It's about time. I do think it is a good thing when economists participate in both business and policy--such things inform both teaching and research. But disclosure is important. We may all think of ourselves as forthright and objective, but we are in fact shaped by experiences (and as economists never cease to remind us, by our paychecks). Gary Becker's line in Chan's piece about replicability curing all ethical problems doesn't really hold up, because lots of economic theory has never been or has been inadequately tested against data (George Akerlof does a very good job demonstrating this in his AEA Presidential Address from 2007).
We seem as a profession to have a difficult time dealing with ethics--it makes us squeamish, because mainstream economics often celebrates avarice. But one of Adam Smith's earth shattering works was called The Theory of Moral Sentiments, so he wasn't squeamish about thinking about such things as all.
I have within this blog from time-to-time disclosed my relationships when such things might matter to what I am writing. The two most important are with Realtors (when I was a graduate student I worked for the Wisconsin Realtors Association, and I was a consultant on Existing Home Sales in the late 1990s and early 2000s) and with Freddie Mac (where I worked for less than a year and a half in 2002-03). My center at USC has a large number of donor members. I have also consulted for the World Bank. These relationships have been rewarding to me financially and intellectually, and while I like to think I play things straight, I would be foolish to pretend that these experiences have had no influence on my outlook. I leave it to readers to determine the impact of such influence on the validity of what I write.
Jumat, 31 Desember 2010
Kamis, 30 Desember 2010
How the NCAA undermines the academic enterprise
I love major college sports; I have enjoyed having athletes in class--they actually tend to run the gamut in terms of how well they do, and I appreciate the time management skills required to be a varsity athlete while performing well in class.
But part of the academic enterprise is instilling in students the importance of not bullshitting. The NCAA undermines this when it states things like:
But part of the academic enterprise is instilling in students the importance of not bullshitting. The NCAA undermines this when it states things like:
Money is not a motivator or factor as to why one school would get a particular decision versus another. Any insinuation that revenue from bowl games in particular would influence NCAA decisions is absurd, because schools and conferences receive that revenue, not the NCAA.But who are the members of the NCAA? The schools! This statement meets Harry Frankfurt's criteria for bullshit, and is an example of why bullshit is harmful. Frankfurt:
Someone who lies and someone who tells the truth are playing on opposite sides, so to speak, in the same game. Each responds to the facts as he understands them, although the response of the one is guided by the authority of the truth, while the response of the other defies that authority and refuses to meet its demands. The bullshitter ignores these demands altogether. He does not reject the authority of the truth, as the liar does, and oppose himself to it. He pays no attention to it all. By virtue of this, bullshit is the greater enemy of the truth than lies are.It seems to me that those of us who have anything to do with colleges and universities have an obligation to avoid bullshit.
Rabu, 29 Desember 2010
2011: HELLO LOSERS!
IF YOU DESCRIBE YOURSELF AS THE BANKRUPT ALSO-RAN, THE SURE-TO-LOSE STOOGE, THE DUD THAT ALWAYS FLOPS, THEN WELCOME MY DEAREST ICONIC FAILURES, JOIN THE CLUB OF LOSERS WHO WILL RULE 2011
Loser! If that word stings you to the core of your heart, yet is the exact word that describes you completely, in every aspect, then this editorial is for you. Hello losers! Let me usher in the new year 2011 for you hoping that you never forget the feeling of being a loser, and that you always hate every moment of it. Before you start cursing my ten generations and beyond, let me quickly take you through the story of five losers who, for me, embody the spirit of despondent losers.
This boy from Syracuse (New York), was labelled a dyslexic when he was just seven. His friends would harass him, and his school teachers would humiliate him. This is how he describes his early days, “I’d try to concentrate on what I was reading, then I’d get to the end of the page and have very little memory of anything I’d read. I would go blank, feel anxious, nervous, bored, frustrated, dumb. I would get angry. My legs would actually hurt when I was studying. My head ached.” He went to three different high-schools and each time, he would try to hide his disability. Soon it would be discovered, and he would be sent off to remedial reading. He raised his hands very often in class, only to ensure that his teachers noticed him and gave him extra points so that he could just about make the passing grades. Even when he had to complete his homework, he would first dictate it to his elder sister, make her write it down, and then copy it word to word.
His parents got separated when he was just 12, and he along with his sister Lee Anne, moved with his mother to New Jersey, where she had to work in three jobs simultaneously to earn enough to feed the family. Everything in his life, besides playing baseball, soccer and football, seemed hopeless. He finally managed to clear high school but failed his undergrads as he was a “functional illiterate”. He loved to learn, wanted to learn but the dyslexia was debilitating (Many times, he would even forget that when the fuel gauge in the car falls to ‘E’, it needed refuelling). He decided to move to LA to become an actor. Even then, the loser in him found it hard to pass auditions, because he simply could not read the script. He started requesting others during the auditions to read the script and the directors to talk about the characters and the film. He wanted to give it all up many times, but whenever he did, all he remembered were his mother’s words – “You’ve got so much potential. Don’t give up.” In 1983, he landed his first starring role in the film Risky Business. He got noticed. Three years later, Top Gun was released, which grossed $343 million and made him a millionaire (he earned $2 million from the film)! Thomas Cruise Mapother IV is his name; Tom Cruise is how we know him – the winner of three Golden Globe Awards (and nominations for three Academy Awards). Tom Cruise, then a dyslexic with poor memory, and today, a certified-flying pilot, a millionaire- producer and one of Hollywood’s most powerful stars! And all that because the loser never gave up!
The second loser in my list was born to unwed, teenage parents at a farm in Mississippi. Her mother was an 18- year-old housemaid (named Vernita Lee), while her father was a 20-year-old freshman in the US army (named Vernon). Soon after she was born, her parents decided to part ways, and she was left in the care of her grandmother, with whom she stayed till she was 6. Her childhood days could simply be described in three statements – she was a female, she was black, and she was very poor. As a child, she used to “playact” before an “audience” of farm animals. She was a bright kid though. On her first day at school, she left her kindergarten class after writing a note to her teacher, where she expressed her intent to study in the first grade. She was promoted to the third grade the very next year.
At the age of 6, she was sent to a very poor and dangerous neighborhood in Milwaukee, where she lived with her mother and two half-brothers. There, she was repeatedly raped by her cousin, her uncle and her mother’s friend. And her mother, because she worked odd jobs during odd hours, and because of their massively disadvantaged background, could frustratingly do nothing. The girl’s sufferings did not end there. She disintegrated into a habit of repeatedly skipping school, stealing money, and running away from home. Fed up, her mother then decided to put her into a detention home. As luck would have it, there were no openings in the home – and so she was sent to live with her father in Nashville. She became pregnant when she was 14, and gave birth to a dead baby.
