Surly Curmudgeon

   The human race divides politically into those who want people to be controlled and those who have no such desire. The former are idealists acting from highest motives for the greatest good of the greatest number. The latter are surly curmudgeons, suspicious and lacking in altruism. But they are more comfortable neighbors than the other sort.
-- Robert A. Heinlein
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    Tuesday, September 30, 2008

    You can't make this stuff up

    I ran across an article attempting to summarize the whole bailout bill, and this part caught my eye:

    Section 101. Purchases of Troubled Assets.
    Authorizes the Secretary to establish a Troubled Asset Relief Program ("TARP") to purchase troubled assets from financial institutions.

    So the government's solution to problems in credit markets is to cover them with a tarp? I'm confused, do they think they're running a nation, or a machine shop?

    Posted by Tom, 9/30/2008 8:32:03 PM (Permalink). 0 Comments. Leave a comment...

    The Fannie/Freddie Mess

    As previously mentioned, the Democrats seem to have a lot to answer for in the whole mortgage mess. Whether they're ever called on the carpet is of course another question entirely. But this video shows just how ideologically blind they were to the problems at Fannie Mae and Freddie Mac. It takes place during a hearing in 2004 where a regulator from the Office of Federal Housing Enterprise Oversight reports that the books at Fannie and Freddie are not being kept correctly.

    Note the indignation on the part of the Democrats in the hearing, as they bristle at the mere suggestion that anything could be amiss. Note how Maxine Waters turns it all around and says it's the regulator's fault that the books are crooked. It's truly bizarre, but it leaves little doubt in my mind that when it comes to business matters, the Democrats are either crooked or incompetent or both.

    There's so many punchlines, I can't decide which one I like the best, but one of my favorites is Franklin Raines saying that houses are "riskless" investments. Mr. Raines, I have some oceanfront property in Arizona I'd like to sell you...

    Posted by Tom, 9/30/2008 7:59:13 AM (Permalink). 1 Comment. Leave a comment...

    Monday, September 29, 2008

    Bailout FAILS!!!

    The bailout bill has failed to pass the House of Representatives!

    The roll call for the bailout bill has been posted at the US House's website. Read it and weep... or cheer, if your representative was one of the good guys. Also, take time to note the ridiculous title of the bill to which the bailout was attached. Where do they come up with this stuff?

    Tom Cole has lost my vote for this election, and probably all future elections.

    What happens next will probably be ugly, but assuming Congress leaves the bill un-passed, the markets will move to correct the misallocation of resources far faster than government ever could. In fact, just in the past week, various banks have been getting bought up by other players in the financial markets, their good assets being separated from the bad, and those who've made bad business decisions are being taken out of the market. It's a process of creative destruction that puts things back in order, and it is absolutely necessary for the health of the economy:

    Hundreds and hundreds of billions of dollars are on the move, sweeping all before them. And yet take note: it is not war accomplishing this. It is not violence. It is not the result of a planning committee. No election is necessary. No terrorist act took place. There was no government edict.


    No one person is in charge. Layers upon layers of decisions by millions and billions of people are the essential mechanism that makes the process move forward. All these decisions and choices and guesses come to be aggregated in a single number called the price, and that price can then be used in that simple calculation that indicates success or failure. Every instant of time all around the world that calculation is made, and it results in shifts and movement and progress.

    But as wonderful as the daily shifts and movements are, what really inspires are the massive acts of creative destruction such as when old-line firms like Lehman and Merrill melt before our eyes, their good assets transferred to more competent hands and their bad liabilities banished from the face of the earth.

    More of this will happen, and it will probably happen swiftly. The less government gets in the way of the change, the quicker it will be over, with assets reallocated to their best uses according to the dictates of the market. The more government tries to stop the change from happening, the longer it will last, as it did with the Great Depression. I can only hope that the opposition to government "doing something" continues.

    Posted by Tom, 9/29/2008 5:31:48 PM (Permalink). 0 Comments. Leave a comment...

    Conspiracy to Commit Fraud

    That's what this thing boils down to. I love the language in this article:

    Congressional negotiators in both parties, as well as the White House, want a bipartisan vote to send a soothing message to the markets and to ensure that neither party is disproportionately punished by frustrated voters.

    In other words, they know the voters hate it, they want to vote for it anyway, and they've given up all pretense of actually representing anyone's desires but their own. There have been no talks of cutting $700 billion dollars in spending to offset this cost, and they want just enough of each party to vote for it to make it look "bipartisan" so that neither party looks like it will have to take the blame.

    At least a couple more heroes are coming out of it:

    "My vote will not be 'no,' but 'hell, no,' " said Representative Dennis Kucinich, Democrat of Ohio.


    Representative Walter Jones, Republican of North Carolina, said his office had been deluged with calls on the bailout, and that he took more than 40 of the calls himself. None, he said, was in favor of the package. "You can't do this to the American people - it's unfair," Jones said, adding that he had decided to vote against the plan. "I'm at peace with my God," he said.

    Watching individual votes? Oh yes, I'll be doing that.

    Posted by Tom, 9/29/2008 4:42:00 AM (Permalink). 1 Comment. Leave a comment...

    Sunday, September 28, 2008

    Working out while sick


    My brain explodes with the sound of my heartbeat as I head into my third work set.


    A little nagging voice in my head reminds me of my failure on the first two sets, and how difficult the warmup set turned out to be.


    The little voice goes on to say that I'm still not over my sinus infection, and am probably not getting optimal levels of oxygen as a result.


    "In fact," it says smugly, "not only would no one blame you for packing it in today, they'd probably say it's the smart thing to do."


    I got the infection on Tuesday, after mowing the lawn and suffering an allergy attack.


    I often imagine, whether scientifically sound or not, that my hyperactive immune system protects me from common bugs. I just think it feels the need to occasionally let one by to keep me humble.


    Or maybe it just gets distracted, like a bouncer ogling random hotties while ugly toads slip under the velvet rope.


    Sometimes when my breathing is constricted like this, I think of my Gramps and his oxygen tank. I wonder if someday, merely out of the accident of having allergies, I'll wind up in his position, barely able to climb half a dozen steps without getting severely winded.


