, OH to check on his folks. He starts in his "dorm room" in Austin and meets up with other survivors on the way. Mayhem ensues, blah blah blah. It is a classic.

This movie, too, doesn't involve Romeroesque zombies, but more of the neo-zombie we've seen in "28 Days Later" and other recent incarnations. These guys move quick, and there's none of the traditional emphasis on head shots. (Not mentioned, but in practice these guys DO pay attention to headshots.)

Anyhow, Columbus is a real anal retentive type, because sometimes that's what's required to survive the zombie hoards. He has a set of rules that keep him alive amidst all those that aren't. Some are pretty obvious.

Rule #1: Cardio. The first to die in the Zombie Apocalypse (ZA) are those who can't run away (I'm miffed at his conclusion that it's a bunch of "fatties" that get it first -- some of us can run when we have to!) Nowadays, the zombies in the banking sense can run pretty fast, it seems. So perhaps the message is "be ready to run." I hope this doesn't apply too well to our current situation.

Rule #2: Double-tap. Make sure that you use one extra bullet/shell to confirm the demise of each zombie. What military types refer to as the 'double-tap'. Cheap insurance.

Now, if you only have a double-barrelled coach gun, as does our hero for most of the picture, it would pay to count those 18 buckshot per shell as "double" and save the second barrel when possible.

Back to banking, though: even though we bailed out the thrift system in '89, we still had to come back and implement Basel in 1991 with FDICIA (and eliminate some patronage at the same time) and "prompt corrective action". Seems like whatever happens this time is going to be politically approved as well, with some House and Senate members pushing for lending standards to drop again. Hope we've got another barrel left after they decide what to do with Fannie and Freddie (even though I'd argue that they are "possessed" and not the living undead). See here.

Rule #3: Beware of bathrooms. This is where we let our guard down, where we are also most vulnerable for a variety of reasons. In other words, banks, when eliminating the waste, are the most at risk. Maybe we should make sure they don't cut too much.

Rule #4: Seat belts. It pays to take advantage of built-in safety mechanisms. Plus, EVERYBODY is supposed to wear them. Maybe FDIC should start stopping folks just to check. And make sure all vehicles are equipped, too.

Rule #7: Travel light. You never know when all those extra assets will have to be carried at market values. Or when things that were good as gold yesterday will be revalued downward because the ratings agencies were revealed to have no clothes.

Rule #12: Bounty. It's the quicker-picker-upper. Kind of like regulatory capital in the 80s. Good to have some around.

Rule #17: Don't be a hero. Ask Jamie Dimon at JPMorgan how that's going for him these days.

Rule #18: Limber up. The Fed certainly heeded this one back in 2007, as they started to create liquidity programs for any and every purpose. Just in case. This works best alongside cardio. See Rule #1.

Rule #22: Know your way out. Sounds like something for Bernanke to consider in the future. 2006 is calling! Not that all that liquidity wasn't useful, but it's being used (erroneously) to trick the rest of the world into looking askance at the dollar. Not good.

Rule #29: The Buddy System. We're not alone in this, just almost alone. The jackals out there are licking their chops on this, hoping the US takes a big dive and takes a hit for market economies. Hint: Fannie, Freddie, FHA, and CRA/HMDA have nothing to do with market economies. Patronage is patronage, here or in China. Thanks for playing.

Rule #31: Check the backseat. Or, the reset dates and reset rates for that matter. And income. And appraisals. And buyout clauses. And most importantly, don't let anyone in the backseat do the driving.

Rule #32: Enjoy the little things. Like bonuses for the next 5 years. And political contribs for that matter.

Rule #33: Swiss Army Knife. This is from the Boy Scouts -- be prepared. Everything on that knife has a purpose.

Oh, and a little sunscreen never hurt anybody.

If you haven't seen "Zombieland" you'd better hurry up. It looks as though its theatre days are numbered, but there's always the dollar cinema run to consider. I can't wait for folks in Congress to get a chance to watch this -- maybe their favorite zombies (Freddie and Fannie) will collapse under their own weight and keep us from having to finally, finally put them down. Remember, double-taps.

Update:
A year later, I wanted to point out two classic ideas brought up in this movie, things that will be with us forever.

Tallahassee paints the number "3" on the doors of his cars. Classy as hell. I actually had someone ask me about this after the DVD came out - they weren't from the US, so they get a pass. Everyone else, no pass.

Columbus is afraid of a lot of things (being alone with a baby, hah!) but his fear of clowns is the best.

Shoe Riots in Mesquite TX

For all of you in the "it can't happen here" crowd, I wanted to post this as a reminder that poor people don't just riot in Atlanta over housing vouchers. And this from Houston.

God Almighty people! What the hell is going through your brains? It's just a pair of shoes.

The real question - how do people have time to stand in line since Wednesday at 7:30 AM to buy sneakers (riot happened this morning, Thursday)? So all of these folks are caught up at work, and at home, and their children are all adequately played-with, etc.? Amazing.

On the other hand, they could have been watching professional sports. What a tremendous sap of productivity THAT is.

The economy must be in pretty bad shape, huh?

In the meantime, these are probably the same folks who won't have time to vote (thankfully, probably) or have time to find out about pending legislation (unless someone starts talking about more handouts, I guess) or the qualifications of their representatives. Too busy in life, so busy that they "have to have" a cellphone, can't live without it.

Priorities seem to be skewed all over the place. This is just another example.

Stalin & Mao would agree with Net Neutrality; Chavez is a big believer

The latest seems to be that the FCC is going ahead with their vision of "net neutrality" regardless of Congress or popular support.

I think that Lenin, Stalin, Goebbels and some of the other big names in free speech would probably go right along with it, but that's just me.

Censorship is censorship, they can call it whatever they want. The powers-that-be right now know that talk radio and talk TV are too big, so they can't go back to the Fairness Doctrine (thank goodness). So this is the next best thing.

Bolivian President Calls for Sun to Rise in West by Century's End

At the recent Cancun conference, the president of Bolivia (where?) expressed the need for more wealth to be transferred into his economy in the name of global warming, which has now been termed "climate change." He suggested that we don't throw out Kyoto (tell China!) and instead lower the global temperature increase to 1 degree by the end of the century instead of 2 degrees.

Or, we could just all get together and agree that all little birdies should sing be-bop and that the sun must rise in the West from now on.

Nature is nature. The idea that mankind can impact global mean temperature is still arguable. What's amazing, though, is the audacity of politicians who are behind the "cap and tax" legislation out there. They think that they can snap their fingers and change global weather. Snap - no more incandescent bulbs (so you'll buy CF from our buddies). Snap - bondholders at GM must take what we tell them to take. Snap, snap, snap. Amazing.

Multiculturalism has failed, says Merkel

Maybe this is old news, but I figured I'd post a link. Germany's chancellor Merkel has declared that European multiculturalism has failed, with those who've come to Europe from other states instead setting up "parallel" societies over the past 50 years.

Tax deal, finally.

There's still some debate over the death tax going on, but it looks as though the Obama tax increase (Round 1) has been pitched overboard.

I still don't think that any of the morons in Washington understand The Big Picture. Unless we make some serious changes to how this country spends money, we're going to have some big changes in lifestyle coming up.

Housing troubles continue

Reuters is telling us that there is an expectation of higher foreclosure rates for the foreseeable future. No surprise - Freddie and Fannie are still open and making loans!

Most important to us right now: as the robosigning thing gets cleaned up and foreclosures get underway again, the first quarter of 2011 will be very, very bad.

30 percent isn't a bad discount unless you're selling.

New Tom Clancy book. Oh yeah!

Dead or Alive.

Hey, I know people are going to say "What, not all this again..." but you know, the espionage game didn't just dry up and go away - there are plenty of folks out there willing to do extreme things to undermine American interests and kill people here and abroad.

Clancy never disappoints (under his primary line that is, let's forget the whole NetQuest escapade).

I'm sure this one will be great. Get it in hardback while you can!

Bank (ATM) runs getting you down? No problem, just turn off the network. Doh!

Some folks in Ireland found out that ATMs are only as good as their banks today. Oops.

Was it an accident, or a subtle hint of things to come?

Sounds like fun - let the inmates run the asylum

Somewhere in Florida, a village is missing their idiot. For the kids though, it sounds very empowering - no more classes, no more books, no more teachers' dirty looks.

School's Out for summer...
School's Out forever.

Charlotte Hornets Bailout (I mean New Orleans!)

Wow, the NBA is buying out the Hornets. Astounding. What a really bad idea!

Bad Bills are supposed to hinder counterfeiters

These bills were supposed to make it hard to FAKE them, not print them in the first place.

