Okay, it is true that as a country, we were essentially borrowing money from overseas in order to buy overseas products.  Essentially, borrowing from the Chinese in order to buy their stuff.  The mechanisms were somewhat complicated, home owners typically were borrowing from their homes.  As home prices rose, due to low rates and bubble psychology, people found that they could refinance their homes or take out home equity lines of credit that could then be used, not for home improvements, but for general lifestyle expenses.  Since median incomes have not risen in a decade, this isn’t too surprising.  (As an aside, I was in a conversation last week with someone who claimed that the whole recession could be over if the news would act as a good propaganda arm and declare that it was.  People would start spending and the economy would get moving.  I pointed out that he was wrong because most of the capital financing the economy was borrowed from homes, etc., and that wages hadn’t increased.  In other words, the consumer has no money to restart the economy.  He had to agree that was true.)

So, I agree that China (and other foreign countries) were necessary to the bubble, but does that mean that their “excess” savings caused it as the article implies?  No, there are more than a handful of things wrong with the article:

1. It takes an uncritical look at the idea there is a savings glut.  I didn’t note any refutations of Bernanke’s thesis.
2. The article’s URL ends in “26addiction.html” and in a single word, it sums up much of the article.  But this is a sad sort of exculpation for the U.S.  Sticking with the same metaphor, it’s arguing that the a drug dealer is responsible for all of the actions of a junkie and the junkie bears no responsibility.
3. Switching from the “addiction” metaphor, it’s bad supply-side theory applied to credit.  Okay, it’s true that lower rates will attract more demand from the pool of potential borrowers.  And I’ll buy that having more creditors will drive down rates.  But that’s not what happened here.  In this case, Greenspan artificially held down lending rates through the Federal Reserve.  In other words, it wasn’t a supply-side rate cut driving up demand, it was an artificial rate cut that drove up demand and the Chinese stepped in to meet that demand.
4. Probably more than anything else, I find the idea that there is a savings “glut” in the rest of the world (particularly China) particularly annoying.  It completely disregards recent history.  Savings imbalance, I’ll believe.  But to suggest that the Chinese are saving too much is completely loony.  At the same time Bernanke was saying that others were saving too much, the U.S. savings rate fell to 0%.  If there’s an imbalance, it’s more likely that the U.S. was to blame for increasing its borrowing.
5. Finally, there are all sorts of little oddities in the facts and nuance of the article.  For example, there’s a general feel of “red-baiting” to the article. Or that the article notes that the Chinese now hold $2 trillion in U.S. debt, out of the, what, $11 trillion in debt we’re in now?

I do agree with the article that it would be good if China stopped pegging their currency to the dollar.  But I’m not certain how much it would help the problem being discussed here.  It might make us less likely to borrow from the Chinese, but at the same time, I don’t think it would have decreased overall U.S. borrowing.

Dear Editors,

I have read with some alarm your recent stories describing a dramatic change to our way of life.  Specifically, I refer to those stories of our poor benighted multi-millionaires and billionaires who are having to downgrade their lifestyle in response to the crash of the financial markets and the banking industry.

As we all know, what has made America great over the past 30 years is the increasing increasing income inequality whereby those at the top of the income ladder make an ever increasing amount of money while the median income has stagnated.  Without these top income earners, all motivation and striving goes out of our populous; leaving us a nation of whiners.  And yet, every day, we hear stories of high powered financiers, who had been making millions each year, now contemplating the need to sell that third vacation home in order to make ends meet.

While I salute the republican administration’s efforts to save the wealth of the top 1/10th of a percent through the preservation of the salaries, benefits and bonuses of financial executives while beggaring retired auto workers, I believe that this effort has not been bold enough and that the situation calls for direct action.

Toward this end, I propose that the country establish a registry of multi-millionaires and billionaires in need.  Those making less than $100,000 a year should then be encouraged (by force if need be!) to contribute 10% of their gross earning to support these beleaguered souls who are the backbone of our economy.  This Adopt-a-Billionaire program would have the effect of immediately raising the standard of living for these poor souls, while reducing the incomes of more than 80% of Americans; thus ensuring that the salary inequities which have made this country great will remain in place for the benefit of the next generation.

