| Monday,
July 14, 2008 Bastille Day
On July 14, 1789, the Paris revolutionaries with aid of the local militia
stormed the Bastille, a fortress in downtown Paris which was similar in
purpose to the Tower of London. The revolutionaries freed all the prisoners
held in the Bastille on royal warrants. They were all aristocrats: four
forgers, two madmen, and a young man who had challenged the best swordsman
in Paris to a duel, and whose father had him locked up so that the duel
could not take place. The garrison consisted largely of invalid and retired
French soldiers. After the surrender much of the garrison was slaughtered
and their heads paraded on pikes. The four forgers vanished. The two madmen
were sent to the common madhouse where they much missed the special
treatment they'd had in the Bastille. The final freed prisoner joined the
Revolution, became Citizen Egalite, and was later killed by guillotine in
the Place de la Concorde for joining the wrong faction.
Since the fall of the Bastille France has enjoyed a number of governments
including The Directorate, the Consulate, The First Empire, the Restoration,
The 100 Days, The Second Restoration with several variants including the
July Monarchy, the Second Republic, The Second Empire, The Commune of Paris,
The Third Republic whose Constitution was framed to allow the possible
return of the Monarchy, the Vichy regime, and the various permutations since
the end of World War Two.
Lest we be too proud, the bloodiest war in US history was our Civil War;
and while we have not had any formal changes of government since the
Constitution of 1789, our Supreme Court has certainly rewritten the
Constitution to the extent that we can probably boast of having at least
three different forms of government since the Civil War.
=====================
For the record, I seem to be settling in: I can get about four hours of
real work done each day, and doing that requires about ten hours of sleep.
The rest of the day I don't feel bad but I don't get much done either. I can
read. Generally on my Kindle.
=================
Saving the Rain Forest
Today's LA Times has an interesting article on the op ed page:
http://www.latimes.com/news/opinion/
la-oe-hurowitz14-2008jul14,0,7327504.story
The interesting part is not that the Pope is going green,
and by replanting about 50 acres of a Transylvanian forest cut down in
medieval times will offset all the annual carbon output of the Vatican (who
knew it would be that easy!); the interesting part is that
the World Bank and others
estimate that global deforestation could be completely halted for the
relatively tiny sum of $11 billion to $15 billion a year. That one move
alone would eliminate 20% of total global warming pollution.
The way this would work is that some government or trust
buys the rain forests. The land is cheap, and it's being cut and burned for
trivial amounts. Now I don't know if any of this is true. I never thought
very hard about it before. But it does seem that for pretty trivial amounts
-- the US budget is in trillions, after all -- we could save the rain
forests, and probably recoup some of the costs by leasing some of those
forests to tourist companies operating under fairly strict regulations. A
rain forest with a people-mover monorail track through it is still a rain
forest, and it would be easy enough to isolate the local populations from
the tourists, much as Disney planned to isolate the research and other
workers who would live in EPCOT from the tourists who would pay to observe
research in action.
I don't think the "global warming pollution" we'd compensate
for is all that important; but I sure do think saving those rain forests is
a good idea, assuming the facts are as represented.
Incidentally, I have nothing against the Pope using the
Vatican as a demonstration of how to live with renewable energy, just as I
don't try to talk my neighbor Ed Begley Jr. into changing his green habits.
We need such experiments and demonstrations, and at $140 oil it's even
profitable. The Pope will have the best technical advice in the world and
what he does to make the Vatican energy independent will be seen by the
world. Good on him.
But I still think the important point here is just how cheap
it would be to save the rain forests. It would cost a heck of a lot less
than we've spent on Kyoto...
Fannie Mae and Freddie Mac and the
Law of Unintended Consequences
I told you it would happen. I've been telling you for years:
you can't pump money into the housing market, and keep lowering the interest
rates, without creating a bubble; and eventually the bubble will burst.
Water runs downhill. Eventually it reaches bottom no matter what you wish.
Fannie Mae and Freddie Mac were invented to create a housing
bubble. I can't think that those who created those government owned private
companies -- they used to be really profitable for their stockholders --
didn't know that pumping more money into the housing market would drive
housing prices to ridiculously high levels. Surely at least some Congress
critters have studied elementary economics? If you make low cost
guaranteed loans restricted to investing in Quaker Oats what do you think
will happen? I wonder how many Congress critters profited from the bubbles?
Either directly or in big campaign contributions from those who did?