Important: there are $930B in currency floating around out there.

Cyberattacks can cause real problems, part 1

I just saw this on Wikipedia. Scroll down to the end of the ROSAT and read about the "coincident" cyber intrusion at NASA Goddard and the satellite's control troubles. Hmmm.

Sounds like Russia or China had too much time on their hands at that point. Question is, what did they want to keep it from finding?

Interesting reading.

JP Morgan Chase has too much time on its hands!!!

In Southlake, Texas, JPMorgan-Chase doesn't want your business. Evidently, they have enough customers already, and can spend time worrying about trivialities.

How do I know? A branch was asked to remove a Christmas tree because, they were told, some customers found it offensive.

Next, I'm going to object that money is green (a CHRISTMAS color) and should be removed for the same reason. Here's a big bag, I'll take it off of their hands.

Wow.

Soup lines? No way!

The Atlanta Journal-Constitution (or, Urinal- ... nevermind) is reporting that people waited in line to get assistance, and the assistance ran out. Again.

Don't blame the not-for-profit that offered the assistance. It's not their fault (truly). They just ran out of money.

As we saw last year, this happened with HOUSING assistance, not HEAT assistance. Also from the AJC. See here.

Fed holds back on collateral info for nearly $1T

Bloomberg is reporting that the Fed has declined to respond with the collateral offerings for $800+ billions. In other words, they won't tell us what was pledged for these borrowings. Nice.

Also, another data site has come up, at the Fed itself (this may be a repeat from yesterday). Fun read.

Cost saving ideas for UH-Clear Lake

In Faculty Senate today, Dr. Staples once again asked the UHCL community to send him suggestions about what the university could do differently that would save money. Given that we're looking at furloughs and tuition increases, it might be important to put together as many different ideas as we can.

His email address is staples@uhcl.edu. If you want my opinion on it, copy me and I'll get back to you (michael@uhcl.edu).

Amanda Schoolcraft (our SGA person on Planning & Budgeting) suggested Monday that we do away with a lot of our printing and just do things electronically (not handing them out in class). Her reasoning was that we were "all adults here." That's the kind of logic we're looking for, folks.

Fed is going to release its emergency lending documents

Don't want to miss THIS! The Federal Reserve, long a bastion of "FOIA doesn't apply here" is going to release details of its years-long special liquidity lending programs.

Ron Paul will be disappointed, I'm sure; whatever will he talk about now? It probably won't satisfy the curiosity of the die-hard Fed haters, but it's a step in the right direction perhaps.

Remember, Mark Pittman started the ball rolling on this, at Bloomberg. It was his gig originally, and it serves as his legacy.

Thanks, Mark.

Note the guide to the data posted here. Very useful.

The Fed's own site is here. A little lite holiday reading.

SEC showed lenience to Bank of America

Fascism? You be the judge. Hey, Mussolini had the trains running on time, right?

Sorry, that's isn't supposed to be fascism, because that's a bad word. Let's use "state capitalism." Now doesn't that sound much better?

Turns out that the SEC held back on some fines for Bank of America because the firm was being bailed out. In other words, there were special favors done because of the government's interest. Hmm.

Pucker up, Buttercup.

Ed Rooney, Ferris Bueller's Assistant Principal and nemesis, used the above words as he contemplated catching Our Hero red-handed. Didn't happen though.

This time, it very well could. We could end up helping to bail out Europe. Yet again.

It's not a big deal at this point, really. But I'm afraid that we'll end up needing that bailout here. We'll see. There's a pretty good chance, at this point, that Europe is going to implode. The EURO might just implode (if people over there have any sense).

As Glenn Beck pointed out this morning, if they DON'T implode and revert to nation-state status with their own currencies, Germany will end up bearing a lot of the economic burden over there, along with the UK (sort of). Hmm.

John Stossel on Thanksgiving

I just ran across this over at Fox. Stossel is a brilliant guy, and he's right on the money about private property.

Private property use, also, reflects risk and uncertainty. If you are uncertain about the future past some degree, you would wait to invest your private property in future endeavors. Sound familiar?

Chronicle of Higher Ed on Cheating

Steve Cotten pointed me to a recent article in The Chronicle of Higher Ed about cheating and how some people do it for a living. Check this out when you get time.

OK, who saw this coming?

UAW cleans up on sale of new GM stock. (Click on title)

No way!

More on the saga as it comes to light. No surprises from GM, though.

Latest on the DREAM Act

Hold on there folks, the DREAM may still be alive. Some lawmakers are still planning to push for the DREAM Act, evidently.

Good luck on that.

Edupunk reference

Check out this egghead discourse on the future of higher ed. Click on title, iPad don't do paste for an insert.

My comments are listed under Joe Momma - I guess "Doc Finance" was taken. Squatters!

Some of my insightful comments (later)

Mortgage crisis gets really squirrely

Dr. Ed Waller sent me a linky today with a few references on the robosigning fiasco. At AOL. Click on title - iPad don't hardly do Control -V.

Also, you might want to look up the term "rescue fantasy" over at Wikipedia. We gotta be careful not to let our warm wishes spill into our interpretation on this- most folks still owe their mortgage, regardless of robosigning. Sorry.

Details of GM IPO emerge

Reuters has some details today of the pending GM IPO, here. It stands to be the largest ever.

If you were an investor, looking at how the last group of investors were treated, would you invest in GM? If you were a pension or mutual fund manager or advisor, charged with maintaining a "prudent person" standard in your portfolio, could you recommend GM stock?

Bloomberg's article is here.

State Worker Pension Voodoo

Dr. Steve Cotten tipped me to this gem of understanding.

Please note as you're reading it that in Texas, all state employment details are public record. Salaries of state workers being the biggest one - everyone's wages are on display (in the Neumann Library, in our case). So unless there was some privacy issue involved, I'm not sure what the sheriff in this article is so upset about.

He either was, or was not, receiving his retirement while he was working.

NASA finds more problems with Discovery

Announced today, new cracks in the tank foam (and it sounds like cracks in the tanks themselves).

Not good. Shows how delicate things are late in the game - you can find the same kind of problems in businesses that are in financial distress: jobs don't get finished right, suppliers miss their quality targets for materials, etc.

In any case, we can hope they'll get it straighten out soon.

Shuttle main page is here.

The Road to Serfdom, Part 17

The President's Commission on Fiscal Responsibility (stop laughing, this is serious) has released a preliminary document on what they plan to suggest that we might, someday, do. As a nation, as Americans (right...this commission is about as partisan as they come. Look up some of the names when you get a chance - Bowles, Rivlin, etc.)

There's all kinds of stuff here, but the part where they reduce military retirement benefits kind of stands out with a quick read. They lump civil service pension reform in with military retiree support, and military schools in with public schools. On the first point, I have no doubt that Andy Stern (head of the SEIU, a huge government worker union) had something to do with that -- after all, we can't reduce retirements of toll booth workers in New Jersey without chopping the benefits of fighter pilots and drill sergeants, can we?

Update! WSJ has an article about it.

Another related item: The Washington Monument Syndrome (or, ploy)

That's when some bureaucrat, when faced with cuts, picks the most visible or important things to cut, to "maximize" the visible pain (or actual pain). Do you remember how we heard that the Grand Canyon was going to be closed a couple years ago, due to budget cuts? Or Yellowstone? That's what we're talking about.

Now that you know what to call it, you'll see it everywhere.

Link to UN HRC submissions

It's at Fox. Click the title.

UN Human Rights Commission

Scary, but the UN has invited union reps to inform the US human rights record in Geneva.

See, that way we can be judged by Saudi Arabia, Libya, China and other paragons of human rights behavior from around the world.

Interesting Graph

Mike Goldberg tipped me to this today (click title). Explains a lot about why things SEEM worse.

New Orleans: Just not worth it, gang.

I know I'll be going to Nawlins in the next couple of years for conferences, but I wish I wasn't. Not only do I NOT want to hear any more about Katrina (what about Ike?), but I don't want to see what Katrina did, either.

But the main reason to stay the hell away from New Orleans is the CRIME. God Almighty! Not THAT different from before Katrina, but wow! Seems like more reports are coming out all the time.

Can't see going there for "fun" when people are getting blown away, stabbed, etc. left and right. No thanks, not me.

More on RoboSigning (WARNING: Language)

Here's an interesting case I picked up on at MacNN - some serious conflicts of interest questioned by a judge.

The "who does this person work for?" question is a good one.

More on ForeclosureGate

Interesting article/blog here with a good explanation of the difficulty in keeping a "chain of title" together.

