Wednesday, April 27, 2011

Timmy's lips

How can you tell if Timothy Geithner is lying? His lips are moving. The treasury secretary has no credibility. He came to the office under two clouds: his income tax avoidance and the AIG bailout. Things have only gotten worse. In fact he may be the worse Treasury secretary since Hank Paulson. His utterances over the debt ceiling are embarrassing. He is asserting without challenge from the clueless news reporters that if the debt ceiling is not raised then the US will default on its obligations. Only a fool would say that and only a fool would believe it. Someone should ask him how a nation with a printing press could ever default on its obligations. The only consequence of not raising the debt ceiling is that the government cannot borrow to finance new spending. As I have noted before, the US takes in enough "revenues" to pay the interest on the existing debt and to actually run much of the government. Moreover, since the Fed is the largest debtholder, then just have the Fed practice forbearance and pay them later. Speaking of the Fed, there are those like Ron Paul who want to abolish the Fed and the gold bugs who want to go to a gold standard. While that is a truly bad idea that I will discuss fully later, the gold bugs say that on a gold standard you limit government spending and the Fed's ability to create money. Obviously they haven't heard of the Emperor Diocletian, whose Rome suffered hyperinflation under the gold standard by debasing the currency by adding lead to it. Nor do they realize that the Congress could just change the value of gold in terms of dollars which could be easily done. No, if you want to control the Fed's ability to create money, there is a far simpler solution, first you need to have 100 percent reserves. The way most money is created is through bank lending via fractional reserves. With 100 percent reserves the banks could not create money. Yes they could still lend but they would have to borrow the money just like nondepositories do today rather than lend from their excess reserves because there would be no excess reserves. Second, there has to be a law prohibiting the Fed from buying Treasuries directly from the US Treasury (re: Timothy Geithner). The fed could continue to buy treasuries that have already been issued and are in the portfolios of the public but they could no longer monetize the national debt. The buying directly form the Treasury as in QE and QE2 give money directly to the Treasury which immediately will spend it. The result is inflationary because the money is generated out of thin air. It you want to preserve the value of the dollar, if you want to combat the threat of inflation, if you want to slow down the unchecked rate of growth in government spending the answer is simple and clear. It is not the gold standard which will only enrich those friends of capitalism like George Soros, it is to constrain the Fed by enacting two rather simple changes in the law.

India Hicks?

In the Wall Street Journal's weekend edition for April 23-24 was an article entitled "India Hicks". I was expecting
1. seeing a woman in a sari smoking a corncob pipe
2. guys throwing huumus cans out of pickups
3. people ordering light bread pita sandwiches
4. elephants with "88" painted on their sides
5. Ravi Shankar-Dolly Parton Grand Ole Opry videos
6. trailer parks in New Delhi
7. reruns of the Mumbai Hillbillies
8. sales reports on white socks and Blue Ribbon beer in Bangalore
9. Jeff Foxworthy routines of "you might be a brown neck".
10. cobra handling
But no. It turned out to be an article on an interior designer of that name. To quote Ruth Buzzi "never mind".

Tuesday, April 26, 2011

What? No retraction?

Maybe you missed it but the Department of Transportation has released its findings on the Toyota unintended acceleration incident. Car and Driver in its June edition recants the controversy. You recall (no pun intended) that Toyotas were accused of defaults that caused unintended acceleration. The well publicized case was a Lexus ES350 fitted with mats for an RX that crashed in California resulting in four deaths. All of a sudden unintended acceleration cases increased from being almost nonexistent to over 7000. Toyota recalled millions of cars, go pilloried in the press, its chairman was humiliated before congress, and it lost sales and millions of dollars. In addition to the mats, other culprits emerged. It was the electronic throttle control, it was the brakes that induced the wild acceleration, or it was some other defect in the computers or electronics. Well DOT purchased six Camrys from owners who had filed unintended acceleration complaints and turned the cars over to NASA scientists. The rocket scientists did every test they could devise to induce unintended acceleration and could not do it. As a result, DOT concluded that the cause of the problem was "pedal misapplication." Translation: driver error. So where were the stories in the media - in the press and on TV? I don't recall (pun) seeing a single one. Toyota is owed an apology and should be compensated by the US government for all their costs. Don't hold your breath.

