Quotulatiousness

July 27, 2013

Municipal bonds and the economic law of gravity

Filed under: Economics, Government — Tags: , , , , — Nicholas @ 10:48

In the US, municipal bonds — bonds issued by city or other municipal governments — have been widely viewed as “safe” investments. Detroit may cause that view to change drastically. Reggie Middleton has been sounding the alarm for a few years:

Following up on my timely post “Here Come Those Municipal Defaults That Everyone Said Couldn’t Happen, Pt 2“, I comment on Meredith Whitney’s OpEd in the Financial Times. If you remember, she — like I — warned of municipal defaults years ago and was ridiculed for such. Ms. Whitney is quoted as saying:

    “As jarring as the reality may be to accept, Detroit’s decision last week to declare bankruptcy should not be regarded as a one-off in the U.S. municipal market.” she said.

    “There are five more towns like Detroit in Michigan alone. There are many more municipalities across the country in similar positions.”

    “The bill for promises past is now so large for some cities and towns that it is crowding out money for the most basic of services — in the case of Detroit, it could not even afford to run its traffic lights,” she said.

    “Will [lawmakers] side with taxpayers, unions or the municipal bondholders? If they back residents, money will be directed to underfunded public services at the expense of pensions and bondholders. If they side with the unions, social services will continue to be cut and the risk to bondholders will increase considerably. If they side with bondholders, social services and pensions are at risk.”

    In the case of Detroit, elected officials, for the first time in a very long time, are siding with residents, Whitney said. This is a new precedent that boils down to the straightforward reality of the survival and sustainability of a town or city, she said.

    “After decades of near-third-world conditions in the richest country in the world, the city finally stood up and said enough was enough,”

Well, this is the problem. Defaulting on revenue bonds where the underlying asset (ex. a housing project, utility, or infrastructure project) is not generating the sufficient cash flows is part and parcel of the risk of investing in said class of bonds. This is widely accepted and understood, which is likely why those bonds have a slightly higher yield.

For some obscene reason, defaulting on the general obligation bonds which purportedly carry the “full faith and credit’ of the municipality as a back stop is deemed as wholly different affair. The reason? Who the hell knows? This is a point I tried to drive home in the original “Here Come Those Municipal Defaults That Everyone Said Couldn’t Happen” article in 2011. Backing by the full faith and credit of a public entity does not make an investment risk free. To the contrary, if said entity is fundamentally insolvent, the investment is actually “riskful” as opposed to risk free.

Treating these bonds as unsecured in the bankruptcy is essentially the way to go. If you don’t want to do that, well you can still consider them backed by the full faith and credit of the insolvent municipality, which is essentially unsecured — and move on anyway — particularly as many potential collateral assets of value would have likely been encumbered by agreements with a little more prejudicial foresight.

July 26, 2013

Justin Amash and the attempt to rein-in the NSA

Filed under: Government, Politics, USA — Tags: , , , , — Nicholas @ 10:19

Dave Weigel looks at the unexpectedly close vote in congress that would have forced the NSA to “walk back” some of its current domestic surveilance operations:

For a few minutes on Wednesday afternoon, Rep. Justin Amash thought he might have killed the National Security Agency’s metadata collection program. He’d optimistically expected maybe 90 Republicans to back his amendment to the Department of Defense budget. Ninety-four of them did. But he ran out of votes eventually — the Democrats didn’t come through — and by a 217–205 margin, the House killed his amendment.

Amash loaded the confetti cannon anyway. “My friends and colleagues stuck with me on my NSA amendment and changed the dynamic of the debate with tonight’s close vote,” the Republican congressman tweeted. “What an amazing staff I have. Thank you, thank you, thank you. You guys are awesome.”

[…]

Defenders of the NSA program are furious that Amash even got that far, and are working to undermine him. According to Politico’s Jake Sherman, Amash started this process with an “unworkable amendment” that would have failed easily, until staffers “held his hand” to fix it. That’s their story, but it doesn’t reflect what led up to the amendment. In the wake of Edward Snowden’s disclosures, every member of Congress who’d been sitting on some security state reform picked it back up and reintroduced it. In the Senate, Utah’s Mike Lee (a Republican) and Oregon’s Jeff Merkley (a Democrat) brought back the Ending Secret Law Act that they couldn’t pass when FISA was reauthorized. Oregon Sen. Ron Wyden and Colorado Sen. Mark Udall, both Democrats, introduced legislation to restrict NSA data collection unless the material contained a “demonstrated link to terrorism or espionage.”

At the time, the lack of quick action on those bills suggested that the Snowden story had been a blip. Privacy advocates in Congress now refer to those bills as the first wave, part of a strategy of attrition that will make the current policy politically untenable.

