Wednesday, December 31, 2008

New York Times reports numerous libel and intellectual property issues, all critical


There’s more on professional journalism at the New York Times now, and this can have an indirect effect on blogger journalism.

On Dec. 15, 2008 reported Nicholas Kristoff blogged (on the Times site) about the Supreme Court’s refusal to life the dismissal of a libel suit against him and The New York Times for reporting the on Steve Hatfill, wrongfully identified by the FBI at one point in the anthrax investigations. (Since then, as we know, the government identified another employee at Fort Dietrick.) The blog entry is called “End of the Libel Road” (as if this were “Reservation Road” or even “Revolutionary Road”). The link is here. Kristoff makes another case for a journalistic source shield law, which is important to protect sources and provide the public full information. The comments are interesting and varied.

I’ve reported on the British libel tourism issue before, but I find that on Oct. 7, 2007, Rachel Donaldo had published an essay on the problem, “Life without Borders” (not “Doctors without Borders”) that provides a detailed analysis of the problem, here. Donaldo again discusses the case of Sheikh Khalid bin Mahfouz, as well as film director Roman Polanski. Congress needs to take this up in 2009.

But now we learn that the New York Times has been sued for libel over a piece that accused a lobbyist of having an affair with 2008 Republican presidential nominee John McCain. There are of copies of the AP story around, but a good read is a blog entry on “IUSB Vision” here, with some discussion of the “false light” concept. (Actually, I thought that “false light” was a specific form of “invasion of privacy” in the Restatement of Torts.)

These case refer largely to established newspapers and book publishers, but, as I’ve noted on my main blog, bloggers are coming into more risk, especially those who try to report first-hand on relatively private affairs of celebrities or politicians – as well as those, often in public school or even college, who like to play gossip girl. That ups the ante for a whole software service industry (and now established democratizing speech facility) that could some day face huge potential liability and insurance problems if we don’t start thinking about tort reform.

Tuesday, December 30, 2008

AIG and credit default swaps: whatever the statistical models, they violated all common sense


This morning, The Washington Post is running a series “The Crash: What Went Wrong” and has a particularly interesting segment Tuesday, Dec. 30 “A Crack in the System” with a detailed story about AIG, American International Group, and how credit default swaps took it down. The front page story is by Brady Dennis and Robert O’Harrow, Jr (the second of three parts) here. The story has some diagrams explaining how credit default swaps “worked.”

Computer models had estimated that AIG had a 99.85% chance of never paying out on the liability it had taken on. But then the collapse of the housing bubble starting around 2006 set in motion a “statistically unlikely chain of events”, which AIG was able to stave off for a year or so.

One basic flaw in the swaps is that they did not follow the usual principle of “insurable interest” normally required in the insurance business. The collapse seems to be a conceptual failure to understand a risk qualitatively and socially. Housing prices have always been exposed to the possibility of downturns. Anyone with common sense should have seen that prices were rising much faster than worker’s wages, and that homeowners would not be able to pay escalated payments that rose in the future. Furthermore, some renters were forced into buying apartments (converted into condos) that they would not be able to afford when rates went up.

This all sounds like a basic failure to understand the difference between right and wrong.

Anderson Cooper – keep on naming names in your “culprits of the collapse” on your CNN 360 show.

Monday, December 29, 2008

Purity or abstinence pledges don't necessarily reduce unwanted prengnancy or STD's


Janet E. Rosenbaum, of the Johns Hopkins Bloomberg School of Public Health, has a report appearing in the January 2009 issue of Pediatrics (not yet online), regarding the effectiveness of abstinence pledges for teenagers. According to Rosenbaum, teenagers (either gender) who promise abstinence until (heterosexual) marriage are as likely to engage in premarital sexual activity as those who don’t, and may not be as likely use condoms when they do, increasing the risk of unwanted pregnancy or sexually transmitted diseases including, sometimes, even HIV.

At the Tuesday Oct. 28 2008 session of the American Public Health Association (“Public Health Without Borders”, the 136th APHA Meeting) in San Diego CA, Rosenbaum presented similar findings, link here.

The Washington Post has a story Monday Dec. 29 by Rob Stein “Premarital abstinence pledges ineffective, study finds,” link here. The report includes pictures of purity rings. The Jonas Brothers attracted attention by wearing purity rings and announcing this to the media.

Rosenbaum says she refined the study so that she used narrowly defined cohorts and didn’t compare “apples to oranges”.

The Bush Administration has tried to push federal funds for abstinence only education. I’ve always wondered if an anti-gay message is and intended subtext of such education (as an implication of “until marriage”).

I also recall an episode of TheWB’s “Seventh Heaven” where Reverend Camden says “Sex is only for married people.” The debate over abstinence seems to extend beyond preventing unwanted pregnancy and STD’s to making the institution of marriage appear stronger by creating the (fantastic and false) belief that it can monopolize all sexuality.

Sunday, December 28, 2008

Knoxville paper has major pictures, video on coal ash spill; cleanup task for TVA seems overwhelming; can coal ever be "clean"?


Well, plenty of environmentalists are saying now that there is no such thing as “clean coal” after the sludge-flood in Kingston, TN, in Roan County, 40 miles SW of Knoxville, recently, caused when an earthen dam gave way. In the Washington DC Metro, there are signs to that effect now.

The Biz section of the Knox News, Sunday Dec. 28, 2008 has a typical story today “Residents hit by coal ash spill worry about health impact; Complain they aren’t getting answers,” by Matt Lakin, link here. The article has a video “Through the wake of the spill” and a slide show (in thumbnail format, "Images from the TVA Pond Breach") of striking individual photos that may be purchased from the newspaper. It will be interesting to see how the Tennessee Valley Authority, itself owned by the government, handles all of the liability issues. The interesting thing is that hydroelectric power itself is based on renewable resources and was a great priority in the WPA during FDR's New Deal.

Energy strategists say that the United States is the Persian Gulf of coal. Reliance on coal could fit well into the T. Boone Pickens plan of using less oil but more natural gas, by converting coal to natural gas. The most notorious problems associated with coal production noted before on this blog are “mountaintop removal” associated with strip mining, especially in southern West Virginia, eastern Kentucky, extreme SW Virginia, and Tennessee in the Cumberland mountains (where the spill occurred).

I visited the mountain area, but further south, near Dayton (Scopes trial site) and then Chattanooga, in June 2004. I visited Knoxville in October 1991.

Photo: southern Cumberland mountains, June 2004. Are they really mountains?

Saturday, December 27, 2008

Corporate bonds no longer offer a safety net for investors


The trite conventional wisdom has always been that older investors should have a larger percentage of their wealth in bonds, because bonds were inherently safer.

In fact, we remember that back in the 1980s Michael Milken had developed the ad hoc theory that junk bonds could be as “safe” as conventional corporate bonds.

But bond funds have taken big hits during the “Collapse” just like faults, and this even includes the tax-free muni funds. There are many reasons for all this, including downgrades, defaults, the working through of bankruptcies and the uncertainties associated with the auto industry bailout. Some funds appear to have taken on some liabilities for credit default swaps. So it’s pretty confusing and all the rules changed.

There is an article in the New York Times, December 26, 2008, by Tara Siegel Bernard, “Your money: Older investors should examine the risk of bonds”, link here. Lehman Brothers and Washington Mutual bonds were considered good, until they weren’t, she writes. The link for the story is here.

The article suggests some international diversification, as well as TIPS, or Treasury Inflation Protected Securities (we seem to be printing money like we were the Weimar Republic, even if right now we still have deflation). She also suggests CD’s, FDIC bonds, Ginnie Mae, and pre-funded municipals.

But we seem to be in a “2 to 3 percent environment” as far as any sense of safety is concerned.