Respectfully,

…

The moral of the story is this: never get involved in a land war in Asia the board of directors for a non-profit.  It’ll steal all of your time, consume all of your money and break your heart in the end.

After buying the collected works of Robert Johnson, blues guitarist from the 1930s, the man who was reputed to have sold his soul to the devil to become the greatest blues guitarist ever, I really don’t think I want albums by Robert Johnson the 70s power pop musician.  I know they have the same name, but trust me, they aren’t the same person.  Please update your database accordingly.

kthxbai

• A while back, I swapped the dead harddrive from my ipod with a compact flash card.  Unfortunately, at the time, the biggest (affordable) compact flash was 16 GB, so I lost about half the capacity from my ipod.  Not a huge problem, but it became more of one as I added more music.  Yesterday, a shiny new 32 GB compact flash arrived and now I’m back to the nominal amount of space on my ipod, except that it’s all solid state and cool.  From the technical standpoint, this was something of a PITA, since I didn’t have a windows or mac machine around to reinstall the firmware.  My ultimate solution:  1) back up /dev/sdb (boot record and partition table) and /dev/sdb1 (firmware) from the ipod using dd; 2) put the CF in my laptop and format it (a camera would work just as well), this just normalizes the card; 3) put the CF in the ipod (or in the laptop); 4) write the patition table using dd; 5) edit the partition table using fdisk, set the size of sdb2 to be 32 rather than 16 GB; 6) write out the firmware to sdb1; 7) format sdb2 using mkfs.vfat.  Voila - a 32 GB ipod CF
• If you haven’t seen it already, check out projecteuler.net.  They’ve got a bunch of mathematically oriented programming problems online of varying difficulty.  Good solutions should all run in 1 minute or less and generally take 100 lines of code or so.  It’s a good way to get familiar with a new programming language and to exercise your brain.  So far, I’ve done the first 70 or so problems - they don’t take too long, maybe a half hour each on average.
• Finally, I got the clutch in my car replaced yesterday.  The mechanic said that it was in pretty bad shape and that the (plastic?) bearing the clutch uses had worn completely away.  This probably explains why I’ve had no acceleration for the past year (or more?).  I had forgotten what it was like to drive a decent car

Supporters of Proposition 8 claim that the act was necessary to help defend the traditional institution of marriage.  Specifically, they looked to the Bible and its condemnation of homosexuality.  They claimed that recognizing homosexual marriage undermined the biblical concept of marriage.

Now, I’ve read a good chunk of the Bible over the years, and I’m pretty certain that what’s represented therein is not really what Prop 8 supporters had in mind.  Unless of course, they want to see the reinstatement of polygamy, at least for those that can afford it (hey, I could support two wives and it is traditional!), after all, Solomon had 700 wives and another 300 concubines.  As a side note, I can just imagine how that conversation would go with K:  honey, I think we can afford a concubine - how about it?  <smack>

So if Prop 8 doesn’t really do anything to promote the Biblical understanding of marriage, what about protecting heterosexual marriages?  I can’t speak for everyone, but I’ve been married for over fifteen years now and I can’t see any way that the possibility of gay people, some of them friends, most of them that I’ve never met could possibly threaten my marriage.  I can’t even see how the possibility of gay marriage could threaten potential marriages (i.e., the institution of marriage).  What, Bristol Palin was going to get married to her baby’s father, but now because gay couples in Connecticut can get married, she won’t?

Marriage in the U.S. is essentially a legal contract between two consenting people.  That contract can optionally be sanctified (made holy) when blessed in a religious ceremony.  But the religious ceremony itself is truely optional.  It doesn’t matter which religion has sanctified your marriage, you can opt not to have it sanctified at all by having the contract witnessed and signed by a justice of the peace.  In our case, K and I were married by my grandfather, a (Lutheran?) minister, in a non-denominational church.  The wedding ceremony itself can be important in that it publicly recognizes the marriage and encourages the observers to assist the newlyweds as they start their lives together.  That community support can be important when trying to adjust to married life.

Again, none of this is threatened by gay marriage.  If anything, the institution of marriage is stronger for being more inclusive.

But here’s the thing.  We did just witness one new threat to the institution of marriage - Proposition 8 itself.  To my knowledge, this is the first time that marriages recognized by a state have been annulled by the state [1].  18,000 couples had legal marriage contracts, signed and recognized by the state of California.  Those 18,000 couples have now been unmarried. This establishes a precedent that should worry anyone who is married.

