Archive for May 2012

Blind Pig/Acorn (2) Alan Simpson edition

May 27, 2012

Via TPM (again):

“For heaven’s sake, you have Grover Norquist wandering the earth in his white robes saying that if you raise taxes one penny, he’ll defeat you,” [Simpson] added. “He can’t murder you. He can’t burn your house. The only thing he can do to you, as an elected official, is defeat you for reelection. And if that means more to you than your country when we need patriots to come out in a situation when we’re in extremity, you shouldn’t even be in Congress.”

“If you want to be a purist, go somewhere on a mountaintop and praise the East or something. But if you want to be in politics, you learn to compromise. And you learn to compromise on the issue without compromising yourself. Show me a guy who won’t compromise and I’ll show you a guy with rock for brains.”

Simpson admits that such heresies mark him as a RINO — which is truly amazing considering his actual politics over decades.  But there we are.  We have one centrist political party, and one gang of rocks-for-brains political suicide bombers.  And there is a non-trivial chance that said feral sociopathic children may control both houses of Congress and the White House next January.

We have a ton of work to do ‘twixt now and then, folks.

Image:  Albert Bierstadt, Farallon Islands, before 1902.  (Me mum loved Bierstadt, as do I.)

Blind Pigs/Acorns (1) George Will edition

May 27, 2012

Via TPM:

“I do not understand the cost-benefit here,” Will said. “The costs are clear. The benefits – what voter is going to vote for him because he’s seen with Donald Trump? The cost of appearing with this bloviating ignoramus is obvious, it seems to me. Donald Trump is redundant evidence that if your net worth is high enough, your IQ can be very low, and you can still intrude into American politics.”

 

I’d only add that this observation could be applied to less public buffoons currently weighing in on the GOPster side.  (I’m pleased to see that Joe Ricketts seems in the process of cursing the Cubbies (w. a losing streak now up to 11!) more thoroughly than ever did Mr. Wills pretentious fandom.)

More clear thinking from unexpected to sources to come…

Image:  F. A. Phillips, Child with a Punch puppet, 1878.  ( I must say that I’ve rarely seen such a perfect representation of the Romney-Trump relationship….)

It’s Too Hot To Blog Plus Bonus Kitteh And The Obligatory Link To Charlie Pierce

May 26, 2012

Ponderous here in the Hub of the Universe.  Hot, humid — summer in May.

I’m trying to recover and get a bit done while the munchkin naps.

But as I make my move, what do I find at my desk?

This:

I’m guessing Tikka is saying “Don’t even think about working today.”

Not bad advice, actually.

As for the ritual nod in Charles Pierce’s direction…Charlie has written a truly fine Memorial Day piece.  A sample, his conclusion:

On Memorial Day, when I visit the family plots in the old cemetery in Worcester when they’ve planted my forebears, I always wander over to one of the older sections where lie interred the veterans of the Grand Army Of The Republic, row after row of those round, generic tablets, each of them weathered and indistinguishable now from all the others. Memorial Day, after all, is a product of their war. Abraham Lincoln presaged it in the peroration of his magnificent Second Inaugural Address:

With malice toward none; with charity for all; with firmness in the right, as God gives us to see the right, let us strive on to finish the work we are in; to bind up the nation’s wounds; to care for him who shall have borne the battle, and for his widow, and his orphan-to do all which may achieve and cherish a just, and a lasting peace, among ourselves, and with all nations.

After Lincoln’s murder, the spirit of his remarks took hold in curious ways. On May 1, 1865, freed black slaves gathered to honor the Union prisoners who’d been buried in unmarked graves at the Charleston Race Course in South Carolina. Elsewhere, in the South, what was first known as Decoration Day became essential to the Lost Cause mythology that became so destructive to the descendants of those freedmen who’d honored the Union dead in Charleston. Supporting The Troops always has been a more complicated business than applauding at the ballpark.

The whole essay is more than worth your time.

With that — it’s all yours. What’s on for your holiday weekend?

McArdle Mini-Me Follies, Real Estate Economics Division

May 25, 2012

Blogger’s note: You’ll find below that I use an anonymous source to support my attempt to dissect Someone [who] is wrong on the Internet.™  As always, anonymous sources are only as trustworthy as the writer who deploys them.  You have been warned.  (BTW — I do know that it’s cheating to do even minimal reporting on a blog post.  Sue me.)

Dr. Manhattan is one of the McArdle guests feeding the wire whilst that blog’s proprietor is preparing what will no doubt be a never-before equalled work of economic and/or culinary erudition. His is the nom de blog of someone described as “a lawyer…who represents, among others, clients in the investment industry” — a connection that may prove significant below.

