An introduction is probably in order. I’m the overdue partner of this blog’s other author (he shall be referred to as the more eloquent one). A few short bits about me…
1: I’m an anthropology major with the University of Iowa.
2: My interests lie with the eclectic. In no particular order we have: RPGs, writing, computer games, National Geographic, martial arts, and soccer. Oh god, soccer…
3: While we’re talking about that last one, viva la Arsenal.
Charmed to meet you all… all, what, 10 of you?
Multiple papers to write at once take up an amazing amount of free time, who knew.
Anyway, this is despicable. Clearly in one of the most engaging and captivating elections in recent memory, going on with the backdrop of an economic landscape that is undergoing unprecedented (again in recent memory) turmoil, the best thing to do would be to create a piece that advocates to intentionally not participate. And it isn’t just the sweeping generalizations that are being pandered to about youth voters that is deplorable (much like those commercials of late that are advocating automatic reduced prices for car insurance for older people because, naturally, old = better driver *sigh*). It’s more the intentional manipulation and intellectual dishonestly being perpetrated to take what were otherwise a relatively normal distribution of results and slanting them to fit their bias. Heck, why even bother interviewing real youths (other than perhaps to embarass them)? Just grab a studio and some actors, it would probably be faster and less easy to fact-check.
I’m liberal in my beliefs, I’m aware of this. And in positions of authority I would like people who are more knowledgeable (or have a group of underlings knowledgable enough to provide fair and broad input) about a given issue or their portfolio than the regular populace/politican has though. But to take it to this extent and apply it to voting:
“Is it elitist to say only some people should do brain surgery?” Caplan said. “The bottom line is, if you don’t know what you’re doing, you are not doing the country a favor by voting.”
Voting is serious business. Democracy works best when people educate themselves. So maybe instead of telling people things like “Rock the Vote,” these groups should say “Rock or Vote.”
Is utterly condescending. Suffrage is universal, has never come with conditions, and people have died to give their countries access to it.
On the plus side, the fact that this is coming up and is transparently a sham is probably going to energize those that see it in the exact opposite direction.
Another take on the reasons behind this entire fiasco, though this time slanted towards the tech sector in particular. It’s interesting to note that the number of posts and news articles around attempting to go into deep detail on explaining ‘what happened’ (and usually agreeing with each other but all requiring paragraphs and paragraphs to explain it) are telling of how stupidly complicated this whole mess is. Which is another reason for leadership to get something passed considering I’m fairly sure (and some of the finer details are fuzzy even to myself and I’ve read a number of these depictions of events) the average person on the street following this is having a massive headache and would have no idea what to do if put driver’s seat. Which is another reason why voting against this based upon your own electorate’s feelings, in this case, is worrisome: vote for it to get something done, then go back to your constituency and explain why this was needed now rather than later or not at all.
One other point brought up in the article stated:
The splurge is quite risky — and while I can appreciate the upside potential, if done right, that “if” scares me a lot. I’d be much more comfortable with it if it wasn’t being pushed through in its entirely in such a quick manner, with partisan players on both sides going on the news yelling at the other side each night. Instead, focus on a smaller initial package and spend a bit more time working out the bigger deal later, with a lot more input.
Which I’d like to note was kind of what the bailout was planned to do. The initial bit ($250b or so) was to be given right away with further money beyond a point requiring congressional approval (they had a time of two weeks to say no if they wanted). All $700b wasn’t to be given right away, though I’d imagine in reality (provided they didn’t just want the money for no reason) it would have eventually made it into the market.
Oh what the hell. After attempting to solve this by last week only to have it completely stalled (partially after McCain’s trip to Washington even so far as to suspend his campaign, yet only causing confusion and parroting a secondary plan), they came up with a bill that was largely expected to pass (including some concessions to the idea of both including oversight, as well as requiring the Treasury to come up with that alternative insurance plan even if it wasn’t required to use it). Instead, we get nothing by twenty-three votes and are forced to watch as the the DOW plunges more in this single day than in the day the markets opened after 9/11.
An article and a forum post I stumbled across both illustrate partially why this happened and why we need this bailout (and also why some form of a bailout is going to come eventually, even though every day of stalling simply creates more uncertainty in the market):
Necessary. The current problem is largely in two facts. The primary factor of illiquidity in mortgage backed securities, the secondary factor in credit derivatives. The second part hasn’t hit, and if it does, there will be no bailout big enough to fix the problem.
