The Big Picture | Politics

Markets: As Good With Elections As They Are With The Economy

Tuesday, May 13, 2008 | 02:30 PM

in Markets | Politics | Psychology/Sentiment

>

"What you're doing is collecting bits and pieces of information and aggregating it so we can watch it and understand what people know. People picked this up and called it the 'wisdom of crowds' and other things, but a lot of that is just hype."

-California Institute of Technology economist Charles Plott
>

Interesting piece in the WSJ on prediction markets and politics, Traders' Calls Just as Bad On Elections. (I may have mentioned something about this in the past).

"John McCain's presidential campaign is doomed -- at least, if you still believe what political futures markets indicate. At the Irish electronic exchange Intrade, on which people bet on election outcomes and other events, the futures market suggests Mr. McCain has a 38% chance of becoming the 44th president. In the Iowa Electronic Markets, set up at the University of Iowa, Mr. McCain's Republican Party gets a 41% chance of winning the popular vote for the White House.

Then again, six months ago, the Iowa markets gave Barack Obama less than a 30% chance of winning the Democratic nomination. Academic studies suggest these markets are more reliable than opinion polls, but that might be giving the markets too much credit.

Intrade futures had John Kerry beating President Bush well into the evening of Election Day 2004. They also said there was a good chance Mr. Obama would top Hillary Clinton in January's New Hampshire primary, which she won."

The article details many of my favorite quibbles: thinly traded, plagued by bad information, skewed participation, bubbles, head-fakes and manipulation.

What did it reflect when all those people bought all those Hillary Clinton and Rudy Giuliani presidential futures when each was a front runner? Somehow, the phrase "Wisdom of Crowds" just doesn't seem to capture the full essence of that . . .

Previously:
Iowa and Prediction Markets, January 24, 2004 http://bigpicture.typepad.com/comments/2004/01/iowa_and_predec.html

Why Prediction Markets Fail January 11, 2008 http://bigpicture.typepad.com/comments/2008/01/prediction-mark.html

Misunderstanding Prediction Market Failures February 14, 2007 http://bigpicture.typepad.com/comments/2007/02/misunderstandin.html

Source:
Traders' Calls Just as Bad On Elections
MARK GONGLOFF
WSJ, May 13, 2008; Page C1
http://online.wsj.com/article/SB121063385437486555.html

When Should the Fed Bailout the Economy?

Sunday, May 11, 2008 | 09:27 AM

in Credit | Economy | Federal Reserve | Inflation | Politics

Peter Bernstein, author of such books as Against the Gods: The Remarkable Story of Risk, has an interesting piece in the Sunday NYT, titled, When Should the Fed Crash the Party?.

"In the darkest days of the Depression, Treasury Secretary Andrew W. Mellon, one of the richest men in the United States, opposed any government action to stem the tide of plunging business activity and soaring unemployment. Instead, he urged a policy of supreme indifference.

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” he said. “It will purge the rottenness out of the system,” he added, and values “will be adjusted, and enterprising people will pick up the wrecks from less competent people.”

John Maynard Keynes, for one, thought that prescriptions like Mellon’s were preposterous. The economist called those who held such views “austere and puritanical souls” who believed that it would “be a victory for the mammon of unrighteousness” if general prosperity were not “subsequently balanced by universal bankruptcy.” Keynes perceived too much good in prosperity to treat it as the enemy, and he revolutionized economic theory to prove his point.

Keynes won the argument, and government intervention to overcome rising unemployment and falling profits has been standard operating procedure forever after. Nevertheless, the debate over intervention is not ancient history. It replays in today’s headlines."

Its an interesting debate, but I read Bernstein as discussing the wrong debate. He is reviewing criticism of the treatment of the problem, namely, the Fed's clean up duties. But there is a debate brewing on preventative measures, also.

What makes this go round somewhat different is that the Fed's intervention was forced large numbers of people who were exceedingly reckless. Even by comparison to LTCM or the S&L crisis, the risk embracement was unusually widespread.

As we have seen, there is a cost to this.

