Saturday, September 27, 2008


All the Bailout with None of the Corruption
Friedrich von Blowhard writes: Dear Blowhards, In a recent post, I made a suggestion that we consider creating new lending channels to funnel publicly supplied credit to real economy borrowers, thus obviating the need to bail out Wall Street in order to ‘save’ Main Street (supposedly the goal of the exercise). In making such a suggestion I was trying to highlight the unbelievably corrupting precedent that that would be set by bailing out such once-profitable and still politically connected firms without wiping out their shareholders and management. However, I see via Barry Ritholz at The Big Picture that I am not alone in proposing such a scheme. Intriguingly, this proposal (far much more detailed than mine, or, for that matter, the Paulson plan) is based largely on concerns of efficiency and the need for the financial sector to evolve past the failed model of the past fifteen years. The scheme is the brainchild of Bill King of M. Ramsey Securities Inc. Mr. King begins with several trenchant observations, including: - The Paulsen-Bernanke Bailout Plan does not insure that those banks and brokers that receive bailout aid will increase lending. The reality is the market is hoarding liquidity and these banks are likely to do the same. More importantly consumer lending has been a small, often insignificant part of their business. They made money by trading and through securitization of debt. - It is necessary to create a new system parallel with the existing dysfunctional system in order to mitigate the inevitable economic and financial damage and to facilitate, as seamless as possible, the transition to a functioning financial system or new model of credit and banking. - The Wall Street model, securitization and extreme leverage, is obsolete. […] - Hank and Ben assert that it is paramount to keep credit flowing to consumers; the bail out is a necessary adjunct. Some of the basics of the King Report Bailout Plan: - Directly recapitalize banks by the US government allocating $500B into a plan for community-type banks to increase their capital in partnership with the government. - The government would match existing or some percentage of existing bank capital. If it would be better, a separate bank could be created. Place a limit of say $1B per bank. - This would create $5 trillion of credit at conservative 10 to 1 leverage. This is more than the entire private mortgage market. It is a much better use of capital instead of absorbing $700B of losses with no means to discern [or reasonably anticipate] resultant credit creation. - Give the banks a tax rate of 15% on consumer and commercial lending for 5 years and the right to buy out the government share of the operation at some premium. There is more, read about it here. Will something like this get implemented? I doubt it, but even if it doesn’t, such proposals should serve to highlight a key point: an unstated consequence of the Paulson/Bernanke plan is to keep the current system,... posted by Friedrich at September 27, 2008 | perma-link | (35) comments

Friday, September 26, 2008


Exercise/Eating
Michael Blowhard writes: Dear Blowhards -- We're fatter these days partly because we move less than people used to. That's the standard expert's analysis and diagnosis, of course. But is it correct? Perhaps it's also possible that people get fat first, and only then move less. Gary Taubes explains to Jimmy Moore that the direction causation flows in is anything but as clear as the routine authorities would have you believe. Stephan takes on the same question. I found Gary Taubes' epic "Good Calories, Bad Calories" to be a real eye-opener. Much of what we've been told about eating, food, health, fat, and cholesterol for the last 40 years has been either demonstrably wrong, or based on flimsy evidence and weak experiments. Cheery news: More evidence that small amounts of dark chocolate are good for you. I'm off to have some. Best, Michael... posted by Michael at September 26, 2008 | perma-link | (5) comments