Imagine that we took the Bible’s admonishments about divorce or adultery seriously.  The Bible traditionally doesn’t recognize divorce (which leads to the Catholic church’s crazy annulment system) and calls for the stoning of adulterers.  What if those traditional concepts became enshrined in law or the California constitution?  Malachi 2:16 - “I hate divorce, says the Lord God of Israel.”  Matthew 19:6, “So they are no longer two, but one. Therefore what God has joined together, let man not separate.”

Under the marriage threatening precedent of Prop 8, it would be entirely reasonable to further defend marriage by excluding anyone who had previously been divorced from remarrying.  Moreover, we could go further and say that marriage is between one man and one woman, neither of whom has been previously married.  All of the sudden, several million marriages could be dissolved.

I suspect that such an amendment/law is unlikely, after all, there is a bigger constituency of divorced people than gay people.  But on the merits, a no-divorcee amendment isn’t any crazier than Prop 8 and should serve as a reminder for why religious views of marriage should not impinge upon the legal contract that is a marriage.

……………………………………….

[1] The closest comparison I can come to would be the anti-polygamy laws aimed at the Mormon Church in the 19th century, but even there, I don’t think that the original polygamous marriages had been recognized by the states before the laws’ passage explicitly stated that they wouldn’t be recognized.  The comparison is also ironic in that it was the Mormon church that largely bankrolled the Yes on Prop 8 movement.

At the time I bought the camera, the basic advice was to buy a camera body with the minimum features that you needed and use the savings to buy better lenses.  It was the glass in front of the camera and the type of film in it that had the greatest affect on picture quality.  Two photographers using the same lens, one having a fully manual and one having a fully automated camera could each take similar quality images.  That’s not to say that auto-exposure doesn’t make it easier to get the right aperture settings or that auto-focus isn’t useful when your subject is moving.  Both of those things are true.  But at the end of the day, they just improved the odds of getting a good shot.  Your only real constraints were glass and film.

These days, I’m using a Nikon D80 digital camera body.  It’s also nice.  Definitely a lot more electronics - auto focus, auto exposure, various program modes etc.  You can still set it in a manual meter mode, but it’ll never be a manual camera.  If you take out the batteries, it’s just an inert hunk of silicon and rubber.

I was reminded of all of this when talking to Hunter a few days ago.  He’s interested in getting a new camera body.  I almost choked when I saw how much the body alone costs.  My first thought was the old advice I heard when I bought my first SLR: buy a cheap body and good glass, your photography will be better for it.  Then I realized that’s no longer always true.

One of the things that digital cameras have done is to turn the camera body into the equivalent of the camera body and the film.  It is as if I had bought my Olympus OM-1n and had to always use Fuji Provia 400.  Wait - what if I want a better film, say Velvia 50?  Too bad - you should buy a better camera.  Well, digital cameras are just like that.  Different camera bodies have different sensors of varying quality.  It’s not just a matter of megapixels, but also ISO equivalents and noise reduction.  We’ve just entered a world where the quality of your pictures is constrained by both the lenses you have and the camera body you own.  What’s worse is that the camera body itself will become obsolete.  Unlike my OM-1n, there will never be a market for 25 year old camera bodies.  Lenses, yes.  Camera bodies, no.

This isn’t all terrible I suppose.  The commoditization of the camera body is making better photographic equipment more affordable.  Right now, affordable digital camera gear can produce better pictures than can be had on print film.  High end cameras are better than slide film and in a few years, affordable cameras will also be better than slide film.  I just find it a shame that digital photography has locked us into a world where the amount of money you have will determine the quality of your pictures.

Well, I’ve got a birthday coming up and Christmas is around the corner, so last Friday I went ahead and bought the BR-243 as a combo present.  Unfortunately, High Strung didn’t have the case which fits the guitar in stock, so they gave me a loaner while mine is being ordered.  I believe the case fits a dreadnought sized guitar, so that might give you some sense of the size.  I should also post a picture of my old guitar with the new one.

