Or, how banking regulations drove the world economy over the cliff. The Basel agreements on international requirements for banking capitol drove banks into unsound lending.
To understand the issue, we have to understand "capital" as related to a bank. Let's try a simple case, a medieval bank that gets its funds from depositors, in gold, and makes loans. Obviously such a bank cannot loan out ALL the money in the vault, they have to hold onto some money to cover withdrawals and losses (some borrower fails to repay his loan). Obviously the amount of capital to keep is a delicate balance. Money sitting in the bank's vault pays no interest, so the banker is motivated to loan it all out. On the other hand, the banker knows that he can't go THAT far, if he does he will be unable to pay off a depositor, and then a lot of bad things happen, like a run on his bank, tar and feathers ...
Now a days things are more complex, but the issue of capital reserves is the same. Banks ought to keep adequate capitol reserves to cover bad loans. But, now "capital" is more than gold coin. We count paper money, US treasury bonds, and less safe things like mortgages, Greek bonds, common stocks, anything that could be quickly sold for cash to meet obligations. Things like real estate don't count as capital because they cannot be sold quickly. Suppose you needed to sell the Empire State building to raise cash; how long would it take to find a buyer? Who knows.
To create a level international banking field, the big boys got together at Basel Switzerland and set up rules for how much capital banks must hold, and what things count as capital. They even talked the American SEC into imposing these rules on US banks. Trouble is, the Basel rules are bad rules. And every bank got pushed into doing things the Basel way. Under Basel , banks had to hold 8% capital against corporate loans, 4% against mortgages, and 1.6% against mortgage backed securities.
Right there you can see we are in trouble. Everybody knows that mortgages are pretty sound investments ("Safe as houses" they used to say), but mortgage backed securities are extremely risky. But the Basel rules encourage investment in flaky mortgage backed securities instead of genuine mortgages.
It gets worse. Basel defines sovereign debt (Greek bonds) as risk free, so a bank can buy any amount of sovereign debt (loan to flaky Euro governments) and not have to hold any capital at all. This was pure crazy. What is sounder, bonds issued by the likes of IBM, Southwest Airlines, Caterpillar Tractor, or bonds issued by Greece, Iceland, Ireland, or Albania? What kind of loan does more to develop an economy? Loans to flaky governments to pay for welfare benefits, or loans to productive corporations that create jobs?
Basel "regulation" is responsible for the Euro debt crisis. It encouraged banks to load up on high paying but flaky bonds, and now the flaky is coming home to roost (default) Plus, no longer do bad things happen to bankers who make dangerous loans. TARP or the ECB or somebody bails out the loser banks and nobody looses their job or gets prosecuted.
Regulation can be a disaster.
Monday, December 5, 2011
Neverland
Watched it last night in the SyFy channel. It's a made for TV miniseries about the Neverland before Wendy, Jon and Michael Darling fly in. It's an origin story of Peter Pan. Naturally I watched it. I've read the book, I've seen the movie,and I'm ready for more.
The sets and costumes are good, the actor playing Peter is the right age and the right size, and cute enough. The girl who plays Tiger Lily is not cute at all, neither is Tinker Bell.
The two hour premiere is kind of unsatisfying. Peter never gets a clue as to what he should be accomplishing. We hear some talk about getting home to London, but we all know that ain't gonna happen. We know Peter Pan will establish himself and the Lost Boys in Neverland and have adventures going up against pirates and Indians. So when he talks about going back to his previous Oliver Twist like existence in turn of the 19th century, Dickensian London, we know he doesn't have his head screwed on nose to the front yet.
Matter of fact, the opening of the story looks more like Oliver Twist than Peter Pan, right up to including a Fagin, who Peter wants to work for as soon as he is old enough. Fagin gets transported to the Neverland along with Peter and morphs into Captain Hook somehow. Peter has a confusing emotional relationship with Fagin/Hook. At one point they confront each other with large bore flintlock pirate pistols at four paces, only Peter looses his nerve and gives up his gun. Bad Form! The real Peter Pan would have pulled the trigger, blown Hook into next week, and escaped by some magic/acrobatic trick.