At this point in the game, the question is not, “what got us into this situation”, we know that. And as well, the question is not “who do we punish” the problem is too large for that.
A good analogy would be like a refrigerator. If you leave it sitting the food inside will rot. Proper regulation of your refrigerator will assure that a minimal amount of food goes bad and a maximal amount gets eaten. But, at some point of letting it sit, letting it sit further does not fix the problem. Sure molds will grow and end up consuming all the food in the fridge, then die when its expended. Eventually. No, you have to throw it out, as much as you would like to save the energy in the food, its impossible.
That is pretty much where we are at with the bailout. It needs to happen and it needs to happen in the manner prescribed(buyout). As i was saying earlier, the primary problem is illiquidity in these securities market. This occurred as people stopped trusting the return on these securities. Why this happened is complicated, it had to do with an increased rate of foreclosure, and the expansion of CROs from rating companies to rating individual securities, deregulations that made trading these types of securities easier and easier to create[I.E. cut up], and a lack of incentive on the part of the brokers themselves to produce deals that produced results(this ties into the CRO issue). This list is by no means complete, but it comes down to the fact that deregulation and maleficence(which is to say, SOP) had created an atmosphere where these securities were valued way above their real value.
The core of the illiquidity is that now that people are not trusting these securities at all, they are not trading. Mark to market be damned, that only has to deal with their reporting, if people were doing due diligence they can find the value of these things if they want. Mark to market has nothing to do with whether or not they can get loans unless the other party believes the market price is right. Since everyone is trusting the market in not trusting these assets what you have is a bunch of people who can’t get loans because no one trusts what collateral they could pull.
Modern financial companies operate on leverage.[another big problem, the sec changed leverage rules for a number of companies]. Basically this means that the companies borrow 10 times more money than they can pay back[SEC ruling changed that to 40 times for a number of companies]. Since very few people want their money all at the same time, they can then use this leverage in order to make more loans and increase their margins. In order to keep this system flowing, they need to keep getting short term loans. If they don’t they can’t cover their costs during spikes of activity.
Now lets combine the two issues. Companies which need loans to operate can’t get loans because everyone thinks that if the company fails to pay back its loans[which is entirely possible because they think the company is making bad investments]. Such, the companies fail[its not quite so cut and dry, its gradual and goes through stages, but that is the gist of it].
Loaning them money doesn’t do anything[and creates inflation, which is very dangerous], since they use the money to pay off their debts but still can’t get loans in order to continue their operation. They can’t pay insurance cause they don’t have any money, the cost of the insurance would offset the value increase of the securities[since they would then be guaranteed], and no one trusts the securities any more than they did before.[this is a big more complicated, there is also then trust in the Govt to be able to pay out the insurance when it comes due, and trust in the Govt to be able to do that are probably slim, this is a really bad plan]. So, someone has to take the assets off their hands. And that means the U.S. govt has to step in and buy these assets.
Will the govt get fleeced? Unlikely. But possible. The markets for these securities are small since they are not commodified across the spectrum. Which means the possibility in power imbalance at the auctions is distinct[holding auctions for non-commodity products is another problem in and of itself]. However, this amount of problem is likely to be low, it doesn’t take many sellers to make competition valuable, and since there are very few buyers, the U.S. govt holds a strong negotiating position. As well, the market price of these assets being so low already may offset any gouging that goes on.
Now, why does this need to happen? Because there has been a spate of deregulation that has allowed a number of institutions to get so large they “cannot fail”. One of the purpose of merger regulations is to keep financial markets diversified exactly for the purpose that if one organization needs to fail, it can[Fannie and Freddie may be an exception, since they had implicit govt backing, which means that they couldn’t fail no matter their size]. How do we know when a company is too large to fail? Well, its pretty much when it failing will depress the supply of money to an unacceptable point. Now, i am not talking about money supply, but in the ability of people to secure loans. When the ability of people to secure loans is depressed, the entire basis of a modern economy ceases to function.
The basis of a modern economy is basically that capital can be allocated to be most efficient as quickly as possible. This works when someone thinks they can make a profit off of taking out a loan. E.G. you take out a loan to start a business. If you saved to start a business you would start 5 years from now. If you get a loan, you start now, and 5 years later your loan is payed off and instead of starting a business you’re making money doing something profitable, you’ve gained essentially 5 years of start up, so 5 years of profit from your company for the cost of the interest. It works the same way when buying a house, a car, or any capital expenditure.