Friday, December 26, 2008

States making severe cuts on Medicaid during crisis; Adult children could be more impacted


Many states are contemplating massive Medicaid cuts because of the budget crisis, according to a front page story Dec. 26 Washington Post by Amy Goldstein, titled “States cut Medicaid coverage further: region is among areas where poor are affected,” link here. The online headline reads “states driven to reduce health coverage for poor.”

The cuts take many forms in different states. Some services are no longer covered, and some procedures pay lower rates. Maryland, Virginia and the District of Columbia are among 19 states or districts that have reduced payments to nursing homes, eliminated some coverages and forced some recipients out of the program.

Rhode Island has taken the drastic step of accepting what amounts to a total federal bailout, which means in practice that for some patients nursing home care will not be covered and home care will be assisted. It would sound as though other states could follow suit.

The problem is exacerbated by the fact that states had already felt a pinch with the "milder" recession of 2001.

As I’ve noted before, 28 states have “poor laws” or filial responsibility laws that allow them to pursue adult children for parents’ expenses. It’s more likely that states will pursue this measure given budget pressures.

Barack Obama, however, is said to be open to giving states more help with Medicaid.

A liberal group dealing with the Medicaid issue is “Families USA”.

From May 1977 to January 1979 I worked for Bradford National Corporation on its contract with New York State Medicaid Management Information Systems. A lot has changed since the 70s, but a useful link might be here.

Wednesday, December 24, 2008

Parents should train kids assertiveness, to deal with school bullying problem, and for later social success


Today (December 24) “Michelle” (I did not get the last name) made a presentation on “raising assertive kids” on the NBC Tday show. One of the most remarkable statements in her presentation was that kids need to learn assertiveness in order to deal with bullies and avoid falling into an existential trap. (I wondered where the responsibility of school administrators lies, and I thought about Dr. Phil’s recent program on that topic, as well as his son Jay’s book..)

She advised letting kids be independent, even at 2. Don’t pick up the pieces for them, don’t speak for them, and praise them when they speak for themselves. She said to train kids to make eye contact, to the point that they can see eye color. She indicated that birth order is important: oldest children are often the most assertive and wind up becoming CEO’s (or maybe politicians). I don’t know if that’s always true; later born children often take more risks in life.

Frank McGinty has an “Assertive Kids” home page dated Christmas eve here.

Tuesday, December 23, 2008

Following up on a zoning and property tax controversy; more infrastructure issues locally


Today, I checked in person at Arlington County VA government center about the concern I raised on this blog last year, about zoning and real estate taxes. Remember that in 2007 Virginia passed a law allowing certain counties the option to raise tax rates on commercial properties. Some people expressed concern that residences where home-based businesses (which are allowed for most “reasonable” activities that don’t affect the appearance of or traffic [and parking] to a property, and don’t involve hazardous materials or noise) could cause commercial rates to apply. At board meetings in 2007, one or two speakers had raised questions about telecommuters, for example.

I moved from the zoning office to the tax office to the real estate assessment office, where the personnel said, no, a residence that stays within allowed use of a residence (including HBB’s) pays only the residential rate. It’s true, the County website hasn’t gotten around to stating this anywhere.

It appears that day care could be an issue with some people. It looks as though permits aren’t required until more than a certain number of children (other than one’s own) are care for (check the site). But the home based business page doesn’t explicitly address it.

Apartment buildings often have variances to allow businesses (like doctor’s offices) on the first floor, and some commercial buildings have residences on upper floors. Owners or management companies for such properties receive assessment statements that show both commercial and residential breakouts from the assessment computer application.

These issues will exist in almost all local governments around the country, but local government websites are not always clear on how the rules apply. Condominium associations or sometimes even neighborhood covenants sometimes specify additional regulations, as would rental landlords.

The other big story in the Washington DC area today is a massive water main break in suburban Maryland, which caused a flash flood on a major road, causing difficult rescues for several motorists. The pipe in question as 66 inches wide, made of cast iron and/or concrete, which can fracture with sudden hard freezes, and relatively new (1964). This is only a hint of the problems we face with basic infrastructure, while local governments and states as cash strapped. Barack Obama is going to have to put a lot of people to work with printed money.

Monday, December 22, 2008

Can employers target singles or people "without families" for layoff? Man offers himself to RIF to save coworkers family


ABC “Good Morning America” had a “Christmas” story this morning (Monday, Dec. 22) in which a man apparently offered himself to be laid off to spare the job of a coworker with a large family, including an autistic son.

Generally most corporations say that layoffs are done in an impersonal way, with no consideration of family circumstances. This requirement is driven by non-discrimination laws in many localities.

Back in 1975, a friend of mine was laid off from a job as a private school teacher in Brooklyn, New York. This took place during a time of recession and a severe local financial crisis for New York City. His boss told him, “I’m going to be very honest with you. You’re single. You can afford to be without a job. But some of my other teachers can’t because they have families.” But employers probably can’t do that today.

GMA has a video link (posted about two hours after the broadcast airing on the East Coast) for the story called “A Christmas Thank You” here. The details seem to be that Ralph Hannahan stepped forward and offered to be laid off from the (apparently private) South Carolina Governor’s School in Greenville, SC to save the job of his coworker. ABC News invited Ralph to be on the show after receiving a letter about the event.


Back in 1988, I decided not to “compete” with others to stay at a job (and try to get paid off with an “incentive to stay” and eventual severance) in Dallas after a merger when I did find another job, at somewhat lower pay, on the East Coast. This was not generosity so much as a feeling that I did not want to “stretch my luck.” But it was a sad departure.

Armstrong Williams has a commentary on p A19 of the Dec. 22, 2008 Washington Times, "The right example: some firms place family first," link here, about a law firm that offered new fathers four extra weeks paid vacation. Of course, it's been mentioned here before that many other western countries have some form of mandatory paid parental leave policy. But, then again, the non-parents (or childless) must eventually subsidize this.

Sunday, December 21, 2008

Is "W." one of the culprits of the Collapse? NY Times has series called "The Reckoning"


The New York Times has a long series called “The Reckoning”, which is well-indexed online at this URL. It sounds like the name of a horror movie, especially something you would see from Screen Gems (actually, I see on IMDB that there is one, from Paramount Classics, but Tinseltown could turn out more of them). The articles look like the scenes in such a screenplay,

We’re talking about the financial collapse, the implosion, of course. The latest in the series came out this morning (Dec. 21, the first day of Winter), where Jo Becker, Sheryl Gay Stolberg and Stephen Labaton write a long piece “White House Philosophy Stoked Mortgage Bonfire.” President Bush, in his zeal to bring about “The Ownership Society,” presided over the relaxing of lending standards, the shielding of banks from their own sense of moral hazard, and the silly assumption that housing values would always rise. The economic boom was funded by an artificial housing bubble. I’m reminded of how Joe Klein in Time recently called Bush “intellectually lazy” and unable to walk a fine line between freedom and regulation, as well as freedom and social equality. (The back page Time Magazine article is “Bush’s Last Days: The Lamest Duck”, link here, Nov. 26, 2008).

Actually, a lot of this goes back to the Democrats, all the way to the Carter years, when there was an effort to require banks to lower lending standards to allow minorities to have easier access to home ownership. I bought my first condo under Carter’s inflationary period, but there was plenty of talk then about breaks and low down payments. Home ownership was no longer related to raising families; it was a major life instrument for everyone. I remember that even in “conservative” Dallas tract homes were being built with double master bedrooms for “roommates.” Bill Clinton may share some of this legacy along with George W. Bush.