Amash proved the NSA will have to concede some ground when his amendment moved quickly from obscurity to reality to being under attack from the administration. On Monday night, before the Rules Committee voted on which amendments to bring up, Amash was told to meet with Speaker of the House John Boehner on the floor. He returned from that meeting convinced (and surprised) that he’d get a vote after all.

July 24, 2013

Colby Cosh on the constitutional monarchy

Filed under: Britain, Cancon, Government — Tags: , — Nicholas @ 08:17

I suspect Colby will be getting lots of hate mail from republicans after this column:

The secret of constitutional monarchies is not that they indulge the dynastic impulse, but that they have found a means of circumscribing it without losing the advantages. Chief amongst these, I think, is a sense of historical continuity: we still so clearly remember the new prince’s gin- and horse-loving great-great-grandmother, born in the reign of Victoria, and now comes R.B. himself, unlikely to warm the chair of St. Edward until even the youngest of you reading this are pensioners (if you’re lucky, and if “pensions” are still a thing). It provides a natural, almost enforced occasion for a species of “long now” panoramic, intergenerational thinking that various nerds and hucksters like to profit from.

It’s true that a domestic Canadian dynasty would do that job about as well, and this is the source for much of the odium in which our system is held by republicans. Dammit, Royal Baby isn’t even Canadian Royal Baby! Barring the overthrow of our Constitution, we are never likely to have a “Canadian” head of state who has grown up entirely amongst us. When you are finished having a cry about that, I would suggest reflecting upon the possible benefits: an indigenous Canadian head of state would have to be some particular person, wedded to one of our regions and official languages and political tribes and social classes and, indeed, component nations. Surely there is some merit in having ultimate last-resort legitimacy — an important plus of monarchy, as the Second World War taught — vested in an outsider. Maybe every country should have a king or queen from somewhere else, someone extremely intimate with its constitutional traditions and language but otherwise neutral; rooted, for safety, in other soil.

Or maybe that is the dumbest idea you’ve ever heard. But republicans do need to take the “particularity” factor into account in weighing their long-term chances. Until the debate over the fundamental Constitution gets serious, the choice is “imaginary elected president from my personal fantasies, perhaps a genetic cross between Barack Obama and Justin Timberlake” versus “actual living family that has had various difficulties and embarrassments.” This is inherently good ground for anti-monarchists to fight on, but only when there is no actual fight.

If we had an Australian-style referendum on the monarchy, the republicans would not only have to present an actual alternative system for criticism — which is what befouled the hopes of Australian republicans — undecideds would also be obliged to start imagining a world in which the personal fountainhead of political legitimacy might end up being Don Cherry or Rob Ford or George Stroumboulopoulos. I personally will take my chances with little R.B. God save the Queen.

July 23, 2013

Future monarchs and present-day “republicans”

Filed under: Britain, Government, Media — Tags: , , , — Nicholas @ 09:48

As you may have noticed, I haven’t devoted any space on the blog to coverage of the Duke and Duchess of Cambridge and their son. It’s not that I’m a rabid republican — I’m as much of a mild monarchist as a libertarian can be. What I have found even more tedious than the celebrity pregnancy coverage of the royal baby is the spitting and moaning coming from the “republican” side. Brendan O’Neill (a noted republican) points out that the moaners don’t actually represent real republicans:

So, the royal baby is finally here, and across Blighty the little people will have made themselves virtually bald through frenzied forelock-tugging, or perhaps busted their backs by bowing and scraping before their mewling future king. At least, that’s the impression that has been given by a certain breed of observer, the ironically public-allergic republicans who seem to hate the monarchy primarily because of the behaviour and emotions it induces in the plebs. Once, being a republican meant trusting the public (the clue was in the name) and believing it had the capacity to think and act rationally. Today, if the ostentatious chattering-class wailing about the mob hysteria over Kate’s baby is anything to go by, it means the opposite — it means despairing of the public and shaking a snobby head over its Stepford-like enthralment to all things monarchical.

As soon as it was announced that Kate was expecting, these shallow republicans started bemoaning the mass hysteria that would ensue. Britain will once again become ‘a nation of forelock-tuggers’, clever broadsheet people warned. Apparently, ‘forelock-tugging is all the rage’ in this supposedly modern nation, where the daft blob formerly known as the public is being kept non-angry about the recession and other horror stories through being dripfed info about Kate, Wills and their baby. In the words of the Mirror’s poetic Brian Reade, ‘Our austere country need not grieve, for Wills’ missus can conceive’. That has been the central message of most of the apparently rad commentary on Kate — that the plebs are easily bought off with photos of a pregnant princess and smiling prince. One columnist wrote of the ‘ready-to-whoop peasants’ waiting for news of Kate’s babe. A writer for the Independent said of Kate’s pregnancy, ‘Everyone laps it up… it makes plebs of us all’.

