Tina K. Russell

January 1, 2009

Panopticonomics

Filed under: Uncategorized — Tags: , , , , , — Tina Russell @ 6:14 pm

Letters – 8th Annual Year in Ideas – NYTimes.com
Robert Skidelsky argues that the “failure” of the efficient-market hypothesis over the last year proves that laissez-faire economics is dead and Keynesian economics should be the foundation of a new economic structure. But the efficient-market hypothesis, as defined by its inventor, Prof. Eugene Fama of the University of Chicago, states an “efficient” securities market is one in which, given the available information, actual prices at every point in time represent very good estimates of intrinsic values.

What has become clear over the last months is that the market did not have all the information to correctly set prices. The government’s role should be to ensure that the markets are supplied all the information to ensure their efficiency — not to pursue its current path of eliminating the market function via subsidies and political meddling.

BOB RAYMOND
Stamford, Conn.

Hmm! As an admirer of Keynes I do tend to favor all that fancy government meddling when times are tough. That is an interesting viewpoint, though. Markets can’t function when information is terrible, and a good responsibility for government would be that of bursting obvious bubbles before they grow too big.

(By the way, next time we’re in such a bubble—oh, those days seem so quaint—remember not to believe anyone when they insist that this time is different…)

(Incidentally, how many of our recent crises began with naïvely believing information that was obviously bad but fitted what we wanted to hear? I’m going to guess all of them.)

(One more thought… perhaps the God that governs the universe has a counterpart in high finance, but he’s a highly vengeful, cynical god who’s kind of a cosmic con artist that we constantly need to stay ahead of. Oh! There I go, revealing my secrets…)

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December 18, 2008

Dogbert economics

Filed under: Uncategorized — Tags: , , , , , , , , , — Tina Russell @ 2:22 pm

Dilbert comic strip for 12/13/2008 from the official Dilbert comic strips archive.
Dilbert.com

It’s rather scary when an entire global financial crisis can be so accurately represented by a snarky, three-panel Dilbert comic. Anyway, this comic inspired me to use the Dilbert.com strip editor to tell the rest of the story. The first link below is to the above strip, but with new dialogue by me in the last panel. The second link is to a different strip, but I’ve rewritten the whole thing to make it a “sequel” to this one. Please read!

AAA Rated

Dead Cow Crisis

December 5, 2008

The economic crisis, in sum

Filed under: Uncategorized — Tags: , , , , — Tina Russell @ 8:16 pm

Paul “Tails” Krugman:

Op-Ed Columnist – Lest We Forget – NYTimes.com
One answer to these questions is that nobody likes a party pooper. While the housing bubble was still inflating, lenders were making lots of money issuing mortgages to anyone who walked in the door; investment banks were making even more money repackaging those mortgages into shiny new securities; and money managers who booked big paper profits by buying those securities with borrowed funds looked like geniuses, and were paid accordingly. Who wanted to hear from dismal economists warning that the whole thing was, in effect, a giant Ponzi scheme?

November 27, 2008

Funny money

Filed under: Uncategorized — Tags: , , , , , — Tina Russell @ 11:36 am

The End of Wall Street’s Boom – National Business News – Portfolio.com
The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.

I read this article after Thomas Friedman recommended it in a column. Anyway, I highly recommend the article. It’s a portrait of financial Cassandras, people who warned of and betted on doom and gloom and wouldn’t have minded being wrong. Moreover, by the end, these valiant wet blankets discover something horrifying: in a way that could only work in the surreal parallel universe of Wall Street, their very skepticism, their bets against the market, provided the money to fuel its downfall. It’s a story of gain and loss, of easy money, of repentance, of forgiveness, of survivors’ guilt, of wondering if you’re the crazy one and realizing it really was everybody else. It’s a story of taking a walk on Wall Street the day after the Apocalypse, and seeing the damage that you, in a perverse, roundabout way, helped wreak.