What President Bush missed (“intellectually yours”, thank you) was simply the mathematics of all this. He needed Charlie Epps from “Numbers”. (David Krumholtz plays a most appealing character – and the actor says he was never good at algebra, but obvious neither was “W.”) Well, he also overlooked a few other things, like the fact that all bubbles come down, just like real estate had in Texas in the late 1980s – it bit me – and being from Texas, W. should have known this. Or take the fact that many of the financial instruments hid the issuers from the risk (“moral hazard”), a problem in ethics that will eventually play out in the numbers. Or that the credit default swaps violated the whole concept of “insurable interest” and invite devious manipulation. Eventually, the geometric mathematics took over much like a viral epidemic, and most of the nation’s money available for credit froze, almost overnight, as in September. This was not so much a financial “implosion” as a financial “infectious disease” pandemic. The CDC is good a modeling such things, but I guess Wall Street doesn’t really understand the calculus “limit” concept.

We do have a new president coming in who likes intellectual challenges. And he has plenty of them now.

Friday, December 19, 2008

Mortgage refinance big bang; unemployed loan their bodies to medicine, other mothers; Bush releases TARP funds for GM, Chrysler


Suddenly, according to news reports, phones at mortgage companies are ringing off the hook. That’s because the Fed lowered rates to all most zero and printed some more Weimar money.

Maybe some of the refinancing business will get done online with companies like Ditech, but all the sudden, over a one day period, there is an overwhelming amount of work for loan officers and mortgage brokers. Will that suddenly lead to a rush of new jobs? Will these jobs be tied to the idea of “online reputation”? Will retirees be invited in to do these jobs, or perhaps even get unsolicited calls?

Put people are doing other desperate things for income, using their own bodies (or allowing them to be borrowed) to support their families. One particularly dangerous trend is people getting paid to participate in new medication trials. Many more women are making money with surrogate motherhood.

The ABC News story on this matter is by Gigi Stone, “Americans Go to Recession Extremes for Pay: More Americans Make Money by Putting Their Bodies at Risk in Clinical Trials and Surrogacy”, link here.

(While I blog: BREAKING NEWS 12/19/2008 at 9 AM):


On Friday morning (at 9 AM), Dec. 19, President Bush, saying that “these are not ordinary times” and that he normally does not favor government intervention to save ordinary companies, announced his temporary rescue program for GM and Chrysler (not Ford, which I "have") with TARP funds, with a “drop dead” date for restructuring by March 31, 2008 (in fact, auto loans will be called back by March 31). The President did not believe that a Chapter 11 right now was acceptable but could become necessary early in 2008. The announcement was broadcast by a Webcast from the White House site. There will be many news stories in the next hour.

One big reason why domestic car companies cannot compete well with foreign makers: it’s not just the unions, it’s funding health care benefits. Foreign companies don’t have to do that.

Thursday, December 18, 2008

What happens to hedge funds now?


Dean P. Foster, a professor of Economics at Wharon, and H. Peyton Young, a Senior Fellow Economist, have an article on Brookings called “Hedge Fund Wizards” here, explaining how hedge fund managers can “fake brilliance” by piling on derivatives and options that will gain paper value as long as there is no collapse. Then, to use Anderson Cooper’s language on CNN 360, they can quickly become “culprits of the collapse” when there is one.

The whole question of hedge funds comes up now because investors and regulators (and certainly the incoming Obama administration) have to wonder how they can catch future Makoff’s, referring to the scoundrel who bilked investors out of more money than what is proposed for the Detroit bailout.

Sebastian Mallaby has an interesting column on p A25 of the Dec 18 2005 Washington Post, “End of the Hedge Fund?”, link here. While regulators may have learned a lesson in spotting the obvious pseudo-Nixons in the business, the “brilliance imitators” may be harder to spot. Mallaby suggests insisting that hedge fund managers put some of their own money in the funds, a reverse kind of conflict of interest.

There is also a “Federalist” Wordpress blog entry “Moral hazards in Hedge Fund Management,” here, dating all they way back to March 16, 2008, about the time of Bear Stearns.

Hedge funds are an important source of financing for independent film, and damage to their reputation is no laughing matter, for me at least. I have attended producers’ conferences in Minneapolis before and I got the impression that the SEC filings required in the business were quite extensive in most film deals. Now I wonder.

And, yes, during the dot-com boom, I knew people who went to work for hedge funds as systems analysts.

Tuesday, December 16, 2008

Federal debt may near Americans' net worth; Federal Reserve slashes interest rates almost to zero


Jon Ward has a cover story on the Tuesday Dec. 16 Washington Times “Federal liabilities soar 25% in 2008; $1 trillion debt excludes bailout”, link here. One major source is an unexpected increase in veterans benefits liabilities. The total debt in unfunded liabilities and entitlements approaches the total net worth of all Americans, and could eventually lead to enormous political pressure to reduce benefits, even like social security, to existing beneficiaries and throw them back on blood families.

Add to this today was the announcement from the Federal Open Market Committee to set up a target rate for federal funds from 0 to ¼ percent. The Federal Reserve press release is here. What’s left to throw into the pot now? Mad Money's Jim Cramer calls Bernanke "Santa Claus".

Will CD's even be available now? Or will we have to take risks?

Monday, December 15, 2008

Madoff throws $50 billion into the toilet: Wall Street's largest securities fraud ever; what about "right from wrong"?


Apparently the $50 billion sinkhole created by Bernard L. Madoff is the largest ever securities fraud in the nation’s history. The fact that the ponzi scheme seems to have gone on since about 1991 right in front of the nose of the SEC without anyone’s noticing (almost; there were flurries in 1992 and 2001) makes one wonder if there are more of these out there. Madoff's crimes make Martha Stewart's publicized indiscretion in 2001 seem like a traffic ticket.

So far, most of the damage seems to be to wealthy investors and charities, but some were completely wiped out. New York Times online has a story by Ian Urbina (published Dec. 14) “A Palm Beach Enclave, Stunned by an Inside Job” with a cloudy picture of the Palm Beach Country Club, link here. The print version of the New York Times Monday Dec. 15 showed the round building on the East Side where Madoff conducted his “black ops” in secret on the 17th floor. (Remember, the "proles" live in West Palm Beach, which is much larger in population; and Belle Glade, a third world migrant enclave on Lake Okeechobee, is but 50 miles away.

It’s not clear if the losses are likely to affect the mutual funds of “ordinary” investors and retirees, but NBC reports it is spreading to “smaller investors” who did invest directly with Madoff.

The scheme seems to have consisted of paying off established clients with money deposited by newer clients, without real investment. Yet Madoff was able to produce normal looking accounting statements.

All of this is quite confounding, considering the fixes supposedly in place after the Enron and WorldComm “cooked books” and collapses.

Another story in the Monday Business Day "Fleeing Investors Put a Strain on Funds" by Geraldine Fabrikant, indicates that other investors are pulling funds out of reputable investment boutiques and hedge funds, to cover positions elsewhere, but also out of fear of more undisclosed scandals. Hedge funds often slow the practice down with a practice called "gating."

In fact, I remember that ABC "Nightline" covered Enron’s collapse Dec 12, 2001, the night before my own layoff from a financial services company.

All of this went on under the noses of Bill Clinton and George W. Bush. How can we toss away $50 billion and nobody sees it?

There will be a lot more execs from Wall Street led away in handcuffs, I hope. Doesn’t anybody on Wall Street know basic right from wrong?

Sunday, December 14, 2008

States in a bind over unemployment insurance funds


Recently, President Bush signed legislation to extend unemployment benefits for seven weeks everywhere, and up to thirteen additional weeks in states with 6% or higher unemployment. The "Jobsearch About" ("Alison's Job Searching Blog") link is here.

But many state unemployment funds are becoming insolvent, and will need federal loans to keep paying benefits. Jennifer Steinhaus has an article today (June 14) in the New York Times, “States’ funds for jobless drying up,” link here.

