Archive for the ‘economics’ Category

« Older Entries

Creating the next crisis 2

Friday, June 26th, 2009

Remember all that junk mail:

Bad credit?
No credit?
No problem! Buy the house of your dreams with no money down!

Well thanks to the great Bush-Obama stimulus package, looks like you will be seeing it again.

When the government says that private lending has dried up, this is code for the strange absence of no money down loans to people with bad credit.  People I know, such as my sister in law, who had money and good credit found that lenders rolled out the red carpet for them.  There was never lending crisis for traditional borrowers.

When the government says there is a lending crisis, it means the problem is that a drunken no-hablo-English wetback seems to be finding a bit of trouble borrowing.  But never fear.  Your ever helpful and benevolent government is remedying this terrible market failure.  Whatever would we do without regulation and subsidy?

The FHA is now providing one hundred percent government guarantees for loans to people with bad credit.  Supposedly the borrower must put three and a half percent down, but since real estate agent fees, mortgage broker fees, and assorted charges theoretically add up to slightly over ten percent, a clawback from the various people involved can and does reduce this to zero.  When I transact a house, I usually manage to clawback four to six percent from these various charges, so if I was purchasing a house with what on paper was a three and half percent down loan, and managed to get my usual clawbacks, I would get the house and two percent cash in hand – negative money down.  And that is without a kickback from the seller. Of course that is why the lenders would rather do the loan with a drunken no-hablo-English wetback, who is unlikely to be so fierce at clawing back and chiseling down their fees as I am.

When you buy a house on a loan with small money down, you usually also get an under the table kickback from the seller.  With a kickback from the seller and clawbacks from agent and broker fees, three and a half percent down vanishes fast.

Tags: , , , ,
Posted in economics | No Comments »

The universal government white paper:

Friday, June 19th, 2009

In my earlier post Creating the next crisis I critique the same white paper on solving the financial crisis as Arnold Kling critiques

On of his commentators has an excellent summary of this paper, and indeed every similar governmental and quasi governmental paper addressing every crisis:

  1. Politicians are of course entirely lily white and innocent, except that the other party allowed bad people in the private sector to do bad things.
  2. Some government agencies failed to do enough.
  3. Solving the problem requires more power to the government.
  4. Those government agencies that failed the worst, shall get the largest increase in money and power.

Tags:
Posted in economics, politics | No Comments »

Inflation looms

Friday, June 19th, 2009

Bryan Caplan, favorably citing Sumner, tells us “stop worrying about inflation”

Supposedly we should stop worrying about inflation, because the bond markets predict only moderate levels of inflation. Supposedly we can determine future inflation by looking at the difference between Treasury Securities, and Treasury Inflation Protected Securities. Supposedly, this tells us what the people investing in securities think that inflation will be, and they are pretty good at predicting inflation.

However, this tells us only what people who are confident that inflation will be moderate think inflation will be, because if you are worried about immoderate levels of inflation, you do not diversify into long term Treasury Inflation Protected Securities, you diversify into gold, silver, guns, ammunition, rice and beans, which is roughly what the Chinese are doing, except that they are also diversifying into copper and iron, and private Chinese are not allowed to diversify into guns and ammo.

The bond market does not tell us what the smart money people think inflation will be. It tells us what those among the smart money people who do not expect very high levels of inflation think inflation will be.

What are the Chinese worried about?

They are not worried about the possibility four percent inflation in 2011. They are worried about the possibility of four hundred percent inflation in 2020. And so they are not buying Treasury Inflation Protected Securities. And so the difference between Treasury Securities and Treasury Inflation Protected Securities fails to reflect their concerns. And so, if we look at the bond market, what it tells us is that the Chinese think inflation may well hit four percent in 2011, but does not tell us what they think inflation will be in 2020. But if you listen to what they are saying, what they are saying is that they think there is a substantial risk of very high levels of inflation in eight years or so.