    I take a rest-pause, to clear the spots from my vision. I reflect that someday, I'll begin a slide into physical deterioration from which I'll never recover.


    But not today.

    Posted by Tom, 9/28/2008 9:23:16 AM (Permalink). 0 Comments. Leave a comment...

    And of course, they're going ahead with it

    Verbal agreements have now been made on the bailouts. They're not even trying to pretend it won't be inflationary:

    “The rescue effort we’re negotiating is not aimed at Wall Street; it is aimed at your street,” Mr. Bush said in his weekly radio address. “There is now widespread agreement on the major principles. We must free up the flow of credit to consumers and businesses by reducing the risk posed by troubled assets.”

    Obviously, credit is a good thing. Nobody's ever gotten themselves into trouble with credit. There aren't any radio or TV shows helping people deal with credit problems. Saving? That's for losers and old people.

    The ironic thing is that saving is the core of the problem. The only way to borrow money is to find someone else who has saved some and convince them to part with some of it on a temporary basis. Economy-wide, there must be by definition more saving than lending. What we've got here is an attempt to push lending beyond that limit, propping the whole thing up with smoke and mirrors, in an attempt to keep from experiencing a reallocation of resources. This can only be done with fiat money and fractional reserve banking, which give the appearance that there is more saved than actually exists. What's being fought for, in the greater economy, is the real goods whose existence is suggested by this fake money, but which do not actually exist. I'll post something more about that in the near future.

    Back to the topic at hand. The public wants none of this bailout business, as previously mentioned. But of course, to try and salvage public opinion, the powers that be are bringing out the scarecrows:

    In a brief speech on the Senate floor, Senator Kent Conrad, Democrat of North Dakota, said: “It’s not just going to be Wall Street. The chairman of the Federal Reserve has told us if the credit lockup continues, three million to four million Americans will lose their jobs in the next six months.”

    What he doesn't mention is that by continuing to teach lenders and borrowers that it's OK to give money to people who can't afford to pay it back, because Uncle Sucker will bail them out, you can expect this number to double or triple when the chickens come home to roost.

    It gets even worse: in another article it talks about bailing out homeowners going into foreclosure and bankruptcy:

    A proposal that would allow judges to modify mortgage terms for struggling borrowers in bankruptcy proceedings wasn't included, said Dodd, a Connecticut Democrat. "We pushed very hard'' for the bankruptcy provision, "but we feel we got good foreclosure mitigation language in there,'' Dodd said.

    How does this help? Foreclosure and bankruptcy are signals to the individuals involved that they screwed up in a bad way. "Rescuing" them from it will set them up to do it all over again. These are most likely to be the people who bought too big a house at too high a price in a neighborhood where the real estate bubble was hitting full-force. The widespread "stabilization" and expansion of credit will only make these problems worse.

    There are a few heroes in this:

    Some lawmakers have made clear that they will not vote for the bailout plan under virtually any terms. “I didn’t want to be in the negotiations because I object to the basic principles of this,” said Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee, who would normally be his party’s point man.

    Pressed about his role, Mr. Shelby replied, “My position is ‘No.’ ”

    Somebody in Alabama needs to make sure he gets re-elected. For my part, I'll be telling my Congresscritters that my vote this November is dependent upon them voting against the bailout. I hope a lot of people elsewhere do the same.

    Posted by Tom, 9/28/2008 4:54:39 AM (Permalink). 2 Comments. Leave a comment...

    Friday, September 26, 2008

    Bailout Woes

    I find myself barely daring to hope that Congress will fail to pass the bailout bill. The latest news coming from Washington is that the nation's taxpayers are severely ticked off that the idea is even being considered, and partisan bickering is killing any consensus on the plan.

    Some are saying that the bailout plan is causing unheard-of levels of contact from constituents:

    Senator Sherrod Brown, Democrat of Ohio, said he had been getting 2,000 e-mail messages and telephone calls a day, roughly 95 percent opposed. When Senator Bernard Sanders, the Vermont independent who votes with Democrats, posted a petition on his Web site asking Mr. Paulson to require that taxpayers receive an equity stake in the bailed-out companies, more than 20,000 people signed.

    “We certainly have never brought in 20,000 names in a day and a half,” Mr. Sanders said, sounding astonished. “For us, that’s off the wall.”

    It is much the same on the Republican side. Aides to Senator Jim Bunning, a Kentucky Republican who has called the bailout plan “un-American,” said the senator had received more constituent reaction to the bailout plan than to any issue since the immigration debate.

    Sad, isn't it, that Congressional leaders like Democrat Harry Reid of Nevada are planning to ride right over the concerns of the taxpayers and pass it anyway? What happened to the party of opposition? What happened to the party of the people? What happened to all these noble ideals and speeches about opposing Bush's power grabs, that gave people like him control over the Congress?

    The fact of the matter is that the Republicans and Democrats are nothing more than incestuous siblings vying for the same toy. The Democrats believe Obama will be president, and Reid is eager to place all this power in his hands. Neither party opposes powermongering because it's the right thing to do; they only oppose it when it looks like the other side will have the power for longer than they'd like.

    Posted by Tom, 9/26/2008 5:33:47 PM (Permalink). 2 Comments. Leave a comment...

    Economists on the Bailout

    Well, the armchair economist (me) has had his say. Here's a real economist talking about the bailout plan:

    Here's some others, as interviewed by Reason.

    Posted by Tom, 9/26/2008 7:42:03 AM (Permalink). 0 Comments. Leave a comment...

    Thursday, September 25, 2008


    Know what would really shore up confidence in the administration? Knowing that they are in full possession of all the facts, and are making sound, logical, rational decisions about the current crisis, and not just shooting from the hip. Let's turn to Forbes and see what's being said:

    In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

    "It's not based on any particular data point," a Treasury spokeswoman told Tuesday. "We just wanted to choose a really large number."

    I feel better already. Don't you?

