A posting every day; an interesting idea every three months…
Back in February 2014 I asked “Why does it make sense for Comcast and Time Warner to merge?” Now it seems that they won’t. What’s next for our monopoly Internet provider (Comcast) here in Cambridge? Will they retrain some of their lawyers as network engineers?
Is it a victory for advocates of market economics that now each company will have a monopoly only in most of the towns where each operates?
Full post, including commentsHappy Tax Freedom Day to all of my American readers who’ve been working since January 1 to keep our local, state, and federal governments running! (Here in Massachusetts our tax burden is slightly higher than the national average so our tax freedom day will come perhaps a week later (2013 map), but to Massachusetts readers I can wish a “Happy Snow Freedom Day” as it would seem that the snow piles in shaded areas are finally gone.)
Background: Tax Foundation’s Tax Freedom Day page (note that I think the Tax Foundation gets this wrong. Tax Freedom Day does not say anything about the cost of government, only about the cost of taxes. The cost of government includes explicit borrowing through bonds and deficit spending. It also includes pension commitments whose cost is unknown and/or not accounted for. We would presumably have to keep working much later if we paid for government on a current basis rather than pushing much of the cost into the future.)
Full post, including commentsHere’s a conundrum for USB experts… I have a Fujitsu ScanSnap S1500. This is a truly awesome device for slimming down one’s file cabinet. However, for the past year or so it wreaks havoc on the rest of my USB life. I thought it might be my feeble 4.5-year-old desktop but the behavior is even worse with the latest custom-built PC. With the old PC, powering up the scanner (connected via USB 2.0) would disable any USB devices connected via a hub. I replaced the hub with a (powered) plugable 3.0 hub. Same issues. Unplugging the scanner restored normal USB behavior for both hub-connected and directly connected devices.
With the new PC the scanner can coexist happily with the direct-to-the-motherboard ports, as before. But connecting the powered scanner actually seems to have destroyed the plugable hub. Even with the scanner unpowered and unplugged, there is no way to use a USB device connected through the hub and the LED lights on the front of the hub to show connectivity will not illuminate.
I haven’t tried the scanner with a different USB cable so I am not sure if this is simply a cable issue. Could the scanner be establishing its own ground for the USB and draining crazy amounts of power out of the hub back into the PC and from there up into the scanner?
[If the answer is “throw out your 5-year-old scanner” then that leaves the question of whether to buy the WiFi replacement (ScanSnap iX500
Force Majeure is streaming on Netflix currently. The Swedish movie set and filmed in the French Alps turns out to be related to the Walter Scott murder. Nobody gets killed in the movie (Europeans are somehow able to make compelling movies without people getting killed, paralyzed, etc.). However, there is an event with potentially serious consequences. The person who acts disgracefully has his own version but he is unable to maintain it in the face of mobile phone video footage.
[Separately the movie is yet more evidence that the best photographers are cinematographers. About half of the movie is essentially a series of beautifully composed photographs.]
Readers: Please stream this and let us know what you think!
Full post, including commentsGoogle has launched Project Fi. I’m trying to figure out how this is different from T-Mobile.
Why isn’t doing business directly with T-Mobile a better deal, assuming that you need a few lines and/or can get a few friends together?
For those who are photographically-inclined, e.g., parents of children aged 0-12, another potentially huge advantage of T-Mobile is that one can use an iPhone 6+ with its awesome-in-practice camera system (good hardware; great software). DxOMark gives the Nexus 6 poor marks for autofocus performance, implying that this is a good camera when glued to a tripod in the studio but very likely near-worthless for real-world photography of moving children. (iPhone 6+, by contrast, gets a good review for autofocus)
Anyone out there with a Nexus 6 care to comment on the camera’s real-world capabilities?
If the Nexus 6 is as crummy a camera in practice as DxOMark’s test implies and Fi costs more per line than T-Mobile, what practical case can be made for the Project Fi service? For a consumer with at least three friends or family members and a little interest in taking pictures wouldn’t it nearly always make more sense to get an iPhone 6 or 6+ and T-Mobile service?
Related:
I’m listening to Elsewhere
The book is also relevant to today’s debates regarding a $15/hour minimum wage. Russo is a self-described liberal Democrat who unfavorably compares Arizona in the 1970s to his hometown in Upstate New York. Arizona was growing fast and everyone who wanted one could have a job but at wages that Russo considered “crappy.” Russo’s hometown of Gloversville, New York, on the other hand provided jobs for only about half of those who wanted one but at union wages that Russo considered fair. Russo describes the abandoned houses and boarded-up shops of downtown Gloversville and generally moribund economy of the surrounding area but still preferred that to an economy in which everyone worked at a market-clearing wage.