This is more than a question of creative Federal Reserve intervention. Right now, the nation is only beginning a debate on several related issues -- including, ansd perhaps most importantly, regulation versus deregulation. If unrestrained financial engineering can lead to catastrophe requiring massive Fed intervention with great costs to the public (inflation, debt, etc.) than the "re-regulation" of the financial markets is a very likely outcome.

This is an important issue worth watching as the election season progresses . . .

Source:
When Should the Fed Crash the Party?
PETER L. BERNSTEIN
NYT May 11, 2008
http://www.nytimes.com/2008/05/11/business/11view.html

Ask Your Doctor About GASTAXADROPPIN

Monday, May 05, 2008 | 03:30 PM

in Commodities | Consumer Spending | Energy | Politics

Bloomberg:

More than 200 economists, including four Nobel prize winners, signed a petition rejecting proposals by presidential candidates Hillary Clinton and John McCain to offer a gas-tax holiday.

Columbia University economist Joseph Stiglitz, former Congressional Budget Office Director Alice Rivlin and 2007 Nobel winner Roger Myerson are among those who signed the letter calling proposals to temporarily lift the tax a bad idea. Another is Richard Schmalensee of the Massachusetts Institute of Technology, who was member of President George H.W. Bush's Council of Economic Advisers.

The moratorium would mostly benefit oil companies while increasing the federal budget deficit and reducing funding for the government highway maintenance trust fund, the economists said.

"Suspending the federal tax on gasoline this summer is a bad idea, and we oppose it,'' the petition says. Economist Henry Aaron of the Brookings Institution is among those circulating the letter and said most signers are economists. Aaron said that while he supports Obama, the list includes Republicans and Clinton supporters.

Sad but true.

Ben Sargent via Yahoo!

Source:
More Than 200 Economists Denounce Clinton, McCain Gas-Tax Plans
Brian Faler
Bloomberg, May 5 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aTzCmqCNyLho&r

Huge Project in the Works!

Sunday, May 04, 2008 | 04:15 PM

in Corporate Management | M&A | Politics | Psychology/Sentiment

I have been out of pocket a lot this week at meetings -- I just inked the deal on a huge new project. Details will be forthcoming soon, but I am very jazzed about it.

Hint: It involves Bear Stearns . . .

McCain & Clinton Fail Economics 101

Thursday, May 01, 2008 | 07:22 AM

in Commodities | Energy | Politics

I don't know why, but I always seem to be surprised by the pandering of politicians. I guess that makes me somewhat naive.

The latest bit of idiocy from two of the three candidates for the highest office in the land was a suggestion that federal gasoline taxes -- 18.4 cents a gallon -- be suspended from Memorial Day to Labor Day. To his credit, Barack Obama dismissed this as counter-productive gimmick. I don't have a horse in this race, but I am heartened to see at least one candidate is not clueless. (Note: Please don't email me saying why I should support this idiot over that one; I am not rooting for any of them -- although if this keeps up, I may shift from the neutral column).

A quick lesson in Supply & Demand 101 for the ~~Maverick~~ McSame and Yoko: Strong demand and limited supply of a product lead to price increases. If you artificially lower the price of something -- i.e., waive taxes for a period of time -- all you will have accomplished was stimulating more demand. The higher demand and increased consumption eventually lead to even higher prices.

Hence, the expression the cure for high prices is high prices.

Put this plan into effect and long before summer's end, gasoline prices would have risen to the pre-tax holiday levels. Then, we slap that tax back on, and the electorate is pissed at you. Then, neither of you gets elected. Not only bad economics, but bad politics.

We have no energy policy, and none on the horizon. Candidates serious about the issue of high energy prices should be discussing increased CAFE standards, capital gains tax waivers for alternative energy investments, greater offshore drilling, Pigou taxes, rapid nuclear plant approvals, a huge increase in the basic R&D the government does on energy -- a Manhattan project for energy and transportation science.

