Now For What Truly Matters: Family and Football

Well, as of end of day today I am letting the markets sort themselves out without my participation. I will be enjoying some quality family time with the lovely Mrs. Baseball and my three precious Baseball munchkins on the lakes, beaches, and golf courses of the great southeastern United States. I happily leave behind thoughts of Ben Bernanke and subprime mortgages to focus on waterskiing, Kadima, daily cocktail hour, and pandalus borealis on the barbie. This will make the last week or two before football season go that much faster. Indeed the pigskin is almost upon us. In the Baseball household there are only two football teams that matter - the New York Giants and the Oklahoma Sooners (although, the Rutgers Scarlet Knights bandwagon has made a stop at our household and we have signed on for a quick joyride). Expectations are not high for either of our squads, which is just how we like it since neither program has dealt well recently with high expectations. The big key for the G-Men is, of course, 1) not having the defensive personnel break bones like a bunch of matchsticks and 2) getting Brandon Jacobs into a somewhat viable replacement for Tiki Barber. If the running game is not well established, Eli will get pounded and launch footballs with the accuracy of Hezbollah's Kassam rockets. For the Sooners, the big unknown is how a red-shirt freshman will handle not just opposing Big 12 defenses, but a big, national spotlight game in week two (versus the 'Canes in Norman).

See all 20 of you in September. May you labor only in leisure this Labor Day!

NYT: Income Inequality Yada Yada

With Don Luskin on vacation, the job of catching David Cay Johnston's slanted, agenda-driven economic reporting in the New York Times, falls to others.

NY Pols: "Our Ineptitude Is Measured In the Billions"

Here is an article about a contentious issue over an important bridge in my neck of the woods, the Tappan Zee. I will not wade into the issue of build new vs. fix, but I do want to note one stunning revelation in the article. Here it is: "For one, a new bridge would cost about $15 billion." Holy crap! $15 Billion, with a B for a 3.1 mile bridge! The French just built a modern engineering marvel of a bridge for about $500 million. A new Tappan Zee would be twice as long as the Millau Viaduct (but the roadway would be much lower), but that could hardly be a reason for the cost estimate being 30 times the cost of the MV. Concrete and steel have not gone up that much. Even the San Fran-Oakland Bay Bridge eastern span replacement debacle is estimated to cost $6.3 billion only after $3 billion or so of cost overruns due to its troubled political history. How on earth could it possibly cost $15 billion to build a new Tappan Zee? They must be factoring in unprecedented graft and incompetence. I guess local government officials here are truly self-aware and know just how godawful governments are at managing projects and doing things cost effectively. Self-awareness is the first step to a cure!

UPDATE: Minnesota has conducted a competition to rebuild the collapsed 35W bridge in Minneapolis. Price tag from the winning bidder - $234 million. Even if that estimate doubles in actuality, we could have 32 of those bridges here in New York with the $15 billion that local pols think they need to build a new Tappan Zee.

Crazy Idea - Insurers Offer Insurance to the Uninsured That Actually Meets Their Needs

On page one of the Personal Journal section, the WSJ has an article illuminating who many of the "uninsured" are that we hear so much about in dread tones. Of course, I have said this before - the "uninsured" is largely a mythical beast used to drum up ire over our healthcare system. Over 30% of the uninsured make over $50,000 and simply choose not to have insurance. I know that when I was in my late twenties, I passed on paying the $300 or so per month for health insurance in order to have more money in my pocket to frequent NYC's many fine public houses and to appropriately woo the future Mrs. Baseball. Sure enough, the WSJ article notes that a big portion of the uninsured are young people in their twenties and thirties.
(More on the "uninsured" here.) The article talks about how insurance companies are targeting this young demographic with policies that actually are relevant to them. Think about it, the medical risks faced by a 27 year-old are much different than a 42 year old faces. The latter individual is much more likely to need prostate cancer treatment or a hernia operation or a triple bypass than the former individual. Likewise the 27 year old is probably more likely to have a major sports injury. These two people need different policies to cater to their specific risks, but employer-paid insurance treats these two individuals largely the same. The development that the WSJ article chronicles is a welcome development and illustrates how market forces and the power of competition can make the right policy available to the right individual. There are still barriers though, and we need a federal market for health insurance so that this market can work around some of the barriers that restrictive state laws throw up.

Shame on Bono

Bono's do-goodism has never bothered me as much as your typical celebrity's infantile social-consciousness, because he seemed at least to be driven to charity by virtue that Africa was such a basket case, but that he would love to see Africa be self-sufficient. Although he has clearly been active in simply handing out fish, he always seemed to be a "teach a man to fish" kinda guy underneath it all. Apparently not. I guess he would rather have Africa be a continent of welfare mothers and dads on the dole. And he is clearly wrong about his own home country. Ireland has prodcued well-educated citizens for decades, only that before Ireland aggressively opened up for business in the 1990s, those educated men and women were mostly over here tending bar or pouring concrete. It wasn't until Ireland dropped taxes and rolled out the welcome mat for the likes of Intel and Pfizer that people actually had a productive outlet for their educations and the economy boomed.