Full post, including commentsHidden in Plain Sight: What Really Caused the Worlds Worst Financial Crisis and Why It Could Happen Again
Wallison opens by noting that Americans have a rich history of being stupid regarding economics: “During the Depression era, it was widely believed that the extreme level of unemployment was caused by excessive competition. This, it was thought, drove down prices and wages and forced companies out of business, causing the loss of jobs.”
Wallison explains the entire Collapse of 2008 with a few simple facts:
There are some inconsistencies. Wallison blames everything on government meddling with the mortgage market but then he blames part of the collapse on the government refusing to step in and rescue Lehman. Wallison says that Fannie/Freddie were forced to do financially irrational stuff by HUD mandates but doesn’t explain why private sector banks loaded up on ridiculous mortgages too beyond “competition forced them.” Would it actually have been impossible for a mid-size bank to say “We are going to be left behind by Countrywide, Merrill, and Bank of America but that’s okay because the businesses that we understand are profitable.”?
Here are some excerpts:
as housing legislation was moving through Congress in 1992, the House and Senate acted, directing the GSEs [Government-Sponsored Entities (Fannie/Freddie)] to meet a quota of loans to low- and moderate-income borrowers when they acquired mortgages. At first, the low- and moderate-income (LMI) quota was 30 percent: in any year, at least 30 percent of the loans Fannie and Freddie acquired must have been made to LMI borrowers—defined as borrowers at or below the median income in their communities. … In succeeding years, HUD raised the LMI goal in steps to 42 percent in 1997, 50 percent in 2001, and 56 percent in 2008. Congress also required additional “base goals” that encompassed low- and very-low-income borrowers and residents of minority areas described as “underserved.” HUD increased these base goals between 1996 and 2008, and at a faster rate than the LMI goals. Finally, in 2004, HUD added subgoals that provided affordable-housing goals credit only when the loans were used to purchase a home (known as a home purchase mortgage), as distinguished from a refinancing.
As early as 1995, the GSEs were buying mortgages with 3-percent down payments, and by 2000 Fannie and Freddie were accepting loans with zero down payments. At the same time, they were compromising other underwriting standards, such as borrower credit standing and debt-to-income ratios (DTIs), in order to find the NTMs [Non-Traditional Mortgages] they needed to meet the affordable-housing goals.
Because of the gradual deterioration in loan quality after 1992, by 2008 half of all mortgages in the United States—31 million loans—were subprime or Alt-A. Of these 31 million, 76 percent were on the books of government agencies or institutions like the GSEs that were controlled by government policies.
New York Mayor Michael Bloomberg, responding to a question about Occupy Wall Street, stunned observers by exonerating Wall Street: ‘It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.”
Wasn’t it the cheap Chinese money that inflated the bubble? Wallison says no, noting that the 1997-2007 bubble was inflating long before interest rates fell: “By the year 2000, before any monetary easing and when the ten-year note was in the 6 percent range, the housing bubble was already larger than any previous bubble. It had grown to that size, in other words, before any Federal Reserve effort to lower interest rates and when flows of funds from abroad were not having a noticeable effect on interest rates. By the year 2003, according to Shiller’s data, the bubble had grown to nearly three times the size of any previous bubble—again, before the Federal Reserve’s policies had pushed short term interest rates into negative territory.”
One of my personal favorite culprits that Wallison minimizes is the repeal of Glass-Steagall: “The repeal of the affiliation provisions, however, had no role in the financial crisis. There is no evidence that any bank or bank holding company (that is, a firm that owns a bank) got into trouble because of an affiliation with a securities firm. The losses that banks and bank holding companies suffered in the financial crisis were the result of what had always been standard banking activity. Even under Glass-Steagall, banks and bank holding companies were permitted to invest in—and thus to buy and sell—mortgages and mortgage-backed securities (MBS), which were regarded by regulators as simply another way for banks to hold loans, a traditional banking asset.”
Wallison notes that an explanation that people want to hear will outlive any debunking:
After the onset of the financial crisis, a widely cited 2008 article in the New York Times by reporter Stephen Labaton incorrectly reported that in 2004 the SEC had loosened the capital requirements for the major investment banks, allowing them to take on much more leverage than had previously been permitted. In reality, what the SEC had done in 2004 was to change the way the net capital of the broker-dealers—the subsidiaries of the investment banks—would be calculated. This had no effect on the capital of the parent companies and no major effect on the required capitalization of the broker-dealers. Nevertheless, the Labaton mistake was then cited in numerous press and other reports as a reason that the large investment banks had increased their leverage before the financial crisis, suffering severe losses as a result. … Later investigations by the Government Accountability Office (GAO) showed that the five major investment banks cited above had not appreciably increased their leverage over its level in 1998, before they had signed up for SEC regulation. … Labaton’s error achieved widespread currency because, as scholar Andrew Lo [MIT professor] has pointed out, it was accepted as true and repeated by many well-known scholars who should have been more skeptical.
