In which I foolishly read a Brooks column

Tyler Cowen generally runs one of the best blogs out there, so when he praised a David Brooks editorial this morning, I decided to have a look. Now, by Brooksian standards, I suppose the column isn’t that bad, but still… I’m going to have to be more careful with Cowen links going forward. This made me nauseated:

The Greed Narrative goes something like this: The financial markets are dominated by absurdly overpaid zillionaires. They invent complex financial instruments, like globally securitized subprime mortgages that few really understand. They dump these things onto the unsuspecting, sending destabilizing waves of money sloshing around the globe. Economies melt down. Regular people lose jobs and savings. Meanwhile, the financial insiders still get their obscene bonuses, rain or shine.

Talk about your strawman. The condescension is practically dripping from the paragraph (‘zillionaires’? Really, dude?). No-one this side of Dennis Kucinich (or Ben Stein) is actually making the argument that the subprime crisis is entirely driven by some evil fat cat banker conspiracy (the bankers have also lost a ton due to this crisis, and will probably lose a lot more). Rather, the argument made by sensible people is that *some* bad actors acted irresponsibly, and that irresponsibility was both aided and exacerbated by the complexity of MBS. I’m sorry, but when large commercial banks are running ads talking about “how much more house you can afford” with their ridiculous teaser rates, they are partly responsible when things go awry as rates creep up. When you have brokers and banks treating stated income like an actual tax return, well, they bear some blame for the problems down the road.

Here’s the thing: the real Greed Narrative is right. The refi boom dried up in 2004/5, and originators needed to keep the transactions flowing, so they started writing a bunch of – pardon me – shit. Thanks to MBS, they didn’t have to hold it, so they didn’t care how shaky the loans were.  Besides, as long as prices kept rising, people would refi before defaulting, right? You don’t have to be a communist to see that greed and a bad memory (the 90s, people!) were behind a lot of the current mess. So when Brooks breaks this drivel out,

When a new instrument enters the market, it takes a while before people understand and institutionalize it. Whether the product is high-yield bonds or mortgage-backed securities, there’s a tendency to get carried away.

I have to roll my eyes at his naivete. They weren’t being greedy. They just got a little carried away! Give me a break.  Did David Brooks not see the ads IN HIS VERY OWN PAPER for mortgages with like 1.5% teaser rates? With the Teaser Rate Dancers? Also, can we please drop this nonsense about MBS being some brand new idea? They have grown in complexity, but the basic structure of a collateralized obligation has been around since the 80s (did Brooks not read Liar’s Poker?).

And of course we get a whole speech about those brave soldiers of Fairfield County:

 As Sebastian Mallaby of the Council on Foreign Relations has pointed out, time and again hedge funds have dampened market instability. If a currency, a company or a stock market starts to spiral downward, deep-pocketed funds, smelling bargains, will come in and stabilize its assets. If a company’s price is rising to unsustainable levels, contrarian funds bet against the hype.

1) No-one was talking about hedge funds, Brooks. Nice non sequitur.  2) Why is any of this unique to a hedge fund? Only hedge funds buy things that look cheap? What is David Brooks talking about? Why am I reading this? I can feel myself getting dumber. Soon I’ll be talking about how Joe Lieberman is a model Senator, or something. Yet I cannot look away. He also trots this out:

Then, finally, maturity sets in. Those who have lost great gobs of money get fired. People still find the new product useful, but within parameters and with greater safeguards.

The lesson of the Ecology Narrative is that, in most cases, the market corrects itself. Maybe this year banks will change their pay structure so there’s not so much emphasis on short-term results. Maybe companies will change their boards to improve scrutiny over complex new instruments. In short, markets adapt.

Yeah, maybe. And maybe this is the year that the Knicks will go all the way. How is it that after 7 years of Bush’s corporate government, people still think that our corporations can self-police? Hey, maybe the market will magically get rid of carbon emissions too. After all, markets adapt.