Note to Bono: Perhaps the lack of an "African Margaret Thatcher" is the reason people like you have to travel the globe exhorting handouts at your concerts.

Always Look On The Glum Side of Life

In this post, a former inner-city LA school teacher talks about the lack of parenting that afflicts the inner city. (Oddly, he titles the post "Meet the Parents" and then goes on to tell you that he didn't meet the parents, because they are either apathetic or absent.) This is hardly cutting edge stuff, but it is sensible. Next, I guess in an effort to be fair and balanced, Mr. Hanscom chronicles how rich people can be bad parents too. Again, it is hardly cutting edge, and he has a point - the rich can raise some bratty kids sometimes - but in this post he uncritically relies on some modern Freudian pyshcobullshit that is reflexively denigrating to family life. The principal offensive piece of psychoshinola comes from (surprise) some NPR reporting. Apparently rich folks are having more kids. Why is that? Well, so says NPR, people are incredibly selfish and status conscious and kids are a big ego trip. Either that or formerly working women who no longer work have to put their energy into something! There you have it folks, 1) rich people are selfish and 2) without the joys of a demanding career (the only source of fulfillment any self-respecting woman could conceivably want) childrearing is a reasonable outlet for pent up energy for a gal.

This is astoninshing in its cynicism and its grounding in nonsensical pop psychology. Of course it never occured to the editors that people are having bigger families because of their inherent appeal. Maybe rich people are saying, "Gee, we love our little family so much, and we've always wanted a big family and, hell, we can afford it, why not have a few more kids?!" Or maybe after being told otherwise all their lives, modern women are discovering that they had no idea how rewarding motherhood could be and are choosing to experience it in spades. Nope, there can be no positive explanation for this phenomenon of larger families, it simply has to be grounded in human frailty. Pathetic.

Mumbo Jumbos

Here is some interesting fallout from the subprime induced credit crunch currently hitting capital markets. You'll get socked with substantially higher mortgage rates these days, presuming you can get a mortgage, if, get this, you have good credit! Yes, people with good credit are getting hit with higher rates because such people usually come from the ranks of the better off. Thus they tend to take out jumbo mortgages, greater than the $417,000 mortgages that can be purchased by Fannie Mae and Freddie Mac. Rates for conforming mortgages, below the $417,000 threshold, are steady. So the price of risk for lending to wealthier people is adjusting sharply higher in the marketplace, but the price of risk to lend to less well-off borrowers is just dandy. This implies that the rich can't pay but the poor, they're rock solid. This may be the case as many of those jumbo mortgages were taken out by free-wheeling speculators who sought to ride the real estate boom like a bronc. Why then are we reading only stories in the papers about poor, usually minority, families on the verge of being mercilessly spilled out of their homes onto the pavement? Maybe we should be reading stories of the ex-hairdresser who decided to become a real estate mogul and bought four properties at 95+% leverage as the market was racing up. Or perhaps we should be reading about how the government, through Fannie and Freddie, distorts the market by insulating low end borrowers and lenders from the consequences of imprudent real estate investing.

How Do You Say "Help Me Eliot Spitzer" In Russian?

I never thought I would ever say or write the words in the title of this post. (Well, I only mean them in a jesting way, I don't need Eliot Spitzer to save me from myself because I might take a securities analyst's view as completely untainted and independent.) But how soon we forget. I guess seven years is long enough to forget names like Jack Grubman and Henry Blodgett. This Bloomberg article chronicles how Lloyd Blankfein, CEO of Goldman Sachs, prostrated himself before a Russian bank CEO and apologized because a Goldman analyst put a 'sell' rating on the bank. Just imagine these words being spoken just after dot-com bubble burst: ``If Goldman is not prepared to support stocks post-IPO, there are plenty of other underwriters that will.'' Wow. What a stunning admission. We have completely forgotten the spanking that Wall Street's reputation took when the world figured out the dirty secret of stock analysts's true purpose. Or maybe we learned that lesson for us here, but are happy to bring the old, corrupt model to Russia, where that kind of thing is more at home.

