Housing Collapse Hits The Answer

Allen Iverson owns a really nice house in Villanova, Pennsylvania but is trying to sell it for $1 million less than he paid for it:

Unbeknownst to me, Denver Nuggets guard Allen Iverson has been looking to sell his 14,000 square foot home in Villanova, Pennsylvania for over a year now. (A.I. usually calls me about such matters. I thought I had his financial ear.)According to the Wall Street Journal's Private Properties column, Iverson has dropped the price to a "desperation deal" of $3.999 million — a million less than he paid for it in 2003.

I used to run past this neighborhood and it is spectacular. I also happen to be a fan of The Answer. OK, he makes incredible money playing basketball but a $1 million capital loss is got to hurt.

Where is Biblical Inerrancy When We Need it?

In general, I’m not reassured that the Republicans have put a Christian fundamentalist on their national ticket. Sarah Palin holds beliefs about such matters as creationism and God’s will (Jesus pays close attention to natural gas pipelines) that make me cringe. But I would suppress all that if she would make the connection between biblical teachings (Leviticus, chapter 25, various verses) and disorder in financial markets.



The passages I’m thinking of describe a jubilee which is to take place on the fiftieth year; all debts are foregiven, property (particularly in humans, as was common back then) redistributed, and liberty proclaimed. From a narrow economic point of view, periodic dissolution of debt claims has the virtue of avoiding the sort of overly leveraged, and therefore highly fragile, financial structure that is a recurrent threat to prosperity. This is the one “thou shalt” that we really should.

Incidentally, I think that in this, as in other matters, we should prefer a loose reading of scripture. If the jubilee were entirely predictable in its fifty year rotation, the credit mechanism would collapse as the big event approached: who would lend if there were a certain date on which a universal default was scheduled? But maybe Einstein was wrong and God really does throw dice. In that case, we could interpret Leviticus as advising us to establish a stochastic jubilee, such that in each year there would be a 2% chance of its occurrence. This could be done by picking an envelope out of a drum on nationwide TV. (Imagine the ratings: you could take in a lot of revenue just by selling the advertising.) The downside is that an extra 2% risk premium would be attached to all loans, but we could learn to live with it.

So why is it that those who proclaim their belief in every word of the bible conveniently forget its most far-reaching economic proposal?

KISS MY FANNIE

by the Sandwichman

Too big to fail? Not really. The government takeover of the two mortgage giants signifies that Fannie and Freddie had already failed. The wager now is that government regulators, with access to presumably "unlimited" financial resources, will (in the future) be able to better manage the rubble. As always, the invisible hand guiding the free market looks suspiciously like the State.

Conservatives Question Palin’s Fiscal Conservatism

Cato’s Chris Edwards focuses on the tax side:

On tax policy, Alaska governor Sarah Palin has a rather uninspiring, albeit brief, record. The following is some information gleaned from State Tax Notes.
Palin supported and signed into law a $1.5 billion tax increase on oil companies in the form of higher severance taxes. One rule of thumb is that higher taxes cause less investment. Sure enough, State Tax Notes reported (January 7): “After ACES was passed, ConocoPhillips, Alaska’s most active oil exploration company and one of the top three producers, announced it was canceling plans to build a diesel fuel refinery at the Kuparuk oil field. ConocoPhillips blamed the cancellation on passage of ACES [the new tax]. The refinery would have allowed the company to produce low-sulfur diesel fuel onsite for its vehicles and other uses on the North Slope, rather than haul the fuel there from existing refineries.” There are good reasons for an oil-rich state to tax oil production, but a fiscal conservative would usually use any tax increase to reduce taxes elsewhere. Perhaps I’m missing something, but I see no evidence that Palin offered any major tax cuts. She did propose sending $1.2 billion of state oil revenues to individuals and utility companies in the form of monthly payments to reduce energy bills, but that sounds like welfare to me, not tax cuts.
Palin has offered a few narrow or minor tax breaks, including:

A tax credit for film production in the state, offering about $20 million per year in breaks.

A cut in an annual business license fee from $100 to $25 (the legislature went half way to $50).

A one-year suspension of the state fuel tax to save taxpayers about $40 million.
A repeal of tire taxes to save taxpayers $2 million.

A tax credit for commercial salmon harvesting to save taxpayers about $2 million.

That’s about it.

Andrew Sullivan says Palin is a Bush-Cheney fiscal conservative:

low taxes, unprecedented new spending, utter incompetence, endemic cronyism and massive debt.