[…]

There are two annoying things about all this. The first is that it’s plain wrong to depict today’s media and public interest in Kate’s baby as a resuscitation of old-world royalist sentiment. Most of the public relates to Kate in the way they relate to celebs — not as a godly bearer of a babe whom we will one day bow before, but as another preggers celeb in nice clothes we can read about in our spare time; a posher Kim Kardashian, if you will. The House of Windsor has self-consciously cultivated a celebrity image for itself in recent years, sensing that its old imperial, mysterious, God-derived powers and so-called right to rule are on the wane in this era of profound crisis for traditionalism, and that celebrity is now a far more powerful source of authority than kingliness. Indeed, the popularity of Kate as just another celeb, albeit a super-A-list one, speaks to the moral diminution of monarchism as it was once understood, to the emptying-out of its alleged magic and power, not to its rehabilitation.

And secondly, this pleb-mauling republicanism is not republicanism at all. It is very often fuelled by an anachronistic desire to protect Kate from the prying eyes of the princess-hungry throng. We are putting poor Kate in a ‘gilded cage’, lefty columnists fret. Others claim we are hounding her — we have clearly ‘learned nothing since Princess Diana’. It’s a very odd republicanism which feels empathy for individual members of the royal family and disdain for the public. For me, editor of the uber-republican spiked, republicanism is not about sneering, but rather is about engagement, taking ourselves and the public seriously, talking about how society should be run, and by whom. And as the American revolutionary John Adams said, pursuing such republicanism means believing the public can be ‘sufficiently enlightened to disabuse themselves of artifice, imposture, hypocrisy and superstition’. Sadly, too few British republicans believe that these days.

Full points to Private Eye for their royal baby cover:

Private Eye

Update: Charles Stross — another republican — has an almost sympathetic view of the new prince’s future:

The kid is not going to have anything remotely approaching a normal life. For one thing, under current UK law, he isn’t eligible to vote. His ultimate career path is already known and if he doesn’t want to put up with it, tough: the pressure to conform to expectations is enormous — he was born under a life sentence. When he ends up in that final occupation he won’t even be eligible for a passport (for long and complex constitutional reasons). He’s going to be the subject of paparazzi attention for the rest of his life. He’s almost certainly going to be sent to a private boarding school of some variety (probably Eton, as with his father), to ensure that he’s exposed to normal people (for “public schoolboy” values of normality); this is normal for the royal family, and it’s worked on previous generations. The usual recipe is for it to be followed by university, then officer training in one of the branches of the military, before joining the Old Firm and learning the onerous duties of public ceremonies and diplomatic receptions. The royals get a particularly brutal work-out in return for their privileges: what other family business would expect an 87 year old great-grandmother to make over 400 public appearances per year?

But those are the traditional parameters of a crown prince’s upbringing. This prince is going to find things a little different because he’s going to be the first designated future British monarch to grow up in a hothouse panopticon, with ubiquitous surveillance and life-logging …

I expect there to be Facebook account-hacking attacks on his friends, teachers, and associates — and that’s just in the near term. He’s going to be the first royal in the line of succession to grow up with the internet: his father, Prince William, was born in 1982 and, judging by his A-level coursework, is unlikely to have had much to do with computer networking in the late 1990s. This kid is going to grow up surrounded by smartphones, smart glasses (think in terms of the ten-years-hence descendants of Google Glass), and everything he does in public can be expected to go viral despite the best efforts of the House of Windsor’s spin doctors.

The real aftermath of Iceland’s banking collapse

Filed under: Economics, Government — Tags: , , , , — Nicholas @ 09:01

Simon Black contradicts the media narrative that Iceland has “recovered” from the melt-down of their banking sector:

It was a spectacular collapse. And the first of many. Ireland, Greece, Cyprus, etc. were soon to follow.

Yet unlike the bankrupt countries of southern Europe, Iceland dealt with its economic emergency in a completely different way.

Politicians here are proud that they never resorted to austere budget cuts that are so prevalent in Europe.

They imposed capital controls. They let the banks fail. And, as is so commonly trumpeted in the press, they ‘jailed their bankers and bailed out their people.’

Today, Iceland is held up as the model of recovery. Famous economists like Paul Krugman praise the government for rapidly rebuilding the economy without having to resort to austerity.

