Bush and the Financial Crisis

As things have settled a bit in this new post-meltdown, perpetual-bailout reality we live in, it's become much clearer what caused it all. Owners demand high returns and low risk. Well that can't be done. Unless you make up your returns (like Madoff) or hide your risk (like everyone else). You can't say 'no' - that's not an acceptable response. Oh, sure, it is at first, but once someone figures out how to hide the risk, then the pressure builds, and there's no staying out of it.

I'm sure there are lots of ways to hide risks - off-balance sheet and all that. If you're a regulated institution, you've got Tier 1 capital and reserves to worry about. You need a rating agency's imprimatur to show to regulators and shareholders that you've got your risk under control. Or you can "insure" your assets.

As a Sailerite, I've read GWB's horribly irresponsible call for jettisoning the old-fashioned notion of "downpayments" in favor of an "ownership society" many times and despaired at his catastrophic naivety. I'm all for the free market, but to think that these "market-based solutions" can get blood from a stone is just stupidity. But what's gone through my mind lately - what if this wasn't free-market naivete at all?

Isn't it likely that this idea - of pushing no-down-payment mortgages - for poor Hispanic immigrants in particular - was concocted by someone in the mortgage business rather than being some well-intentioned though hair-brained scheme of some neocon ideologue? The hunger for new investment instruments that could be packaged up as AAA-rated securities and insured via CDS was very deep, and so someone figured out that mortgages could sate this appetite, and somehow managed to secure for their sordid plan the endorsement of none other than the President of the United States.

This was a long time ago, too - back in 2002. So who was it - who was the blood-sucker that managed to get Bush's ear - and who was his go-between?

Of course it could well have more simply been Angelo Mozilo pushing for CRA credits in his efforts to expand Countrywide. But he could have been more a pawn in this game as well, being used by those pushing for more securitization opportunities.

PMCPP

Amusing, if sparsely updated, blog I stumbled upon: Paul McCartney Can't Play Piano. While the author insists it's tongue-in-cheek, he makes some convincing arguments.

Every once in a while you might catch the PBS Great Performances "PAUL MCCARTNEY: CHAOS AND CREATION AT ABBEY ROAD" wherein Sir Paul plays around with various musical toys at Abbey Road studios to reminisce with a captive audience. What's striking about the performance is what a genuinely mediocre multi-musician he is. The only instrument he seems really comfortable playing is the bass, which he plays very well. While during the show he has opportunities to vamp a bit on the other instruments he plays before the crowd, he really can't pull off any improvisational turns. That's nothing unusual - Irving Berlin could famously only play in F# - i.e., only the black keys of a piano (according to this blog, Macca can only play the white keys and usually in C) Cole Porter, on the other hand, a more sophisticated composer than either, was quite competent on the instrument, as you can hear in this awesome rendition of "You're the Top" - though Sir Paul might be just a slightly better singer.

The typical rock musician is nothing special - and particularly back in the 60's, top-notch musicians weren't typically in rock groups - they'd be session musicians, making good money on a steady basis. Very few hits were heard on the radio that weren't manned by professional studio musicians. It's remarkable how good the Beatles' records sounded given that they rarely used studio musicians other than on specialty instruments.

How We Gonna Grow Our Way out of This Again?

The Keynesians believe that massive government spending will lead to big growth that will simply allow us to grow our way out of debt. The problem is our rate of growth has been declining since the sixties. While it's typically thought that our growth is above 3% annually, in fact it is now closer to 2%. Even if you look at just the good times, they're not rolling like they used to. Even the extended run in the go-go 90's saw under 4% growth. Our run from 1983 to 1990 averaged 4.3% (though it was 7 quarters shorter). Our growth in the boom times from 1961 into 1969 gave us 5% annual growth. The truncated boom last decade featured a pathetic 2.7% rate of growth. The trend of GDP growth shows a clearly declining trend line - at this rate we can expect growth this decade to average under 2%. I doubt we'll be able to climb very far out of debt at that growth rate.

The data are quarterly annualized changes in GDP from bea.gov, "Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product".

How's That Recovery Doing?

The recent correction in the markets probably have most people questioning the recovery. Unemployment claims shot up last week, which was not a surprise to me given all the layoff talk I've been hearing. But even if one doesn't believe we'll have a "double dip," how anyone can think we're going to grow our way out of trouble is beyond me.

The last recession we had like this was in the early 80's - I'll call that the Carter/Reagan recession. We certainly grew our way out of that one (but even today there is debate over whether the recovery was truly deep enough for the vast middle-class - I'll leave that debate aside). This one however features levels of debt unimaginable at that time - so we're going to need even stronger growth to get out of this mess. Here's a comparison of the two recessions - baselining each at the last quarter that showed growth before the decline in GDP set in:
Look like we have much of a chance to grow out of that nice hole we dug?

Get Out Now, Or Wait for It to Bounce Back?

Therein lies the cruel nature of these markets. As I sit here, futures are again pointing lower. So go to cash now, and get back in later when the markets settle? Might not be a bad idea. But then you never know when someone in Europe or the administration will make some fraudulent announcement that will suddenly juice the markets up, and of course there's no way you can get back in in time. And, as we've seen this week, when the market drops, it drops like a rock.

