Housing bailouts

The only thing that separates America from the 3rd World gems of the world is the 'faith' that our system is more or less 'fair'...when we lose the faith, we lose everything...

I've been thinking of the debate on the housing bailout plans. The current idea is to reduce mortgage payments and eliminate principle in hopes that this will decrease foreclosures. This is supposedly a good idea because foreclosures have negative extranalities such as fire-sale prices, unkept houses, attract squaters, and so forth. 

I agree that foreclosures are a fundamental problem and that foreclosures do have negative extranalities (http://www.welcometotheadventure.com/2009/01/housing-solution-commentary.html). I also think that having the government take money from sensible Americans and giving their money to foolish Americans would create a rift in our country that could spark a civil war at the worst, and immense discontent at best. The negative extranalities associated with everyone believing the "system isn't fair" are HUGE. In fact, there is a country in the world called Iraq, where that is the belief of the people. When people don't believe the system is fair, they stop trusting the government, they stop trusting their business associates, and they stop trusting their neighbors. The end result is anarchy...yipee!

Also, why can't we just let the market work itself out? If foreclosures create negative extranalities, the homeowners and real estate investors in the communities struck by foreclosures can spend money to spruce up the neighborhood as they see fit. This is a direct payment, targeted, and presumably made with full information. Yeah it sucks, but what is the alternative? The alternative is for the government to take money from these same homeowners and give it to their neighbors who made a bad decision. 

Plus, let's assume away all the inefficiencies, scams, and warped incentives the homeowner bailout program would create. If I go talk to a sensible American who made prudent decisions and ask him if he would like the government to give his neighbor some of his money, or let his neighbor foreclose (and thus implicitely bear the costs the foreclosure will have on his property), he will probably vote to let his neighbor foreclose! 

This homeowner bailout is theft in plain site. I don't care if it theoretically stems a bunch of negative extranalities associated with foreclosures. What about the negative extranality associated with the civil war that will ensue in America? That will be much larger than the cost of the grass growing from your foreclosed neighbor's garage...

...oh, and regarding the pain the foreclosures will create through constriction of the credit cycle...here's an idea: wipe out bank shareholders, debt holders, and nationalize the banks...kick out all the bankers who screwed things up, bring in new people who need a job in the great depression 2.0, sell off all the crap they own to the private sector at whatever price they get, and start from anew...it will be painful for a while, but it will be fair...

Ronald Reagan says it best:

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."

Stop the insanity

Hat tip to Aaron S.



www.angryrenter.com

There is something wrong here...

Iran is privatizing their banks http://www.thememriblog.org/blog_personal/en/13843.htm...

and we are about to nationalize banks, nationalize mortgage debt, and essentially have intelligent Americans fiscally support stupid Americans...

interesting times...

sometimes I just wish I had more faith in my own ruminations and went 100% short the market last January--doh!
http://www.welcometotheadventure.com/2008/01/fiscal-and-monetary-policy-ruminations.html

California...

...is about to be TUUUURRRMMINATED.

http://www.breitbart.com/article.php?id=D96D1ERG0&show_article=1

Becker/Murphy speak...economists listen

From the best economists on the planet...
http://online.wsj.com/article/SB123423402552366409.html

A day in the life of an historian

Sheesh, I don't even know what Katie is doing in this photo. Pregnant historians are a busy bunch!

Former Marine makes a video

Kevin Gonzalez is a former Marine and later graduated from USC. His recent video on Medal of Honor recipient Pappy Boyington is an inspiration to Marines and to all those who believe in grass root efforts for change.

Here's a link to the site if you are interested in the video.

http://www.pappyboyingtonfield.com/index.htm

Libertarian ideas to solve the crisis

http://www.cnn.com/2009/POLITICS/02/05/miron.libertarian.stimulus/index.html

I think these ideas are just so good and exude so much common-sense that the dolts in Washington will never implement them.

Update from Al Anbar

This is the latest from Marine MajGen Kelly. I've heard multiple reports from friends in Iraq that the place is dead silent. It is not surprising to me that Al Anbar Sunni's are rallying and sticking together in an effort to gain power at the national level. The real test is seeing how the Anbaris react if the Shia's maintain power and try to suppress their wants and desires...I'm doubtful things will ever be stable in the area, but hell, crazier things have happened (e.g. the peaceloving, European Socialists nearly killed each other off only 70 years ago!)