Raped, humiliated, without any future, she was devastated, but she swore to herself that she would never give. Her father somehow aided her financially, and through sheer gut-wrenching effort, she became an excellent student at school and participated in the drama and debate clubs. The following year, she won a full scholarship to Tennessee State University (TSU) – and the following year, she was invited to a White House Conference on Youth. Subsequently, she was later given a job to read afternoon newscasts by a local Nashville radio station. When she became Miss Black Nashville and Miss Tennessee during her freshman year at TSU, Columbia Broadcasting System (CBS) offered her a job. And all this while she was still nineteen. She worked at various TV channels and got her biggest break in January 1984, when she became the anchor on a morning talk show called A.M. Chicago. Given the popularity of the show, 20 months later, it was renamed to ‘The Oprah Winfrey Show’. The black, poor, loser had been noticed and was already on her way to becoming a global celebrity. Today, she runs a production house (Harpo Inc.), is the richest black billionaire in the world (worth $2.7 billion) and most importantly, the most powerful celebrity in the world (as per Forbes 2010 ranking). And all because she never gave up!
The third loser in my list was born to Elias and Flora d’Isigny in Chicago’s Hermosa community area. His father was a farmer and a worker at a railroad company. As a young man, he was fired from the Kansas City Star newspaper. Reason: his boss claimed that he lacked creativity. To fulfil his desire to become a full-time cartoonist, he started an animation company called Laugh-OGram Films in 1921. Though the start appeared bright (as he was able to raise $15,000 for the company), the New York distributor, with whom he had tied-up, went bankrupt. Result: end of Laugh- O-Gram. With a mountain of debt in his name, emotionally drained and financially broke, he barely earned a few dimes to pay his rent. Not able to afford proper food, this loser started eating dog food. But despite all that, there was one objective that the man nurtured all along, and that was to never give up.
By missing out on a few meals, he saved his last few dollars to buy a train ticket to Hollywood. And here, in 1926, he created an effervescent cartoon character named Oswald the Rabbit. When he tried to strike a deal with Universal Studios, without his knowledge, Universal went ahead and patented the Oswald character. Of course, the studio paid him nothing. He created more characters; but there were other rejections too. His Three Little Pigs concept was rejected for lack of more characters; filming of Pinocchio was stopped during production; his others creations like Bambi, Pollyanna and Fantasia were utterly disliked by viewers during those times. Fighting against all odds and bankruptcy, the man went on to make the animation film Mary Poppins in 1944, which became a blockbuster hit.
Today, we all know this loser more because of Steamboat Willie, a cartoon character he made – a character that came to be later known as Mickey Mouse. Walt Disney was the name of this loser, who fought failure and sketched his road to success. Although he died in 1966, he left behind a legacy of never giving up. The company he co-founded, The Walt Disney Company, is worth $71.4 billion in the stock market!
The fourth loser in my story is a woman, whose life went into a massive disarray at an age when most of us are well settled. An English teacher in Portugal, she married a TV journalist. But just four months after the birth of her daughter, her husband separated from her. At wits’ end, she left her teaching job in Portugal and decided to be with her sister in Edinburgh, Scotland. Recovering from the divorce was still too painful and the lady kept struggling to make ends meet for herself and her year-old daughter. She had only government subsidies for support. She thought of teaching in Scotland too, but was soon rejected as in order to teach in Scotland, she required a ‘PGCE’ (postgraduate certificate of education). And then, she was diagnosed with clinical depression, and even thought of committing suicide.
Through all this, her one unwavering lighthouse was a book she was writing; a book which allowed her to escape all her miseries; a book which encompassed her spirit of fighting against the worst that life could offer and never giving up. Despite her miserable real life existence, she continued writing the book, spending time in many cafés. After completing the book, when she presented it to publishing house Bloomsbury in 1995, the owner asked her to “get a day job.” Twelve other publishers rejected the book; yet, she continued resolutely. A year later, the same publisher that had rejected her initially, Bloomsbury, offered her a measly £1500 advance for publishing rights in UK.
Although that money wasn’t enough at all, she didn’t give up. In 1997, she applied for grants from the Scottish Arts Council to enable her to continue writing. She received £8000 in return. And then, in 1998, Scholastic Inc. bought the US rights to publish her book for $105,000. The book came to be known as Harry Potter and the Philosopher’s Stone. And she is Joanne K Rowling, the world’s richest author, worth $1 billion. Following are the excerpts from a speech that Rowling delivered to graduates at HBS two years back – “A mere seven years after my graduation day, I had failed on an epic scale. An exceptionally short-lived marriage had imploded, and I was jobless, a lone parent, and as poor as it is possible to be in modern Britain, without being homeless... By every usual standard, I was the biggest failure. Failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me... And so rock bottom became the solid foundation on which I rebuilt my life. I was the biggest failure I knew. Failure gave me an inner security that I had never attained by passing examinations. Failure taught me things about myself that I could have learned no other way.” Her books have so far sold more than 400 million copies and her last four titles of Harry Potter have consecutively set world records as the fastest selling novels in the world. Today, the Harry Potter brand is alone worth $15 billion, with the seven Potter films having grossed close to $5 billion! All because the loser Rowling decided to not give up.
Finally, I come to the fifth loser – and that is you! Every person in this world has had failures, some small, some big. There is no individual on this planet who has been a born winner and one who has never experienced any failure – from Steve Jobs to Bill Gates to Mahatma Gandhi to Nelson Mandela, all legendary icons have been as legendary in being failures at some point or the other in their lives. But the one common quality amongst all of them has been, that they’ve never given up. The resolve to fight each failure – however harsh it might be – with conviction is the attitude that these losers have had. And that’s exactly the attitude that you should cherish for the new year of 2011.
May you not be the biggest example of success ever, but be the biggest example of how to fight the worst failures. May you succeed in inculcating the right loser’s attitude. May you always be the loser that I wish you to be. Wishes for a fantastic new year, my dear losers!
Loser! If that word stings you to the core of your heart, yet is the exact word that describes you completely, in every aspect, then this editorial is for you. Hello losers! Let me usher in the new year 2011 for you hoping that you never forget the feeling of being a loser, and that you always hate every moment of it. Before you start cursing my ten generations and beyond, let me quickly take you through the story of five losers who, for me, embody the spirit of despondent losers.
This boy from Syracuse (New York), was labelled a dyslexic when he was just seven. His friends would harass him, and his school teachers would humiliate him. This is how he describes his early days, “I’d try to concentrate on what I was reading, then I’d get to the end of the page and have very little memory of anything I’d read. I would go blank, feel anxious, nervous, bored, frustrated, dumb. I would get angry. My legs would actually hurt when I was studying. My head ached.” He went to three different high-schools and each time, he would try to hide his disability. Soon it would be discovered, and he would be sent off to remedial reading. He raised his hands very often in class, only to ensure that his teachers noticed him and gave him extra points so that he could just about make the passing grades. Even when he had to complete his homework, he would first dictate it to his elder sister, make her write it down, and then copy it word to word.