Up for dissection today: his post titled “A Modest Proposal” in which he promotes the idea of killing what he alleges to be the lead culprit in the crash of 2007-8:  Mortgage Backed Securities.

What’s fishy here?  Well — lots.

I’m not going to go full metal blogpocalypse on this, in part because life is too short, and in part because Dr. Manhattan gets props in my book for having written clearly and unequivocally against the vaccine-autism claimed link on his (now dead) personal blog — from the perspective of a parent of an autistic child.  That kind of writing in that community takes courage, so this brush with the McArdle empire will be as free of my usual attitude in that direction as I can make it

That said, here’s the passage that set me wondering about this post:

…killing MBS will likely kill the 30-year fixed-rate mortgage with no prepayment penalty, which, in the words of Raj Date, “does not flourish in the state of nature.”  And right now very few people can get one of those anyway, which is not a coincidence.

Hmmmm.

One of the benefits of hanging out at a place like MIT is that there is almost always someone around who actually knows stuff on just about any subject you’d care to check…and so it is with the economics of real estate.  I dropped a line to a colleague up the street, and got confirmation of the obvious:  the 30 without a pre-payment penalty (the clause that makes refinancing mortgages so straightforward) significantly predates the rise of mortgage backed securities (by decades).  Such mortgages start to appear in the 30s; MBS start to become significant in the marketplace after 1970.  That the end of the latter would kill the former is, as we say, an assumption not in evidence.

Oh well.  And that “very few people can get one…” claim.  I’m filing this in the life-is-too-short category to check fully, so I’ll just note that (a) 30 year mortgages remain by far the most common housing loan out there — roughly three quarters of all mortgages as of the most recent Census report (2011, on 2009 data).

Also, being as I’m someone refinancing for the third time a loan first taken out in 2009, I can in my anecdotage* attest that the no-prepayment-penalty mortgage is both alive and trivially easy to obtain.  (At least in my market, it remains the default option.)

What bothers me about this passage is just the garden variety flaw behind so much glibertarian and/or right econ blogging:  what they know** requires no actual data to confirm.  This is kind of what you’d expect at a McArdle-branded blog:  that which ought to be true need not be checked.

But the tricky bit is that plausibility is all; the moment the reader’s willing suspension slips  — then you read everything else in the piece with attenae quivering.  Hence, I was ready when I took a second look at this gem:

 CDOs and credit default swaps don’t kill financial systems, mortgages kill financial systems.

Uh.  No.

As it happens, I’m not operating out of my usual sea of ignorance on this point, as my current project involves a deep dive into the first debt-for-equity swap in financial history.  The key fact most often ignored from that early period of finance is that though plenty went wrong, usually in ways that, frankly, aren’t materially different from the ways folks game and/or fail to grasp the system now, the core financial act of abstracting things into numbers is an enormously useful trick.  It is, truly, an engine of wealth.  See, e.g. Adam Smith, chapter IV of Book I of Wealth of Nations on the importance of a medium of exchange; currency is just the first step in the process by which finance mediates transactions.

In that vein, mortgage backed securities are like any tool; you can build a house with a hammer; you can also crush a harp seal’s skull.  It is all a matter of the user and the constraints that user’s society places on the deployment of such tools.  As my correspondent at MIT put it, there are three clear points of vulnerability inherent in the process of packaging individual mortgages into a big clump:

1). Originators do not have skin in the game and may try to pass off bad loans as good.
2). Rating agencies are paid by the pool creators rather than the investors (who are unknown at the stage when ratings must occur).
3). Special servicing needs a better business model. (TL: I.e., those who handle troubled or in-foreclosure mortgages need to do it right, which isn’t happening)

All of these are known flaws.  All of them are subject to regulatory responses.  My interlocutor again:

Until the 100 year flood #3 was never problematic. As for #1 and #2 as long as F&F were functioning as a public entity they monitored and disciplined originators and rating agencies with bad records. 800 lb gorillas can do that.  So a huge monopsonistic mortgage conduit actually overcame the intrinsic problems with MBS – and in my view should simply be turned into a non-profit public utility!

The alternative to MBS is to return to individual loan underwriting, retention and servicing.  We could certainly choose to say hello to all that, but at a cost — not a trivial one — that in the end would make the price of money for housing detectably higher.

This isn’t a terrifically complicated idea:  from its emergence in the 18th century, the bond market has lowered the cost of capital applied to all kinds of stuff in the real world, beginning, more or less, with the British Empire.  (See, for example, the brief essay buried about 2/3rds of the way through Volume II of Fernand Braudel’s Civilization and Capitalism, which gave me my first glimpse of the role of liquid capital markets and Britan’s rise to world-power.