Seriously, can we please stop this? The market gave lenders a STRONG incentive to write bad loans. The need to produce flow resulted in comical teaser rates, high LTVs, and no documentation all being given a pass. The tendency of humans to make errors meant that everyone forgot that house prices can go down, and that when they do, people start walking away from their negative equity. This forgetfulness meant that people were willing to buy the crap that lenders were producing. And, unfortunately, the lack of understanding of complex structures meant that many borrowers didn’t really get just how much risk they were taking. The point is, the market failed. It does that sometimes. I don’t think that we need a massive overhaul of the SEC or OFHEO, but some controls over brokers and teaser rates might not be a bad idea, and could help the market work better.

Look. I don’t disagree with Brooks’ conclusion, which is that the financial innovation of the last couple of decades has been immensely beneficial to the economy, and that we shouldn’t let this crisis lead us to create bad legislation (no more SOX, please). But this point has been made far more sensibly elsewhere. On the other hand, part of the innovation process is that when things go awry, we can learn from it, and build structures that help the market work more smoothly. That’s part of the product maturation that Brooks loves so much. All that an article like this is going to do is FURTHER convince liberals that the pro-market crowd doesn’t get it, and generate even more support for like, banning ARMs, or whatever other stupid nonsense Congress has planned.

So, in conclusion, I wish David Brooks would stop writing things about my industry (stick to the McCain worship), and I really hope Marginal Revolution works on its quality control in the future.

That’s what she said

The whole “Who Let The Dogs Out” affair has revealed something important. Mitt Romney = Michael Scott. Think about it. Desperate to be loved, painfully awkward, legendary panderers, chronic backpedalers… they’re the same person.

I can only hope that Mitty gets the nomination, since the writers’ strike means no new Office for a while.

Time is running out (again)

So due to some big life changes, Jen and I will be moving out west this spring. So… I guess this is my last winter in New York City, and that means that I’m running out of time to do all the things that I’ve been putting off forever:

- Hitting up Tomoe for sushi

- Lobster rolls at Mary’s Fishcamp

- Indian food in Jackson Heights

- Checking out the batting cages on the UWS

- Grabbing pizza at Grimaldi’s (though I’m a Di Fara man, myself)

- Taking in the NYC scale model at the Queens Museum of Art

- Watching a Knicks game live at the MSG

Anyone up to join me?

Smear tactics

Am I the only person who is kind of unsettled by the whole “muslim smear” thing? Largely because the “smear” seems to consist of “Obama’s a muslim”? Seems more like an “inaccuracy” to me.

The cost of bad policy

Shocking good sense from our new Minister of Trade:

Trade and Industry Minister Dr Keith Rowley says the annual subsidy on automobile fuel prices is now costing the State $2 billion a year.

And he says the time has now come for the Government to consider whether it should be spending this much money subsidising the price of gasoline and diesel.

Rowley, who is my new favourite politician, even makes the argument explicit:

“And, in so far as we have been buying at that price and subsidising local transport to the tune of $2 billion a year, the time has come in this country to ask ourselves if that is the best way to spend $2 billion.

“Subsiding[sic] transportation to the extent that nobody considers fuel cost when you plan a trip to go anywhere in this country,” Rowley said.

And people wonder why we have so much traffic? Here’s a big part of your answer. I can only hope that Rowley’s cabinet colleagues are paying attention.

I should note that we shouldn’t get rid of the subsidy in a vacuum, of course. It is just one part of moving toward a sensible transportation policy. Bear in mind that $2bn (that’s 300MM USD) can really get you a good deal of transit, and that’s where I think the money should go. We’d all be better off, I think. So of course that means that Rowley’s likely to be ignored…

It’s all about the little things that get you through the day

Forgive me. It’s late, and I’ve read far too much Turkish today.

Competition = scary!

I’ve spoken before about the reluctance of Caribbean governments to allow their citizens to benefit from airline competition, and here we have another example:

The Government has, for the time being, rejected Caribbean low-cost carrier Airone’s formal application to the Civil Aviation Authority for a licence to operate in Jamaica.