His parents got separated when he was just 12, and he along with his sister Lee Anne, moved with his mother to New Jersey, where she had to work in three jobs simultaneously to earn enough to feed the family. Everything in his life, besides playing baseball, soccer and football, seemed hopeless. He finally managed to clear high school but failed his undergrads as he was a “functional illiterate”. He loved to learn, wanted to learn but the dyslexia was debilitating (Many times, he would even forget that when the fuel gauge in the car falls to ‘E’, it needed refuelling). He decided to move to LA to become an actor. Even then, the loser in him found it hard to pass auditions, because he simply could not read the script. He started requesting others during the auditions to read the script and the directors to talk about the characters and the film. He wanted to give it all up many times, but whenever he did, all he remembered were his mother’s words – “You’ve got so much potential. Don’t give up.” In 1983, he landed his first starring role in the film Risky Business. He got noticed. Three years later, Top Gun was released, which grossed $343 million and made him a millionaire (he earned $2 million from the film)! Thomas Cruise Mapother IV is his name; Tom Cruise is how we know him – the winner of three Golden Globe Awards (and nominations for three Academy Awards). Tom Cruise, then a dyslexic with poor memory, and today, a certified-flying pilot, a millionaire- producer and one of Hollywood’s most powerful stars! And all that because the loser never gave up!
The second loser in my list was born to unwed, teenage parents at a farm in Mississippi. Her mother was an 18- year-old housemaid (named Vernita Lee), while her father was a 20-year-old freshman in the US army (named Vernon). Soon after she was born, her parents decided to part ways, and she was left in the care of her grandmother, with whom she stayed till she was 6. Her childhood days could simply be described in three statements – she was a female, she was black, and she was very poor. As a child, she used to “playact” before an “audience” of farm animals. She was a bright kid though. On her first day at school, she left her kindergarten class after writing a note to her teacher, where she expressed her intent to study in the first grade. She was promoted to the third grade the very next year.
At the age of 6, she was sent to a very poor and dangerous neighborhood in Milwaukee, where she lived with her mother and two half-brothers. There, she was repeatedly raped by her cousin, her uncle and her mother’s friend. And her mother, because she worked odd jobs during odd hours, and because of their massively disadvantaged background, could frustratingly do nothing. The girl’s sufferings did not end there. She disintegrated into a habit of repeatedly skipping school, stealing money, and running away from home. Fed up, her mother then decided to put her into a detention home. As luck would have it, there were no openings in the home – and so she was sent to live with her father in Nashville. She became pregnant when she was 14, and gave birth to a dead baby.
Raped, humiliated, without any future, she was devastated, but she swore to herself that she would never give. Her father somehow aided her financially, and through sheer gut-wrenching effort, she became an excellent student at school and participated in the drama and debate clubs. The following year, she won a full scholarship to Tennessee State University (TSU) – and the following year, she was invited to a White House Conference on Youth. Subsequently, she was later given a job to read afternoon newscasts by a local Nashville radio station. When she became Miss Black Nashville and Miss Tennessee during her freshman year at TSU, Columbia Broadcasting System (CBS) offered her a job. And all this while she was still nineteen. She worked at various TV channels and got her biggest break in January 1984, when she became the anchor on a morning talk show called A.M. Chicago. Given the popularity of the show, 20 months later, it was renamed to ‘The Oprah Winfrey Show’. The black, poor, loser had been noticed and was already on her way to becoming a global celebrity. Today, she runs a production house (Harpo Inc.), is the richest black billionaire in the world (worth $2.7 billion) and most importantly, the most powerful celebrity in the world (as per Forbes 2010 ranking). And all because she never gave up!
The third loser in my list was born to Elias and Flora d’Isigny in Chicago’s Hermosa community area. His father was a farmer and a worker at a railroad company. As a young man, he was fired from the Kansas City Star newspaper. Reason: his boss claimed that he lacked creativity. To fulfil his desire to become a full-time cartoonist, he started an animation company called Laugh-OGram Films in 1921. Though the start appeared bright (as he was able to raise $15,000 for the company), the New York distributor, with whom he had tied-up, went bankrupt. Result: end of Laugh- O-Gram. With a mountain of debt in his name, emotionally drained and financially broke, he barely earned a few dimes to pay his rent. Not able to afford proper food, this loser started eating dog food. But despite all that, there was one objective that the man nurtured all along, and that was to never give up.
By missing out on a few meals, he saved his last few dollars to buy a train ticket to Hollywood. And here, in 1926, he created an effervescent cartoon character named Oswald the Rabbit. When he tried to strike a deal with Universal Studios, without his knowledge, Universal went ahead and patented the Oswald character. Of course, the studio paid him nothing. He created more characters; but there were other rejections too. His Three Little Pigs concept was rejected for lack of more characters; filming of Pinocchio was stopped during production; his others creations like Bambi, Pollyanna and Fantasia were utterly disliked by viewers during those times. Fighting against all odds and bankruptcy, the man went on to make the animation film Mary Poppins in 1944, which became a blockbuster hit.
Today, we all know this loser more because of Steamboat Willie, a cartoon character he made – a character that came to be later known as Mickey Mouse. Walt Disney was the name of this loser, who fought failure and sketched his road to success. Although he died in 1966, he left behind a legacy of never giving up. The company he co-founded, The Walt Disney Company, is worth $71.4 billion in the stock market!
The fourth loser in my story is a woman, whose life went into a massive disarray at an age when most of us are well settled. An English teacher in Portugal, she married a TV journalist. But just four months after the birth of her daughter, her husband separated from her. At wits’ end, she left her teaching job in Portugal and decided to be with her sister in Edinburgh, Scotland. Recovering from the divorce was still too painful and the lady kept struggling to make ends meet for herself and her year-old daughter. She had only government subsidies for support. She thought of teaching in Scotland too, but was soon rejected as in order to teach in Scotland, she required a ‘PGCE’ (postgraduate certificate of education). And then, she was diagnosed with clinical depression, and even thought of committing suicide.
Through all this, her one unwavering lighthouse was a book she was writing; a book which allowed her to escape all her miseries; a book which encompassed her spirit of fighting against the worst that life could offer and never giving up. Despite her miserable real life existence, she continued writing the book, spending time in many cafés. After completing the book, when she presented it to publishing house Bloomsbury in 1995, the owner asked her to “get a day job.” Twelve other publishers rejected the book; yet, she continued resolutely. A year later, the same publisher that had rejected her initially, Bloomsbury, offered her a measly £1500 advance for publishing rights in UK.
Although that money wasn’t enough at all, she didn’t give up. In 1997, she applied for grants from the Scottish Arts Council to enable her to continue writing. She received £8000 in return. And then, in 1998, Scholastic Inc. bought the US rights to publish her book for $105,000. The book came to be known as Harry Potter and the Philosopher’s Stone. And she is Joanne K Rowling, the world’s richest author, worth $1 billion. Following are the excerpts from a speech that Rowling delivered to graduates at HBS two years back – “A mere seven years after my graduation day, I had failed on an epic scale. An exceptionally short-lived marriage had imploded, and I was jobless, a lone parent, and as poor as it is possible to be in modern Britain, without being homeless... By every usual standard, I was the biggest failure. Failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me... And so rock bottom became the solid foundation on which I rebuilt my life. I was the biggest failure I knew. Failure gave me an inner security that I had never attained by passing examinations. Failure taught me things about myself that I could have learned no other way.” Her books have so far sold more than 400 million copies and her last four titles of Harry Potter have consecutively set world records as the fastest selling novels in the world. Today, the Harry Potter brand is alone worth $15 billion, with the seven Potter films having grossed close to $5 billion! All because the loser Rowling decided to not give up.
