The Right To Give Offense (October 1, 2007)

Posted in First Amendment, Iran, Law on October 1, 2007 by e-commentary.org

A wing nut like Ahmadinejad, the President of Iran, is invited to speak at Columbia University.  Let him speak.  The First Amendment “right to give offense” among other rights does not excuse a fusillade of offensive comments as part of a long-winded introduction.  Why would some wing nut like Lee Bollinger, the President of the U, trash the guy in his introduction.  A university president at a large, profitable corporate American university is primarily interested in the bottom line, the profitability of the entity, the endowment at the end of the day.  Columbia could have run a profit by running a polite conversation.  Again, America looks rude, petty, coarse, uncivil, uncivilized, arrogant and intolerant.  Again.  And again and again.

Bumper sticker of the week:

Love Your Enemies
It Confuses Them

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The Fed: Doin’ What It Can? (September 24, 2007)

Posted in Economics, Federal Reserve, Housing on September 24, 2007 by e-commentary.org

Reducing the FFR by .50 and the discount rate by .50 may work.  May not.  The Fed is mainlining more junk to the junkies who marketed and continue to market junk.  “Easy” credit in recent years produced “hard” credit this year.  Providing more “easy” credit may soften the current credit crisis for a few weeks or even months.  The availability of ARMs (adjustable rate mortgages) in recent years and other dubious instruments allowed individuals to acquire and occupy a house and use it as an ATM (automatic teller machine).  With a short term decline in interest rates, a few ARMs may not reset upwards as quickly.  The fix is only effective in the short term.  The underlying problems are unchanged.

In a rising real estate market, prices often accelerate quickly because buyers try to outbid each other.  In a declining market, prices do not fall quite as quickly because many sellers refuse to outbid each.  Some homeoccupiers will not lower a sales price lower than 1) the price they paid for the structure, and/or 2) the amount due on the loan.  Some borrowers fear paying all of the deficiency that would become due immediately if they sold for less than the remaining obligation, so they hold on for a few more months.  This “stubborn irrationality” offends economists, but they live with it.  This propensity to repudiate the market in the short term is ineffective in the intermediate run, although it slows what otherwise could be a spiraling decline in prices.

The financial markets, however, could enter a declining spiral with little notice.  The financial markets are benefiting from the recent flood of money.  However, even those who want to appear to believe in the Economy so that others stay in the game and hold up the market will get spooked.  Those who invest other people’s money (OPM) are not particularly concerned because they benefit as prices gyrate; those who are investing their own money do not want to be the last one to sell and end up the last chump standing.  The Economy is best served by a soft decline rather than one that accelerates downward uncontrollably.  In light of the fundamentals (realistic profit predictions; realistic price/earnings ratios for the respective industries), a Dow (Murdoch ?) of 12,000 is more realistic.  However, the “exuberant irrationality” that underpins the financial markets could drive the Dow (Murdoch ?) down even lower in a panic.

Bumper sticker of the week:

Do Anything.  Something.

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Stagflation And The Fed (September 17, 2007)

Posted in Federal Reserve, Inflation on September 17, 2007 by e-commentary.org

Inflation is rising.  (See the e-ssay dated July 16, 2007 entitled “Back Door Inflation”).  Examples abound.  The standard venerable five (5) gallon container of paint now hauls only four point six eight (4.68) gallons.  The benchmark basket of goods and services used to calculate the consumer price index is getting much smaller.

The housing boom has played out.  Consumers would like to spend more, but they completed thirty years of spending in three (short) years.  The bills are arriving monthly for the next twenty seven years.  Consumers will not be able to consume.  The economy is stagnating and will continue to stagnate.

The economy is in a state of “stagflation” with both inflationary and recessionary pressures.  (See the e-ssay dated August 7, 2006 entitled “The Fed:  Deal with ‘Stag’; Deal with ‘Flation’?”).  This past August 7, the Fed expressed concern about inflation.  Now the concern du jour is recession.  The Market anticipates a drop in the Federal Funds Rate (FFR).  What should be done is problematic and a problem.  The Fed likely will reduce the FFR by .25 to appear to be doing something.

Bumper sticker of the week:

Do something.  Anything.

