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February 28, 2009

North Face eats its dogfood

A nice example of a company using its own product:

Even companies not receiving federal money are trimming back. The North Face, the outdoor apparel and equipment company, hosted dealers and business partners at a Squaw Valley resort near Lake Tahoe in California late last year.

But to save the cost of 400 hotel rooms for the first night, North Face created a base camp where the group slept outdoors in North Face clothes and sleeping bags. Groups gave presentations around a camp fire. "The night was freezing cold," said Katja Asaro, managing director at Henry V Events, the Portland company that had planned it. "But people really got into it."

Business Trip, or Just a Junket? It Matters Lately
Published: February 9, 2009
With outrage over lavish events at bailed-out banks, the taint of being seen as wasteful during hard times is affecting corporate America in general.

February 22, 2009

Mortgage Rescue: diagnosing delinquency

On Obama's housing plan was on CNN last night (AC 360 2/20/2008; transcript accessed via Lexis/Nexis):

"TOM FOREMAN: Many who oppose the bill, however, seem to understand it fine. They just think it's wrong.

(on camera) Opponents argue this plan simply has no clear way to determine if a troubled homeowner added to his mortgage problems by spending too much money on other things, for example, sending his kids to private school or buying expensive cars or taking lavish vacations."

Obsidian Wings comments,

Back in the Reagan era, I used to marvel at people who would first rail about the excessive size of government bureaucracies and then complain about, say, welfare fraud. (I was all for managing bureaucracies more effectively; it was the people who seemed to resent their very existence who puzzled me.) If you want a program to be able to distinguish the people who actually qualify for welfare from those who don't, I thought, someone needs to be going through their casefiles. And if you fire all those government bureaucrats, is it any wonder that the people who remain don't do as good a job making those distinctions?

[ Via obsidianwings ]

February 20, 2009

Hedge funds industry shrinks to under $ trillion

For years, managing a hedge fund, and making a fortune for yourself in the process, was the running dream on Wall Street. But now that industry, like much of finance, is withering. Many hedge fund investors are folding. Since last May, these funds' assets under management have dwindled to $964 billion from $1.4 trillion. The private equity business, one of the iconic businesses of the boom, is struggling with a deep slump of its own.

Most large banks have over $US 1 trillion assets under management.

Week in Review
Wall Street's Brain Drain Defense
Published: February 22, 2009
Financial types say pay caps might spur the smartest bankers to jump ship. But there are few places to go

February 18, 2009

Bank burndown analysis

So here's a strong first step: the Treasury Department needs to hire out-of-work bankers to conduct what investors call a "burndown analysis" of banks' financial positions. This is what private investors do as they go foraging for gems hidden amid the wreckage in the banking system.

A burndown analysis, because it is a worst-case exercise, typically requires very pessimistic estimates for loan performance early on and higher-than-average loss estimates for loans in later years. A bank's prospects also derive primarily from its deposits, not its loan book, in such an assessment. To reiterate: Any examination of a troubled financial institution needs to determine what its assets are truly worth, how much can it earn and how much capital it needs to operate at a profit.

The Worst Misstep: Geithner Added to the Doubt
Published: February 15, 2009
The plan unveiled by Treasury Secretary Timothy F. Geithner was vague because vague is less scary, but investors have lost their patience with vague.

February 17, 2009

Without waiting for evidence, Roubini's luck guy feel comes up big

Faith based economics ?

First, the standard analytical explanation: Roubini said that he studied a chart in economist Robert J. Shiller's book "Irrational Exuberance." It showed that U.S. housing prices, adjusted for inflation, had remained essentially flat for a century, until the mid-1990s, when they began to shoot up. What's more, Roubini saw that the most recent housing correction in the late 1980s had a severe effect on the financial system -- leading ultimately to the collapse of the savings and loan industry.

So Roubini knew two things: Housing prices wouldn't keep going up forever, and when they went down, they would take a big piece of the financial system with them. From then on, it was a matter of watching the data.

But everyone else had those same numbers. Why did Roubini act? The answer is that he decided to trust his gut, which told him there was trouble ahead, rather than Wall Street's "wisdom of the crowd," which -- as reflected in stock prices -- said everything was rosy. He concluded that the markets were not pricing in the degree of risk that was actually present in housing.

"The rational man theory of economics has not worked," Roubini said last month at a session of the World Economic Forum at Davos. That's why he and other prominent economists are paying more attention to behavioral economics, which starts from the premise that economic decisions, like other aspects of human behavior, are influenced by irrational psychological factors.

The most compelling rebuttal of the rational model, paradoxically, was delivered by the ultimate rationalist, Alan Greenspan. "I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders," the former Fed chairman told Congress last October.