    (hat tip, Reason)

    Posted by Tom, 9/25/2008 7:26:37 AM (Permalink). 0 Comments. Leave a comment...

    Monday, September 22, 2008

    Nice one

    Lest anyone think that I think Barack Obama's all bad... I did find this article today, where he pledges to apply P.J. O'Rourke's circumcision precept ("you can take 10% off the top of anything") to a small slice of government spending:

    Democratic presidential nominee Barack Obama moved to claim the mantle of fiscal responsibility in a roiling economy, vowing on Monday to slash federal spending on contractors by 10 percent and saving $40 billion.

    40 billion ain't much in the grand scheme of things -- more of a token gesture, really -- but I like his direction. His later jabs at McCain ring sort of hollow to me, since McCain has done his share of tilting at the "special interest" windmills. We're still suffering First Amendment curtailment as a result of McCain-Feingold Campaign Finance Reform, after all.

    Obama goes on...

    "I am not a Democrat who believes that we can or should defend every government program just because it's there," Obama said at a rally in Green Bay. "We will fire government managers who aren't getting results, we will cut funding for programs that are wasting your money and we will use technology and lessons from the private sector to improve efficiency across every level of government."

    "The only way we can do all this without leaving our children with an even larger debt is if Washington starts taking responsibility for every dime that it spends," he said.

    Wow... a requirement that programs and regulations actually deliver on the promises of the congresscritters who brought them into being? Be still my beating heart...

    There is a part of me that wants to believe Obama is a certain kind of man/Democrat -- the kind that sees a more limited role for government in the running of things (yes, they do exist, but they're rare as hen's teeth). Unfortunately, for every speech like this that suggests he is, there's another fifty that state rather emphatically that he isn't. His latest barking about the mortgage crisis, which I now know he helped create, is one such example.

    It also might be prudent to take a moment and reflect on whether a more efficient government is actually a good thing. I'm personally of the mind that the less government does, the better. Efficiency might actually make it do more, and that's a scary thought.

    Posted by Tom, 9/22/2008 6:12:19 PM (Permalink). 2 Comments. Leave a comment...

    Holy Crap...

    This one just about knocked me out:

    A visibly annoyed House Speaker Nancy Pelosi rejected suggestions that Democrats share blame for the meltdown. "No," she snapped at reporters who dared ask.

    Stick to our narrative, she scolded: The bursting of the housing bubble was another story of market failure and deregulation.

    "The American people are not protected from the risk-taking and the greed of these financial institutions," she said, while calling for investigations of the industry.

    Only, the risk-taking was her idea — and the idea of all the other Democrats, along with a handful of Republicans, who over the past 30 years have demonized lenders as racist and passed regulation after regulation pressuring them to make more loans to unqualified borrowers in the name of diversity.

    They were the ones who screamed — "REDLINING!" — and sent banks scurrying for cover in low-income neighborhoods, where they have been forced to lower long-held industry standards for judging creditworthiness to make the subprime loans.

    If they don't comply, they are threatened with stiff penalties under the Community Reinvestment Act, or CRA, a law that forces banks to make home loans to people with poor credit risks.


    The more branches that lenders put in poor neighborhoods, and the more loans they make there, the better their rating. Those lenders with low ratings can not only be fined, but also blocked from mergers and other business transactions needed to expand.

    And now the punchline:

    The revisions also allowed for the first time the securitization of CRA-regulated loans containing subprime mortgages. The changes came as radical "housing rights" groups led by ACORN lobbied for such loans. ACORN at the time was represented by a young public-interest lawyer in Chicago by the name of Barack Obama.

    So on the one hand, we got John "Keating Five" McCain, and on the other hand we have Barack "Mortgage Crisis" Obama. Bob Barr is looking better every minute. Hope he makes it on the ballot here.

    Want to know the funniest part? I remember this stuff. Sometime in the late 1990's, my wife and I started exploring for the first time the possibility of buying a house. And I clearly remember, speaking with the mortgage broker, being mighty pissed off when we were basically told that we either made too much money or didn't have the right color skin to get into one of the "fast track" lending programs. Of course, it wasn't stated so bluntly -- it was couched in politically correct phraseology like "minority incentives" and "low-income assistance", but I had already learned to speak hogwash, so I read between the lines.

    As it turns out, they did us a favor by not approving us, though it didn't feel like it at the time.

    Posted by Tom, 9/22/2008 5:33:42 PM (Permalink). 0 Comments. Leave a comment...

    The other narrative

    The popular narrative for today's mortgage crisis is that "greedy, amoral capitalist dogs" went out and sought less-than-creditworthy folks in hopes of jacking up their bottom lines, selling off the mortgages and realizing a profit while letting America's financial foundation take the hit for them. It's a nice story, and it tugs at the heartstrings of anyone who ever watched cartoons where the mustachioed villain ties the helpless maiden to the railroad tracks for some purpose or another. Sage editorialists from all over are telling us that this is indeed the correct narrative, but we're just going to have to take it on the chin for the good ol' USA:

    Americans are very angry about the proposed bailout of the banking sector and Wall Street...and with good reason.

    There should be outrage. We should all be disgusted that the government was forced into this situation. I'm infuriated that it came to this.

    Of course, we should cap executive pay, which was obscene at many financial firms, immediately. And we should make sure that the CEOs, CFOs and other big wigs that drove their companies into near ruin with overleveraged bets on risky mortgages should not get big severance packages.

    But there is another narrative, one that is very carefully being kept out of the mainstream press. It's the narrative about a Democratic President and his willing Republican congressional accomplices, and how they set the country up for this fall. It's the narrative about a Republican President and his willing Democrat congressional accomplices, who propose to make taxpayers pick up the tab. It's the narrative about how our government is getting let off the hook for orchestrating this entire mess.

    Check out this self-congratulatory article from the LA Times, May 31, 1999:

    All of this suggests that Clinton’s efforts to increase minority access to loans and capital also have spurred this decade’s gains. Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. The bottom line: Between 1993 and 1997, home loans grew by 72% to blacks and by 45% to Latinos, far faster than the total growth rate.