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Potemkin Estates, Parvenu Palaces (September 10, 2007)

Posted in Architecture, Housing, Society on September 10, 2007 by e-commentary.org

The drive to impress in America is driving us to buy more expensive rides and bigger homes.  Architecture is about scale and proportion, among other considerations.  Bigger is not better; bigger is usually garish and gaudy and not better.  Pumping steroids into a house plan is counterproductive.  Some Americans commission monstrous McMansions and only finish enough rooms to obtain a certificate of occupancy.  Potemkin Estates.  Parvenu Palaces.  “Staging a home” before a sale is undertaken to make the house look like a movie set and presumably more appealing to prospective buyers.  However, the staging is now done at an earlier stage.  Talk to a furniture deliver person.  Some individuals finish a room, furnish it with tony furniture and cordon it off from use.  The thinking is that the house will look more comely when it is put on the market for sale at a later stage.  The house today has lost its essential purpose.  The bigger houses in particular have no heart and no soul; they are somber museums, monuments, mausoleums.Bumper sticker of the week:

Only you can prevent narcissism

Consume Inconspicuously

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Housing, Again (September 3, 2007)

Posted in Housing on September 3, 2007 by e-commentary.org

The root word of “mortgage” is “mort” – death.  Pay until you die.  Die trying to pay it off.  The concept of “equity” was created by the British Courts of Equity and represented a promising development.  Before the creation of “equity,” if an individual missed one payment, even the last payment, he lost the house and forfeited his payments.  The Courts of Equity allowed individuals to acquire a house brick by brick, month by month, payment by payment without losing everything if they missed one payment.  Today, by contrast, without making a payment, a homeoccupier can take a loan against “equity” he or she does not have in a home.  Too many individuals have spent “equity” that does not and will not exist.  They are killing themselves financially.

A few years ago before effective spam filters were available, the offers streamed in from the Internet.  “Do you want a smaller penis?”  “Do you want a bigger mortgage?”  Or similar enticing messages.  The public devoured them.  The loans were aptly described as “Liar Loans” because they did not require one to provide tax returns or wage statements.  Having a job was not relevant.  The lenders/originators encouraged the borrowers to lie.  The borrowers obliged.  The prospective purchasers confronted a 1) small down payment if any, 2) initial payments that were manageable, and 3) a real estate market that appeared only to be skyrocketing.  Their response is not surprising.  The appraisers provided whatever appraisal price was required under the circumstances.  The real estate agents and brokers and facilitators facilitated things.  The loan brokers are largely gone and cannot answer for their crimes.  The borrowers are obliged to pay third parties who acquired the loans perhaps with some inkling that they were dubious.

The Enron and related scandals were created by a small cabal operating behind closed glass doors in glass towers.  By contrast, the real estate apocalypse was created and fueled by the greed and short-sightedness of millions of individual citizens.  The short-term drop in interest rates in the last few years has come at a great long-term social and economic cost.  (See the e-ssay dated January 30, 2006 entitled “Greenspan’s Legacy – Apres Moi, Le Meltdown”).  The collapse was predictable and predicted.  Everyone seems to be living in a glass house.  There are no easy solutions.

Bumper sticker of the week:

We have met the enemy

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Housing And The IRS (August 27, 2007)

Posted in Housing, Taxation on August 27, 2007 by e-commentary.org

Taking the first of what may be a dozen steps to address the housing collapse cannot be done until the extent of the addiction is admitted.  Looking up and around and conceding the truth might create panic.  The monthly mortgage payments must be made this month, and next month, and next month, and next month, and next month, and next month, and next month, . . . . . . . . . . . . and then they are adjusted upwards and must be paid the next month, and next month, and next month, and next month, and next month, and next month . . . . . . . .  and yet there is little money to make the payments.  There are no easy solutions.

The Internal Revenue Code should be amended to eliminate the tax on debt forgiveness.  Few taxpayers realize that a debt forgiven either by the action of the creditor or a foreclosure or the like is still considered taxable income by the IRS.  The New York Times recently ran an article discussing the tax provision and its consequences for taxpayers who have lost their homes.  Individuals either must file bankruptcy at the right time or prove insolvency.  Eliminating the tax would perforce reduce tax revenue, although the provision is not taxing what most individuals generally and reasonably regard as income.

Pursuant to section 121 of the Internal Revenue Code, if a taxpayer lived in a “principal residence” for two out of the five year period before it is sold, the taxpayer can exclude up to $500,000 of gain if married and filing a joint return or up to $250,000 of gain if filing a separate tax return.  There should be some consideration to changing the residency requirement to five out of the ten year period before the residence is sold.

The mortgage interest deduction is the last major tax relief for the middle class.  The interest deduction for other consumer purchases was eliminated years ago.  Taxpayers simply refinanced their homes, used the funds for consumer purchases and took one obese mortgage interest deduction.  (See the e-ssay dated February 7, 2005 entitled “The Microeconomics of Suburban Subsistence”).  The deduction phases out at higher income levels.  Revisiting and fine tuning the deduction seems prudent.

These suggestions are not adequate.  There are no easy solutions.

Bumper sticker of the week:

It will get worse

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More Exuberant Irrationality (August 20, 2007)

Posted in Economics, Federal Reserve on August 20, 2007 by e-commentary.org

Last Friday, the Federal Reserve lowered the “Discount Rate” it charges commercial banks for the money it loans directly to them by a substantial half a percentage point.  The Fed also suggested that it might take more action to cushion the economy from tightening credit.  The “Discount Rate” is not the same as the Federal Funds Rate (FFR) which is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.  The Discount Rate is the rate charged by the Fed to a bank; the FFR is the rate charged by one bank to another.  Banks typically do not borrow from the Fed, so the Discount Rate does not usually impact the economy as substantially as the FFR.

