Archive for September, 2008

Idle bailout thoughts

Okay, this is probably the last of the foreseeable posts on the Wallstreet bailout – and probably the most serious.

I spend the last week extremely pissed off about the bailout. Here were a bunch of idiots absurdly inflating the price of housing, with other idiots actually loaning them money to do so, more idiots treating the bad loans as assets and still more idiots insuring them against loss under ridiculous assumptions. It’s not really a surprise that the whole thing blew up. The only surprise is that it took as long as it did. Hell – 5 years ago in late 2003 when K and I bought our current place, we were worried that there was a housing bubble inflating prices beyond what the properties were really worth. And this was in North Carolina which didn’t have the hottest housing market.

But here we are, we’ve got banks going defunct left and right and we’ve got republicans arguing that they really, really have always supported more federal regulation. The latter is one of the signs of the apocalypse for those keeping score at home. So along comes Paulson saying that he needs $700 billion to keep this from truly going in the crapper. The reason I’m so pissed off is that I agree.

Let’s put it this way – the U.S. economy (GDP) is on the order of $14 trillion. In other words, the bailout proposal was 5% of GDP. Now in real terms $700 billion or 5% of GDP are insanely huge amounts of money. Something like $7,000 per household. But if the economy collapses or if we go into a deeper recession than we otherwise would have, 5% of GDP is chump change. The economy could easily slow 5% in a year (or 2.5% each over two years, etc.). In other words, the proposed cure is cost effective compared to letting the disease run its course without intervention.

Given that we need some form of intervention to prevent a complete meltdown, there are a few questions that have to be addressed:

  1. What is the proper size of the intervention?  How much do we need to spend?
  2. How will the plan work?  How will assets be valued?  Who has oversight?  etc.
  3. Who pays for it?

In all of these, the original (3 page) Paulson plan was completely inadequate.  Paulson picked the $700 billion number out of thin air.  Hell, for all I know he thought it should be 5% GDP and backed out the $700b from there.  The original plan said nothing about how the assets would be valued – essentially, the govt would likely pay the original value of the assets regardless of their actual worth.  Paulson was to have no oversight and all decisions were to be final with no appeal to judicial recourse.  Finally, for the plan to have worked, taxpayers would have to lose money which means that the benefits would primarily go to those of us with money in the stock market (401k retirement funds, etc.) or to the financial institutions themselves and the burden would fall on our standard tax system which places only a slightly higher burden on the rich than it does the rest of us.

So that plan won’t/shouldn’t fly.

What about the new plan?  On Sunday, the congress and the whitehouse finalized a new proposal.  Caveat lector – I haven’t read it yet, I’ve only looked at excerpts.  But from what I’ve seen, it is better in almost every way to the original Paulson plan.

The new bill grants the Treasury $350b up front and the rest isn’t guaranteed.  Congress will have significant oversight.  There are two ways that Paulson can buy assets: 1) conducting a reverse auction to find the true worth of the assets; or 2) essentially buy equity in the company equal to the amount of money received for taking the assets.  The former is likely to generate smaller amounts of money for the companies, but does allow them to get the bad assets off of their books.  The latter may be useful for companies in worse financial shape.  In either case, the govt is essentially getting something of value for the money it’s spending.  Oh – and companies that participate in the bailout have to agree to reductions in executive compensation which is a good thing.  I still wish they were required to participate in credit counseling – along the lines of that required for consumers under the 2005 bankruptcy law, but I might just be thinking punitively.

So, what’s not to like?  Probably quite a bit – like I said, I haven’t had a chance to read the 110 page draft.  One thing that’s probably not to like is that the bill allows the SEC to temporarily suspend Mark-to-Market accounting.  This is just dumb.  It would allow the SEC to look the other way while companies pretend that they are worth more than they really are.  It’s a way to allow the companies to claim that their assets are worth more than the market would pay for them, allowing the companies to appear healthier than they really are.  That’s not really helpful.

So, I’ll probably read through the full bill tonight, but for the most part I think I support it.  It’s not perfect, but it seems to be both necessary and significantly better than the original Paulson bill (oh, and much better than the silly House Republican proposal, but we won’t get into that).

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We are all socialists now

Welcome to the new socialist state… comrade.

From Propublica, an inflation adjusted comparison of bailouts.

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Public service announcement

As a public service announcement, I am hereby warning the people I know that in light of the bailouts of Fannie Mae, Freddie Mac, AIG, and the entire freaking banking system, all of which will cost tax payers about $1 trillion, the next person that tells me that deregulating markets will provide a solution to anything will be asked to STFU.

thank you and good night

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Happy birthday to the U.S. Constitution

Oh, on an entirely unrelated note, the U.S. Constitution was signed 221 years ago today – happy birthday!  Okay, it wasn’t ratified for a couple of years after that, but still…

If you’ve got some time, take a read.  It’s still the most impressive government document I’ve ever read.

A few years ago, I wanted to start a project that took the individual clauses of the constitution and traced the arguments for and against them back to the original sources or at least to the debates between the signing and ratification.  The Federalist Papers , Notes of Debates in the Federal Convention of 1787 Reported by James Madison and many of the documents collected in the two volume Library of America’s Debate on the Consitution would have featured prominantly.  Never did have the time to kick that off.

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Baton Rouge – good news, bad news

So, one more update on Gustav in Baton Rouge and then I’ll return you to your regularly scheduled odd musings, rants and wildlife pictures.