Newark Needs a Surge

Having grown up a mere 10 miles from Newark, NJ (although in terms of environment and living conditions it was more like 100 miles) I can attest to how the execution style murders of those young adults there this past week has shocked this region. To know Newark is to be inured of Newark's dysfunction. Most people just know Newark as the disaster that has always been there and nobody is ever shocked about what goes on there. It's just Newark. But these killings have done the remarkable - they've created shock where shock was barely possible. Who knows if the shock will spur any people out of there mental comas or if it will fade without bringing any reassessment. Will Newark rethink its sanctuary city policy? Will the black community attack the "no snitchin' " culture and teach its youth to respect and work with law enforcement to cull the community's ne'er-do-wells and promote safety? Will parole boards and judges learn what serial criminals look like and endeavor to keep these people removed from society? Will the NY Times offer anything more than touchy-feely platitudes as a solution? Or will Newark just go on being Newark? Alas I am pessimistic. What Newark needs is a "surge". Newark needs a big bang, aggressive anti-gang counter-insurgency, but this is the northeast, after all, where the first reaction is to look for and debate endlessly the "root causes".

I propose enlisting the help of New Jersey native, Lt. Gen. Ray Odierno after he's done with his job overseas.

Market Strategizing Takes Precedence Over Blogging

Blogging has been light because I have been cogitating overtime in order to make sense of the market these days. There can be a case made that this is a golden buying opportunity. The global economy is strong and has solid fundamentals driving it. But the consistent stream of worrying news is beating up pretty hard on the animal spirits. My initial thoughts are this whole sub-prime meme is a distraction. The real game is in Washington where the roster of terrible policy ideas that could become law is long. Handicap these and you'll have your market call, don't get sucked into the sub-prime story. The reason the sub-prime theme is causing so much market pressure is that, although minor, it is coming at the wrong time - in the dog days of summer when most of the street is not around or prepared to make serious buying commitments. The buyers are on the beach and analysts can't make a call or the analysts are on the beach and the portfolio bossman (or woman) can't get the numbers fast enough to make sense of things.

Still, I am not sure now is the time to go all in. I'd dabble throughout August and ramp it up at the first sign of President Bush wielding a veto pen for any of the major bad ideas that come out of the Sausage Factory in September.

UPDATE: I am hearing scuttlebutt that major investment firms are telling traders and portfolio managers to cut short or forget about their August vacation plans. The rest of the month could get interesting.

Miscellany

Big news that you will find pretty much only one place on the web - here.

This is great (great as in pathetically sad that is)..."Under its oxymoronic eligibility criteria, at least 70,000 American families will now be both eligible for taxpayer-funded entitlement health care and subject to the unfair Alternative Minimum Tax, the tax that was intended for millionaires." Taxed like millionaires, given crumbs like they are poor.

Once again Prof. Mankiw shows how gentlemanly he is in addressing the NY Times's patently absurd economic analysis, which can only be described as mad, rabies-induced raving. My favorite, the Times thinks the answer to the trade deficit is government health care. Really, I'm not lying. Read it.

$1Bill From Hill

I've tried to stake out a little territory for this blog by covering the subprime mortgage "crisis" with a little different flare than you might see in the MSM (here, here, here, and here), but seeing as I am drenched in sweat and three hours behind on work by virtue of NYC's World Class infrastructure, I'll have to leave it to Don Luskin today.

New York Floodin' City

I'm not sure what the exact definition of a World-Class City is, but I know it does not entail a city whose public transportation infrastructure shuts down when it rains. Again, we have a bloated army of transit workers with cushy token booth or platform standing jobs who have essentially guaranteed jobs with enormous healthcare and retirement benefits, and yet there is no money to keep the tracks from flooding when it rains. Welcome to the public-sector union paradise of New York City.

More ranting here.

When Celebrity Endorsements Backfire

I'm not talking Michael Vick here.

Last night I saw a commercial for the new Gillette Fusion Power razor. Now, I am always in the market for a close shave and I'll even pay a little extra seeing as how I want the steel that I drag across my face to be of fairly high quality. But I doubt I'll try the Fusion Power as it is touted by the spokestriumvirate of Tiger Woods, Roger Federer and Thierry Henry. I like all those guys, but it tells me that the Fusion must cost like $27.99 per blade (and last like three shaves) to foot the endorsement bill. I know there is clutter out there in the cutthroat world of celebrity-endorsed consumer products, but what genius at Gillette came up with the idea for an ad that essentially says, "there is so much fat profit in this product that no sum of money is too small for us to pay to convince you to use it."

Cramer Rants for the Greenspan Put

The sub-prime mortgage "crisis" is getting even more nutty than Don Luskin suggested this morning. Making the rounds in the blogosphere is Jim Cramer's bizarre rant on CNBC against the Fed where he named some names and made some bold accusations. The quick summary is that the loudmouth Mad Money Maven, who caters to drunk college kids and rubes of all sorts, thinks we are at the precipice of Armageddon with seven million people about to lose their homes along with other sundry decimations to the financial system. Now comes the explanation. He was acting out of conscience. He was boldly conveying the danger to all those poor folks, all seven million of them, who are about to be thrown out of their homes unless the Fed starts lowering rates. So says Cramer. Poppycock. He was arguing for the continuation of the Greenspan Put, or essentially a form of corporate welfare for big bond investors and underwriters. (Coincidentally, more on the Greenspan Put here.) He wants rates lowered to relieve the pressure on all those that manufacture, sell, and buy bonds. These guys got greedy, were willingly blind to risk, made dumb bets and now the fruits of their speculation are turning rancid and Cramer wants a bailout for his buddies. Cramer wants the capitalism without the bancruptcy.

