And nearly stealing the show from one of the funniest men in the world.
And nearly stealing the show from one of the funniest men in the world.
Brad DeLong has discovered that Timmeh Geithner has feet of clay, or at least a brain that is not worthy of a Very Small Bear:
So, yes, Geithner started out January 2008 well behind the curve, and far, far to the right of the expectations of the Yellen Tendency and others with beliefs marked-to-market.
And–whether it was the vulnerability of the “too big to fail” money-center banks, the state of financial system, the state of aggregate demand, the state of the labor market, or the dysfunction of the Republican Party–I do not think that he ever managed to catch up to the curve.
Let us remember that in January of 2008 Timmeh was not Secretary of the Treasury. He was the long-standing (since October 2003) President of the Federal Reserve Bank of New York, working closely with those major firms that were absolutely solvent.
By which time, Bear Stearns had reported a quarterly loss for the first time (Sep [Q3] 2007) in the firm’s history, and was fully expected to (and did) report its second loss ever for Q4 2007.
By which time, Lehmann and Bear had both issues securities (July and August, 2007) at yield levels that were barely above junk status.
By which time, the Late Great Tanta (who would have made a more rational choice for Treasury Secretary, including that she died 30 November 2008 [ETA: not to mention the still extant Duncan “Big Shitpile is so 2007” Black) had declared that IndyMac would be in the middle of a serious “liquidity crisis” if it weren’t a thrift. (IndyMac failed in July of 2008, four months after Bear, two months before Lehmann.)
By which time, Countrywide was holding a fire sale of itself. To a firm that had exited the Wholesale Mortgage business.
By which time, Thornburg Mortgage was threatened with (and would file eventually) bankruptcy, leading Tanta to observe that “we are all subprime now” and in November of 2007 after that to reconfirm that the damage had spread to at least the 90th percentile:
“If 100% or near 100% financing is required to keep these neighborhoods stable (loans over $400,000 for houses in the $400,000-$450,000 price range), then in what sense are they neighborhoods of the “upper and middle classes”?”
The ballpark household income required to buy a $400-450K house is $130-150K per year. As of 2012, that range would placed a household solidly about the 90th percentile of the US.
So a female blogger in the Midwest–in the midst of a battle with cancer, not working full-time in Financial Services Risk Management with full access to C-level personnel–knew before the head of the FRB of NY that the bottom 90% of the population was seeing credit constraints and strong indications of major equity issues that would affect their personal balance sheets. (Anyone who was directly involved in mortgage origination or securitization–including several of the people who spoke with Timmeh on a regular basis–knew that the well had dried up more than a year before.)
Why not, indeed?
This coming weekend is the annual Jon Swift Memorial Blogroll Amnesty, the reasoned, proportionate response to some of the Bigger Names suddenly deciding that they needed to cull their recommendations. Swift’s brilliant (and certainly modest) proposal was that you should instead find five blogs with lower hits than you and recommend (i.e., promote) them, not drop them.
I don’t need to tell you to read Brad DeLong or Mark Thoma or Bill McBride—or David Altig or David Beckworth.or Jared Bernstein. Or anyone else who is probably already on the AB blog roll.
Things that have been disappearing from view as Blogroll Amnesty Years pass:
The following five are my recommendations for this year, in alphabetical order:
and a bonus one, because you can never have enough (a) Canadian content or (b) food blogs, let alone both:
Don’t let us get sick
Don’t let us get old
Don’t let us get stupid, all right?
Just make us be brave
Make us play nice
And let us be together tonight.
It’s not just that I’d give my eye teeth to have written “Accidentally Like a Martyr” or just the second verse and the descant of “Empty-Handed Heart,” or my eyes and teeth for “Ourselves to Know” or the above-quoted “Don’t Let Us Get Sick” or the greatest song about Elvis ever written, “Porcelain Monkey,” (And those last three are all from the same album. Geez!)
And it’s not the funny stuff: the live-in-LA recording of “Werewolves of London” or “Bill Lee” or “Even a Dog Can Shake Hands” (which became the theme song for Action) and especially the song with the title they didn’t print on the back of the CD, “My Shit’s Fucked Up.” Or that the best* thing Mitch Albom has ever written happens to be “Hit Me (The Hockey Song).” Or the great reference in season two of Californication:
Warren Zevon could sit down and talk twelve-tone theory with, uh, Stravinsky. Half the cockbags who come through here barely play their fuckin’ instruments.
Today would have been his 66th. So let’s take this clip, which I remember (or maybe misremember) as the final episode ever of a short-lived television talk show featuring a possibly-recognizable Nice Jewish Boy from New Jersey:
*Some might say “only good,” but we are above such calumny.