Friday, April 22, 2011


Donald Trump has quite loudly become the spokesman for the birthers – those who question whether the president is a native-born citizen. Personally the issue is a nonstarter for me. I could care less. The birthers come off as sore losers – saying “we could not beat you at the ballot box, we can’t impeach you so we get rid of you this way.” It is not enough that the president’s basic beliefs and policies should be the basis on which he is defeated, the birthers seek to delegitimize him as well. It is similar to the left constantly seeking to delegitimize the election of George Bush by claiming that Al Gore won in Florida – although no recount ever showed him leading.

What does the constitution say? The 14th Amendment defines citizenship as: "All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside." Title 8 of the U.S. Code specifically says the following and defines people who are "citizens of the United States at birth:" (see
• Anyone born inside the United States (or a person subject to the jurisdiction of the United States)
• Any Indian or Eskimo born in the United States, provided being a citizen of the U.S. does not impair the person's status as a citizen of the tribe
• Any one born outside the United States, both of whose parents are citizens of the U.S., as long as one parent has lived in the U.S.
• Any one born outside the United States, if one parent is a citizen and lived in the U.S. for at least one year and the other parent is a U.S. national
• Any one born in a U.S. possession, if one parent is a citizen and lived in the U.S. for at least one year
• Any one found in the U.S. under the age of five, whose parentage cannot be determined, as long as proof of non-citizenship is not provided by age 21
• Any one born outside the United States, if one parent is an alien and as long as the other parent is a citizen of the U.S. who lived in the U.S. for at least five years (with military and diplomatic service included in this time)
• A final, historical condition: a person born before 5/24/1934 of an alien father and a U.S. citizen mother who has lived in the U.S.
Anyone falling into these categories is considered natural-born, and is eligible to run for President or Vice President. These provisions allow the children of military families to be considered natural-born. This is important for John McCain was born in the Canal Zone to a military family.

Note that the last provision would have made Obama a citizen at birth had he been born before May 24, 1934. The argument is that he was not born inside the United States or was not “subject to the jurisdiction of the United States.” But even if he were born outside the United States, what about the provision that even if one parent is an alien, his mother was a citizen and had lived in the country for at least five years? Why isn’t that sufficient?

Some have said that Obama must have something to hide because he can make all this go away by producing a birth certificate. My guess is that he wants the birthers to continue their ranting. It makes them look like kooks. As long as Trump trumpets the charge and the Republicans do not distance themselves from him, the real reasons for opposing this president get diminished.

Thursday, April 21, 2011

Two peas in a pod

"My experiences at Princeton have made me far more aware of my 'blackness' than ever before. I have found that at Princeton, no matter how liberal and open-minded some of my white professors and classmates try to be toward me, I sometimes feel like a visitor on campus; as if I really don't belong."

"Regardless of the circumstances under which I interact with whites at Princeton, it often seems as if, to them, I will always be black first and a student second."

"And in my own life, in my own small way, I've tried to give back to this country that has given me so much. That's why I left a job at a law firm for a career in public service, working to empower young people to volunteer in their communities. Because I believe that each of us - no matter what our age or background or walk of life - each of us has something to contribute to the life of this nation."

"I stand here today at the crosscurrents of that history - knowing that my piece of the American dream is a blessing hard won by those who came before me."

These are noteworthy quotes from Michele Obama. Her experiences at Princeton come about because Princeton is dominated by liberals. No wonder she is resentful and like most blacks, even though she has experienced the hypocrisy of white liberalism, she, herself, is a liberal. I went to the University of Georgia entering as its first male black freshman. I found out quickly that many of the liberals tried to be my friend but often it proved false. What they were doing was demonstrating how liberal they were. They soon disappeared into their own little clique where they could tell each other how enlightened they were. Although I had liberal friends, the vast majority probably vote Republican today or are members of the Tea Party. They found that we had something in common or simply fell into a friendship that neither of us could explain. They gave up many of their white friends, suffered insults and lost roommates. Yet they were my friends even though some of them were not friends to each other. Poor Michele Obama. She should have gone to Ole Miss.

Maybe the liberals at Princeton are responsible for her warped view of contributing to society. She is saying that the contributions of those working in not-for-profits is somehow superior to those working in profit making enterprises. Nothing could be further from the truth. Profit making enterprises enable the not-for-profits to survive. Meeting consumer demands, innovating, entrepreneurship, risk taking, investing, economic growth are all vital parts of producing prosperity. A society is measured by how well off are its poorest quintile. In other countries that US quintile would be considered either middle class or better. If students took Michele Obama's advice we would all be worse off and poorer (not richer) for it.