How did the ratings agencies fail so spectacularly? Wallison notes that this is a mystery but he says it was not due to the conflict of interest of being paid by issuers: “Why is it that the rating agencies became incompetent or venal when they rated pools of CDOs but not the debt of individual corporate issuers or pools of credit cards or car loans?” He conjectures that the ratings agencies may have failed due to a lack of information: “If it had been known at the time that more than half of all mortgages in the United States were NTMs, that fact alone might have suggested to the rating agencies that the market was far riskier than even the most overheated markets of the past.”
Wasn’t it obvious how bad things were? Not at the time:
Most emblematic of this problem is Ben Bernanke’s statement to Congress in March 2007 that the subprime mortgage problem was “contained” and the lack of alarm about subprime loans that showed so clearly in the transcript of the Federal Reserve’s Open Market Committee only two days before BNP Paribas suspended redemptions in three of its funds. The BNP event, more than any other, seemed to bring to the sudden attention of the financial community the fact that there was a serious problem in the mortgage market. It is certainly unlikely that Bernanke and the Open Market Committee would have been so complacent if they had known—as we know now—that more than half of all mortgages in the U.S. financial system were NTMs, with a high propensity to default when the great housing bubble stopped growing. But market participants were unprepared for the destructiveness of this bubble’s collapse because of a chronic lack of information about the composition of the market. The deficiency of the Federal Reserve’s data was particularly influential.
Accordingly, when the Federal Reserve staff counted up the subprime loans outstanding and provided this data to Bernanke and other members of the Board of Governors or the Open Market Committee, the data grossly understated the number of loans in the financial system that actually met the definition that the Federal Reserve economists had assumed. Instead of 6.7 million, the actual number was probably closer to 18 million, and, including Alt-A loans and loans backing PMBS, at least 31 million. Most of the missing subprime loans were on the balance sheets of Fannie and Freddie, which were hiding the numbers of subprime loans they had acquired to meet the affordable-housing goals.
The mortgage market is studied constantly by thousands of analysts, academics, regulators, traders, and investors. How could all these experts have missed something as important as the actual number of NTMs outstanding? One of the reasons could have been sheer bone-headed ignorance. Nobel Laureate Paul Krugman, for example, informed his New York Times readers on July 14, 2008, that Fannie and Freddie “didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.”
How close to right was Krugman? “By 2006, according to a study by the National Association of Realtors, 45 percent of first-time homebuyers and 19 percent of repeat buyers provided no down payment. The median first-time buyer provided a down payment of 2 percent.” Wallison notes that low down payments drive a bubble. A person with $10,000 in savings in the old days could buy a $50,000 home. With a 2 percent down payment, however, the $10,000 would enable signing up for a $500,000 home.
How is it that Fannie and Freddie managed to drag down the rest of the economy? “The competitive effect of what the GSEs were doing should be clear. Imagine how difficult it would be for a lender to require a 20 percent down payment when others were offering no-down-payment loans that were still eligible for the favorable interest rates that the GSEs were offering. As a consequence, the loosening of the GSEs’ underwriting standards spread to the wider market.”
Politics is a big part of the book. Wallison explains how Fannie/Freddie made friends in Congress by promising to assist with affordable housing goals. Regulation of banks and mortgages also enabled the federal government to transfer money from richer Americans to poorer Americans without the transfers showing up in the budget. How? Wallison explains that the Community Reinvestment Act forces banks, if they want to continue to operate, to write mortgages to people from whom they don’t expect repayment. They make up these losses by charging higher mortgage rates to everyone else. How big is this transfer? “The exact size of that contribution is a bit conjectural, however, because the CRA—unlike almost any other government program outside of national security—is kept hidden from scholars, taxpayers, Congress, and even the government agency that is supposed to keep tabs on it. … banks are not even required to disclose the number of their CRA loans to the Federal Reserve, which keeps the records on CRA lending.”
What can one take away from
Full post, including commentsThe New York Times ran a piece on the subject of trying to squeeze cash out of low-income deadbeat dads such as Walter Scott (my posting on the same subject). The comments are kind of interesting, considering the self-professed liberal nature of the readership.
Sara Rainey:
At York County Prison in York South Carolina, those who are incarcerated due to child support can be put on a work release program after passing a background check and a drug screen. If they already have a job, they can be put back on their job that day, or the following day. If they do not have a job, the work release coordinator will help them look and obtain a job outside the facility. Then the inmate gives their check to the work release coordinator who takes 55% for child support, a small percentage for the facility room and board and save the rest for the inmate. These inmates can pay down their child support, and pay the county for the incarceration and have a job and money saved when they are released. Although most inmates that obtain a job while incarcerated do not keep that job once released. It is a win/win situation for the inmate and the county. This needs to be researched more.