Governments tend to go down the tubes when total public debt is around two hundred percent of GDP or so. Thus a deficit of ten percent of GDP or so is sustainable for ten or twenty years or so. Trouble is that in addition to an on budget deficit of ten percent or so, there is also a much larger off budget deficit, in the form of an ever growing pile of government guarantees, which there is no will to restrain. Put the two deficits together, crisis looms.

Trees do not grow to the sky. That which cannot continue, must stop.

Tags: , , , ,
Posted in economics | 1 Comment »

Internet Gold alive and well

Monday, June 15th, 2009

Iang gives us an obituary for e-gold.

E-gold is only dead the way Napster is dead. Like Napster they demonstrated that the business model was viable, and also demonstrated that as soon as you started transferring serious money the US government would come after you.  As a result, there are a lot of replacements for e-gold, which the US government will find hard to shut down, notably Pecunix and Webmoney.

Posted in economics | No Comments »

obamanomics

Thursday, May 7th, 2009

Megan nails it:

the government is using its intervention in the banking system to pressure banks to give special deals to the government’s special friends.

Tags: ,
Posted in economics | No Comments »

Securitization

Wednesday, May 6th, 2009

From the point of view of oligarchs and crony capitalists, the crisis is not that a lot loans were made to no hablo English wetbacks. The crisis is that people are rejecting securitization of debt.

The Obama regime’s capitalism smashing measures are intended not to destroy capitalism, nor to install socialism, but to restore securitization of debt. This is socialism for the financiers, not for the proles:  Crony socialism, crony capitalism, a fascist economic order.

Regular old fashioned loans are going through just fine. There is no credit crisis, the financial system is not freezing up. Securitization is freezing up, and it @#$% well should freeze up.

When debts are securitized, many different debts of many different borrowers are piled together into a great big pool of debt, and then shares in the pool are sold to lots of creditors – which means that there is no one person responsible for verifying that any one particular loan is sound, that the assets securing the loan are worth what they are supposed to be worth, that the person responsible for making payments on the loan can read and write, that he speaks the language that the papers that he signed were written in, that he was sufficiently sober when he signed them to remember signing them, or even that the paperwork exists and is in good order.

For securitization to work, the particular organization that arranged the loan, and the particular people in the particular organization, would have to remain responsible for that loan.  The debtor would have to be making payments through the people that arranged the loan for the life of the loan.

Securitization leads carelessness with large sums of other people’s money. Such carelessness leads to crime. Crime destroys the trust that is necessary for the economic system to work. Securitization must stop. If securitization continues, capitalism will end. By and large, those who favor continued securitization are wealthy criminals, who personally benefited from stolen money, as over the years carelessness slowly became indistinguishable from deliberate fraud.   The problem before Obama was not lack of regulation, but that the foxes were regulating the chickens, and now under Obama the foxes are still regulating the chickens.  Each Obama intervention has the effect of keeping the criminals in power over other people’s money, resisting the natural propensity of capitalism to purify itself through creative destruction.

Securitization was born in fraud:  The original motivation for securitization was the 1995 Community Reinvestment Act. If the government is pressuring you to make loans on the basis of race, rather than willingness and ability to pay one’s just debts, you want to get rid of the politically correct mortgages to some other sucker as fast as possible.

Securitization of debt is only legitimate when the people that arranged the loan remain linked to the loan.  Otherwise, securitization is a scam, as the origins of mortgage securitization demonstrate.

Tags: , , , ,
Posted in economics | No Comments »

Galt strike or inadequate aggregate demand?

Friday, May 1st, 2009

The Randian concept of a Galt Strike is that if the elite slack off, the masses will be impoverished – that countries are rich or poor according to whether the elite is productive, while the masses and resources do not matter much, except in extreme cases such as oil rich sheikdoms.

There has been a large fall in GDP over the past six months:

The Keynesian explanation of this fall is inadequate aggregate demand – the economy could easily produce more, but no one is spending due to depression of animal spirits, in which case a big spending government will make everything rosy.

The Austrian and Chicago explanation is complicated, and perhaps confused.