Finally, I come to the fifth loser – and that is you! Every person in this world has had failures, some small, some big. There is no individual on this planet who has been a born winner and one who has never experienced any failure – from Steve Jobs to Bill Gates to Mahatma Gandhi to Nelson Mandela, all legendary icons have been as legendary in being failures at some point or the other in their lives. But the one common quality amongst all of them has been, that they’ve never given up. The resolve to fight each failure – however harsh it might be – with conviction is the attitude that these losers have had. And that’s exactly the attitude that you should cherish for the new year of 2011.
May you not be the biggest example of success ever, but be the biggest example of how to fight the worst failures. May you succeed in inculcating the right loser’s attitude. May you always be the loser that I wish you to be. Wishes for a fantastic new year, my dear losers!
My colleague Lisa Schweitzer gently scolds me, and then teaches me something about LA Metro project management
In response to my post, she starts by writing:
First off, it’s a bad idea to conclude anything about work effort based on what you observe by walking by. That’s like the people who judge professors by saying we “only teach two hours a week.” It’s not a valid sample, and it’s very had to evaluate other people’s work effort when you have never done the job yourself— and that’s particularly true of white collar workers passing judgment on blue collar workers engaged in dangerous and often tiring work–during a recession, no less, where anything that extends their work hours has direct implications for their family’s ability to eat and pay rent (unlike salaried work).It is worth reading the whole thing.
More to the point, Richard is mistaken when he concludes that people are not upset. The LA Weekly recently published a story called L.A.’s Light-Rail Fiasco which eviscerates the CEO of the Exposition Metro Line Construction Authority, Rick Thorpe, for salary and his conduct. Rick Thorpe is exactly the sort of transit guy who becomes a free agent and CEO: relentlessly self-promotional and confident, any previous successes get attributed to his leadership. So he picks up stakes, gets recruited away, commands an enormous salary, and builds a brand for himself that he delivers projects on time and on budget.
Suddenly, some members of the GOP realize they actually will be part of the government
Alan Zibel writes in the Wall Street Journal:
The conservative complaint about Fannie and Freddie is that they privatized profit while socializing risk. This is doubtless true. I just don't see how it is any less true for banks.
[update: just to be clear, I am all for FDIC, and I think on net TARP left the country better off. The point is that we will always rely on the public sector to some extent, whether some people like it or not].
Earlier this year, leading House Republicans proposed to privatize mortgage giants Fannie Mae and Freddie Mac or place them in receivership starting in two years.I actually don't think the mortgage market will ever be truly a private sector enterprise. Suppose Fannie and Freddie were to go away: the most likley entities to step into the residential finance market would be banks. Would this be privitization? Not really. Banks receive explicit guarantees (FDIC) and, as we know from recent events, implicit guarantees as well (TARP was nothing if not the execution of an implicit Federal guarantee).
Now, as Republicans prepare to assume control of the House next week, they aren't in as big a rush, cautioning that withdrawing government support in the housing market should be gradual.
"We recognize that some things can be done overnight and other things can't be," said Rep. Scott Garrett (R., N.J.), incoming chairman of the House Financial Services subcommittee, which oversees Fannie and Freddie. "You have to recognize what the impact would be on the fragile housing market as it stands right now."
The conservative complaint about Fannie and Freddie is that they privatized profit while socializing risk. This is doubtless true. I just don't see how it is any less true for banks.
[update: just to be clear, I am all for FDIC, and I think on net TARP left the country better off. The point is that we will always rely on the public sector to some extent, whether some people like it or not].
Senin, 27 Desember 2010
Keynes on the "Psychology of Society"
My wife gave me a Kindle for Christmas. The first thing I should say is that it is really great: my eyesight isn't what it once was, and I find it very easy to read.. The second is that I will continue to buy books at Vroman's (a Pasadena bookstore), because I want them to stay in business. Third, I downloaded the Economic Consequences of the Peace, which I hadn't read in four or five years. It has a section early on that really struck me:
Europe was so organized socially and economically as to secure the maximum accumulation of capital. While there were some continuous improvements in the daily conditions of life of the mass of the population, Society was so framed to to throw a great part of the increased income into the control of the class least likely to consume it. The new rich of the 19th century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption. In fact, it was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others. Herein lay, in fact, the main justification of the Capitalist System. If the rich had spent their new wealth on their own enjoyments, the world long ago would have found such a regime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect.
The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war [WWI], could never have come about in a Society where wealth was divided equitably. The railways of the world, which that age built as a monument to posterity, were, not less than the Pyramids of Eqypt, the work of labor which was not free to consume in immediate enjoyment the full equivalent of its efforts.
Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring classes accepted from ignorance or powerlessness, or were compelled, perusade or cajoled by custom, convention, authority, and the well-established order of Society into accepting a situation in which they could call their own very little of the cake that they and Nature and the capitalists were co-operating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice.
Rabu, 22 Desember 2010
Is the Mortgage Interest Deduction a "Middle-class" benefit?
Yesterday, I was on the Larry Mantle program on KPCC debating Lawrence Yun about the merits of the mortgage interest deduction. Lawrence is the chief economist of NAR, and is, as such, not disinterested about the issue, but he is an honest advocate (full disclosure: when I was a graduate student, I worked for Wisconsin Realtors, and I consulted on benchmarking the Existing Home Sales series in the late 90s and around 2002 or so ).
He said a couple of things, however, that bothered me. He sort of dissed renters, by saying they pay only five percent of federal income taxes, ignoring the fact that they pay FICA, state and local taxes. One would think Realtors would like renters, since they do, after all, pay rent to property owners. But he also characterized the mortgage interest deduction as being a "middle-class" deduction. This all depends on the defintion of "middle-class."
Let me turn to Eric Toder and colleagues:
He said a couple of things, however, that bothered me. He sort of dissed renters, by saying they pay only five percent of federal income taxes, ignoring the fact that they pay FICA, state and local taxes. One would think Realtors would like renters, since they do, after all, pay rent to property owners. But he also characterized the mortgage interest deduction as being a "middle-class" deduction. This all depends on the defintion of "middle-class."
Let me turn to Eric Toder and colleagues:
The percentage reduction in after-tax income from eliminating the deduction would be largest for taxpayers in the 80th to 99th percentiles of the distribution. These upper-middle-income households would be affected more than tax units in the bottom four quintiles because they are more likely to own homes and itemize deductions and because the higher marginal tax rates they face make deductions worth more to them than to lower-income taxpayers. The very highest income taxpayers, however, will experience a relatively small drop in income (about 0.4 percent on average) because, at the very highest income levels, mortgage interest payments decline sharply as a share of income.So it is probably correct to characterize the mortgage interest deduction as an "upper-middle-class" deduction. The very rich don't benefit that much from it, because they don't really need mortgages. The bottom 80 percent don't benefit much, because their marginal tax rates are low, they are more likely to be renters and perhaps don't itemize their tax deductions. My guess is that people between the 80th and 99th percentile don't need a lot of encouragement to become homeowners.