Meanwhile, a nice link from the "Comments" of this piece: Robespierre on the justification of terror as a tactic. What?

Sheila Bair (FDIC Chief) on ForeclosureGate

More commentary when I can, but I just saw this and had to post before it disappeared into the noise.

Yep, this could turn out to be a big deal.

One point. She says that

"We know from experience that reducing the monthly payment through modification raises the chance that the borrower will make good on the loan."

We also know from experience that a large number of workouts (72% at BofA in 09) result in another workout.

Which is it?

Mark Pittman's Legacy: Treasury hides Citigroup Guarantee, Shows Bureaucracy in Action

The late Bloomberg reporter Mark Pittman will be remembered as the guy who sued the Fed and won. Eventually.

He's also the guy that found out about the $300 B in Citi securities that were guaranteed by the US Treasury. And he asked for more info about that.

This article's account of the back-and-forth after Pittman's death is priceless. It reads like a script to "Gilligan's Island" or for you Millennial types "Wizards of Waverly Place." Meh. When you read this, are you nervous about anything that the government might "certify" or "prosecute"? What a vacuum!

Finally, after hemming and hawing all this time, we're seeing Freedom of Information Act (FOIA) disclosures with huge gaps and deletions in them, useless for their original purpose: disclosure.

I'm not sure I agree that it's just an Obama Administration thing, but I'd bet that the White House could fix this with a couple of phone calls.

Barney Frank Knows Where the Money Is, Willie

Willie Sutton, the famous bank robber, didn't really say that he robbed banks because "that's where the money is..." Some reporter made that up.

However, ranking member and chair of the banking committee in the US House, Barney Frank, knows exactly where the money is (the bailout money) because he put it there. And he's been getting it back, too. Boston Herald reports today that he's gotten upward of $40k from big bank execs over the past year or so.

That shouldn't surprise you, but it might be worth your time to think about.

A Free Speech Moment: Juan Williams found out the hard way

And now a moment for politics & the value of free speech:

I grew up on NPR, listening almost every day throughout the turbulent 80s when Central America was exploding and we were fighting a secret war down there. I thought talk radio was the greatest, but then I started to realize that their view of the world was nothing like what I knew to be true. And they seemed to be quite intolerant to other views of things.

I mean, I didn't know anything about violence against nuns in Nicaragua, but I was pretty sure that there were other things going on in the world. Yet, day after day, all we heard about was the poor and downtrodden of the world, how evil Ronald Reagan was, and how important it was for all things to the Left of the political spectrum, etc.

I loved the local programming, and I volunteered and manned the phones at pledge time, but I came to find out that NPR is referred to as "People's Radio" for a reason. The entertainment is just that, but the news... well, that seemed too much like propaganda for me. So I quit getting my news from them some time in the early 90s. Too much politics for me. It just couldn't be that every cause was a liberal one.

Juan Williams found out that his opinion only counts as long as he sings the same verse of Kumbayah as the other folks around the NPR campfire. He's a bright guy, he should have known it was coming.

Mara Liasson is probably next.

The best part: the political hacks at mediamatters.org and NPR have shown themselves to be partisan morons. Again and again. Maybe the funding will dry up. After all, why do we need NPR shilling for The Left of Center when we have CNN, Time, MSNBC, etc.?

Take Control of Your Bankers

CFO Magazine for October has a cover story about dealing with relationships and bankers. Might be worthwhile reading - talks about the politics of lending, too.

What the Tea Parties are all about, WSJ

A good explanation of the "tea party" movement. Regardless, some folks will never get it, and will continue to characterize it as a fringe thing.

Women CEOs also have families. Who guessed? From WSJ

A new book reports that many women CEOs also have families, which kind of goes against common knowledge or expectation. Gives us all hope, doesn't it?

The Foreclosure Mess, from WSJ

We should probably stay on top of stuff like this, but it's really hard to do that with everything else going on.

As I mentioned in class the other night, the foreclosure mess is going to throw things into disarray with mortgage-backed securities AND homeowners who want home equity loans AND with people buying foreclosures. It isn't just a simple thing.

So now we can't trust any of our documentation -- anything can be challenged in court.

And believe me, it will be.

The Loss of Trust and the Great Unraveling to Come

Great article at Business Insider that echoes what I've said in class over the past two or three years.

The financial system runs on trust: trust that everyone has a fair deal, and that government regulates everyone the same way, and that we can trust other parties in a deal.

The latest financial scandal has undermined all of that. We cannot trust the rating agencies (first), we cannot trust regulators to step in when AIG creates too many Credit Default Swaps, or to regulate these at all, we cannot trust Congress with our middle-class housing, 401(k) or health care investments (or even Social Security, and we cannot trust the Oval Office to ask for legislation that people actually want. Ad Infinitum. You name it, the trust issues abound, as the psych types would say.

In any case, give this article a read when you can. Lots of insight there.

More Class - Stephen J. Cannell

The story arc limited series: Wiseguy. Stephen J. Cannell created the prototype for the cable drama with this series, and without persistence it wouldn't have happened.

He passed away on 9/29, but this article (with interview snippets) tells us why he should be remembered.

Hell, he should be remembered for Jim Rockford's answering machine messages, if nothing else.

Just classy

If you want to see what a lifetime of hard work, dedication, and good core values looks like, here's a piece at USA Today that gives it to you.

Condoleeza Rice is an amazing person. Just classy. Check it out.

Her favorite Led Zep song:

Black Dog.

Wow.

Just in case that got your blood going, here's some more Getting the Led Out for ya:

When the Levee Breaks

And from back in the UNC-Charlotte bar band days, a crowd favorite (our drummer, Ruffin Reynolds, had learned everything from playing along with Led Zep albums, so we played a lot of Zep - it was a no brainer with a good guitarist (Jon Koch) and drummer. We were always lucky that way).

The Ocean.

Give a man a fish vs. teach a man to fish

Patrick J. Buchanan, controversial commentator, has a piece at WorldNet Daily arguing that we've created a permanent underclass with Food Stamps. His numbers are hard to argue with - more money means more people on food stamps.

In fact, state and local governments have been going out of their way, the past two years, to find more and more eligible people. I've talked with friends of mine who've been approached, as have others in their communities. Working families who still qualify are signing up left and right.

Buchanan's piece comes at the end of a week where Mayor Bloomberg has suggested we keep food stamps from buying sugar drinks, and THAT'S been controversial. As an aside, I used to see that all the time in SC - shopping at Kroger, doing the weekly thing - I'd see folks in there using WIC cards to buy full carts full of pre-mixed fruit juice drinks, the kind that come in milk jugs. And the little kinds, and Hi-C, you name it. I remember that specifically because the clerk once told me how common that was, and I'd seen it before myself plenty of times. Always at the end of the month, it seemed. Also, it struck me because when I was growing up we had some of that, but never seemed to have enough.

Anyhow, check out Buchanan's latest screed. He may have a point, he certainly has numbers.

It WAS about Greed, now it's about Fear

Herr Doktor Greenspan (Crazy Al according to Don Imus) is back in the news today, in the Financial Times of the UK, with a piece about how FEAR is holding the economy back.

Ya think?

Remember, this is the guy who gave us "irrational exhuberance" a few years ago, and the market plummeted.

He also, most recently, pointed out how the financial crisis was caused by the failure of "counterparty surveillance." So much for market discipline, huh?

Intriguing alternative, and something new about Fannie and Freddie and Option Value

I hadn't thought about this before, but it makes sense. What if folks who did a short sale couldn't buy a house again for 2-5 years? Makes sense, because a short sale is essentially walking away from one's debt. Wouldn't that hurt the market, though?

What follows is a compelling argument because it includes an appreciation component, or an equity "kicker" as we term it in the finance bidness. Trouble is, banks can't own equity, so we'd have to find a third party for this part probably. Give it a read, though, it's neat.

In an email, Michael Lissack sent

The issue: Housing is killing the Economy

The Insight: Short Sales are Artificially Increasing Supply (lowers prices) with no offsetting increase in demand (further lowering prices)

Why? Most short sellers DO NOT want to sell their home they want to stay (if the payments were affordable) thus they are not looking for a new home absent being forced to sell short. Under Fannie and Freddie rules when they do sell short they are FORBIDDEN from BUYING for 2-5 years. Thus in Florida alone perhaps 500,000 to 1 million homes are artificially on the market and that same 500,000 to 1 million buyers are NOT in the market

The solution: Fannie and Freddie fund the transaction costs of converting short sales into debt-for-equity swaps (please see http://fixhousing.blogspot.com which explains how).