Instead, we hear proposals about waiving an 18 cent tax.

~~~

On a related but very different issue, if any of the campaigns wants some free advice as to a major theme/issue no one has tapped into yet, give me a call. Hint: It has to do with reality. It probably works best for the Obama campaign (a blue collar issue that will help him with the elitist charges) but I could not care less who pushes it -- only that it gets pushed. (Longtime BP readers should be able to figure it out).

The caveat: I know nothing about politics, but a little something about data analysis, markets and the economy.

courtesy of NYT

See also:

Oil Price Rise Fails to Open Tap
JAD MOUAWAD
NYT, April 29, 2008
http://www.nytimes.com/2008/04/29/business/worldbusiness/29oil.html

Tax cut could push gas prices higher
Steve Hargreaves, CNNMoney.com staff writer
CNN Money April 29, 2008: 11:59 AM EDT
http://money.cnn.com/2008/04/29/news/economy/gastax_cut/index.htm

Dumb as We Wanna Be
THOMAS L. FRIEDMAN
NYT, April 30, 2008
http://www.nytimes.com/2008/04/30/opinion/30friedman.html

Is the Fed Causing a Global Food Crisis?

Friday, April 25, 2008 | 07:20 AM

The Federal Reserve's irresponsible bailout of Wall Street's most reckless players is having very significant repercussions, both in the US and abroad.

It starts with the US dollar, now off 40% from its highs earlier this decade. This has had a huge impact on commodity prices, and is the prime reason so many countries are considering dropping their peg to the US Dollar.

Overseas, price spikes in basic foodstuffs has led to riots and political unrest. Considering that in many regions of the world most of a family's income goes to basic survival purchases such as food shelter and energy, it doesn't take much in the way of price rises to lead to significant turmoil. According to Bloomberg, the average household in India spent 32% of its income on food last year. Compare that with 6% in the U.S., and 43% in Indonesia, or 36% for the Philippines.

Hence, the 50% rise in the price of rice in recent months is leading to increasing turmoil.

In the US, the results aren't nearly so dire. With Sam's Club and Costco limiting rice purchases to four 20 pound bags per visit, starvation isn't an issue. But the Government's credibility is, as more and more folks come to the realization that the official statistics are nonsense. And, the absurd Fed focus on the core rate of inflation has people shaking their head in wonder over how out of touch our Central bankers are. Consider this recent San Diego Union Tribune column:

"For the Federal Reserve, the core inflation rate amounts to a green light to continue its policy of lowering interest rates in order to keep the economy from falling into a deep recession. A higher inflation rate could conceivably make the central bank freeze or raise interest rates.

But many economists say the core rate does not show how inflation is affecting the typical consumer. Because salary raises for most people are not keeping pace with the rising cost of living, people are using a greater percentage of their wages to buy a smaller amount of goods."

That's typical of the sort of coverage that is gaining traction -- and it only took $120 Oil and $5 milk to get some attention focused on the issue.

We've been beating the drum on this for years now. The cat is out of the bag, and we will have to see if any of the candidates have the stones to step up and address the issue.

Digging deeper into this situation is the cover story of the May 2008 edition of Harpers is titled "Why the Economy is Worse than We know" ~~(pdf)~~ (print). It contains a review of the myriad ways the government has corrupted the way official statistics are reported for jobs, inflation, GDP, etc. (I have a brief mention in it).

The article is by Kevin Phillips, the author of Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.

Meanwhile, more and more people are recognizing the reality beneath the spin. The President and members of congress seem genuinely perplexed at the public's negativity. (Public's View of Economy Takes Fast Turn Downward). They keep blaming the Iraq war for this, despite the fact media coverage has dropped significantly (and completely disappeared from Fox News).

~~~

The Fed meets again next week, and the expectation is for "only" a quarter point rate cut. That is how distorted our perspectives have become -- parts of the world is having food riots, and merely taking rates down another 25 bps is somehow perceived as a moderate action.