Four stars! A plus! That crazy GamePro excited head thing! Besides, the last time I read a cynical feature article about Wall Street in Condé Nast Portfolio, about a year ago, it was awesome. This is similarly awesome. It’s a must-read if you have time to kill.

November 9, 2008

Vermont’s Finest

Filed under: Uncategorized — Tags: , , , , — Tina Russell @ 1:01 pm

U.S. Senator Bernie Sanders
When the Senate reconvenes of November 17th, I intend to fight for an economic recovery program that is significant enough in size and scope to respond to the major economic crisis this country now faces.

If we can commit more than $1 trillion to rescue bankers and insurance companies from their reckless and irresponsible behavior, we certainly should be investing in millions of good-paying jobs that rebuild our nation and improve its economy.

Sen. Bernie Sanders (Independent of Vermont and an avowed socialist) is a hero of mine. Here, he describes an ideal economic rescue package.

I think liberals and conservatives have reason to get behind his ideas; we can best stimulate growth by embarking on a national project to revamp the basics, such as education, healthcare, and infrastructure. Those are the kinds of projects that create jobs immediately and, in time, pay for themselves many times over. In contrast, handing out money to banks, without placing terms upon its use, is risky in that you don’t know where the money will end up.

NGOs have found this long ago; you donate to developing-world governments, it’s anyone’s guess as to whether it will improve the lives of the people or end up in a government official’s patronage fund. If you give people handouts, it doesn’t solve the long-term problems. But if you invest in the people and the institutions they depend on, the people reach their full potential and will always pay back.

October 26, 2008

A new raison d’Êtroit

Filed under: Uncategorized — Tags: , , , , , — Tina Russell @ 12:11 pm

General Motors, Driven to the Brink – NYTimes.com
What is clear is that Detroit, among its other miscues in recent years, particularly overindulged its romance with S.U.V.’s, leaving it tethered to a product line that may prove to be the industry’s undoing.

Pa-haa! Who could have guessed that the success of the SUV was entirely predicated on a glut of cheap oil that would not last?

The sad thing about fuel-efficiency standards is that conservatives opposed to it are partly right. They say that if the public really wants fuel-efficient cars, companies will make them. Ideally, that will happen, but the automakers in Detroit coveered their ears, sang “la la la,” and kept pushing out gas-guzzlers (and a few efficient PR pieces) when customers were clearly willing to pay more for a car to forego the expense and inconvenience of having to refuel practically every few meters. Now that the Japanese (again! Damn their ability to make our inventions better) have beaten us to the punch with the Prius, Detroit is left with a black eye, with America losing its title and facing the bloody consequences. It’s depressing when the government has to force companies to do what will make them money, but it happens.

(I should note, here, blasphemy of blasphemies, that $4 gas finally sparking interest in the electric car is evidence that we should have been taxing gasoline into that range all this time. Cheaper gas following the Carter era’s highs meant we forgot all about the kind of investments that could have spared us our energy crisis. Wow, we’ve been putting off an energy crisis, a healthcare crisis, an economic crisis, various foreign-policy crises… we’re in a mess…)

(I also made a promise to myself, as a kid, not to buy a car that isn’t electric. Now that I’ve been diagnosed with ADD, the government—at least in Portland—subsidizes my bus passes, which is perhaps a sign that I should stay off the road entirely save for public transportation. But, I do promise that I won’t consider buying a car until I can find one that runs on a force first discovered by the ancient Greeks and named for their word for amber.)

Propping up a failed Hank

Filed under: Uncategorized — Tags: , , , , — Tina Russell @ 11:47 am

Talking Business – So When Will Banks Give Loans? – NYTimes.com

Joe Nocera at the NYT notes, with some damning evidence, that banks (at least JP Morgan Chase, now the proud owner of my bank, Washington Mutual) don’t really plan on using Treasury Secretary Hank Paulson’s magical capital injections to free up credit for ailing business owners, despite that being the entire justification for the capital injections in the first place. Instead, banks would prefer to munch on the tattered carcasses of other banks through high-finance acquisitions.

