Archive for March, 2009

The crisis explained

Saturday, March 28th, 2009

I have been seeing a lot of references to “a speculative bubble”

Nope. They were not speculating.

The crisis consisted of people, mostly members of protected minorities with nothing to lose, buying houses they could not afford with borrowed money in the expectation that they would go up, and if they went down, it was the bank’s problem.

So the people who bought houses were taking no risk, since mostly they bought them with 100% loans, had no credit rating and no assets to lose.

So were the banks making the loans taking a risk?

No, because it was not the bank’s problem, because the loans were for the most part guaranteed by Freddy, or Fannie, or AIG – all of which had implicit government guarantees, and all of which had an AAA rating.

So why did AIG and the rest have an AAA rating?

AIG and the rest were issuing naked puts greatly exceeding their total capitalization, which pretty much guaranteed that sooner or later they would go broke in a big way. So why AAA?

Moody’s, who issued the ratings, was tweaked on this, and replied that it was unthinkable that the government would allow these institutions to fail. So it was not true that nobody knew what was happening. All the insiders knew what was happening, the regulators knew what was happening: they knew that businesses were taking big risks for big money in the expectation that if they won, they won, and if they lost, the government would take care of them. It was government policy. People have been complaining about this for years.

The fundamental cause of this crisis is government regulation: Governments cannot be trusted with money. They think only of short term political gain, so dispense money to the loudest pressure group, in this case those represented by ACORN, rather than to people who are likely to repay it with interest. In this case, the regulators decided that “traditional” standards of credit worthiness were racist and discriminatory, because too many Jews, and not enough Blacks, met “traditional” standards.

Racefail 09 explained

Wednesday, March 18th, 2009

Constantinople drew my attention to “This way lies fascism” which explains the conflict of which  Racefail 09 is part.

The left claims authority to convict people for thought crimes committed in other people’s dreams.  The hearer can find an offensive meaning without concern for authorial intent, and the author is guilty regardless of his intended meaning.  This leads to conflict, Racefail 09 being part of that conflict.

Under Racefail 09 rules, you have no obligation to understand other people’s intended meaning, and if you cannot follow what they say, and so confabulate up an offensive meaning, you are superior, you win, they are inferior, and they lose.

The smart, and those fluent in words, often express themselves in ways that are subtle, which the stupid and ignorant find hard to follow. Reading words that are hard to follow, they feel offended.  Racefail 09 rules guarantee that if they feel offended, their offense must be justified.

Thus Racefail 09 rules tend to be popular with the stupid and incoherent, and unpopular with the clever and those good with words.  Since the reader has sole authority to decide the writers meaning, and the writer is at fault if the reader decides on an offensive meaning, Racefail 09  is a pretty good deal for people who have trouble following other people’s words.

The problems with Laissez Faire sexuality

Tuesday, March 17th, 2009

In traditional society, women were strongly encouraged to refrain from sex before marriage, and marry responsible men with good jobs who were able and willing to support a family.

Today, women are encouraged to follow their hormones, which tends to result in them have offspring with a long succession of sexy males who disappear, often into jail or dying violently, and who often rough them up and steal their money before leaving.

Bryan Caplan correctly argues that the non traditional family does not necessarily harm children, because the low conventional success rate of children from such families may well reflect them behaving like their fathers, who have a different standard of what constitutes success, and may well be very successful by that standard – more chicks banged, less time wasted from nine to five, and more enemies maimed.  Further, women who choose to have a non traditional family presumably prefer it – there can be little doubt that the sex is hotter the badder the boy.

Now this is a good deal for alpha males, and lots of women argue it is a good deal for women, but it has a sizable externality, in that it encourages male behavior that causes problems for other men, and produces children that cause problems for other people.  Bastards are bastards. The production of bastards creates large external costs.  Encouraging fidelity, chastity, and female preference for responsible mates, even though their hormones tend to cry out for demon lovers, reduces other people’s costs – in traditional society the costs to fathers, uncles, and brothers of grown women, in modern society the cost of the welfare state, in all societies the cost of crime.