This morning’s headline from The Telegraph newspaper sums it up: “Iceland has taken its medicine and is off the critical list”.

It turns out, most of these claims are dead wrong.

[…]

Meanwhile, the government ended up taking on massive amounts of debt in order to bail out the biggest bank of all – Iceland’s CENTRAL BANK.

This was a bit different than the way things played out in the US and Europe.

In the US, the Fed conjures money out of thin air and funnels it to the government.

In Iceland, since the Kronor is not a global reserve currency, the government had to go into debt in order to funnel money to the Central Bank, all so that the currency wouldn’t collapse.

As a result, Iceland’s state debt tripled, almost overnight, in 2008. And from 2007 until now, it has increased nearly 5-fold.

Today, the government is spending a back-breaking 17.3% of its tax revenue just to pay interest on the debt.

And this is real interest, too. Iceland’s central bank owns very little of the government debt. The rest is owed to foreign creditors… putting the country in an extremely difficult financial position.

At the end of the day, the Icelandic people are responsible for this. They were never bailed out. They were stuck with the bill.

Meanwhile, although unemployment in Iceland is low, wages are even lower. And the weak currency has brought on double-digit inflation.

So while people do have jobs, they can hardly afford anything.

This is most prevalent in the housing market, most of which is underwater. Interest rates have jumped so much that many Icelanders are now on negative amortization schedules, i.e. their mortgage balances are actually INCREASING with each payment.

The maple-flavoured Leviathan

Filed under: Cancon, Government — Tags: , , , , — Nicholas @ 08:22

Richard Anderson on the PM’s latest cabinet shuffle and the media’s focus on the personalities rather than their actual performance:

Perhaps if we looked too closely we might start asking questions. Like why a nation of 34 million needs 39 cabinet ministers? Abraham Lincoln was able to free the slaves, save the Union and encourage the settlement of the American West with a mere eight cabinet ministers. And this with a government run without computers, telephones or even typewriters. Just paper, ink and a few thousand miles of telegraph wires. The population of the whole of the United States in 1860, both North and South, was 31.4 million.

But in those days governments were confined to hum-drum matters, such as winning immensely bloody wars and subsidizing the occasional transcontinental railroad. Today the remit of the state is far more ambitious. Beyond maintaining public order and some key bits of infrastructure, the modern state takes it upon itself to educate, scold, monitor and regulate virtually every facet of modern life. Thus, in a sense, we need 39 wise men and women to govern over us. We would likely need 39,000 and there would still be work left undone.

Except such a feat is impossible. You cannot plan an economy, much less something even more complex such as a whole society, from a few office buildings in Ottawa. When those in charge are non-experts rotated in and out based on political expediency, the result is what Mises called planned chaos. Actual experts might even do worse. No one is really in charge of the Leviathan state. No matter how powerful Stephen Harper seems, he cannot fight against the full weight of bureaucratic inertia. He might, if he felt ambitious, give a few hard kicks.

[…]

Ask any halfway educated Canadian, say the typical university graduate, why exactly Canada needs a Minister of State for Sport and you will get no clear answer, not even a half decent guess. Apply the same question to a professor of political science and you will get no better response. Ask a senior bureaucrat you will get not response at all, except a stream platitudes each less discernible than the last. Yet all will swear that Canada needs a Minister of State for Sport. I mean, what have you got against Sport? Or Multiculturalism? Or Western Economic Diversification?

Since no decent consensus fearing Canadian objects to these things in and of themselves, they do not object to them being supervised, managed, regulated or subsidized by the government. Modern Canada’s true and unquestioned stamp of approval on any facet of everyday life is government authorization. No action or thought is truly noble unless a government department has been consecrated in its name.

Blessed is the name of the Minister of State for Western Economic Diversification.

July 22, 2013

Detroit as Ayn Rand’s “Starnesville”

Filed under: Books, Economics, Government, Media, USA — Tags: , — Nicholas @ 09:59

In the Telegraph, Daniel Hannan quotes Ayn Rand:

Look at this description of Detroit from today’s Observer:

    What isn’t dumped is stolen. Factories and homes have largely been stripped of anything of value, so thieves now target cars’ catalytic converters. Illiteracy runs at around 47%; half the adults in some areas are unemployed. In many neighbourhoods, the only sign of activity is a slow trudge to the liquor store.