Lastly, when she talks about standing at the crosscurrents of history knowing that "my piece of the American dream is a blessing hard won by those who came before me" I feel the same way although I suspect we are talking about two different things. She is likely talking about all those who sacrificed before and during the civil rights movement to force a sea change in American life. Read Taylor Branch's Parting the Waters and you too will be inspired by the bravery of Americans both black and white. However, when I say something similar, I am not just talking about coming "up from slavery". I am also talking about the sacrifices and bravery of my fellow Americans from George Washington, George Washington Carver and Booker T. Washington. Of Alexander Hamilton, Hamilton Holmes and Alex Haley. From Thomas Paine to Clarence Thomas. From John Wesley Powell to Colin Powell. To the black Americans who fought alongside whites in every war from Bunker Hill to Afghanistan. To all those American brothers and sisters of all colors, I give my deepest gratitude for indeed "my piece of the American dream is a blessing hard won by those who came before me".

Saturday, April 16, 2011

My professor is a racist! I knew it!

I handed back an exam and was especially exasperated with my students. I had told them that there would be a mandatory question on the Fed goals of full employment, price stability, exchange rate stability and economic growth. They were to give the Fed a grade and tell how they would do things differently if they were Ben Bernanke. Fully 2/3s of them did not take the two minutes to look up the current numbers, the historic numbers and compare the two. So they lost between 6 - 10 points on a 10 point question. I told them that if I had as easy access to information when I was their age, I would have won the Nobel Prize in Economics by now. I also told them that information makes you seem smart. The example I gave was that the previous week I was in Raleigh for some meetings and was told that the head of the John Locke Society was added to my schedule and I would meet him after lunch. The only thing I recalled about Locke was that he opined that the mind was a blank tablet. By the meeting I knew that Locke was an abolitionist who also was a stockholder in the Royal Africa Company - they had the charter from the King to engage in the slave trade. I also found out that Locke had written the Constitution of the Carolinas. Was that why the society was headquartered in Raleigh? So when we met we had a lively conversation that caused all in the room to be impressed by my knowledge (newly acquired). Then, I asked the Locke person whose name was John Hood, “Please don’t tell me your middle name is Bell”. It wasn’t but we launched into a detailed discussion of something I know very well – the Civil War. We talked about Hood and his tactics that lead to grief at Franklin and at Nashville where he became the only general on either side to lose his entire army at battle. We disagreed over one point. He had accepted the common notion that Bell Hood was the south’s best division commander. I believe that honor went to Patrick Cleburne who Hood killed by having he lead the suicidal frontal assualt at Franklin. I then told my students that the irony was that the Union general George Thomas, the only Virginian of flag rank to stay north had a large contingent of black troops who undoubtedly took great pleasure in their work. I said, they were probably told by their officers “Don’t fire til you see the whites.” No one except the one student who is in his 40s chuckled. The rest had no clue to the reference. I am glad I am retiring.

Where oh where has all the good music gone?

I was driving to a meeting listening to satellite radio when a song by Lee Morgan came on. I know the band well (Jackie McLean, Hank Mobley, Cedar Walton, Paul Chambers and Billy Higgins) but did not know the song. I thought I had all his recordings. It was "The Double Up" on Charisma. I then realized that once upon a time I waited on the next LP from Miles, Monk, Coltrane, Lee Morgan and Hank Mobley. I even still have the first LP I bought when I was in the 9th grade (John Lewis "The Wonderful World of Jazz"). It is still one of my favorites. I know every note and all the personnel on all the hundreds of jazz LPs I own. But I realized I do not know the sidemen or the tunes much less the notes on any of the CDs I own unless they are a reissue of an LP. I also realize that the creative period of jazz is gone. Hardly any of today's players with the possible exception of Wynton Marsalis (although for my taste I prefer Roy Hargrove) will be a historic figure. Yet Marsalis is not the equal of Miles Davis, Lee Morgan, Dizzy Gillespie, Clifford Brown, Clark Terry, Kenny Dorham, Freddie Hubbard, Chet Baker, Donald Byrd, Woody Shaw, Nat Adderley, Blue Mitchell and others I could name from that era. The 50's and 60's were replete with them. I do not know other music - except for R & B and the Blues. My guess is that the same is true for rock, country, blue grass and all the others. Is it because of digital supplanting analog? I have CDs of old sessions with three or four or more alternative takes. They all sound good to me. But the song that made it onto the LP sounds great. Nowadays I guess recording is like word processing. They just cut, splice and remix rather than take the time and effort to do a complete retake. Just like the written word has suffered because of word processing, apparently music has suffered as well. In the olden days, I would put on an LP and listen. Today I listen to XM and Pandora. If some song makes me listen, I then go to Amazon or ITunes, sample the CD and download it. I seldom listen seriously anymore. Music has become just background noise. Music has now become a convenience. What I don't quite understand is how this has created a generation of disposable artists.