After the 9/11 attacks and 2001 recession, as I recall, we had a full 26 extra weeks extension. I was in Minnesota then. I was told by my employer that unemployment benefits could not start until severance benefits finished being paid out. That may be true, but the rules literally said you were supposed to file for benefits right away. Your benefits were reduced by income from work if you had a part-time job (or were reduced by severance until it ran out). You also could not work more than 32 hours in a week, but you had to look actively for a full-time job. It turned out that if you delayed your “protective” filing until your severance ran out, you might collect more, because you could collect for 12 months or to a maximum amount, whichever was less.

There were rules against turning down jobs. So it was better not to interview for an “interim job” that you really didn’t want. There could be paradigm problems. Let’s say you had worked as a computer programmer in life insurance. You would logically apply for other programming jobs, which had become weaker during the 2002 recession (as they may again, although it sounds like I.T. has become more complicated to assess this time around – see my “Information Technology job market” blog. But perhaps opportunities for commissioned insurance agents could increase, because in some recessions sales (commission-based) jobs still increase. You don’t feel temperamentally like a salesman. (I don’t, as I’ve explained on other entries.) Do you have to interview for “peddling” or “hucksterism” jobs anyway?

Friday, December 12, 2008

Home values could take decades to recover


Today, Friday Dec. 12, 2008, USA Today has a story by Dennis Cauchon, which online appears as a white paper in PDF format, “Why Home Prices May Take Decades to Recover,” link here. The theme of this piece sounds like very bad news for anyone with an upsidedown mortgage.

One basic problem is that home prices were relatively stable in real terms until it lurched forward with the inflation of the 1970s, then stumbled with the oil price drops in the late 80s (in some parts of the country) and then lurched again after 2002 with the low interest rates, partly as a result of Fed post 9/11 policy.

Another problem this time is that the financial crisis seems to be driven in large part by the real estate collapse, but it was also brought on by perverse short-term incentives (partly by the bottom-line mentality of market fundamentalism) by traders in investment banks that rewarded reckless behavior.

One problem has always been, what is the intrinsic value of a home? In 1984, I purchased a townhome (legally a condo) in the Pleasant Grove section of Dallas for $39990, from Pulte, a solid builder. I wondered, what is intrinsic about this two-story cube of space with its timber, sheetrock, utilities, insulation, etc that is really worth even that much as a consumer item? That’s a multiple of a car price, and a car “does” more. And a new car depreciates as you drive it out of the lot. I found out the hard way. I had to sell and leave Dallas and come back East in 1988. I sold for a $10000 loss in 1991 after renting it.

So it shocks me to see condos in New York City for “Five million dollars”, etc. (Many a lot more, still.) Of course, there is a lot of value in certain features: location (convenient access to work and culture), and security, especially, as well as view, space, “interior geography”, etc. But anything that justifies the Bubble?

Thursday, December 11, 2008

Auto Bailout dies in Senate; Black Friday expected on Wall Street; Treasury could use bailout money; Chapter 11 for GM now?


The $14 billion bailout for GM and Chrysler collapsed in the Senate tonight. Although for a while it sounded like there was a bipartisan deal, the United Auto Workers refused to go along with Senate Republican demands that UAW accept wages cuts to bring them down to the level of Japanese auto makers. We have a karma problem, don’t we. Technically, Senate Republicans have a filibuster and the 60 votes needed to break it are not there.

Anderson Cooper (who has his "Culprits of the Collapse" naming names exercise that would have pleased Randy Shilts) announced this on his 360 Program on CNN just after his own “Planet in Peril: Battle Lines” film ended but said little about UAW. But Harry Byrd (D-WVa) gave an impassioned speech about what the reaction on Wall Street would be Friday. Maybe they’ll have to stop trading, or at least stop the futures.

Ford does not need the bailout yet, but Ford dealers (at least Koons) have been emailing owners of older cars offering trade ins for newer used cars with cash back.

CNBC had pre-market DOW futures down -329 at 11:37 PM Dec. 11.

The CNBC story is here.

Some observers say that the Treasury Department has the authority to use the $700 billion bailout money indirectly.

Maybe we need a “forced coma” Chapter 11, with sale of assets of GM to Japanese companies to keep the businesses running with more or less the same workers at the new industry average pay. Chrysler is a basket-case, with the ill-conceived and reckless leveraged buyout.

Is the GOP going for "union busting"? Does the auto industry need to become a "right to work" business? Or is this like the 1975 "Ford to City: Drop Dead!" regarding the New York City financial crisis then. At that time, the Teacher's Union had to give it.

Update: Dec 14

No, there was no Black Friday after all. The market believes that the Bush administration will intervene. It seems that many of the Republican Senate "no" votes came from states with plants owned by foreign auto manufacturers.

Automating health care records would have a big economic payoff


I’ll speak from personal experience here, and not divulge anything too sensitive: but health care costs would reduce and effectiveness improve if all health care records were automated. In my own case, in 2004 I did not get medical clearance to work for the USPS as a carrier because my medical records from a hip fracture in Minnesota seven years earlier were not available.

HIPAA (the Health Care Portability and Accountability Act) prescribes strict rules on how data is transmitted and formatted. I once almost got a contract programming job (in 2002) dealing with this.

Medicine has a long way to go in recovering information about all of a patient’s care, from different medical centers and cities. It’s a big deal to transmit catscans digitally and store them and takes a whole new infrastructure. That’s another priority for the new Obama administration. The president-elect spoke about health care reform at a press conference this morning.

Wednesday, December 10, 2008

Federal T-bills become the new mattress, even with furniture stores out of business


The latest shocker in the “business depression” 2008 saga is that now investors are buying T-bills for 0 yield, and that for a while Tuesday they dipped into negative interest rates. That is, investors would pay Uncle Sugar to hold money under the mattress! This looks grim, at the same time that the World Bank officially says we are in global recession, with nothing in sight short of another Roswell invasion to stir it up. Anywhere in the Universe, any civilization advanced enough to have money will experience cyclical business depressions (even among multiple planets) just like we do.

Vikas Bajaj and Michael M/ Grynbnaum have a front page story Dec. 10 2008 in The New York Times “Investors Buy Federal Debt at Zero Yield: No return, but a way to protect cash”, link here.

Renae Merle and Steven Mufson have a story on p D1, Business, of today’s Washington Post, :”In new sign of investor fear, T-bill yields go negative”, link here. It seems that US Treasury bills have gone bald on the legs.

Steven Pearstein has a “Suze Orman” like column (on the same Business front page in the Post) castigating our world’s business leadership, “A Perfect Storm: No, A Failure of Leadership”, link here. The article is called “Executive Indemnity”, as if executives were book authors. He mentions the behavior of the fishermen (Billy Tyne) in Sebastian Junger’s “The Perfect Storm” as motivate by short term focus and indirectly by herd mentality. But I think this is more a matter of what George Soros calls “market fundamentalism” failing on its face.

Monday, December 08, 2008

Washington Post: time to raise gasoline taxes, now, big time!


The Washington Post today (Monday, December 8, 2008) has a strident editorial calling to the Obama administration and Congress to implement a stiff gasoline tax now, while oil prices are low again (relatively speaking). The Post says that the tax could be offset by income tax credits for the poor or businesses in other areas. The idea is to incentivize consumers into buying fuel-efficient cars, and help a revitalized, restructured auto industry get back on its feet and be able to provide steady employment making cars that Americans and actually will need. Another idea is to reduce dependence on foreign oil for national security reasons, and be prepared for possible “peak oil”, as well as to reduce greenhouse gasses.

A gasoline tax could go hand-in-hand with cap-and-trade systems and public policy that makes individuals much more conscious of their personal “carbon footprints.”

The editorial points out that Europeans have been used to much higher gasoline taxes and prices for years. I remember in France in 1999 that a fill-up of a small Europcar rental car with diesel fuel cost about $30.

The name of the Editorial is “Start Making Sense: America must end its denial about gas taxes”, link here.

Update: Dec 9, 2008

The Washington Post has a related editorial "Invest in Mass Transit: A farsighted way to jolt the economy", link here.