Here's what he has to say:

I don't suppose this will get much coverage in the States as the news is so good.  No, the news is unbelievable. 

        Something didn't happen in Al Anbar Province, Iraq, today.  Once the most violent and most dangerous places on earth, no suicide vest bomber detonated killing dozens of voters.  No suicide truck bomber drove into a polling place collapsing the building and killing and injuring over 100.  No Marine was in a firefight engaging an Al Qaida terrorist trying to disrupt democracy. 

        What did happen was Anbar Sunnis came out in their tens of thousands to vote in the first free election of their lives. 

        With the expectation of all of the above (suicide bombers) they walked miles (we shut down all vehicle traffic with the exception of some shuttle busses for the elderly and infirm) to the polling places.  I slept under the stars with some Grunts at Combat Outpost Iba on the far side of Karma, and started driving the 200 miles up the Euphrates River Valley through Karma, Fallujah, Habbiniyah, Ramadi, Hit, Baghdad and back here to Al Asad.  I stopped here and there to speak with cops, soldiers, Marines, and most importantly, regular Iraqi men and women along the way.  It was the same everywhere.  A tension with every finger on a trigger that broke at perhaps 3PM when we all began to think what was almost unthinkable a year ago.  We might just pull this off without a bombing.  No way.  By 4PM it seemed like we'd make it to 5PM when the polls closed.  At 4:30 the unbelievable happened: the election was extended an hour to 6PM because of the large crowds!  What are they kidding?  Tempting fate like that is not nice.  Six PM and the polls close without a single act of violence or a single accusation of fraud, and nearly by early reports pretty close to 100% voted.  Priceless.

        Every Anbari walking towards the polling place had these determined and, frankly, concerned looks on their faces.  No children with them (here mothers and grandmothers are NEVER without their children or grandchildren) because of the expectation of death.  Husbands voted separately from wives, and mothers separately from fathers for the same reason.  In and out quickly to be less of a target for the expected suicide murderer.  When they came out after voting they also wore the same expression on their faces, but now one of smiling amazement as they held up and stared at ink stained index fingers.

Norman Rockwell could not have captured this wonderment.  Even the ladies voted in large numbers and their husbands didn't insist on going into the booths to tell them who to vote for.   

        One of the things I've always said was that we came here to "give" them democracy.  Even in the dark days my only consolation was that it was about freedom and democracy.  After what I saw today, and having forgotten our own history and revolution, this was arrogance.  People are not given freedom and democracy - they take it for themselves.  The Anbaris deserve this credit. 

        Today I step down as the dictator, albeit benevolent, of Anbar Province.  Today the Anbaris took it from me.  I am ecstatic.  It was a privilege to be part of it, to have somehow in a small way to have helped make it happen. 

Semper Fi.

Kelly

Great Depression/WW II Motto

Use it up,

Wear it out,

Make it do,

Or do without.

The Marines operate under a similar "minimalist" philosophy. 

The great thing about being a minimalist is that the less you want, the less you need. Likewise, the more you want, the more you need...being needy sucks.

Labor Market Competition

These so-called free market bankers are whining because Obama is talking about limiting their salary to $500,000 if they are forced to take government money (i.e. they failed). The big complaint is that it will "cause talent to leave" or "flush out all the best and brightest."

This is quite possibly the most ridiculous thing I have ever heard.

1. There is a huge oversupply of labor with finance skills at the moment (drives down wages).

2. Outside options for failed bankers are very limited and their ability to find another job that pays over $500,000 a year is virtually zero.

3. Would it be a "bad" thing if non-bankers came in?

If it were the case that a failed banker at a failed bank who made some of the worst decisions of all time could actually find a job that paid more than $500,000, then someone may want to argue that there will be a talent flight from Wall Street (they would also want to perform an IQ test on whoever hired them at such a high wage). Right now there aren't many outside options for these guys so their argument is ridiculous. Of course, it could be the case that the failed bankers are simply trying to be altruistic. They may have written off their ability to find an outside option greater than $500,000, but may have concern that talented outsiders may not want to come fix Wall Street because the pay sucks. First, I doubt bankers are concerned by this, and second, the bankers have failed to realize that $500,000 is going to be a huge pay raise for just about everyone in the world who isn't involved in high finance!!