And Sullivan has the facts to back this up.

What You Can Learn From the Newspapers

Thursday's Wall Street Journal taught me that Sarah Palin is not a rigid fundamentalist. "She drew the ire from the religious right by shelving calls for new abortion limits, when she worried it would distract from her bipartisan deal to push through a new gas pipeline." And that's comforting, isn't it?

And the Labor Department does not have to follow the law in protecting corporate whistleblowers, when the whistleblower works in a subsidiary. That makes sense, doesn't it.

Of course, the common theme is that business is the true religion in America.

The Real Threat From China?

The international economy is supposed to be a bright spot for US business. The New York Times today mentioned that the falling value of investments the United States has the Chinese central bank strapped for cash. The article does not mention the possibility that the bank might slack off its purchasers of US paper. Does anyone have any thoughts about how sensitive US interest rates might be to declining demand by the central bank? Even more important, how long can the unhealthy codependence of the US and Chinese economies last?

Against the Day

I feel like a kid reporting, but with Labor Day passed I finally finished reading my big fiction book of the summer, Thomas Pynchon's _Against the Day_. I have long been a fan of his work (although I thought _Vineland_ was lousy), ever since I read his most famous work, _Gravity's Rainbow_ back in the mid-70s. This is his best since then, possibly better, and closest to it in themes. GR took place at the end of WW II with themes of technology and war. AtD starts at the Chicago World's Fair in 1893 and ends shortly after the end of WW I, with him clearly seeing WW I as what led to WW II. I think the day he is against is June 28, 1914, the day the Archduke Ferdinand was assassinated in Sarajevo, setting off WW I, which he makes clear was a catastrophic even in world history and civilization. His theme of technology is driven deeper by a much more profound investigation of the intellectual roots of relativity theory and other ideas in physics that would underly the various horrors of the 20th century, with long disquisitions on the themes of light and time.

His political/economic stance is much clearer than in earlier books, with several of his major characters coming out of a family of anarchists from the western US at the end of the 19th century. He is very much concerned with class struggle issues, but frames them in terms of anarchism, making only the briefest of mentions of Lenin or Bolshevism, and unfavorably. There is also more character development in this novel, his longest at 1084 pages, and I suspect that he may have reacted against his critics on this matter, with many writing about him, and there even being an academic journal devoted to his works. But this book is a profound tour de force that I highly recommend, with much that resonates with our recent and current situations in terms of the deeper trends of world history and politics.

Profits vs. Technical Education

A few months ago, Computerword published an interesting article that might through some light on the ongoing debate about "H-1B visas, offshore outsourcing and the debate over whether an IT labor shortage even exists."

The idea is that efforts to cut costs for technology workers deflate students enthusiasm to train for such training. The article is also interesting because it breaks with the usual practice of blaming the prospective employees rather than the corporate employers.

Tennant, Don. 2008. "Pro or Parasite?" Computerworld (14 April): p. 8.
http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=316555

"There are a lot of CIOs [Chief Information Officers] around who dismiss the idea of hiring graduates fresh out of college. I know, because I've spoken with many of them .... But it seems like an awfully shortsighted approach to skills management."

"Of all the issues we cover, none seems more volatile or emotional than the subject of IT skills and labor management, encompassing as it does issues like H-1B visas, offshore outsourcing and the debate over whether an IT labor shortage even exists. During a panel discussion on this topic at our Premier 100 IT Leaders Conference last month, we polled the audience to see whether attendees believed there is such a shortage. Forty-six percent said yes, 43% said no, and 11% said they weren't sure. I wasn't surprised to see the results so evenly split."

"The lack of consensus extends to the question of whether the U.S. education system is producing enough graduates in technology-related fields. We've all read about the concern that the U.S. is losing its competitive edge because China, India and other countries are educating far more scientists and engineers than we are. But there's plenty of debate over whether that concern is legitimate."

"For example, last November, Harold Salzman of the Urban Institute testified before Congress that research conducted in collaboration with Case Western Reserve University and Georgetown University found no shortage of STEM (science, technology, engineering and mathematics) graduates in the U.S. "The available data indicate that the United States' education system produces a supply of qualified STEM graduates in much greater numbers than jobs available," Salzman testified. "If there are shortages, it is most likely a demand-side problem of STEM career opportunities that are less attractive than career opportunities in other fields." What needs to be factored into the equation, however, is that a hefty percentage of those graduates are foreign nationals."