On of the big initiatives of 2011 from the Obama Administration was Joining Forces, an effort to retrain, reeducate, and re-employ America’s veterans. It lead to the Vow to Hire Heroes Act in November of that year, which offers employers subsidies when they hired returning veterans.
There are quibbles—the military’s own tendency to “dishonorably discharge” people wounded in battle has been recorded elsewhere. But between Vow to Hire Heroes in November of 2011 and the Veteran Skills to Jobs Act in July of this year, you might think Veteran Unemployment has been addressed.
Certainly, the Republicans in the Senate do. The effort to address not one but two problems—the need to repair infrastructure and the need to employ veterans (who have spent the past eleven years rebuilding infrastructure and managing logistics)—would seem ideal. Apparently not:
Senate Republicans blocked legislation Wednesday that would have established a $1 billion jobs program putting veterans back to work tending to the country’s federal lands and bolstering local police and fire departments.
Republicans said the spending authorized in the bill violated limits that Congress agreed to last year. Democrats fell two votes shy of the 60-vote majority needed to waive the objection, forcing the legislation back to committee….
"(With) a need so great as unemployed veterans, this is not the time to draw a technical line on the budget," said Democratic Sen. Bill Nelson of Florida, the bill’s lead sponsor, who faces a competitive re-election battle.
Republicans said the effort to help veterans was noble, but the bill was flawed nevertheless.
Sen. Tom Coburn of Oklahoma said the federal government already has six job-training programs for veterans and there is no way to know how well they are working. He argued that making progress on the country’s debt was the best way to help veterans in the long-term.
To believe Senator Coburn, you would have to believe veteran re-employment is going well. But that pesky data thing interferes.
Note that this is all Veterans 18 and over, not just recent returnees. Since employed veterans tend to remain employed—or, as Tim Kane notes, become entrepreneurs—overall veteran employment is relatively stable. Large fluctuations, therefore, are more likely to be related to the ability of returning troops to assimilate into the marketplace.
Female Veteran Unemployment (dashed line above) has gone from 7.0% in November of last year to 13.2% in September. While male veteran employment has responded to the initiatives and bills (declining in line with the national rates), female soldiers returning to the States and the workforce have received rather another reaction.
The Obama Administration doesn’t hate the troops. Why do Senate Republicans?
Felix Salmon (26 Sep 2012):
[Secretary of the Treasury and former leaders of the FRB of New York Timmeh] Geithner just isn’t that Machiavellian: his biggest weakness is that he isn’t political enough, rather than that he’s some kind of master puppeteer.
Brad DeLong (24 Nov 2009):
Geithner is where he is because for thirty years everyone who has dealt with Tim…has found that when Tim is on your side, you tend to win.
If Niccolò himself had been as good at “the business of government” as Timmeh is, The Prince would never have been written.
It’s no secret I am a bad economist: I don’t believe rent control is a bad thing, I consider most of the job-matching models to be ludicrous when someone tries to use them to claim unemployment compensation extends people’s period of unemployment, and I really, really, really don’t believe the equity premium is anything but a legacy of artificially-suppressed Government bond yields and fluke periods of excessive rents combined fortuitously with an absurdist survivor bias. Otherwise, Modigliani-Miller should be correct and when you start measuring corporate returns against Government bonds, the “premium” looks a lot like an overestimation of expected inflation (Πe)
But if I had to model why an equity premium might be possible, I would suggest that there might be a combination of undue pessimism (expectations of higher inflation and/or lower real growth) and clear indicators of companies that are more likely to be part of the survivor bias.* Such as, for instance, management buying its own stock instead of paying out more in buybacks and dividends than it makes in profits. (You know, the “miracle of compound interest” and all that.)
One of the things that would make me hesitate to think a company was going to come out on the right side of survivor bias is insiders selling their stock. Or not buying it when they have a chance to do so. Especially if they buy something else.
Don’t get me wrong; I think employees who buy company stock for their own 401(k) are pawns at best, idiots at worst. Even Upper Middle Management—defined as people with the authority to say “yes” to some things without asking higher-ups—will rarely have a material positive effect on the company’s stock price. (My father retired with three or four patents to his name; their bottom line effect on Ford stock was indistinguishable from zero—maybe negative, if you count “made a better product for a while and so stayed in a market they eventually left” as misallocation of resources.) But the guy’s running the company—especially when they also own the majority of the company—those are the people who should be buying equity, not taking it out of the company as they cash out their stock options.
What does this have to do with football? Well, the Glazer family happens to own a football team. (Yes, I’m talking about real football, not “putting on forty pounds of protective gear to play rugby.”) It happens to be an English team—a member in good standing of the English Premier League—that is very good for an English team. Which means that this year it was the second-best team in its City, it lost in the early rounds of the Champions League, and it qualified for what many expect will be another “Early Exit”—this phrase should be trademarked as the standard of English Football teams since at least 1950—in next year’s Champions League.
