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9 posts from March 2009

03/12/2009

Righteous Anger

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I am not exactly sure who Matt Miller is, aside from the fact that he writes for The Daily Beast, but I love his column today. Just a little taste of Miller going after those who claim Obama is igniting a class war with some of his new tax proposals:

A closer look [at the tax plan] should reassure the GOP and Democratic tax writers that under the Obama plan, America’s top earners, far from being punished, will still retain their traditional place at the top of Uncle Sam’s housing and charity dole.

Let the mortgage deduction illustrate the point. Under Obama’s proposal, top earners will be able to deduct mortgage interest only at the 28 percent rate, not at the 35 percent rate (or the 39.6 percent rate, once Bush’s tax cuts expire). What does that mean exactly? Today, every $1,000 in mortgage interest (or charitable gifts) generates $350 in tax savings for top earners; under the new plan, the tax savings would be only $280.

To be sure, this represents a sudden and disorienting loss for top earners, who were accustomed under the previous regime to having their taxes cut even during a time of war. But here’s the comforting part: That $280 per $1,000 mortgage subsidy is still a lot more than the $150 subsidy per $1,000 that millions of middle-income homeowners in the 15 percent bracket enjoy. And it’s an infinitely bigger federal housing grant than the zero awarded by Uncle Sam to the masses of Americans who rent (or who will shortly, once they’ve been thrown out of their homes).

So many things to get the blood pumping these days it's hard for a person to sleep.

03/11/2009

The Metamorphizer

Am I the only person who finds Thomas Friedman and his self-fellating style of writing maddening? He seems to have a logical three to four step plan for anything as though he's the only one actually "thinking" (I mean really, really thinking) about the whole picture. And he can't help but present his view with metaphors that you know he thinks are oh-so-clever:

Our country has congestive heart failure. Our heart, our banking system that pumps blood to our industrial muscles, is clogged and functioning far below capacity.


Give me a break. Probably my favorite part in the today's column is the following:

Economically, this is the big one. This is August 1914. This is the morning after Pearl Harbor. This is 9/12. Yet, in too many ways, we seem to be playing politics as usual.


Friedman, born in 1953, was only around for two of those. Granted he has some good stuff to say, but he's so patronizing, tossing out ideas that I've read on other blogs who don't shy from speaking in much more detailed and technical language than him.

He reminds me of this character in Proust, an author who when he first starts writing modestly brushes of people's enthusiastic endorsements of his writing with remarks like "Oh I guess it's a pretty thing" or "Well it is worth saying." But in his twilight years as a writer this same author uses these exact same comments to tell himself what he is writing is worth the paper it's written on "Well, it is worth saying." I can just imagine Friedman sitting in his cushy chair with his laptop reading over his latest masterly metaphor saying "Well, it is worth saying."

And yes, I realize I am totally pretentious for referencing Proust. I'm off to find more things online to hate.

"Going Galt"

Atlaswillshrug I shudder to respond to anything Michelle Malina writes because she, like Ann Coulter, spews meaningless vile basically uninformed by anything. Malkin more or less amounts to a political gossip columnist, but all this being said I can't help but respond to a recent post she made titled "Going Galt."

Apparently at these meaningless "tea parties" hosted by disgruntled conservatives several references have been made to Ayn Rand's windbag of a novel "Atlas Shrugged."

I wonder if any of these people have read the book and/or understand Rand's philosophy. By reading some of the quotes included in Malkin's post I am inclined to say, no they haven't read it:

Why kill yourself working if you're going to give it all away to people who aren't working as hard?

The motivation for a lot of people like me -- dentists, entrepreneurs, lawyers -- is that the more you work the more money you make," said Poczatek. "But if I'm going to be working just to give it back to the government -- it's de-motivating and demoralizing.

It's almost obvious that they haven't read Rand, nor do they understand capitalism as presented by Adam Smith (who was for a progressive taxation system weighing the necessities of the poor as more important and vital to a society than the luxuries of the well to do).

