et alli.

If Fox Is Partisan, It Is Not Alone

I had planned to do a blog entry 10 days ago the controversy over White House exclusion of Fox "News" from news making events and I assume from private "off-the-record" backgrounders.

I don't view this as new practice.  Just look at how the Bush Press Secretaries treated Helen Thomas or New York Times Reporters.  Then I felt the subject had been adequately covered and it would be stale so I passed.

Luckily John Harwood, chief Washington correspondent for CNBC, came at it from a similar angle.  His article on viewer politics by network over the last decade is good  -- Well worth reading.  By the way Harwood use to do the same job for the Wall Street Journal but is one of many fine reporters who moved during the Murdock acquisition.

Financial Reform

 

Purposed legislation is a start but doesn't come near my ideals of a fair shake for the little guys who are the genius of the American economy.  Economic and social policies should not remove moral hazard for banks great and small  while mouthpieces for those banks tell consumers "Ultimately, an educated and informed consumer is the best defense against predatory practices. And which industry is most committed to helping financial literacy? The answer is New York’s and the nation’s bankers."

In his 1988 inauguration speech George W. Bush told Americans his first priority was to recapitalize the banks which as an industry were in danger of failing due to a real estate bubble which had collapsed.  He sent legislation to congress and it was passed.  During the next six years the U.S. economy grew anemically while banks were able to recapitalize themselves on the backs of tax payers with a favorable rate difference engineered by the Federal Reserve. 

'Short of investing directly in a failing bank, lowering the bank's cost of deposits is the sole method available to a central bank to sustain a bank that is "too big to fail."This blunt mechanism has two effects, both very beneficial for financial institutions. Lowering borrowing costs is slow to take effect, since if a bank pays its depositors 6.5% and charges its borrowers 9%, the bank makes 2.5% profit over a year. Not bad. But if a bank borrows money at 6.5% in the short term markets which are under central bank control, invests the proceeds in the bond market, and long term interest rates then fall creating capital gains, the effect is dramatic and immediate.

The Federal Reserve reacted in dramatic fashion, shifting its attention to the banking crisis, the most urgent problem of the day. Between the end of October and January 1991, they dropped their Federal Funds rate from 8.25% to 6.5%. For those banks without major loan problems, this flood of low cost liquidity brought fabulous profits. By the end of 1992, the share prices of JPMorgan and Chase had more than doubled from the crisis low, while shareholders of Merrill Lynch were four times wealthier. Citicorp's problems proved more intractable, and shareholders despaired as the stock price bottomed at Christmas in 1991 The Federal Reserve continued to press their funds rate down until the end of 1992, until it stabilized at 3%. Confidence in bonds escalated rapidly, and the engines of liquidity worked overtime.

In 1992 and 1993 combined, the long term bond market provided capital gains of close to 20%. The "carry trade", as this mechanism had come to be called, was so profitable that many others, particularly hedge funds, rushed to enjoy the ride, borrowing at a low cost and buying bonds. As the potential gains became obvious, unsophisticated investors joined in, pushing the bond market up dramatically in rampant speculation. By the fall of 1993, the recapitalization of the banking system was complete. Even Citicorp had by then increased to $22. At no time during this process did the Federal Reserve acknowledge the magnitude of the problems.'

Banks are necessary.  George Bush's administration tackled the capitalization problem and saved the banks.  However he lost his bid for a second term partially due to an anemic economy caused by the invisible to consumers subsidy for banks.

When the next US real estate bubble developed America again had a president named George Bush.  Commercial Banks had learned some lessons from the mid 1980's real estate bubble.  So had Investment Banks.  Bank real estate loans were sold quickly to investment banks which bundled them together for sale as highly diversified and through diversification theoretically safe bonds.  The bonds were rated by big financial firms like Moodys. While the bubble was expanding there was easy money to be made and the finance industry engaged in questionable practices which resulted in systemic risk to the world's economy.  When the bubble collapsed the government deemed some banks to large to fail.   A liquidity crises occurred but the finance industry was saved by huge temporary infusions of government capital.  The US economy is again suffering anemia from invisible cost due to risk taken by the finance industry.

Lesson's from the US financial industry over the last thirty years and two real estate bubble/bust cyclers confirm "Ultimately, an educated and informed consumer is the best defense against predatory practices. "

But the "industry" most committed to helping inform the consummer is the nation's government since the financial industry including banks of all sizes have proven untrustworthy.

Strong new regulatory structures are needed to prevent history from repeating.

A Magical Mystery Tour...


Brad DeLong goes into raptures of econ-weenyness over “The first of many U.C. Berkeley Oliver Williamson Nobel Prize receptions...” for his colleague.  From a  parochial  viewpoint he says about winning the Nobel  “ I can report that this means Williamson now gets the most coveted possession in Berkeley: his own free campus parking spot...”  From DeLong's point of view as an international trade economists “The way to think about this prize is that it’s an award for institutional economics, or maybe more specifically New Institutional Economics.”

Alex Tabarrok at Marginal Revolution explains Williamson in terms of Adam Smith's pin factory which I think would be old institutional economics.