But the Red Devils have many fans who would like to own a piece of the team just to say they do. Many of those fans are in England, but apparently there are enough of them in the United States—I know several; generally nice enough people even with that character flaw—that the team will be listed not on the LSE, but rater on the NYSE. So I expect that—as with Visteon—I will be able one day soon to wander down to the area near the Federal Reserve and see a bunch of people wearing shirts advertising Aon Insurance (previous sponsor: AIG) celebrating and giving away some swag—say, imitation Wayne Rooney hair plugs (warning: site NSF Self-Respecting Humans) or Ryan Giggs’s used condoms—or something else that will be arguably more valuable than a few hundred shares of stock that amount to a small fraction of the listing that is only about 10% of the company anyway.
Why am I disparaging the stock? Well, after the FT and the WSJ did—and probably Deadspin, Gawker, and maybe even Noah Smith’s favorite site, Zero Hedge (oh, come on, I really don’t need to provide links those five sites, do I?)—it would almost feel like piling on.
But then we come back to the Equity Premium.
You see, there’s one good reason that there should be an Equity Premium. Despite the best efforts of the Delaware Chancery Courts, Equity is still subordinate to debt. If you run low on cash, you’re supposed to pay your debt holders and reduce—or even forego—dividend payments.**
So equities should have a premium—it’s a risk-adjusted premium for the likelihood of the firm not being so much of a “Going Concern” in the future as it is now. We may have modeled Expected Free Cash Flow (FCF), but those expectations might be wrong, too. And the risk is asymmetric.***
Which means the worst thing for any equity investor would be to see the owners of their company selling the company’s equity and buying its debt.
Which, as my ex-roommate noted in email, is precisely what “what some of the Glazers themselves are doing.”
ManU’s stock offering is for people who thought that the Facebook founders gave up too much control. And if you throw in that the team is incorporating in Romneyville, a.k.a., The Cayman Islands, so that the new shareholders can be even more subordinate than they would have been otherwise, it’s clear that their fans would be far better off investing their money by going to Ladbroke’s and taking 7:1 on ManU to win the 2013 Champions League. Or the 16:1 currently offered for the double of the EPL and the Champions League.
At least then, even
when if they lose, the winner wouldn’t be someone who was betting against the house while holding the mortgage.
*By the end of writing this post, I had thought of a “real” reason for an Equity “Premium.” See the text accompanying the next two footnotes, and the third footnote itself.
**The end run of Stock Buybacks, not to mention the last twenty-five years of the court rulings, have rather eviscerated debt holders’s position in the queue, but we still at least pay lip service to the seniority.
***Short version: If you call the “equity premium” a “risk-adjusted return on capital,” it is much more likely that I will believe you might have a working model. If you keep pointing to the U.S. from, say, 1937-1967 when the economy was growing and the coupon on Government debt was artificially low—looking at you, Prescott and Mehra—then I’m going to laugh at you.
It was only last week when liberal pundits were more alert. Well, some of them weren’t—after all, we’re talking about people identified as “liberal” by those who consider Ross Douthat and David Brooks to be mainstream.
What some of them knew about Arizona, all of them appear to have forgotten about PPACA.
The Supreme Court decision last week invalidated three points of severe state overreach; even Anthony Kennedy couldn’t imagine that “you will carry your papers at all times” was reasonable. But they left in place a fourth issue—collateral paper-checking for another reason—until it could go into effect. After all, if it really was all about security, the police will act completely appropriately. And if they do not, there will be a case that will reach the Supreme Court after the law is in effect and further revision will be possible.
Steve Benen (h/t Erik Loomis) appears to have gotten it correct: John Roberts took one look at the company he was keeping—and maybe spoke with a few hospital administrators—and flipped sides. Or, to quote Benen:
And yet, as of this morning, four justices — Alito, Kennedy, Scalia, and Thomas — insisted on doing exactly that. The four dissenters demanded that the Supreme Court effectively throw out the entirety of the law — the mandate, the consumer protections, the tax cuts, the subsidies, the benefits, everything.
To reach this conclusion, these four not only had to reject a century of Commerce Clause jurisprudence, they also had ignore the Necessary and Proper clause, and Congress’ taxation power. I can’t read Chief Justice John Roberts’ mind, but it wouldn’t surprise me if the extremism of the four dissenters effectively forced him to break ranks
What abides is that Roberts also knows that he will probably get a better case from which to dismantle “Obamacare.” It didn’t especially take contortion to call the penalty a tax. There is only one Federal enforcement mechanism—and the States were not required to put any penalties of their own in place, though it seems likely some will do so—and the agent of that enforcement is the Internal Revenue Service. (This is, btw, one of the places where ObamaCare most clearly resembles RomneyCare—down to the penalty being too low to, in itself, convince people to buy insurance.) For Roberts, it’s a small step to saying that it is enforced and administered in the same manner as a tax, and therefore it may be called a tax. Voila; he doesn’t have to declare that we have returned to the 19th Century. He has those votes when he wants them: when the “tax” is administered “unfairly.”