I, unfortunately, have read the entire thing, including the slogging 100 page philosophical treatise snuck in at the climax. In the book, which clocks in at well over 1000 pages in it's unabridged version, John Galt leads an entrepreneur revolution that cripples society. Without these selfish and self serving "producers" society, which apparently just leeches from these remarkable men, can not survive. It helps that Galt has found a way to produce power by drawing energy from the kinetic power of the air (or something like that, the details or fuzzy, but suffice to say it's energy from basically nothing and has no real scientific basis).

The book, poorly plotted and poorly, if accessibly, written, sets up straw men to of course be toppled down by Rand's philosophy of Objectivism. On the face I can see how certain basic tenents of Objectivism can appeal to those who want to keep all of what they consider theirs. But I challenge any of these people to really delve deep into her philosophy.

At this point in the post I am tempted to delve into Objectivism but it's too frustrating and I can't. Let's just say this: She credits both Aristotle and Nietzche as influences but her philosophy neither takes the time to properly define the terms she uses nor does it carry its postulations to their logical end which is the darkness that Nietzche finds. She piggybacks off lay person definitions of words like "value" and "life" and leaves her thoughts at surface value. And, I'll just say, Greenspan was a part of her "collective" and he did a wonderful job...

And what is more, Malkin, who in the name of Christianity often demonizes the nation Islam, does not seem to care (or more likely, does not seem to notice) that everything in Objectivism flies directly in the face of Christianity. Now, if you're not Christian this would not be a bother, but it would be interesting poll of those attending these tea parties and lighting up the blogosphere with comments like those above and see how many would profess to be Christians.

These people like to pick and choose. They pick what elements of capitalism they like and what parts of the Bible they'll listen to and then inflict upon others. And if something comes close to their money they roundly reject it.

If it's what they really want, let us allow society to fail and we'll see how much money they can make. Go ahead pull yourself out, but don't forget to turn off your water, electricity, cable and cancel your mail. Oh, and don't send your child to school and please don't drive on the roads.

...Sorry it's been a bad day.

03/04/2009

We're not making "stuff"

There was a scary new article in the New York Times this morning about the type of impact the recession has had across the country.

The scariest part for me is the following quote:

Unlike the last two recessions — earlier this decade and in the early 1990s — this one is causing much more job loss among the less educated than among college graduates. Those earlier recessions introduced the country to the concept of mass white-collar layoffs. The brunt of the layoffs in this recession is falling on construction workers, hotel workers, retail workers and others without a four-year degree.


1913_assembly_line What I find frightening is that some of the people hardest hit (so far) are people who produce "stuff." Unlike a business or technology consultant who produces advice on how to streamline customer service or how to implement the latest SAP software, a construction worker builds houses where people live, an automobile worker produces cars that people drive.

We have so many jobs that produce "intangible" products built upon an ever dwindling base of jobs that produce "tangible" products, but it seems like that base is crumbling with the current recession.

Of course jobs that produce "stuff" have been out of vogue for awhile. Just ask anyone living in the rust belt or some old steel work from Pittsburgh or an old stockyard employee from Philadelphia. We exported our jobs overseas and as a country we largely don't' produce "stuff." We refine the "stuff," cleverly package the "stuff," we've got brilliant ad agencies that sell the "stuff," and, until recently, most of our economy was built upon that people would buy the "stuff."

Of course this last element in the process has fallen to shambles. People aren't buying "stuff" anymore because they can't afford it. I realize the fall in consumer spending is only one factor in our spiraling economy.

Thomas Friedman, in his self-gratified way, puts it better than I do in his op-ed today:

We are coming off a 20-year credit binge. As a country, too many of us stopped making money by making “stuff” and started making money from money — consumers making money out of rising home prices and using the profits to buy flat-screen TVs from China on their credit cards, and bankers making money by creating complex securities and leverage so more and more consumers could get in on the credit game.