Given that a high percentage of people imprisoned for failure to pay child support happen to be black men, how is this different from an 18th century cotton plantation? I wrote a response to her comment: “Can I buy a big cotton farm in South Carolina, build some basic dormitories, then ask the government to send me some healthy adults to live in my dorms and pick cotton during the day because if they run away the government will hunt them down, shackle them, and return them to me? Since I want to make sure that the workers are young, strong, and fit, perhaps I can go to a government-run auction and bid on the defendants who seem best suited to the work on my farm?” In other words, getting whatever child support a court has ordered has become so important to liberals that they are willing to advocate for a plantation system staffed with chained black men.
Kate in Virginia:
The reason these mothers are not required to work when their children are young is that the US does not pay a living wage. If the woman cannot earn a decent salary, it doesn’t make economic sense for her to work outside the home.
But let’s not pretend that mom’s not working. Taking care of little kids is work.
Because women cannot get a fair deal in the labor market, in other words, low-income black men should be put into prison unless they compensate women for the unfairness of the patriarchy.
(Her comment “taking care of little kids is work” is also interesting for its assumption that the modern-day parent collecting child support is actually taking care of children. It turns out that getting the loser parent ordered to pay for commercial day care or after-school care, in addition to guideline child support, is the trend in most states. But much political support for child support that yields a profit over actual expenses is based on the idea that the winner parent should be paid by the loser parent to perform child care tasks.)
sfdphd (from San Francisco):
Jail or revoking driver license doesn’t make any sense at all. These people need to be kept working and their wages garnished, not put in circumstances where they cannot work to earn the money the child needs. Then in jail, the taxpayer is paying for the guy. That’s just stupid.
I also believe that if they cannot support the first kid, they should be required to get a reversible vasectomy until they can afford to support their children….
Quick summary: Since most low-income black men will eventually get ordered to pay child support and fall behind on payments, most low-income black men will eventually be forced by the government to have vasectomies.
The article and comments are both interesting for how few people mention the profitability of children for adults. An adult with no child is not entitled to much in the way of welfare. An adult with a child gets benefits that cost over $60,000 per year (budget.senate.gov), i.e., more than $1 million over an 18-year period. Can putting a bunch of black guys into prison (with or without letting them out during the daytime to work on a plantation) cause low-income Americans to ignore this opportunity? The Times doesn’t write about the government workers getting paychecks from the system: a $6 billion payroll in the state and federal offices of child support enforcement, judges, prison guards, etc. The typical low-income child is actually hurt by the child support system, even when child support is paid (see “Child Support and Young Children’s Development” (Nepomnyaschy, et al, 2012; Social Science Review 86:1), a Rutgers and University of Wisconsin study of children of lower income unmarried parents), but plenty of (mostly white) adults benefit financially when low-income black men are pulled into court and then prison.
The comments contain a lot of attacks on low-income low-education black Americans by white liberals with, presumably, advanced educations and New York Times subscriptions. According to the attorneys we interviewed for Real World Divorce, highly educated white people are avid seekers of tax-free child support profits, and periodically there are newspaper articles about some spectacularly rich (white) people seeking to add to their cash hoards through child support (see realworlddivorce.com for some links). The vast majority of the women that we learned about who made money by selling abortions (go to bar, get pregnant with high-income guy, hire attorney, get fetal paternity test, market abortion at discount to net present value of expected child support payments) were white. But somehow it is poor blacks who are behaving badly and must be scolded.
Full post, including commentsWe flipped on the TV about 5 minutes before the first women runners crossed the finish line in the Boston Marathon. What did the children with us learn from watching 15 minutes of coverage (enough to see both the leading men and women finish)?
Separate question for running experts: Why was this year’s race slower than in some previous years? Headwinds? Weather actually colder than optimum?
Full post, including comments“Ten Percent of S&P 500 Companies Avoid Paying U.S. Taxes” is a Bloomberg story that a friend cited on Facebook in disgust: “Plutocracy on parade.” The article notes that “At 35 percent, the U.S. corporate rate is the highest in the developed world.” (Actually closer to 40 percent if you include state taxes on corporate income; see KPMG and compare to the European average of less than 20 percent) So there are two potential stories here:
Story #1 seems to be all that we ever get. Nobody seems to be interested in why Americans who aren’t involved in a company feel entitled to take 40 percent of the company’s profits (and go to the polls to elect politicians who will take it for them) while an uninvolved person in England will content him- or herself with just 21 percent of the profits (KPMG). Nor do reporters interview people in Singapore and Switzerland and ask “Why do you work so hard instead of just helping yourself to more than 17 percent of what your neighbors who are investors or workers in corporations are able to generate?”
Full post, including comments