Author: Matthew G. Saroff

The War on Privacy

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The folks at TPM have found another Yoo memo, this one only 37 pages long, and discovered that one of the conclusions there was that the 4th amendment, which protects against “unreasonable search and seizure” did not apply in anti-terror investigations.

Seriously, these guys had no concept as to the rule of law. They really hate everything that out founding fathers worked for.

The memo is no longer in effect, but little known state agencies known as “fusion centers” have been sucking up every bit of personal data they can find:

  • New York and other states also tap into a Federal Trade Commission database with information about hundreds of thousands of identity-theft reports.
  • Pennsylvania buys credit reports and uses face-recognition software to examine driver’s license photos.
  • Rhode Island has access to car-rental databases
  • Maryland, authorities rely on a little-known data broker called Entersect, which claims it maintains 12 billion records about 98 percent of Americans, including cell phone records.

See the ACLU report here.

Debbie Stabenow’s Husband in Prostitution Sting

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She’s the Governor of Michigan, and the details are here.

Obviously there are political ramifications, but I want to talk about what I see as the real issue:

Troy police Lt. Gerard Scherlinck said Troy’s undercover officers focus their efforts on breaking up prostitution rings about four times a year, depending upon manpower. During the stings they arrest only the prostitutes.

“(Detectives) stop people coming and going and interview them. If they have a cooperative witness, they will use that person to testify against the ring rather than arrest them. That’s what happened in this case,” Scherlinck said.

If the case goes to trial, Athans would be called as a witness to testify and positively identify the woman, he said.

Let me get this, the rich pig who who makes the illegal buy gets off scott free, but the woman, generally poor, possibly with a substance abuse problem, sometimes a single parent, gets prosecuted?

I believe that prostitution should be legal and tightly regulated. But, if it is illegal, going after the people at the bottom of the pyramid, frequently people who are doing this because they lack other alternatives, is evil.

Fannie Mae Tightens Guidelines Again

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Fannie Mae is tightening lending standards (here and here).

This follows regulators allowing the borrow and lend more extensively, in an attempt to bolster the housing market.

Upper management at FNM gets it. That the market is completely fscked, and if they don’t tighten up, they will get swamped.

Changes to their standards for buying loans:

  • Minimum credit score of 580.
  • It won’t buy, “Delinquent loans that have fallen 60 or more days past due in the last year”.
  • It won’t buy loans to borrowers who have been foreclosed on in the past 5 years (used to be 4 years).

Calculated risk has some more details, and there are some additional standards which appear directed towards dissuading people from walking away from properties where they are under water (aka jingle mail).

Telco Immunity Deal

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It appears now that name calling, invocations of 911, and threats of dire political consequences to Democratic members of Congress, it appears that Bush and His Evil Minions™ are willing to negociate in food faith.

Honestly, I don’t trust them, but it’s clear that something has changed:

The White House’s more conciliatory posture reflects a recognition that the Bush administration’s leverage on national-security matters has slipped since this past summer, a top Republican congressional aide said. “There’s a recognition that if they’re actually going to get a product they can support, there’s going to have to be some new level of engagement,” the aide said.

Pa4rt of this, IMSNHO, was that Representatives got many enthusiastic high fives from constituents when they left for the recess, and part of it is because it is increasingly clear that DNI Mike McConnell is a lying sack of sh*% (like his lying about telcos refusing to wiretap) who does nothing but carry water for Bush.

There is talk of a compromise along the lines of something like limits on liability, or some sort of government indemnification (which was probably already part of the deal).

I don’t object to indemnification or damage limits, there are precedents for this, and it would not have the effect of covering up Bush’s law breaking.

What worries me is that Steny Hoyer is point man on this, and when the going gets tough, he folds like overcooked broccoli.

OK, You Are Not Getting Any Sleep Tonight….

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Yesterday, Marketplace had a store about a complex financial instrument called a “default credit swap“.

