Category: regulation

Economics Update

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More blood for Citicorp and Merril, it looks like they will be needing additional foreign money, as they are expected to report additional losses amounting to $25 billion. In addition, Capital One is expected to report about a billion dollars more in losses than was previously expected (what’s in your wallet).

And Moody’s is thinking about cutting Freddie Mac’s rating to A-, which could make raising capital much more difficult.

December retail sales figures sucked wet farts from dead pigeons. It was an increase, but less than inflation, which makes a decrease in real $.

Ben Bernanke has pretty much guaranteed a rate cut in a speech he gave today to the Women in Housing and Finance and Exchequer Club in Washington, D.C.

Finally, Some Sanity on Security Classifications

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The Public Interest Declassification Board is calling for a streamlining of the declassification process.

Speaking as someone who has held a secret clearance*, the biggest problem is complacency, and this is driven by over-classification.

When everything you touch, even things that are ordinary and are actually publicly known, is classified, are classified, nothing is classified. It becomes background noise.

*Just in case you are wondering if the fact that a complete and total pratt like me got a secret clearance means that we are all doomed, the answer is yes.

The Effect of Proposition 13 On the California Real Estate Market

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A friend of mine pulled a graph from an old story in the Orange County register where they predicted that home prices were expected to fall in 2007. (Well I did say it was an old story, dated 19 October 2006.

What I found interesting was the graphic, what we can learn from it with a bit more data:

Ignoring the obvious, that they underestimated the drop like every other real estate ad supported media entity, we can learn something about the effect of Proposition 13 on the California real estate market.

Proposition 13, passed in 1987, says that a house can only be taxed at 1% of property evaluation, and that absent a sale, that the evaluation can not increase by more than 2% per year.

So that $62,290.00 house in 1977 would now be assessed, absent any intervening sale, at $112,830.00 in 2007, while the true market value would $550,000.00 in 2007.

Truth be told, it would probably be less, if just because houses are getting bigger (McMansions), so let’s call it $508,000.00.

So if you stay in the house, and improve it, and don’t down size it, and leave it to your kids, right now you will be paying 22% the taxes you would if it has been assessed at fair market value.

Under those circumstances, it makes no sense to move to a bigger house when your family gets bigger, you just add on to the existing one, and if you sell to move to a smaller house when the children move out, your profit are wiped out by the tax hike.

There are a whole bunch of people sitting on houses that they would otherwise sell, because of the tax consequences.

So less housing reaches the market, you see less of the empty nesters moving into townhouses, etc., more sprawl, and through supply and demand, prices rise.

You also have the side effect that commerical property is corporate owned, and the corporation is sold, rather than the property, which raises the burden on new home purchasers.

It’s one of the reasons that California is so screwed up.

Bush and His Evil Minions™: Poor Children Should Die

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Fresh off of denying health care to the children of the working poor, Bush is now doing his level best to make sure that even poorer children die.

They have set impossible criteria, because they believe that people are poor because they are evil, and because they believe that the government helping poor people compounds that evil.

It’s the worst characteristics of 1500s Calvanism with a Texas twang.

Of course it also helps out the health insurance companies, who are big Republican donors. So you get more dead kids and more dirty insurance money, which is a win-win for Republicans.

A Great Quote on Alan “Bubbles” Greenspan

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Crooks and liars has the video of Robert Kuttner on CSPAN’s “Book TV”:

What was so striking about that book [Greenspan’s The Age of Turbulence], was that half of it is a screed against the need for government regulation—you know, free markets are self-regulating—government doesn’t need to mess with free markets. They’ll correct themselves. And the other half of it is Greenspan’s memoir about all of the times he used the Federal Reserve to bail out failed bets by free markets. Now, how can you have it both ways? Well, if you rule the roost, you can have it any way you want. Fine. But there’s a hypocrisy and there’s a lack of intellectual consistency. Either free markets regulate themselves and the government really shouldn’t do anything—yes, Alan, the Fed is part of the government—or, if you think the markets run the risk of going haywire, you have a duty to regulate on the front end and not just bail them out on the back end. So, I think citizens can raise hell about this and elect people who believe in a managed form of capitalism rather than a predatory form of capitalism.

My Proposals on Immigration

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Note that I don’t mention a fence. I think that addressing the demand pull is what should be done first….After about 1/3 of the illegal aliens in the US entered legally and overstayed their visas.

My Proposals:

  • Change the law penalizing employers for hiring illegal aliens. Make it for negligently hiring illegals, not knowingly hiring illegals. It’s easier to prosecute, and the defense is ordinary care.
  • Create a new law for those who knowingly hire illegals, include long prison sentences, and asset forfeiture.
  • Create a bounty program for illegals. If an illegal alien rats out an employer, they get a 5 year green card. These green cards can be added up, or used to bring the rest of his family across the border.
  • Add a cash bounty for ratting out employers for legal residents.
  • Increase the fees on H1b and L1 visas so that it will always more expensive to go this route. If you really need that guy you should be willing to pay 50 grand in fees.

This increases the regulatory cost of employing illegals, and so reduces the demand.

California Court Rules That Health Insurance Company Cancellations Frequently Illegal

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This is good news for our friends in California.