The intent of Fannie Mae and Freddie Mac was to make it
easier for more Americans to own a house. A noble ambition, and one that the
FHA was doing pretty well with; but FHA didn't insure loans that looked too
risky. Not good enough. There were people out there who wanted a house. They
had awful jobs, and often they were minority people, and they wanted to own
a house. They were tired of renting. Like the chap who is losing his house
in Anaheim: he paid $480,000 for a house, but his income is about $700 a
month, and now he's facing foreclosure. Big surprise. Add enough instances
of this and Fannie Mae and Freddie Mac own a trillion dollars worth of
unsalable housing. Unsalable at anything like the amount loaned on it,
anyway. So: something must be done.
I understand that the remedy being proposed is to pump even
more money into Freddie Mac and Fannie Mae so that they will have more money
to lend, and thus do something about the falling housing prices. Think about
that for a while. The remedy is more of the disease that caused the problem.
Maybe the water won't reach bottom for a while. Pump in more money and let a
future Congress worry about what to do.
I paid $30,000 for my house in 1968. I've made some
improvements, and at some reasonable appreciation rate it ought to be worth
perhaps ten times that. Make that twenty times what I paid. But I am told
that it's "worth" about one and a half million. Of course that does me no
good: where would I live if I sold it? Meanwhile my property taxes rise
every year. Fortunately Proposition 13 has kept a lid on that so I can still
afford to live in my overvalued house; but in some areas, the housing bubble
has been a godsend for local governments, who are really happy about that
part of the situation.
The housing bubble, fueled by Fannie Mae and Freddie Mac,
inflated at fabulous rates. Little two bedroom houses in our neighborhood
sold for a million dollars (to be torn down). People bought houses with the
intent of holding on for a year and selling out. There used to be a flock of
radio advertisements for courses on how to get rich flipping houses. People
were encouraged to be speculators. Loans were made to people who obviously
had no means for paying them back. The bubble grew.
And every damned bit of this was predictable and predicted,
but that isn't going to stop the Congress from bailing out Fannie Mae and
Freddie Mac, just as the Congress quietly changed the rules to allow Fannie
Mae and Freddie Mac to treat the worst of the loans they either bought or
guaranteed as if they were assets, not liabilities, and use them as the
basis for even more loans until the bubble spiraled out of control.
Anyone who did not understand that pouring more and more
money into the housing market while at the same time using Free Trade as a
means for exporting manufacturing jobs and other traditional investment
opportunities cannot work forever is too stupid to be a part of the US
government in any capacity. Those who did understand it and went along
with it anyway ---
I have considerable sympathy for those who tried to get in
to buy a house they really intended to live in, and got caught when the
bubble burst. I would not be averse to finding a way to help them keep their
homes. But I do not think the government has any business bailing out people
who went into the market intending to flip the house and lost everything.
I'm sorry they made such a terrible mistake, but it wasn't me that did it
and I don't think I owe them any tax money.
Is there a graceful way out of this mess? Not too likely.
There are some measures that the government can take to make the bursting of
the housing bubble a little less horrid, but we built that bubble and
pumping in more money isn't going to do anything to help. I wish I were
clever enough to come up with a scheme, but I'm not; I can only show what's
likely to happen if we keep on inflating the currency (i.e. lowering the
interest rates). I have a German postage stamp: it was originally 3 pfennig
for a first class letter. It was overprinted twice. The second overprint
makes it worth 3 Mird Millionen Marks.
I understand that in Zimbabwe they no longer can afford the
paper to print their 5 million dollar banknotes: that is, the paper is worth
more than 5 million Z dollars...
=======
About 70 people got their money from IndyMac in Pasadena
today. One hopes they'll be a little faster in dealing with a bank run once
they get used to it. Those who have accounts that aren't FDIC insured are in
trouble...
Actually it's going to be tougher than you know. Most of
IndyMac's assets are in bundles of mortgages so complex that it's nearly
impossible to find out who owns what, and who has the right to foreclose on
the house. If anyone does. If this all reminds you of the Lincoln Savings
disasters we went through 20 years ago, it ought to. The didn't deregulate
fraud, but deregulation made fraud a lot easier, as buyers conspired to kite
property values higher and higher, then stick the final buyer with an over
valued piece of land. It's happening in the housing market now.
And I heard a sad story: a man who put $150,000 into IndyMac;
only the first $100,000 is insured. The irony is this chap was putting his
money in the bank to save up for a down payment and get an actual loan. Now
he's lost a third of his stake (maybe) because the bank loaned money to
people who couldn't pay -- or worse, bought packages of mortgages that
contained terrible risks along with good risk mortgages, 0nly it can't be
sorted out as to which is which and who owns what?
It will get worse. Runs on banks. Collapse of the housing
industry. Jobs exported forever. In Washington they are afraid of the "R"
word. Me, I hope it's only a Recession. I grew up in the Great Depression,
and you don't want to be there.
=====================
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