    Hey, this is one of those deals where the "liberals" tell us that equality of results is the only valid measure of equality of opportunity. "Fair" is only fair when everybody comes out equal, right? Wonder how that turns out...

    Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more.

    In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. It has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected.

    Yay Clinton! Get those greedy, amoral capitalist dogs to make more loans to less-than-creditworthy customers! What's the worst that can happen?

    Oh, and here's the kicker:

    The top priority may be to ask more of Fannie Mae and Freddie Mac. The two companies are now required to devote 42% of their portfolios to loans for low- and moderate-income borrowers; HUD, which has the authority to set the targets, is poised to propose an increase this summer. Although Fannie Mae actually has exceeded its target since 1994, it is resisting any hike. It argues that a higher target would only produce more loan defaults by pressuring banks to accept unsafe borrowers. HUD says Fannie Mae is resisting more low-income loans because they are less profitable.

    Well, I for one sure am glad that they gave those bastards at Fannie Mae the what-for. Geegollywhillikers, we might have had a financial crisis on our hands if those "underserved" communities hadn't been extended shaky mortgages for "unusually high percentages" of buyers' incomes.

    And of course the LA Times goes on to "wisely" note that while there will come a time, as banks are traveling down the risk/return curve, when some sort of theoretical limit is reached. But, they say, surely it hasn't happened yet.

    10 years later, I'm here to tell ya: it was reached, and then some. Thanks for nothin'.

    The thing that really gets my goat here is that the private sector is damned if they do, damned if they don't. Follow stringent lending practices that ensures the viability of loans, and you get excoriated as being a greedy capitalist when it's discovered that some group doesn't have decent enough credit. Loosen up your lending practices and follow the urging of these folks, and when the poo hits the flinger, you get to take the blame for "predatory lending". Nowhere in all this does the government share in any of the blame. James Bovard was right when he complained about the Immaculate State. These bastards in government get away clean from all manner of malfeasance, and this is only the most egregious example.

    Posted by Tom, 9/22/2008 7:43:06 AM (Permalink). 1 Comment. Leave a comment...

    Saturday, September 20, 2008

    This is insane-making

    Bush says U.S. financial rescue needed to prevent worse

    The truth is, more intervention just makes the bubble bigger. As I noted earlier, lenders and mortgage buyers will not learn their lesson if they are bailed out. They don't know another business model, and if this one is allowed to succeed in spite of the market's insistence that it should fail, the problems can only get bigger.

    Failure to approve a big rescue package would put "hundreds of billions of dollars at risk." Bush said.

    Those dollars are already at risk. Bailing them out will not remove the risk, only compound it. It's like lending your loser brother-in-law a few thousand dollars to get his business off the ground, then having him come back a month later asking for more money because the first bit just didn't work out. Never mind that he blew it on hookers and blow, the fact is that your first loan is as good as gone. But now Bush wants you to dig into your checkbook and loan him some more. What does this teach him? Any time he's in trouble, come to you. Pay attention, because I'm betting that within the next few years, you will see this material again.

    "In the long term, Americans can have reason to be confident in our economic strength," Bush said.

    "And as we've seen repeatedly over the past eight years, we have a flexible and resilient system that absorbs challenges, makes corrections, and bounces back."

    You can abuse a tire a lot of times, and it will keep bouncing back, until it doesn't. The question is, do you wait until you have a blowout to change it, or do you watch for signs that it's time to try a new tire? Government intervention in the financial markets has been the way of things in America for 150 years or so, and it's already given us one Great Depression. Much as I hate to be the Negative Nelly, we're headed for another one unless we change the way government interacts with the economy. Bailouts should be the first thing on the chopping block, followed by "government sponsored enterprises".

    But that's just one crazy redneck in Oklahoma's opinion, I guess.

    Posted by Tom, 9/20/2008 9:49:20 AM (Permalink). 2 Comments. Leave a comment...

    Friday, September 19, 2008

    The libertarian case for...

    Reason Online has articles making the "libertarian case" for the two major candidates. Keep in mind there isn't much of a libertarian case for either of them, but the writers did their best with the limited source material they've been given.

    The Libertarian Case for McCain
    The Libertarian Case for Obama

    Neither article is a clincher, but there they are for what it's worth.

    Posted by Tom, 9/19/2008 5:30:50 PM (Permalink). 0 Comments. Leave a comment...

    Understanding the Housing Crisis

    I've been trying to wrap my brain around this whole Fannie Mae et al problem. I'm at best an armchair economist, so I don't know if all this is correct, but this is my best understanding of the problem.

    Henry the Homebuyer wants to buy a house, let's say for $100k. So he goes to Bart the Banker and asks for a loan. Bart loans Henry the money to buy the house, in essence buying the house for him, with the agreement that Henry will pay him back, plus interest, over the next 30 years. Bart's risk in this venture is that Henry will not pay back the loan, so Bart takes extra care to make sure that Henry is a stand-up guy who will keep his word.

    Even so, Bart decides he's not really interested in servicing Henry's loan payments for the next 30 years, so he sells the mortgage to Morty the Mortgage Guy. They figure up how much the loan is worth in total payments, apply a discount, and Morty pays Bart that figure. If Henry's loan is 100k at 5% over 30 years, the total of his payments will be around $450,000. But since it'll take 30 years to collect, Morty might only pay $150,000 (or less, or more, I'm not in the business and don't know) for the loan.

    This is a lot like those services you see advertised on TV where they'll pay you a lump sum for your annuity, or how lottery winners can either get $200 million over 20 years, or $50 million in a lump sum. The same basic principle applies: the purchaser is paying the seller for the seller's time preference -- wanting the money now as opposed to later.

    Here's where it gets screwy: Morty turns the mortgage into a "mortgage-backed security", and sells it someone else. I'm not real clear on the difference between a mortgage and a mortgage-backed security, except that the MBS seems to be sort of like a bond, where you pay someone $100 and start accruing interest. Only instead of Morty paying you the interest, he's funneling it from Henry's mortgage payments. Now that it's more like a bond than a loan, it can be traded around more easily, and as such is said to be more liquid.