The Death of 'Rational Man'
Washingtonpost.com, by David Ignatius
Sunday, February 8, 2009; Page B07

February 16, 2009

Mortgage Insurers dodged 100% LTV bullet

Traditional home mortgage finance structure options:

A. 20 % down, 80 % LTV mortgage, no Insurance
B. 10 % down, 90 % LTV mortgage, with Insurance

Circa 2005:

C. 0 % down, 80 % LTV mortgage, 20 % LTV HELOC (total LTV = 100 %), no Insurance

The mortgage insurers thereby missed taking risks on some of the most leveraged homeowners.

The mortgage insurers were cut out of the worst deals (lucky for them!), because Wall Street happily securitized 100% financing with 2nds and no MI (mortgage insurance) . But the losses are still piling up.

[ CR ]

February 14, 2009

Radisson 2009: tour du nord 2009


Google Maps

Flicker Set; example; DuctTape.

Motoring File



Published in MINI, driving, dominion, Hudson.

February 7, 2009

Alison Moyet tribute

Alison Moyet and Yaz have some soulful songs.

Also acclaimed, Peaches, the Velvet Underground's Pale Blue Eyes and The Smiths' There is a Light That Never Goes Out

Not your average teenage pop lovesongs.

February 6, 2009

In coverage of recession, few rays of hope

"The headline that you will never hear is 'The market was down 110 points, a random fluctuation in a very complex system,' " said Eric Schurenberg, the former managing editor of Money magazine who is busy building -- get this -- a financial Web site for CBS. "No one has ever known what was going to happen, but there is this temptation to act like you did. But that fantasy has been exploded."

To engage their audience, business journalists need to act like things are changing all the time. As it turned out, what didn't change much was the fundamental lessons: have a diversified portfolio, don't buy more house than you can afford, don't take on more debt than you can support, or trade on the margin.

-- David Carr

This Just in: The Market Is Still Dead
Published: February 16, 2009
Financial journalists still can't figure out how to cover the recession.

February 5, 2009

Black Swan Formation

The amusing certitude technical analysts place on trading price and volume in equities markets reaches a new high: the black swan formation.


Via Elite Trader.

February 4, 2009

Austrian Economists

austrianeconomists considers various matters

Example: on failure:

When Dave Prychitko and I were students of Kenneth Boulding, Mr. Boulding told us both once that if economists really wanted to learn we would study the waste baskets of our peers not what gets published in the journals. Like most "bouldingisms", his statement while odd upon first hearing is actually profoundly true once you think abit about what he is getting at. We learn much more from our failures than we learn from our successes if we open ourselves on the lesson to be learned.

Contrast 37 Signals's Signal vs Noise SvN's take:

I don't understand the cultural fascination with failure being the source of great lessons to be learned. What did you learn? You learned what didn't work. Now you won't make the same mistake twice, but you're just as likely to make a different mistake next time. You might know what won't work, but you still don't know what will work. That's not much of a lesson.

February 3, 2009

Stimulus scuffle -- jobs, earmarks, pork, stimulus, or what.

Stimulus scuffle -- it will be really difficult to re-contextualize such discussions by year 2020.

But with public opinion quickly turning against the bill, and the House Republicans claiming the moral high ground as they held formation to oppose him, how could Obama be distanced from responsibility for elements of the bill under GOP attack and remain above the fray? That seemed to be the locus of White House concern, and according to those familiar with what happened, the "polarizing" Nancy Pelosi was designated to take the fall.

Rather than define the bill by its substance and make its opponents attack jobs creation, the strategy was to talk about process -- how everyone's ideas on both sides of the aisle would be welcome and that this bill would represent the best bipartisan thinking about how to face the current economic crisis. That left the door wide open for Republicans to step through and caterwaul that their ideas weren't being respected in this new halcyon world of bipartisanship, and somebody had to take the blame. Nancy Pelosi, come on down!

-- Jane Hamsher @ FDL

February 2, 2009

Krugman and Clinton: middle class up to $250,000 in 1993

Middle class faded out above $140,000 to $250,000 per year, back in 1993.

Paul Krugman, 1993 on Bill 'Middle Class Tax Cut' Clinton's tax plan:

Bill Clinton's economic program: higher income taxes for wealthy Americans. Families with taxable incomes above $ 140,000 currently pay a tax rate of 31 percent. The Clinton plan will raise that rate to 36 percent, and families with taxable income over $ 250,000 will pay 39.6 percent.

Suppose a couple earning $ 200,000 a year has a $ 600,000 mortgage, two children in expensive colleges, large car payments and lavish tastes.