What happens: The existing loan is converted to three pieces: a loan for 80% of current value (which will be current since the homeowner will pay) on the same terms as the original loan, a zero-interest loan for 20% of current value (essentially the current equity above the 80% loan), a PARTICIPATION interest in future appreciation

Liquidity: the participations can be pooled and sold as securities, the zero interest loans can be pooled and sold as securities, once the 80% loans have been current for 12 months they too can be pooled and sold as securities

Immediate benefits: perhaps 2,000,000 homes exit the marketplace, and on those homes the mortgages will become liquid and performing in 13 months which helps the banks which wrote the loans

This is a BUSINESS solution to a business problem which has been corrupted by politics.

Consumer Bankruptcies up

Looks like some more chickens are coming home to roost. We'd have to know the demographics to be able to generalize, but a lot of resets on existing ARM teaser rates happened during spring and summer.

I wonder, too, how many of those are due to the drilling moratorium in the Gulf?

Graduate employability in UK

Interesting note in the ECCH blog today about characteristics that businesses in the UK look for in new hires and recent graduates. Check it out if you get time. The report is from Times Online, the blog itself is linked in the title here.

As always, the comments at the Times article are more fascinating than the piece itself. Just remember that anyone can write a comment, and they often do.

NASA Deadline Looms for Shuttle Ops

Reuters has an article today about the political back-and-forth over the remnants of the shuttle program.

I hope they can find other things to do once the program shuts down.

It's happened before -- we throw away our technological lead because of politics. The shuttle program was a compromise because we evaporated space technology infrastructure beginning as soon as Apollo 11 landed on the moon. The "we can use the money down here" types took over Congress, and the national agenda, and much of the human capital investment went down the tubes. I've mentioned that Homer Hickam, the guy from "Rocket Boys" has been an advocate of infrastructure conservation in the past. He was a NASA guy for many years, maybe he knows what he's talking about. "Back to the Moon" was an interesting book.

Let's keep those folks in our hearts. Let's hope they find something to do with their talents that gives them their preferred lifestyle.

Treasury may have tough time divesting Citi without depressing price; there's a 12/31 deadline

The US Treasury has already made over $2B on its Citigroup investment (in 2 years) but it's slowed down sales of the shares (divestiture) to keep from upsetting the stock price.

Barney Frank slams Fannie for foreclosures

As an update to my 8/24 post on Barney Frank calling for Fannie and Freddie to be abolished, today it's reported that Frank has sent a letter to Fannie Mae slamming the folks there for having aggressive foreclosure policies.

Jon Stewart couldn't write this stuff. It just keeps getting better and better.

Mort Zuckerman on The American Dream

Has the American Dream become the Nightmare instead? As we were discussing in class just the other evening, Houston has been relatively sheltered in terms of housing troubles. We've been lucky, even with Hurricane Ike and its price spike.

But folks are noticing some empty houses in their neighborhoods these days, and students have told me about lending standards going up precipitously over the past year or so.

From the article:

The economics of home ownership could hardly be more disastrously opposite to the expectations of generation after generation. Millions of homes have been foreclosed upon. About 11 million residential properties, or about 23 percent of such properties with mortgages, have mortgage balances that exceed the home's value. Given the total inventory, and the shadow inventory of empty homes, many experts expect prices to fall another 5 to 10 percent. That would bring the decline to 40 percent from peak-to-trough and expose an estimated 40 percent of homeowners to mortgages in excess of the value of their homes.

The growing risk of disappearing equity invites more strategic defaults on mortgages. Homeowners with negative equity are tempted simply to mail in their keys to their friendly lender even if they can afford the mortgage payment. Banks don't want to take the deflated properties onto their books because they will then have to declare a financial loss and still have to worry about maintaining the properties.

Little wonder foreclosure has not been enforced on a quarter of the people who haven't made a single mortgage payment in the last two years. A staggering 8 million home loans are in some state of delinquency, default, or foreclosure. Another 8 million homeowners are estimated to have mortgages representing 95 percent or more of the value of their homes, leaving them with 5 percent or less equity in their homes and thus vulnerable to further price declines. A huge percentage will never be able to catch up on their payment deficits.

The pace of foreclosures was briefly slowed by loan modifications brought on by government programs. Alas, the programs have not been working as hoped. Half of the borrowers have been redefaulting within 12 months, even after monthly payments were cut by as much as 50 percent. The foreclosure pipeline remains completely clogged. As it unclogs, a new wave of homes will come on the market and precipitate additional downward pressure on prices. The number of foreclosed homes put on the market by banks will be a more powerful influence on the further decline of home prices than either consumer demand or interest rates.

A well-balanced housing market has a supply of about five to six months. These days the supply is more than double that, as inventory backlog has surged to about a 12½ months' supply this summer, up from 8.3 months in May. This explains why average sale prices have been declining for so many, many months. The high end of the market, in particular, is under great pressure.

To be sure, home ownership isn't all it's cracked up to be. It's expensive and time-consuming and risky. No question, it's not right for everyone at every stage of their life. And it's not right for every family.

Mr. Zuckerman decries the loss of such a wonderful asset to the middle class in this country. I'll continue to argue that there are politicians in Washington for whom THIS WAS THEIR GOAL. After all, we can't all be equal (or equally squalid and dependent on government largess) if one group of people can actually save and invest and have confidence in their own power to shape their future. Call me cynical, but I don't see any other way to explain the political behavior of the past several decades from Congress and others in Washington and around the country.

Take away our home values by diluting them, and some of those middle class types might just be forced to "fall in line" with the political current that says that we must have equality of outcomes. The only way to achieve equality of outcomes, in fact, is to take everything away and then carefully give it back.

Remember, "I'm from the government, and I'm here to help."

Nightmare, though? I'd argue that Mr. Zuckerman is REALLY going to be upset when we eventually get around to straightening out Freddie and Fannie.

WalMart takes John Lennon's advice

Saint John of Liverpool is known to have said "Follow the money." He was probably onto something.

WalMart has started following the money on its opposition. In particular, they've found that the "grass roots" movement against them goes back to competitors such as Safeway, and the unions that represent workers at competitor firms.

Ya think?

This is how this looks to the trained eye:

Safeway (and their union workers, evidently) can't actually compete with WalMart, so they use public opinion, propaganda, land-use consultants and a team of lawyers to fight them instead.

Welcome to the new America folks.

One of the consultants was quoted:

"The work we do helps to level the playing field as regular citizens try to fight back against the world's largest retailer and the impact of big-box development in their communities."

Right.

As we've discussed in class from time to time, you should always "follow the money." When you hear that WalMart or whatever company is ruining things for everyone, destroying a way of life, etc. you need to put on your Thinking Cap and figure out who stands to benefit.

Blockbuster files Chapter 11

Say it ain't so, Joe!

Blockbuster, the multimedia chain who has had it's lunch eaten by Netflix & RedBox of late, has filed for bankruptcy protection under Chapter 11.

If you've streamed video via Netflix, or paid $1 for a new release at RedBox lately, you understand why Blockbuster is on its way out.

It's all about the Business Model, yet again.

Chapter 11 filing means that they have to come up with a plan that gets the company turned around and back on the road to profitability. Which probably means coming up with a whole new Business Model. Again. Which isn't likely.

Up to this point, there's been talk of liquidation (Chapter 7), so this is a surprise in that respect.

Turnaround investor Carl Icahn divested his stock holdings starting last year, but has recently purchased a big block of Blockbuster's outstanding bonds, according to the Wall Street Journal. His plan? Being a debtholder will give him some say in the resolution.

Good news: they only have to convince a JUDGE that they can turn things around, and fend off arguments from creditors and other interested parties that will say "stick a fork in it, they're done" in a very convincing fashion. So maybe they've got a chance.

It will be interesting to watch, in any case. Check this space for updates.

Health Insurance Companies Follow Logic, Reason

There are reports that major health insurance providers are ending their child-only coverage in response to a new federal mandate that goes into effect tomorrow.

In other news, Earth is expected to orbit the Sun, etc.

This is what happens after regulation passes: people respond rationally. Insurance companies cannot refuse pre-existing conditions or other characteristics, so how could they possibly afford to offer coverage. The only way they could offer coverage to some would be to cheat others.

In the story, some advocacy type (moocher) is complaining that it's "immoral" on the part of the insurance company. Ahem - it would be immoral to pass costs on to everyone, too. Pick which one you want to see implemented.

I'm guessing that the plan is to pass these laws, push companies out of the market, and then say "look, markets don't work, we need a PUBLIC OPTION." That's how these guys think -- THEY know what's best, and THEY'RE going to give it to us.