"According to Salzman's report, in 2005, 38% of computer science and 42% of computer engineering graduates in master's degree programs were non-U.S. citizens. To the extent that the benefit of the knowledge gained by those foreign students lies outside of the U.S., it's clear that there's still a lot of work to be done to encourage young Americans to advance U.S. competitiveness by pursuing degrees in STEM disciplines."

"What's equally clear is that if the message being sent to our young people is that companies will be reluctant to hire them when they graduate, they'll steer clear of technology, the pool of homegrown talent will dry up, and the question of whether there's an IT labor shortage will be far less debatable."

McCain and Lieberman: Is This a Christian Nation After All?

News reports have it that Joe Lieberman was McCain’s top choice for VP, and that McCain went for Plan B (or was it Plan P?) because of opposition from the Christian right. I should preface what I’m about to say by pointing out that Lieberman is an orthodox Jew. In his branch of the faith, not only are women not allowed to be rabbis, they can’t sit alongside men in prayer, nor do they count when adding up bodies to find out if a minyan is present. To put it mildly, I am troubled by this.

But that is not why he was stricken from the list. No doubt, if you ask the fundamentalists who threatened to walk, they would say it was because of his views on abortion and similar issues. Nevertheless, can you name a single Jewish politician of national prominence in either party who could have passed their test? I’ve tried, and I can’t. Religious Jews have their obsessions, but they are different obsessions. So no matter how you slice it, this is de facto antisemitism. The Republican Party remains in the grip of fanatics who believe this is a Christian nation, and the rest of us are just guests, welcome or otherwise.

Happy Labor Day!

Happy Labor Day! for those of you in the United States, Canada, or Australia, where I understand the first Monday of September is an official holiday to celebrate working people and their efforts and status. I had long been under the assumption that this date was a pacifying alternative created in the US to distract workers from the more socialistic and radical May Day version that is celebrated in all the rest of the world that has such a day (not all countries do, e.g. Saudi Arabia).

In fact, the US version predates the May Day version, although not by much. Whereas I had long presumed the US version came out of the relatively conservative AF of L, in fact it was started by the much more radical Knights of Labor, with the first march celebrating it taking place on Monday, September 5, 1882, in New York City, with a carpenters sub-unit of the K of L being the main organizers, with this being repeated in 1884. In 1887, Colorado became the first state to make the first Monday of September an official holiday called "Labor Day," with this being adopted at the national level in the US in 1894, although certain individual states held off.

May Day was to memorialize the Haymarket massacre in Chicago, which happened on May 4, 1886. May Day was declared an international labor festival in 1889 in London by the Second International, with May Day having deep roots in Britain with its positon in the Celtic calendar opposite All Saint's Day, with Candlemas and Lammas as the quarter points. I am not sure which nation first had May Day as an official national holiday, but I suspect it was the Soviet Union after the Bolshevik Revolution.

California Budget Mess

California still does not have a budget. The Republicans have taken a vow not to raise taxes. To pass a budget will require a few Republican votes, but whoever wavers will be severely punished by the Republicans. The Republicans are holding out to get existing rules trashed, put on permanent spending caps, and cut spending. Governor Arnold has a "compromise," which is bad, but the Republicans strongly reject it, holding out for a complete capitulation. Arnold also proposes to put almost all state workers on minimum wage. This brilliant idea is put on hold by a court challenge.

Schumpeter is of interest here:

Schumpeter, Joseph A. 1954. "The Economic Crisis of the Tax State." International Economic Papers, 4; reprinted in Schumpeter, Joseph A. 1991. The Economics and Sociology of Capitalism, ed. Richard Swedberg (Princeton: Princeton University Press): pp. 99-140.

101: "The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare -- all this and more is written in its fiscal history. ... The public finances are one of the best starting points for an investigation of society."

Theological Question

Didn't Pat Robertson explain that Hurricane was God's punishment for abortion and/or homosexuality? Would Gustav similarly be a reprimand for the sins of the Republicans?

Stock Buybacks Again

I have written a couple times about the irrationality of stock buybacks from the standpoint of corporations using their money to manipulate stocks in expectation of higher bonuses. Today's Wall Street Journal offers another take on the subject. Besides providing a sense of the magnitude of stock buybacks, the article concentrates on the personal irrationality of corporate management, rather than the systemic irrationality of the capitalist system. In particular, the article suggests that corporations often squander money by purchasing stocks that turn out to be overpriced.