The Clinton Tax Increase: Why taxing the rich makes sense

A big fight is looming over one of the key elements of Bill Clinton's economic program: higher income taxes for wealthy Americans. Families with taxable incomes above $ 140,000 currently pay a tax rate of 31 percent. The Clinton plan will raise that rate to 36 percent, and families with taxable income over $ 250,000 will pay 39.6 percent. To block these increases, the Republicans have wheeled out heavy intellectual artillery. Harvard's Martin Feldstein, a former Reagan adviser who fell out with his boss over federal budget deficit reduction, claims that new taxes on the rich will raise very little money and may even end up increasing the deficit.

Raising taxes on high incomes makes sense. During the 1980s, the incomes of the top 1 percent of families doubled in real terms while the incomes of middle-class households stagnated and the poor got poorer. The tax policies pursued by the Reagan and Bush administrations were not the main cause of the growing inequality in the United States, but they did favor the well-off. Now we face a huge budget deficit, much of it to pay interest on the debt run up under Reagan and Bush. It's not irrational to think that those who prospered most during the 1980s should pay a large share of the bills from that decade. It is also politically crucial for the Clinton administration to place as much of the new tax burden as possible on high-income families. After all, what is the alternative? Leaving aside the usual rhetoric about eliminating waste and fraud, the only serious option is to raise taxes or cut benefits for the middle class and poor. So while the president has called for a little bit of sacrifice from all Americans, he wants to concentrate the pain on people with high incomes. Indeed, he proudly declares that 70 percent of the taxes he proposes to raise will come from only 2 percent of the population.

Rich reaction. Nobody knows for sure how rich American families will react to Clinton's new tax initiatives. Think of a family that currently has a taxable income of $ 200,000. The Clinton program will raise the rate on the top $ 60,000 of that income from 31 to 36 percent; if the family doesn't change the way it works and saves, it will pay $ 3,000 in additional taxes. But suppose that the family decides, in the face of these higher taxes, to work a little less or to increase contributions to a tax-deferred retirement plan. If these steps reduced taxable income by $ 10,000, for example, the tax revenue will be $ 600 less than before.

Clinton's economic advisers have not released the assumptions and methodology behind their revenue estimates, but reports indicate that they assume no reduction in work effort and only a small amount of tax avoidance. In fact, it is possible that some high-income families may actually work harder because of higher taxes. Suppose a couple earning $ 200,000 a year has a $ 600,000 mortgage, two children in expensive colleges, large car payments and lavish tastes. To maintain this lifestyle, the couple might redouble their efforts in the workplace to compensate for the income lost to higher taxes.

What about tax loopholes? During the 1970s, well-off families engaged in elaborate legal schemes such as oil- and gas-drilling partnerships to shelter income from taxes. Supporters of Clinton's plan argue that today's tax laws offer many fewer loopholes -- and that the president's plan tries to close some of those that remain. Still, Clinton's critics claim that ingenious taxpayers and their lawyers will find legal ways to make taxable income vanish.

Despite the uncertainties, taxing rich American families to help reduce the nation's enormous budget deficit is a policy worth supporting. What is the downside? The new taxes on high incomes are only part of the Clinton plan. If revenue from these levies is $ 10 billion less than expected, it certainly won't kill the $ 6 trillion U.S. economy. Republicans worry about the impact of the tax increases on work incentives and economic growth, but the American economy thrived in the face of much higher taxes on well-off families during the 1950s and 1960s.

And consider the benefits. Higher taxes on the rich will probably raise a lot of money, although the revenues may not reach the $ 25 billion-a-year level that Clinton's advisers expect. Equally important, heavier taxes on the wealthy will help convince middle-class Americans that the sacrifices they still have to bear -- the energy tax and the soon-to-be-announced costs of health reform -- are fair.

So, two cheers -- and crossed fingers -- for the Clinton tax plan.

Originally published, 5.31.93

February 1, 2009

Stimulus Prototype: walking around money

The stimulus efforts could focus on public goods and durable infrastructure, taking advantage of a lull in private investment to deploy underutilized resources without
crowding out much private investment.

Or, the stimulus could just be a lot of walking around money.

Some street money comes from party fundraisers, like the Philadelphia Democratic Party's biannual Jefferson-Jackson dinner. But most of it comes directly from the candidates. Everyone from the presidential nominee to congressmen and state representatives are expected to chip in. (The top of the ticket usually contributes the most.) In Philadelphia, the candidate sends a check to the chairman of the city's Democratic Party, who then divides the money up among the 69 ward leaders, who in turn divvy up their cash among the 50 or so committee people in each ward. In 2004, John Kerry spent hundreds of thousands of dollars on Philadelphia street money, and ward leaders received checks for as much as $8,000. Individual volunteers can generally expect anywhe
re from $10 to $200, depending on the location and the type of work they're doing.