The welfare state reduces the costs of hormonal female behavior to parents of those females, since the cost of bastardy is externalized to the rest of society to a greater extent, and thus reduces the incentive of parents to inculcate their daughters with traditional values and deprecate the natural behavior of females – the natural inclination of women being more towards the demon lover.  Women can be socialized, pressured, and monitored into fidelity to males that materially support them and help raise their kids, but it takes a firm hand and a watchful eye.  While Islamic society takes this to extremes, the other extreme, total neglect of this problem, has costs also.

Why Racefail 09 hates John Scalzi

Sunday, March 15th, 2009

John Scalzi said he wanted to have absolutely nothing to do with the racefail 09 debate, and would ban anyone who brings the debate to his blog.

This non statement, and non communication, caused intense outrage, resulting in massive attack on John Scalzi, since all good leftists have to enthusiastically agree with the correct line, and failure to join the chant about the badness of various people under attack is itself a great and terrible sin.

One of the posters on his blog explains why Scalzi is now under attack:

the reason you [John Scalzi] drew ire is your inability to follow proper protocol:

  1. Acknowledge that you’re wrong, and guilty on all counts of whatever the other party accuses you, and
  2. agree with the accuser on just how very, very wrong you are/were, while knowing that any level of self-debasement isn’t going to be enough to placate them.

Clearly, the only thing that would begin to set things right would be your ritual suicide, hurling yourself into a bonfire fueled by everything you’ve ever written on- or offline. Don’t forget to put it on YouTube, accompanied by a ten-page manifesto on the magnitude of your wrongness, and the corresponding rightness of the accuser.

In response, Scalzi apologized profusely, and proceeded piously to post a lot of politically correct piety about race in literature, indirectly demonizing all his friends, allies, and supporters, without, however, directly addressing the debate concerning the sinfulness of various actual writers and bloggers.

Come on.  That is not good enough.  In your repentance, you need to directly condemn as many people as possible.

Racefail 09

Wednesday, March 11th, 2009

Hear the sound of the left ceasing to be the smart party, and becoming the stupid party:

On the Livejournal science fiction blogs, there is, or recently was, a passionate debate called  Racefail 09, wherein lots of bloggers accuse other bloggers of being racists.

Those accused of racism are those that are very left wing and very politically correct – they are those least likely to be guilty, most likely to be devastated by the accusation, and least able to defend themselves against the accusations because any defense would itself be politically incorrect. No one is accusing the likes of John Ringo. Instead the accused are people who are constitutionally incapable of calling a spade a spade. The accused are people who are normally clever with words and therefore can normally lacerate, devastate, and dismiss critics with ease – but are paralyzed by politically correctness from defending themselves against this accusation.

Therefore, the accusations are not motivated by concerns about race, rather, “racism” is merely the standard accusation that left wingers make these days, especially against each other.

None of those making these charges are the brightest bulb in the batch. They are all from the shallow end of the gene pool, the wrong edge of the bell curve.

So this looks to me not like anti racists going after racists, or even people of color going after whites, but more like the stupid people going after the smart people. “Racist” is these days merely an epithet that stupid people use a lot, much like “fascist” used to be.

And when that epithet is hurled, all the good leftwingers must dutifully join in, explaining that they were never friends of so and so, just as in 1928, there was a sudden dearth of Trotskyists, and in 1956, an equally sudden dearth of Stalinists.

A long predicted consequence of political correctness is finally coming to pass. Forbid thought, and soon your movement will be governed by those unable to think.

The Khmer Rouge, a party of very smart people, proceeded to execute all the smart people. America’s left cannot execute all the smart people – yet. But it can cast them out of its ranks.

The crisis has barely begun

Sunday, March 8th, 2009

“Naked capitalism” explains what has happened, and observes that the Bush-Obama policies caused it, are causing it, and are likely to cause a lot more of it.

Government guarantees will be abused – and the broader the guarantees, and more chaotic the situation the more they will be abused.  The solution is that existing guarantees must be reduced, and existing government initiatives curtailed or at least allowed to expire.   Extensive state intervention is extremely difficult to do right, easy to do badly, and the arrogant interventionists lack the necessary humility to do it right.