Selasa, 21 Desember 2010
RIM's Q3 Financials: A Tale of Two BlackBerries
People have been asking for my take on RIM's latest quarterly earnings, which were reported last week (link). The short answer is that I am both less worried and more worried than I was before. I am less worried because the company has more strength than I realized internationally, and I am more worried because the situation in North America is worse than I thought.
Before I get into my comments, I should point out that I don't think you can use a single quarter to declare a company either dead or saved, especially when it's as big and prominent as RIM. In the last couple of years, attitudes toward RIM have gone through a couple of cycles in which negative coverage about the company builds up, the company has a good quarter, and the coverage dies down for a while again. I think it's more useful to look beyond the individual quarters and try to see the long term trends.
In that spirit, I think RIM's earnings were good, but I was more interested in the things management said about moving toward new products and services, and by the very rapid changes happening in RIM's international sales. Overall, I wouldn't say the company is out of the woods at all, and 2011 will be a decisive test of its viability. Here's an overview of the earnings, followed by some comments on international and the new products.
Updating the charts
I plugged the latest numbers into the charts from my post on RIM in October (link). They generally look like good news:
Total BlackBerry Subscribers
(Quarters are RIM fiscal quarters)
Continued nice growth. But we'll come back to this one in a minute.
Net New Subscribers Per Quarter
This one is encouraging: additions went up compared to the quarter before. But it's only one quarter; over the year, the rate of additions is flat. Watch the next several quarters to see if there is a trend.
New Subscribers Per Unit Sold
Continuing to decline. If you're looking for bad news on RIM, this is probably the chart you focus on.
Device Gross Margins
Good news, they were stable for the quarter. This is another statistic where you want to look at the trend rather than just a quarter's results. And the trend for the last year looks stable, which ain't bad. (Remember, I have to estimate this number because RIM doesn't report device gross margins separately.)
Device Average Selling Price
Also stable for the last couple of quarters. Good news.
Service Revenue Per User
I didn't chart this one last time, but it's interesting. RIM currently gets about $15 in service fees per quarter per BlackBerry subscriber. That's the money operators pay to RIM per user for the email service. This revenue has been declining slowly but steadily for years, and I don't completely understand why. RIM says it's due in part to a shift toward prepaid customers, which would fit with the international growth they're seeing. But I wonder if also the operators are becoming less willing to share revenue with RIM. Anyway, I think it's a warning sign -- as your market matures you want to find ways to make more money per user, not less.
Adding up all of the results, it looks like a very nice quarter. But remember, one of my main points was that good short-term numbers can mask long-term problems. And in this case, the way RIM reports its numbers hides some challenges.
Looking ahead: A Tale of Two BlackBerries
Two issues really stuck out to me as I looked at the RIM announcement: International sales, and the comments by RIM's management.
In the post I wrote in October, I missed the importance of RIM's international growth. It was a significant oversight. Several people, starting with mobile analyst Dean Bubley (link), pointed out in comments on my blog that BlackBerry has become very popular among young people in many parts of Europe and elsewhere as a messaging phone. RIM also claims it is the number one smartphone platform in Latin America. Its appeal was explained by analyst Horace Deidu, who notes that the BlackBerry Messenger app is more attractive than generic texting because it's free, and because you can see when your messages have been read (link).
Deidu looked at RIM's most recent quarterly financials, and concluded that RIM's revenues had actually declined in North America, a fact masked by the company's rapid growth in other parts of the world (link). That surprised me, because it wasn't featured prominently in most of the reports on RIM's quarter. It was also pretty alarming. All of the charts above look relatively reassuring, but they're a blend of the international business and the North American one. Since the signs of an impending platform collapse are subtle (something I explained in my October post), it's possible that the international growth is disguising big warning signs in North America.
Unfortunately, RIM doesn't report early indicators like gross margin by region, so I had to look for whatever data I could find. I managed to dig out the numbers on the RIM subscriber base in North America vs. elsewhere. RIM doesn't report this directly, but you can calculate it from the quarterly reports. Here's what I found:
BlackBerry Subscribers
Total subscribers in millions
About half of RIM's subscribers are now outside North America (the crossover will probably happen this quarter). Growth in North America looks pretty slow. Here's what the subscriber growth rate looks like:
Quarterly Growth in Subscribers
Percent growth from quarter before
The BlackBerry subscriber base outside of North America has grown rapidly, increasing 15%-25% every quarter for the last three and a half years. North American growth was also strong until about 18 months ago (the second quarter of FY 2010), when growth softened. In the last two quarters, subscriber growth in North America dropped to almost zero.
Yikes. That sure smells like market saturation to me, and the process is a lot further along than I thought.
(Note: I had to interpolate the numbers for a few quarters in fiscal 2008 and 2009, because RIM didn't report them every quarter.)
So at the risk of oversimplifying a bit, the data and the anecdotes from around the world paint a picture of two RIMs: A consumer messaging phone company that has tapped into a new demographic and is growing fast in various parts of the world outside North America, and a prosumer e-mail phone company that has hit the wall in North America and needs very badly to re-ignite its growth through new products and services. It is the best of times, it is the...oh, you get the idea.
This explains a lot of the confusion we're seeing in attitudes toward RIM online. Like blind men feeling the elephant, we see the RIM that's in front of us -- either the consumer RIM that's growing well, or the prosumer RIM that has stalled out. Who's seeing the real RIM? We all are. The phone market is heavily segmented, and it's common for a company to do well in one region and poorly in another (just look at Nokia).
I have to give a lot of credit to the folks at RIM for managing to crank up the growth internationally just as its North American business faltered. I don't know if they were lucky or good, but it's a very hard balance to hit. On the other hand, I don't think RIM is doing any favors to investors by playing down the regional data in its financial reports. That creates a lot of confusion.
What it means for RIM. It looks like the North American business may be closer to a platform collapse than I realized. I think urgent action is needed to keep the company's North American users loyal. The silver lining in that dark cloud is that RIM's growth in other regions can help fund the changes needed. But time is short, and I still worry about RIM's ability to quickly focus on new differentiators and create compelling user experiences.
There's another path RIM could choose to follow -- it could milk its North American prosumer base for profits while accelerating its growth with young people overseas. But if you can trust the comments of RIM's execs, that is not their direction. They seem to believe they are on the verge of succeeding everywhere, in all segments. RIM co-CEO Jim Balsillie was effusive when he took questions in RIM's recent quarterly conference call (you can read a transcript here).
His message boils down to this:
--PlayBook will be a huge hit.
--The new QNX operating system is great.
