Jim's Blog

Notice Scott Brown’s old pick up truck.

Partly, of course, it is simply a massive swing against the Democrats.  The economy is collapsing, people blame the party in power.

But it also means more important and more interesting things:  Scott Brown was campaigning as the anti elitist candidate, brandishing a working class and underclass identity, such as his old truck and his conviction for shoplifting.  The elite is unpopular, not just one party of the elite.

This was a populist landslide.  People think that those running our country, Democrat and Republican, are evil, stupid, and insane.

Normally a populist movement is anti libertarian, but the massive crony capitalism of the last few years, Obama and Bush, has put populists on the libertarian side.  They want real capitalism, not crony capitalism where the losses are socialized but the profits are privatized.  They want capitalists to be free to take risks with their own money, and not free to take risks with the taxpayers money.

I would like to say that democracy is self correcting, and the populist masses will get what they want.  But they probably will not.  The elite is just too entrenched at every level of society, and the politicians are just their public relations officers.  Some politicians will be thrown overboard to appease the masses, some perfectly innocent businessmen will be falsely accused of crony capitalism, and punished to appease the masses, but then the elite will continue with business as usual.

To get the reforms the Tea Party wants, it would probably be necessary to proscribe Harvard, every organization with “environment” in its name, and everyone involved in “diversity”, in the way Nazis were proscribed in postwar Germany.

Observe what happened when various states passed plebiscites declaring affirmative action illegal.

Absolutely nothing happened, and that is the likely outcome of a thorough Teaparty victory in the US.  The elite will just continue doing what it does.  Reagan had a vision for ending Soviet power.  I do not see anyone with a vision for ending elite power and privilege.

This raises the interesting question:  Is the elite evil, stupid and insane?

Yes it is, and the disease is bound to get worse.  It is an inherent problem with theocracies.  The official priesthood tends to become more and more religious, while the masses become less and less religious.  The official religion gets sillier, tending to select silly people for priests.  To be part of the elite, you have to believe in an ever growing list of stupid stuff, such as “diversity” and global warming.  This selects for people who apply their smarts to deluding themselves, rather than connecting to reality.

Recursive censorship:

Typing climategate booker into bing four of the first five hits are about Google censoring Booker’s climategate article.

• The Booker Climategate Article – Scandal or Indexing Problem …
• Climategate: Googlegate? – Telegraph Blogs
• Of Climategate, Googlegate & When Stories Get Too Long
• Mimsy: Climategate crashes Google?

Typing climategate booker into google, none the first four hits are about Google censoring Booker’s climategate article – the same hits are all there, one of them at rank five, and they have fairly high page rank, but a markedly lower page rank than bing gives them.  Further, the rank is better for the ones most favorable to google.

This of course, reflects page rank at this instant, and will no doubt be different soon, but that is what I saw.

Despite its utterly villainous and richly deserved reputation, Microsoft, unlike Google, has an impressive record of defending freedom.  Of course, they recently came under new management, and if we are dependent on Microsoft to protect liberty, we are in trouble.

Officially, unemployment has fallen to the curiously round number of ten percent. Are you feeling more prosperous?

Yes, strange to report, zero hedge observes that the money paid to the unemployed has risen substantially, and risen a lot in the last two months. While there are officially nine and half million unemployed, there appear to be fourteen million receiving unemployment benefits.

Funny thing that.

Official statistics have gone the same path as peer review.

Obama holds a jobs conference, and then immediately after Obama’s cheerful jobs conference, the BLS tells us that there are fewer unemployed, and more jobs.

Supposedly there are over a million more jobs this year than the same period last year – yet withheld income for salaried employees and payroll tax have fallen 19% compared to the same period last year.

Private employment surveys, x, x, such as ADP and Trim Tabs tell us that everything is going to hell in a handbasket. 

Spengler points out that 300,000 people disappeared from the labor force, yet the BLS reports no increase in “discouraged workers” or workers forced to take part-time jobs for economic reasons.

The government tells us everything is getting better and better.  Who are you going to believe?

In the cause of the crisis, I addressed fraudulent ratings.

Bill draws my attention to a report on securitized loans issued by the New York Fed in which they examine the somewhat surprising ratings given to New Century Financial:

You might consider blogging this absolutely hilarious paper from a couple of people at the New York Fed. The good stuff starts on page 14, where we learn about a typical pool of securitized mortgages originated by New Century Financial. There were about 3900 mortgages in the pool (made in 2006), and the pool had the following characteristics:

• more than half are cash-out loans
• 83% have FICO scores below 660
• average (average!!) total debt service to income is 41%
• 88% are hybrid ARMs with payment adjustment in 2-3 years
• typical adjustment 25 to 40 % increase in payment
• adjustment is bigger if rates rise
• half (!!!) the loans are “stated income,” i.e. liar loans

Page 15 tells us that of the Alt A loans in the New Century pool in 2006, five out of six were “low doc” (liar) loans, and two out of five had additional silent mortgages – that is to say, not only was the borrower income not truthfully revealed, but the extent to which the property was likely to be underwater not truthfully revealed.

Incredibly, 79% of the tranches in this dog were rated (by both Moody’s and S&P) AAA. How are the people who asked for and gave that rating not in jail? To be clear, AAA means really, really, US gvt treasuries safe.

Clearly, the people and institutions buying these securities were trusting the ratings agencies — nobody smart who read, digested, understood, and thought about that prospectus ever bought any of these (except as a regulatory dodge).

The conclusion of the paper is also really funny in an arch, extreme understatement kind of way.

On page 61:

Ohio Attorney General Marc Dann claims that the Ohio state pension funds have been defrauded by the rating agencies. […] To his mind, the seemingly cozy relationship between ratings agencies and investment banks like Bear Stearns only heightens the appearance of impropriety.

In this section, we review the extent to which investors rely on rating agencies, focusing on the case of this Ohio pension fund, drawing upon on public disclosures of the fund.

They then find that the Ohio pension fund invested heavily in the kind of subprime crap that they examined.

In the end they optimistically conclude:

Our view is that the rating of securities secured by subprime mortgage loans by credit rating agencies has been flawed. There is no question that there will be some painful consequences, but we think that the rating process can be fixed along the lines suggested in the text above.

No doubt it can be fixed along the lines suggested, but from the fact that the ratings agencies have not been prosecuted, and their regulators have not been fired, it seems unlikely that it will be fixed.

Attorney General Eric Holder has launched a bunch of prosecutions about mortgage fraud. It is hard to explain financial scams to twelve men too stupid to evade jury duty, but a major reason for the failure of prosecutions so far is that the Attorney General has been prosecuting minnows, the minnows blame the sharks, and were he to prosecute the sharks, the sharks would doubtless blame the regulators – who, strange to report, still have their jobs.