Anyway, I’ve been playing with the guitar for a few days now and I love it even more now than I did in the store.  I also finally went online to see what other people thought (I didn’t want to overly influence myself ) and it got great reviews, particularly for the quality at its price point.  At this point, I think the only problem is that I’m not much in the mood to work - I would rather go home and practice the guitar

Still not official from the Election Board, but the AP has canvased all of the counties and found that there aren’t enough provisional ballots for McCain to overcome Obama’s 13000+ vote lead.

Amazing

At a certain point, the first parent-teacher conferences occur and my mother goes in expecting to meet someone just like her: a blonde haired, blue eyed woman in her late twenties or early thirties.  So it’s a bit of a surprise when Mrs. Smith is a 50-ish black woman.

There are two morals to the story:

1. I’m definitely a Myers-Briggs intuitive (N) type as opposed to sensing (S). 
2. As a child, race didn’t even enter my mind.  A person’s race was so completely irrelevant that it’s not clear that I even noticed it.

Over the years, I’ve tried to live up to the example set by my five year old self.  I haven’t always succeeded, but I’ve always tried.

In spite of that, I never did expect that the U.S. would elect a black president - at least not this soon.  I didn’t think that we would be able to look past race until, at least, the baby boomer generation died off.  Not that the baby boomers are racists, they made enormous strides toward equality.  But at the same time, they grew up in a world where there were segregated lunch counters, segregated water fountains, segregated bathrooms and schools.  They grew up in a world where the lynching of a black man was considered acceptable to many people.  That’s a kind of ingrained experience that’s hard to grow out of.

But yet, Obama did win.  Sure, he didn’t win the majority of white voters, but he won more of them than did John Kerry four years ago.  The electorate looked past Obama’s race and voted for the man they thought would take the country in the right direction.

My inner five year old wouldn’t have thought a black president was that surprising, but with thirty-plus years of experience, I’m amazed and thrilled that there might be some part of that five year old in everyone.

• It’s raining, but the fall colors are wonderful.
• There were a fair number of cars parked at the polling place.  I took one of only about 4 or 5 free spots
• The Obama people were prepared for the rain - they had decent sized open sided tents set up to stand under while handing out literature and talking to voters
• There were about 10-15 people voting when I arrived
• The elections officials were prepared for crowds.  Instead of the usual split of the alphabet into 3 or 4 lines, I think there were 6.  They also seemed to have extra help on hand, including some high school students.
• The folks handing out the ballots mentioned that polling had been steady so far.
• When I left around 8:45/8:50, I was only the 161st voter

I suspect that across NC, things will be similar.  We had such a huge number of people cast ballots early (some 35-40% of all registered voters) that I would imagine we won’t have too many problems with lines, etc.

Here’s hoping.

With all of that anxiety, it was good to hear NPR’s “You Must Read This” segment this evening.  Tonight’s book was the Tao Te Ching which is a book I’ve read and re-read for about twenty years now (as an aside, I find the phrase “I’ve X for about twenty years” to be very depressing - I suspect that’ll continue until I start hearing myself say “I’ve X for about thirty years”).  The Tao Te Ching is probably one of my favorite books of Chinese philosophy.  It is largely a manual of political governance.  In addition to discussing the Tao (the Way) and Te (”Integrity”), it describes the principle of wu-wei - action through non (or minimal) action.  Wu-wei is something of a difficult concept.  As I understand it, the concept conveys the idea of not forcing a result, but rather allowing events to progress in their own way - acting in a minimal manner to redirect, rather than directly confront circumstances.  Obtaining a better understanding of wu-wei is also the main reason I took up Tai Chi ten years ago (see, that’s slightly less disturbing).

I don’t practice Tai Chi as much as I used to, but given all of my recent anxieties, I may do a few forms this evening.  It wouldn’t hurt to re-read the Tao Te Ching.  Hell, at the very least I should hit the treadmill in the morning.

But 99% of the time, the things that I would like to do with maps don’t require a full blown GIS system.  The Python toolkit Matplotlib includes a Basemap package and that’s getting closer.  Basemap can read GIS shapefiles, handle coordinate transformations, etc.  But even that’s sometimes too much.  What if I wanted a simple, dynamically computed heat map of the location of website visitors?  Or for the PWC database - the counties from which we receive animals?