The worst part is that the jerks in Congress who pass this kind of stuff are using "markets" to destroy markets. There's nothing market-based about a law that requires insurance companies (who are state-regulated, by the way) to cover certain people or to violate their own cost situation to cover pre-existing conditions. Regulation does not equal market.

Congress knows what it's doing, I'd bet. They're not stupid.

Maybe scary. But certainly not stupid.

Elizabeth Warren ends up in new Consumer Finance agency post

E Warren, Harvard professor and attorney, ends up running the newly created consumer finance watchdog group, the Consumer Financial Protection Bureau. She's been very vocal throughout the ongoing crisis, and she's been running the TARP oversight group.

All politics aside, it will be interesting to see if she can actually accomplish anything. She's very outspoken in her criticism of banks, but it's a different story when you have to stop complaining and start coming up with policy that has to fit a broad base.

Update:
E Warren is working alongside Geithner and others to change the disclosure requirements for mortgage lending under the Dodd-Frank mandate. More here.

Just as long as we track the race and gender of the loan applicants we should be in compliance.

== :- ) Gulf Coast Job Fair Next Week

This just in: People who go to job fairs have better chances of getting jobs than those who don't. Shocking, that.

UHCL Career Services is hosting the Gulf Coast Job Fair this time around, and it's next Wednesday and Thursday, 9/22 and 9/23. Wednesday is for Business & Liberal Arts, and Thursday is for Science & Technology students. It's open to alums too, but you have to go sign up on the Web site.

http://www.uhcl.edu/jobfairs

If you'd like to recruit there, or just wave the corporate banner some, they're taking table reservations too. Your contact is the lovely & talented Beth Borck ( borckb@uhcl.edu ).

Be There or Be Square. Good luck to all the job hunters.

1 in 7 in poverty

WashPo says Census will reveal that 1 in 7 in America live in poverty. We'll have to wait and see what the demographics break down to reveal.

Why am I not surprised that 1) poverty has "gone up," and 2) the Census found it more than ever before? Couldn't we expect that, given the shenanigans with Census data that have occurred over the past 10 months?

The Census is driving an agenda, it looks like, and that agenda is all about dividing us into little groups so we can have "group identity" and be herded like political sheep into little flocks.

Maybe I'm naive, but I thought "census" meant "count." Like in "how many there are." I wonder, too, if the definitions of poverty might have changed over the years. Maybe that's something to look into.

From the article:

[T]he official poverty rate takes into account the effects of some stimulus programs in 2009, such as unemployment benefits as well as jobs that were created or saved by government spending. But it does not factor in noncash government aid such as tax credits and food stamps, which have surged to record levels in recent months. Experts say such noncash aid tends to have a larger effect on lowering child poverty.

Beginning next year, the government plans to publish new, supplemental poverty figures that are expected to show even higher numbers of people in poverty than previously known. The figures will incorporate rising costs of medical care, transportation and child care, a change analysts believe will add to the ranks of both seniors and working-age people in poverty.


OK, I see. Not sure how they incorporate those "created or saved" jobs, because 'saved' would be plenty hard to measure. The Census workers I encountered downtown couldn't go anywhere without lots of erasers, so 'saved' might be tough for them. Nice folks though.

Curious: do you think of "scare tactics" a lot?

I'm always touting honor societies in class, because if you meet the criteria, you should join. It's an HONOR SOCIETY for goodness sakes. That usually means something.

Phi Kappa Phi, the international honor society (with a UHCL chapter) ran a solicitation for manuscripts for inclusion in their annual magazine in May. This year's theme was "Scare Tactics." The description reads:

"Phi Kappa Phi Forum seeks original, previously unpublished poetry from active members for its fall 2010 edition that will be devoted to the theme of “scare tactics.”

Potential topics for scholarly articles and columns include “Red Scares” that have gripped the U.S.; the notion of “Islamophobia”; Celtic origins of Halloween; horror movies; students who take stimulants to counter academic performance anxiety; how fear plays out in primates; why fear is useful and dangerous to the human psyche; Wall Street panics; stage fright.

Who spends time writing poetry about McCarthyism or the "notion" of Islamophobia? [Is that one a fear of an empire from the 14th century? Just checking.] Halloween, maybe I can see THAT one. Performance anxiety? Maybe we should dash off a haiku, or a limerick.

"There once was a history major from Clear Lake,
Who thought that they needed a break,
Their professor said "Write!"
and the student thought "Right!"
so they wrote about Sir Francis Drake."

It rhymes, so it must be poetry.

Anyhow, don't pass over honor societies lightly, business students. We all know about lemons problems, and honor societies (when not overplayed) can help fix lemons problems. AVOID those that take everybody with a pulse. And I guess you should consider a group's politics before joining. But I like PKP and I hope you'll join if invited, even if they maybe are thinking too hard (or following an agenda) with their poetry contest.

UPDATE:
PKP has a new contest for poetry, deadline December 5. The call for poems is

Phi Kappa Phi Forum seeks original, previously unpublished poetry from active Society members for its spring 2011 edition that will be devoted to the theme of “empathy.”

Potential topics for scholarly articles and columns include the neuroscience of empathy; why empathy is central to morality; teenaged bullying; dolphin-assisted therapeutic practices; the “Christmas Truce” in World War I; and sympathetic yawning.

I can't make this stuff up, folks.

Banks should share bite of bailout of Fannie & Freddie

Interesting take on it. And this from the guy that makes policy on F&F. So that may be how it comes to pass.

Of course, if it bankrupts the banking system to do this (as it already has with some small banks) then it won't do anybody any good.

Tea Party = Local Perot Effect

I'm just saying...

For those of you who can remember the 1992 election when Perot got Clinton in the White House for two terms, I'm starting to see parallels between the current situation and way back then.

Looks like the Tea Party is fragmenting more and more the Republican base. I'm not saying that's a bad or a good thing, but it sure would change things around a lot.

Too bad we haven't seen opposition like this on the other side - Ralph Nader is the closest it's gotten.

Interesting.

State Budget Shortfall may be bigger than expected

OK, first let me say that this is the HouChron, so be suspicious. Who KNOWS what they'll say.

But the article this morning says we may be approaching a $21B shortfall. Versus $18B we heard in May, and the $11B number we heard before that (this one is from The Dallas Morning News, so maybe more reliable).

In DC, that's nothing. They don't even flinch at borrowing Trillions with a capital T these days in Washington. But here in Texas we still think "billion" and go "doggone it."

Again, what will these numbers mean for UHCL, and our students: that remains to be seen. Enrollment is up, and that helps. Some faculty have expressed concerns about all of the new staff and admin positions created over the past 3-5 years. As in whole platoons of new people.

Students have asked me more than once who's paying for all those new people over in Student Services. Some of those positions are related to accreditation concerns, of course, but that's the only answer I can give on that one.

President and Provost Stockton are on top of it, and (honestly) there are no better folks for the job. And I can assure you, too, that Michelle Dotter knows her stuff as AVP Finance. Those are the folks running the show at school, and they will be the ones to shepherd us through it.

Also, budget considerations at UHCL run through the Planning & Budgeting Committee of "Shared Governance." I happen to be on that committee this year (oh joy). But the reason I mention it is that every meeting is open to anyone, anyone can come and ask questions or just listen. All of "Shared Governance" is like that. I recommend, to, that you students pay attention to budget and fee discussions in SGA. At least find out who your reps are (by major I guess) and let them know how you feel. Add them to your Facebook or LinkedIn. Can't hurt to stay abreast of things.

One final thing: you may already know this, but faculty and admin salaries, all salaries of everyone employed by State of Texas, are public record. The folks in Neumann library should be able to guide you to the most current version of what everyone makes every year. It's always been that way (used to frustrate my Dad, who worked at Employment Security Commission of North Carolina for 25+ years, some jerk would publish his take-home every year in the local paper). It's no big deal, but every few years some student groups says "LOOK how much they MAKE!!!!!" The next stop on the data trail needs to be the Web site of AACSB International, our accrediting body for business. They publish an annual salary survey showing how much people make in accredited programs.

What you'll learn is that UHCL is a "Goldilocks" institution when it comes to paying business profs (finance & accounting in particular). Our salaries are "just right." How do I know? We aren't leaving in droves. We never HAVE left in droves in finance & accounting at least, even in better times.

Maybe we actually LIKE our jobs. Some of us do, that's for sure. If you look at our numbers in finance, and accounting, and most of the business school folks, I'd say we're probably underpaid. Especially for all of the practical work experience we have. But if we were REALLY underpaid, we'd leave, right?

