NOW I've learned something.

I really did misunderestimate [sic] the industry. They have engaged in ordinary boring fraud, at every transaction, from the individual buyers who caved in to the suggestions to claim income they didn't have, to the originating mortgage companies who lied to individuals as well as the purchasers of their worthless "securities", to the big buyers who willfully failed to do due diligence.

It's the compensation: The value of lying has been grown to a level that the "good people" in the banking industry are unable to resist the temptation.

Maybe a compensation limit would be exactly what is needed to reduce the temptation to screw over as many people as possible, visible or not.

And I apologize for your annoyance. No male would ever want to annoy the owner of that amazing eye! :-) Seeing the failure pattern in the large investment banks, I had assumed that they were unable to get recovery from the mortgage originators, which is the source of the annoying tiny change on the margin.

This whole thing is about the inevitable margin call...

Posted at July 21, 2008 8:07 AM in response to Inequality and the Fannie/Freddie Bailout

Discussion, including criticism of hypothetical ideas is welcome; smartassed remarks don't inform anyone.

IANAIB

With that said, rules already exist defining how much reserve a bank must hold for its existing business, and the Fed has practice in defining those levels. The rules are kept up to date to accommodate changing reality. I assume that the rules for banking reserves are well understood and an analogous process would work more generally, including mortgage-backed securities. Here is a link to an example of the classical reserve requirements for (what I think are) retail banks:

One example

What's been done during the last 25 years is to allow complex debt instruments (such a high-falutin' euphemism for the cascade of lies that is current banking "technology") to disconnect profit from risk. And I believe it's worth discussing ways to restore the connection.

We can impose fixed regulations, which tend to become onerous and frustratingly inflexible in the face of economic change, or we can set market rules that provide feedback that force the various participants to behave.

Posted at July 20, 2008 10:17 PM in response to Inequality and the Fannie/Freddie Bailout

Another way to handle the question is to require derivative buyback: When a bank sells mortgages or mortgage-backed securities to an up-the-chain buyer, the originator is required to buy back the securities on demand by the buyer. This includes a requirement of holding sufficient reserve to allow these buybacks.

This provides a market-based feedback mechanism that doesn't impose particular regulatory paperwork requirements but does hold the originators responsible for their actions.

Posted at July 20, 2008 8:38 PM in response to Inequality and the Fannie/Freddie Bailout

Agreeing with the original post, I add the following observation:

Senstor Obama went to see the troops in their domain, then proceeded withou fanfare or hesitation, to show them that he is wiling to put "it" on the line in full view of everyone.

Shooting three-pointers is completely unrelated to presidential qualification.

Putting yourself out there with the troops, with the whole world watching, and *delivering the goods* shows the sort of guts that is one important part of the stuff I am looking for in a leader.

Posted at July 20, 2008 10:03 AM in response to Nothing But Net

The GOP is looking at a Democratic Congress and president in 2008 and the potential political wilderness for a generation.

I disagree, believing that the Republicans have placed this society in a state of disrepair that will take generations to mitigate, assuming that it's possible to recover at all. It is not merely a financial problem (though the economy is probably in deep trouble); it is the fact that the Republicans have taught us that the law is merely a set of agreements that are subject to easy interpretation and easily broken. It's the "make me" society: If you don't like what I am doing, go ahead and try to "make me" stop.

The damage is so deep and severe that short of a miracle, recovery cannot occur within a politically viable timeframe. I expect Republicans to be back in the saddle again in no greater than 6 years, possibly as soon as two.

Posted at July 15, 2008 11:34 PM in response to The Long Hard Slog

@FB,

The question is: Should government legislate the terms of CEO contracts, or, for that matter, athletes' contracts? My answer: No.

FB

Assuming for arguments' sake that "the government" should not legislate CEO contracts, then who defines the rules under which such contracts would be structured? At present, those of us who have our life savings tied up in exactly the companies whose management teams are failing so spectacularly have *no* influence over such things. (CEO contracts voted in shareholder proxy elections? HAH! Never!)

An underperforming athlete can cause losses of a few games, but is benched long before individually bring the whole team to complete financial failure. Athlete contracts are not a valid analog here.