Now have a look at the uncannily prophetic description of Starnesville, a Mid-Western town in Ayn Rand’s dystopian novel, Atlas Shrugged. Starnesville had been home to the great Twentieth Century Motor Company, but declined as a result of socialism:

    A few houses still stood within the skeleton of what had once been an industrial town. Everything that could move, had moved away; but some human beings had remained. The empty structures were vertical rubble; they had been eaten, not by time, but by men: boards torn out at random, missing patches of roofs, holes left in gutted cellars. It looked as if blind hands had seized whatever fitted the need of the moment, with no concept of remaining in existence the next morning. The inhabited houses were scattered at random among the ruins; the smoke of their chimneys was the only movement visible in town. A shell of concrete, which had been a schoolhouse, stood on the outskirts; it looked like a skull, with the empty sockets of glassless windows, with a few strands of hair still clinging to it, in the shape of broken wires.

    Beyond the town, on a distant hill, stood the factory of the Twentieth Century Motor Company. Its walls, roof lines and smokestacks looked trim, impregnable like a fortress. It would have seemed intact but for a silver water tank: the water tank was tipped sidewise.

    They saw no trace of a road to the factory in the tangled miles of trees and hillsides. They drove to the door of the first house in sight that showed a feeble signal of rising smoke. The door was open. An old woman came shuffling out at the sound of the motor. She was bent and swollen, barefooted, dressed in a garment of flour sacking. She looked at the car without astonishment, without curiosity; it was the blank stare of a being who had lost the capacity to feel anything but exhaustion.

    “Can you tell me the way to the factory?” asked Rearden.

    The woman did not answer at once; she looked as if she would be unable to speak English. “What factory?” she asked.

    Rearden pointed. “That one.”

    “It’s closed.”

Now here’s the really extraordinary thing. When Ayn Rand published those words in 1957, Detroit was, on most measures, the city with the highest per capita GDP in the United States.

July 21, 2013

Real competition? In our mobile phone market? It’s less likely than you think

Filed under: Business, Cancon, Government, Technology — Tags: , , , — Nicholas @ 09:31

Canada’s mobile telephone market is a rigged oligopoly of three major companies and a few minor players. One of the big three, Telus, has opened a new campaign against the federal government’s tentative gestures towards allowing a more competitive mobile phone market for Canadians. Michael Geist has the details:

Yesterday, Telus CEO Darren Entwistle was campaigning at the Globe and Mail and National Post, warning of a “bloodbath” if the government sticks with its commitment to allow for a set-aside of spectrum for new entrants such as Verizon. Telus is concerned that a set-aside would allow Verizon to purchase two of the four available blocks, leaving the big three to fight it out over the remaining two blocks. Telus emphasized its prior investments in arguing for a “level playing field” in the auction.

Yet to borrow Telus’ phrase — “scratch the surface of their arguments and get to the facts” — and it becomes clear the fight is not about level playing fields since new entrants have been at a huge disadvantage for years in Canada. Indeed, even with a spectrum set-aside, there would not be a level playing field as companies such as Telus would have big advantages that include restrictions on foreign ownership for broadcast distribution (thereby blocking Verizon from offering similar bundled services), millions of subscribers locked into long term contracts, far more spectrum than Verizon would own, and its shared network with Bell that has saved both companies millions of dollars.

While the companies frame their arguments around level playing fields, the real goal is simply to keep competition out of the country. For Verizon (or any major new entrants), a spectrum set-aside will be crucial since it is the only way to obtain sufficient spectrum (when combined with the existing spectrum from Wind Mobile and Mobilicity) to establish a viable fourth wireless network that could compete directly with the big three incumbents. If Telus gets their way, the removal of the set-aside would kill the government’s stated goal of a viable fourth carrier since there would be little reason for Verizon to enter the country only to face many of the same disadvantages that has hamstrung the smaller new entrants.

[…]

Make no mistake: the Telus lobbying campaign will be joined by Bell and Rogers as the three companies spend millions of dollars in advertising and lobbying to keep the Canadian market free from much needed competition (the Wire Report reports that ten board members each from Telus and BCE have registered to lobby the government on spectrum). The government has insisted that it will do whatever is necessary to ensure greater competition and consumer choice in the wireless sector. The potential Verizon entry into Canada — undoubtedly conditioned on a spectrum set-aside — is precisely what is needed. In this case, sticking with its policy by siding with consumers and greater competition has the dual advantage of being both good policy and good politics.

Reason.tv – Detroit’s Tragedy and How to Fix It

Filed under: Economics, Government, USA — Tags: , , , — Nicholas @ 09:12

The key things about Detroit’s bankruptcy are that it didn’t happen overnight – and it didn’t have to happen at all.

Detroit’s long, sad slide started in 1950, when the Motor City’s population peaked at nearly 2 million people. Now it’s around 700,000.