A lot of schools at the regional level have revolving doors for junior faculty. We've been relatively successful in recruiting and retaining a bunch of "good apples." So far.

Herb Simon, Nobel Prize laureate in economics, talked about the idea of "satisficing." W. Douglas Cooper, my Quant Methods professor back in the old days, used to say that everything was about satisficing. Most of us don't get around to maximizing, that's too costly. Or we suffer from "bounded rationality" problems that cause us to give up early and say "done." That may be the case for the next few years, anyway. We'll keep the quality education coming as long as the students will show up every semester, we promise.

DREAM Act up for debate in Senate, tacked onto military bill

The DREAM Act, a way for young illegals immigrants to end up with amnesty, has just come to my attention in the last few weeks, but I hadn't had time to really study it.

Turns out that Senate Majority Leader Harry Reid has decided that it needs to be on the Senate's pre-midterm agenda ASAP.

There's a lot to read on it, but it looks like most of the language has been around since 2001 or before. When something's been around that long, does it get stale? When you have to tack it onto a military appropriations bill does it mean that it's suspicious?

How is this relevant to UHCL, you axe?

Looks like the path to citizenship is conditional on graduating from college. So if this passes, in addition to keeping students from graduating, or making them take classes over, because they don't do enough work in a class, faculty will now be blamed for having someone deported. Actually, I've heard that from graduate students for years.

Now it will be that way for even MORE students: "But Dr. Michael, I have to get an A in your class or my GPA will be too low for me to graduate, and I won't get my citizenship." I can hear it now. We ALREADY get "I'll lose my scholarship if I can't pass your class." Bah.

I think amnesty is still amnesty. I know it's unfair that these folks are here as children, but isn't it also unfair that thousands of people every year wait and wait to come here LEGALLY? How is it OK to let these folks jump over all of those already waiting?

Military service? That path has been available for many years, but just for certain groups. Again, jumping ahead.

HOW ABOUT we have 1:1 reciprocity? We should perfectly mirror the immigration laws of Mexico, here. Isn't that a basic requirement of all ethical treatment - do unto others as you would have them do unto you? Sounds biblical huh? Not really. Reciprocity is a basic tenet of justice. If it's good enough for you, it should be required for you to treat others that way.

In other words, you cut the pie and I pick which piece I want. That rule smacks of reciprocity.

CRA all over again? HMDA certainly. New reg requires data collection on gender, race (?) of small business borrowers.

Don't take MY word for it, but it looks like we're headed down the same road again. Now we're collecting "racial" and gender data on who applies for "small business" loans, whatever that means.

I guess we'll use the race designations from the census form [as with other Census links, this one may go away too]. What does "race" mean anyway?

Note that the NEXT part of this section requires that no underwriter or loan approval person have access to this information, or ANY personal information for that matter. Right. That's how it works. We don't want anybody to have any access to personal information that might help determine whether the bank will be paid back or not.

Straight from the final version of the Dodd-Frank Act (big PDF):

SEC. 1071. SMALL BUSINESS DATA COLLECTION.

(a) IN GENERAL.—The Equal Credit Opportunity Act (15 U.S.C.
1691 et seq.) is amended by inserting after section 704A the following:

‘‘SEC. 704B. SMALL BUSINESS LOAN DATA COLLECTION.

‘‘(a) PURPOSE.—The purpose of this section is to facilitate
enforcement of fair lending laws and enable communities, governmental
entities, and creditors to identify business and community
development needs and opportunities of women-owned, minority-owned,
and small businesses.

‘‘(b) INFORMATION GATHERING.—Subject to the requirements
of this section, in the case of any application to a financial institution
for credit for women-owned, minority-owned, or small business,
the financial institution shall—

‘‘(1) inquire whether the business is a women-owned,
minority-owned, or small business, without regard to whether
such application is received in person, by mail, by telephone,
by electronic mail or other form of electronic transmission,
or by any other means, and whether or not such application
is in response to a solicitation by the financial institution;
and

‘‘(2) maintain a record of the responses to such inquiry,
separate from the application and accompanying information.

That's all that matters, right? Incredibly, folks are again confusing social engineering with making bank loans. I've said for a few years now that SBA is the next debacle, and here we go.

We saw how SBA worked in the aftermath of Rita (in East Texas) and Katrina. There are trailers in East Texas with 3 and 4 businesses run out of them, for example. It's a big joke.

So now banks are faced with a huge reporting burden, yet again, and the mandate that this information goes nowhere except the government. We're in the Twilight Zone people.


A Personal Note:
I'm sorry, but collecting data on someone's race or gender (which is irrelevant to the lending process) borders on racism itself. What damned difference does it make what "race" you are, or what gender you are, when you ask for a loan?

Collecting information on race and gender is what got us to this point, isn't it?

As for collecting information: What difference does it make? you ask -Well, it's just another example of the institutionalization of race as some kind of divider of the peoples. Using race to divide us is just plain wrong, folks. Please tell your politicians that the next time you get a chance to vote.

The politics of division (rich/poor, race, intellect) have to stop.

NYT reporting that new Basel Agreement has been reached

Worldwide regulators have apparently come up with a new set of standards that reaffirms the OLD set of standards and strengthens them.

I'll look it over when I get a chance and update with some commentary.

Also, the Spring issue of McKinsey on Finance (Issue 35 is here as a PDF) had a good article on how the tangible common equity to risk-weighted assets ratio serves as a better predictor of distress than what regulators are already using. Interesting.

Kudlow calls for optimism

Kudlow at CNBC asks for a little optimism because people may be missing the big picture.

[I still think that the overarching problem here is uncertainty, all of the rest of this aside. But it helps to contemplate other perspectives.]

Cult Stocks from CNBC

Can anyone else remember Teddy Ruxpin? You know, the bear that TALKS? Really talks to you!

This article from CNBC is all about the business model. The company could have a tremendous product, but without the business acumen to back it up, they'll go broke. And sometimes that can crash the intellectual property, licensing, everything.

I've heard Apple described as a cult stock. Back in 1995 there's no doubt that it WAS a cult stock. But they've always seemed to pull it back from the edge.

Hard Rock Park is a good example of how NOT to do a theme park. Running out of money mid-stream isn't a good idea when all of the hard work (Hard Rock work!) has to be done up front.

Veggie Tales is another good example -- they couldn't scale and maintain their business model. Phil Vischer's discussion of his travails, online someplace and in his book, is a wonderful yet troubling read. The blog is definitely worth your time. It details the meltdown of Big Idea, the company behind Veggie Tales. I need to read the book sometime.

(For the record, I just never got the whole VT thing, so I'm not trying to sell it here - we have friends who swear by it, but I've never been able to watch a full episode. No disrespect if that's your thing. I'm convinced that Little Baby Jesus would probably laugh at Bugs Bunny too. Bubba and Sara watch Pixar and various Disney, no veggies)

Dr. Sunshine himself chimes in on recession

Dr. Nouriel Roubini, AKA Dr. Sunshine, weighs in on FDIC's announcement of the problem bank list.

[I refuse to let him take the name Dr. Doom -- that guy was in comic books, and doesn't look anything like Roubini.]

The good thing about saying stuff like this all the time is that if you do it enough nobody will pay attention to you until the Armageddon comes, and then you'll be right!

I agree with him on one point: it's going to have to get worse before it gets better, no kidding. Heck, there are still people in Washington who think that tax increases can help the economy. Really, I'm not kidding! They don't even know better than THAT.

More on Government, er, General Motors

Read that headline fast and you'll get at the core of what's happening with this brain trust.

Reuters has a story over the weekend that suggests taxpayers may actually lose money (ahem, MORE money) when the GM IPO happens. Whenever that is.

I thought it was interesting that nothing was going to happen before the election in November. No kidding? Maybe I have a future as a weatherman.

I've written about these guys before, but the gist that GM stole from bondholders and the taxpayer simultaneously to hand money to the UAW and its pension liabilities, in the process starting a NEW GM that has actually paid back US Treasury TARP monies from a slush fund made up from, you got it, US Treasury TARP monies.

So now the NEW GM is going to IPO.

The real question that Dr. Williams and I are asking is: what fiduciary in their right mind would buy anything from this NEW company? How can asset managers purchase this stuff, doesn't it violate the "prudent man" rule? Maybe if you discount the value of government largess and stimulus back to the present, exclusive contracts, etc. then I could see it being worth it.

Wesley Mouch would be proud.

UPDATE:

Article today that says the special IG for TARP reports that the IPO will have to be at least $134 per share for the US to be repaid. I haven't check the number here, so I don't know if that means the NEW GM will repay or EVERYTHING will repay. I bet it's just the NEW GM.