Using an auto company as a more modern example Jeff Ely at Cheap Talk explains Oliver Williamson's theory of the firm in a concise five paragraphs.

One year after the worldwide collapse of markets investment banks are a type firm being studied more closely than any time since the  New Deal.  Bloomberg reports Oliver Williamson's comments  at a news conference. 

' There’s no easy way to deal with the question of institutions whose failure might pose a threat to the financial system, said Oliver Williamson, co-winner of this year’s Nobel Economics Prize.

“There is no silver bullet,” Williamson, 77, said at a news conference yesterday at the University of California at Berkeley, where he is professor emeritus. “There is no instant answer that I or any of my students or any of my colleagues would be prepared to advance on that.”

Williamson is a founder of organizational economics -- the study of how institutions are created and developed and how they affect growth. In research that may have applications to the financial crisis, he suggested that it is better to regulate large companies than to try to break them up or limit their size...'

Investment Banks are a bit like Carroll's amoral Walrus and Carpenter.  Regulating their appetites will be difficult.  In my opinion the one thing which can be done quickly is reinstatement of Glass Stiegel because the law and regulations connected to it simply need to be re-instated. 

John Quiggan reports from down under:

“I’ve always been keen on Ostrom’s careful and empirically-based analysis of common property systems (I did my Master’s thesis on this topic, and wrote a bunch of papers about it back in the 1980s), in contrast to the factually false Tragedy of the Commons story pitched by Garret Hardin. And Williamson’s work on transactions costs transformed the way economists think about these things, though we have yet to offer a fully satisfactory account of them.” 

In two paragraphs he explains the importance of Ostom's work by comparing it to “what it replaces.”  The work of Garret Hardin. 

But Elinor Ostrom's work is more than the “anti-Hardin.”  Hardin's commons was the modern allegory for rampant unrestrained capitalism.  Rampant unrestrained capitalism failed twice...1929 and 2007-9.  Elinor Ostrom commons are more complex places.  Her studies are data driven rather than dogma driven like Hardin's capitalism and its opponent communism which failed in 1992 Russia.
Her work seems to have an old style American pragmatism flavor.  No one templet fits all human needs for organization of commons.  However in many cases self-organization from the bodtom up develops remarkable structures.     

One of her post doctoral students, James Hanley,  gives a simple picture of the woman and her work.  It begins...”As if fate itself was slapping Oklahoma Senator Tom Coburn upside the head, the Nobel Prize in Economics has been awarded to political scientist Elinor Ostrom (along with Cal’s Oliver Williamson)...”

"I told you it was gonna be a magical mystical tour. ...”  --  John Lennon

 

Nobel Economic Science -- Grasping the Gold

Steven Levitt in his New York Times column/blog Freakonomics underlines broadening direction in Nobel Economic Science awards.  "This award demonstrates, in a way that no previous prize has, that the prize is moving toward a Nobel in Social Science, not a Nobel in economics."

While her selection may have startled economist with undergraduate, graduate, and post graduate work in the field its not really that unusual because economics draws freely from the other sciences.  An economist is identified  usually by degrees in economics but often people from other fields are drawn into economics becoming economist by work rather than formal degree.

Elinor Ostrom may also shake up a few of the "guys"<G> simply on gender grounds because she is after all the first woman to win this award.

Overview -- Economic governance: the organization of cooperation    HTML

                      Economic governance: the organization of cooperation     pdf

Elinor Ostrom Curriculum Vita

Oliver  E. Williamson    Curriculum Vitae pdf

Reframing the Bible

This morning I planned to complete a blog entry on Elinor Ostrom's work leading to her sharing the Nobel Prize for Economic Science.  But...

My morning routine hit one of those rocky places, a choke point,  a forced digression from routine reading “Conservatives retranslate the Bible: Can,  liberals be far behind?”   in Midwest Voices.  As described by George Harris the idea is ludicrous.  David Waters wrote an earlier article in the Washington Post on the same topic. 

The idea is a Bible wiki built on guidelines by Andrew Schlafly, the son of Phyllis Schlafly.   The guidelines effect is to inform the Christian Bible with a conservative slant.

Two of Schlafly's guidelines are provoking controversy and derision.

One is aimed at reversing the trend in modern bibles of using either male or female gender references when the gender of the subject is unknown like God.  Most orthodox christians have been taught God is a spirit and has no gender. The problem here is really an English language problem because we don't have a pronoun for  an all powerful genderless being.  “It” just doesn't seem adequate to describe God.  Personally I don't think God has politics either.  Since he/she ( see the problem)  has no politics obviously in Mr. Schlafly's book he/she  can be co-opted. 

The second problematic guide is “ Exclude Later-Inserted Liberal Passages: excluding the later-inserted liberal passages that are not authentic, such as the adulteress story.”

Schlafly wants to rewrite the Christian canon verse by verse.  This type of bowdlerism can be a powerful tool. 