Obama plans massive permanent reduction in US standard of living

Thursday, March 5th, 2009

Under current USA nuclear regulations, you cannot launch any new nuclear projects unless the waste is going to go to a federally approved repository, and Obama has announced there is not going to be a federally approved repository.  Hence no new nuclear projects.  Obama has also announced that carbon emissions are going to be reduced sometime soon, though not yet.  If less carbon, then less coal and oil.  If no new nukes, and less coal and oil, then less energy usage.  Less energy usage, lower standard of living.

The Stimulus bill

Tuesday, March 3rd, 2009

Bryan Caplan wonders why Brad Delong cannot comprehend those who doubt the effectiveness of the stimulus bill.

Assume that creating value is easy, any brainless fool can do it, even the brainless fools at Washington Mutual. It is then immediately obvious that the government can make everything lovely by printing money and giving it to the morally worthy. Are car production lines shut down while unemployed workers idle? Just print money and give it to bureaucrats in government schools, or other similarly wise and worthy people, and lo and behold, those car production lines will start up again, and all will be well.

If, on the other hand, producing value is hard, then falling nominal GDP may well reflect the discovery that we were producing less value than we thought – that we were providing houses to people who were not in fact willing to pay for them, and building cars that were not in fact the cars that people wanted, in which case issuing enough money to stimulate the economy may well stimulate inflation, rather than the production of real wealth.

This brings us to Japan: Did Japan lose a decade because it refused to allow the free market to remove the power over assets held by incompetent people, or because it failed to borrow enough and spend enough?

Those who believe Japan failed to run a big enough deficit may well now get the chance to put their theory to the test in the US. If spending enough borrowed money to keep the incompetent running businesses stimulates the economy, then they will have proven themselves right.

Warren Buffet explains how to lose a trillion

Monday, March 2nd, 2009

Warren Buffet explained how to lose a few trillion, here and there.

Well managed companies, like Warren Buffet’s, don’t get government guarantees.  Badly managed companies with good political connections get government guarantees.  So naturally all the  capital floods to companies with a track record of losing it.This is capitalism in reverse.  For capitalism to work, the people who are good at managing stuff have to wind up in charge of stuff, and the people who are bad at managing stuff have to wind up out in the street.

In the nature of things, every bailout tends to be very quickly followed by an even bigger bailout – AIG has been bailed out more times than I am able to keep track of, each bailout bigger than the last – the next AIG bailout looks to be a hundred billion or so.  General motors, having recently got a ten billion dollar bailout, tells us it can only last a few months unless it gets a twenty five billion dollar bailout.

People are calling this socialism, but perhaps a more informative description is reverse capitalism.

Reverse capitalism can make us all poor even faster than socialism.  The budgeted deficit is 1750 trillion dollars, sufficient to do seventeen Iraq wars simultaneously, but this purported deficit is based on the rosy scenario that all the people who have been bailed out henceforth are productive and efficient and make lots of money, when reality is that each bailout digs the hole deeper.  The bailouts inject more money into circulation, but they also reduce the production of goods.

Money is a medium of exchange, a measure of value, and a store of value.  The problem is that when functioning as a store of value, it is in large part a claim against values that have not yet been produced.  For it to work in this way, it must either represent things of value stuffed in warehouses, or treasure buried in the ground, such as gold, or represent investments in things that produce value – such as houses occupied by creditworthy people with adequate income to pay the mortgage, or profitable businesses.  If, however, savings  merely represent claims against taxpayers, taxpayers that have “invested” in all sorts of massive money losing boondoggles, big trouble will ensue, for we are close to the Laffer maximum.  When people attempt to draw down their savings, perhaps frightened by disturbing levels of inflation, their stored value will not be there.

There is a lot of ruin in a nation.   The US government can smash the capitalist economy and draw on debt for a while.  At present it is doing so at near two trillion a year, which may well rise quite a lot.  If, however, it runs up debt at two trillion a year or so, then in eight years or so, the debt to GDP ratio will increase by a hundred percent or so, which is a lot of ruin.

If things continue as they are going, expect the US to collapse around 2017 or so.

Obama promises to fix the deficit by taxing the rich (though past experience is that the more you tax the rich, the less money you get – taxes on the rich are already beyond the Laffer maximum) and by a carbon tax.  A carbon tax could raise a lot of money – mostly from the working class, the one part of the population that is at present taxed well below the Laffer maximum.  That will work – provided that the bailouts stop sucking up ever bigger quantities of money.