When this huge bubble exploded, it created a crater so deep that we can’t see the bottom — because that hole is the product of two inter-related excesses. Some banks are in trouble because of the subprime mortgage securities they have on their books that are now worth only 20 cents on the dollar because of widespread defaults.


And, on a final note, one thing that bothers me about some of the rhetoric surrounding Obama's stimulus package is the repetition of the phrase "job creation." We've got to create more jobs, they say, people need jobs to get a paycheck to let's focus on job creation!

I agree that people need jobs (I am thankful that I still have a job) but what products are these jobs going to produce? Focusing more on creating jobs instead on what product they were making, in my opinion, caused the big three automakers to fall behind their Japanese counterparts. The unions, such as the UAW, were all about jobs and people keeping jobs, whereas a company like Honda was concentrated on creating and producing a reliable product. Which company is doing better? (I know that both aren't doing great, I said better).

Of course there are green jobs. We've heard Obama talk about this at length. How the creation of "green energy" will not only save the planet but it will create jobs. But Michael Levi at Slate bring up a valid point:

Every unit of energy generated from alternative sources displaces a similar amount generated by traditional means, so forgoing those other energy sources means giving up whatever jobs they were providing. This doesn't mean that greening the economy will have no net impact on jobs, but it muddies the math considerably.


I think the creation of alternative or "green energy" is a valuable, and indeed mandatory, pursuit on our part, but let's not look to it as the saving grace of both our planet and the economy.

Though I do like the line of thinking. Let's think of "stuff" we can make and then find people to make it.

03/03/2009

Bad Banks

If you haven't already please, please listen to last Saturday's This American Life. Alex Blumberg and Adam Davidson, who a few months back deftly explained the mortgage crises, again present the most objective explanation I've encountered on our current situation.

If you don't have an hour to sit down and listen I'll hit some highlights:

They first explain a bank Balance sheet:

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On the left side you have a banks assets, composed of loans and other financial tools that the bank makes money from. On the right side you have the bank's ownership capital, what the bank started with plus the profit they've maybe made from the left side. You also have the bank's liabilities, what it owes the people who have deposited with it and to whom the bank pays interest (hopefully less interest than the bank collects with it's assets). Ideally the sides would balance, hence the name.

Of course, thanks to the mortgage crises those assets on the left side became troubled or toxic. People who had overestimated their worth (or simply lied about it) couldn't pay their mortgages, the banks therefore kicked them and took ownership of the houses only to find that, were they to sell the houses at the current market value, they would lose too much money. In some cases the banks would become insolvent, meaning they had not ownership capital and could no longer pay interest to their depositors. (I know I am simplifying things, really listen to the podcast, I'm just trying to whet your appetite).

With the original TARP (Troubled Asset Relief Program) the government, using taxpayer money, bought up the toxic assets so that the banks wouldn't lose money and could begin lending money again. But this hasn't happened.

Listening to some of the things on the podcast I can't exactly blame them. Check out this graph which plots the average household debt against national GDP:

Household



That peak on the right shows that in 2007 household debt matched the nation's Gross Domestic Product. Let that sink in for a second. Now look at the peak of the left, the last time household debt constituted 100% of the GDP. Yep, it's 1929. Let that sink in.

We, the taxpayers who have been begrudging the government throwing our money everywhere, have been living beyond our means and really shouldn't throw stones. We should put all the blame on criminal CEOs (note: I'm not trying to defend what I consider irresponsible practices and action committed knowingly by entitled businessmen)

So, since the banks won't (in many cases can't) lend, the government has been pouring more and more money into the bank while whispers of nationalization have echoed around the media broadcasts. Listening to the podcast you get the sense that this wouldn't be such a bad thing. The government, which has sufficient capital (thanks to the taxpayer), could briefly take over the banks, attract depositors and restart lending practices and then step right back out of the picture.

The IMF does it all the time (like with Argentina in 2002) and let's be honest, take the name "The United States" off the header of the country's balance sheet and most people would be calling for brief nationalization.