Thursday, September 25, 2008


Western New York Visited
Donald Pittenger writes: Dear Blowhards -- As long-time readers might recall, I spent more than four years living in Albany, New York while working as a demographer at the then New York State planning agency. My task was to create county population forecasts. So, in addition to my usual weekend wanderings near the Hudson River and other destinations of choice, my job required occasional visits to all the major metropolitan areas to meet with planners and other data consumers. Aside from the eastern part of Long Island, I've been to most parts of the state. But I moved from New York in December, 1974 and seldom get the chance to visit it. When I do, it's usually the eastern part of Upstate. That means I've essentially lost touch with many places I had known and had a professional interest in. Happy me, I just returned from a trip from Boston through parts of Canada that ended with a drive from Niagara Falls to Buffalo, along U.S. 20 to Canandaigua and concluding in the Rochester area where a cousin of mine lives. The weather was fine (room-temperature and sunny) and the leaves were beginning to turn color here and there. I wrote about Buffalo here and was especially interested in seeing how it was coping with its long-term decline from being a prosperous, major city. We hopped off a freeway and drove into downtown from the Albright-Knox Art Gallery (which was closed that day). After a quick turn through the center we got on Broadway and headed east, seeing what there was to see along that axis all the way to Canandaigua. Coming into town we spied several old, abandoned factories. Along Broadway out to around the city limits there were boarded up businesses, vacant lots that might well have had house at one time, and a strong sense of economic loss. Nancy mentioned that she had seen not one supermarket on that stretch (though surely there must have been a few lurking nearby). Downtown was in better shape; a few new office buildings were in evidence, though they weren't large ones. The most impressive structures were old ones on Niagara Square -- a grand hotel (formerly the Statler, now in seeming limbo status) and a fabulous high-rise city hall . completed in 1931 (the link has photos, including one showing the decorated dome top). By the time we were in eastern Erie County, what we could see from the road looked normally prosperous -- based on what I recall from Upstate in the early 1970s. On the other hand, I wasn't struck seeing many new structures other than the odd fast food joint or supermarket. So the impression I got was that rural areas were holding their own. (A word about impressions. They easily can be wrong. For instance, back in the 70s Utica was known to be on the skids, yet it looked okay in general and there were a few new (but small) commercial areas. One really needs... posted by Donald at September 25, 2008 | perma-link | (12) comments

Fact for the Day
Michael Blowhard writes: Dear Blowhards -- In the midst of the global economic meltdown, can we spare a moment's attention for the things in life that really matter? In this case, women's pubic-grooming habits. A study recently done in Australia found that ... Three of four college women shave their crotches, and half go completely bald. (Cue sound here of Peter weeping.) Source: Men's Health, the paper version. One of the study's lead authors sums her findings up this way: "Women today are more exposed to TV shows and magazines that freely talk about pubic-hair removal, so it becomes this cool and glamorous thing to do." As someone who did most of his catting-around in the wild and (er) wooly '70s, I can testify that today's harshly-tonsured, super-smooth crotches represent quite a cultural change. Back in the day, an encounter with a woman's crotch was often a powerful and raw experience. (NSFW.) Grrrr-woof. "Sex and the City," you have a lot to answer for. If any of our female visitors should care to share some personal experience where the pubic-grooming thang is concerned, I can guarantee a respectful hearing. Dudez: No hooting allowed, you hear me? Semi-related: The Rawness goes to Amsterdam. Though the Red Light district prompts an unexpected spasm of Catholic agony, he recovers quickly and soon enjoys the pleasure of intelligent discussion with friendly women. Don't miss T's night out with the Swedes either. Best, Michael... posted by Michael at September 25, 2008 | perma-link | (39) comments

Wednesday, September 24, 2008


Independence Day?
Friedrich von Blowhard writes: Dear Blowhards, A great quote about the bailout comes from (of all places) the Wall Street Journal: David Ader, government-bond strategist at RBS Greenwich Capital, notes that it is a politically difficult sell to go to voters and tell them you’re proud to have kept employed "many of the same firms that created the mess and paying more for their crappy securities than they themselves would be willing to pay. Vote for me." [emphasis original] One question: in debating this bailout, nobody seems to even consider a possibility that leaped out at me. If the troubles on Wall Street are preventing Main Street from getting responsibly extended, reasonably priced credit, why can’t we just end-run Wall Street? Take the $700 billion Mr. Paulson is asking for and start up, say, 10 new banks with it. Guarantee the deposits publicly with a better guarantee than the FDIC. They’ll have no difficulty attracting deposits. Then have them lend out money at conservative leverage (say, 10 to 1, much less than Citibank) and generate $7 trillion in new credit. Hire a staff from among the recently laid off, and management from, say, Japan, and pay them so that they only need to make 10 percent ROE (thus making a nice return for the taxpayers) and their bonuses only get paid out when it’s clear that the loans have actually been repaid. No derivatives, no fancy stuff, just plain vanilla lending. Main Street is saved, and the rest of us can find entertainment and moral improvement in watching Wall Street implode and disappear. Let me point out where this wild fantasy comes from. To whit, everyone, including Mr. Bernanke, says that the ‘real economy’ will suffer without credit. Credit is apparently like, say, electricity and water -- a health and safety issue for the economy. We have 'utilities' in electricity and water -- so why not in credit? Some of those utilities are privately owned but heavily regulated; some of those utilities are publicly owned, at the local, state and federal level. And you know what? The publicly owned ones work just fine. In Los Angeles, I’m currently a customer of the private Southern California Edison, but previously I got my juice from Los Angeles Department of Water & Power. The bottom line: power from LADWP was half the price. I'd love for somebody explain why it is apparently unthinkable for America’s taxpayers and borrowers to declare their independence from the current crop of moronic incompetents now masquerading as financiers. Remember, this is the same group of guys who misallocated credit (their supposedly core competency) on a scale unknown in human history. How exactly did these bozos get to be so indispensable? Isn't this indispensability entirely in the minds of Bernanke and Paulson? And doesn't that make them, in the most polite terms imaginable, captured regulators? Cheers, Friedrich... posted by Friedrich at September 24, 2008 | perma-link | (31) comments