First, the good news – I got a text message from my mother last week.  They got power back!  Only 10 days without power.  I suppose that’s not too bad.  No word from K’s parents, but they had moved into K’s sister’s condo that did have power, so I’m guessing they’re still there.

The bad news is that my parent’s 100+ year old pecan tree that was struck by lightening a few years ago (and dying) just couldn’t take the hurricane.  Too much concern that the root structure was loose and that it was going to fall on a house and completely crush it.  So, they had to have it taken down.  Three nice sized pecan trees in my parent’s yard – all gone, along with most of the limbs on an old magnolia and their Japanese magnolia.  🙁

The ironic news is that even though I knew they had power, I couldn’t get in touch with them on Monday to wish my father a happy birthday.  So last night, I called my mom’s cell which was answered by my dad.  Odd, but okay.  I wished him a happy birthday and told him that I was sorry that I couldn’t reach him the day before.  It turns out that I couldn’t reach him because their power was out again.  Apparently the tree service accidentally dropped a limb on the power lines and took out power for them and the 3 or 4 nearest houses.

Somehow I’m imagining that a self-inflicted power outage is not going to be too high on the power company’s list of priorities.  Fortunately, they are down to a manageable number of outages in Baton Rouge, so even with the majority of the power assistance now going to Houston/Galveston for Ike, my parents might still get power back soon.

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Baton Rouge . . . disaster area

I spoke to my mom for a little while this evening and got an update on where things stand in Baton Rouge or at least in her corner of it.  A summery for those of you interested in Baton Rouge:

  • The news keeps talking about how mild things were in New Orleans, but the only time you hear about Baton Rouge is in passing.  For example, I’ve heard at least two NO evacuees mention that things are better in NO than in the shelters in BR.  That is, in part, what’s driving the exodus back south.
  • While the winds weren’t as bad in BR as they were in NO, they were (near) record winds for the city.  BR has more trees and they haven’t experienced winds like this, so there were a lot of trees that fell down.
  • The local power company is estimating six to eight weeks before they get power to everywhere in the city.  There are major grids in the city that don’t have power and then once those major sections are restored, they will still have to restore to the local homes/offices.
  • My parents did find a plumber to get the water line fixed.  They are on the waiting list for a tree guy that can cut up a tree trunk as large as the one that fell in their yard (3′?) – it’s not really a do it yourself job.
  • Almost every yard in my parents’ neighbourhood has a tree down.
  • Most of the houses have experienced some damage.
  • Probably 20% of the houses have trees through the roofs.
  • There are a large number of cars that were struck by falling trees.
  • Many of the power poles on the main road outside of the neighbourhood are down.  In the neighbourhood, there are few intact sections of power line more than 3 to 4 houses long.  Entergy will probably have to replace many poles and string a lot of new line.
  • There is a curfew in effect.  The National Guard did fire shots (in the air?) when some people tried to break into a FEMA trailer full of tarps.
  • Good news: there is fuel in many gas stations.  Bad news: there’s no power to pump it with.  Stations with fuel and power have long lines, in some cases backing up down the road.
  • My parents underestimated the amount of gasoline their generator requires (about 5 gallons a day) and are trying to find more 5 gallon cans.
  • It’s still raining and there’s little power, so some underpasses are flooding.
  • The humidity is very high.  To the point where my parents’ wood floors are damp and are occasionally collecting puddles.  Oh, and the mosquitoes are breeding, so the health authorities are warning people about West Nile.
  • There aren’t too many stores open, those that are open can’t accept credit cards (no phone lines) and so are requiring cash.

Taken as a whole, it reminds you of a post-apocalyptic distopian movie with people stocking up on water, fuel, food, guns, cash and gold.  Maybe Mad Max, The Stand or The Postman.  I suppose a comparison to Water World would be in poor taste…

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Gustav (updated)

Both K’s and I are from Louisiana, Baton Rouge to be specific, so we kept a close eye on Hurricane Gustav over Labor Day weekend.  Fortunately, it looks like the storm weakened and the damage wasn’t as bad as it could have been.  There were a couple of levees in New Orleans that were topped (a good thing the storm surge wasn’t any higher or there would have been major flooding).

Baton Rouge is about 90 miles inland, so we weren’t too worried about flooding, but the rain and high winds can cause a lot of damage.  Since Gustav seemed to hold together pretty well, they did receive hurricane force winds in Baton Rouge, and online we saw the parish sheriff say that this was the worst storm damage he had seen in BR in his entire life.

I heard from my parents yesterday.  Everyone there is fine.  They did lose one of the three large pecan trees in their yard.  Fortunately, it wasn’t the oldest one which seems to be dying, but whose trunk is about 8′ in diameter and would have caused massive damage to anything on which it fell.  Even more fortunately, the tree that did fall fell in the one way that wouldn’t cause significant damage to my parent’s house or the neighbor’s house (see picture below).  It did take up a water line, so no water until they can get it capped off (assuming that the city pumps are working).

We still haven’t heard from K’s parents or sister.  We don’t have any reason to think that they aren’t okay, but it would be good if we could get through to them sometime today.

Update: We received a voice mail from K’s parents today around 2pm.  Everyone’s fine.  They had some carport damage and noted that there’s a lot of damage around the area.  We still haven’t been able to get in touch with them, but it’s good to know that they are okay.

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