Previously:
Inflation ex-inflation
http://tinyurl.com/4qaek6

Agflation !
http://bigpicture.typepad.com/comments/2007/06/agflation.html

Sources:
Asia Risks `Silent Famine' as Food Soars, WFP Warns
Jason Gale and Paul Gordon
Bloomberg, April 21 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axuenSYeMBJU

Hard numbers: The economy is worse than you know
Kevin Phillips, Harper's Magazine
Tampa Bay Times, Sunday, April 27, 2008
http://www.tampabay.com/news/article473596.ece

The Fed's inflation gauge isn't realistic, critics say
Dean Calbreath
San Diego UNION-TRIBUNE, April 17, 2008 http://www.signonsandiego.com/news/business/20080417-9999-1n17inflate.html

Public's View of Economy Takes Fast Turn Downward
Jennifer Agiesta and Jon Cohen
Washington Post, Friday, April 18, 2008; Page A07
http://www.washingtonpost.com/wp-dyn/content/article/2008/04/17/AR2008041703769.html

Related:
Era of cheap food ends as prices surge
Steve Hawkes, Greg Hurst and Valerie Elliott
Times Online, April 23, 2008
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article3799327.ece

Moms' new battle: The food price bulge
Parija B. Kavilanz,
CNNMoney.com, April 21, 2008: 10:33 AM EDT
http://money.cnn.com/2008/04/21/news/economy/moms_foodshopping/index.htm

Download HarpersMagazine-2008-05-0082023.pdf

The Economist: The Debate We Would Like To See

Thursday, April 24, 2008 | 06:34 AM

in Financial Press | Politics

The Economist offered up another free 4 week trial for Big Picture readers, so I am passing it along.

As I was kicking around their site, I came across this brilliant animated video:

Here's your link for the free trial

Wall Street Political Donations

Friday, April 18, 2008 | 04:00 PM

in Politics

Here's how 5 big Wall Street Firms made their donations to the major presidential candidates:

via Portfolio

~~~

Try not to lose your minds in comments . . .

Book Review: The Bush Boom

Tuesday, April 15, 2008 | 07:30 PM

in Books | Politics

I nearly fell off my seat laughing when I saw this review at Amazon:

The Bush Boom

53 of 67 people found the following review helpful:

Through the Looking Glass, October 24, 2003

By	Alice (Wonderland) See all my reviews

Finally! A book that proves the existence of an alternate universe. Obviously, a rip in the space/time continuum between this universe and the other universe where Bush is presiding over a 'boom economy' opened up and this book fell through. Can there be ANY other explanation?

permalink

Best of all, its only 1 cent at Amazon.

This book is of great interest to Theoristical Physicists, especially those that studty string theory...

Could the US Lose its Triple AAA Credit Rating?

Tuesday, April 15, 2008 | 12:30 PM

in Credit | Fixed Income/Interest Rates | Politics

That's the issue raised by a S&P report on government-sponsored enterprises (GSEs) -- Fannie Mae (FNM), Freddie Mac (FRE) & Sallie Mae (SLM)

The performance of government-sponsored enterprises like Fannie Mae and Freddie Mac could have a direct impact on the national economy and, more importantly, U.S. credit standing.

So-called GSEs enjoy implicit government guarantees and could cause the U.S. to lose its sterling triple-A rating if the government were forced to come to their rescue, Standard & Poor's said in a report Monday.

"Even though...credit damage from GSEs is unlikely, the greater risk to the U.S. lies with them than with broker-dealers," the report noted. . . . While this credit crunch has hurt financial markets, S&P notes that it hasn't threatened the standing of the nation's credit quality upon which U.S. Treasurys and debt priced off this government debt depend. But should a protracted recession cause Fannie and Freddie to buckle, the U.S. rating would be in danger.

To be blunt, I don't think Standard & Poor has the stones. Their original ratings on RMBS/CDOs shows they are a pay-for-play institution, and their cowardly refusal to downgrade the ~~mono~~ duolines is further proof of their cowardice.

They wouldn't/couldn't downgrade Treasuries, as it would cost the U.S. government so much more in financing costs as to cause a depression -- estimates are for between 1-1.5 trillion dollars.

Source:
Fannie, Freddie Could Hurt U.S. Credit
PRABHA NATARAJAN
April 15, 2008; Page C2
http://online.wsj.com/article/SB120818189112412691.html

It's (Really) the Economy, Stupid

Monday, April 14, 2008 | 06:38 PM

in Economy | Politics

Jesse Eisinger notes that the politicos still don't get the enormity of the Financial crisis yet:

"There will be blood. In March, the markets got a reprieve, as hope rose that the crisis had passed. Unlikely. Over the next year, we will continue to see home-price depreciation. And much worse. We will have more failures similar to that of Bear Stearns. Since the banking system is pulling back, it will be much less willing to lend to consumers and, more significantly, to companies, which won't have the money to invest in new plants and research and development. That means layoffs are just beginning. Personal bankruptcy is rising, and corporate bankruptcies are starting to go up. State and local governments will enter financial crises. The future holds massive pension shortfalls and retirement agonies. The problem is that the Fed has fired most of the bullets from its six-shooter, yet the enemy advances. The next president may well be dealing with markets in a continued free fall and a Fed that's out of ammo and suffering serious damage to its reputation.

The landscape has been utterly transformed, yet the political establishment has barely grasped the enormity of the crisis. Washington isn't solely to blame—all the supposed financial wizards on Wall Street missed it too. Treasury Secretary Hank Paulson has announced a regulatory overhaul, but it hardly addresses any of the sources of the problem. President Bush has given a handful of typically tone-deaf speeches about the economy. But the proposals from this administration have been characteristically slow, myopic, and nowhere near ambitious enough to address the problem."

Go read the full piece . . .

Source:
It's (Really) the Economy, Stupid
Jesse Eisinger
Portfolio Apr 14 2008
http://www.portfolio.com/views/columns/wall-street/2008/04/14/The-Next-Administrations-Economy

How Greenspan & Bernanke Invalidated Friedman

Monday, April 14, 2008 | 03:01 PM

in Credit | Derivatives | Economy | Politics

Hedge fund manager Scott Frew is a friend and occasional fishing partner. He had a few words to say about this morning's discussion re: Volcker and Bernanke:

I wanted to flesh out some of what Barry wrote earlier about former and current Fed Chairs Volcker and Bernanke. We must begin with Bernake’s now infamous Deflation speech. It is certainly “The Speech.” And I think in many ways it’s a terrifying document.

I am, by the way, in total agreement that Greenspan’s the guy who’s responsible for all of this; the particularly insidious quality of bubbles is that once you’re in one, the future is more or less pre-ordained.

An ironic corollary of that thought is that it pretty much invalidates the entire, mainstream (most certainly including Bernanke and Greeenspan), Milton Friedman-inspired critique/view of the Great Depression as having resulted from bad monetary policy on the part of the Fed as the bubble burst. They needed, according to that critique, to be much looser than they were, and all the problems would have been avoided.