--Unlike other companies (Apple and Google), RIM will work in cooperation with mobile operators, content providers, and banks to produce services for customers. RIM will not bypass them, so they will steer customers to RIM.
--Don't worry about the iPhone and Android app base, because mobile applications written to a particular OS will become less important in the near future, as users and developers look to support web standards and intermediate development platforms like Flash.
--RIM provides the sort of reliability and security that enterprises want, so it will be the leading B2B mobile provider.
--RIM is growing very fast, and has a lot of plans for 2011 that have not been fully revealed yet. Adding these all together, the company has tremendous opportunities in the coming year.
I was surprised by how relentlessly upbeat Balsillie's comments were -- most CEOs usually hedge their statements to avoid saying something that could be quoted in a shareholder lawsuit. Balsillie sounds like he's either extremely optimistic or extremely anxious to convince people not to write his company off. But I checked some of the previous calls, and it turns out he's always like that.
It's important that you understand the breadth and depth of RIM's ambition, so here are extended excerpts from his comments:
This is called tying yourself to the mast.
Maybe Balsillie is right. Maybe RIM's on the verge of enormous opportunity and explosive growth. I hope it is (seriously; I like RIM and I'd like it to succeed). But RIM is fighting on an enormous number of fronts, and that scares me for a company that has problems creating high-quality knockout products and is transitioning to a new operating system. The effect could be like flooring the gas in a car with a bad transmission -- you might get a surge of power, or you might leave half the engine on the highway. Restoring momentum to a stalled-out platform is a very difficult task, and it rarely goes smoothly, or succeeds in a single year. With all the hype the company is putting into PlayBook and the rest of its strategy, anything less than stellar success in all regions and all product lines in 2011 is going to be seen as a big disappointment. And that sort of disappointment could be the signal that causes users to turn away from its platform in North America.
As I said two months ago, I think RIM's future depends on its ability to focus, differentiate, and execute. I think the latest earnings just reinforce that.
[Note: This post was revised Dec. 22 to add a paragraph and clarify some explanations.]
Before I get into my comments, I should point out that I don't think you can use a single quarter to declare a company either dead or saved, especially when it's as big and prominent as RIM. In the last couple of years, attitudes toward RIM have gone through a couple of cycles in which negative coverage about the company builds up, the company has a good quarter, and the coverage dies down for a while again. I think it's more useful to look beyond the individual quarters and try to see the long term trends.
In that spirit, I think RIM's earnings were good, but I was more interested in the things management said about moving toward new products and services, and by the very rapid changes happening in RIM's international sales. Overall, I wouldn't say the company is out of the woods at all, and 2011 will be a decisive test of its viability. Here's an overview of the earnings, followed by some comments on international and the new products.
Updating the charts
I plugged the latest numbers into the charts from my post on RIM in October (link). They generally look like good news:
Total BlackBerry Subscribers
(Quarters are RIM fiscal quarters)
Continued nice growth. But we'll come back to this one in a minute.
Net New Subscribers Per Quarter
This one is encouraging: additions went up compared to the quarter before. But it's only one quarter; over the year, the rate of additions is flat. Watch the next several quarters to see if there is a trend.
New Subscribers Per Unit Sold
Continuing to decline. If you're looking for bad news on RIM, this is probably the chart you focus on.
Device Gross Margins
Good news, they were stable for the quarter. This is another statistic where you want to look at the trend rather than just a quarter's results. And the trend for the last year looks stable, which ain't bad. (Remember, I have to estimate this number because RIM doesn't report device gross margins separately.)
Device Average Selling Price
Also stable for the last couple of quarters. Good news.
Service Revenue Per User
(Dollars per quarter.)
I didn't chart this one last time, but it's interesting. RIM currently gets about $15 in service fees per quarter per BlackBerry subscriber. That's the money operators pay to RIM per user for the email service. This revenue has been declining slowly but steadily for years, and I don't completely understand why. RIM says it's due in part to a shift toward prepaid customers, which would fit with the international growth they're seeing. But I wonder if also the operators are becoming less willing to share revenue with RIM. Anyway, I think it's a warning sign -- as your market matures you want to find ways to make more money per user, not less.
Adding up all of the results, it looks like a very nice quarter. But remember, one of my main points was that good short-term numbers can mask long-term problems. And in this case, the way RIM reports its numbers hides some challenges.
Looking ahead: A Tale of Two BlackBerries
Two issues really stuck out to me as I looked at the RIM announcement: International sales, and the comments by RIM's management.
In the post I wrote in October, I missed the importance of RIM's international growth. It was a significant oversight. Several people, starting with mobile analyst Dean Bubley (link), pointed out in comments on my blog that BlackBerry has become very popular among young people in many parts of Europe and elsewhere as a messaging phone. RIM also claims it is the number one smartphone platform in Latin America. Its appeal was explained by analyst Horace Deidu, who notes that the BlackBerry Messenger app is more attractive than generic texting because it's free, and because you can see when your messages have been read (link).
Deidu looked at RIM's most recent quarterly financials, and concluded that RIM's revenues had actually declined in North America, a fact masked by the company's rapid growth in other parts of the world (link). That surprised me, because it wasn't featured prominently in most of the reports on RIM's quarter. It was also pretty alarming. All of the charts above look relatively reassuring, but they're a blend of the international business and the North American one. Since the signs of an impending platform collapse are subtle (something I explained in my October post), it's possible that the international growth is disguising big warning signs in North America.
Unfortunately, RIM doesn't report early indicators like gross margin by region, so I had to look for whatever data I could find. I managed to dig out the numbers on the RIM subscriber base in North America vs. elsewhere. RIM doesn't report this directly, but you can calculate it from the quarterly reports. Here's what I found:
BlackBerry Subscribers
About half of RIM's subscribers are now outside North America (the crossover will probably happen this quarter). Growth in North America looks pretty slow. Here's what the subscriber growth rate looks like:
Quarterly Growth in Subscribers
The BlackBerry subscriber base outside of North America has grown rapidly, increasing 15%-25% every quarter for the last three and a half years. North American growth was also strong until about 18 months ago (the second quarter of FY 2010), when growth softened. In the last two quarters, subscriber growth in North America dropped to almost zero.
Yikes. That sure smells like market saturation to me, and the process is a lot further along than I thought.
(Note: I had to interpolate the numbers for a few quarters in fiscal 2008 and 2009, because RIM didn't report them every quarter.)
So at the risk of oversimplifying a bit, the data and the anecdotes from around the world paint a picture of two RIMs: A consumer messaging phone company that has tapped into a new demographic and is growing fast in various parts of the world outside North America, and a prosumer e-mail phone company that has hit the wall in North America and needs very badly to re-ignite its growth through new products and services. It is the best of times, it is the...oh, you get the idea.
This explains a lot of the confusion we're seeing in attitudes toward RIM online. Like blind men feeling the elephant, we see the RIM that's in front of us -- either the consumer RIM that's growing well, or the prosumer RIM that has stalled out. Who's seeing the real RIM? We all are. The phone market is heavily segmented, and it's common for a company to do well in one region and poorly in another (just look at Nokia).