The Randian explanation is that it is a Galt Strike – the elite are slacking off, and focusing on hiding their wealth and economic activities from the government, rather than creating value, in which case big government spending will merely result in inflation or massive borrowing from abroad.

Core CPI will in time tell us which account is correct. We will know by about November 2010.

  • If  late in 2010 core CPI is substantially higher, nominal GDP substantially higher, but real GDP still woeful, then Randians will have been proven correct.
  • If  late in 2010 core CPI is lower or unchanged, then both sides can argue they were right, and the Austrians will probably have some explanation that I will be disinclined to follow.
  • If  late in 2010 core CPI only rises moderately, but real GDP rises substantially, then Keynesians will have been proven correct.

I am betting on disturbing levels of core inflation with a distinctly unimpressive recovery in real GDP.

Tags: , , ,
Posted in economics | No Comments »

Trillion missing, top accountant dead

Thursday, April 23rd, 2009

David Kellerman, the acting Chief Financial Officer and Senior VP at
Freddie Mac, was found dead early this morning from at his home in Virginia. It is described as an apparent suicide.

The press is rightly comparing this with the very similar “suicide” of Enron’s top accountant.

When large sums of money disappear, the person who knows most about where the money went often, by an interesting coincidence, winds up with his mouth permanently closed.

Freddy Mac and Fannie May have had accounting scandals before, but during the housing boom, all their sins were forgiven, and the offending executives retired with golden parachutes. This time around, the public is in a less forgiving mood.

There is an effort to link this murder with Obama, which is unreasonable because he has nothing he needs to cover up yet, not being in charge when the money vanished. On the other hand, his treasury department is full of friends of Obama who do have something to cover up.

Tags: ,
Posted in economics | No Comments »

Government pisses away the entire GDP in five months

Thursday, April 2nd, 2009

Bloomberg reports that since November, the government has spent, loaned, or guaranteed 12.8 trillion, an amount very close to one year’s GDP – one year of everyone’s income, or $42,105 for every man, woman, and child in America.

Tags:
Posted in economics | No Comments »

Smashing capitalism

Wednesday, April 1st, 2009

President Barack Hussein Obama tells us:

Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty.

This reads like something out of “Atlas Shrugged”.

I predict fifty percent inflation or so over the next three or four years – and that is if we eventually turn back from this course, or at least stop walking along it.  If, on the other hand, this goes on, with the government taking responsibility for one thing after another, as each intervention creates a crisis bigger than the last crisis, leading to more interventions, then I predict hyperinflation and widespread inability or unwillingness of government to provide order and protect property. Obama is not going to get under your car and fix it, and as the government takes on an ever growing multitude of tasks it is incapable of performing, its performance in its area of core competence (hurting people and breaking things) will deteriorate.

This crisis did not start with Obama, it did not even start with Bush.

During the final years of the Clinton presidency, Clinton greatly strengthened the CRA, which was glowingly reported by the newspapers

More than $1 Trillion Invested through CRA

Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000.

A more accurate report of the same facts would be

Politicians shovel one trillion dollars of off budget money to irresponsible and improvident members of narrowly targeted voting blocks, for which taxpayers are going to wind up on the hook

Government regulation winds up as off budget handouts to voting blocks (in this case mostly Hispanics) and well connected insiders (in this case some elements in Wall Street).  Crisis ensues as the bill comes due. To maintain the superficial appearance of normality, there is a drastic increase in intervention, but the synthetic normality is a mere facade, like putting makeup on a corpse.

We now have trillions of dollars of capital flowing away from well managed businesses, to businesses with implicit or explicit government guarantees – businesses that will rapidly lose that money – a huge increase in the already huge off budget expenses of government, in addition to the huge and rapidly growing on budget deficit.  Unacknowledged off budget government expenditures far exceed government’s ability to tax.  They will not necessarily exceed government’s ability to borrow – yet.

Tags: , , ,
Posted in economics, politics | No Comments »

« Older Entries