    So let's just proceed on the assumption that what I've just outlined is a reasonable explanation for what's been going on, and get into the really bad parts.

    In the New Deal, FDR created Fannie Mae as a government-sponsored enterprise to play the role of Morty. To entice investors to buy the securities, Fannie Mae guaranteed that the loans would be covered, meaning that she assumed all the risk of whether or not Henry would default on his loan. If Henry defaults, Fannie Mae pays out the security anyway.

    The extra wrinkle here is that Fannie Mae was created to assume the risk of loans to those people that the Banker Barts of the world would not ordinarily loan money. These were the homebuyers who had poor credit ratings and were at a higher risk of not repaying their loan. So Fannie Mae is encouraging Bart to loan to less-than-stellar debtors, while assuming the risk of their debt, and guaranteeing to others that the debt would be repaid no matter what. Anyone with an ounce of sense can see where this is headed already.

    It gets worse: apparently at some point, Fannie Mae and her cousin Freddie Mac started being used for political ends. The companies started aggressively purchasing mortgages originated in some places rather than others, for the benefit of favored voting districts. So now, rather than being about making money (the "business of doing business"), they were purchasing loans based on political goals, which surely skewed their risk assessment even more. Rather than getting loans originated for people in say a "B" or "C" grade from across the country, their geopolitical targeting surely caused them to grab up nice loads of "D" and "F" borrowers too. More about this here.

    That alone should be enough to get one's blood boiling, but it gets even worse than that. Apparently because they were "supporting" the voters of certain key congressional districts, Fannie and Freddie took it as read that they would not be allowed to fail, so they took on even riskier investments, knowing that their highly-placed congressional supporters would bail them out if things went south. So they've been acting as if the taxpayers would bail them out all along, and it turns out that's a self-fulfilling prophecy.

    So what we've got here is a recipe for disaster, and disaster has arrived. I don't know why everyone's so shocked about it, really. Over many decades, Fannie and Freddie have been buying up loans made to people that the banks ordinarily figured were bad risks for "conventional" loans. As would be expected, a higher-than-normal percentage of those folks started defaulting on their loans, especially when other parts of the economy went south and we got upticks in unemployment, for example. Freddie and Fannie made guarantees that the loans would be paid no matter what, and are now holding the bag on a bunch of houses that are in foreclosure and being sold off cheap to recover a fraction of their "value".

    But we're still not done adding in the multiplying factors of the tragedy. Not only has all this been going on, but because it's been going on, a giant misallocation of resources has been taking place. More people demanding houses (because now they can get a loan for one) creates price inflation for houses. This attracts capital to the housing market, and you have houses going up everywhere, most of them stretching the limits of credibility with their price tags. Prices that are too high result in surplus inventory, and I'm certainly seeing this in my area, with a lot of developments having houses standing empty. And of course price inflation means bigger loans, which means more for Freddie and Fannie to pay out when the borrower defaults.

    All these things have now come to a head, and suddenly the Bush administration has decided to swoop in and save Freddie and Fannie from themselves, using taxpayer dollars. This is the point at which anyone who's been paying attention at all should blow a gasket. Set aside the circumstances and this entire explanation if you like, and consider this: Over the past 10 or so years, the major financial discussion for government has been how "we" are going to "save" social security, and that answer has never ever been provided. All we know is that it's going to be horrendously expensive, if it's even possible. Now, we're suddenly going to spend as much as ONE TRILLION DOLLARS to bail out these companies. Notice that suddenly nobody's talking about social security? I wonder what happens to it once we've bailed out the mortgage companies. Personally, I'm not in favor of the social security system, but I'd much rather spend the money on it than on this crap.

    The fact of the matter is, bailing out these companies will only reward their bad behavior. The country as a whole will learn nothing from the experience, and as soon as everything appears to reach a new equilibrium, we will go right back to lending money to people who can't or won't pay it back. Housing prices will not adjust downwards, as they surely must, and the numbers will just keep getting bigger and bigger until something breaks in a way that can't be fixed by waving the magic government wand over it. Market forces will have their day, and the more government tries to push that day back, the worse it will be when it gets here.

    Posted by Tom, 9/19/2008 5:20:32 PM (Permalink). 3 Comments. Leave a comment...

    Wednesday, September 17, 2008

    Is it bright where you are?

    The first time I heard the Smashing Pumpkins was on Saturday Night Live, a Halloween episode hosted by Christian Slater. I liked their trademark sound, and while I'm not exactly a "fan", I do enjoy a lot of their music. This piece has been chopped up for the new Watchmen trailer, and I can only hope it makes it into the final film. The title of the piece is "The Beginning is the End is the Beginning":

    Of course, I can't think of Smashing Pumpkins without thinking also of their guest appearance on The Simpsons, especially the exchange when the lead singer meets Homer:

    "Billy Corgan, Smashing Pumpkins."
    "Homer Simpson, smiling politely."

    Posted by Tom, 9/17/2008 12:46:51 AM (Permalink). 0 Comments. Leave a comment...

    Tuesday, September 16, 2008

    The Great Mortgage Bailout has some excellent articles on the nationalization of the mortgage industry. The first focuses on the "bailout" of Fannie Mae and Freddie Mac:

    Social Imperative of Sound Money

    This one even points out for those who like to keep score, that the Bible mentions in its own oblique way the need for sound money:

    For this reason, the policy of sound money is very much linked with morality. The Hebrew scriptures, in the nineteenth chapter of the book of Leviticus, warn: "you shall have just balances, just weights…"

    The twenty-fifth chapter of Deuteronomy issues a similar warning: "You shall not have in your bag differing weights, a large and a small."

    Proverbs says the same: "A false balance is abomination to the LORD: but a just weight is his delight."

    Another passage says, "Diverse weights, and diverse measures, both of them are alike abomination to the LORD."

    All of these relate in some degree to the need for sound money and condemn the act of fraud and monetary debasement...

    One might also add the various warnings in Proverbs against debt and lending, but why beat a dead horse, right?