Of course the balance sheet does read The United States of America and not only do we jump and hide at the mere mention of anything that would be socialist, we are probably too big and our financial system too complicated for government to jump in an fix anything quickly.

And I'm not sure I trust a government, who apparently drags it's feet on legislation unless it's to pass some useless monkey law, to fix the situation.

Okay going to stop before I digress. Listen to the podcast.

03/02/2009

AIG gets more money

If you want a fairly simple, yet infuriating, explanation of why the government announced today that it's giving AIG more money see this article from the NY Times a couple days ago. The essence of the article boils down to that because AIG behaved so badly the government has to help it.

There is also an interesting article at the Heritage Foundation against Obama's Mortgage Stability Program. I bring it up here because of this quote:

The plan's Stability Initiative bestows new and costly benefits on those who took on more debt than they could handle, including credit cards, automobile loans, and mortgages (including refinancings and seconds). Worse, the value of the benefits will vary in direct proportion to the degree of borrower financial irresponsibility, and the intensity of community land regulations. Homeowners with a first mortgage as large as $729,750 are eligible for the initiative, meaning that the well-to-do will receive more financial benefits than those of modest means. And as analysts at one nationwide financial firm noted: "The modifications would go disproportionately to borrowers who overstretched and who lied about their income." This moral hazard sends a clear message to the American people: The worse the behavior the greater the reward.


So lie, cheat and generally behave badly and we, the taxpayers, will rush to your rescue.

 I was one of those kids in school who always behaved. I actually got nervous (and, really, I still do) when those around me acted up. And it always pissed me off that misbehaved students always received more "positive reinforcement."

Looks like I should have just been acting up my whole life. Where's my credit card?

Pointing Fingers

Financial crisis(1) It seems everyday different news sources and websites start a new series to explain the financial crisis. Slate.com has a new one today creatively titled "Making Sense of the Credit Debacle."

In the first entry, Barry Ritholtz takes the on the "perfect storm" explanation offered by such financial "geniuses" as Donald Trump and Alan Greenspan:

The perfect-storm metaphor is imperfect; rather, what led to the current situation were numerous legislative, ideological, and business decisions that worked together to create a systemic failure

Ritholtz then goes on to list for policy changes that, if he had a time machine, he would go back and try to change:

  • The Commodities Futures Modernization Act (2000) allowed unregulated derivatives to run wild. (Legislation put forth by Republican members of the House and Senate, though it was signed by Bill Clinton).
  • The repeal of Glass Steagall (1999) allowed depository banks to become far more intertwined with Wall Street. (The repeal of this act was, again, put forth by Republicans and passed by the then Republican Majorities of Congress)
  • From 2001-03, Fed Chair Alan Greenspan took rates down to unprecedented levels, causing 1) a mad scramble for yield and 2) an enormous housing boom. (If internet sources can be believed Greenspan is a self-described "Republican libertarian." He was appointed by Ronald Reagan, otherwise known as the Republican Messiah)
  • In 2004 SEC allowed the five big investment banks to leverage up from 12-to-1 to 35-to-1 or more. (I had to look up want this meant. Basically for every one dollar of equity banks were allowed to have twelve dollars of debt, until the geniuses at the SEC allowed five banks (Bear Stearns, Lehman Brothers, Goldman Sachs, Merrill Lynch and Morgan Stanely...I'll let you look up which TWO of these five is still barely staying afloat) allowed this ratio of equity to debt go as high as one dollar of equity to thirty five dollars of debt. At the time, William H. Donaldson was chairman of the SEC, and he was...can anybody guess? Yes a Republican. He was aided by Harvey Goldschmid, who though a democrat proved to be an ally for Donaldson. After Donaldson, Christopher Cox, a 17-year republican member of congress, took over and failed to peer into the the financial workings of the five banks though, supposedly, this deregulation allowed a wider window).
For sure these four things contributed the current cluster**** that is our credit market, but distilling the crisis to these four things paint the picture that Republicans (and a few democratic patsies) are almost soley responsible.