The hollowing out of the city was on gut-wrenching display in two recent exhibits at the National Building Museum, featuring photographs by Camilo Jose Vergara and Andrew Moore.

In fat times and lean, the city’s pols and power-brokers chose to focus their energy, and the residents’ tax dollars on gigantic, big-ticket development scams while ignoring the basics that let cities thrive — or at least survive.

Detroit’s leaders poured money into a never-ending assembly line of sad-sack projects such as the Renaissance Center, the Fox Theater, Comerica Park, Poletown, the People Mover, and Ford Field.

But unlike Pompei and other cities crushed by Nature’s wrath or God’s wrath, Detroit’s destruction is completely man-made and thus can be reversed. The city that midwifed the Model T and the Cadillac, Bob Seger and Eminem, Ted Nugent and the Insane Clown Posse, still has tremendous assets in terms of infrastructure, location, and people.

Like Buffalo, Cleveland, St. Louis, and other dead cities scattered across the map of the industrial Midwest like so many cigarette burns, Detroit can stage its own comeback by reducing crime and picking up garbage; by freeing kids, parents, and property values from an abysmal school system; and getting the government out of everything that isn’t essential.

In other words, Detroit’s leaders only need to do what they should have been doing for the past 50 years. And the city’s dwindling supply of residents needs to keep them honest this time.

Because Detroit is finally out of next times.

Produced by Jim Epstein. Written and narrated by Nick Gillespie. Additional camera by Meredith Bragg.

July 19, 2013

Bitter reality scheduled to return on September 22nd

Filed under: Economics, Europe, Germany, Government — Tags: , , , , , — Nicholas @ 08:46

Here’s an unpleasant idea to disturb your narrative of economic recovery:

You may have noticed the small blurb recently that the ECB had eased the rules for asset backed securitizations. You may have read this snippet and thinking nothing of it you moved on. This would have been a mistake because just here you would have noticed the cracks of a crumbling empire.

The French banks, the Spanish banks, the Portuguese banks are all engaged in an ongoing charade so they do not need to ask the EU for help. They all are taking their Real Estate loans, the properties that they have confiscated, the commercial loans that are no longer paying and they have put them into massive securitizations that are pledged at the ECB as they are given cash for the collateral. The collateral, as you may suppose, has all of the value of cents on the Dollar but they are given money at par while the ECB carries them on their books at par. It is a fraudulent scheme jam packed with money created out of nothing but it is judged to be a better plan that to have to admit to accurate financials and have the banks of Europe default all across the Continent.

[. . .]

There will be nothing but lying until September 22, 2013 which is the date of the German elections. This is the drop dead date that I have been asked about for so long. Then, as soon as the celebration is over that Ms. Merkel is to remain in power, the world will turn on its axis. The status quo will disappear and there will be a “shock and horror” campaign as the Southern nations of Europe demand more help and Germany squirms and then refuses to provide it because it does not have the assets to do so.

Spain, France, Portugal, Greece, Cyprus, and even Italy are all going to line up at the trough only to discover that the promise of water was just that, a promise, and does not exist. A Biblical drought will be upon the Continent and from the political battles will emerge new alliances and new screams calling the traitors by name. The twin towers upon which the markets rest, money from nothing and fairy tale financials, will decompose in the light of this new sun and our old friend, Fear, will return to haunt us.

Sleep well.

Blaming the bankers and absolving the politicians

Filed under: Economics, Government — Tags: , , — Nicholas @ 08:23

Daniel Ben-Ami points out that current campaigns to vilify bankers (“banksters”) over their role in the economic crisis that began in 2007-2008 conveniently ignores the politicians’ dirty hands:

There is at least one area where mainstream politicians can legitimately claim considerable success: they have offloaded much of the blame for the economic crisis from themselves and on to banks and other financial institutions.

Much of the public has accepted the premise that greedy bankers were largely responsible for the economic turmoil that emerged in 2007-8. There is little discussion of the government’s role in creating the conditions for the financial crash, let alone any examination of the economy’s underlying weaknesses.

Criticism of the government’s economic policy is usually confined to it being heartless or ill thought out. Often the two are combined, in the accusation that the government is obeying the diktat of its banker friends by imposing cuts. Campaigners also often allege that a shady global financial network is the real power in the world. In this conspiratorial worldview, a labyrinth of offshore tax havens helps the rootless rich evade the power of national authorities.

[. . .]

But in truth, politicians on both sides of the Atlantic bear a large share of the blame for the crisis. To understand their culpability, it is necessary to go back at least to the early 1980s rather than just to 2007. For decades it was clear that investment and innovation were insufficient. Yet rather than tackle these underlying problems, the authorities pursued policies that ended up creating a credit bubble.