Well, the Wikimedia Commons has a map of the U.S. where states are slightly separated to allow for easier coloring.  But that’s again difficult to deal with programatically.  So what I’ve done is to create an indexed PNG image where each state is a different index color.  To color the map, you just load it up and change each state’s color triplet to the appropriate value.

I’m not certain if that’s useful to anyone else, but at least I’ve got it documented here for when I need it.

The associated index of colors to states is here: state-colors

At some point in the future, I might do something similar with a NC county map and maybe a world country map.

So the venturi gasket looked okay, but I ordered a new one since it’s a bit sensitive.  I also ordered some new internal gaskets that go in the valve.  The parts arrived on Saturday.  Replacing the venturi gasket didn’t help, so I opened up the valve and found that I had the wrong sized internal gasket .  Turns out that all of the brand name softeners (GE, Sears, Kenmore, Home Depot, etc.) all use the same valve, but in two differrent sizes, a common smaller size and then the rarer large size.  I’ll give you one guess as to which we own.  Of course, if I had paid attention, I would have noticed that the gasket had two sizes, but oh no…  Anyway, so I figure I’ve got to return the gasket, but then I google around a bit and find that in addition to the gaskets (which ironically allow the softener to suck), sometimes the symptoms we were seeing are caused by a blocked drain plug or blocked rotor.  I pull out the drain plug and sure enough - it’s blocked.  But even after I clear the blockage it still doesn’t suck - but in an entirely different failure mode.  I clean the rotor - now it works.  I still had some issues with leaks, but reseating the rotor and the whole valve has fixed those. I think we’re back in business.

On a related note, skvidal sent me a link to an old bicycle catalog which included a short piece on building items so that they can be worked on and repaired.  It’s fairly interesting and in a sense covers the problems I have with this softener.  Part of me wants to junk it and get something not broken.  This is actually fairly common.  I think that the average lifespan of a name brand water softener is 5-10 years.  Ours is seven.  Online, I’ve seen discussions from plumbers about customers that just replace instead of fix their softeners.  At this point, I have a fairly complete understanding of how ours works and a reasonable confidence that I can repair anything that goes wrong with it (assuming the parts are still available).  So why should I still want to replace it?  Because it’s a cheap piece of garbage.  The valve is designed to break after 3 years or so.  The rotor gets eaten away and can only be replaced.  On the plus side, it’s also designed to be easily repaired - not from any sense of reduced consumption, but because if a Sears/GE/etc. repair guy can come out, easily diagnose the problem and quickly replace an expensive part, it’s a big win for the service department.  They spend a short amount of time onsite, charge an X hour, minimum trip fee and then get to pass along a marked up price for the expensive part.  They win all the way around.

So, I figure that by giving it some love every few years, I could keep it going indefinitely (20+ years), on the other hand, a better designed softener could last 20+ years without all the attention and specialized parts.  I’ll probably keep repairing the water softener, but I wish that when the former owners had bought the thing, that they had spent a bit more and gotten something that was better built in the first place.

Sample pictures:

More in the gallery

Requests to remove pictures will be honored.

A couple of months ago, K got a call about a squirrel.  When the folks brought it over, it turned out to be rather small, but pretty far along in its development.  Well, that’s because it was a flying squirrel.  They tend to be a lot smaller, a lot sweeter and just darn cute.  Because they live in colonies, K found someone with another flying squirrel and has been raising them together.  They just recently went outside, so hopefully they’ll be releasable before winter.  Here are some of the pictures from when they were still inside.

A few more pictures at the gallery site.

So I guess I shouldn’t be surprised that yet another water oriented appliance has broken down.  This time it’s the water softener, again.  When we first moved into the house, five years ago, the water softener didn’t seem to work.  The first problem was a salt bridge that kept it from operating correctly.  Once we figured that one out, it was easy enough to fix.  Then a year or so later, the tank filled up and wouldn’t drain.  That one turned out to be the venturi gasket - part of a clever device that uses pressure differentials to move water around.  That one was a bit more annoying since you can’t just order the 1.5″ gasket, you have to replace both the nozzle and gasket which costs about $20 + shipping.

