PicoBusiness

Wow. This video features two towns I’ve visited recently, a bridge I’ve bicycled over four times, a previous employer, a personal friend, out-of-control earmarking and raving hypocrisy. Yee Haw!

An epic poem about Schroedinger’s cat.

Excerpt:

Schroedinger, Erwin! Professor of physics!

Wrote daring equations! Confounded his critics!

(Not bad, eh? Don’t worry. This part of the verse

Starts off pretty good, but it gets a lot worse.)

Win saw that the theory that Newton’d invented

By Einstein’s discov’ries had been badly dented.

What now? wailed his colleagues. Said Erwin, “Don’t panic,

No grease monkey I, but a quantum mechanic.

Consider electrons. Now, these teeny articles

Are sometimes like waves, and then sometimes like particles.

If that’s not confusing, the nuclear dance

Of electrons and suchlike is governed by chance!

No sweat, though–my theory permits us to judge

Where some of ‘em is and the rest of ‘em was.”

Steve Horowitz writes to you all:

Excerpt:

One of the biggest confusions in the current mess is the claim that it is the result of greed. The problem with that explanation is that greed is always a feature of human interaction. It always has been. Why, all of a sudden, has greed produced so much harm? And why only in one sector of the economy? After all, isn’t there plenty of greed elsewhere? Firms are indeed profit seekers. And they will seek after profit where the institutional incentives are such that profit is available. In a free market, firms profit by providing the goods that consumers want at prices they are willing to pay. (My friends, don’t stop reading there even if you disagree - now you know how I feel when you claim this mess is a failure of free markets - at least finish this paragraph.) However, regulations and policies and even the rhetoric of powerful political actors can change the incentives to profit. Regulations can make it harder for firms to minimize their risk by requiring that they make loans to marginal borrowers. Government institutions can encourage banks to take on extra risk by offering an implicit government guarantee if those risks fail. Policies can direct self-interest into activities that only serve corporate profits, not the public.

I will say that the big I-banks seem to be in a weird place, fiscally speaking - wielding a tremendous amount of financial wealth that cascades throughout the rest of the economy, and yet apparently maniacally devaluing the riskiness of their purchases, and simultaneously pretending that they could understand the long-term interactions of very complex fiscal ‘products’ within an unpredictable economy (i.e. one that does not always go up).

I can always hope that this is an object lesson for those who want to ‘plan’ the economy, or use government policy to create a ‘workers paradise’ here in the US, but I doubt the lesson will sink in.

After doing a ton of research, at the end of the day, I think the bailout is a bad idea - essentially a power-grab by Government types who will use the money to enrich their political allies and punish their political enemies.

But this is the current political trend in the country over the last 2 decades - when there is a problem, surrender your liberties and trust the Ivy League-educated elite who run the country to wield the awesome sword of Government to ‘fix’ the problem.

And yet, it is clear that much (but not all) of the blame in the housing bubble (which precipitated the fiscal bubble-popping) is due to:

• Zoning and other restrictions that made build-able land far more ’scarce’ than it should have been.
• Advocating that Fannie Mae take on extra risk in order to loan money to poorer, and higher-risk people
• The unwillingness to properly oversee Fannie Mae (which as a quasi-governmental organization, deserves some level of government oversight of risk)

More specifically on that last point - how can we claim that the fiscal failure is a “failure to regulate” when Fannie Mae wasn’t regulated properly in the first place?

Hat Tip: Division of Labor

“Wall Street loves money but hates free markets, because free markets distribute economic benefits to those who earn them, rather than to those best able to seize them.”

See here for the whole thing in context. It goes well with the previous post about Political Pull.

The greatest tragedy in global climate change is that all the political solutions are managed by corruptible humans, who will inevitably twist the policies to benefit their friends and punish their enemies:

It was an interesting experience for me because the audience was hugely sympathetic to my pitch, but frustrated because, for them, it was beside the point: They were already committed by AB32 to take drastic and expensive action under AB32. The only policy recommendation I made in my speech was to lament the obsession with cap-and-trade and make a plea for a carbon tax. The discussion afterward pretty much made my point for me, with every member lamenting the absurdities that are emerging in the CARB regulation process. Even Mr. Nation admitted that the CARB is setting up programs that are preferentially regulating those with the least political muscle and pushing policies which make no sense in any kind of cost-benefit analysis for fighting CO2. Mr. Nation said that when he was in the legislature, he tried a carbon tax first but could not get it out of committee, even a small one that would have raised gas taxes about 5 cents. It seems politicians have no problem enacting huge taxes (which is what AB32 does) as long as those taxes are not called a tax and are hidden from the view of the general public (at least until prices start to rise and businesses start to exit the state).