All of which is to say that the derangement of the mortgage market in the United States was indeed a major and growing problem through the ‘oughts, compounded by an ideological commitment that prevented regulation everyone with an economics IQ higher than a plant’s understood to be necessary.  But even if the collapse of the housing market provided the spark for global financial disaster, the fuel for that inferno came not from the securities constructed directly out of home loans, but from their derivatives.  And as it is in derivatives that a whale’s share of the money can be made (at least until the music stops) those on Wall St. resisted and still resist not just regulation of those instruments, but any real discussion of their significance.

But here’s the blunt reality of modern finance: the scale of the derivatives market vastly exceeds that of the real economy that underlies it.  The leverage — the number of dollars at risk  in excess of the value of the real assets from which such bets are derived — is what makes for catastrophe.  Dr. Manhattan’s airy confidence, as quoted above, that ” CDOs and credit default swaps don’t kill financial systems,” is more than wrong.  To the extent that it reflects accurately what folks on Wall St. actually believe, it’s terrifying.

Or, as my MIT wise man says, more gently:

Not sure your writer fully understands how CDO and CDS markets work, and how counter party risk is basically unmeasurable – making them horribly subject to a systemic meltdown.

I’m betting none of this comes as a surprise to anyone reading this; reality based communities tend to be able to count on both fingers and toes.  And I guess I’ve committed my usual sin of John Foster Dulles-ing what was, after all, a throwaway of a line and a thought.

But I do think it important to try to push over and over again one basic point: financial markets are essential; they fund real lives.  They are also prone to failure in ways that are unsurprising, and are, at least in part, subject to constraint by design.  To pretend that failure is at once impossible and inevitable, just one of those things (like cancer) that attends the messy business of being alive, is merely to ratify the transfer of wealth from most of us to those with their paws on the capital spigots.

Dr. Manhattan might say that he is merely directing our attention to the root cause of our ills — but it is to me notable that the instrument he wants to do away with is the one that lowers the cost of a mortgage to you and me, and those he wants leave untouched are what buys as 2008.

If it were McArdle herself who had written this, I’d add snark here.  But as I said up top, Dr. Manhattan is someone who has earned some benefit of the doubt.  He may simply have gotten this one wrong, which is a state that comes to us all; me certainly.  So I’ll leave it here….

Over to you all.

*Credit for that coinage (at least in my first hearing) to the king of the three dot columnists, the gone but by no means forgotten Herb Caen .

**In the Mark Twain sense of knowledge.

Images:  Frans Snyders, The Fishmonger, first half of the 17th century.

Benjamin West, The Death of General Wolfe, 1770.

May 16, 2012

Picture the scene:  two elderly Jewish men on a bench, in early ’30s Berlin. One is staring, astonished, at the other, who has just unfolded a copy of Julius Streicher‘s Der Stürmer — the notorious, viciously anti-Semitic Nazi newspaper.

“Why are you reading that trash?” asked the first man.

“It makes me feel good!” answered his old friend.

“Good? — That rag! All it says is how terrible the Jews are.”

“Exactly! Whenever I have a bad day, when I can’t sleep, when I’m unsure…I just pick up my newspaper,” the second man said.  “I reach for my newspaper and read  how the Jews  control the banks, the press, everything!”

He added, “I never knew we had such power!”

Now imagine we’re talking climate scientists, and think of the sustained attack on the individuals  in and the intellectual apparatus of the study of anthropogenic global warming from the organized right, the GOP, and the vast wealth of the herd of  Kochs and Scaifes and all their ilk.

We learn in the climate denialist community how climate scientists have somehow managed to organize a vast international, multi-decade conspiracy to foist the fraud of climate change on an unsuspecting public and their governments.

They’ve done so with no defections from the ranks, and for rewards that are either   corrupt  — all those vast stacks of ducats that accrue to those who count tree-rings — or mere religious delusion, that dolatrous worship of Mother Earth.

Who knew?  Who could have guessed that mild-mannered atmospheric physicists, ice dynamicists, solar physicists and all the rest were so well organized, and had such power as to be able to perpetrate a deception unprecedented in the history of human knowledge.

All of which is to say that in less than an hour, at 5 p.m. EDT, you can listen to a conversation* I’m going to have with Michael E. Mann, lead author on the now famous “hockey stick” papers, about what we know, what we need to investigate, and what it’s like to face the full career-and-reputation threatening wrath of the anti-science forces in our polity.  We’ll also discuss what we can do to shift the balance of the debate, and perhaps the policy with which the US confronts climate change.  Michael is more optimistic than I am, and I’m going to try to find out why.