This time, the softener is again not draining.  I’m guessing it’s the venturi gasket - if not, then it’s another gasket in the system.  Part of my hopes it’s the venturi since that seems most likely, is the easiest to replace and will therefore be the first thing I try.  But another part of me is annoyed that the thing hasn’t lasted 4 years.  Am I going to have to replace the gasket every four years?  The softener isn’t that old - maybe seven years?  Of course, if it is that old then the first gasket only lasted 3, maybe 3.5, years.  So I guess get almost 4 years out of the new one wouldn’t be that surprising.

Hopefully the gasket will fix it.  If not, then I’ll keep poking at it.  After all, even $100 in parts is cheaper than the $500+ that a new water softener would cost.

<grumble>

The irritating thing is that the political attacks on Obama, from both McCain’s campaign and conservatives in general, are constantly shifting.  First you hear, “Obama’s a Muslim.”  That gets debunked.  Then it’s “Obama’s preacher is a radical Christian.”  Again, someone takes the time to put things into context and debunk the lies and the topic changes again.  “Obama’s is a celebrity.”  Er, never mind that this is based on the number of people that want to hear him speak on policy issues and not, say, on his television or movie career (try comparing the IMDB entries for McCain and Obama sometime).  Turn around and then it’s - “well, no one goes to an Obama speech for anything but the rock concerts.”?!  No, wait, we’re back to “celebrity.”  Then he’s “inexperienced” except when compared to Palin.  etc., etc.

It’s like the Obama attackers have the attention spans of squirrels on meth.  For gods’ sake, pick an attack and stick with it.

Of course, you see this in other contexts too.  Perhaps my (least?) favorite is climate change.  “No, global warming is not real.”  “Okay, maybe global warming is happening, but it’s not caused by people.”  “Okay, it is caused by people, but isn’t anything we can stop.”  Oh wait, then we turn back to, “98% of the green house effect is due to water vapor.”  No it isn’t.  “CO2 lags temperature in ice cores!”  True, but irrelevant.  It’s almost impossible for the lay person to debate the contrarians since they keep shifting their line of attack.  It’s all still wrong, but unless you’re carrying an encyclopedia of climate change, you just aren’t going to be able to counter the crazy.  It’s whack-a-mole with arguments.  The sad part is that the skeptics aren’t stupid.  Many are very intelligent people whose politics (for some reason) cause them to be intellectually lazy about this issue.  Arguments that they wouldn’t accept from a high school student are suddenly too obvious to dispute.

I’ve even heard from a few skeptics in scientific fields and they seem to assume that either a) climate science isn’t a real science, or b) climate scientists just aren’t as smart as the political talking heads you see on the television, or c) climate scientists are all in on a giant conspiracy to keep getting funded and so they are lying about the true state of the world.   Just bizarre.

Bringing it back to politics, you see the same things in McCain’s actual campaign.  He keeps changing his proposals.  Let’s see, during last week’s debate, we heard about a new $300b bailout to help home owners.  Then it turned out that the bulk of the money was yet another bad bank bailout plan (the govt would be buying the loans from the banks).  That got dropped.  Then this weekend, we heard that McCain was going to have a new policy proposal geared toward the middle class.  It was going to include tax cuts on dividends and capital gains.  Huh?!  Now, I consider myself and K to be upper middle class, but I guarantee you that cutting taxes on capital gains and dividends will not help us to any significant degree.  Then on Sunday night, the McCain campaign announced that it wasn’t going to announce any new policy proposals this week.  But now today we learn that McCain is proposing a new plan that features those exact same tax cuts that we part of the non-plan from this weekend.

Seriously.

McCain’s campaign is acting much in the same way I would in a boxing match.  They are doing the political equivalent of screaming like a child and running around the ring, hoping that the punches will land where they were and not where they’ve currently shifted.  It’s pathetic.

All of this makes me wonder what kind of brain rot has infected the republican party.  Did it start with the appeals to anti-intellectualism and rot it’s way up to the policies?  Did it start with crazy policies which attracted anti-intellectuals?  David Brooks seems to think that the republicans just drove away all of their intellectuals and this is what’s left.  I suppose I can buy that.

Anyway, I think it’s time to make some red zinger and see if I can get that 3d fractal screensaver working.

I spend the last week extremely pissed off about the bailout. Here were a bunch of idiots absurdly inflating the price of housing, with other idiots actually loaning them money to do so, more idiots treating the bad loans as assets and still more idiots insuring them against loss under ridiculous assumptions. It’s not really a surprise that the whole thing blew up. The only surprise is that it took as long as it did. Hell - 5 years ago in late 2003 when K and I bought our current place, we were worried that there was a housing bubble inflating prices beyond what the properties were really worth. And this was in North Carolina which didn’t have the hottest housing market.