Venezuela, the Worker's Paradise, begins rationing food: Castro smiles.

The Chavez government introduced the "Good Life Card" in order to control shortages. It's being compared to Cuba's card system. What a great program to emulate!

Gotta love that snappy title: Good Life Card. Herr Goebbels would be proud. Papa Joe is laughing, and Chairman Mao wishes that HE'D have thought of that one. Propaganda just never gets old, does it?

Trouble is, this guy could get desperate. He could even start seizing businesses and nationalizing them.

Wait, that's already happened. I wonder how that's working out for them down there.

Next they'll be aligning themselves with lame-o washed up actors and kooks from Hollywood.

Wait, that's happened already too.

Man, these guys think of EVERYTHING.

I guess they forgot to think of the problem of INCENTIVES. Next time they hold a People's Revolution (coup d'etat, that is), someone had better think to bring some sandwiches and pop. They're gonna get mighty hungry, and hungry people can be made to do just about anything.

The History of the Crisis: NINJA Loans

Steven Pearlstein of The Washington Post had a great column about alternative loan types and how "No Money Down" stopped working. Check it out.

NYT article on Home Equity

From earlier last month, about the consequences of the current crisis.

Article on Chinese sat rendezvous, orbit denial in past

An article today details concerns about Chinese satellite tests and reminds us that China has a history of orbit denial by testing. If you destroy enough of your own satellites in a particular region of space, you see, you can make it extremely hazardous for anyone to put satellites there.

Hmm, didn't Sun Tzu talk about stuff like that?

I'm all for a Chinese space program. Welcome!

But we have to put things in their proper place -- creating a debris field in space is just like sowing land mines between North and South Korea. Denial of territory is the primary goal of international relations, right? I'm sure for every modern-thinking mind running China there are two or three of the old guys (or gals) that think in the same terms.

WV county pulls swing sets

Hey, what are they EXPECTED to do?

One county has found that just pulling the swing sets altogether is the only way to deal with the lawsuit babies. Kids fall down, kids do stupid stuff like "Superman" from swings.

Maybe they should reserve a big space on the playground where the swings USED TO BE and name it for the attorney that brought the lawsuit. Hey, it's not the KID'S fault that some attorney decided to sue, the kid was just being a kid.

Fed is now "super-regulator" for all "systemically important" institutions

Good summary on Bloomberg today of the new "systemic" provisions in the Dodd-Frank Act. Now the Federal Reserve has oversight of any institutions that it deems "systemically important".

I wonder if they'll start telling Freddie and Fannie what to do.

Dr. Robert Barro on unemployment extensions

Titled "The Folly of Subsidizing Unemployment". Wow. It's a quick read, and makes a great deal of sense with just a few numbers.

Is unemployment insurance prone to moral hazard? We know other types of insurance suffer from this problem.

The dissenting opinion is from Dr. Robert Reich (pronounced 'Rye-sh'). He makes good points too. I have a high regard for Dr. Reich, but he's been out of touch with reality so many times in the past that I don't take his economics seriously in most cases. Salon link here, the letters are priceless. Link to his Conan O'Brien video here.

Seems like Larry Summers is struggling with this too. Thank goodness he's getting more sleep these days.

This stuff is heating up the airwaves, folks.

(For the record, John Boehner (Repub leader in Congress) is usually a tool, in my humble opinion. He's mentioned in the first line. Meh.)

From a political standpoint, this is perfect! Throw it back at them! Does it make economic sense to limit unemployment benefits? Probably. Do people NEED it to go back to school and retrain and stuff? Sure. It's a tough question, just like welfare reform. But we can't argue, much, about the moral hazard issue, it's going to always be there.

Surprise! Bailed out banks spend money on lobbying!!!

As I say in class all the time, regulation is as much about politics, usually, as economic principles. Here's a great example.

Turns out that banks have lobbyists, and they STILL hire lobbyists once they have been bailed out.

Weird huh?

Columnist suspended for showing how the journalistas run in herds

A sports columnist tweeted that Roethlisberger was going to get a 5-game suspension, and now he's been suspended by The Washington Post. He claimed he was trying to demonstrate how the media these days will run pretty much any rumor they hear.

I'm with the guy -- he made a bunch of jughead sportswriter-types look like, well, jughead sportswriter-types. Journalists these days seem to lack any kind of research ability and any sort of writing ability, although there are rare exceptions. But being a sportswriter for so long must mean that you've got some extra special talent. I mean, this guy actually ENTERTAINED people who read about sports. Go figure.

Thankfully, with so many of them out of work, maybe the decent, talented ones will find something more productive to do with their time. We can only hope that it works out for them.

Who is John Galt?

829 banks on troubled list, says FDIC

Certainly the number of "problem" banks is on the rise, but far more telling is the pattern of where the banks have failed. The graphic that goes along with the CNN page here leads to three lists, of failed banks in '10, '09 and '08.

I'm not sure what "problem" means here either, and I don't think it's supposed to be obvious.

I need to do some numbers using the actual lists, and if I find a source for those (outside of CNN) I'll post a link. Might be nice to sort this based on size and state and see if any patterns emerge. I also need to look more closely at that KBW Bank Index, although it looks pretty volatile. Hard to see how banks can be that volatile -- most small bank stocks don't really trade.

I bet a lot of those little tiny banks, especially in 09 and 10, were hammered by write-downs of Freddie and Fannie assets. Just a hunch.

The failed bank list at FDIC itself is here. It does not have all of the info that the CNN page does, but it has links to each bank.

While you're there, take a look at the page for jobs and in particular, stimulus jobs. I think it's dated 10/30/09 -- back a while ago. Plus, how do we measure "created or saved" ? What does that mean, anyway? Are those government jobs? If so, that would explain how Cali got so many I guess.

I'm troubled by the bank numbers, to be sure, but almost as troubling is the last graphic.

UPDATE
I'm linking a video from newsy.com on FDIC numbers and market self-corrections. It's here, check it out. It's a nice summary of what's out there about this. Thanks to Kate Kerans at Newsy.com for sending me a link.

National Center for Policy Analysis

Got an email today from the NCPA, linking to their site on health care reform. There are links here for two different educational pamphlets on the health care provisions that go into effect over the next three years.

Pay provisions of Dodd-Frank bill another jobs program for accountants, lawyers

Posted here so we can remember!

An FT article today about how the CEO pay structure mandates in the new financial reform bill will turn into a compliance nightmare.

Sounds like SarBox 2.0, doesn't it?

Best part is where someone says that it's all about politics. Yep, you heard it here first!

Looks like the executive pay thing is going to heat up again. Class warfare has many fronts, I guess.

Public sector and private sector pensions, big difference

WSJ has a good piece by the Governator on the relative growth of public and private unemployment in California. It kind of explains why the whole country is in big trouble unless it can rein in pensions for public employees and reduce the per capita costs of government.

Regulatory Risk Example: Ban of Lead Bullets Coming?

In the banking class we're always talking about the risk of regulators changing their mind on a whim. A classic example is the debate over ammunition "marking," materials for ammunition, and now, banning lead bullets.

All of this has been discussed before, and it will be discussed again. But I'd imagine that there are plenty of politicians who don't want to see this discussed just right now.

Of course, the NRA has come out against this, afraid that it will be a "camel's nose" situation.

AS OF 8/30:
Looks like the EPA is backing off on this. Since it's been on the table now for about 25 years or so, it's probably a matter of time before it gets tacked onto a jobs bill or something.

Fed hedges on release of info

The Federal Reserve is still trying to keep from releasing all of its lending documents, even though a Federal court has ruled that it should.

Bloomberg has a story here today. I'm glad they credit the late Mark Pittman with having the lead on this.

Holy Cow! Barney Frank says abolish Freddie and Fannie

From Friday on CNBC:

Holy Cow!!!!! Barney Frank is NOW saying that we should get rid of Freddie and Fannie ASAP.

And he admits that the whole subprime housing thing was a crappy experiment.

In other news: white is black, good is bad, etc.

To quote:

And he went on to say that “it was a great mistake to push lower-income people into housing they couldn’t afford and couldn’t really handle once they had it.” He then added, “I had been too sanguine about Fannie and Freddie.”

When I asked Frank about a long-term phase-out plan that would shrink Fannie and Freddie portfolios and mortgage-purchase limits, and merge the agencies into the Federal Housing Administration (FHA) for a separate low-income program that would get government out of middle-income housing subsidies, he replied: “Larry, that, I think, is exactly what we should be doing.”

Yeah, yah think?