Tuesday, September 23, 2008


Your Most Memorable Character
Michael Blowhard writes: Dear Blowhards -- GFS3 asks five writing-world figures a good question -- “What literary character do you find most compelling and why?” -- and gets some fresh answers in response. Time for me to catch up with E.W. Hornung's "Raffles" books. Interesting the way that characters in popular fiction are so much more likely to jump out in three dimensions than modern lit-fict characters are, isn't it? What to make of this? A thought experiment: Would it be fair to say that some of Jackie Collins' characters have more "life" in them than any of Salman Rushdie's do? Seems a perfectly reasonable claim to me. After all, Collins' people get up and walk around under their own steam from page one, where Rushdie's characters emerge vaguely over the course of hundreds of pages from huge (and to my mind exhausting) blasts of writin'-writin'. Now, what if we value "the creation of lively and persuasive characters" more highly than we do "the creation of complex and glittering word-clouds"? (Let alone "authorial showing-off.") There's no reason a respectable reader shouldn't have such a value-set, is there? If we can indeed grant that, then perhaps it would also be OK to rank Jackie Collins as a better writer -- at least in one very important sense -- than Salman Rushdie. Fair? Unfair? Bonus point: Don't miss Dark Party Review's collection of "5 Questions" interviews with authors. Best, Michael... posted by Michael at September 23, 2008 | perma-link | (27) comments

The S Word
Michael Blowhard writes: Dear Blowhards -- There's that word again. (Link thanks to Dave Lull and Charlton Griffin.) Great passage: According to a Zogby poll conducted in July, more than 20% of U.S. adults -- one in five, about the same number of American Colonists who supported revolt against England in 1775 -- agreed that "any state or region has the right to peaceably secede from the United States and become an independent republic." Some 18% "would support a secessionist effort in my state." The motivation of these quiet revolutionaries? As many as 44% of those polled agreed that "the United States' system is broken and cannot be fixed by traditional two-party politics and elections." Put this in stark terms: In a scientific, random sample poll of all Americans, almost half considered the current political system to be in terminal disorder. One-fifth would countenance a dissolution of the bond. There may be something in the air. Earlier ... Best, Michael UPDATE: Vanishing American gives secessionism -- and Bill Kauffman -- a lot of intelligent thought.... posted by Michael at September 23, 2008 | perma-link | (20) comments

Monday, September 22, 2008


Buy it, Henry!
Friedrich von Blowhard writes: Dear Blowhards, If you need some comic relief at the prospect of our Secretary of the Treasury, Hank Paulson, using your tax dollars to buy ‘distressed assets’ from financial professionals who make lots more money than you ever will, check out Buy My Shitpile, Henry. (Hat tip to Barry Ritholtz.) With our economy in crisis, the US Government is scrambling to rescue our banks by purchasing their "distressed assets", i.e., assets that no one else wants to buy from them. We figured that instead of protesting this plan, we'd give regular Americans the same opportunity to sell their bad assets to the government. Don’t hold back! Don’t be modest. Your ‘distressed assets’ are just as good as theirs are…in fact, probably a whole lot better! Cheers, Friedrich... posted by Friedrich at September 22, 2008 | perma-link | (6) comments