But here we are, we’ve got banks going defunct left and right and we’ve got republicans arguing that they really, really have always supported more federal regulation. The latter is one of the signs of the apocalypse for those keeping score at home. So along comes Paulson saying that he needs $700 billion to keep this from truly going in the crapper. The reason I’m so pissed off is that I agree.

Let’s put it this way - the U.S. economy (GDP) is on the order of $14 trillion. In other words, the bailout proposal was 5% of GDP. Now in real terms $700 billion or 5% of GDP are insanely huge amounts of money. Something like $7,000 per household. But if the economy collapses or if we go into a deeper recession than we otherwise would have, 5% of GDP is chump change. The economy could easily slow 5% in a year (or 2.5% each over two years, etc.). In other words, the proposed cure is cost effective compared to letting the disease run its course without intervention.

Given that we need some form of intervention to prevent a complete meltdown, there are a few questions that have to be addressed:

1. What is the proper size of the intervention?  How much do we need to spend?
2. How will the plan work?  How will assets be valued?  Who has oversight?  etc.
3. Who pays for it?

In all of these, the original (3 page) Paulson plan was completely inadequate.  Paulson picked the $700 billion number out of thin air.  Hell, for all I know he thought it should be 5% GDP and backed out the $700b from there.  The original plan said nothing about how the assets would be valued - essentially, the govt would likely pay the original value of the assets regardless of their actual worth.  Paulson was to have no oversight and all decisions were to be final with no appeal to judicial recourse.  Finally, for the plan to have worked, taxpayers would have to lose money which means that the benefits would primarily go to those of us with money in the stock market (401k retirement funds, etc.) or to the financial institutions themselves and the burden would fall on our standard tax system which places only a slightly higher burden on the rich than it does the rest of us.

So that plan won’t/shouldn’t fly.

What about the new plan?  On Sunday, the congress and the whitehouse finalized a new proposal.  Caveat lector - I haven’t read it yet, I’ve only looked at excerpts.  But from what I’ve seen, it is better in almost every way to the original Paulson plan.

The new bill grants the Treasury $350b up front and the rest isn’t guaranteed.  Congress will have significant oversight.  There are two ways that Paulson can buy assets: 1) conducting a reverse auction to find the true worth of the assets; or 2) essentially buy equity in the company equal to the amount of money received for taking the assets.  The former is likely to generate smaller amounts of money for the companies, but does allow them to get the bad assets off of their books.  The latter may be useful for companies in worse financial shape.  In either case, the govt is essentially getting something of value for the money it’s spending.  Oh - and companies that participate in the bailout have to agree to reductions in executive compensation which is a good thing.  I still wish they were required to participate in credit counseling - along the lines of that required for consumers under the 2005 bankruptcy law, but I might just be thinking punitively.

So, what’s not to like?  Probably quite a bit - like I said, I haven’t had a chance to read the 110 page draft.  One thing that’s probably not to like is that the bill allows the SEC to temporarily suspend Mark-to-Market accounting.  This is just dumb.  It would allow the SEC to look the other way while companies pretend that they are worth more than they really are.  It’s a way to allow the companies to claim that their assets are worth more than the market would pay for them, allowing the companies to appear healthier than they really are.  That’s not really helpful.

So, I’ll probably read through the full bill tonight, but for the most part I think I support it.  It’s not perfect, but it seems to be both necessary and significantly better than the original Paulson bill (oh, and much better than the silly House Republican proposal, but we won’t get into that).

From Propublica, an inflation adjusted comparison of bailouts.

thank you and good night

If you’ve got some time, take a read.  It’s still the most impressive government document I’ve ever read.

A few years ago, I wanted to start a project that took the individual clauses of the constitution and traced the arguments for and against them back to the original sources or at least to the debates between the signing and ratification.  The Federalist Papers , Notes of Debates in the Federal Convention of 1787 Reported by James Madison and many of the documents collected in the two volume Library of America’s Debate on the Consitution would have featured prominantly.  Never did have the time to kick that off.