I supported these, uh, injections (into the rump!), since they would yield profits for the government if they work, and hopefully give some control to the government over how the businesses are run. (A note on “moral hazard”: if you want to bail out a failing bank, make sure heads roll, first. CEOs getting generous severance packages for screwing up creates an environment where CEOs take risks without personally facing the consequences, convinced that shareholders have their backs. They might, say, bet the entire company on dodgy financial vehicles, for instance.) Of course, to sweeten the deal for his Wall Street chums, Paulsen made sure that the government bought only non-voting shares, and that the deal wouldn’t put restrictions on how the banks used their money. Wow! Imagine if you went to bankuptcy court and got terms this favorable. You’d think the government would have a bit more leverage in dealing with companies about to go belly-up if they can’t get a government lifeline.

Back to the issue at hand. The whole idea of the “capital injections” was that we would partially nationalize the nation’s failing banks to keep them afloat for a while. The government, as it is said, is the “investor of last resort”; if nobody else will buy stock in your company, perhaps Uncle Sam will (though I’m flabbergasted at why Paulsen wouldn’t have insisted on giving Uncle Sam a seat on the board). This was an idea initiated by Gordon Brown, Prime Minister of Britain, and now being copied all over the world as though it were a high-concept game show. Now, Britannia had a good idea: banks that bent over and accepted the injections would be held to certain terms on how they spent the money (according to Nocera, here); for instance, they would have to lend the money to ailing businesses, as freeing up credit was the entire justification for the plan here and everywhere. The United States of America, on the other hand (or at least its appointed “Count Baron von Moneypants,” in Jon Stewart’s words), made no such requirement.

Back to the damning evidence. So, banks, at least JP Morgan Chase, are more focused on consolidation than the stated goal of “freeing up credit.” Without the requirement to lend, they won’t, and are instead planning to use the money to purchase smaller banks and place them on their corporate mantles. Now, I generally think well of the practice of, say, Chase buying out Bear Stearns and the Surprised Cow Bank (“Wha?! Mooooo…”); if Bank of America buys out Merrill Lynch for $2.50 and a Snickers bar, that’s a lot of accounts that aren’t to go down in a bank failure. (And, you’ll note that Paulsen let Lehman Brothers go under, begetting this crisis; had he given government backing to an acquisition, Lehman Brothers may have found a suitor and we may not have been faced with a crisis so big that we’d need to give him sweeping powers to handle it. …Wait a minute…)

But, there’s a problem: this disaster began with institutions “too big to fail”, well, failing. If big banks decide to play Pac-Man and gobble up all the smaller (or formerly big) ones, the next financial crisis will involve banks way too big to fail. Plus, there’s the problem Nocera focuses on: this whole bailout package was proposed as a way to free up credit, so that businesses can get loans and your friend can keep his job in lean times. If banks want to play hunter-gatherer with the money—instead of making loans and freeing up credit—what, exactly, are we paying for?

Is Paulsen—a man who predicted none of this, was consistently behind the curve, and spent the months before the crisis insisting everything was fine—just laying the groundwork for the next big crisis? And when does he plan to disprove our notion of him as a man beholden to his former colleagues on Wall Street and put some enforcement into his role as temporary supreme bank lord? When is Uncle Sam going to start carrying a big stick, and stop simply handing out free bags of money?

October 24, 2008

Economics is applied common sense

Letters – Twists and Turns, Finish Line in Sight – NYTimes.com
Re “The Real Plumbers of Ohio,” by Paul Krugman (column, Oct. 20):

I know a real Joe the Plumber, and yes, his name is Joe. He’s married to my cousin and lives in Massachusetts. He even has a real plumbing license.

A few years ago, he was doing well, but with this growing recession, people have stopped calling him. The thing is, when people don’t have money, calling the plumber drops way down on their list of priorities.

Joe has four kids, and his second child is entering a local college. He thought he could afford her tuition, but with these bad times he’s not so sure anymore. Since his business has shrunk, he needs to cut back, too.