The article also offers examples of corporations purchasing unrelated corporations to make a quick buck, rather than developing their own productive capacities. My favorite example here was Exxon's entry into the typewriter business, suggesting that the management may be so inept that stock buybacks might not be so bad.



Zweig, Jason. 2008. "With Buybacks, Look Before You Leap: Repurchases Routinely Give Shares a Lift, But the Effect Could Be Ephemeral." Wall Street Journal (30 August): p. B 1
http://online.wsj.com/article/SB122005273251785043.html?mod=todays_us_money_and_investing


"Stocks regularly jump up 3% to 6% on the announcement of a buyback."
"Benjamin Graham pointed out a paradox: The better a company's executives are at managing its businesses, the worse they are likely to be at managing its cash."

"Three decades ago, with oil skyrocketing and profits gushing in, energy companies squandered billions of dollars on one bone-headed diversification after another. Mobil bought Montgomery Ward, the dying retailer. Arco acquired Anaconda Copper just before metal prices collapsed. Exxon even got the bright idea of manufacturing typewriters."

"So far in 2008, ConocoPhillips has spent $5 billion buying back stock; Chevron, $3.6 billion. From the end of 2004 through this June 30, says analyst Howard Silverblatt of Standard & Poor's, Exxon Mobil has soaked up an astounding $102.2 billion worth of its own shares."

"All told, the companies in the Standard & Poor's 500-stock index have bought back shares valued at more than a half-trillion dollars' worth of their shares in the past year."

"Every three months, Duke University economist John Graham surveys hundreds of chief financial officers. During the week of March 13, 2000, the absolute peak of the market bubble, 82% of finance chiefs said their shares were cheap, with only 3.4% saying their stock was "overvalued." More recently, buybacks hit their all-time quarterly high of $171.9 billion in September 2007, just before the Dow crested at 14000."

"Mistimed buybacks can be deadly. In 2006 and 2007, Washington Mutual spent $6.5 billion on buybacks. In January 2007, with the stock at 43.73 per share, chief executive Kerry Killinger called the repurchase program "a superior use of capital." Also in 2006 and 2007, Wachovia sank $5.7 billion into buybacks at an average price of more than 54. Citigroup spent $8.3 billion to repurchase stock in 2006 and 2007 at share prices of about 50. In April 2008, all three banks were so capital-starved that they had to raise cash by selling shares for a fraction of what they had recently paid for them -- WaMu at 8.75, Wachovia at 24, Citi at 25.27 a share."

Happy Birthday: You May Have His Axe, But I Have His Ball Peen Hammer

Happy Birthday, Charlie Parker! I borrow the following from Garrison Keillor:

It's the birthday of jazz saxophonist Charlie Parker, born in Kansas City, Kansas (1920). He is considered one of the half-dozen greatest jazz musicians, right up there with Duke Ellington and Louis Armstrong. Early in his career, he received the nickname of "Yardbird," and he became known as "Bird."

Before Parker, jazz meant swing, melodies played at dance tempos by musicians in big orchestras who never got to take solos for very long. Late at night, after their big band jobs were over, Parker, Dizzy Gillespie, and other black musicians kept on playing, improvising long lines at blazing speed. Parker used a lot of flatted fifths, and jazz players used the word "bebop" to sing a flatted fifth, but Parker didn't like to use the word for the way he played. "Let's not call it bebop," he said. "Let's just call it music."

As a teenager, Parker became addicted to morphine while hospitalized after a car accident. He later became addicted to heroin, which contributed to his death at 34. The official cause was listed as pneumonia and a bleeding ulcer. The coroner made a mistake in estimating Parker's age to be between 50 and 60.

Parker said, "I realized by using the high notes of the chords as a melodic line, and by the right harmonic progression, I could play what I heard inside me. That's when I was born."

The EU: A Slow Learner

The EU is preparing make even more costly mistakes in its carbon emissions reduction program. Reuters reports that draft legislation will increase offsets to fully a fourth of (paper) reductions. If past experience is a guide, this means that the true cap has just been lifted again, and that billions more euros will be made in profits at the ultimate expense of consumers. (The difference between the increase in revenues companies get by charging more for carbon-intensive products and the cost of manufacturing an offset is the source of rents divvied up by buyers, sellers and financial packagers of offsets.) Will the US legislation we enact next year be equally corrupt and ineffectual?