What They Said About Fan and Fred
This compilation was in the Wall Street Journal on October 2. It sat on my counter for a few days, as I couldn’t work up the effort to actually see just how dumb some of these politicians’ confident statements about the mortgage giants were.
I’ve finally read the compilation, and it’s worth it. My favorite example:
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Rep. Frank: Let me ask [George] Gould and [Franklin] Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?
Mr. Raines?
Mr. Raines: No, sir.
Mr. Frank: Mr. Gould?
Mr. Gould: No, sir. . . .
Mr. Frank: OK. Then I am not entirely sure why we are here. . . .
Why Does God Let Bad Things Happen?, Part 28
One of the most challenging academic questions for theists is, “Why does God allow bad things to happen?” Unlike other brain teasers involving God, this one really hits home, for obvious reasons.
Now I think part of what is going on–and I am a born-again Christian, so that colors my explanation here–is that God wants us to really really trust that He will forgive us for our sins.
And so, by allowing sinners to do atrocious things but then being willing to forgive them, God encourages onlooking Christians to feel less guilty for the sins they’ve committed, and thus concentrate on loving everyone, as Christ commanded them.
Finally, in this component of the reason, again we find that the Crucifixion was the ultimate example. If Jesus could ask the Father to forgive the very people who were torturing and murdering Him–as they were doing it, not five years later when He is thinking back on the episode–then we really should trust that He is willing to forgive us.
Why Tyler Cowen Could Be Today’s Hayek, & Why Rothbard Could Be a Real Jerk
One of the biggest sources of regret I have is that I never met Murray Rothbard. So I acknowledge that in the following observations, somebody from Auburn, AL could easily destroy me by saying, “Bob, I knew Murray Rothbard. He was a friend of mine…”
Annnywho, here’s what led me to understand why Rothbard could sometimes be…well, a real jerk. (I think poor Hayek is still nursing a nosebleed from Murray the Big Bully.)
I try, whenever possible, to criticize Tyler Cowen. This is because he has established unbelievable credibility for himself, and he has done this necessarily by knowing the mainstream material SOOOO thoroughly that no one on their side would have the audacity to dismiss him as an ideologue. This is exactly what Hayek did–they actually gave him the Nobel (Memorial) Prize, for crying out loud, even though he had the testicles to put “Serfdom” in his title. Do you know how “unscientific” that was? C’mon folks, Hayek really put in the time to infiltrate the mainstream, and then dropped a bomb within their worldview, the implications of which rippled out in all directions. That’s why there are so many diverse applications of “Hayekian” thought. He shattered the dominant worldview in which he grew up. Whom else could you want him to attack, than his powerful contemporaries–which he did?
Anyway, Cowen is like the Hayek of our days. And so if I’m going follow WWRD, I need to go after Cowen and be a jerk about it. See?
Now, there is no denying that Rothbard was bigger than I am. And partly why, is because he put on a better show. If you’re watching Spiderman in the theaters, you don’t hope that Peter Parker can use his wits to avoid all need for violence. No, you want him to go pick some fights with super villains, and then save the day! Go Murray!
So for all of you who lament at how that brilliant Murray Rothbard wasted his opportunity to really shake up the academic world… For good or ill, Rothbard consciously knew what he was doing, just like Ann Coulter is obviously shrewd and has decided she is willing to act like that for money and fame.
Well, in the same way Rothbard was fighting a war against the State, and he decided he would rather fight with the backing of a large number of independent, gun toting, Union hating tough guys, rather than a bunch of academics who might fax letters of support if Rothbard got imprisoned. Yay, thanks professors for getting my back!
So just as I can think Sam Adams was a riot for stealing private property and dumping it in the Boston harbor, I can think Murray Rothbard was a riot for picking such fights with other academics. They must have been utterly flabbergasted at this clearly very sharp guy who was acting like a, a, a, brawler for crying out loud!
Revision of My Views on Naked Shorting
In August I wrote a piece for Mises.org that lambasted the SEC’s move to ban “naked” short selling of a few financial stocks. I argued that it was a pointless gesture and served only to soften up the public for greater restrictions. Looking back, I think I nailed it on this score.
However, in the article I also came off as saying that there was nothing wrong with naked shorting. But since writing, I have received a lot of negative feedback from people who seem to know what they are talking about. For example, they are telling me that when some companies vote on things, there are way more votes cast than shares exist, because of the naked shorts.