So my question to people who still feel that giving tax breaks to the wealthy will ultimately benefit the economy is this: I get the trickle-down effect, I get what you say by giving corporations power and freedom to really do business. But if we give the middle class a little bit more money, too — not the lines of credit and risky mortgages that have been handed out like Halloween candy and that have made us feel rich even though we’re not, but real money in the form of tax cuts and pay raises — doesn’t that allow us to hire people like my cousin Joe and keep his business going?

Doesn’t the trickle-down effect also have to trickle back up for capitalism to really work?

Susan Porretta
Westport, Conn., Oct. 20, 2008

The poor, the humble, the workers of modest means are what you might call a “growth industry.” In them is the biggest disparity between potential and actual output, which is the disparity that causes and maintains recessions. (Economic downturns are natural, but recessions are when they overstay their welcome, and depressions are when they’ve laid down roots.)

Money, like any commodity, has a diminishing marginal value. That is, the more money you give to someone, the less each dollar is worth. It’s obvious that $20 in the hands of a humble plumber means more than $20 in the hands of a CEO. Nevertheless, there’s a constant drumbeat that more money to the rich will help improve the living conditions of the poor. (I’ve always found that funny; if you’re admitting that money to the poor is the goal, why not bypass the middleman? I’m glad, of course, that Americans have recognized the folly of “trickle-down,” and its true meaning: diverting wealth to the rich will turn a torrent of hard-earned revenue into a trickle.)

Rich people, bless their hearts, hoard their money. They buy yachts and mansions. They invest in start-ups with catchy names and no business plan. That may benefit the manufacturers of yachts and mansions, and you never know, maybe the recently-graduated engineering student who helped design the yacht, or the construction worker who helped build the mansion, might make a little bit of solid cash. Poor people, however, spend that cash right quick. They pay rent on their house or apartment, helping the landowners, janitors, construction workers, material suppliers, and everyone else involved. They buy food, helping farmers, grocers, truckers, everyone.

Instead of buying one big mansion, giving good work to people who need it, they buy lots of more modest housing, giving the same work to far more people at a lower price. (Price of labor is price of labor; you don’t get paid more for working on a more expensive house, unless for some reason the construction company needs more specialized workers. Anything above that, management will pocket.) They’ll buy tons of food at the local farmers market rather than a serving of caviar from a far-off land for the same price. I don’t blame rich people for what they do with their money—if I had lots of money, I’d get started on my dream house right away—but it goes without saying that a little money means more to you if you’re poor. It also means more for the economy.

(There are some idealistic rich people—Bill Gates, George Soros, Mark Shuttleworth—who spend their personal fortunes making the world a better place. They’re wonderful, but we cannot become dependent on them, or expect every rich person to be like them. They’re only human.)

Money spent on the poor, of course, is even better when it’s a tax credit to supplement earned income, a (good, fair, transparent) loan to build their business, or help with going to school to learn new skills. These are investments that not only encourage good behavior, but come back many times over in the form of tax revenue that can then be spent on helping even more people. It’s true to a large extent what conservatives say about the numbing effect of welfare; it encourages dependency and lessens the incentive to work. That isn’t to say people on welfare are happy that way, though; it’s to say we need solutions that help poor people be able to do what they want most and do it better: to work, to take care of their families, and to achieve their dreams.

The central pillar of Bush’s “compassionate conservatism” in 2000 was that people who are already trying hard should get help from the government so that they may achieve their goals. It’s a sentiment I strongly believe in, and it’s a shame Bush abandoned it the very second he was appointed President. Barack Obama, meanwhile, is the quintessential compassionate pragmatist, willing to do whatever it takes, whether the idea comes from the left or the right, to help those who are struggling and those of modest means and big ambitions. After all, these are all conservative as well as liberal values: you work hard, you serve the country, and you don’t let hardship get you down. Investing in the poor is something everyone can get behind, and not just in election season.

