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March 30, 2009

More on "Wind Downs"

My last blog "What, Me Worry?" suggested that Geithner's plan to "regulate" non-bank banks wasn't such a bad thing. But, then, I've been gathering more data and now I'm not so sure.

Geithner has a tendency to say "your government" is doing X, Y or Z to protect you. So, while I am OK with facilitated bankruptcies, I'm having agida over Geithner's approach. Chapter 11 may need revising for situations like AIG, but Geithner's condescending paternalism is bracing. Scarey, even.

In the context of the times, Geithner's plate is too full, in my judgment. He's trying to do too much, too fast. And, frankly, what he's doing now is already directionally incorrect, IMO.

So, the concept of wind-down bankruptcies (vs. Chapter 11) seems a worthwhile concept to explore, but not now, and not with this cast of characters.

-RC

Posted by RobertCapozzi at 06:15 AM | Comments (0)

March 27, 2009

Instead of Green Goofiness, Celebrate Human Achievement this Saturday

You may not be aware (if you have anything better to do than sit in your living room with the lights out), but Albuquerque is one of hundreds of cities that has signed up to "celebrate" earth hour this Saturday night. According to the Earth Hour website, the idea is to turn off the lights for one hour at 8:30pm. The goal is to "take action" against global warming.

This is one of the silliest ideas ever. Why stop with lights? How about turning off the heat, refrigerators, and not driving? Will the City turn off street lights and traffic lights? Will hospitals turn off their lights and machines? The fact is that electricity and energy usage in general makes our lives better and turning out the lights for an hour every year isn't going to change that.

Thankfully, I'm not the only one pointing this out. In fact, our friends at the Competitive Enterprise Institute have created "Human Achievement Hour" to be celebrated at the same time during which we are encouraged to "salute the people who keep the lights on and produce the energy that helps make human achievement possible."

So, if you'd rather sit in the dark this Saturday, no one will stop you, but I'll be either out with friends enjoying the fruits of capitalism or I'll be watching the NCAA Tournament on my High Definition television.

Posted by PaulGessing at 12:00 PM | Comments (1)

March 25, 2009

Business Cycle Theory?

Right now, I'm trying to further develop my understanding and ability to explain of the business cycle theory that makes the most sense to me, and I'd like some comments as to both the basic presentation and the underlying theory. I was trying to explain Geoist business cycle theory (the land cycle) to a friend last night, and I found myself unable to express myself clearly. This is something I started writing up this morning:

1. Economic progress occurs: quantity and power of labor and capital increase, while land remains the same. Aggregate land demand shifts to the right, while aggregate land supply remains static. Result: increase of land price.

2. Speculators are looking for a place to store value. Land, being a thing that apparently automatically increases in value over time, is an attractive "investment." Speculative demand shifts demand further to the right. Land prices rise more.

3. Artificially high land values mislead landholding consumers into thinking they have more wealth than they actually do, spurring additional consumer spending (the wealth effect). This results in a temporary increase in the standard of living, as consumers unknowingly consume their savings (therefore stimulating an unknowing consumption of the capital structure by businessmen aiming to meet this increased consumer demand).

4. Speculative demand increases yet more in response to the price increases that occur in step two... raising the price again. However, prices have now risen above a rate many actual potential producers can afford. At market equilibrium, some businesses fail, others take their place, but at this stage, businesses fail without being replaced: high land prices block out potential replacements. Additionally, some necessary services are neglected in favor of consumer goods due to step 3. Production falls.

4. The most recent speculative buyers begin to have a hard time selling at a price that justifies the original purchase, due to a fall in productivity. Prices remain steady as landholders attempt to ride out the slump, but because the slump is caused by the high prices, it cannot end until prices collapse back to a level that can be sustained by producer demand. Thus, demand shifts back to the left with speculative demand shifting out of the land market.

5. Prices being with reach of producers, the economy begins to grow again.

Posted by DarylSawyer at 11:26 AM | Comments (4)

What, Me Worry?

Short take on Bernake/Geithner's "wind down" plan:

I'm not too troubled by it. While rightists are spinning this as the end of the world, I think they're either being disingenuous or they don't understand it.

Bankruptcy laws seem to have failed us, at least when it comes to REALLY BIG enterprises, especiallyfinancial enterprises. Politically, they seem to be "too big to fail." While I'm not buying it, the reality is that if they DO fail, the bankruptcy process may not be adequate to stem cascade failure.

Instead, Bernake and Geithner seem to want another mechanism, call it bankruptcy-lite for the systemically significant. AIG is a poster child for the systemically significant. I'm not a bankruptcy expert, but it seems plausible that the bankruptcy process may not be equipped to absorb a mammoth like AIG.

A "wind down" process -- involving facilitating asset sales, debt and equity re-rating and a liability work out -- seems sensible. Such a process may not technically be Chapter 11, but it is an alternative that rings reasonably true.