    The second discusses the accompanying non-bailout of Merrill Lynch and Lehman Brothers, and their subsequent collapse:

    Glories of Change

    Note that the tone is somewhat different from what you'll read elsewhere. This one is especially interesting to me, given the topic of my last post. Check this out:

    Try to change an institution from the inside and you will meet resistance around every corner. Bureaucracies are nearly impossible to change. Even firms in private enterprise are reluctant to adapt, and have to be pushed and nudged by the accounting ledger or no movement happens. Churches and other charitable organizations can whither and die without periodic and fundamental change and upheaval. Many institutions grow up around the principle of stability first. The organizational structure tends in the direction of the protective mode, with everyone burrowing in and resisting doing something different today and tomorrow from what he or she did yesterday and the day before. Inertia is the default.

    This resistance to change sounds a lot like a fear of failure in implementing change. At least, that's the impression that I get.

    Posted by Tom, 9/16/2008 5:16:57 AM (Permalink). 0 Comments. Leave a comment...

    Monday, September 15, 2008

    Success-Oriented Thinking

    Many years ago, I was playing a game with a group of friends, including one named Mike. One player was eliminated pretty early, and then the rest of us had a prolonged battle for position. At some point in the middle of this, Mike leaned over and whispered to me, "you're going to win". I thought this was incredibly premature, as it seemed to me that I was pulling 3rd place at best. My strategy was an obvious but unconventional one, and no one else really seemed to be paying me much attention. But Mike has always had an almost supernatural gift for games of all types, so I figured there may be a prayer for me.

    In the end, he was right. I had my back to the wall for the last few game turns, but on my last turn, it all swung my direction, and I clobbered the opposition. Later, I asked him about his prediction. He said that he realized at that point that he could not possibly win the game, and when that happens he likes to try to pick a winner, because it gives him an alternate goal to work towards. It was my first lesson in the practical application of what I call "success-oriented thinking".

    Success-oriented thinking is differentiated from its implied counterpart, failure-oriented thinking, with a simple test: is an action, strategy, or goal's essential purpose to create success or to avoid failure? Tell me what a person is focused on, and you also tell me whether they are success- or failure-oriented in that context. And the funny thing is, one's orientation also tends to predict one's results. Success-orientation breeds success, while failure-orientation produces failure.

    For example, when a little kid is first learning to ride a bicycle, they tend to run into things a lot. They'll see an obstacle, like a mailbox or tree or whatever, and stare at it as they pedal. Inevitably, they ram right into it, with skinned knees and such sure to follow. It's only after they've gotten used to ignoring obstacles, and looking at where they're going that they stop running into things all the time. Obstacles bring the threat of failure. Going someplace on a bicycle is success. When the child is failure-oriented, they fail. When they're success-oriented, they succeed.

    Another way to understand it is that failure-oriented strategies are defined by circumstance, whereas success-oriented ones are formulated in spite of circumstance. The failure-oriented approach says "X has happened, and it's bad. We should do something to prevent X." All energy is focused on the point of failure. If X is, for example, a "bad guy shooting up a school", the failure-oriented response is dictated by the circumstance: keep bad guys out of schools. Keep bad guys from getting guns. Keep guns out of schools. It is not a flexible approach, one that can move with changing conditions.

    In this case, the success-oriented approach cannot safely "ignore" the obstacle, but it can acknowledge its presence and prepare to deal with it should the need arise, while staying focused on the success-oriented goal. In the case of mass public shooters, the success-oriented goal for any given bystander might be to go to the movies, have a good meal at a restaurant, deliver a lecture (in the school scenario), or whatever. A secondary success-oriented goal, if the actual shooting starts up, is to survive the encounter along with everyone else. This may entail running, if possible. If not possible, it may entail fighting back, which for the success-oriented person will involve having some kind of plan for how to fight back.

    The Virginia Tech massacre, as I've previously mentioned somewhere in these pages, is a fine example of the failure of failure-oriented thinking. It illustrates perfectly how the strategy is defined by circumstance, and how it fails. Seung-Hui Cho ultimately "slipped through the cracks" of the system designed to "prevent" exactly what he did. Another way to say this is the strategy failed. And because the strategy was structured as a dead end -- "keep all the loonies from getting guns and keep all the guns off campus" -- with no further thought beyond that which was defined by circumstance, the victims were completely and utterly at a loss for what to do when the strategy failed. If the goal is to "prevent" something, and the something happens anyway despite all the prevention, what's plan B? Failure-oriented thinking is a straightjacket that never contemplates its own failure. Clearly, the reasoning goes, if it didn't work, we have to try harder to do the same thing that we just failed at doing.

    Government in general is a great resource for examples of failure-oriented thinking. I have a difficult time looking at anything government does and seeing a success-oriented approach. I'm sure they exist, but so many programs are so obviously failure-oriented, from the recent bailouts of Fannie Mae and Freddie Mac ("they're too big and important to fail!") to the War on Drugs ("we must prevent... blah blah blah"). Even the names of the various programs ("No Child Left Behind") and the euphemisms used to reference them ("social safety net") immediately evoke failure as the central focus of their purpose. And they must ultimately fail because of it. If "failure" is defined as any child being "left behind", the instant a child is (and one inevitably will be), the system, the approach, is a failure.

    In the world of business, it's almost the opposite. I say "almost" because most larger businesses these days operate a lot more like government (thanks to the dubious benefits of neo-mercantilism) than a business. But look at almost any small business, and you either see success-oriented thinking or a business that's going under. The entrepreneur says "I must sell this product." If he finds a group of people unreceptive to the product (a point of failure), he doesn't waste his time hammering at that particular problem if he can find some other group of people who is more receptive. His goal is formed and pursued in spite of his circumstances.

    By now it should be obvious that I believe success-oriented thinking is superior to failure-oriented thinking. That does not mean, however, that I am immune to being failure-oriented at times. Sometimes I don't even realize it.

    I have a relative who works in a really crummy job. It's doing work that she loves, but she's had more than her fair share of interpersonal problems with coworkers and superiors. Anyone else I know would have quit long ago, and in fact the vast majority of her coworkers do quit very quickly after being hired. I've listened to some of her frustrations and experiences, and at times I've asked very pointedly why she doesn't just take the next opportunity that comes her way (and she seems to get quite a few chances at these).