So, in a sense, Bernanke’s an acolyte of that same church (recall him saying to Friedman, at some dinner or something honoring him, Never again; i.e., as a result of the lessons learned, taught by Friedman, the central bank would never repeat those Depression errors,), can’t fall back himself on a “It’s Greenspan’s fault” defense, because that’s antithetical to their whole view of history.

I see The Speech itself as a terrifying document, although it’s also an absolute blueprint for what’s going on today -- you’ve got to give Ben credit for foresight; he’s running down the checklist he provided there, item by item, line by line. Too bad none of it’s working, at least to date, but instead is exacerbating the problems.

Continue reading "How Greenspan & Bernanke Invalidated Friedman"

Is the Bush Admin Trying to Kill Us ?

Thursday, April 10, 2008 | 03:00 AM

in Politics | Television | Video

Too funny:

Stagnant Wages

Wednesday, April 09, 2008 | 10:43 AM

in Economy | Employment | Politics | Wages & Income

I am running out to the AMEX, but I wanted to make sure you read a piece in today's NYT by David Leonhardt: For Many, a Boom That Wasn’t. The entire article is worth reading.

The chart is pretty hard to argue with:

While I agree that many of the contributing factors leading to this wage stagnation were in place for a long time, I think the librul NYTimes gave President George W. Bush too much of a pass:

"The causes of the wage slowdown have been building for a long time. They have relatively little to do with President Bush or any other individual politician (though it is true that the Bush administration has shown scant interest in addressing the problem)."

As you will note in the links below, these are issues we addressed many years ago. This administration chose a stimulus that was, for better or worse, stock market and CapEx focused. While I am not debating the merits of that choice, the selection of those targets -- versus targeting labor and wages -- was a very conscious, ideological choice.

Thus, the policy results are, not totally, but to a not insignificant degree, the responsibility of the administration that selected them . . .

Previously:
Stock Market vs the Economy (September 2003) http://bigpicture.typepad.com/comments/2003/09/stock_market_vs.html

Tax Cuts: Stock Market vs the Economy II (October 2003) http://bigpicture.typepad.com/comments/2003/10/tax_cuts_stock_.html

Accelerated Depreciation of Capital Spending (September 2004) http://bigpicture.typepad.com/comments/2004/09/accelerated_dep.html

Source:
For Many, a Boom That Wasn’t
DAVID LEONHARDT
NYT, April 9, 2008
http://www.nytimes.com/2008/04/09/business/09leonhardt.html

The "R" Word

Monday, April 07, 2008 | 05:00 PM

in Economy | Politics | Psychology/Sentiment

Uh oh:

FT: George Soros on Credit Crunch, Bear Stearns, China, Commodities & Obama

Monday, April 07, 2008 | 03:00 AM

in Commodities | Credit | Economy | Politics

My South African friend Prieur du Plessis sent me an email over the weekend that this was must see financial tv:

George Soros, of Soros Fund Management, has just launched a new book “The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means”, which will arouse considerable interest. Coinciding with the launch, Chrystia Freeland, US managing editor of Financial Times, conducted a three-part video interview with Soros on a variety of highly topical issues.

Part 1 Soros talks about the credit crunch and the recession, and says the Fed was right to rescue Bear Stearns.

click for video

After you launch part 1, Look to the right of the video for parts 2 and 3 on FT's site.

In Part 2 Soros discusses the incipient commodities bubble, and believes there will be a need for a new Basel accord on banking supervision. He also discusses China and believes that the US housing market problems are just building up.

In Part 3 Soros talks about the US dollar, US leadership in the world and his support for Barack Obama, who he feels is the candidate who will create the most change for America’s future.

Source: Financial Times, April 4, 2008.

Hat tip Prieur du Plessis

Stock Market Politics & the McCain Market Rally

Friday, March 28, 2008 | 04:00 PM

in Markets | Politics | Psychology/Sentiment

I love when this happens:

In the beginning of the month, I jokingly referred to the market correction as The John McCain Market Selloff. I was -- rather sarcastically, I thought -- pre-empting the usual poor analysis that comes from partisan quarters.

Statements such as these are actually "tells;" They reveal a profound misunderstanding of how markets operate, and only serve to alert you to a persons political preferences. They provide no insight into the "preferences" of the markets.

Rorschach Test

Previously:
The John McCain Market Selloff, March 07, 2008 http://bigpicture.typepad.com/comments/2008/03/the-john-mccain.html

Source:
McCain Market Rally?
An outlook on stock market politics, with Art Laffer, Laffer Investments; Andrew Busch, BMO Capital Markets; Greg Valliere, Stanford Financial Group; and CNBCs Larry Kudlow.
http://video.aol.com/video-detail/mccain-market-rally/1663336496

Housing Bust Blame Game

Wednesday, March 19, 2008 | 11:45 AM

in Credit | Economy | Politics | Real Estate | Taxes and Policy

Back in August of 2007, we looked at the The Ongoing Impact of the Housing Sector.

At the time, I had assigned blame for all of the problems in the credit market to a variety of institutions and people. The blame went as follows:

* Federal Reserve (FOMC)
* Borrowers
* Mortgage brokers
* Appraisers
* Federal Government
* Fannie Mae
* Lending banks
* Wall Street firms
* CDO Managers
* Credit agencies
* Hedge funds
* Institutional Investors (pensions, insurance firms, banks, etc.)
* And back to regulatory role of the Federal Reserve

Today's WSJ has a front page article looking at the same issue: Housing Bust Fuels Blame Game. However, they assess blame somewhat differently, with a bit of a political slant:

Democrats are quick to blame Republicans, who were in power during the housing bubble and subprime lending frenzy. For years, America's leaders failed to restrain the markets, companies, investors and consumers from the missteps that led to the most pervasive financial crisis in decades.

But in hindsight, the failure stretches across government and across party lines. At bottom are two strong currents. From the Republican president to urban Democratic congressmen, homeownership was pushed as an overriding and unquestioned goal. And many significant attempts at regulation were obstructed by the prevailing belief that the economy did best when financial markets operated as freely as possible.

While the headline writer tries to call this a "Bipartisan Failure," the bulk of the actual article is find less kind to the GOP. The Journal blamed:

* The Bush administration for cheerleading homeownership and pressuring government-sponsored mortgage lenders Fannie Mae and Freddie Mac to provide funding for riskier mortgages.

* Congress for allowing Fannie and Freddie to invest heavily in securities backed by subprime loans.

* While Democratic congressmen pushed federal law to restrain sub-prime lending practices Republicans (with some Democratic allies) blocked or countered with weaker versions;

* Federal Reserve, Chairman Alan Greenspan, revered for not using the Fed's authority to more aggressively regulate lender behavior.

* California -- where the country's subprime lenders where -- saw Democratic state lawmakers refusing to impose tougher regulations on a prized local industry.

Perhaps its bias on my part, but that list looks a little one sided to me . . .

graphic courtesy of the WSJ

Source:
Housing Bust Fuels Blame Game
Democrats Seize On Opponents' Role;
Bipartisan Failures
GREG IP, JAMES R. HAGERTY and JONATHAN KARP
WSJ, February 27, 2008; Page A1
http://online.wsj.com/article/SB120406115972594515.html

Free version
http://online.wsj.com/public/article/SB120406115972594515.html?mod=blog

Continue reading "Housing Bust Blame Game"

So Long, and Thanks For All the Fish!

Wednesday, March 12, 2008 | 12:11 PM

in Books | Legal | Politics

Spitzer has officially resigned.

I was trying to come up with a clever headline for his resignation, but the best I could come up with was the title of Douglas Adams Hitchhiker's Guide to the Galaxy title.

Can anyone come up with anything better?

Sources:
Spitzer Resigns, Citing Personal Failings
DANNY HAKIM and ANAHAD O’CONNOR
NYT, March 12, 2008
http://www.nytimes.com/2008/03/12/nyregion/12cnd-resign.html

Eliot Spitzer Resigns as Governor;
Lt. Gov. Paterson to Succeed Him
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
March 12, 2008 12:08 p.m.
http://online.wsj.com/article/SB120532420627930015.html

Ode to NYS Governor

Tuesday, March 11, 2008 | 04:45 PM

in Legal | Politics

From one of the comments on our earlier post:

Get ready for Monica-Bill redux
The Media gorging, raking mucks
Oozing glee from all their ducts
Republicans full of tuts and clucks
Leno and Letterman will use it for yucks
Tabloids making beaucoup bucks
As pundits narrate the jives and shucks
Of another Democratic Boy Wonder Deluxe
Who squandered the world for a few cheap...dates.

Good stuff, Jmay!

Reuter's Quote of the Day

Monday, March 10, 2008 | 09:14 PM

in Media | Politics

>
Hey, looks who is today's Reuters quote of the day:

Heh heh

Source:
INSTANT VIEW: Spitzer apologizes for "private matter"
Reuters Mon Mar 10, 2008 3:50pm EDTPost http://www.reuters.com/article/politicsNews/idUSN1047511820080310?sp=true

The John McCain Market Selloff

Friday, March 07, 2008 | 02:00 PM

in Earnings | Markets | Politics | Trading

Ever since the Primary on Tuesday, the market's have aggressively sold off. This clearly indicates the equity market's fear of a McCain presidency.

As the charts below show, ever since Tuesday -- when McCain's Intrade price soared -- stocks have been under continual pressure.

Had Barrack Obama knocked out Hillary Clinton, a mano-a-mano contest would have taken place. A well rested, fully funded Democratic nominee would have been a very tough opponent for the aging Arizona Senator.

However, the Democratic nomination now looks certain to go on for much much longer. It is highly likely to:

-Physically and emotionally wear down the two Democratic candidates;
-Force them to consume much of their war chest;
-Lead the electorate to become tired of the rhetoric, and disenchanted with both candidates
-Prevent the candidates from spending time doing much opposition research no McCain.

All of this works to McCain's favor. He can therefore rest, save his campaign warchest, maintain Media presence (but not to the point of over-exposure). All these positives show up at InTrade (see charts below), where McCain's bettors have upped the ante, sending his futures skyward.

And, the stock market has sold off, therefore proving that McCain must be bad for stocks and for the economy.

John McCain Futures Rally

>
The John McCain Market Selloff