*That’s the link for the podcast later, too.

Image: Rembrandt van Rijn, The Conspiracy of the Batavians, 1661-1662

 

Roast Chicken Obsession

May 7, 2012

I haz it.

I haven’t done much food writing here, except when baiting Megan McArdle.   Partly, it’s because even though it’s truly fun scribbling, and I’ve even made some money at it in the past,  life is too short to blog about everything.  But in the end, why not — and I just enjoyed something y’all might, so what’s the harm in using up some of the Intertube’s surplus bytes.

That would have been a (to me) novel twist on that Broadway standard of a supper, roast chicken.

This would be my ur-comfort food.Some of my fondest early memories are of trying to stab my mother with a fork as she maneuvered to steal the crisp chicken skin I saved for last. My sister is still pissed at the times Mum got away with this evil ploy — and this even though our Mum is fifteen years gone beyond the reach of our griefing on this point.  It’s this kind of memory that makes me think I should put away as much cash in my son’s therapy fund as I do his college trove.

I’ve used a lot of recipes to come up with a good bird since I left my mother’s home.  Over the last couple of years, I’ve often turned to one from Carol Field’s In Nonna’s Kitchen, in which you stuff the cavity of the bird with a cup or so pitted kalamata or niçoise olives, a few sprigs of parsley and a cut and squeezed half lemon, skewer the cavity shut, squeeze some lemon juice and drizzle some olive oil on the outside (lots of salt too) — and then roast upside down in 425 degree oven for about 20 minutes before flipping it over and cooking it breast-side up ’till done.  Good times.

I’ve also greatly enjoyed roast chicken porn.  I first encountered Gordon Hammersley’s recipe — legendary in Boston — in Julia Child’s In Julia’s Kitchen With The Master Chefs.  Given Hammersley’s cook-twice method, well enough suited to a restaurant kitchen, but not so much to my distracted condition, it’s one I’ve left better read than done.   Then there was the time I picked up at a remainder-price the ultimate food-porn cookbook, Alain Ducasse’s Flavors of France.  This is truly one you buy for the pictures; Ducasse demands your whole paycheck and more skill than I can muster to put together just about any of his dishes. But the recipe — well, if I ever choose to devote at least thirty bucks to a chicken dinner, maybe more, along with the better part of a weekend in prep, this will be the one.  And I may yet try, sometime.

But all of this is prelude to a very quick recommendation.  This week I came across Melissa Clark’s video and recipe in The  New York Times for what is for me a real variation in method on roasting a bird — the assignment which is to food writing what the  10 ways to please your man/woman is to the sex guides in the women’s and men’s books (a  hardy perennial on which there is almost never anything new to say).   Clark proposed splaying the bird — cutting through the skin and thigh joints to get the dark meat to lie flat — and than roasting the chicken in a very hot pre-heated skillet.

My wife and I tried out the recipe last night, with just a bit of deviation — we used scallions and shallots instead of ramps, for example, and kept the temperature down to 425 degrees from her 500.  Next time we plan to add a few elements to the vegetables with which the chicken communes — fennel, perhaps, and maybe a little bit of tomato.  But I’m here to tell you that the basic idea worked great, turning out a wonderful, mellow chicken in very little time, with a trivially easy prep.

All of which is to say — as long as  you are so nice as to ask — then, yes, I happily  endorse this path to a good night’s supper.

Image:  Peter Jakob Horemans, Still life with plucked chicken, apple and carrot,  1768

For A Good Time On The InterTubes (Self Aggrandizement Alert)

May 6, 2012

Most of you probably know that I published a book (my fourth!) a couple of years ago:  Newton and the Counterfeiter. (Kindle, Nook, Indiebound, Powell’s multiplatform ebook and Powell’s, Barnes and Noble, Amazon, Amazon UK, audio version, Your Local Book Store)

As you all also know, two or three years is a lifetime in book  years, so I’ve been doing almost no talking or promotion on that project for a while.

That changes in a few hours, when I’ll spend an hour on Skeptically Speaking with Marie-Claire Shanahan talking Newton, crime, the birth of the modern idea of money, and wherever else the conversation wanders.  The show starts at 8 p.m. EDT, 6 p.m. MDT, and will go up as a podcast next Friday.  Listen here, and or subscribe via iTunes.

It probably isn’t too much of a spoiler to say that it wasn’t the brightest move of even a genuinely clever criminal to try to match wits with my man Izzy. Just sayin….

Image:  William Blake,Isaac Newton1775.

 


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