So... What is the "locus" of establishment and enforcement of rules defining personal responsibility for behavior and rules regarding relationships among the members of a society? ... Thinking...
...It's coming, remembering from an ancient civics class...

Government.

Which in our society, ostensibly involves all of the enfranchised people and acting for all the people enfranchised or not. You and everyone else commenting here already know this, but I see no attempt by you and others to suggest structures, be they governmental, informal or any other way, to get the job done competently. Until I see such suggestions, my opinion is that your actual goal is to prevent the establishment of rules which might limit your flexibility in how wealth is managed in this society.

NCD,

I don't think I indicated in any way that failed CEO's should reap rewards for their failures.

FB

While saying nothing about how to accomplish the task.

Posted at July 13, 2008 11:27 AM in response to Rescuing Fannie and Freddie: Let's Draw Blood

By the time I hit 80; will it be customary for the old and infirm to go out and expose themselves to the winter to die because they can no longer hunt for the tribe?

Yes.

Shortly after life-savings has been devalued by inflation.

Posted at July 10, 2008 9:40 AM in response to Why Isn't this News?

@F.B.

Yes sir, I absolutely do know that the real power is wielded by the council of mullahs. I also find it difficult to believe that they all work from only one perspective, religious or otherwise.

I stand by my earlier comment that such people, religious or not, have a strong tendency to behave like bullies: Strong with words, weak with deeds. Strong with other peoples' lives, weak with their own.

I never thought Ahmadinejad had enough influence to simply command a self-destructive attack outside Iran's borders. And the probability that a self-destructive attack would be started by the council of mullahs is reduced due to the fact that the council consists of multiple people, and that some sort of consensus or majority would be needed to launch such an attack.

Disclaimer: This hypothesis depends on the premise that Iran doesn't experience a substantial attack by a known enemy. If Israel or the U.S. does something colossally stupid, then all bets are off. In which case, things are likely to go seriously to hell and we might as well party like it's 1999....

Posted at July 7, 2008 5:14 PM in response to Ha'aretz Columnist: An Israeli Attack on Iran Would Be Suicidal

Any nation ruled by religious fanatics, regardless of the specific religion, is not a nation that the world should be comfortable with possessing nuclear weapons, period.

Call me optimistic in that I believe that the current regime in Iran is no more religious than was the regime in the USSR during the cold war.

A (formerly Iranian) co-worker and I discussed his experiences in Iran before and during the takeover in 1979/1980 and his reaction was that they were thieves.

This little anecdote supports my hypothesis that when mixed with great power, religion has nothing to do with personal belief and much more to do with how religious rules can be used to manipulate the masses, regardless of the particular sect the tyrants/thieves/powermongers claim to represent. In my informal reading of history, I see very very few "religious leaders" who apply consistent rules of honor to their shee^H^H^H^H people and themselves. They want to be alive to run the caliphate or whatever they believe their goals to be, and lacking that power, remain alive and influential in their nations. The Iranian leadership knows that an attempt to attack outside their borders (other than accepting the U.S. invitation to help with Iraq) would be met by very very serious force.

The leadership of Iran are still dangerous, they are still a force to contend with, and there is still plenty to be concerned about their intent. But while religious people may be willing to sacrifice themselves for the greater glory of God or Allah, thieves and power-mad tyrants have no such "nobility".

So I believe, perhaps optimistically, that Iranian leadership has a basic sense of self-preservation that would prevent the ultimate insanity.

Posted at July 7, 2008 9:29 AM in response to Ha'aretz Columnist: An Israeli Attack on Iran Would Be Suicidal

Won't admit to "being there" as I was six years old at the time.

I remember that in that timeframe, all of the children in our community were issued dogtags. We lived in Pittsburgh, which was a first-strike target for its steel production. I can remember riding on a local road, going past a line of blast furnaces.

To this day, when our county runs its weekly test of the severe weather alert sirens, I get a shot of adrenaline.

Posted at July 7, 2008 8:49 AM in response to Lessons of the Cuban Missile Crisis