The substance of the ruling:

  • Insurance companies must check the accuracy of the applications before accepting the people for coverage.
  • That the insured must be shown to have wilfully misrepresented their health status.
  • That the low rescission rates upon application implied a deliberate policy of waiting until the claims rolled in to cancel.

A health plan, the court went on, “may not adopt a ‘wait and see’ attitude after learning of facts justifying rescission.” The court said companies could not continue to “collect premiums while keeping open its rescission option if the subscriber later experiences a serious accident or illness that generates large medical expenses.”

CIA Coverup: Muzzling Its Inspector General

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According to this LA Times acricle, the retributive prope of the the CIA Inspector General by the CIA has yielded the desired results, “CIA Inspector General John L. Helgerson has consented to more than a dozen procedural changes designed to address complaints that investigations carried out by his office were unfair to agency employees”.

The fact that the IG signed off on a letter from an Assistant AG Kenneth Wainstein telling congress to back off on its investigations without any explanation of how such an investigation could jeopardize the AG/IG investigation, is a pretty good explanation of what happened.

It appears that the old saying is true, an operation is preformed, and there are three possible results:

  • The boy dies.
  • The boy sings soprano in a choir well into adulthood.
  • The boy becomes the CIA’s inspector general.

Monetary Policy Driven Inflation on Horizon

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Barry Ritholtz’s The Big Picture economics blog shows us a rather interesting picture:

The “continuation” bit is there because Federal Reserve under Alan “Bubbles” Greenspan stopped reporting the statistic, saying that it was not a “useful” statistic.

Rolling the Wiki, we get the following:

  • M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
  • M1: M0 + those portions of M0 held as reserves or vault cash + the amount in demand accounts (“checking” or “current” accounts).
  • M2: M1 + most savings accounts, money market accounts, and small denomination time deposits (certificates of deposit of under $100,000).
  • M3: M2 + all other CDs, deposits of eurodollars and repurchase agreements.

So, all the big money transfers and currency injections in the market over the past few months, they are no longer counted by the Fed, but we can see that the overall money supply is increasing at double digit rates over the past year or so.

We’ve already had nearly a trillion dollars dumped into the credit markets over the past month.

Money is being shoveled out the door to attempt to resolve a liquidity crisis. The problem is that it is an insolvency crisis, though hyper inflation may bail that out.

EPA Director Ignored Staff in Shooting Down California Emissions Regulations

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Gee, the Los Angeles Times is saying that a Bush admin political appointee ignored the science and the law when making a decision??? I’m shocked at these allegationsEPA chief is said to have ignored staff – Los Angeles Times

“California met every criteria . . . on the merits. The same criteria we have used for the last 40 years on all the other waivers,” said an EPA staffer. “We told him that. All the briefings we have given him laid out the facts.”

Mukasey Limits White House Access to Investigations

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This was the policy before the tenure of Abu Gonzalez, when political operatives had unlimited access to the DoJ, and now we are back to a situation where WH operatives will not have the access exert undue political influence on ongoing investigations:

The original policy authorized more than 40 Justice Department officials and 400 White House officials to know about ongoing investigations, according to Sen. Sheldon Whitehouse of Rhode Island, a leading Democratic proponent of changing the policy.

During the Clinton administration, seven White House and Justice officials were permitted to receive such information.

Justice Department spokesman Peter Carr said Mukasey’s new policy mirrors the Clinton administration’s, but allows more officials to receive details about national security matters.

This is my first pleasant surprise from Bush and His Evil Minions&trade in a long time.

Barclays Sues Bear Stearns

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So, now the lawsuits start:

Barclays sues over sub-prime losses

British bank says hedge fund losses were hidden

Andrew Clark

Barclays’ exposure to America’s sub-prime mortgage fiasco took a dramatic turn last night as the bank sued the Wall Street firm Bear Stearns for fraud and deception over the loss of hundreds of millions of dollars in an ill-fated hedge fund.

In a lawsuit filed in New York, Barclays accused Bear Stearns of systematically hiding losses in a fund which swallowed $400m (£200m) of the British bank’s money. The fund had to be bailed out in June after reaching the brink of collapse following a disastrous series of investments in mortgage-backed securities.

Barclays described the fund’s demise as “one of the most high profile and shocking hedge fund failures in the last decade”. The suit alleges that up to the last days before the bail-out, Bear Stearns executives engaged in a cover-up to hide the slump in its value.

…

This is going to get worse. We are going to see more lawsuits, and some very big jury verdicts.

With proper regulations, you stop this sort of stuff before it gets out of hand. Without it, you just have lawsuits after the fact.

Bush and His Evil Minions™ Have EPA Block California Air Quality Rules

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No big surprise here. Bush loves polluters. Governor Schwartzenegger* says that he will file suit. The EPA is using the recently passed energy bill as one of the justifications.

Since 12 other states follow California regulations, and 5 other states are considering it, this is a significant thing.

*I still have a problem getting my head around, “Governor Schwartzenegger”.

Prosecutors Investigating Bear Stearns

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Fortune has an article, somewhat amusingly titled titled Prosecutors loaded for Bear, looking into allegations of insider trading.

Specifically, it is alleged that senior fund manager Ralph Cioffi pulled his money out of Bear’s mortgage backed funds about 2 weeks before they imploded.

Drip, drip, drip…I stand by my prediction on Bear Stearns: They will cease to exist as an independent entity before August 2, 2008.