Of course the Bible has been bowdlerized  before.  Famously Thomas Jefferson created the Jefferson Bible by stripping out everything in the New Testament that didn't appear in three or four of the Gospels.  One would think this would leave a lot of “Christianity” out and it does...that is where the power is because Jefferson's bible gives the essence of Christ's teachings. 

Its a slim volume of about 80 pages.  An easy read or material distilled for a lifetime of action. 

If the Conservative Bible Project gets off the ground I wonder how many of those 80 pages will remain?

Richard Engel express candid and refreshing views on the 10/07/09 Charlie Rose show.

Jonathan Karl like every other American is entitled to his opinion, ABC's Karl: Engel 'taking sides' in debate, but I appreciate Engel's candor. The public deserves Eyes On The Ground from journalist.

>> "What goes around comes around" works for me.<<

> Going for Buddha stature are you? (I'd say striving for, but that would be self-defeating). Those of us learning at your virtual feet thank you for your altruistic sacrifice of nothing.<g><

Chuckle...trying to do my one in six billion bit.

From this mornings reading/watching:

JR - EXTRAIT "WOMEN ARE HEROES", Kibera, Kenya

Talks Karen Armstrong: Let's revive the Golden Rule

Charter for Compassion

Two months ago a friend, an unemployed friend, told me with anguish in his voice "Cole you live an insulated life...you don't know what its like."  Because I am concerned for him the accusation/statement struck home.

Two weeks ago Jim posted a pointer to research suggesting surreal art stimulated mental development.  Jim does interesting science pointers.

Those two incidents working together prodded me to look on the net for cocoon windows.  I begin each day looking through these new windows. It only takes fifteen to thirty minutes.  My brain/horizon is being expanded.  

DailyMotion's featured video fits surreal art.  I think the part  in  "WOMEN ARE HEROES" where a passing train momentarily forms giant faces is gripping.  Its art and pattern recognition merged.  The music is usually very different from the classics that form the backdrop of my day although last week this one used music from The Planets by Holst.

For a chaser after DailyMotion I watch a TED, Ideas Worth Spreading, presentation. Last week I began working through TED talks generated by the search "string theory"  which will resume Monday.  There are synergies in that list.  Amy Tan in Where does creativity hide?  mentions string theory once.  But early on in her humorous monologue it seemed she was illustrating the last two of Lee Smolin's,  on science and democracy cosmologies.  Her mother's "everything has a reason" is Newtonian physics and Amy Tan's "can't it just be a random event" reflects the Relational Universe.

This morning Karen Armstrong's talk Let's revive the Golden Rule
diverted my attention from string theory and redirected me to the  Charter for Compassion.
  
There are 38 days left until the Charter for Compassion is publicly released.  I expect news stories and blogs to focus on the Charter and its message of hope for all.  Please join me in celebrating our common humanity.

"It's a concept only it needs work before it becomes a chairman's mark, and then more work before it becomes a bill, then more wor.. well you get the idea."

The evolution of bills in Congress sure is interesting.  The process seems cumbersome but it insures lots of eyes are looking at how complex bills are written even if the conservative punditocracy bitches endlessly alleging no one actually reads the bills.

Paul Rieckhoff

 blogged yesterday , Congress Gets Paid, Veterans Get Shafted

.  That is a great hook headline. 

Its not unusual as Rieckhoff points out for Congress to miss the deadline.  I've become inured to it.  There is no big damage because Congress has a temporary work around to fund government activities so unless the work around fails everything continues as it was in the past year.  Rather static unless some of God's Lesser Children do something like purpose defaulting on the national debt (1996). 

What is unsettling is the bit about passing their own funding on time while letting the rest slide.  That is bad PR.  It supports the negative stereotype that they are Congress-critters rather than the positive stereotype of noble democratic legislators working for the best interest of the republic.

Actually the purposed Veterans Administration Funding bill isn't bad this year.  It includes "Advance appropriations" approving the VA health care budget one year in advance which has been supported by most of the veterans groups.  It would be a good idea for Congress to include Advance appropriations in whatever health care reform bill it passes.

Looking at Wikipedia for an article on "Advance appropriation" there didn't seem to be one.  Second advanced hole in Wiki I've found this week.  The other was "Advanced Placement Academy." 

 

1) Without mention of his country's need for oil above $50 a barrel Ali al-Naimi, the Saudi oil minister opines again that oil between $60 and $70 is Goldilocks land.

Saudi Says $75 Oil Helps All Energy Types

2) Just before President Obama addressed a Session of Congress on health care reform September 9th  Kathleen Sebelius was snoozing with Olympia Snowe in the well of the house.

Seducing Olympia Snowe: The Key to Health Reform

3)  Proliferation of fake news stories  on the Internet means its only a matter of time before I get sucked into this growing art form.<G>

Oh noes! Teh Internets makez u gulible

 

Brad DeLong post titled Bubbles! points to a chart, "Households and Nonprofit net worth as a percent of GDP",  at Calculated Risk without comment.  Or rather the title Bubbles! is his only comment.

My amateur chartist eye sees a likely Head and Shoulders formation in this chart.  I wonder if Head and Shoulders chart formations commonly indicate bubbles?  Is this idea too Kafkaesquest?