Sunday, December 07, 2008

Did the corporate debt rating agencies have a conflict of interest during the collapse? A look at Moody's


The New York Times has an article about credit rating agencies, particularly Moody’s, “The Reckoning: Debt Watchdogs: Tamed or Caught Napping? In the Housing Boom, Credit-Rating Firms Led Investors Astray,” by Gretchen Morgensen, on p A1, today, Sunday Dec. 7, 2008. The link is here. The stock symbol, MCO, shows that the stock has tanked toward the end of the year, just like everyone else.

The article explains the process of securitization of mortgage loans, and how that hid the individual borrower risk from lenders. Batches called “tranches” were placed in separate rating categories.

The integrity of the rating process seems to be undermined by the pressure on analysts to generate revenue. Moody’s reportedly revised ratings of Countrywide when pressured, and later seemed to back off on fully assessing the risks of the mortgage securities in order to bring in large profits in the short term.

Investors would have a reason to believe that there is an inherent conflict of interest in the corporate ratings process.

The mortgage crisis began to unravel in early 2007, but ratings agencies (including Best and Fitch) probably did not get stricter right away. But in 2008 they had become aggressive; the threat downgrades to AIG was one of the elements that propelled the crisis in mid September 2008, including the Lehman Brothers bankruptcy.

There does not seem to be a comparable problem with individual credit reporting agencies. Accuracy of reports depend on accuracy of information on consumers, and this is a big problem but not related to the underlying integrity of the process. Credit scores, however, seem to depend on arbitrary “risk predictor” rules that constantly need to be reviewed. Underwriting is a sensitive job, and those who do it must avoid personal conflicts of interest. This issue came up in my own career in an oblique way in the 1990s.

In the kind of world we live in, there will always be a private business model to predict risk. Insurance companies have to do this all the time with actuarial tables and prevention of anti-selection. It also gets harder to predict risk in a global world with so much asymmetry. .

Saturday, December 06, 2008

Time Magazine features Michelle Rhee, Washington DC's school system chancellor who "cleans house"


The December 8, 2008 issue of Time Magazine features, on the cover, a picture of Washington DC public school system Chancellor Michelle Rhee, standing tall, with a big yardstick (or is it a broom?). The cover reads “How to fix America’s schools” and the article “Can she save our schools” appears on p 36, link here.

Michelle, hired or appointed by Mayor Fenty in 2007, has been a controversial and feared figure, dismissing a large number of administrative employees, closing some schools, and firing a number of ineffective teachers, often because of failure to complete certifications. She has also made moves toward eliminating teacher tenure, and paying much higher salaries to attract the best teachers. She pays unannounced "pop quiz" visits on classes of individual teachers, poking into the room and watching for two minutes and then leaving, with shaky teachers wondering if they're next, perhaps. The Time article gives some dismal numbers, such as that 36% of DC high school students are proficient in mathematics, and 39% in reading. In Washington DC, the teachers don't have the "power" now, unless they're very good.

Local television stations, such as WJLA, report that high school students like her. The betters students believe she is really pulling for them.

All of this reminds me of an ABC John Stossel report some time back, when he said that in New York City, it was almost impossible to fire ineffective teachers, who were just sent to holding pens where they got paid to stay all day and do nothing.

"Teach for America", military and other service opportunities attract college students in tough economy


More college students are becoming interested in Teach for America and other service opportunities, according to Megan Greenwell in a front page article in The Washington Post, Saturday Dec. 6. The title of the article is “Applicants Flock to Teacher Corps for Needy Areas,” link here.

The recent HBO film "Hard Times at Douglas High: A 'No Child Left Behind' Report Card
", about an inner city Baltimore high school, demonstrates the problems that young teachers will have and shows that they need to have practical experience before with inner city or poor children.

All of this happens while unemployment accelerated sharply in November up to 6.5%. Over 500000 jobs were lost in November, when the expected loss had been 300000. The pace of job loss is accelerating, like a derivative in calculus. Some states will have serious problems paying claims from the unemployment insurance coffers without federal assistance. Students certainly have an economic incentive to look at all kinds of service opportunities. For example, engineers could work on clean water or other infrastructure projects in developing countries funded by private charities and organizations.

Many service jobs or opportunities expect to see a track record of volunteer service before. This is true of the Peace Corps application.

Military service is obviously going to be more attractive to many young people, especially those with multiple language skills. This makes ending the “don’t ask don’t tell” policy a high priority.

We seem to be in the classic economics textbook deflationary depression cycle, triggered by the collapse of the debt pyramid with the mortgage mess and improper securitization of the default risk. However, the need to solve “real problems” with infrastructure, clean and renewable energy, and there is obvious need in service areas. These, and overriding concerns about sudden international disruption, could complicate the psychology

Friday, December 05, 2008

New report shows states with lax weapons laws tend to "export" crime; a counter view of the 2nd Amendment?


A political pressure group called “Mayors Against Illegal Guns” has culled data from the Bureau of Alcohol, Tobacco and Firearms and come up with a report that identifies ten states “of origin” as responsible for a disproportionate number of offenses against police officers, and exporting weapons related crimes out of state. The PDF document, based on data from 2006 and 2007, is here.

The states leading, in 2007, as the source of crime weapons recovered out-of-state are Georgia, Florida, Texas, Virginia, California, Ohio, North Carolina, Indiana, Pennsylvania, and Alabama.

The Washington Post has a story by Cheryl W. Thompson on p A10 on Friday, December 5, 2008, and presents a slightly different list. The states are West Virginia, Mississippi, South Carolina, Kentucky, Alabama, Virginia, Gerogia, Indiana, Nevada, North Carolina. The link is here.

Maryland is way down the list, as is the District of Columbia, because of stricter laws.

The data at first glance might seem to run counter to political support for Second Amendment rights. But one major factor is whether the state requires background checks, for purchase either at conventional gun shops or at shows.

As covered here before, the District of Columbia has been forced by the Supreme Court to allow residents to have defensive weapons at home with some regulation, as a result of an “individualistic” interpretation of the Second Amendment.

Thursday, December 04, 2008

They're Back! (The Big Three) on a Game Show; no slumdog millionaires welcome


Today, The Washington Times levels things against the “Big 3” auto makers with an editorial “The Case for Chapter 11”. The link is here. The editorial particularly focuses on the concern that car buyers will not have warranties honored or would not be able to find repair replacement parts. The editorial says that this problem has been handled with bankruptcies in the past, partly by structuring the warranty and parts businesses outside of bankruptcy, and by guaranteeing customer claims. Even so, it is hard to believe that consumers, in practice, will be willing to buy cars from a manufacturer in Chapter 11. We would want to know where bond holders (directly, or as parts of mutual funds) would stand in being repaid.

CSPAN has been televising the Senate hearings today, and they do sound a bit more cordial. Speakers have said that a collapse of the car companies would drive a lot of minority-owned businesses out.

We’re seeing Car acceptance companies filing to become commercial banks to accept deposits and get FDIC protection.

Visitors may want to read the perspective of the Cato Institute, by Daniel Ikenson, “Big Three Ask for Money – Again” here. Cato calls the hearings a national game show” called “To Bail Out or Not to Bail Out.” "They're Back", all right, having humbled themselves by driving their own hybrids from Detroit to Washington (even through Ohio, for goodness sake) in order to "pay their dues."

Just a couple years ago, dealers were hiring trainees to sell cars and claiming they could earn $100000 a year if they were extroverted enough! Now, the Big 3 CEOs hardly seem as admirable as the "Slumdog Millionaire."

Update: Dec. 5

John Stossel and Ben Stein debated the car bailout on Larry King Live tonight. Stein said, you don't worry about the morality of the patient when on life support. Stossel said, you let them go under because the assets are still there; someone else buys the pieces and restarts the business and hires the workers back, cheaper, but with better management.