~~~

Of course, I don't believe a word of that. But you would be surprised as to how many otherwise intelligent people spew variations of this sort of nonsense everyday.

I will unequivocally state that anytime you hear this sort of nonsense, you can rest assured that the speaker is a) an unabashed partisan; 2) relatively clueless about how market's operate; iii) never worked on a trading desk.

Markets operate not as forecastors, but as discounting mechanisms. Consider what has to be discounted to credibly say this: First, we would need to know who is likely to win the next election, 8 months in the future.

Remember, eight months ago, it was a lock that Rudy Giuliani was the GOP nominee, and Hillary was going to easily capture the Dem nomination. In case you haven't been paying attention, eight months is a lifetime in politics.

The next president gets sworn in on January 20, 2009. They have to put together a series of legislative proposals, then get them passed by Congress, then fund them. Then, they have to begin implementing them. The impact of these would likely be felt sometime around 2010.

Hence, the utter absurdity of the short term market twitches somehow reflecting unknown possible events, and their likely macro impact, several years hence. Ridiculous.

Consider these questions as the more likely stimuli this bloody market is actually responding to -- the nearer term events that are still unfolding today:

-Are we in a recession or not?
-Is the credit problem fixed yet?
-How much worse will housing get?
-Will earnings rebound in the second half of 2008?
-Will the US dollar ever stop falling?
-Are US deficits going to continue to skyrocket?
-How much more will consumers pull back on their spending?
-(Did I mention the housing picture is a disaster?)
-The war in Iraq is God-awful expensive, is there any relief in sight?
-Is Oil going to go to $150?
-Can the wobbly banks regain their footing?
-And how much more will inflation heat up?

The markets have enough data to digest before they even remotely begin to consider who might be president in 2009, and what they might do . . .

Global Warming Denialists: We Suck at Math Also!

Saturday, March 01, 2008 | 08:26 AM

in Politics | Quantitative | Science | Technical Analysis

"Not only do we misunderstand Science, we're bad at math, too!"

So say the innumerates.

Every now and then, I venture over to other fields to see what the debates look like. The most recent laugher was amongst the global warming denialist crowd.

Why? In 2007, the average global temperatures dropped by 0.595 degrees centigrade. This is a fact. The response from this group was to say (verbatim) "Twelve-month long drop in world temperatures wipes out a century of warming."

Um, no. As the charts below reveal, it does nothing of the sort.

As we say all the time with the Non-Farm Payroll (NFP), you look at the overall trend, not any single data point. A monthly NFP of 10,000 does not guarantee a recession, nor does a single month of 200k job gains guarantee an expansion. And neither monthly release eliminates the trend of the prior 100 data points.

All data series have anomalies -- large magnitude points that may be curious, or unusual. To claim that a "Twelve-month long drop in world temperatures wipes out a century of warming" simply reveals a disturbing statistical/mathematical incompetency that is rather embarrassing.

The 20 year and 130 year charts clearly explain what this quite clearly.

The shorter term chart shows a volatile series, with high magnitude aberrations to the upside (1998) as well as the downside (2008):

>>
Yeah! Global warming has been defeated! (1987-2008)

The longer term chart unequivocally reveal a long term trend, as the data points move from the lower left to the upper right

Boo! Global Warming Remains an Ongoing Trend (1880-2010)