I have to give a lot of credit to the folks at RIM for managing to crank up the growth internationally just as its North American business faltered. I don't know if they were lucky or good, but it's a very hard balance to hit. On the other hand, I don't think RIM is doing any favors to investors by playing down the regional data in its financial reports. That creates a lot of confusion.
What it means for RIM. It looks like the North American business may be closer to a platform collapse than I realized. I think urgent action is needed to keep the company's North American users loyal. The silver lining in that dark cloud is that RIM's growth in other regions can help fund the changes needed. But time is short, and I still worry about RIM's ability to quickly focus on new differentiators and create compelling user experiences.
There's another path RIM could choose to follow -- it could milk its North American prosumer base for profits while accelerating its growth with young people overseas. But if you can trust the comments of RIM's execs, that is not their direction. They seem to believe they are on the verge of succeeding everywhere, in all segments. RIM co-CEO Jim Balsillie was effusive when he took questions in RIM's recent quarterly conference call (you can read a transcript here).
His message boils down to this:
--PlayBook will be a huge hit.
--The new QNX operating system is great.
--Unlike other companies (Apple and Google), RIM will work in cooperation with mobile operators, content providers, and banks to produce services for customers. RIM will not bypass them, so they will steer customers to RIM.
--Don't worry about the iPhone and Android app base, because mobile applications written to a particular OS will become less important in the near future, as users and developers look to support web standards and intermediate development platforms like Flash.
--RIM provides the sort of reliability and security that enterprises want, so it will be the leading B2B mobile provider.
--RIM is growing very fast, and has a lot of plans for 2011 that have not been fully revealed yet. Adding these all together, the company has tremendous opportunities in the coming year.
I was surprised by how relentlessly upbeat Balsillie's comments were -- most CEOs usually hedge their statements to avoid saying something that could be quoted in a shareholder lawsuit. Balsillie sounds like he's either extremely optimistic or extremely anxious to convince people not to write his company off. But I checked some of the previous calls, and it turns out he's always like that.
It's important that you understand the breadth and depth of RIM's ambition, so here are extended excerpts from his comments:
"We have real differentiation and we have real opportunities for extension of the business in a whole bunch of ways. I mean, just the pent-up interest in the PlayBook is really overwhelming, and then you know the whole aspects of carrier billing and value-added services -- you're just going to see a litany of things happening in that area, both for the BlackBerry tablet and the BlackBerry smartphone over the year....
"We're laying in the pieces here to sustain really exciting growth for a long, long, long time....we'll have some pretty pleasant surprises in what we're doing throughout the calendar 2011....
"We're selling lots...We have good products. Our engagement is good. I feel very, very good about U.S. I mean, we're meeting with the guys that run all the carriers, we've got plans, our carrier partners are in place. There is a real desire to do a lot of things and a lot of these things are locked in and new things are being planned....
"I feel great about where we're sitting for 2011 in the carriers in North America, and we've held our base and we've had growth in shipment and we've had okay net adds, but we're positioned to grow very, very strong. We've really knocked the cover off the ball in so many other markets around the world and yet our penetration in those are still very, very modest....We fell very, very good about the future....
"The product roadmap looks great and the application extension B2B and B2C is so strong.... You're going to see a lot of the stuff come out, really over the next month. So it should be very, very interesting....
"The interest in PlayBook in the B2B is uniformly strong....I can't think of an account that isn't just beating down to get units....Overwhelming interest and overwhelming pressure to get units are a pretty fair characterization. So we're very confident just what it's going to do for businesses....
"The core essence of the business is still just moving along so well and growing so fast. So if you layer in this tablet category, and then you layer in advanced services strategies and then you layer in leapfrog future-proved architectures, I feel very, very good about where we are in the U.S. I feel very good about where we are around the world.... Do I think we're in a position to really take where we are and extend it further in a sustained basis in the U.S. and abroad? In my view, without a doubt....Just watch the year unfold and watch 2011 unfold and you should know. I'm fine just letting the proof being in the deliverables. We do keep delivering and we're going to keep delivering, so we're just going to keep it up....
"I think the PlayBook redefines what a tablet should do. I think we've articulated some elements of it and I think this idea of a proprietary SDK and unnecessary apps -- though there is a huge role for apps, I think it's going to shift in the market and I think it's going to shift very, very quickly and I think there's going to be a strong appetite for web fidelity and tool familiarity. And I think there's going to be a rapid desire for high performance, and I think we are way ahead on that. I think, CIO friendliness is...we are way ahead on that....So I think the PlayBook clearly sets the bar way higher on performance and you're going to see more. I think the enterprise stuff, we're seriously extending. I think the BlackBerry is still number one in social collaboration. And I think with the PlayBook and that environment we're going to set the new standard on performance and tools, very powerful tools and we're growing very, very fast."
This is called tying yourself to the mast.
Maybe Balsillie is right. Maybe RIM's on the verge of enormous opportunity and explosive growth. I hope it is (seriously; I like RIM and I'd like it to succeed). But RIM is fighting on an enormous number of fronts, and that scares me for a company that has problems creating high-quality knockout products and is transitioning to a new operating system. The effect could be like flooring the gas in a car with a bad transmission -- you might get a surge of power, or you might leave half the engine on the highway. Restoring momentum to a stalled-out platform is a very difficult task, and it rarely goes smoothly, or succeeds in a single year. With all the hype the company is putting into PlayBook and the rest of its strategy, anything less than stellar success in all regions and all product lines in 2011 is going to be seen as a big disappointment. And that sort of disappointment could be the signal that causes users to turn away from its platform in North America.
As I said two months ago, I think RIM's future depends on its ability to focus, differentiate, and execute. I think the latest earnings just reinforce that.
[Note: This post was revised Dec. 22 to add a paragraph and clarify some explanations.]
Senin, 20 Desember 2010
Small reasons that government drives people crazy
A light rail line going by USC--the Exposition Line--has been under construction for some time now. For a considerable time, the site featured a sign that said the line would open in 2010. Now the estimates are that it will open some time in 2011 or 2012. At the same time, when I walk by the project, I can't say that the workers building it show a great deal of, shall we say, urgency about getting the thing done.
At the same time, I don't hear a lot of people who are upset about how far behind schedule the project is. Maybe this is because no one is planning to take the Expo Line. Maybe it is because peoople have such low expectations of LA Metro that they are not surprised, and therefore not outraged. Either way, it suggests a problem.
I continue to believe that we need government to do certain things (rail tunnels under the Hudson and a more modern power grid, for starters) for the economy to perform well. But when government doesn't perform well, it turns positive NPV projects into negative NPV projects, and it undermines political consensus for the necessity of government.
At the same time, I don't hear a lot of people who are upset about how far behind schedule the project is. Maybe this is because no one is planning to take the Expo Line. Maybe it is because peoople have such low expectations of LA Metro that they are not surprised, and therefore not outraged. Either way, it suggests a problem.