Tuesday, April 12, 2011

Freeway of Love?

Get ready for the avalanche of propaganda from the media over rising gas prices. Of course it will mostly be fabricated. Consider the implausible story I read at the farm over Christmas break. The deadline was a Toyota dealer in Knoxville. I knew immediately that it was lies. It said that the dealer was getting many customers coming in trading down their large pickups and big SUVs for the teenie weenie greenie weenie micro cars. Now remember that at this time gas was in the $3.25 range in Knoxville. There was no way the story could be true. First, the micro cars seem to be starter cars for kids. Second, the only adult drivers driving either “Smart” cars or Priuses seem all middle aged white ex-hippies who either making a statement or in a drug-induced stopor. To date the only young person I have seen with a Prius was at my archery pro shop. It was a kid who undoubtedly had hippies for parents. He tried to cover up his embarrassment by putting racing stripes and big redneck tires on it. Just like putting lipstick on a pig, it just looked like a more doufus Prius. Third, there is no teenie weenie greenie weenie vehicle that even comes close to meeting the needs of grownups. What good old boy is going to trade in a pickup for a Tercel? Try hauling hay in a Tercel or even having room for all your hound dogs. Fourth, what family is going to give up an SUV for a Yaris? It is big enough for 1 ½ kids and a Walmart bag. What about the other kids and the rest of the groceries? So I immediately knew that this was the typical unbelievable nonsense that is the mainstay of our leftist press pushing an agenda. It doesn’t even make sense for me with no other adults in the house and two wonderful German Shorthaired pointers. I have a mega pickup (Ford F-350 diesel extended cab extended bed) to use around the farm and to tow a 10,000 pound toy hauler to motorcycle rallies and hunting. I also have a gas guzzling sports car that burns super premium. I am not trading in either. No prissy kiddie car can haul and tow. Give up the manly vehicles and take up knitting? Hardly. Go from giving up my dream car (Porsche 911 Carera S) for a Sienna? Surely you jest. Now that gas is around $3.50 here in Knoxville, I am bracing myself for another spate of made up stories. I bet you that all are written by reporters who are trying to validate their own irrational purchases of statement vehicles. Even at these prices, it makes little sense to buy a hybrid. And the other gas efficient vehicles just make no sense for grownups.”

Monday, April 11, 2011


The Fifth Dimension's finest CD is "Portrait". In it is a stunning song that generated outcry with several stations banning its play. Issued at the height of the Viet Nam War, the group was accused of inciting revolution against the US government. Here are the words: "When, in the course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness. Prudence, indeed, will dictate that governments long established should not be changed for light and transient causes; and accordingly all experience hath shown that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same object evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security.

Yes. It is the popular text for the Declaration of Independence. For those whose education stops with cliff notes, here is the entire Declaration (which is obviously much too long to put on an LP in 1970. Read and enjoy and anticipate sweaty palms.

When, in the course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness. Prudence, indeed, will dictate that governments long established should not be changed for light and transient causes; and accordingly all experience hath shown that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same object evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security. — Such has been the patient sufferance of these colonies; and such is now the necessity which constrains them to alter their former systems of government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute tyranny over these states. To prove this, let facts be submitted to a candid world.

He has refused his assent to laws, the most wholesome and necessary for the public good.

He has forbidden his governors to pass laws of immediate and pressing importance, unless suspended in their operation till his assent should be obtained; and when so suspended, he has utterly neglected to attend to them.

He has refused to pass other laws for the accommodation of large districts of people, unless those people would relinquish the right of representation in the legislature, a right inestimable to them and formidable to tyrants only.

He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their public records, for the sole purpose of fatiguing them into compliance with his measures.

He has dissolved representative houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.

He has refused for a long time, after such dissolutions, to cause others to be elected; whereby the legislative powers, incapable of annihilation, have returned to the people at large for their exercise; the state remaining in the meantime exposed to all the dangers of invasion from without, and convulsions within.