But the first time anyone will have to pay the
penalty tax for not being insured will be some time in late 2014 or early 2015, when 2014 Federal Income Tax forms are filed.
As with Arizona last week, there is a difference between “the benefit of the doubt” and “giving them enough rope with which to hang themselves.”
John Roberts had a choice today: he could vote with business interests, entrepreneurs, and hospitals who want to be able to make a reasonable estimate of their costs over the next several years—or he could overturn PPACA and with it establish his Court as the one that completely destroyed the possibilities of business certainty (or even labor cost control) and a dependable macroeconomy (since the minority opinion, as Benen notes, also strongly suggests the Federal government should not have the power of taxation).
As the man who literally Wrote the Book on Constitutional Law, Laurence Tribe (h/t Blue Texan) noted, John Roberts “saved an institution”—the Supreme Court itself—today. But anyone who believes he also preserved national health care instead of giving it enough rope to hang itself is fooling themselves.
The only reasonable conclusion is that Greg Sargent should resign from the Washington Post before it finishes destroying his brain.
Give Sargent credit: he knows Mitt Romney is lying, and he calls him out on it, which—especially for the denizens of “Fox on 15th”—is as close to truth as you get outside of Sarah Kliff’s Wonkblog pieces.* But he always tries to find the bright side, assuming that it’s not deliberating lying so much as hoping there is a “memory hole” in the electorate.
RNC Chair Reince Preibus this evening went out of his way to prove that this is a far too generous. In an email entitled “Stop Obama’s Debt and Deficits,” he declares:
Obama’s [sic] racked up the three highest deficits in history and is scheduled to rack up the fourth this year.
In less than four years, President Obama has run up more than $5 trillion in debt, which is the most rapid increase in the debt under any U.S. President.
That is elephant shit.**
As I noted a couple of days ago, the “three highest deficits in history” (on an absolutely dollar basis, of course; no Republican currently in the party would admit that the largest percentage increase was under Ronald Wilson Reagan) include the fiscal year ending in September of 2009—the result of the Previous Administration’s final budget (which still holds the record in dollars, let alone inflation-adjusted terms, by at least $113B). That’s not just hoping for a “memory hole,” it’s outright prevarication. Lying, not to put too fine a point on it.
Even if we were stupid enough to believe that Barack Obama was responsible for the Previous Administration’s final budget—what, he did a Vulcan Mind Meld, simultaneously planting the idea that Starburst Palin should be the Veep pick?—the total for those three years of deficit is just over $4T. So where does the RNC get $5T, just under 25% higher?
Well, again, we here in Dataland cannot answer that question. We can accurately state that Willard “My Name is
Julie Mitt” Romney has been saying for a while that the jobs lost for the January, 2009, report—the report of data taken the week of the 12th, before the inauguration, but apparently journalists are even stupider than economists, since even Sargent let that blatant falsehood slide recently—are all Obama’s fault.***
So let’s be Amazingly Generous. Let’s accept, just for argument’s sake, that the deficit for the month of January, 2009—a month in which the Previous Administration was in office more than 5/8ths of the time—should all be blamed on the Obama Administration, even though they have no control of the purse strings.
In short, let’s make the scenario as bad as possible for the Obama Administration, while remaining in Dataland. If we were pretending that Reince Preibus was an Andrew Sarris stand-in, my next line would be, “Well, I have the Monthly Treasury Statement right here…”
For the time period from January, 2009 to April, 2012, inclusive, the total deficit is just under $4.4T.**** Yet Reince Preibus emails us that “President Obama has run up more than $5 trillion in debt.”
If he really is that innumerate, then I have only one thing to say: Reince, buddy, it took me less than five minutes to find out that your email was bollocks. You need to hire me (or someone like me). Today.
Otherwise, even Greg Sargent will have to admit that Mitt Romney isn’t just lying; he’s Following Orders to Lie.
*For which, far too often, Ezra Klein will be credited.
**I considered “horse” or “bull,” but the magnitude is at least in the “what, and quit show business” range.
***That the Party that claims that the 2001 recession—which began in March—was not their Administration’s fault has a standard bearer who declares that the layoffs the month before the following Administration took office are also Not Their Fault would win the Chutzpah Award if there were still journalism being practiced by another other than Jon Stewart and Stephen Colbert.
****By the way, Februarys have been especially ugly since 2002. If I any econometrician wants to look for when the Seasonal Adjustment formula went wrong, that might be a good place to start.