Wednesday, December 03, 2008

Lame-duck Bush administration relaxes rules for "mountaintop removal" strip mines


Juliet Eilperin reports on p A6 of the Washington Post today that the Bush administration is finalizing rules that will make it easier for coal companies to deposit overburden from strip mines near streams. The title of the story is “Rule Would Ease Mining Debris Disposal: Environmentalists Fear Streams Will Be Harmed” link here. The story is accompanied by a graphic color picture (photograph) from a ridge or mountaintop mine at Mud River, W VA (in the southern part of the state), which looks like a Mars-scape except for one splotch of green.

Mountaintop removal has been particularly controversial, gradually “flattening” some regions of western Appalachia almost as in Isaiah!

Coal companies claim that the new regulations will only allow them to fill in near very small and inconsequential streams.

While strip mining has become increasingly controversial ever since the late 60s, it was common even in the 50s, with some topographical hiking maps from West Virginia even then showing old strip mines.

High school calculus teacher has to fund using more paper for longer, and more frequent exams for students


On Tuesday, Dec. 2, USA Today ran a story about a high school mathematics teacher who sells ad space on his paper examinations.

Math and calculus teacher Tom Farber at Rancho Bernardo High School in suburban San Diego, CA started the practice when the school reduced the copying budget for each teacher during the year.

The front page story is by Greg Toppo and Janet Kornblum, is titled “Teacher does the math – and sells ads on test papers; To pay for his photocopies, ‘tough action’ is the answer”, link here. The online title story is “Ads on tests add up for teacher.”

The teacher says he wants to give his students more practice for their Advanced Placement calculus exams, so he needed to make the free-response exams longer and offer more problems.

When I substitute taught, I encountered a calculus exam in two parts. The first part was without graphing calculators, and the students had to turn in that portion before getting the second part with calculators. The class periods ran about 90 minutes.

In some school districts, it’s possible for students to have two years of calculus in public high school, taking them as far as integration (and even the notorious “integration by partial fractions”). That gives a big jump on college tuition and costs, but the current economy may force many school districts to cut back AP programs.

In graduate school back in the 1960s, some professors gave closed book in-class hour examinations in 50 minute periods. Typically that’s enough time for only four or five problems, some with parts.

The story also brings up another point: many teachers spend money out of their own pockets for supplies. We used to hear about that with low-income districts and mostly in elementary schools. The National Education Association says that the typical bill for teachers is about $430 now. To me, it's always sounded grossly unfair that teachers have to spend money out of their own pockets to do their jobs! I couldn’t find that story there, but the site does give some amusing stories if searched for “supplies”. I think its “classroom management” link is also interesting.

Update: Dec. 4, 2008

History teachers ought to present Shay’s Rebellion, instrumental to the creation of our constitutional government, and related to today’s problems with debt. Students might have a lot to learn, valuable to them as young adults, from studying the effect of this episode of history. Teachers should ask test questions on this material with the semester American history exams, and students should be prepared for questions on the incident on standardized tests. The incident is explained in the third DVD of the PBS series “Liberty!”.

Picture: Thomas Jefferson High School for Science and Technology, Fairfax, VA.

Tuesday, December 02, 2008

The Recession Is Official, but Everybody Knew (except the Bush Administration)


It’s official. We already knew it. The United States is in a Recession. The National Bureau of Economic Research (with its Business Cycle Dating Committee) announced that the official end of the previous 73 months of economic expansion occurred in December 2007. There are too many media reports to count, so go to the source, here.

It’s pretty silly, but the stock markets reacted with usual emotion, dropping almost 700 points Monday. And guess what, consumers spent out their “walletpop” on Black Friday. They didn’t even go back to the malls on Saturday. Traffic was relatively light on my day trip to Annapolis.

Along the way (say, “over the river and through the woods”) a few other sobering comments got made. The big three auto makers came back to town today (Detroit at Washington, and this time the visiting team won’t win). Ford may be in better shape than the other two (it always was, even when I bought my 97 Escort), and Chrysler shows the effects of non-transparency, having been taken private in a LBO (bad idea). But GM, with its spanky new quarters in Renaissance Center (as Michael Moore points out, the City of Detroit took over the old quarters), is playing basket lady. The financial gurus say that the best hope may be for the government to take an ownership stake. It’s debt is crushing, and bondholders face default (its bonds are trading at 30%, and, fortunately, it looks like my own Black Rock fund doesn’t have any – but I had to check). GM says that nobody will buy cars from a company in Chapter 11, although I don’t know if that’s true. (My 1979 Chevette fell apart quickly, with a bad differential, but it was, after all, a Chevette). Of major concern are huge union wages and benefits for domestic auto workers, and the 95% pay offered many laid off workers. Unions are already offering concessions.

We’ve seen core industry meltdowns before. In the 1970s, the Pennsylvania railroad went under. But now railroads seem pretty strong (just watch the History Channel’s “Extreme Trains”). What they needed was efficiency and restructuring. The Washington Times probably gets it right on some of these industries.

The other big story appears in Blogging Stocks, a report, byt Lita Epstein, that the Bush Administration had ignored the warning signs of a mortgage meltdown for a long time, link here. Actually, the “official” beginning of recession in late 2007 comports with the article: recession, which had been coming on for some time, helped soften the housing prices and pop the bubble, leading to the quick collapse of what seems now like a Ponzi scheme or a house of cards. All capitalist societies that trade and use money have business recessions or depressions. The housing collapse was going to happen. I’ve personally lived through housing sumps before, as with Texas in the late 1980s. They happen. Housing softening and collapse was going to happen again, along with recession. There simply are no exceptions to this principle. The 1950 World Book Encyclopedia uses the word “depression” ubiquitously and calls “business depression” the “new terror” but it is really very old. There’s perhaps somewhat of a moral lesson, preached by Michael Moore and others on the Left: when wages cannot keep up and when the middle class and poor become weak, a whole business infrastructure becomes more vulnerable. This time, because of the especially suspect financial structures that had been constructed to “hide” the debt, the risk to everyone from a housing collapse was especially severe.

We may owe our Constitution and federalist government to a previous debt crisis, Shay’s Rebellion, which preceded the Constitutional convention and presented debt and financial issues, demanding big style reform (from the weak governance during the Articles of Confederation), that somewhat parallel ours. This is a good thing for history teachers to note now. Maybe the next generation can learn the lesson.

Thomas Friedman is certainly right. The country does not have time for business as usual. There is no time for partisanship. Obama and Bush must work together right now, and very publicly.

Monday, December 01, 2008

Study shows increase in high school student cheating


A recent study by the National Association of Secondary School Principals reports a steady increase in incidents of academic dishonesty in the nation’s secondary schools. All of this is reported in an AP story by David Crary, reported Nov. 30, 2008, link here. The story was printed on the December 1, 2008 Washington Post on p A6.

Close to two-thirds of students report having cheated on tests, and fewer admit to plagiarism. That represents a steady increase over time.

I could not find the study yet on that organization’s website, here. I did find an earlier blog entry from March 2008 here. Since the organization has a convention soon in 2009, the topic will surely come up again, and I expect that the organization will publish the study online soon.

The organization seems to have an older version of the site here. Wikipedia has only a stub article on the organization.

Some schools report that they don’t have a lot of problems with tests, but do find it on graded homework. Another problem concerns plagiarism. Teaching proper research and attribution of sources is a major objective of high school English classes, and is covered over the course of a number of term papers in high school years. In my day in the late 1950s, we went to public libraries and took notes on indexed cards. Today, the World Wide Web makes determining the proper attribution and quoting and paraphrase procedures important. School systems have to figure out the new legal environment, which is changing, before passing it on to kids. Instances of plagiarism probably occur because of lack of understanding of the concept (which must be taught first) rather than because of an intention to deceive.