So what happens when loans get depressed? The efficiency gains in capital allocation are depressed. What happens when the efficiency gains in capital allocation are depressed? People stop hiring people. What happens when people stop hiring people? Those people who aren’t hired, cut back expenditures. What happens when people spend less? People start firing people. What happens when people start firing people? People spend less
Then you have a recession or depression. In this case it would be a depression. A recession might have saved it from being as bad [by inducing inflation or by enforcing proper regulations on the capital markets you stop a violent correction at the cost of a small downturn]
The economics are cut and dry here, the Chicago school is holding onto a dying ideology that simply does not work in large currency based economies.
Edit: Forgot to talk about CDS. Credit Default Swaps are a credit derivative[which means it gets its value from the credit worthiness of a company] that operate like an insurance policy. One person pays an amount of money regularly and the other one agrees to pay off the return of a debt if it goes south. The catch? You don’t have to own an asset to buy a swap. Its basically a bet against a debt failing. The risk involved in a CDS is the liklihood that the debt holder will repay, and the liklihood that the swap issuer can pay you.
A lot of companies looked at CDS as basically free money. These companies weren’t going to not pay their debts. Because of that there is roughly 60 trillion in CDS that could be collected if these debts are defaulted on. That is more than the GDP of the entire world, and nearly 10 times the value of the entire sub-prime mortgage market[note, values are usually bigger than GDP since they are accumulated capital]. The issuers ignored both systematic risk as well as made unreasonable expectations on these debt repayments for a number of reasons. But basically, once institutions start failing, other institutions may be on the hook for their debt in the form of these default swaps. But the default swaps are likely to, at this point, have to pay out many times over what the debt was. If you have two swaps on the same debt and that debt fails you are on the hook for twice the value of the debt. These institutions are then likely to not be able to pay those. They fail. Anyone hold CDS on those institutions? Well, now they’re probably going to fail too. Then the entire market implodes and a slight recession or depression looks like fun, as we would have to rebuild our capital markets from scratch, which would be no easy task given the likely investor mistrust and take a lot of time.
fake edit: CRO’s play a huge part in this, but i didn’t have much time to talk about them. Basically they are a company that rates credit of a company or security at the time the security is issued. However, they are payed only if the security deal goes through and have no implicit guarantee of their ratings. In the past they have been very reliable, but that was before they expanded into rating individual securities where they now have an incentive to lie about the value of the security. An apt analogy would be like trusting a home inspector who said “i do not guarantee my work” and only got paid if the house closed.
/end wall of text
edit 2: You thought I was done: Electric Boogaloo
The other benefit of the buy is that the govt can forgive and restructure any loans it wants[so long as the end result is beneficial to the mortgage owner], so some of the people who got suckered into bad loans and were unable to get out as housing turned down would not lose their home. This can be a pretty important efficiency boost for the govt since it doesn’t have to sell it and since it has an interest in the general welfare[which is not necessarily served by anyone buying a house]
An amusing take on the issues surrounding the huge bailout wanted by Paulson.
I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.
I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.
I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.
This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to firstname.lastname@example.org so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.
Yours Faithfully Minister of Treasury Paulson
They probably could have started off with today’s announcement with regarding the Conservative’s stance on crime, rather than the other day’s one. At least if they wished to focus attention on the one dealing with things which are debatable (house arrest being used liberally is an issue to be limited and could have some merit) rather than something which is being panned by several criminologists.
Regarding the house arrest issue, let’s look at the list of what Harper’s aiming for:
- Serious property crimes, such as robbery, auto theft, breaking and entering, and arson.
- Weapons offences, such as possession of a weapon for a dangerous purpose.
- Serious vehicular crimes, such as impaired driving causing bodily harm or death.
- Drug trafficking, kidnapping and trafficking in persons.
The last three points I’d agree with, as house arrest is probably not warranted (barring situational circumstances). But point one (except arson)? Unless your aim is to try and reduce gang crime, which does seem to be a bit of a problem in certain regions in Canada, by increasing penalties on the crimes typically associated with them (and this idea that more punishment = less crime is, in and of itself, rather specious) I don’t see this doing much beyong being able to say “We’re tough on crime.”
Now, with regard to ammending the Youth Justice Act, what the hell? When it’s being shown that this (starting to extend sentences on children and reducing protections for children) is a terrible idea, and you have UN adopting the Convention on the Rights of the Child to specifically address the fact that children need special legal protections because of their immaturity, it’s rather appalling that there would be a proposition to relax these very protections for the purpose of an election talking point. And with quotes like:
I don’t think you should be able to hide behind anonymity just because you’re under 18. ~Ken Boessenkool, Conservative Strategist; on CBC just before 6 pm today.