    The problem is, though my advice may sound perfectly reasonable given her circumstances, she keeps telling me (and I keep ignoring) that she has a goal... a mission, if you will. She's undeterred by the obstacles in her way, though they occasionally discourage her, because she has defined success in spite of those obstacles. What I have been doing is allowing my advice -- my strategy -- to be defined by circumstance... by failure. Every time her boss treats her unfairly or meanly or badly in any way, I ignore the success-oriented mission she's on, and focus on the failure. And when I can't get her to buy into my failure-oriented strategy, my frustration turns to her, just like the failure-oriented folks I oppose politically get frustrated with me. That's something to ponder when I'm lying awake at 2 A.M.

    I think the main strength of success-oriented thinking is that it is inherently empowering. "I can pedal my bicycle from one end of the block to the other" is a confident statement of my abilities. "I can't do it until I get rid of all the trees, mailboxes, sidewalk cracks, and other obstacles in my way" is an attitude of victimhood, where I surrender my initiative and self-confidence to the whims of the world around me. As might be suspected, a lot of the failure-oriented folks I know are profoundly unhappy. And I know, not through any scientific study of the matter, but through the lens of my own experience, that generally the more consciously and intentionally success-oriented I am, the happier I am. Surely that must count for something.

    Posted by Tom, 9/15/2008 5:42:23 PM (Permalink). 0 Comments. Leave a comment...

    Friday, September 12, 2008

    Yeah, pretty much how I see it...

    Hottie VP candidate or not, McCain still deserves some skewering. I'll get around to that someday soon.

    Posted by Tom, 9/12/2008 5:09:20 PM (Permalink). 0 Comments. Leave a comment...


    Today's leg workout went much better than last week's. The suggestion I found to drink my protein shake before the workout filled me with no small amount of dread (it seems rather like putting more bullets in the gun, if you know what I mean), but it worked. My stomach got a little worrisome towards the end of the squats, but never reached the level of discomfort I had last week, even though the workout was every bit as intense. One part of the suggestion that I forgot until it was too late: add some fat to the pre-workout meal, since it'll burn fast and you have all day to digest it if it doesn't. I'll give that a try next week.

    Legs? Yeah, I'm pretty well numb from the waist down. The full workout is a killer.

    Posted by Tom, 9/12/2008 6:17:14 AM (Permalink). 0 Comments. Leave a comment...

    Thursday, September 11, 2008

    George Carlin

    Yeah, this is a day late and a dollar short, but magazine lead times being what they are, I'll cut them some slack. Besides, I probably missed it when it got posted on their website originally. Anyway, my latest print edition of Reason has what I think is the absolute best obituary for George I've seen, and I think I read just about all of them. Check it out:

    ...Carlin's comedy was not simply about dirty words; it was about the English language, and our collective fear of it. He used more expletives than Howard Stern, but his obsession was linguistics, not lasciviousness...


    In fact, Carlin was disgusted with the mangling of English for any reason. He hated anyone who pronounced forte as "for-tay," insisted that "no comment is a comment," and advised us that "unique needs no modifier; very unique, quite unique, more unique, real unique, fairly unique, and extremely unique are wrong and they mark you as dumb, although certainly not unique." For all of his lifelong ranting against conservatism, Carlin was a diehard traditionalist when it came to grammar and vocabulary.

    ...In Carlin's mind, language should not be safe, and neither should life. Children, he argued in his final HBO special, this year's
    It's Bad for Ya, should play with sticks, not have "play dates" under the ever-watchful eyes of overprotective, micro-managing parents. (He had previously complained, with his trademark growl, "We've taken all the fun out of childhood just in the interest of saving a few lives.")

    I clearly need to get some DVD's of his work.

    Posted by Tom, 9/11/2008 5:24:43 PM (Permalink). 1 Comment. Leave a comment...


    The cool part is that powered exoskeletons are now a reality. Not a fanciful, "we did it in a lab" reality, but "you can buy this" reality. See here:

    This unique method of operation means that a person can control Robot Suit HAL by his or her own will, even if he or she is unable to actually move. And as the suit detects the signal sent from the brain even before it gets to the muscle, it can move an instant before the muscle does.

    When a person wearing Robot Suit HAL picks up an object that weighs 40 kg, he/she feels as if it weighed only a few kilograms. Robot Suit HAL is therefore expected to have a wide range of applications, such as assisting carers, helping people with physical disabilities to move, and assisting people performing jobs that require a great deal of physical strength.

    I like the part where it can even be used as an assistive device for those without normal use of their limbs. If they get the cost down, this thing could completely replace wheelchairs. That ROCKS.

    Now the scary:

    In order to facilitate the commercialization process, Professor Sankai and others formed Cyberdyne Inc. in 2004.

    Sci-fi nuts (like me) will of course recognize Cyberdyne as the name of the company that eventually builds SkyNet, the computer system that goes to war with humanity in the Terminator movies.

    I, for one, look forward to serving our new robot masters.

    Posted by Tom, 9/11/2008 5:16:34 PM (Permalink). 0 Comments. Leave a comment...

    Wednesday, September 10, 2008

    Your government at work

    See here

    Try not to blow a gasket at the rampant stupidity.

    Posted by Tom, 9/10/2008 7:45:45 AM (Permalink). 2 Comments. Leave a comment...

    Monday, September 8, 2008

    Epic Fail

    I started a new workout routine, with higher-rep sets, to try and shake up my problem with being "stuck" on my bench press. The new routine has more exercises, it's more of a "bodybuilder" routine, but it's apparently what I need to do. After a while, the muscles get set in their ways and don't want to move, so you have to shake them up with a different routine.