I continue to believe that we need government to do certain things (rail tunnels under the Hudson and a more modern power grid, for starters) for the economy to perform well. But when government doesn't perform well, it turns positive NPV projects into negative NPV projects, and it undermines political consensus for the necessity of government.
Kamis, 16 Desember 2010
Bethany McLean on the GOP "primer" on the financial crisis
She writes:
Second, to say that the Affordable Housing Goals were major contributors to the crisis is silly, because as people like Wallison liked to point out, the GSE's continually lagged the market when it came to advancing mortgages to low income borrowers and underserved areas. Wallison specifically said in 2006 that GSEs were "not doing the job they should for low income borrowers. Finally, the Community Reinvestment Act did not cover many of the financial institutions that originated the most toxic loans.
What bothers me about the entire Republican narrative is that it continues a pattern of argument that suggests that when it comes to finding fault, borrowers are always more culpable than lenders; low income people are always more culpable than high income people; and underrepresented minorities somehow have gotten an unwarranted good deal.
Update: Barry Ritholtz has 10 questions for the GOP members of the commission.
This narrative isn't completely wrong—but it is shockingly incomplete, which makes it, in the end, a ludicrous distortion of what happened.Three points. First, I have never, ever, seen Peter Wallison suggest that banks are ever anything by morally upright and wise, despite lots of evidence to the contrary (I would welcome a correction on this point).
Second, to say that the Affordable Housing Goals were major contributors to the crisis is silly, because as people like Wallison liked to point out, the GSE's continually lagged the market when it came to advancing mortgages to low income borrowers and underserved areas. Wallison specifically said in 2006 that GSEs were "not doing the job they should for low income borrowers. Finally, the Community Reinvestment Act did not cover many of the financial institutions that originated the most toxic loans.
What bothers me about the entire Republican narrative is that it continues a pattern of argument that suggests that when it comes to finding fault, borrowers are always more culpable than lenders; low income people are always more culpable than high income people; and underrepresented minorities somehow have gotten an unwarranted good deal.
Update: Barry Ritholtz has 10 questions for the GOP members of the commission.
Senin, 13 Desember 2010
Jonathan Weinstein on Fairness in Tax Policy
It is worth reading the whole thing; here is the conclusion:
As a 1st approximation, someone in a highly scalable profession would keep roughly(Full disclosure: Jon is my cousin).
half their income, since they enter the game with, on average, half the population
present. (See a more carefully worked out example in the appendix.) There are
many possible adjustments to this estimate; for one, if the inventor or entertainer
is extracting rents from network e ects and they are not actually much better than
a replacement, their Shapley value might be much less than half their income. On
the other hand, someone in a non-scalable profession creates roughly the same value
regardless of the size of society, so they would keep more of their income. Whether
these considerations re
ect fairness is, of course, ultimately a value judgment, but a
50% top marginal tax rate is well within the historical range, so such an outcome
would not be radical.
The great intellectual advances that illuminated the enormous bene ts of the free
market, starting with Adam Smith and continuing into the 20th century, have long
since been assimilated into our political discourse. The danger is that in some circles
the lessons have been learned just a bit too well. The free market then becomes a
21st-century deity whose dictates are perfectly fair and should not be questioned,
lest its manna of prosperity cease to rain down upon us. Warning about this is, of
course, unnecessary for economists, who, whatever their political stripe, understand
perfectly the limits of core equivalence and welfare theorems. Keeping any nuance
is very di cult when intellectual advances are distilled for a larger population, so
responsible academics always have to be very careful in how they discuss the practical
impact of abstract results.
Yves Smith gives Five Rules for Private Label Mortgage Securitization
They are:
1. Mortgages must be seasoned 12 months before they can be securitized
2. The originator must retain at least a 5% interest in the credit risk of the assets sold
3. The interest of all parties to a transaction must clearly be disclosed, along with their fees
4. Re-securitizations (meaning CDOs) are severely restricted (note a disconnect here; the e-mailed and verbal reports suggested they were banned entirely; the language at the FDIC website seems to indicate that they are allowed in limited circumstances, but any use of synthetic assets, meaning credit default swaps, in a asset-backed CDO is verboten)
5. Compensation to servicers will include incentives for loss mitigation
The mortgage securitization industry apparently opposed this, which is odd, in light of the fact that it is doubtful securitization will return in the absence of such rules.
Yesterday's NYT: A Secretive Banking Elite Rules Trading in Derivatives
In the aftermath of The Big Short, one would think we would try to stop this kind of thing. It is one thing to be OK with some people making a lot of money; it is another thing to think it is OK for people to make lots of money because of a rigged game in their favor. I worry that the extraordinary increase in unevenness in wealth is not the result of merit, but the result of the game being more and more rigged.
Minggu, 12 Desember 2010
Density and the use of public transportation
I am grading papers from students in my Advanced Urban course, and a number are reviewing literature on density and use of public transport. The literature suggests that doubling density is associated with something like an eight percent increase in public transit use, but of course, it is difficult to tease out cause and effect: I suspect those who like living densely are also more likely to want to use public transportation.
I can't help but think about a trip I made to a UN conference on urban issues. The conference took place in Barcelona, which has among the easiest to use transit systems in the world--more than half the people there live within walking distance of a metro stop. As it happens, I went to dinner with some officials from the Bush Administration, and when I suggested we use the metro instead of cabs, my companions were, well, stunned at the very idea. I pursuaded them to go, and learned that a bunch of people who lived in a city which has an excellent metro, Washington, never used public transportation.
I could be wrong, but my sense was that taking the metro in Barcelona was a foreign adventure for them in all kind of ways, and one that they did not particularly wish to repeat at home.
I can't help but think about a trip I made to a UN conference on urban issues. The conference took place in Barcelona, which has among the easiest to use transit systems in the world--more than half the people there live within walking distance of a metro stop. As it happens, I went to dinner with some officials from the Bush Administration, and when I suggested we use the metro instead of cabs, my companions were, well, stunned at the very idea. I pursuaded them to go, and learned that a bunch of people who lived in a city which has an excellent metro, Washington, never used public transportation.
I could be wrong, but my sense was that taking the metro in Barcelona was a foreign adventure for them in all kind of ways, and one that they did not particularly wish to repeat at home.
Jumat, 10 Desember 2010
Senin, 06 Desember 2010
I see that the Adminstration's deal on taxes is being characterized as a "compromise"
It is not a compromise. It is a capitulation.
Jumat, 03 Desember 2010
The Residences at LA Live may become LA's icon
After the Hollywood sign, of course. I heard Victor McFarlane give a talk last night; MacFarlane Partners did the Residences at LA Live:
The picture comes from the LA Architecture Awards web site. I drive by this building every day, and enjoy it every day. The place still needs to stand the test of time, but I love the fact that the building is distinctive and doesn't relay on mass or extreme height to be striking.
The picture comes from the LA Architecture Awards web site. I drive by this building every day, and enjoy it every day. The place still needs to stand the test of time, but I love the fact that the building is distinctive and doesn't relay on mass or extreme height to be striking.
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