‘Yes, we believe they’re wrong,’ Harper said. ‘We’re listening to ordinary people, not people who work in ivory towers, but people who actually work on the street and deal with crime on a day-to-day basis.’
It’s disconcerting to the extent with which Harper and his campaign will eschew actual solutions to the problem of crime (and youth crime) by addressing the various socio-economic circumstances driving it, as well as the people most knowledgable of crime in general all to try and ‘connect’ with voters.
Well I suppose this is research. But public money to the tune of $100,000 to study a small aspect of World of Warcraft gold farming? Her comments are somewhat interesting into how the Chinese view WoW and play it, to dispel at least some myths surrounding the traditional ‘gold farmer’ label, though the focus on Americans’ modding of the game seems incredibly limited in scope to justify that amount of spending. At least with the corrupted blood incident, the potential for that research went beyond simply understanding of social aspects of online MMOs and into transmission and development of real-world diseases.
And in a complete 180 topic-wise, it would seem that the UK is planning on launching a number of new Red Dwarf specials. Now I’ll have to get out my nerd hat and see if the CBC will be broadcasting them at some point so I can track them down.
The Economist has an interesting piece on a recent published article examining the efficacy of Individual Transferable Quotas (ITQs). Considering that the majority of the world’s fish stocks are being fished to capactiy, with a quarter either depeleted or in danger of collapsing, it is rather evident some change in terms of sustainability will need to be applied to prevent the potential for these fish stocks from collapsing much like the situation that occurred off the Newfoundland Coast. I do find the idea of ITQs innovative, as they’re attempting to solve this issue through a way in which seems to encourage fisherman to spend more time fishing rather than rushing out in a competition to fill their quota right away.
One of the issues though that I’m concerned about is the relative newness of ITQs and thus a lack of long-term study on them (notwithstanding this newest study). As mentioned, there are 121 ITQs in operation out of the 10,000+ fisheries, so we only have a small number of cases with which to see how they operate in practice. And from some accounts we end up with situations such as the following:
In 2002 a group of Chignik fishermen petitioned the Alaska Board of Fisheries to form a cooperative, into which 77 of the 100 permit holders elected. The remaining 23 fishermen maintained their independent status…The cooperative structured its harvest and payoffs as follows: 22 of the 77 members were paid to catch the coop’s entire quota, while 55 did not fish but shared in the revenues from catch according to a predetermined formula.
So while sustainability is increased, it seems to cause an environment in which larger groups have much easier access to these ITQs than individuals operating by themselves (In the case above, though, the Alaskan court deemed this situation illegal, which is a plus for oversight). Now, this may be exactly what it’s intended to do, as this report mentions at one point, that by making it more harder for new entrants, you are effectively addressing “overcapitalization” which plagues fisheries without ITQs. Still, there is still the potential that those with more access to the ability to buy ITQs (namely, large corporations) could begin dominating how fishing takes place under ITQ situations. Though, that could be resolved through modifying the ITQs (“Many early problems with ITQs are attributable to program design and may not be inherent problems with the concept of ITQ management,” same report) in ways in which to more adequately spread around the availability of ITQs.
It seems promising in its novelty and hopefully more of these will be started to more adequately get a picture on their long term effects on sustainable fishing.
Now, I can see why he’s tepid over continuing to have it as the central focus of his campaign during this election, especially as the Conservatives can simply point and go “Tax!”. But doing an entire about face and claiming that it’s not a central component of your platform when you’ve been promoting it so much in the last it going to be rather easily seen:
“I gather he doesn’t want to talk about the carbon tax; he doesn’t want to talk about his Green Shift anymore,” Harper said at a campaign event in Montreal. “He’s shifting his Shift.”
As a commentator on CBC news tonight mentioned, though, a more easy to run with track could possibly be by focusing on both Chretien and Martin on matters of the economy. After all, they ran up surplus after surplus (possible underreporting of the budget notwithstanding) throughout the 90s and yet now we have organizations such as the OECD warning that are growth is very likely going to be shrinking sharply. Whether or not this is due to anything Harper has implemented during his term is debatable and highly unlikely what with the financial troubles the entire world is facing, but as an election agenda it would provide a very good talking point.