Public spending was kept high and interest rates artificially low. Often, governments also used additional measures to ease the supply of credit, such as reforming the financial markets. The hope was that such moves would keep the market ticking over in the short term and the economy would somehow correct itself in the longer term.

This was the backdrop to the financial crisis that emerged in 2007-8. Bankers certainly played a role, but governments created the conditions for the credit bubble to emerge. Underlying this development was the failure of politicians to tackle or even recognise structural economic weaknesses.

[. . .]

Underlying anti-banking campaigns is the common assumption that financial institutions are part of a giant global conspiracy to undermine nation states.

This view was most vividly put forward by Matt Taibbi, a campaigning American journalist, in a 2009 article in Rolling Stone magazine and in a subsequent book. He famously condemned Goldman Sachs, a top Wall Street investment bank, as ‘a giant vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money’. In the UK, the New Economics Foundation, a think tank, adopted the image with a short video entitled Taming the Vampire Squid: Take Back Our Banks.

There are several reasons to object to such imagery and the conspiratorial worldview that underlies it. For one thing it is strongly reminiscent of Nazi imagery of Jews as central to an international financial conspiracy. For example, in Mein Kampf, Adolf Hitler talked of Jews as being ‘like leeches… they were slowly sucking the blood from the pores of the national body’.

July 18, 2013

Foodstamps as a form of corporate welfare

Filed under: Business, Government, USA — Tags: , , , , , — Nicholas @ 09:43

Mike Krieger explains how the US foodstamp program can be seen as a form of corporate welfare:

This ridiculously condescending budget put out by McDonald’s in partnership with Visa has been making the rounds today. I’ll allow excerpts from the Gothamist article on it and their corresponding video do most of the explaining, but the key point I want to hammer into people is that food stamps are corporate welfare. They actually are not welfare for the workers themselves, who undoubtably don’t have wonderful lives. What ends up happening is that because the government comes in and supplements egregiously low wages with benefits like food stamps, the companies don’t have to pay living wages. So in effect, your tax money is being used to support corporate margins. Even better, many of these folks who get the food stamp benefits then turn around and spend them at the very companies which refuse to pay them decent wages. Who benefits? CEOs and shareholders. Who loses? Society.

From the Gothamist post by Nell Casey:

Let’s take a look at what else McDonald’s imagines its employees’ expenditures should look like. First off, the site sets employees’ mortgage/rent at $600, which even if we didn’t live in an outrageously expensive city is still a laughably small figure. Next, the site tallies health insurance at a mere $20 per month. Where is this magical land of nearly free independent healthcare? We want Obama’s unicorn to fly us there! Also as a McDonald’s employee, your cable and phone bills should only come to $100 a month (HA!), your electric bill should hover around $90 (for serious?) and apparently if you work at a fast food chain there’s absolutely no need to ever buy any food ever. Maybe they offer employees a lifetime supply of fries?

So tallying up all of these totally realistic expenses, a McDonald’s employee would need to net $2,060 per month to make this budget work. Broken down, that would mean working at least 40 hours per week and making at least $15 an hour pre-taxes to earn the necessary $12.86 an hour. Currently, McDonald’s workers earn an average of $8.25 per hour, barring any funny business.

Update: A couple of comments have been logged on this post, and Megan McArdle’s first Bloomberg column also addresses the McDonalds/Visa budget thingy:

Speaking of food, a sample budget put together by Visa Inc. and McDonald’s Corp. is rocketing around the Internet. Most of the commentary suggests that McDonald’s is heartless, and gauche, to suggest how its employees might live on the embarrassingly paltry wages that they are paid. (According to the Census Bureau’s American Community Survey of 2009-11, median earnings for a fast-food worker were $18,564 a year.) The budget is based on two jobs, which has aroused special ire: Is McDonald’s telling its employees to get a second job so they don’t have to pay them anything?

[…]

Keep in mind that most McDonald’s workers don’t live close to New York City or Washington, the sources of much of the commentary I’ve seen. These are, respectively, the first- and fourth-most-expensive cities in the country. In many areas, the median after-tax household income is not that far from that on the McDonald’s worksheet, and it’s pretty easy to rent a room in a friend’s house for less than $600 a month. Memphis, Tenn., for example, has a median household income of $35,000, which, according to Paycheckcity.com’s take-home calculator, would give a single person about $2,300 a month after taxes. And that’s the median — 50 percent of the city is below that. You should not develop a theory of household finance that declares that the city of Memphis does not exist.

Survival on such a lean budget is possible because people who do it are not trying to live the atomized life of an upper-middle-class college graduate. They band together, sharing rent, cars and cash when needed, handing down clothes and generally spreading fixed costs over as many people as possible.