See what's happening here? Fannie and Freddie are going away whether Barney Frank has anything ELSE to do with it or not, and he's covering his butt. Making it look like HIS idea. Incredible. This is WORLD CLASS CYA, like at an Olympic level.

This guy is the [smishhhhh]Michael Phelps[smisshhhhh] of political revisionism. Pass the chips.

Again, he thinks we are a bunch of morons out here. Isn't that obvious by now. He knows WHAT, we know NAUGHT.

For the folks following along at home:

Fannie and Freddie worked just great until FHA and HUD and Congress decided to use them as their own personal piggy bank, starting in the early 90s. Maybe 1991 was a banner year for that. Subsequent administrations have dogpiled on these two until they control 90+ percent of the home mortgages in this country.

Uh, they WILL BE going away. Barney Frank will have nearly nothing to do with it. They account for upwards of $15 Trillion in some estimates, and some of that is really insolvent. Unlike the 80s crisis, a great deal of the underlying real estate in this case is tremendously overleveraged, and so defaults on those homes cannot be recouped from selling the property. In Cali there are hundreds of developments that are virtually vacant, and near nothing; same in AZ. Fannie & Freddie pumped bucks into housing markets and neighborhoods that should never have existed otherwise, so how you sell those is beyond me.

These guys are priceless. This is almost as good as Chris Dodd getting sweetheart mortgages.

UPDATE: Barney Frank rips into Fannie on foreclosures, 9/24/10.

I just doesn't get any better than this! Comedy that writes itself.

Art Of Noise - Paranoimia (12"mix)

Thoughtful piece from Weekly Standard

It's the ideology, stupid.

Housing Riots: Why would we expect anything different?

A note from the Atlanta Urinal-Constip... er, Journal-Constitution about a "riot" at a housing voucher giveaway.

Why should we expect any different? Here allocation was by standing in line. Not by need (very flawed, but better than queue-standing). Not by who had the highest grades (error-prone, with grade inflation), or made the most effort (also flawed).

"People began lining up at the shopping center two days ago, and by Wednesday morning the crowd had grown to over several thousand people."

"The Housing Choice Voucher Program, called Section 8, subsidized the rents of low-income families living in apartments and houses that are privately owned. The federal program makes up the difference in rent that the poor can afford and the fair market value for each area.

The federal government has specific standards for its subsidized properties but at the same time landlords are assured an income.

Only families with incomes no more than half the median income for the area qualify. The median income for the East Point area is less than $32,000, according to Census data. It is up to the renter to find a place that meets HUD standards, which includes being 90 percent to 110 percent of the “local fair market rent.”

But in Hotlanta, if you're willing to stand in line (and have nothing better to do with your time) you can get this special coupon that discounts your already discounted public assistance rent. If you're out looking for a job, or a better job, or taking care of your kids, etc. you don't have time to get the discount. Wonderful.

[Sounds like some landlord welfare is going on here. How cosy! Hey, how can the rest of us get in on the game? After all, we're the ones paying the bills around here.]

In Somalia, food allocation is done by who has the guns. Same with plenty of other places in Asia and Africa.

Whenever I hear the term "Third World" I laugh. Poverty is among other things a mentality, a deficit of spirit. In this country we have some who choose to stay in that place, and some who don't. In fact, lots of immigrants, legal or otherwise, come here and succeed all the time. Over & above those who were here by birthright. Strange? No, not strange at all -- if we continue to give people things, they eventually forget how to do it themselves. And come to expect it. And riot and complain when they don't get it. Same with education, food stamps and lots of other things.

It's a moral hazard problem. Just like subprime lending and HUD home loans. It doesn't HAVE to be, but that's how it ends up.

People will do what they have incentives to do. They will not do what they have no incentives to do. How hard is that to understand, folks? To paraphrase Larry Summers: People never wash rented cars.

Fall semester approaches, new options for MBA/MS students

Greetings!

I hope folks are getting ready for classes in the fall. As soon as I finish the summer classes I'll put the finishing touches on syllabi and junk.

Sometimes it's tough to fit everything into a semester. If you've had trouble scheduling enough classes, please note that this semester, for the first time, MBA/MS students can enroll in my Contemporary Financial Institutions class. Either online or face-to-face (Wednesday night). I can promise that it will be worth your time: we'll cover the financial crisis, the history of banks and regulation, risk management, and bank lending. It's a lot of reading, but I think most students enjoy it.

We're also offering more online sections than ever before, which may be more convenient for some people. One caveat, though: online classes at UHCL aren't "easy" just because they're online. For some folks, working alone with prepared materials is a better way of doing it, but most of us enjoy the interactive nature of face-to-face courses. Whatever your definition of "easy," our online courses generally aren't. So weigh the tradeoffs before jumping feet first into an online semester.

If you have questions about particular classes or course loads, prerequisites, or anything, you can always contact the specific faculty or the advising office. That's why we're here!

Feds reconsider the goal of home ownership (25 years too late)

Uh, it's not the GOAL OF HOME OWNERSHIP that's the problem. It's the push to give EVERYONE a house, even those who can't afford them.

USA Today has a story about how policymakers are having a conference Tuesday to reconsider the role of home ownership and what to do about Freddie and Fannie.

I'm going to bet that they do NOTHING before the midterm elections. Call me cynical.

"We have committed to having a proposal in place by early next year," says Federal Housing Administration Commissioner David Stevens. "This is not about delaying. This is about being thoughtful."

Bwaaaaaahahahaha. Whatever you say man.

Again, it isn't Freddie and Fannie that didn't work. They worked GREAT before Congress decided to use them for social engineering. Or, as some have termed it, socialism. Those two orgs were Congress' own little slush fund there for a couple of decades. Oops.

Some really cynical folks have posited that some politicians on the Left actually set out to undermine the whole home ownership system in the first place because that would force the middle class to recognize the plight of the "less fortunate." There's plenty of evidence there, I can't say I disagree with all of it. Washington often lives in a fantasy land of its very own. If they see a pot of money, they think nothing of redistributing it, or pushing a healthy process to the point of breaking in the name of populism.

"Dr. Marx, white courtesy phone. Paging Dr. Marx."

Rand called this the looting mentality. Maybe it's just that simple. Those folks in DC can't create, but they sure can try to hand out favors.

I don't want to be paranoid here, but we're getting to the point where even my healthy skepticism of conspiracy theories is getting pushed to the limit. Some of these guys in DC, Barney Frank chief among them, have no clue how the world works, and they're willing to do anything in the name of govmint and the peepul. Scaaary.

Still Standing, a soldier's story

I heard Chris Baker's interview with John Kriesel this morning, and found it very inspirational. Kriesel lost both legs and two close friends when a bomb went off in Iraq a few years ago. I haven't read the book yet, but I'm sure there's lots to learn there.

Sgt. Kriesel's attitude is most impressive. He's devoted himself to living his life according to the second chance given him by the help of others and living the life that his lost friends cannot. Admirable in this day and age. He spoke of the sacrifice that folks at his wife's company here in Houston, Crane Worldwide, made so that she could be by his side for 8-9 months of recovery. Just amazing effort by the people of this company, and the military people that helped him get well.

These days we need all the inspiration we can get. This guy's story, and the story of the life that he's learned to live, is a wonderful way to remember why we keep getting up and going every day.

Latest on flood insurance

I hate to link to the Houston Chronicle, but they had a story yesterday about the pending flood insurance refunding due in September.

Flood insurance is in the red, perpetually, because it isn't insurance, it's a wealth transfer program. As it mentions in the article (citing the Cato Institute) flood insurance encourages people to live in the wrong places.

What we need to worry about, I think, is that somebody decides that EVERYONE needs to buy flood insurance, even those folks not in flood zones. That's the only way a non-insurance insurance scheme works, that is, to explicitly tax those NOT in flood zones to pay for those actually IN flood zones.

Wouldn't that be a MANDATE?

Hey, works with car insurance.

Texas vs. EPA, Round 1

This article is from back in May, but it does a good job of filling in the timeline on the EPA situation. More has happened since then, and as people send in links I'll post them.

Some very cynical people have wondered whether Texas is paying a price for being a red state in a blue-state administration. One would have to be very cynical indeed to take that view.

Anchor babies 101

Just as the anchor baby debate is heating up locally, we get some stats from Parkland hospital in Dallas, the state recordholder for births to citizens of foreign states.

11,000 plus per year. And counting.

Taxes for environmental purposes, says the UN

A UN body has decided that we'll have to have new taxes in order to account for necessary environmental regulations and changes. Just more to suggest that the whole thing is a big wealth-transfer machine.