Good Reading / Good Writing
Michael Blowhard writes: Dear Blowhards -- * Gil Roth has been working his way through a lot of Montaigne, the 16th century Frenchman who's often said to be the inventor of the personal essay. (Learn more here.) Here's Gil's latest encounter with the genius. I'm a big Montaigne fan myself, though Gil has got me feeling embarrassed about how little of the master's work I've actually read. Long ago I wrote an intro to the mindblowing philosopher Stephen Toulmin. Montaigne is one of Toulmin's heroes too. * Gil points out a fab Kassia Krozser blogposting about the book publishing business. One of Kassia's points is that the people most likely to bemoan the end of books are literary people. Great quote: "Don’t insult the readers, man. It’s just bad form, and you really, really need people to buy your books." Say it, sister. More: Publishing, like the rest of its entertainment brethren (and I understand that even thinking they’re part of entertainment world pains some in the industry. Get. Over. Yourselves. Thanks.), caters to a diverse audience. Those who see the sky falling are those who see their niches not performing. In part because those niches never were as big and profitable as legend suggested. Why are so many literary people such a pinched and depressive bunch? Back here I compared books people (often introverted, solitary, and high-minded) with movie people (usually extraverted, sociable, and opportunistic). * Don't let this get around, but: Good writing -- even of a belles-lettres sort -- has never always come wrapped in a pretty highbrow-magazine or prestigious-book-publisher cover. These days especially I'm stumbling into high-quality writing in all kinds of crazy places. One example: If you have a taste for smart and shrewd artsyak, why not treat yourself to a browse of the Amazon reader and viewer reviews written by Ivy Lin. Ivy is an opera, a ballet, and a classic-film buff, but her discussions of these works and performances are anything but stuffy -- they're alive, informed, perceptive, appreciative and funny. I'm not sure I'd dub her a "critic," exactly -- but who cares about that? Ivy makes you want to join her at a performance and then blab with her about it afterwards. Coming from an enthusiastic artsyakker like me, that's intended as totally high praise. Back here I wrote a few words about that perpetually good topic, critics vs. bloggers. * Scientists are starting to pay attention to the very real miracle that is narrative storytelling. Back here I riffed through the work of some fab thinkers who are 'way ahead of the scientists on this one. Neuroscience and evolutionary biology finally show some re-spect for the basics of audience involvement and narrative suspense, baby -- and it's about effin' time. Best, Michael... posted by Michael at September 22, 2008 | perma-link | (3) comments

Quote of the Day
Michael Blowhard writes: Dear Blowhards -- My Saying-A-Lot-With-A-Little Award of the day goes to Nathancontramundi for this gem: Why American “liberals” fail consistently to recognize the connection between the welfare state and the warfare and corporate states, I cannot comprehend. More here. Best, Michael... posted by Michael at September 22, 2008 | perma-link | (1) comments

Health, Food, Fitness Linkage
Michael Blowhard writes: Dear Blowhards -- * Tennis champ Martina Navratilova -- turning 50 -- uses Gyrotonics to help her stay flexible and balanced. I'm a huge Gyro fan myself. * Richard Nikoley throws some buffalo on the grill. * Another interview with the startling economist / fitness-guy Arthur De Vany. * More reasons to marvel at the low-fat insanity of the last three decades: Dr. John Briffa takes a look at a recent study and concludes: "The lower-fat regime utilised in the Women’s Health Initiative study did not protect women against cardiovascular disease, cancer or diabetes." * Hyperlipid's Peter -- who knows more about fats than you do or I do -- eats six egg yolks a day and gets 80 percent of his calories from animal fats. He's slim, his blood markers are good, and at age 52 he has never felt better. Here's a typical day's eating for Peter. * Read about Jan Kwasniewski's Optimal Diet -- the hardest-core high-fat diet around -- here, here, and here. * So is there any point to taking statins at all? Best, Michael UPDATE: The Nourished Kitchen prepares a scrumptious-looking meal out of foods that the revenooers have made illegal. Great passage: It’s important to note that many people may view these laws as a way to ensure that the public limit exposure to potential pathogens. Yet, the laws favor industrial agriculture and interfere with both the small farmers’ ability to making farming economically viable and the consumers’ ability to make an informed choice. Indeed, though I consistently choose to include these foods that skirt the law and bend health codes, they’ve never made me sick; rather, my health has improved with the inclusion of pasture-fed chicken, grass-fed meats and raw milk. Consider that spinach, tomatoes, lettuce, beef and a slew of other legal, industrial foods have made people across the US sick due to contamination with pathogens like e. coli and salmonella.... posted by Michael at September 22, 2008 | perma-link | (10) comments

Most
Michael Blowhard writes: Dear Blowhards -- * The ten most bungled robberies. * The twelve most embarrassing photos on the web. Best, Michael... posted by Michael at September 22, 2008 | perma-link | (0) comments