Should McDonald’s pay enough to support a thrifty-but-not-too-difficult independent lifestyle? Is that now the minimum decent standard for society? Obviously, a lot of people think that they should. Washington’s City Council just passed a “living wage” law directly targeted at Wal-Mart Stores Inc. that aims to force the retailer to pay its workers $12.50 an hour.

What would that look like nationwide? Let’s set the floor a little above the amount in the budget — about $27,500 after taxes, which will allow them to enjoy the full McDonald’s budget, plus health insurance on an exchange. That’s a minimum wage of $13.75 an hour for a full-time worker, almost double the current minimum; obviously, everyone else would also have to be paid more. The minimum that a two-earner household could bring in would be $55,000 a year — not that far from the current median income for a two-earner household.

Even if it were possible to mandate that everyone in the country make almost the median income, this would come with a cost; I’d guess that most economists would agree that such a hike in the minimum wage would cause fairly significant job losses.

July 17, 2013

Nonsense on stilts – Civil libertarians “caused” 9/11, so we have to curtail civil liberties

Filed under: Government, Law, Liberty, USA — Tags: , , , , — Nicholas @ 13:02

While some pro-surveillance folks may be content to hint that the world is a far more dangerous place if we don’t let the NSA have access to everyone’s electronic communications, there are others willing to go a lot further:

    And so, when a law enforcement task force of the FBI found out in August of 2001 that al Qaeda had sent two dangerous operatives to the United States, it did … nothing. It was told to stand down; it could not go looking for the two al Qaeda operatives because it was on the wrong side of the wall. I believe that FBI task force would have found the hijackers — who weren’t hiding — and that the attacks could have been stopped if not for a combination of bad judgment by the FISA court (whose minimization rules were later thrown out on appeal) and a climate in which national security concerns were discounted by civil liberties advocates on both sides of the aisle.

Got that? Anyone advocating for basic civil liberties is to blame for 9/11. Holy fuck. This kind of thinking is about as anti-American as I can think of. As we’ve discussed, protecting civil liberties is at the core of the American way of life. “Give me liberty or give me death” is the phrase that Patrick Henry chose, and apparently Stewart Baker believes the American motto should be “you’re all going to die if you fight for civil liberties!” Shameful.

[…]

    Forty years later, though, we’re still finding problems with this experiment. One of them is that law changes slowly while technology changes quickly. That usually means Congress has to change the law frequently to keep up. But in the context of intelligence, it’s often hard to explain why the law needs to be changed, let alone to write meaningful limits on collection without telling our intelligence targets a lot about our collection techniques. A freewheeling and prolonged debate — and does Congress have any other kind? — will give them enough time and knowledge to move their communications away from technologies we’ve mastered and into technologies that thwart us. The result won’t be intelligence under law; it will be law without intelligence.

Basically, shut up with the debate, just let us go back to spying on fucking everyone. If we actually have to “debate” and “protect the Constitution,” some “bad guys” might talk without us knowing about it. And then we’ll all die.

[…]

He then tries to flip the whole thing around and argue that supporters of civil liberties are actually anti-technology, because they’re trying to limit the government’s use of technology. That’s ridiculous, since many of the loudest supporters of civil liberties come from the tech and innovation communities. No one thinks the government shouldn’t make efficient use of technology — but that’s very different from saying it’s okay for the government to either convince or force companies to cough up all sorts of private data on everyone or risk the wrath of the US government. That’s not a fair fight. The government has the power to compel people and companies to do things that they would not do otherwise, though I guess an extreme authoritarian like Baker either doesn’t realize this or doesn’t see it as a problem.

At the end, he makes a bunch of claims about how it’s the US government’s job to “protect” everyone — though I’d like to see where that’s laid out in the Constitution. As mentioned above, he makes some valid points that other countries are just as bad, if not worse, but that’s hardly a compelling argument, because that just allows others to flip it around, and claim that the US has no moral high ground, since it’s ignoring the civil liberties of the public — something that Baker notes he directly supports in this testimony — for some vague and impossible promises of “safety.”

July 16, 2013

Paul Wells summarizes Harper’s cabinet shuffle

Filed under: Cancon, Government — Tags: , — Nicholas @ 09:29

State of play in the surveillance state

Filed under: Government, Liberty, USA — Tags: , , , , — Nicholas @ 08:38

If you’re just getting back from an extended vacation with no access to the news, “George Washington” at Zero Hedge has a cheat-sheet on spying that you might want to have a look at:

Lots more at Zero Hedge.

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