College English classes for undergraduates intensify instruction of proper research. In a freshman English class at George Washington University in 1963, we had to write an "annotated bibliography" first on the term paper we would turn in later during the semester. I think that's an excellent teaching technique. In those days, professors collected papers back after grading them so that they could not wind up in "fraternity files."

Webmasters who write politically charged essays on controversial topics like gay rights often find that their own work on the web is plagiarized and used by kids. This has happened to me and several of my friends on the web (and even been brought to our attention by others). Teachers and school systems use “Turnitin.com” to check for plagiarism and sometimes encourage students to check their own work with the service.

The legal environment around plagiarism is complicated by the recent reports that some news services (especially the Associated Press) would like to restrict how bloggers use their articles. This was reported on my main blog June 22, 2008 here. It’s possible that this could eventually affect the topic of academic integrity, but it is still unclear. Copyright law does not allow protection of mere facts and ideas, even if gathered by a reported. But business law allows protection of “trade secrets” which might matter in journalism, sometimes. It's always a good idea, when summarizing a news story (in a blog or even an academic assignment), to add extra interpretation or to bring in other related material from at least one other distinct source.

When I went to school there was much less toleration of “cheating” than today. Many colleges had honor systems (and still have them). When I was teaching algebra at the University of Kansas as a graduate student in 1966, I gave an F in a course to a student who I caught cheating (by copying answers) on just one test. Grades were a sensitive issue in the 1960s because of the Vietnam era military draft: student deferments could protect someone from the draft altogether, and college degrees (especially in sciences) tended to lead to much less combat exposure if one were drafted. So “cheating” took on a whole extra dimension then, and tended to be met with a "zero tolerance" attitude. There was an attitude that you had to be "qualified" to survive war into adulthood!

Picture: Strong Hall, the University of Kansas in Lawrence.

Sunday, November 30, 2008

Thomas Friedman: Inaurgurate Barack Obama right now!


On Nov. 22, 2008 Thomas L. Friedman (“The World Is Hot, Flat and Crowded”) ran an op-ed in The New York Times with a startling suggestion: Quickly amend the Constitution, and swear in Barack Obama as president on Thanksgiving Day. Forget the Inaugural balls and parade, we can’t afford them.

Friedman may not have studied John R. Vile’s books on the constitutional amending process, which gets complicated in practice and theory (despite what you learn for multiple choice government tests in high school). I think Friedman is right that Congress should stay in session and on the job.

Friedman says he is getting a bit anti-social, wanting to drive people out of restaurants (like in that scene from “Victor Victoria”) because nobody can afford to eat out right now.

The next best thing, he says, would be to ask President Bush to fire Hank Paulson and appoint Tim Geithner as Secretary of the Treasury right now. The markets aren’t fooled, he says. Bank stocks are trading at Great Depression levels now.

We found the fiscal “WMD” in our own back yard, or at least New York City streets. They were the derivatives, credit default swaps, and subprime mortgages. This is our “Code Red” he says. (Apparently Friedman has watched Tom Cruise in “A Few Good Men”).

The link for his op-ed ("We Found the W.M.D.") is this.

My take is that Barack Obama, George W. Bush, and even candidate and still powerful Senator John McCain should make some joint appearances and appear to be in charge. We really do have more than one president right now.

Thursday, November 27, 2008

Fed helps drop mortgage rates; a sudden refinancing boom?


Real estate agents and now loan officers must feel whipsawed. After months of slow or little work, suddenly some of them are at the office until after midnight, as suddenly the Federal Reserve announced Tuesday it would buy some mortgage-related securities, dropping interest rates.

The Federal Reserve press release from early Nov. 25 is here.

The Washington Post has a major front page story on the sudden mortgage boomlet Thanksgiving morning by Dina ElBoghdady, “As Loan Rates Fall, Borrowers Seek ‘Taste of the Bailout Pie’”, link here. However, some borrowers still will not have enough equity given the drop in appraisals (at least until Obama’s team figures out what to do about this) and many have had their credit limits drop, lowering their credit scores even if they have good bills-paying records.

The whole subject of credit score seems a bit arbitrary to me, and ought to get a much closer look, as to what really goes into it, and as to how accurately the scores really predict consumer “risk”. There are plenty of new variable on the scene to think about, and credit scoring could get further out of control. I worked on this product, at least tangentially, in the 1980s when I worked for Chilton Corporation in Dallas (now Experian).

I once refinance a condo in Dallas, in 1986, going from a 12.5% VA to a 10.5% FHA. The closing just consisted of signing papers in a lawyer's office.

Wednesday, November 26, 2008

Washington Times: Obama's health care programs will invite destructive anti-selection


The Washington Times today (Nov. 26) ran a blistering editorial “The coming health-care tsunami”, on p A20, link here. The editorial was particularly critical of mandatory plans with “community rating” or “shall issue” (that is, guaranteed issue) provisions that would cover those who “smoke, abuse drugs, or become obese.” (It's all too easy to imagine many other examples of this kind of argument, that don't need to be listed right here.) The editorial says that such requirements (essentially forced "anti-selection") would drive private insurers out of business and bring on a government monopoly.

According to the editorial, Senate Finance Committee Chairman Max Baucus (D-MT) reportedly wants to expand Medicare to ages 55-64. He also wants every American to buy insurance through an Independent Health Insurance Council. Baucus has a “Call to Action” position paper (PDF) for 2009, link here.

On P A21 Washington Times contributor and syndicated columnist Tom Blankley has an op-ed piece (link here), “Obama’s health care czar: Tom Daschle book (written with Jeanne M. Lambrew, and Scott S. Greenberger, published by Thomas Dunne) lays out plan”. The book is titled “Critical: What We Can Do About the Health Care Crisis”, in which a new board, modeled after the Federal Reserve and SEC, would set up standards for health care.

All of this seems to do with how to make people with lower risk pay for those of higher risk, no matter how you package it. It creates social and personal confrontations that cannot be avoided. For social conservatives, that obviously loops back to the debates on "family values." But there is a bigger issue, of what will work for everybody. It gets to a point that ideology about "personal responsibility" just gets counter-productive.

The Editorial talks about Medicare and social security, but could have gone into the dimensions of the coming eldercare crisis, noting that Medicare does not normally cover custodial care. The end result is an increase in family responsibility (including likely future attempts by states to enforce "filial responsibility laws") for everyone, regardless of their own “choices” about having children. I’m surprised that the Washington Times hasn’t gone deeper into this. There is plenty of opportunity.

Monday, November 24, 2008

Ron Wyden's "Healthy Americans Act"


Senator Ron Wyden’s “Healthy Americans Act” is an important idea in the health care debate. His PDF file describing it is here.

The govtrack reference is S 334 (110th Congress) here. Senator Wyden is a Democratic Senator from Oregon.

The bill would allow each American to purchase a HAPI or Health Americans Private Insurance Plan and calls for employers to make “shared responsibility payments”. It would terminate the Federal Employees Health Benefits Program (FEHB) and the State Children’s Health Insurance Program (SCHIP). It would make health insurance mandatory in a manner a bit like the Massachusetts plan. It aims to provide a level of care that members of Congress enjoy for “an affordable price.”

On p B03 of the Sunday Outlook section of The Washington Post, Nov. 23, Shannon Brownlee and Ezekiel Emanuel, “5 Myths About our Ailing Health Care System,” link here. America does not have care as good as many other western countries that spend less, link here. Most of the runnup comes from excessive tests (to avoid malpractice) and adoption of new technologies that do not offer radically improved outcomes. It is true that some outcomes have improved radically, as with HIV disease, and with the control of heart disease with carefully monitored medications.

The story mentions the Lewin Group's analysis of the bill, although I could not find that today on the Lewin web site.

