Almost Famous

"Famous Person" endorses Sarah Palin.

Buh!

This is how the debate made me feel.

Times Reader

I somehow missed this: the New York Times released a version of Times Reader for MacOS.

I subscribe to The (paper) Times but have really gotten hooked on Times Reader. Until now, however, I've been running it in Vista (in VMWare, of course). Times Reader gives you the whole paper in a reasonably attractive format on your computer. Of note, the typography is really quite nice on the Windows version.

My very first impression of the MacOS version is that it seems slower and the typography isn't as nice. It is a beta; we'll see how it improves over time.

I'm very excited to have a MacOS version.

Phish

Phish is back together! Woo hoo!

The Plan

Well, it is Sunday. I expect some kind of news about the treasury plan being negotiated in congress.

The original plan was a $700 billion check and vague promise to fix something. The Dodd plan was better, but not great. Republicans in congress submitted a proposal so profoundly stupid that even I am surprised (write insurance for something you can't value? Great idea).

What most concerns me about all these "plans" is they give me the impression that those writing the plans don't know which crisis they are solving.

Lets run through the things that might justifiably be called a crisis.

• Bank Capitalization: Long before this mess started, banks were taking on more and more debt as leverage to increase return on investment. It made some sense at the time; debt was cheap and risk was considered low. However, once losses started piling up, it became clear that financial institutions did not have enough liquid capital.


• Real Estate Values: Prices are dropping in almost all regions of the country, causing real problems for owners. But the problem here isn't that the prices are falling; the problem is how absurdly overvalued they were.


• Personal Savings / Indebtedness: As a country, the U.S. saves too little and spends too much. This has global implications. Consumers ratchet up their own debt to finance spending. Institutions (including the government) look internationally for capital, rather than within. Just as the corporate world is deleveraging, U.S. citizens will have to to do the same. One way or another.


• Lending: To a large degree, this mess is directly linked to the state of lending practices over the last ten (or so) years. There was criminal malfeasance and clear collusion between brokers, appraisers, lenders, and those securitizing the debt. Regulators looked away as everyone played a game of "collect my fee, pass on the risk" But now the mess is unraveling and causing huge losses and a feedback loop that further reduces property values. And this isn't just consumer lending: commercial real estate lending practices were not much better. Banks lent huge amounts of money to developers based on very optimistic revenue projections. With office space and mall vacancies rising sharply, commercial real estate is just entering the same vicious cycle that depressed home values.


• Credit Markets: Lending to businesses has all but stopped. Credit markets have seized up, preventing many companies from making use of short and medium term debt. The Fed is flooding the market with short-term liquidity, helping financial institutions finance themselves, but this doesn't help other companies who can't borrow directly from the Fed.


• Illiquid Assets: Because no one wants to buy mortgage-backed securities, those left holding them are stuck. Many of these securities are so complex and difficult to analyze that no one is willing to put a price on them, nor do they know how risky these securities really are.

A smart person could probably think of others. Like the volume of foreclosures in some parts of the country. Or the barely-known correlation / counterparty risk that was probably behind the AIG and Bear Stearns bailouts.

Leaving aside the questions of how punitive "the plan" should be, which of these many crises will "the plan" solve? Assuming the final plan looks kind of like the original Treasury plan, it doesn't even solve the first issue. Buying illiquid mortgage backed securities doesn't recapitalize the remaining financial institutions; it just helps clean up their balance sheets a bit.

None of the plans seem to solve any one problem. And this is what concerns me. I don't think congress understands enough about the nature of what is happening to effectively solve it. The various "plans" leaked to the public make me suspect that there isn't a single economist or person who understands the financial markets involved with drafting the legislation. With such a huge cost to taxpayers, we really should be demanding more.

I hope that when congress, treasury, the Fed, and the President announce a plan it will be a bit less muddled. Chairman Bernanke, as a student of the great depression, surely knows that ineffective government intervention can make a crisis worse, turning huge losses into a decade-long disaster.

WaMu

I've been reading quite a bit tonight, hoping to get more detail on the quite-possibly unprecedented seizure and turnaround sale of Washington Mutual assets to JPMorgan Chase.

I expected to read some clearer statements regarding why the FDIC chose to execute this transaction on Thursday, rather than on a Friday evening. Why the CEO was (apparently) in mid-air, flying back to the headquarters. Why the FDIC chose to seize the bank when it was not (by any measure I've seen) insolvent, just illiquid.

I don't think there was any kind of conspiracy here, but without clear indication why stock and bondholders were wiped out there will be lawsuits for years and the FDIC will look out of control.