He has endeavored to prevent the population of these states; for that purpose obstructing the laws for naturalization of foreigners; refusing to pass others to encourage their migration hither, and raising the conditions of new appropriations of lands.

He has obstructed the administration of justice, by refusing his assent to laws for establishing judiciary powers.

He has made judges dependent on his will alone, for the tenure of their offices, and the amount and payment of their salaries.

He has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance.

He has kept among us, in times of peace, standing armies without the consent of our legislature.

He has affected to render the military independent of and superior to civil power.

He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his assent to their acts of pretended legislation:

For quartering large bodies of armed troops among us:

For protecting them, by mock trial, from punishment for any murders which they should commit on the inhabitants of these states:

For cutting off our trade with all parts of the world:

For imposing taxes on us without our consent:

For depriving us in many cases, of the benefits of trial by jury:

For transporting us beyond seas to be tried for pretended offenses:

For abolishing the free system of English laws in a neighboring province, establishing therein an arbitrary government, and enlarging its boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule in these colonies:

For taking away our charters, abolishing our most valuable laws, and altering fundamentally the forms of our governments:

For suspending our own legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever.

He has abdicated government here, by declaring us out of his protection and waging war against us.

He has plundered our seas, ravaged our coasts, burned our towns, and destroyed the lives of our people.

He is at this time transporting large armies of foreign mercenaries to complete the works of death, desolation and tyranny, already begun with circumstances of cruelty and perfidy scarcely paralleled in the most barbarous ages, and totally unworthy of the head of a civilized nation.

He has constrained our fellow citizens taken captive on the high seas to bear arms against their country, to become the executioners of their friends and brethren, or to fall themselves by their hands.

He has excited domestic insurrections amongst us, and has endeavored to bring on the inhabitants of our frontiers, the merciless Indian savages, whose known rule of warfare, is undistinguished destruction of all ages, sexes and conditions.

In every stage of these oppressions we have petitioned for redress in the most humble terms: our repeated petitions have been answered only by repeated injury. A prince, whose character is thus marked by every act which may define a tyrant, is unfit to be the ruler of a free people.

Nor have we been wanting in attention to our British brethren. We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us. We have reminded them of the circumstances of our emigration and settlement here. We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred to disavow these usurpations, which, would inevitably interrupt our connections and correspondence.They too have been deaf to the voice of justice and of consanguinity. We must, therefore, acquiesce in the necessity, which denounces our separation, and hold them, as we hold the rest of mankind, enemies in war, in peace friends.

We, therefore, the representatives of the United States of America, in General Congress, assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the name, and by the authority of the good people of these colonies, solemnly publish and declare, that these united colonies are, and of right ought to be free and independent states; that they are absolved from all allegiance to the British Crown, and that all political connection between them and the state of Great Britain, is and ought to be totally dissolved; and that as free and independent states, they have full power to levey war, conclude peace, contract alliances, establish commerce, and to do all other acts and things which independent states may of right do. And for the support of this declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our lives, our fortunes and our sacred honor.

Mitt Romney's blind rush to oblivion

Mitt Romney has as anticipated formed an exploratory committee to run (again) for president. I won't be a supporter. Why? Because on his most important issue, he has turned up stupid. When asked about Romney care he strives painfully to retract on his early statements that the plan is a national blueprint. He now has nuanced over to my often stated position, that he should trumpet it as a state plan that failed. Instead he can't bring himself to call it a failure. Rather than talking about meaningless doodles in the margins of the act, he should emphasize that the beauty of our government is that states can experiment in different forms like TennCare and that all the states will profit from their mistakes or their successes. It is too late for all that now - I think. In honor of the 150 anniversary of the start of the Civil War, RomneyCare is Mitt Romney's Pickett's (actually Longstreet's) charge. Like the mad suicidal dash into oblivion - and a blight on the decisions of Robert E. Lee, RomneyCare and his inability to articulate a coherent view means that Mitt Romney is just wasting more of his money. He should have learned his lesson last time.