    The first two days (of three) are hard upper-body days, which I figured I needed. They went pretty well, except that I'm not used to doing that many reps per set. I generally do 5 on the "big" lifts, 8 on the isolation stuff. It's kind of amusing to see just how "programmed" your muscles are... for example, I usually warm up on the bench press with a set or two at 135. Doing that to 10 reps instead of 5, as soon as I hit #5, my muscles felt like they suddenly got weaker. It's like they thought the set was done, and were ready to take a break. So when I pushed for 10, they complained the whole way.

    I figured this was probably about 95% psychological, and figured I'd just push through it until I got the mind and muscles retrained.

    Then I hit leg day.

    3 sets of 10 squats... no problem, I lowered the weight acceptably from my usual 5 rep weight.

    2 sets of 10 deadlifts... first set went OK, but the legs and body were really heating up. Second set, I got to rep #5, hit that stupid psychological wall again, and gutted my way through the last 5 reps.

    Immediately, I felt the need to hurl.

    Now, I can tough out various forms of discomfort, but nausea is a huge weakness. It stops me dead in my tracks, and all I can do is fight that mental game of trying not to let my stomach crawl out my mouth. So the workout was effectively over, 2 exercises into a 7-exercise routine. Nothing to do but wait until next week and try again. Maybe I'll research some anti-nausea tricks for working out at higher volumes than usual. If those don't work, I'll swallow my pride (assuming I can keep it down), and lower the poundage a bit, but I'd hate to have to do that.

    On the good side, my quadriceps are telling me today that the workout -- what I got of it -- was still very effective. Either that, or they just like making me walk like a geriatric cowboy.

    Posted by Tom, 9/8/2008 5:33:30 PM (Permalink). 3 Comments. Leave a comment...

    Thursday, September 4, 2008

    Email from Ireland

    Got this in my email today:

    An email from Ireland to the brethren in the States...a point to ponder despite your political affiliation:

    'We, in Ireland, can't figure out why people are even bothering to hold an election in the United States! On one side, you have a pants-wearing woman lawyer, married to a lawyer who can't keep his pants on, who just lost a long and heated primary against a lawyer who goes to the wrong church who is married to yet another lawyer who doesn't even like the country her husband wants to run.

    Now...On the other side, you have a nice old war hero whose name starts with the appropriate 'Mc' terminology married to a good looking younger woman who owns a beer distributorship.

    What in Lord's name are ye lads thinking over there in the colonies?? It's a no brainer!!

    Posted by Tom, 9/4/2008 5:43:23 PM (Permalink). 1 Comment. Leave a comment...

    Tuesday, September 2, 2008


    I've never been one of the cool kids. I never really understood it, for one thing. I knew that some kids were cool and others weren't, and I was always in the latter group. The athletes were usually cool, and the student council kids. And my younger brother.

    Jim always seemed to understand the rules of cool as though born with them. I always wondered where he got the information. I couldn't find any books or instruction manuals on cool. I apparently missed the lesson in kindergarten when cool was discussed. He must have gotten an A that day.

    So while we were growing up, his friends could hang out with him, and I'd try to hang too, but it was always clear that I was just the big, clumsy, goofy older brother... decidedly uncool. I always envied his ability to be so effortlessly cool, and to this day don't understand how he does it.

    I eventually did what all geeky, nerdy types do, and tried finding other ways to be cool. If you can't be cool in society at large, you can always find a subculture in which to be cool. I started with the academics, but even my friends Jeff and Tim thought I was kind of a dork. My cool athlete friend Andy would hang with me for some things, but I was not really invited inside the Inner Circle of Cool with him. I stayed on the fringes.

    In college, I tried hanging out with the gamers, but wasn't really cool there. I spent some time with the gay rights types, but even though they're pretty accepting of anyone, a straight guy can't really be cool with them either. They call you names like "breeder", and even though they're only joking, it's still a way to say "you're not really one of us".

    I later joined the "gun culture", and there's lots of ways to be cool with those folks. You can know a lot about guns ("You shouldn't use unjacketed lead rounds in that Glock, because the polygonal rifling fouls up very quickly, and could cause a case rupture."), you can own a lot of guns ("After I bought my 3rd safe, I figured I'd better start looking for a new house with a good layout for building a gun room."), or you can own interesting guns ("This Garand is one of the select grade ones that they occasionally run across, with all the accessories, a scope, pristine wood, great metal, etc."), to name a few.

    As it turns out however, even with all these avenues to coolness, I'm still manifestly uncool in the gun crowd because I'm a guy who didn't grow up with guns. I'm supposed to know all sorts of stuff about hunting and shooting, because every other guy my age went with his dad or uncle or grandfather or whatever, and my relatives just weren't into it. So while it's "kinda" cool that I want to learn, I'm still the outsider guy trying to pry my way into the cool kids crowd.

    Professionally, I tried to be a cool programmer... but it was a lost cause. After my Emmaus Walk, I tried to be a cool Christian, but realized pretty quickly that it's not something I really want to be -- when it comes to cool, Christians tend to be even more petty and vindictive than the world at large. They shoot their wounded.

    So after 37 years, I guess I'd probably be better off just giving up on the cool, and for the most part I have. But I still feel that little twinge in my gut every time I see that episode of The Simpsons where Bart's nerdy friend Millhouse protests his mistreatment by saying "my Mom thinks I'm cool!" Except I don't know if my Mom does. I think she's mainly glad I stayed out of prison.

    My friend Richard the minister/counselor has a diagram he developed about relationships. It's a triangle with the individual at the center. At each corner is a type of relationship... one with family, one with the world at large, and one with God. Each has a "test" or way to evaluate how you're doing in the relationship. In the relationship with God, the test is something like, "can I sit in a room by myself, and feel precious and valuable without the input of other people?"

    And that's where I realize what "cool" is all about for me: seeking the approval of others. It's changing my behavior or affectations to be seen as worthy or desirable. It's not about my intrinsic worth as a person. But then I can't help wondering, on the occasions when I can "pass the test", sitting in a room by myself, not interacting with other people, feeling precious and valuable just because I am who I am and God loves me...

    ...does that mean...

    ...God thinks I'm cool?

    Posted by Tom, 9/2/2008 6:55:46 AM (Permalink). 3 Comments. Leave a comment...