Airone, the brainchild of a group of Irish entrepreneurs, including Digicel’s vice-chairman Leslie Buckley, is seeking to establish a Low-Cost Carrier (LCC) with the Norman Manley International Airport in Kingston serving as its hub.

Ostensibly, though, this time there’s a “good” excuse:

However, last Thursday, the minister without portfolio in the Ministry of Finance, Don Wehby, and a team of Government officials took the decision not to grant the new airline a licence now, essentially because the Government is in the process of divesting the loss-making Air Jamaica and it was felt that a decision to grant another carrier a licence at this time would adversely effect the divestment of the national carrier.

Now, I guess they have a point here. The government does need to weigh the potential cash windfall to the taxpayers (assuming the proceeds are used to the taxpayers’ benefit) against the benefits of a low cost competitor. On the other hand, the article makes clear that the government claims that they’d be willing to issue a license after AJ is divested, which… wouldn’t that also affect the value of AJ for potential buyers? One could imagine the eventual AJ investors lobbying against a license, and then, of course, the excuse would be some bullshit about how AJ represents Jamaican national character, or whatever. All this is to say nothing of the fact that the competition (and extra seats to a tourism dependent island) almost certainly outweighs the likely money from divesting AJ, especially given the tortured history of Caribbean airline privatization (see, also, BWIA).

But there’s a silver lining to all this:

“If we are unsuccessful in Jamaica we will set up operations in Barbados. If Air Jamaica is not divested in 12 months’ time, then Jamaica would have missed out on having an affordable, reliable carrier that would have been a boon to the tourism industry and Jamaicans living around the world.”

PLEASE oh PLEASE come to the Eastern Caribbean instead! I’d love to have another competitor to the horrible planes and service from BWIA Caribbean Airlines available.

Unrelated: As of this post, I am switching to using tags, rather than categories. In case you care.

Impenetrable

So I’ve been on a personal finance management kick lately, and I’ve started using a tool called Yodlee Moneycenter to manage my accounts. (So far it works well, and I’d recommend it despite the mediocre interface.) Anyway, since I have a mortgage account with Trinidad’s own Republic Bank, I figured I’d take a shot at setting up an online account there as well, so I could add it to my portfolio. So I head over to the Republic Bank website, click around to the online banking setup, and arrive at a form to put in my information.  I’d just started to fill it out, when I noticed this:

Fill in the form below, click register, print, sign and drop off at any Republic Bank branch.

Come again? Investigations revealed that yes, there is no way to set up your online banking account ONLINE. The irony of this doesn’t seem to register with the geniuses in Republic’s customer support. Their reason for this foolishness is, of course, “security”. Because you know what’s secure: having a bunch of printouts that contain my name, address, all my account information, AND my online username and password sitting around your bank branch, waiting for some disgruntled employee to steal them. Not only have they designed a system where I can’t set up an account from abroad (fuck you, diaspora!), but given this obviously insecure system, I wouldn’t even WANT to set one up if I could. Good job, Republic!

And needless to say, RBTT has the same idiotic policy.

I can haz a real banking system?

Pocket Veto

The Trinidadian presidency is usually thought of as a ceremonial position, but this isn’t entirely correct. A good example of one of the President’s powers crops up in today’s Express:

In 2000, under the United National Congress government, then attorney general Ramesh Lawrence Maharaj piloted to Parliament an act entitled “The Dangerous Dogs Act, 2000″, to provide for regulating the keeping of dangerous dogs which present a serious danger to the public, to make further provision for ensuring that such dogs are kept under proper control and for connected purposes.

The act was debated in both the House of Representatives and the Senate and was passed.

In order for a bill or act to become law, however, it must be proclaimed by the President.

Parliament can pass whatever it wants, but if the President wants to sit on it, he can sit on it for his entire term. It doesn’t happen that often (at least not deliberately; the sort of incompetence seen above is depressingly common), but it could. Something to keep in mind the next time someone rails at you about a switch to a presidential system. At least that system is honest.

What’s a pocket veto?

I guess crankiness beats cheerfulness

We got a race, people! I’m excited to see the first really competitive primary since I moved to the States.