-RC

Posted by RobertCapozzi at 07:14 AM | Comments (1)

March 18, 2009

Collective Guilt?

OK, sure, the AIG bonuses seem especially over the top. But behind the outcry seems to be an assumption that ANYONE at AIG is somehow responsible for the firm's demise. Is that fair?

Each cog in the machine should NOT be held responsible if the machine fails, seems to me. Top executives, sure. Perhaps the mastermind of the derivative trading strategy.

But everyone? Nyet.

Some of the people at AIG have special knowledge of time and place. Some of them have contracts. If those contracts are to be broken, then ANY contract can be broken.

Do we really want to go there?

-RC

Posted by RobertCapozzi at 06:24 AM | Comments (1)

March 16, 2009

Let's Have a Tea Party!

Awhile back I blogged about CNBC's Rick Santelli and his articulate rant against some of the federal government's poorly-designed and unfair policies. During his tirade, Santelli talked about holding a "Chicago Tea Party" to protest these policies which are killing our economy and foisting massive debt on our children and grandchildren.

Well, Santelli has started something. In fact, there is now an Albuquerque Tea Party. Cincinnati recently held a tea party that drew 5,000 people. The trend seems to be spreading nationwide.

Posted by PaulGessing at 05:20 PM | Comments (3)

March 14, 2009

On "Targeting"

One for the "really frustrating" files: During the debates over the stimulus and omnibus spending bills, Obama seemed to cling to the notion that government should "target" spending to get things moving AND to make "investments" in long-term growth. Even if we assume that spending is the way to go to dig our way out of recession, is it necessarily so that "targeting" is the way to do it?

Is government and the political process even vaguely equipped to target?

Boy, would I like to hear the case FOR it. Because I cannot think of one. Observation of machinations on Capitol Hill seems to indicate no, it can't. It's much more a function of who controls the appropriations process, who's more skilled at horse-trading for their specific constituents.

But, please, give me a counter in this page's "comment" section.

-RC

Posted by RobertCapozzi at 06:44 AM | Comments (4)

March 13, 2009

Krauthammer Hits a Home Run

I often disagree with Charles Krauthammer. But, in this case, his take on stem-cell research gets 100% from this hombre. (Of course, I'd go further and strongly suggest the government not conduct such research.)

Thought I'd share.

-RC

Posted by RobertCapozzi at 06:52 AM | Comments (1)

March 11, 2009

Who Would You Rather Spend Your Tax Money

Considerable outcry is being heard by Republicans over earmarks in recent weeks (despite the fact that there were no earmarks in the stimulus bill). Let us clarify that Earmarks are provisions in law or in committee reports directing that appropriations be spent in a particular matter. They are part of a two stage process, the first being the setting of an overall budget which determines, in general, the total amount to be appropriated. The second is the passage of appropriation bills - or an omnibus bill if the process goes awry - as it did more often then not in the past several years.

Earmarks come from either the Executive or, more likely, the legislature. Not spending the money is not an option - this would require recission and/or reconciliation legislation to lower the budget line. Since the money is being spent anyway, who would you rather spend it:

- Your Senator or Representative, often at the prompting of your locally elected officials or some local business or university (or even you)
- An assistant Secretary appointed by Barack Obama
- A grants officer or contracting officer who got to where they are now by keeping their head down - often at the recommendation of a review board made up of federal retirees or employees who got to where they are by keeping their heads down and conforming/

So, now how do yo feel about Earmarks?

Posted by MichaelBindner at 12:19 PM | Comments (5)

Revisionist Monetary History, or the Truth?

When I saw Alan Greenspan writing The Fed Didn't Cause the Housing Bubble in the WSJ this morning, my gut said, "Ah, oh, here's comes an ex post rationalization."

Since I once had a lot of respect for Greenspan, and then assumed his Fed's easy money policies "caused" -- in part -- the housing bubble, it was easy for my bias to be that he was trying to protect his reputation, which was once sterling but is now not.

He points out the Fed started to tighten money (more properly the Fed Funds rate) in 04, yet mortgage rates remained low. But the rates decoupled is his statistical evidence.

This is all above my pay grade, but that's an interesting data point. Post 9/11, the Fed did ease...a lot. I recall being impressed how quickly economic activity perked up in 02, and easy money seemed to be a BIG reason for that. Maybe decoupling happened, maybe for reasons we still can't quite fathom. Maybe Greenspan is cherry picking the data to make himself look good, or at least not as bad.

One guy is not our savior. Nor is one guy the Antichrist. It takes lots and lots of angels or lots and lots of enablers to make a trend. Isolating sinners and saints is not a business we should be in...too much information to assess.

-RC

Posted by RobertCapozzi at 06:48 AM | Comments (1)

March 09, 2009

New Mexico Legislator to Congress "Obey the Constitution!"