However, where is the mention of subprime lending? Why not bring up the abuses committed under the Community Redevelopment Act? What about some of the dubious practices of Fannie and Freddie Mac?

I mean go to any conservative website and you'll find similiar lists to the one above except it frames the Democrats.

Can't anyone rise above fixing the blame on the opposite party? What most frustrates me is, were you not to research the four points above, you would find this an objective explanation and not think anything of it. I'm sure Ritholtz knows better. I mean, I'm guessing he's smarter and more knowledgeable than I am.

03/01/2009

Poor Rhode Island

DSC_0299_2 The New York Times has a piece today about the economic struggles of our union's smallest state and my current home.

We have the nations second highest unemployment rate (thank you, Michigan) without a failing automobile industry to blame directly. Instead it seems we can fault clinging to an old, largely defunct mob past, a largely blue-collar workforce and "a stagnant, aging population."

At church this morning I witnessed this aging populating being the only soul, in a relatively crowded Episcopal chapel under the age of thirty and over the age of twelve. Most of the young kids bouncing around the pews will probably move off to states like Connecticut or Massachusetts where the average salary is surprisingly higher.

What really struck me in the article was the how "undereducated" Rhode Island is compared to rest of the Northeast, ranking 38th nationally in high school graduation. I guess I'm probably surprised because I grew up in and around the states which still fall behind Rhode Island on this list (oh, my old Kentucky home).

Because I am a relative newcomer I also don't understand some of the subculture. Especially why people are still in love with Buddy Cianci. The former mayor who just last year was released from prison and immediately took to the airwaves calling the current major a "fag." I understand that he did much good for the city of Providence, but he strikes me a textbook narcissist, and not in the entertaining way.

Sadly, the current state of Rhode Island economics means that I won't be able to get out of my lease anytime soon and flee to Boston to be closer to my job. Honestly I don't want to leave Providence, I think it's great, even if it isn't one of the best places for singles. I guess that, technically, isn't a problem for me.

However, the state could soon be a shining example of stimulus success. As the Times reports, "its largest employment sectors are health care, manufacturing and retail." With all the new health care spending proposed by Obama's plan we could soon see a turnaround in the unemployment figures...as long as our govenor doesn't choose to reject the stimulus money.

Now, I don't think some of the southern governors contemplating rejecting some or all of the stimulus money are completely insane. I understand that federal money will come with strings attached and that this federal money will quickly run out leaving the state no choice but to raise taxes and therefore anger the base that pleaded for them to accept the money. But I think, as current situation in Rhode Island demonstrates, that they can't afford not to take it.

It seems the economy will grow worse before it begins to improve and without some cash injection states like Rhode Island won't make the next couple of years. Massachusetts and Connecticut do not need more land.

Move to Providence!

The Fate of the F-22 Raptor

Raptor Today marked the self-imposed deadline for Obama to decide the fate of F-22 Raptor fighter jet, heralded by some, including the think tank Air Power Australia, as "the most capable multi-role combat aircraft in production today."

 Lockheed and Martin, which produces the fighter jet, said that if the president did not commission more jets by today (and mandate more money for the program in the defense budget) it would be forced to slash thousands of jobs.

Currently 183 jets have been commissioned, or 207 (I hate the internet) but the Air Force wanted 380 (a laughable compromise from their original request of 381 or if you believe some sources, 762 were originally requested).

Well it looks like we'll all have to hold our breath a bit longer.

The jet, the concept of which was birthed during the Cold War (otherwise known as out pissing contest with Russia), costs either $191 million or over $300 million. The internet is pretty unreliable with such figures but when discussing such sums it's sufficient to say that the thing is expensive and has been the poster child for the debate over defense spending since the nineties.

The debate over the survival of the Raptor is now entangled in the debate over Obama's budget and stimulus package.

In terms of the budget Obama has actually put forth a modest increase in defense spending, something many conservative columnist and bloggers seemed to have overlooked in their fomenting about Obama's proposed health care spending (who really cares about insuring children?). In fact, "Defense Secretary Robert Gates said he and his top policy advisers anticipated a more modest budget."