They try to explain what it is, and the best they can do is say is that it is some sort of complex financial transaction that serves as a sort of insurance against companies defaulting on their loans.

But that’s not what they are, that is their intended purpose.

This excerpt of the exchange may clarify a bit:

MOON: Well, this is where it gets tough, Kai, because a lot of people on Wall Street, even some of the leading economists in the academic world, don’t really understand exactly how these things work. A lot of them are whipped up with some computer wizardry, some advanced math — think of those fancy Greek letters turned on their sides. And there’s a lot of guesswork to this, too, about how much they’re really worth.

Boy…That makes it a lot clearer, doesn’t it?

So we have another derivative like instrument where there is no value that can be understood. In fact, most of the people who trade this stuff not only don’t know the value, they don’t know what it is.

It could be bellybutton lint futures for all we know, and for all Wall Street knows.

RYSSDAL: All right, so what’s the problem, though, if everybody agrees that they don’t know what they’re worth?

MOON: Well, the critics I’ve spoken to complain that they’re really nothing more than gaming instruments — gambling. Turns out that the big hedge funds that attract so much money from rich investors and big institutions, well, they’re playing the market on their own, and they don’t even need to have a stake in a particular company to do that.

RYSSDAL: I’m going to make the analogy here to a March Madness office pool, right? I go in, I pick a basketball team, and if they do great, that’s great, but I’m not vested.

It is. Except instead of wagering on UCLA and Auburn, these big bankers and brokers and hedge fund managers pick up the phone and they negotiate these wagers privately. Nobody really regulates this. They’ve created this incredibly enormous shadow financial system, if you will, that’s virtually hidden from investors and analysts and regulators.

You know when those high energy physicists do that complex stuff that explains how to smash two pieces of metal together to wipe out Hiroshima, I feel a bit more secure about this.

RYSSDAL: How big would “incredibly enormous” be?

Good question. I’d like to know how many billions of dollars are nothing more than fairy dust.

MOON: OK, I’m about to unload some numbers on you here, so I’ll speak slowly so you can follow this.

The value of the entire U.S. Treasuries market: $4.5 trillion.

The value of the entire mortgage market: $7 trillion.

The size of the U.S. stock market: $22 trillion.

OK, you ready?

The size of the credit default swap market last year: $45 trillion.

RYSSDAL: That’s a lot of money, Bob.

Ummm…why yes, it is. Doing math in my head 4.5×1013/3×108=1.5×105, or in normal notation, about $150,000.00 for every man, woman, and child in the United States of America.

MOON: It is, and the great unknown here is that these things get traded, or swapped, between the banks and hedge funds and other investors, and there’s really no one who oversees or regulates these trades to guarantee that the buyer actually is going to be able to make good on these if they have to. And these things end up being so interconnected that it’s not just like single line of dominoes falling, if one fails. Imagine one falling domino taking down two more, and those taking down four more, and eight, and so on.

I don’t know about you, but I’m spending this evening gibbering inconsolably.

Here is the full audio, including some comments from an expert on this that is even less reassuring, and the tid-bit that Alan “Bubbles” Greenspan loved these.

Full Metal Pander

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Obama is now saying that he wants to put Al Gore in his cabinet.

Sorry, gotta call serious Chapstik® moment. I know that candidates have to kiss the electorate’s butt, that is, after all a core value of democracy, but this one is kind of blatant.

Not a good move, particularly when it’s clear for the people who really care about such things, Albert Gore will not take the job.

If you offered him the presidency though…………

Trajectory of the Credit Crunch

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Care of Calculated Risk, I really can’t add much to this:

From Bloomberg: Subprime Losses Reach $232 Billion With UBS, Deutsche: Table (hat tip Brian)

The following table shows the $232 billion in asset writedowns and credit losses since the beginning of 2007, including reserves set aside for bad loans, at more than 45 of the world’s biggest banks and securities firms.