The United States Constitution is a much trampled upon document these days. The trend started long ago with Woodrow Wilson and FDR being among the most anti-Constitutional presidents in the history of the Republic. Of course , this trend has only worsened in recent years as both President Bush and Obama have further ignored the document, thus expanding their own powers and taking powers from the states, the REAL ID being one prominent issue that -- at least so far -- the states have succeeded in defeating.

Fortunately, although it has proven to be less than perfect, the Founding Fathers believed that powers should be split not only among the various federal branches, but also with the various states as a check on federal power. To that end, freshman New Mexico Representative Dennis Roch has introduced HJR 27 which re-asserts New Mexico's rights under the 10th amendment to the US Constitution. If you are not familiar with that particular amendment, it states:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

Obviously, the federal government and its agents have been ignoring the 10th amendment for a very long time, thus infringing on the rights of both the states and most especially the people as a whole, so it is our hope that Rep. Roch's efforts will succeed or at least receive significant attention.

Posted by PaulGessing at 04:51 PM | Comments (2)

March 07, 2009

The Wiz

This Obama-themed float, entitled, "The Wiz" paraded in Le Krewe d'Etat last month. Obama is depicted as the audacious Wizard of Oz character. This year's theme was "The Dictator Does Broadway."

From MardiGrasParadeSchedule.com

Posted by JamesPlummer at 11:12 PM | Comments (0)

Obama Bold

Barack Obama seems to assume to be "bold" is what works to solve challenges. He uses the word "bold" an awful lot. Let's test the premise.

Bold would seem to suggest a certain audacity, something not quite "radical," but a marked shift in direction. But boldness can take many forms, including an irresponsible and rash one.

He seems to believe that history bears the "bold response" out. For instance, FDR was "bold" when coming into office, amplifying the marked trajectory of government-spending increases started by Herbert Hoover. Is that "bold"? Could be, as "bold" is a highly subjective term. Did it work? One only need to look at unemployment rates until the US entry into WWII to conclude that it did not work.

Perhaps the Red Scare is another page to take from history. JFK's response was to send a man to the moon. Certainly bold. Not obviously effective, however. The space program could easily be viewed as a tremendous boondoogle that yielded little -- microwave ovens and Tang seem benign enough, but couldn't they've been invented in a more direct manner?

LBJ's Great Society was "bold," but it did little to decrease the percentage of the population in poverty. Indeed, it may well have trapped people there, breeding dependency and despondency.

Boldness sounds good. It excites people. Pragmatic peaceful moderation seems to bore people, not feeling "activist" enough.

Odd. Pouring gas on a fire seems bold, too, and yet contra-indicated.

-RC

Posted by RobertCapozzi at 10:26 AM | Comments (0)

March 04, 2009

Deranged Hope for Failure

The Entertainer Rush Limbaugh is confused, or hateful, or both, IMO.

We should want "success" for all. We should NOT want "success" for a dysfunctional, unfair, unpeaceful AGENDA.

We need to -- or we should -- separate "sins" from "sinners."

Kinda basic, actually.

-RC

Posted by RobertCapozzi at 09:43 PM | Comments (4)

March 02, 2009

A Gigantic Stockholm Syndrome

"Stockholm syndrome"
NOUN:
A phenomenon in which a hostage begins to identify with and grow sympathetic to his or her captor.

The past week marks a break for this hombre. I thought that Obama might be an improvement over Bush, and the less-bad option over McCain. That still could be so, but it's increasingly looking like our new President is on a mission to cripple the economy for decades.

Bush and the Republicans were fiscal drunken sailors. It was an 8-year keg party. Obama and the Democrats seem to be defining "change" to mean shots of Tequila, perhaps even Jägermeister.

Which got me thinking about the Stockholm Syndrome. Government policies created an imbalance in the financial world. That led to the Meltdown of 08-?. Obama's response? Let's have a LOT more government.

Surely we'd expect government spending to rise...that's what it does. I'd hoped that perhaps there would be some shifting in priorities, but Obama has presented us with a barrage of firehoses, spewing full blast.

And a lot of people do seem to be buying it. I can only conclude that they do so based on the Stockholm Syndrome. The captors have somehow evinced the sympathies of the electorate. Weary of Bush's gun-butt treatment of humanity in Iraq, the Patriot Act, waterboarding, etc., Obama seems intent on sucking the lifeblood of the people so the partying can go on unabated in DC.

Say what you will about Wall Streeters: When things are "going well," they do tend to be prone to a herd mentality. But they become awfully insightful on the downside. They aren't buying the "change." We have already seen the indexes fall to 1997 levels. Today may mark the day when we "give back" another year or two.

This will all work out, somehow or another. But the ride will be awfully bumpy.

-RC

Posted by RobertCapozzi at 06:05 AM | Comments (3)

Free-for-all (frfr-ôl) -- n. A disorderly fight, argument, or competition in which everyone present participates.

from Dictionary.com



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