I say we kick out all these failed bankers and send them to the soup kitchen lines...then offer this $500,000 a year salary plus some long term equity payments to every scientist, engineer, professor, non-finance manager, etc. and have our pick at the best and brightest in our country who would love to see a huge pay raise.

As a side note: this is more of a rant and leaves out some important economic consequences. For example, if good bankers are actually worth more than $500,000 (another argument in itself) there will be a talent flight to all the banks who survived the crisis and didn't take government money. In the end you would end up with a situation where all the government funded banks have the idiots and all the other banks have all the smart people. This doesn't really concern me...in many ways this is a round about solution to kicking the crappy banks out of the system and making sure the good banks survive. Taxpayers lose money on their investments, but we are going to lose money anyway...

Guns, guns, guns...

One reason America will never be taken over is the fact we allow private citizens to have firearms. Similarly, one reason why Afghanistan and tribal areas of Pakistan will never be taken over is because their private citizens own, manufacture, and actually USE firearms on a daily basis--not sure why we are trying to fight these guys!


Hat tip to Gabe L. for this video

Etrade Baby

I can't stop laughing at this Etrade baby. 

https://us.etrade.com/e/t/jumppage/viewjumppage?PageName=etrade_super_tv_ads&SC=GSSBWEB

Here is one of my favorite videos:

Home to the best and brightest

Note: this is a true story!

Katie just told me a story she heard from a friend who is a doctor in West Philly (Kelvin). Apparently, a lady walked in a few weeks ago and said that her name was "La'a".

Kelvin asks the lady how he was supposed to pronounce this odd name. The lady responsed, "Oh, you don't get it? It's La-Dash-a."

Kelvin, thought to himself...hrmmm...I guess they don't teach the difference betweenthe  apostropheand and the dash in West Philly...

More financial craziness

Hattip to Mike B. for this one...

So this lameduck, who drove his company into the ground and left shareholders with a -96% return is taking home nearly a $1mm bonus? AMAZING!!!

Corporate governance is a complete shame. The current structure was supposed to ensure accountability, encourage competition, and let the free market work. Instead it has become corrupt, enriched lawyers, destroyed shareholder powers, and left us with a crap system that desperately needs fixing.

It seems that nobody has any pride. If I were to lose other people's money because of my own actions I would spend the rest of my life repaying them because I felt so bad. These idiots lose other people's money and then turn around and take more of their money.

Now the bankers are begging that we don't wipe out equity and debt holders because it will 'ruin' the system...uh, you already ruined, we need to nationalize it so we can start over.


http://www.reuters.com/article/marketsNews/idINN0247570120090202
UPDATE 1-Ambac awards chairman $975,000 '08 bonus
Mon Feb 2, 2009 5:45pm EST Email | Print | Share | Reprints | Single Page [-] Text [+]
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NEW YORK, Feb 2 (Reuters) - Bond insurer Ambac Financial Group Inc (ABK.N), whose shares have lost nearly all their value, said on Monday that it awarded chairman Michael Callen a $975,000 bonus for 2008 and Chief Executive David Wallis, who succeeded Callen on Oct. 21, a $500,000 bonus.

The bonuses were disclosed in a regulatory filing with the U.S. Securities and Exchange Commission. The executives were not awarded any long-term stock compensation, according to the filing.

Ambac shares have fallen 96 percent since the beginning of 2008, and closed down nearly 9 percent on Monday at $1.04.

The company has ceased writing new business after posting large losses over the past two years and losing its top credit ratings.

It is currently trying to set up a separate insurer, which it hopes will be able to regain a high credit rating, to provide coverage to municipal bond investors.

"The ultimate goal of the compensation framework was to create an incentive for key executive officers that have been, and will continue to be, instrumental to the implementation of the firm's corporate strategy," Ambac said in the SEC filing.

The company said incentive compensation in 2008 was 60 percent lower than in 2007.

Ambac has yet to report its full-year 2008 results. It had a $3.3 billion net loss for 2007. (Reporting by Lilla Zuill; Editing by Gary Hill)