See article for table.

Since Chairman Bernanke is testifying before the Senate Banking Committee tomorrow, here is a quote from last year:

“Some estimates are in the order of between $50 billion and $100 billion of losses associated with subprime credit problems.”
Chairman Bernanke, July 19, 2007

OK, maybe I can add a bit.

In less than 9 months, a 3-5 fold increase.

When I have the chance, I’ll post a quote from the Marketplace radio show that will curl your hair.

Economics Update

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Let’s see, we have Bernanke, testifying before the Congress’s Joint Economic Committee, saying that there is just the slightest possibility that the US Economy might possibly be slipping into a recession, which is Fed speak for, we are totally boned.

Not surprisingly, the US dollar tumbles, because recession=further rate cuts.

Truth be told, given the current nature of the credit markets, the Fed could lower interest rates to zero and it wouldn’t lower short term rates. They are pushing on a string, and people are unsure about the amount of risk, so rates won’t go down.

On quick numbers, we have new mortgage applications falling 29% (refi is way down too), oil prices rising, up to about $101.20/bbl, and gas prices at a record high, $3.287/gal.

On the good news side, ADP’s private report is showing an increase in private sector payrolls, though I would rever the reader to this article on underemployment, which points to growing numbers of people working part time jobs, a sign of employment weakness, for some context:

Keith Hall, the commissioner of the Bureau of Labor Statistics, which prepares the monthly jobs reports, said in Congressional testimony last month that this broader measure [underemployment report] stood at 8.9% in February, up from 8.1% a year ago.

“We’ve clearly had a broad weakening in the labor market,” Hall said.

My perspective, and I am an mechanical engineer, which means that I value tangible goods in my world view, is that the fact that factory orders are still declining, -2.5% in January, and -1.3% in February, is a better indicator, though I also consider the fact that car sales tanked last month, including Toyota, significant too.

Of course, economists, and other such folks, tend to look at consumer spending, so the fact that Discover Financial Services reported that its consumer spending confidence index is down might be a bigger deal for them.

In real estate, we have Manhattan condo and Co-op sales collapsing. It appears that the market is now crushing, “location, location, location”.

And on the more surreal side of real estate, we are finding an epidemic of copper pipe theft from abandoned homes. The hed is a real eye catcher, “ Some homes worth less than their copper pipes“.

This makes the USA sound like it’s suffering from Baghdad level looting.

Senate Dems Cave on Bankruptcy Reforms on Mortgages

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It’s being sold as an agreement on a relief plan, but the Republicans killed bankruptcy changes. You know the ones that would allow a primary home to be treated the same way as commercial property or vacation homes.

This is the single best part of any potential reform, for the following reasons:

  • It makes the holder of the loan willing to negotiate in good faith about restructuring.
  • It penalizes the bad actors more than others.
  • It would help more people keep their homes than any other step.
  • It does not involve taxpayers bailing the mortgage companies out.

Of course, it means that the fat cats experience some of the pain that they created, so it’s not acceptable to the Republicans.

Zimbabwe’s Update

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The Zanu PF appears to have lost its parliamentary majority, though it also appears that the MDC Mutambara, while being the plurality party, will be about 2 seats short (out of 200) of an outright majority.

Meanwhile, the MDC Mutambara is now explicitly saying that Mugabe has lost the election for President. From the numbers, I’m not clear if they are insisting that they won outright which still seems a close call, or if they won, but did not get the 50% necessary to avoid a runoff.

OOXML Saga Gets More Confusing, and Possibly More Corrupt.

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It looks like Microsoft won the vote on OOXML at the ISO, but as I’ve noted, the voting in a number of places seemed to be highly irregular.

Of note, at this point, there are no OOXML compliant applications, including Office 2007, for which it was written, and as I’ve detailed before, the entire spec is a bloody mess, see here.

Of course, I thought that the ISO would reject it, chalk up another one for my blown predictions.