Here is an excerpt from my August article, with the crucial part in bold:
Some of the commentary on naked short selling has become downright silly. The naked short seller is not violating the laws of logic; certain bloggers write as if we should fear a rip in the space-time continuum centered on Wall Street. If a particular stock is illiquid, and a trader wishes to speculate on an anticipated hourly move in the share price, nothing is harmed by allowing him to sell 1,000 shares and then buy them back 45 minutes later; the broker can simply debit or credit his account accordingly.
Of course, what is really happening here is that the broker is extending a form of credit to the trader, and the buyers of the “naked” shares (i.e., the counterparties to the initial short sale) are in turn trusting the brokerage. Because those 1,000 shares weren’t actually located and borrowed before the short sale, that transaction can’t be completed until the trader closes his position and buys back 1,000 shares (possibly from other individuals). At that point, any of the counterparties to the original short sale who maintained their purchase, can gain title to the shares out of the 1,000 the trader bought back when closing his position.
What if the trader has a heart attack before he closes the position? Or what if he made a terribly wrong guess, and the share price triples ten minutes after his initial short sale? This danger is why I earlier said that the trader relies on a form of credit from the brokerage; no matter how much he initially put up as collateral, the share price could rise such that he is on the hook for more money. Ultimately, the brokerage is responsible for delivering the proper number of shares to those who purchased them in the initial short sale.
Of course, it is possible that if disaster strikes, and a stock experiences a sharp jump while a trader holds a very large naked short position, then the brokerage could be unwilling or even financially incapable of rectifying the accounts of those who were counterparties to the initial short sale. In other words, they agreed with the trader to buy a certain number of shares at a certain price, they handed over their money, and then find out (after the shares have risen in price) that they don’t own these shares, after all.
Depending on the precise contractual understanding, this outcome would be either outright fraud, or at least a very embarrassing sign of incompetence. Either way, the brokerage would obviously seek to avoid such a predicament, and so (absent government regulations) would be very careful in facilitating short sales.
Well, if what these critics are saying is true, then it seems as if the major brokerages really are engaging in “outright fraud.” In other words, it’s not a mere matter of timing, where the sale goes through immediately rather than waiting 45 minutes for the broker to locate and borrow the shares. I am hearing all kinds of horror stories where people buy shares and then are strung along for months, when they ask for the actual certificates. Apparently the brokerage will simply say, “We can’t locate the certificates, we’ll let you break the trade if you want.”
So, if this is all true, then I should not have been so flippant in my article. The government is still to blame, naturally. These practices (I claim) would not last in a free market, where “regulation” is done through open competition and private sector analysts, rather than the monopoly SEC.
For those wanting to read more, check out the “Deep Capture Blog,” which was started by the CEO of Overstock. (He claims his company has been getting attacked by naked short sellers.) I hope to follow up on this, and write another Mises.org to correct for my (apparently) misinformed earlier article.
Is There Going to Be a Bank Holiday?
Back when the Paulson Bank Robbery was still in doubt, I conjectured that there might be an engineered bank panic to get the American people on board. Tim Swanson alerted me to a rumor about Bank of America loading up on signs telling its customers that its branches are closed. He also sent me this link, which if you scroll down a little bit has an article by Paul Watson claiming that the rumor was a hoax cooked up by an FBI informant.
In case you’re wondering, yes, I’m just doing my part to spread rumors and contribute to the fragility of our fractional reserve banking system.
A Riddle
Robert Wenzel has a post involving me, and it concludes with the following picture:
Try to guess what could possibly make this photo relevant before checking. If you were right, I will give you a mortgage-backed security.
Sarah Palin Is Not Dumb. Evil Perhaps, But Not Dumb
Over at the second best blog in the universe, I have been arguing with Woody about Sarah Palin. He posted a “best of Sarah Palin” compilation (first one below). In response, I posted Obama’s absolutely stomach-turning performance (second one below), and then another compilation including some Biden gaffes and Obama’s piece de resistance where he deliberatively says he had been to 57 states, with one left to go (third one below).
Now that I’ve watched the videos below a few times, I have some general observations:
(1) By far the single stupidest statement is Obama’s on the states. If Palin had said that, it would have been considered BY FAR the dumbest thing she had ever said. Saturday Night Live would have been beside themselves that this bimbo didn’t even know how many US states there were.
(2) Arguably the second stupidest statement was Biden’s on FDR going on TV to reassure Americans about the stock market crash. Again, if Palin had said that, I think it would have been considered her most ignorant comment to date. There would have been all kinds of spin offs Tina Fey would use, like Gerald Ford emailing every American to celebrate Neil Armstrong’s moon walk.