The second episode is on tonight. Despite the numerous flaws in the script I'll watch it just to see if something good doesn't happen in the last reel.
The sets and costumes are good, the actor playing Peter is the right age and the right size, and cute enough. The girl who plays Tiger Lily is not cute at all, neither is Tinker Bell.
The two hour premiere is kind of unsatisfying. Peter never gets a clue as to what he should be accomplishing. We hear some talk about getting home to London, but we all know that ain't gonna happen. We know Peter Pan will establish himself and the Lost Boys in Neverland and have adventures going up against pirates and Indians. So when he talks about going back to his previous Oliver Twist like existence in turn of the 19th century, Dickensian London, we know he doesn't have his head screwed on nose to the front yet.
Matter of fact, the opening of the story looks more like Oliver Twist than Peter Pan, right up to including a Fagin, who Peter wants to work for as soon as he is old enough. Fagin gets transported to the Neverland along with Peter and morphs into Captain Hook somehow. Peter has a confusing emotional relationship with Fagin/Hook. At one point they confront each other with large bore flintlock pirate pistols at four paces, only Peter looses his nerve and gives up his gun. Bad Form! The real Peter Pan would have pulled the trigger, blown Hook into next week, and escaped by some magic/acrobatic trick.
The second episode is on tonight. Despite the numerous flaws in the script I'll watch it just to see if something good doesn't happen in the last reel.
Sunday, December 4, 2011
Euro land woes
We have all heard about Greece, Italy and the Euro bond/bank disaster. Essentially, private investors will no longer buy Euro land government bonds, not even German bonds. Investors as a group now doubt that any Euro land government is good for the money. The 50% haircut on Greek bonds is an object lesson.
The dead beat Euro governments are crying for the European Common Bank to print barrels of Euros, and buy their worthless bonds with the freshly printed Euros. The bank is resisting this pressure, so far.
Friday, Angela Merkel was quoted in the WSJ as saying that euro members would have to accept a certain loss of national sovereignty. In plain English, she means that deadbeat members would have to accept outside (IMF, ECB, or German) control of their taxes and spending. Wow! Somehow I don't think that is going to work. Any national government with a speck of pride would rather do without borrowing at all than allow outsiders to set their taxes and spending.
Perhaps the Europeans could take a lesson from the Yankees. American state governments somehow manage to maintain their bond ratings without Federal supervision. The penalty for states that overspend is simple, they have to pay more on their bonds, or in extreme cases, they cannot borrow at all. And, like Euro land governments, no American state can print it's own money.
The dead beat Euro governments are crying for the European Common Bank to print barrels of Euros, and buy their worthless bonds with the freshly printed Euros. The bank is resisting this pressure, so far.
Friday, Angela Merkel was quoted in the WSJ as saying that euro members would have to accept a certain loss of national sovereignty. In plain English, she means that deadbeat members would have to accept outside (IMF, ECB, or German) control of their taxes and spending. Wow! Somehow I don't think that is going to work. Any national government with a speck of pride would rather do without borrowing at all than allow outsiders to set their taxes and spending.
Perhaps the Europeans could take a lesson from the Yankees. American state governments somehow manage to maintain their bond ratings without Federal supervision. The penalty for states that overspend is simple, they have to pay more on their bonds, or in extreme cases, they cannot borrow at all. And, like Euro land governments, no American state can print it's own money.
Line Item Veto vs Balanced Budget Amendment
A line item veto for the president would allow him to delete costly pork barrel projects from budget bills without vetoing the entire bill, and giving the budget writing treadmill another turn of the wheel. In real life it's hard for any president to veto a highway bill or a defense appropriations bill just because Senator Fogbound has slipped in a little $1million bit of pork for his district. If the president could kill off the pork without throwing the entire department into budgetary chaos quite a bit of money could be saved.
Congress critters are dead set against a line item veto just because it would let the president deprive them of the fruits of much hard lobbying and bargaining with mere a tick of his pen.