Sunday, November 23, 2008

Private health groups say they can offer universal coverage with mandatory insurance


Two health insurance industry trade groups have said that the private health insurance industry would be willing to offer guaranteed issue and cover everyone regardless of pre-existing conditions, if Congress requires that everyone have insurance.

The two trade groups are America’s Health Insurance Plans (their story is here) and the Blue Cross and Blue Shield Association (story here).

The story is by Robert Pear in the Nov. 19, 2008 New York Times, “Health insurers to accept all applicants, on condition,” link here. The underlying logic is to remove anti-selection and cherry picking.

A mandatory guaranteed issued system could work in the individual market, even if employers got out of the picture. Or employers could stay in but coverage should be portable.

Massachusetts has implemented a mandatory health insurance policy, with controversial results.

Thursday, November 20, 2008

Pseudo-president Jim Cramer proposes 8-point plan: Don't wait until Jan. 20


Well, “President” Jim Cramer ("Mad Money") announced his eight-point plan for saving the country from Great Depression 2 today, in a piece called "What I would tell Obama". We can’t wait for January 20’s inauguration of Barack Obama, or it will be the coldest day of the year (but in DC weather statistics say it's supposed to be). Obama needs to have a press conference now and announce Jimmy’s (Mad Money) plan.

His point include not allowing any more financial institutions to fail, guaranteeing all life insurance and annuities, giving tax credits for home purchases, insure the bonds of Fannie and Freddie (I thought it had done that). He would give aid to an auto company if and only if it does a Chapter 11 bankruptcy.

The recipe appears on “The Street” here.

Today, Democratic leaders in Congress seemed willing to talk to automakers again in early December, if the CEO’s learn their lesson and “pay their dues” (don’t fly private jets). Yet, the Dow tanked in a sickening last hour of trading.

Welcome to the United Socialist States.

Wednesday, November 19, 2008

Are we entering Great Depression 2? Did government start it?


Paul B. Farrell of Marketwatch gives “30 Reasons for Great Depression 2 by 2011: New-New Deal, bailouts, trillions in debt, antitax mindset spell disaster” at this link. As the 1950 World Book Encyclopedia says, "Business depression" is the new "terror." All societies that have money systems have experienced economic downturns.

Farrell starts with a discussion of the dot-com bubble in 2000 followed by the housing bubble, morphing into a megabubble of bubbles, rather like a multiverse of universes.

Ben Stein has been writing columns saying that only government can stimulate the economy enough to get things moving again. For example, Nov. 17, "Reflate the Economy, Now", link here.

The most touted reason is a basic failure of “market fundamentalism,” which was also the case as the Great Depression followed the 1929 crashes. Is this a renouncing of libertarianism? Well, I think that libertarian principles would still require that “securitization” of investor money be transparent to them. I don’t think people should need repeated calls from financial planners to manage their money with basic portfolios. (Day trading is different; you do have to know what you’re doing.) I think people ought to understand what funds will do with their money. I think retirees ought to be able to see what employers do with their pension funds.

The Cato Institute has a Briefing Paper by Lawrence H. White, “How Did We Get Into This Financial Mess?”, Nov. 18, 2008, PDF link here. The paper discusses unsound policy on interest rates (in conjunction with the Taylor Rule) but goes on to criticize the pressure by government on banks, starting with the Community Reinvestment Act at least, to make unsound mortgage loans to low income people. The paper is critical of public policy that tries to make “free” luxury housing available to unqualified borrowers ultimately at the expense to others. It sees this as redistributionist expropriation, or playing Robin Hood. It seems like this started with the Democrats. But then the Republicans looked the other way on reckless securitization practices, out of sight of investors.

The gloomy Federal Reserve minutes were released today here, although they refer to data that was known before the end of October.

Visitors should note the Treasury Department's Emergency Economic Stabilization Act Website.

And we all know about "Democratic lame duck Congress to Big 3 Auto Makers: Drop Dead!"

Tuesday, November 18, 2008

Economist says federal government should eliminate negative equity with partial full recourse loans


Today The Wall Street Journal has an article by Martin Feldstein (on p A21), “How to help people whose home values are underwater: The economic spiral will get worse unless we do something about negative equity,” link here. Mr. Feldstein was Chairman of the Council of Economic Advisers under Ronald Reagan.

He writes that the United States is the only major country that does not offer lenders “full recourse” on defaulted mortgages. Now, I know that in the 1990s this was not necessarily true, as I wrote on Nov. 1 on my main blog, here. Default judgments happened then. They may not be practical now, but then how could they work in Europe or Australia? But Mr. Feldstein correctly says that removing negative equity will be one of the new president Obama’s highest priorities.

He suggests that upsidedown loans get help by 20% replacement with “full recourse” loans from the federal government. He also suggests cooperative write-downs in the loan balances from lenders, essentially removing negative equity and the incentive to default. Perverse incentives and unintended consequences must be thought through very carefully. Feldstein is critical of more superficial proposals from Barney Frank and Chris Dodd.

Monday, November 17, 2008

Arguments about later marriage have a flip side


Mathematica has made a study for the Administration for Children and Families for the United States Department of Health and Human Services, “Strengthening Relationships and Supporting Healthy Marriage Among Unwed Parents,” with a lot of statistic information about mainly low income couples, by M. Robert Dion and Barbara Devaney, link here.

The Washington Times, on Sunday Nov. 16, ran a column in the Family magazine p 15, “Marriage, family a goal for teens,” by Cheryl Wetzstein, link here. She discusses the welcome decrease in teenage pregnancy and intercourse, and notes a concern of a delay of teens to delay marriage. Then the emphasis on the article tends to an increase in interest in trial cohabitation, which may increase the odds of divorce later.

It seems as though we’re mixing a lot of concerns here. But one problem, more subtle, is that people postpone marriage forever for seemingly constructive reasons – career, and not sex. Wetzstein even mentions that more parents of adult children despair as to whether they will even have grandchildren at all. We’ve made it almost punitive for some people to marry and have children, say some observers like Philip Long (“The Empty Cradle”). It’s not so clear what the biggest concern is.

Then, today, The Washington Post ran a story by Chris Jenkins, “Raising Kids of Relatives Could Bring Federal Funds,” in the Metro Section, p B1, link here. The story, emphasizing poor families, tends to suggest that people, even childless people, often have to be able to raise other people’s children.

Then, on Nov. 17 Good Morning America, there was a brief report on a program in Kansas on “warchdog dads” where fathers take a day off work and spend time in public schools, especially grade schools. The story is by Erin Hayes, “Dads Trade Overtime for Quality Time
'WatchDOG' Dads Get Involved As Local Volunteers and School Mentors, link here.

Sunday, November 16, 2008

Employee Free Choice Act: Both sides argue vigorously


Today some media broadcast and cable stations were airing ads for the Employee Free Choice Act (of 2007), with acronym ECFA. Govtrack gives this as H.R. 800, introduced by George Miller (D-CA. with 233 cosponsors), passed the House, but without cloture on the motion to proceed in the Senate. It is also called the “card check bill”. The Govtrack reference is here.

An advocacy organization has a website with a petition to support the passage of this legislation. The website is this. The website claims that the bill would strengthen penalties against employers who break the law, allow either side to request mediation, and allow for a “majority sign-up” concept.

There is a website called “ECFA Exposed” from the “Labor Relations Institute, Inc.” The summary complains about “card-check of unions without a secret ballot election” (that is, more potential of union pressure on employees publicly), government imposed “fast-track” contracts, and punitive damages for companies but not for unions. The site URL is this. The site claims that president-elect Barack Obama has promised to sign the bill. There is an embedded YouTube video “ECFA Exposed” in which individuals who are identified as “real” union organizers argue against the bill as allowing undue social pressure on individual people to sign up.

The legislation speaks to the whole question of how important structured “power” relationships need to be our economy.

Picture: AFL-CIO on 16th St. in Washington DC, near the White House.