Hi! We are consumer advocates and we are here to help you

Small consumer lenders in North Carolina are trying to get the state's usury ceilings changed for the first time in 40 years. The proposed change would keep larger loans at the current ceiling of 30 percent APR but would increase the rates on smaller loans. The changes also are proposed changes in some fees and allowing for late fees and charges on returned checks. Currently the North Carolina law does not allow for such fees to be assessed. The proposed changes are being met with the predictable hue and cry from the "advocacy" groups as fleecing the poor and adding to the profits (a four letter word for these groups) of the lenders. What is particularly important is that North Carolina is home to the major "advocacy" group in consumer lending - the Center for Responsible Lending. So a modification of the usury statute is particularly significant. It doesn't matter that the number of lenders keep falling because of being forced out of business by rising costs. It doesn't matter that loans to the groups who arguably need it more go wanting. Its all for their own good (more on this later).

Of course a usury ceiling is only effective when if limits the credit available to borrowers. If market rates are below the ceiling, then lenders will charge less. If market rates are equal to the ceiling then the market charges the ceiling. But when market rates are above the ceiling, then there will be more loans demanded than supplied by lenders. The question is who gets the loans? Economic theory says that the successful borrowers will be those preferred by the lenders. If all borrowers at that rate are the same economically, the lenders will lend at the lower ceiling rate based on their own personal tastes and preferences. Remember a usury ceiling says that you can not lend at a rate above the ceiling. So the money will go to family and friends or in my case, only to good looking women. I once said that borrowers would have to send me certified proof of their times in the 100 meter dash and I would lend to the fastest until the funds were gone. It was pointed out that I was discriminating against the handicapped or against slow people. I changed the criteria because I naively thought that I was discriminating against white folks, having forgotten about the handicapped. The point is that the market is not allowed to function and the lenders will discriminate given their tastes and preferences. Even first come first serve is a preference of the lender. I point out to students that discrimination by people occurs if the market is not allowed to discriminate and I prefer to be discriminated by the market (my tastes and preferences differ and/or I don't like the price) than to be discriminated against by any person. Consequently, usury laws are racist. Indeed, there is a body of economic research that corroborates this. These studies find that usury ceilings when binding find that funds are shifted from those who would get the loans at the higher rates to those who get loans at lower rates. That is funds are shifted from the higher risk groups (mainly poor minorities) to lower risk groups (mainly nonpoor whites). Indeed, one study concludes that usury laws are a mechanism whereby private interests use the coercive power of the government to extract rents from other groups. The obvious conclusion is that the consumer advocacy groups are actually stalking horses for racists who pretend to help the poor when in fact they are hurting them.

Skin in the game?

The mortgage crisis has produced cries of skin in the game. First, the lenders are required to hold 5 percent of their loans in their own portfolios. It is reasoned that if they have skin in the game, they are less likely to make risky loans. So when those loans are sold, there will be less risk to the investors. This of course assumes that the investors are fools. The investors will have to price the loan packages without regard to the underlying risk of the loans. We know that this is not true. Subprime packages were priced assuming a 10 percent default rate. Prime packages were priced assuming a 3 percent default. All mortgages have reps and warranties and are put back to the originator if these are violated. Purchasers of pools closely scrutinize originators and reprice their loans or stop buying them if default rates exceed the norm.

The crisis occurred when the default rates for both subprime and prime mortgages doubled over what was anticipated, driving the packages under water. The defaults were more a result of real estate prices falling than in defaults rising though an inability to repaid. As one study pointed out, people defaulted mainly because the value of the mortgage was less than the amount owed. What the skin in the game will result in will be fewer mortgages made and higher mortgage rates. Why? It is the old economic theory about lemons. The market will now assume that the lenders will cherry pick and select the best mortgages for their on portfolios. The resulting mortgages will all be priced as if they are lemons. This means lower prices for mortgage pools and fewer mortgages made by lenders. The second skin-in-the-game is the mandate proposed by the Fed that mortgages with minimum downpayment of 20 percent will be exempt from the 5 percent rule. Since fully 40 percent of mortgages have downpayments of less than 20 percent, many potential homeowners will be pushed out of the market. These mortgages will be priced even higher. Some will say this is a good thing because these people are higher risk. The market prices this risk now and as a result of the rule change will price them even higher. This will adversely affect the homeownership of minorities. So why isn't the press and the civil rights folks screaming the obvious? These requirements are blatantly racist! I can only surmise it is because both want to keep minorities dependent upon the government and not become more self-reliant. But more on that later.

Mariano Rivera for President!