I am dubious about the value of a balanced budget amendment. Too many ways to weasel around it. First and easiest way, over estimate tax revenues. The budget next year is "balanced" if taxes are as large as spending. Those taxes have not been collected yet, so no one REALLY knows how much tax money will come in. So they make an estimate. And since estimates are subjective, it doesn't take a very smart politician to raise the estimate enough to declare the budget "balanced". Then they can go home and not have to face worrisome questions about budget cuts.
The second way is the "off budget" scam. Declare certain activities, a state toll road authority, the state retirement system, the state university, the social security system, the federal home mortgage bank, stuff like that, to have their own budgets, independent of the state or federal budget. New Hampshire practices this to perfection. More than one half of New Hampshire spending does not come out of the general fund, it comes from a myriad of special purpose funds. It is not hard to show the general fund running a surplus by pushing expenses off on the special purpose funds, who can borrow to pay bills. The general fund can look really good when overall the state is spending more than it takes in by way of taxes.
This simple scheme works; New Hampshire newsies are so clueless as to fall for it and only report on the general fund, ignoring the overall picture. National newsies are as clueless as the New Hampshire sort.
Congress critters are dead set against a line item veto just because it would let the president deprive them of the fruits of much hard lobbying and bargaining with mere a tick of his pen.
I am dubious about the value of a balanced budget amendment. Too many ways to weasel around it. First and easiest way, over estimate tax revenues. The budget next year is "balanced" if taxes are as large as spending. Those taxes have not been collected yet, so no one REALLY knows how much tax money will come in. So they make an estimate. And since estimates are subjective, it doesn't take a very smart politician to raise the estimate enough to declare the budget "balanced". Then they can go home and not have to face worrisome questions about budget cuts.
The second way is the "off budget" scam. Declare certain activities, a state toll road authority, the state retirement system, the state university, the social security system, the federal home mortgage bank, stuff like that, to have their own budgets, independent of the state or federal budget. New Hampshire practices this to perfection. More than one half of New Hampshire spending does not come out of the general fund, it comes from a myriad of special purpose funds. It is not hard to show the general fund running a surplus by pushing expenses off on the special purpose funds, who can borrow to pay bills. The general fund can look really good when overall the state is spending more than it takes in by way of taxes.
This simple scheme works; New Hampshire newsies are so clueless as to fall for it and only report on the general fund, ignoring the overall picture. National newsies are as clueless as the New Hampshire sort.
Saturday, December 3, 2011
The Cat Listener
Cats are not pets. In actuality cats run the house. Humans are placed under some kind of spell that causes them to feed the cat, pet the cat, let the cat in, let the cat out, etc etc. Cats say many things. The attentive human will understand most of them. Cat sayings:
Meow (plain meow): I want attention.
Meow (with some snarl to it): Don't do that.
Purr: I am happy and contented.
Tail lash: I am loosing my temper, beware
Tail Twitch: Something ain't right.
Siren Howl: Get off the property, Right Now
Mewrrp (soft): Pet me.
Hiss: Watch out you. I am planning violence
Thursday, December 1, 2011
"Republicans" who voted AGAINST Right to Work
Right here on Granite Grok
http://granitegrok.com/blog/2011/11/republican_defectors.html#more
I'm sorry to see John Tholl's name on this dishonorable list. We supported him. I went up and poll watched for him one frozen February day.
http://granitegrok.com/blog/2011/11/republican_defectors.html#more
I'm sorry to see John Tholl's name on this dishonorable list. We supported him. I went up and poll watched for him one frozen February day.
Cutting the Defense Budget
Now that the super committee has failed to do squat, the Defense Dept is facing up to some deep budget cuts. Aviation Week published a list of big defense projects that might be canceled to save money
1. Joint Strike Fighter, F35. They are outrageously expensive and killing the program would save really big bucks, more than any other program. Cancellation would piss off a lot of allies who have ordered the fighter and who would now have to scramble to find something to replace it with. A compromise would be to kill the VTOL version which is having technical troubles, and proceed with the standard version.