Those against producing more of the stealth planes, including Gates, say that it represents an unnecessary cost--especially since the plane has not seen combat and is unlikely to in the near future. Fred Kaplan, arguing against commissioning more jets writes:

Designed during the Cold War for air-to-air combat against the Soviet air force over the battlefield of Europe, the plane seems ill-suited—either overdesigned or simply useless—for any wars we're likely to fight in the coming decade or so.


The two wars we are currently fighting are against insurgents that have no air force to speak of so air dominance is easily established with helicopters and our fleet of f-15 fighters. 

Of course those on the other side argue that defense spending looks to future conflicts, not current ones because it takes an average of 20 years (listen to the show on the NPR site) for a defense idea to go from concept to actuality. And, of course, these pro-Raptor people invoke the threat of developing China and resurgent Russia when discussing these "future conflicts." Apparently it's only fear-mongering when lobbying for a "liberal agenda."

Michael Fumento writes:

The Russians, Chinese, and many other nations already have many different fighters that fly circles around the 33-year-old F-15 Eagle that Raptor detractors insist we keep flying for decades more.


Such a claim, from what I can gather, is either hyperbolic or patently false that other nations have jets which "fly circles around" especially since the F-15 has never (repeat never) been shot down according to Mark Bowden at the Atlantic.

However in this same article Bowden argues that if the current F-15 fleet is not completely replaced with F-22 that America's long air dominance with dissapate and put our air pilots at risk. He writes: "Countries such as Russia, China, Iran, and North Korea will be more likely to take on the U.S. Air Force if their pilots stand a fighting chance."

Yes, Russia and China again. But as Kaplan, putting it more eloquently than I can, writes Bowden's argument for more F-22 (keep in mind that 183 are already built or beign built) contains too many "ifs":

He's saying that if some country develops a large, sophisticated, well-trained air force; and if we go to war with that country; and if air-to-air combat becomes an integral element of that war; then without more F-22s, we'll probably still attain air supremacy but at a cost of more casualties among pilots.

Each of those three ifs is pretty unlikely; multiply them by one another, and the probabilities are remote in the extreme. With all due respect to those pilots (and they deserve a great deal), is the tiny probability of their deaths, in some hypothetical future air duels, worth the tens of billions of dollars it will cost to buy more F-22s now? And in a world of limited resources, is it worth more to spend the money on that contingency than on any number of tangible needs and desires, military or otherwise?


Kaplan also points out in his article that the F-35, which has about 75% of the capabilities of the F-22 at about half the price (whatever the price is), is not mentioned in Bowden's article. Also, in a seering indictment, Kaplan also brings up the "Active Electronically Scanned Array (AESA) radar systems, which allow the pilot to detect, track, and destroy several enemy planes at once from significantly longer ranges." Noting that the Air Force has not equiped to many F-15 with such technology because it would weaken the case for the F-22.

Of course, in terms of economic stimulus, the F-22 has a chance of surviving because the Air Force, when it first started production of the Raptor, ingeniously spread out the production sites all over different areas of the United States creating thousands of domestic jobs which, as mentioned before, may disappear. And if Obama's stimulus package is about anything it's about job creation. There are actually several websites and petitions focused specfically on preserving "Raptor jobs." Some of them evenly smartly argue for the minimum number needed to keep the program running at current capacity, keeping everyone employed.

In the end I have to admit I don't know where to come down on this issue. On the one hand I am uncomfortable having so many jobs dependent on something that, quite efficiently, can end the life of many people at once. But having many friends and family in the air force I would want them to have the best protection and equipment. However, since the Raptor (and I must admit I like the name) serves no purpose in our current conflicts I feel like it's a self-fulfilling prophecy to spend so much money on "potential" conflicts.

Throwing so much money at something almost makes it seem like you want it to happen.

Austin Diaz

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