Sunday, September 21, 2008


Ideology and the Public Trough
Friedrich von Blowhard writes: Dear Blowhards, I’ve noticed one thing about the Paulson bailout; disaffection with it seems quite similar on both sides of the political aisle, at least among people who quaintly have notions of actually believing in what they say they believe in. (Obviously this group includes neither professional politicians, Wall Street tycoons and other, um, porcine pragmatists.) If this seems excessive, check out this posting by Matt Yglesias: I’m blogging under the influence, so perhaps things aren’t quite as dramatic as they seem to me right now, but the bailout plan on the table right now seems to me like something of a crisis point for American liberalism. The plan is bad. But bad policies get enacted all the time. But we’re at a point now where congress is, allegedly, in the hands of progressive leadership. Simply put, if congressional Democrats manage to acquiesce in a plan that spends $700 billion on a bailout while doing nothing for average working people and giving the taxpayer virtually no upside in a way that guarantees that even electoral victory would give an Obama administration no resources with which to implement a progressive domestic agenda in 2009 then everyone’s going to have to give serious consideration to becoming a pretty hard-core libertarian. It’d be one thing for a bunch of conservative politicians to ram a terrible policy through. Then we could say “well, if some progressives win the next election things will be different.” But if this comes through an allegedly progressive congress then the whole enterprise starts looking pretty hollow. Well, this is just a liberal thing, right? I mean, those guys aren't going to like anything a Republican administration does, right? As it turns out, there are pretty similar stirrings on the right also. The Cunning Realist, who describes himself as a lifelong conservative, remarks in a post: On economic matters, conservatism has largely been taken over by what I call Daiquiri Destructionists: self-avowed Schumpeter acolytes who mutter darkly in beach houses about government intervention in free markets, until things threaten to get a bit too free. Except for the meager shelter under Ron Paul's umbrella, true fiscal and monetary conservatives have no real-world haven right now. Well, I hate to say I told you so, but I recall making the point that politics in America is pretty much a sham—a matter of differing strategies for enlisting the enthusiasm of the voting masses. Ordinarily, the professional politicians, Wall Street tycoons and others will go along with the dumb show for the yahoos, but occasionally the matter is too serious and the mask slips in public. For an interesting view of exactly what the pragmatists are up to...lining up for the starting bell of the 50 yard dash to the public trough...check out this article. I guess there’s not much chance of a truth in politics law, huh? Cheers, Friedrich... posted by Friedrich at September 21, 2008 | perma-link | (11) comments

Oppose This Bailout
Friedrich von Blowhard writes: Dear Blowhards, The Paulson plan for bailing out the financial sector is extremely dubious. The prospect that it will get rubber-stamped into legislation by a panicked Congress within the week is a distressing, but sadly real, possibility. I strongly urge you to oppose passage of this proposal without – at a minimum – a full and thorough airing of the issues involved. Rushing through a proposal of this magnitude, especially just prior to an election, is foolhardy. I would detail the weak aspects of this bill, but others have done my work for me. As David Merkel explains: The current proposal is proactive. Proactive solutions are expensive, and do not fairly distribute the losses to those who caused them through their shoddy lending practices. The owners of bad assets should risk their equity before taxpayers put up one red cent. The government should not try to prevent financial failure, but prevent financial failure from spreading as a contagion. Common and preferred stockholders of failed institutions should be wiped out. Subordinated debtholders should take a haircut. But depositors and senior debtholders should be guaranteed, in order to protect other financial institutions that invest in those instruments, thus avoiding contagion effects. Second, the proposed bill is vague, and offers the Treasury a “blank check” to do pretty much what it wants. Section 8 states: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” Who are we kidding here? I don’t care how great the emergency may be, the other branches of government should be able to act as needed. Third, there is nothing to assure that fair market value will be paid for assets. If an investment manager is hired, who could tell if he plays favorites or not? Clever investment firms will take advantage of the government and its agents, and only sell overpriced assets to the government. Fourth, there is no easily identifiable upside for taxpayers here. If we bail out a firm, it should be painful, as it was for the GSEs and AIG, where most of the equity gets handed over to the government in exchange for a senior loan guarantee. Fifth, though the name of the Resolution Trust Corporation has been invoked here, this is nothing like the RTC. The RTC only dealt with insolvent S&Ls. It did not try to keep existing S&Ls afloat. This proposal is an expensive boondoggle and should be opposed by all. As one bit of evidence here, how many noticed that mortgage rates went up on the day the deal was announced? Yves Smith of Naked Capitalism offers her criticisms: First, let's focus on the aspect that should get the proposal dinged (or renegotiated) regardless of any possible merit, namely, that it gives the Treasury imperial power with respect to a simply huge amount of funds. $700 billion is comparable to the hard cost... posted by Friedrich at September 21, 2008 | perma-link | (29) comments