2. V-22 Osprey. This is in production and has entered squadron service with the Marines. It' been in "development" for nearly 20 years. Trouble is, ordinary helicopters, Chinook, Blackhawk and such, can perform the V-22 mission. And they cost less.
3. Next Generation bomber. The Air Force wants a B-52 replacement, without one, the nuclear deterrent mission goes to the ICBM's sitting in silos. Last time the Air Force went for a next gen bomber it got the B-2 stealth flying wing; a cool plane but so expensive that they could only afford 20 of them.
4. Ground based Midcourse Defense. A legacy ICBM based missile defense system that I never heard of before.
5. Ground vehicles (Tanks, Hummers, MRAPS, Bradley's) What exactly do the Army and Marines need after Afghanistan and Iraq?
6. Ford class aircraft carriers. These are super carriers and super expensive.
7. C-27 Light transport. This is a cargo plane that looks like a miniature C-130 with only two engines. Trouble is, the good old C-130 can do every thing the baby C-27 can do; plus carry more stuff farther.
8. Helicopter modernization. A never ending black hole for money. You can spend the price of a new helicopter on add-on gadgets, bigger engines, and "stuff". In actual fact the existing helicopters are flying missions without expensive modernization.
9. DDG-51/DDG1000 new Navy destroyers. As usual, new Navy warships cost more than existing ones.
10. Littoral Combat Ship. I think "littoral combat" means shore bombardment. Do we want to buy warships so specialized that they can only handle a single mission? Warships are so expensive that I expect them to be able to handle more than one mission. Like deep sea escort, raids on enemy oil platforms, and anti submarine work. Put a couple of decent sized guns on existing warships and they could do shore bombardment. A lot of modern destroyers only have a single three inch popgun.
The real defense funding issue. Should we not have more infantry, so the poor infantry men don't have to serve back-to-back tours in Iraq and Afghanistan and other nasty places?
1. Joint Strike Fighter, F35. They are outrageously expensive and killing the program would save really big bucks, more than any other program. Cancellation would piss off a lot of allies who have ordered the fighter and who would now have to scramble to find something to replace it with. A compromise would be to kill the VTOL version which is having technical troubles, and proceed with the standard version.
2. V-22 Osprey. This is in production and has entered squadron service with the Marines. It' been in "development" for nearly 20 years. Trouble is, ordinary helicopters, Chinook, Blackhawk and such, can perform the V-22 mission. And they cost less.
3. Next Generation bomber. The Air Force wants a B-52 replacement, without one, the nuclear deterrent mission goes to the ICBM's sitting in silos. Last time the Air Force went for a next gen bomber it got the B-2 stealth flying wing; a cool plane but so expensive that they could only afford 20 of them.
4. Ground based Midcourse Defense. A legacy ICBM based missile defense system that I never heard of before.
5. Ground vehicles (Tanks, Hummers, MRAPS, Bradley's) What exactly do the Army and Marines need after Afghanistan and Iraq?
6. Ford class aircraft carriers. These are super carriers and super expensive.
7. C-27 Light transport. This is a cargo plane that looks like a miniature C-130 with only two engines. Trouble is, the good old C-130 can do every thing the baby C-27 can do; plus carry more stuff farther.
8. Helicopter modernization. A never ending black hole for money. You can spend the price of a new helicopter on add-on gadgets, bigger engines, and "stuff". In actual fact the existing helicopters are flying missions without expensive modernization.
9. DDG-51/DDG1000 new Navy destroyers. As usual, new Navy warships cost more than existing ones.
10. Littoral Combat Ship. I think "littoral combat" means shore bombardment. Do we want to buy warships so specialized that they can only handle a single mission? Warships are so expensive that I expect them to be able to handle more than one mission. Like deep sea escort, raids on enemy oil platforms, and anti submarine work. Put a couple of decent sized guns on existing warships and they could do shore bombardment. A lot of modern destroyers only have a single three inch popgun.
The real defense funding issue. Should we not have more infantry, so the poor infantry men don't have to serve back-to-back tours in Iraq and Afghanistan and other nasty places?
Subscribe to:
Posts (Atom)