So all the pros say "You can't play the market, so just buy into it and keep your money there." But you're going to need it someday, so if it just bounces around like this (today the S&P is at 1998 levels) what's the point? On the other hand, if you got out of the market in late 2007 and jumped back in last April, you made out great.

Low-yielding savings instruments are probably the best way to go. Our economy only grows at 1 to 2 percent a year these days anyway - why expect any better?

The Wealth Gap

So many gaps. The Times' Michael Powell, basically a beat reporter, has been given an opportunity to write an Economix blog post on the "wealth gap" between whites, blacks, and Hispanics. The post summarizes a "study" by the Institute on Assets and Social Policy at Brandeis Universtity. Yes, it's ridiculous - but read it - if for no other reason than to see what gets to be called a "study" in the Times.

At any rate, in the middle of his posting Powell nonchalantly mentions almost in passing "Black families — who save at the same rate as white families..." as if this were the most commonplace fact in the world and apparently not even worth backing up with a source as it's so self-evidently true. So I decided to spend just a few minutes looking and found that information on saving rates by race/ethnicity is not so readily available.

I did find this article in USA Today: For many minorities, saving isn't so easy. It then goes on to describe the very low rates of participation in and contributions to - and high rates of withdrawal from - 401K plans among minorities compared to whites (and you'll be shocked to learn that Asians have even higher savings/lower withdrawal rates than whites!). It's hard to reconcile the facts in this article with Mr. Powell's baseless assertion.

And then there is "Conspicuous Consumption and Race" The authors conclude: Consistent with popular perception, we find that minorities spend more on conspicuous items than Whites, controlling for differences in income. A variety of estimates show that these visible expenditure differences are relatively large and are associated with substantial diversion of resources from other uses, including savings and expenditures on things like health care and education.

So does Powell make this claim because he has some readily available, unimpeachable source to back it up, or because the alternative would be just too devastating to the overall thesis of his article?

'Stop and Frisk' is Fair and Balanced

New York Minorities More Likely to Be Frisked

So blares the headline in the NYT.

The lede graf explains a bit more:

Blacks and Latinos were nine times as likely as whites to be stopped by the police in New York City in 2009, but, once stopped, were no more likely to be arrested.[Emphasis Added]

The article has what I would call a moderate bias against the stop-and-frisk procedure. But the article's lede tells you all you need to know - the police are obviously using similar approaches to choosing suspects to stop for all ethnic groups, otherwise the arrest rate by group would be different. For example, if the police were biased against non-whites in deciding who to stop, we should find a far higher arrest rate among the white suspects. I know I don't need to explain this to my highly select readership, but if the police were just willy-nilly stopping blacks and Hispanics but only stopping truly-bad whites, then the stats should show lower arrest rates for minorities vs. whites. Since the stats show equal arrest rates, we can commend the NYPD for doing a really good job of policing.

Does the article even remotely suggest this? Not at all - they do present this telling info up-front, but no interpretation is provided for the reader to understand its implication. How many Times readers understand this - 10%? At one point later in the article, the equivalent arrest rates are again mentioned, but as part of a lead-in to a critique of the practice as probably biased!

So this article is an example of the opposite of "burying the lede" - where the article's most newsworthy item is buried down in the text somewhere. This article's lede - that the statistics of stop-and-frisk show no evidence of bias - is presented at the opening as it should - but is essentially ignored and even disputed in the rest of the article.

In fact, towards the end of the article, a fact is brought up which further undermines the case for bias, but is presented as supporting it:

The Center for Constitutional Rights also studied poststop outcomes. It found that officers frisked more people in 2009 than a year earlier but that the rate of frisks for blacks and Latinos was much higher than it was for whites. It found that the police used force in 24 percent of stops — drawing a weapon, say, or throwing people to the ground. The police used force in 19 percent of the stops involving whites but in 27 percent of stops against Latinos and in 25 percent of those involving blacks.

Since the arrest rates were the same, this suggests that police were stopping more unhinged or disorderly characters among minorities, requiring more force on their part to subdue them. The discrepancy here is not particularly dramatic, but is presented as damning evidence of bias, when the opposite interpretation is more logical.

Overall, I counted 32 paragraphs - many are just one line. Eight explicitly support the police policy, 11 oppose it. The others simply present facts. However, several of the neutral paragraphs are used as lead-ins to opposing views. The article essentially presents the police, on one side, and the Center for Constitutional Rights on the other. There are 5 other commenters cited - of these, only one, Heather McDonald, supports the police.

'American Citizen' Arrested for Times Square Car Bomb

This is a great country, isn't it, where a man named Faisal Shahzad could become an American citizen despite being a radical Muslim and in just one year of gaining citizenship commit a terrorist act against his new homeland? God Bless and Protect America - we sure can't.

If we don't want to "racially profile," wouldn't it make some sense to at least keep a very close eye on anyone who travels to and returns from, say, Pakistan? Oh no, that wouldn't be fair at all.

You know, I have this old 1993 Nissan Quest that I need to get rid of - it runs, but shouldn't really be on the road. Perhaps I should put an ad in a Jersey City paper?