(3) When Sarah Palin does something boneheaded, it is always (a) when she is trying to evade a trap by Gibson or Couric and (b) when she is ignorant on something that any VP candidate really ought to know. Just because you are ignorant on politics doesn’t mean you are stupid. Note the difference between Palin on the Bush Doctrine vs. Biden on the Great Depression: Biden volunteered that, and was talking with confidence. Palin, in contrast, was caught off guard and then did her best to bluff her way out of it.
Or take Couric’s questions about newspapers. Do the “Palin is a Plain Bimbo” people really think Palin couldn’t think of a single newspaper? C’mon, obviously she could’ve said “the New York Times and the Wall Street Journal.” But the reason she didn’t, I believe, is that she thought Couric might innocently follow up with, “Not to belabor the point, Governor, but can you name just one columnist you read in the NYT or the WSJ?”
What people are not fully appreciating is that Palin was on super defensive mode, especially after the Bush Doctrine landmine. Rather than deer-in-the-headlights, “Duh, what the heck is a newspaper?” I think rather she was looking two moves ahead.
If you watched Palin’s debate performance, you know that she is not an idiot. Rather, she is incredibly ill-informed on politics. She has clearly not followed world events at all up until about 3 months ago.
This is very scary, in fact scarier than if she really were a bumbling fool. But in my opinion, it is a complete misreading of the situation to dismiss her as an idiot. She is in a very awkward position, and is doing really the only thing she can to spin her way out of it. E.g. her nonsensical answers on the bailout, bridge to nowhere, and pork barrel spending don’t show that she’s dumb, they rather reflect the fact that McCain reversed himself on the bailout, and that she did some things politically in the past that now she has to disavow. Yes she sounds like a fool about Russia, but again, they had to give her some “experience” in order to keep alive the main McCain argument against Obama. She probably was told that that was her position (i.e. she deals with Russia as governor of Alaska), and then–given that that is the asinine position she has to defend–what the heck else can she do except try to charm her way out of the predicament?
Her attempted defenses on all of these issues are not nearly as absurd as Obama’s next-day reversal on whether Iran poses a threat, or Biden’s quick reversal on whether the ad attacking McCain’s age should have been approved.
To conclude, Sarah Palin is not dumb. Evil perhaps, but not dumb.
Mankiw Is Puzzled By Rising TIPS Yields
As I explained in a previous post, analysts who rely on the TIPS yield to get the market’s “risk-free real interest rate” are running into all sorts of trouble. But first, let’s quote from that earlier post to remind everyone what TIPS are:
Back in 2003, the Treasury began selling 5-year Treasury Inflation Protected Securities, or TIPS. (Longer maturities were available starting in 1997.) What happens is that the government pays a fixed coupon rate, but the principal is adjusted based on increases in the Consumer Price Index (CPI). Thus, TIPS yields are one of the closest things you can get to observing the real interest rate; it measures what lenders need to be offered to part with their money for a period of time, over and above the fall in the purchasing power of their money.
In that earlier post, I dealt with the anomaly that the market is apparently predicting only very moderate price inflation–around 2%–over the next five years, which seems rather optimistic. Specifically, if you take the yield on regular, old-fashioned Treasurys, and then subtract the yield for TIPS of the same maturity, that should (loosely speaking) give you the purchasing power component. And since five-year nominal yields are only two points above TIPS yields (at least as of that last writing), apparently “the market” is forecasting very modest price inflation over the next five years.
Again, in that earlier post I explained that there at least two problems with this optimistic view. First, the method of simple subtraction shows that the market forecast very badly over the last five years (see chart below). Second, I argued that investors might be worried that the government won’t really allow official CPI increases to reflect the true reduction in the value of the dollar.
Finally we are ready to quote Mankiw and offer a solution to his puzzle:
One might have thought that widespread fear in financial markets would cause a flight to quality, driving the price of safe assets up and their yields down. That certainly has been happening with short-term Treasury bills. But look [below] to see what’s been happening to the yield on 5-year inflation-adjusted government bonds. (Click on the graph to enlarge.) If one wants to flee risky assets and invest safely, for many investors these securities are a pretty good place to be. But their yields, rather than falling, have been rising sharply of late. It’s a puzzle.
To reiterate, one possible explanation for this odd trend is that investors DO NOT TRUST THE GOVERNMENT. Even if an investor is willing to tolerate, say, an annualized real return of only 0.5% over the next five years, if he thinks the Treasury is in such a hole that there will be pressure put on the BLS to further fudge the CPI reports, then the investor might insist on a contractual 2.0% yield on his TIPS.
If I’m right, then the rise in TIPS yields reflects investors’ growing alarm over the solvency of the Treasury, not that they steadily grew much more confident in medium-term US economic growth since the beginning of this year.
(HT2 Pepe for the Mankiw link.)
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