Does Cramer have a point about people losing their homes? Yes, some will and it is sad that some people are going to lose their homes undeservedly. I would wish it otherwise too, but the majority of the mortgage damage is going to fall on the head's of speculators and, frankly, some who deserve to lose their homes (more here). But we can't inject moral hazard into the system as a permanent feature of American capitalism over a sob story or two or we are all going to be worse off decades hence. Additionally, Cramer ought to know that a 25-50 bip rate reduction isn't necessarily going to keep the suffering masses in their homes. If you took on an "80-20" loan or some ridiculous 95% LTV interest only 5/1 ARM, then you are in deep yogurt anyway unless you start bringing in some additional bacon the old fashioned way. But those 50 bips might have kept Warren Spector in a job. Sorry Jimbo, capitalism without bancruptcy is like Christianity without hell. If you want capitalism of the Latin American variety, go ahead, but I'll take mine free of moral hazard thank you.

Kick*ss Resume: No Experience In Your Crappy Industry

By virtue of this news, two of the three big US automakers are now run by CEOs without auto industry experience. Given the recent performance of the Big 3, run by CEOs with skads of auto industry experience, and the state of the US auto industry, this can only be considered good news.

Rudy On Heathcare

I've been a bit busy lately, so I've not been able to comment/cover subjects that I clearly would have. Most notable among them, is presidential candidate Rudy Giuliani's recent push on healthcare policy. Go here and here to get some valuable takes on where Rusy is on this.

Jobless Sub-prime Mortgage Recovery...Or Something

Don Luskin nails the ridiculous state of sub-prime mortagage teeth-gnashing.

What we have here is the problem that you create when dumb people who have a penchant to borrow more money than they can afford meet a less than ethical salesperson who is incented to make a one-time deal and not based on the best interests of his client. A local paper around here recently chronicled the sub-prime mess with ridiculous "meet a victim" reporting that, inadvertantly, reveals the mixture of greed and stupidity that has landed many homeowners in unfortunate circumstances.


First, there is Ms. Quanda Moore, who borrowed 100% of the price of the home she bought, using an "80-20" loan. Here is Ms. Moore. "They get you into the home. ... There's no equity at all in the home when you buy it," said Quanda Moore, 36, who paused several times to compose herself. "I don't want anyone to go into the situation I've gone into." As if you are supposed to find some equity in box in the basement when you move in. Hey lady, you gotta put equity in, that is why "saving up to buy a home" is such an oft repeated phrase. If we could all borrow 100% of the value of a home, no one would have to save up.

Unfortunately, the stars all aligned and armies of wrongly incented mortgage brokers met with an army of Quanda Moores who for some reason or another embarked on the significant task of buying a home without any preparation or understanding of what is involved.

We survived the sub-prime credit card mess a few years back - when the same types of people bought flat screen TVs that they couldn't afford and there were companies greedy or dumb enough to lend to them - we'll survive the "sub-prime mortgage crisis". This oblique Bush bashing meme will go down in history right next to "jobless recovery."

How To Save the Planet

I reject the silly notion that humans are destroying the planet and that we have it within our power to rescue this vastly large and complex ecosystem called Earth, but let's concede the assumption for arguments sake. So, what to do? Easy.

"Drive a diesel and turn off the air con." I like that diesel model they show in the picture. Wow, saving the Earth could actually be fun! So, c'mon and join the club - GIMME TAX-FREE ULSD!

Never Fear, Hedge Fund Man Is Here

For some time now, those who are suspicious or disdainful of capitalism and wealth have been on a mad hunt for evidence of something called "systematic risk" that can be pinned on the proliferation of hedge funds and alternative investment vehicles, which are always ominously described as "secretive pools of money for the wealthy." The basic argument contends that the presence of so many, and so many large, hedge funds adds undue risk to the markets and hurts the average investor. That argument always precedes a call to regulate or place restrictions on hedge funds.

As some readers might recall, I have contended that the proliferation of hedge funds makes our financial markets less risky and ultimately helps the average investor (here and here). I have noted a couple of examples where these large pools of capital sweep in to buy busted positions thus mitigating the risk that localized distress will turn into a wider crisis. The proliferation of hedge funds has given us big, aggressive, and liquid players willing to inject order and rationality just as markets are tending to disorder as they are overcome by fear. To put a face on this phenomenon look no further than today WSJ which profiles the firm and the man who could be the poster child for this beneficial role that hedge funds play in today's capital markets.