As a professor, the Chairman of the Fed, Ben Bernanke, studied the impact of illiquidity on the Great Depression.  He also has stated that the Fed should be concerned primarily about “price stability” or in popular parlance should set rates to avoid inflation.

Junkies crave junk.  The purveyors of junk bonds/stocks (collateralized mortgage loan obligations and the like) are seeking a bail out from the Fed.  Bernanke’s concern should be the impact on the economy not on those who were and are part of the problem.  The concern should be with Main Street not Wall Street.

The meeting of the Federal Reserve Open Market Committee (FOMC) on September 18 may be the most important gathering since Bernanke began his term.  The underlying economy is unsound.  [See the e-ssay dated January 30, 2006 entitled “Greenspan’s Legacy – Apres moi, Le Meltdown”].  The dilemma is that there is both stagnation [see the e-ssay dated August 7, 2006 entitled “The Fed: Deal With ‘Stag’; Deal with ‘flation’?”] and inflation [see the e-ssay dated July 16 entitled “Back Door Inflation”].  Reducing interest rates will encourage inflation and promote more debt.  Raising interest rates will both contain inflation and attract private funds.  Tough call.

Bumper sticker of the week:

I want to be irrationally exuberant again

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F-22s: A Toy Recall? (August 13, 2007)

Posted in China, Military on August 13, 2007 by e-commentary.org

The Air Force recently took delivery of a new expensive toy, the F-22 Raptor fighter jets.  America rules the military skies.  That is not stated boastfully.  That superiority should shape policy.  American air military superiority is so overwhelming that the Fly Boys note:  “If it flies, it dies.”  They also note that the current fighter, the F-15, has never been shot down in combat.  The world’s troublemakers pose and impose a threat to civilian commercial and private aircraft, but not to American air military superiority.  America can control the sales and distribution of its military aircraft.  The current fleet of F-15s can be upgraded with new avionics and radar and is more than capable of sustaining the air superiority.  Perhaps these new toys should be recalled and the resources used for national defense.

The new high-tech airships almost fly themselves, although they carry two pilots: a man and a dog.  The man rewards the dog with a bone; the dog bites the man if he touches the plane’s controls.

See http://asap.ap.org/data/interactives/news/f22/

Those Chinese.  When a Chinese toy manufacturer did not get the lead out of the paint, the toys were recalled.  He was so dishonored that he committed suicide.  By contrast, after delays and cost overruns in the production of unnecessary hardware, American military toy manufacturers give themselves bonuses and stock options.

On the other hand, with the Army and the Marines debilitated by Bush’s War, America may need to enhance its air superiority and maintain and expand its naval capabilities.  There are growing concerns that nation-states may present conventional military challenges in the future.  Despite the delays and cost overruns, these expensive toys may turn out to be a prescient purchase.

Bumper sticker of the week:

Don’t worry what people think

They don’t do it very often

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Kids As Consumer Durables (August 6, 2007)

Posted in Consumerism, Society on August 6, 2007 by e-commentary.org

The latest effort to “keep up with the Jones” apparently requires one to breed a brood.  A program on NPR observed that some stay-at-home moms are not satisfied with two kids.  They look around at their friends (competitors?) sporting a litter in tow.  To affirm their life decisions, they are having three or four kids.  Two kids, two cars.  More kids; more cars.  The reasons to have children are admittedly more complex than just competing with one’s neighbors.

Americans are consumed by their compulsion to keep up with the Jones.  However, today the compulsion requires one not only to keep up with the Jones but also to vanquish them.

Bumper stickers of the week:

My larger covey of kids can beat up your covey of kids

All seven of my kids are on the honor roll at Benedict Arnold Middle School

 

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Bridges (July 30, 2007)

Posted in Term Limits on July 30, 2007 by e-commentary.org

While Senator Ted Stevens and Congressman Don Young, Republicans from Alaska, were busy seeking funds from the federal feeder for their “Bridges to Nowhere,” some “Bridges to Somewhere” were deteriorating.  The money spent on frivolous projects detracts from beneficial projects.

Both Stevens and Young are being investigated for a variety of other crimes.  They will never be held accountable for their looting of the public fisc.

The state of Alaska reported that 100 of its bridges are “structurally deficient.”  Would the proposed “Bridges to Nowhere” also be structurally deficient?

A partial solution:  Term Limits.  [See the e-ssay dated May 14 entitled “Term Limits”].  A limit of a dozen years in each chamber is necessary.  Both Stevens and Young would have been termed out years ago.  Politicians must be termed out because many citizens impacted by their actions cannot turn them out.

Bumper sticker of the week:

Are you part of the problem or part of the solution?

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