We just went through the spectacle of the congress arguing, cajoling, horse trading and whining 24/7 over what amounts to a rounding error - $39 billion in cuts for what remains of the 2011 fiscal year. Without the compromise, there would have been a government "shutdown". It seemed like the so-called shutdown amounted to Armageddon with the world coming to an end. The White House Easter egg hunt would be cancelled! The Smithsonian would close! Who would feed the pandas at the National Zoo? How would we explain all of this to the children? In reality, all vital government services would have continued and only some inconvenience would have occurred for a few citizens. But never mind. We were then told that this rounding error was "the largest cut in the government budget in history." What a sad commentary. Then this may actually be the only cut in government spending. Most of the government "cuts" in the past are actually cuts in the growth rate in programs. Of course the opponents to these "cuts" act as if the budget has suffered an absolute decrease when in reality more money will be spent than in the previous year.

A lot of people have pointed out that this is really a joke – simply pitiful. Many that I know on my left act as the cuts will either kill the children or the elderly or whomever while those on the right are angry that the cuts were not the $61 billion promised. Both sides need to get a life. The $61 billion is still a rounding error in a budget of $3.69 trillion. Nevertheless, I for one think it all was significant and important. The big battles are coming: the 2012 Ryan budget and raising the debt ceiling. The theatre that we just were treated to was analogous to spring football and appropriately like spring training in baseball. It was to get the participants in shape for the real game. It was practice. It was something that none of the congress had ever seriously gone through and was vital training for the real game. It was a worthwhile endeavor.

It also pointed out one thing that is obvious about the president.
It is evident that this president likes the trappings of the office but not the job. He golfs all the time through crises. He takes vacations during crises. He goes off on foreign trips to exotic locales during crises. He has private parties and concerts with the stars and glitterati. However, he does not lead. AS some have said, he is President Present. He comes to the party late and adopts the democratic position as if it is his own, giving speech upon endless speech. If a republican did this, he would be vilified by the media and ridiculed without pity. I am old enough to remember the press remarking about Dwight Eisenhower’s love for golf “Sam Snead for president! If we are going to have a golfer, we might as well have a good one”. With Barack Obama the best analogy is not to ask for Tiger Woods to be president since this president is a closer. The American people thought they were electing a president. Instead, they got Mariano Rivera.

Sunday, April 3, 2011

My Father's Child

My favorite Teddy Pendergrass song is “My Father’s Child”. When I was growing up, I thought is was curious that my parents called all their friends “Mr. “and “Mrs.” Even to this day, my mother calls her backyard neighbor Mrs. Wood even though they have known each other since 1948 and she calls my mother Mrs. Black. I once asked my Dad why. He told me that since no one else called them Mr. or Mrs., they used it as a term of respect among themselves. My parents grew up in the segregated south and whites either called by their first name or “boy” regardless of their age. Since my dad was an elementary school principal in a small Georgia town, he was called “Professor.” My generation was different. We call our peers by their first names and I have wondered whether that was a by-product of integration where now whites even in the south use titles when referring to blacks? However, one thing does strike me. I have noticed that black professors invariably have “Dr.” printed on their checks, put the title in their correspondence and emails and even refer to themselves as Dr. Yet my white colleagues don’t. I met another black professor at a UT commencement, introduced myself as Harold Black, and he introduced himself as “Dr.” I then said “Your first name is Doctor?” He said no, and then turned his back to talk to someone else. I guess it is still a matter of respect and forcing the world at large to acknowledge your status. I understand and actually do it myself when I think I am being disrespected. I don’t think I am much of a snob. How can you be a snob watching cole slaw wrestling at the Cabbage Patch during BikeWeek? Yet when a senior student emails me – or refers to me as “Mr.” I tell them that I have not been a “Mr.” in 40 years. I guess it is a respect thing. They know better and I consider it their way of putting me down. Another instance of nontolerance is my reaction to this generation’s total absence of manners. Aren’t you irritated that people who are providing a service use your first name? I get a call from my doctor’s office and she says, “Is this Harold?” I then say, “It is only if you are over 60. Otherwise it is Dr. Black.” I walked into my credit union, they pulled up my account and said “What can I do for you Harold?” My response is “You can call me Dr. Black.” Now in my doctor’s office computer and in the one at my credit union they have entered “call him Dr. Black!” Who trains the people at call centers to use customers’ first names? It is certainly inconsiderate and ill-mannered at best. When I place an order on the phone and am addressed by my first name, I tell the person on the other end “I guess it is a product of your generation. But I do not address strangers by their first name nor will I allow strangers who are serving me to address me by mine.” When they apologize and say “Mr.”, I am fine with that title. So am I my father’s child? Am I a snob? Or am I just a crotchety old man?