October 22, 2008

Fiscal responsibility

Filed under: Uncategorized — Tags: , , , , , , — Tina Russell @ 10:47 am

Op-Ed Columnist – Let’s Get Fiscal – NYTimes.com

Paul Krugman opines that the next president will have to do some serious spending, putting legitimate concerns about the budget deficit aside. I agree with him; deficit spending is often the only way out of a slump or a crisis. However, two things annoy me (as I’m sure they annoy him, too):

In order to spend like this during bad times, we need to be sure we save during good times. Today, we can’t just turn back the clock on the Bush years and pretend they never happen. But let’s remember 2000, when Bush kept arguing that the budget surplus should be shredded into tiny pieces to be sent to individual taxpayers, rather than saving it for a time like, oh, now. If we’re willing to spend into debt, we need to be able to hold off on big purchases when times are good in order to pay back that debt, and to save for future crises.

As Fareed Zakaria recently pointed out on The Colbert Report, recently, the further into debt you are, the harder it is to borrow money on good terms. Bush’s tremendous fiscal irresponsibility has hamstrung us at our worst time; $10 trillion of debt means that any country still willing to lend to Uncle Sam is going to offer high interest rates and other unfavorable terms. But, we must avoid whacking Bush like a piñata and remember who it is that bought the snake oil: us, who gave him a narrow enough loss in 2000 for him to be extra-constitutionally appointed President by the Supreme Court.

It was William McChesney, former chairman of the Federal Reserve, who described the Fed’s job as “to take away the punch bowl just when the party gets going.” It hurts, but you need to show restraint when times are good, and instead, Alan Greenspan slashed interest rates and told us all to gamble our livelihoods on dodgy mortgages. In the end, we all listened, grabbing the punch bowl with both hands and chugging furiously. We should all have regrets now that we could really use some of that punch.

In other words: knowing what could have been done with it—that we could have helped temper this mess, either using it to pay down deficits then or to spend now—does Bush’s $400 handout really seem all that great? And, when the crisis has passed, would you support a candidate who would increase your taxes to help pay down the national debt?

October 13, 2008

Shooting from the Tip

Filed under: Uncategorized — Tags: , , , — Tina Russell @ 3:40 pm

The Food Issue – Why Tip? – NYTimes.com
Tipping, its defenders say, improves service by rewarding good waiters and punishing bad ones. But that’s not what Porter saw when he looked out on his dining floor. In his brief experience, working for tips encouraged selfishness rather than teamwork. Moreover, good service was not always rewarded with a big tip, nor bad service with a poor one. “No other profession works like this,” Porter told me, “and I don’t see why the restaurant business should either.” At his restaurant, Porter and his staff agreed, it no longer would. The Linkery would be more than just a restaurant; it would become perhaps the nation’s only anti-tipping laboratory.

I’ve mentioned before that I hate tipping with a fierce passion; if you’re going to judge me by some unwritten social rule that changes from place to place and that I can never reliably determine, then screw you and the apron you rode in on. (Obviously, my opposition to this unwritten practice doesn’t extend to politeness in general, which I feel is critical to society; but, unlike with other unwritten social rules, not tipping extends you scorn rather than a warm benefit of the doubt. Oh, and tipping is an excuse to pay service workers jack-shit and leaves their income at the arbitrary whims and moods of customers, pass it on.) So, here’s an article on a restaurant that has a fixed service charge, and forbids tipping outright. When you’re done, you’ll learn about how tipping began as a way for English aristocrats to feign pity towards social inferiors, and wish all restaurants had this new diner’s policy.

(More on why I don’t like tipping: it encourages servers to be peppy and annoying. It denies the kitchen staff their due for their hard work. It creates enmity among employees who recieve different levels of tips for factors completely outside their control. It combines awkward social pressures with math at the end of the meal. And… I’d just prefer a fixed charge rather than awkwardly nudging to me to think of every single person involved in making this meal and how much teeters on the amount of my clumsily-arrived-at final figure.)

(And, the diner has a “charity of the month” for people who still want to give extra, which is great.)

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