(my emphasis).

This is exactly why I am so suspicious of this kind of activism. It starts with the best of intentions, and ends with venal power grabs by the politically well-connected. And these power grabs often end up being more harmful to our country than the problem they were supposed to solve.

Note the ominous correlation.

Dear Sir Or Madam,

My name is Nick Gilespie, a great Broker of Wall Street (some might even say I am a Prince). I am writing to you from the great Island of Manhattan. As you know, a mighty Fiscal Storm has engulfed us, and we are in a deep, dire situation. However, all is not lost, and Lord Paulson has promised to send us $700 Billion in US Dollars, payable immediately, no strings attached. Alas, we are not equipped to accept checks currently, as all of our bank accounts have been frozen.

However, in preparation for this very crisis, we have scanned the credit of many a good person of the United States. You, good Sir, or Madam, have a checking account of impeccable order, and we feel that you are moral, forthright and decent. If you will help us with our predicament, we can ensure that it will be most worth your while.

If you will supply us with your checking account routing number and authorization codes, we can provide that will forward that information on to Lord Paulson. He will in turn deposit the $700 billion into your account. All you have to do is hold it for 30 days, while we arrange for appropriate Swiss bank accounts, and we will transfer the money out. You need to do nothing, and at the end, we offer you the full interest on that bounty, which, over the course of 30 days, will come to approximately $350 million dollars, minus our modest transaction fees, regulatory fees, taxes, etc.

If you are interested in such an opportunity, please contact us as soon as possible, as we are in danger of losing this opportunity if we do not Strike while the Iron is Hot.

Yours in Credit,

Nick Gilespie.

Now that I’m in the market for houses again, why do I feel such a temptation to buy the biggest house I can, and then refuse to pay the mortgage? What do I think is going to happen? Some sort of magical Treasury fairy is going to come down and make my payments for me?

http://econlog.econlib.org/archives/2008/09/delusions_on_bo.html

In the private sector, many lenders and investors became deluded about the virtues of credit scoring. Credit scoring is a good technique for assessing risk, but people forgot that rising home prices cover up all sins. What they thought was brilliant mortgage underwriting was in fact just luck with rising house prices. When the luck ran out, it turned out that credit scoring is only a tool, not a magic potion.

The other private-sector delusion concerned derivatives. See my post on systemic risk. Financial institutions thought that they were getting rid of risk, but instead they were just passing it around, as in the card game Old Maid. The contingency plans that companies formed to deal with risk have proved impossible to execute collectively in practice.

Government regulators can be faulted for two things. First, they enabled the private sector delusions. Regulators did not sound warnings about credit scoring, and they issued only minor scolding on derivatives.

Second, government operated under the delusion that low-down-payment mortgages are a good thing. I have coined the expression “home borrower” to describe someone who puts little or nothing down to buy a home. Government encouraged home borrowing, and that made the bubble inflate higher on the way up and crash harder on the way down.

My daughter came to me with a piece of paper and said ‘Daddy, can you show me a picture of a skull?’ I found this:

She then proceeded to sit down at my computer, and draw this (I checked, this is not a trace):

I’m not sure about the state-of-the-art in the illustrative talents of 5 year olds, but I’m personally pretty darn impressed.

*Update* - well, it’s at least partially a trace. Still pretty cool.

Gotta give them credit for this - they sure called it.

Update - to be clear - this is not to say that the changes in Fannie Mae’s behavior alone are responsible for the current situation. Nor to suggest that the bad loans were all made under Clinton’s watch. This is a fiscal perfect storm of irresponsibility, corruption, lack of proper incentives and general blinkered stupidity from all directions.

And you thought Cobol was a dead language with no future As long as it has a Make file or other command-line compiler interface, you too can build Cobol systems via a CI system.

Enjoy this gruesome tale, which answers the question “How can a 6 year old girl cut her hand off with a jump rope?”

http://www.foxnews.com/story/0,2933,426001,00.html

No one knows our pain!