. . . and then double-cross the Republicans. Forget about playing “hardball” or “softball” with the congressional Republicans. It’s time for President Obama to start playing Sharpball. It’s time that Democrats started playing by the same sharp-edged, elbows out rules that the GOP and the last homunculus they were able to get installed in the Oval Office play by.
Showing posts with label Obama. Show all posts
Showing posts with label Obama. Show all posts
Friday, December 16, 2011
Friday, September 9, 2011
I'm Dumb, Like Everybody Else
Looking over the specific proposals contained in President Obama's Jobs Plan last night, I noticed he proposes spending $25 billion to renovate and repair the nation's schools. "That's a really good idea," I thought immediately. And then I stopped myself to wonder why I thought that, and why that was my immediate reaction.
After all, I don't really know if it is a good idea or not; I don't know how many people will be put back to work if this is done, or how much of a stimulative effect it will have on the economy, or whether that $25 billion could be put to better use elsewhere. Nevertheless, after reading about the proposal I immediately formed a very positive and strong belief that this was a good idea.
And then I recalled that only a few weeks ago I had been talking with a friend of mine and he had told me about a guest he had seen on The Rachel Maddow Show who had proposed doing the same thing. The guest had argued in favor of this proposition because (i) our schools need it, (ii) it can be done immediately, (iii) unlike a lot of other construction projects, this type of work is fairly labor intensive and thus employs a lot of people, and (iv) at a bare minimum it at least gets funds pumping through the economy again.
Now, all of that may be true and it certainly sounds right, but the fact remains that I really don't know enough about the situation to definitely say I know what I'm talking about. But even though I recognize that fact, that recognition still doesn't dampen my enthusiasm for the project.
After all, I don't really know if it is a good idea or not; I don't know how many people will be put back to work if this is done, or how much of a stimulative effect it will have on the economy, or whether that $25 billion could be put to better use elsewhere. Nevertheless, after reading about the proposal I immediately formed a very positive and strong belief that this was a good idea.
And then I recalled that only a few weeks ago I had been talking with a friend of mine and he had told me about a guest he had seen on The Rachel Maddow Show who had proposed doing the same thing. The guest had argued in favor of this proposition because (i) our schools need it, (ii) it can be done immediately, (iii) unlike a lot of other construction projects, this type of work is fairly labor intensive and thus employs a lot of people, and (iv) at a bare minimum it at least gets funds pumping through the economy again.
Now, all of that may be true and it certainly sounds right, but the fact remains that I really don't know enough about the situation to definitely say I know what I'm talking about. But even though I recognize that fact, that recognition still doesn't dampen my enthusiasm for the project.
Tuesday, July 26, 2011
The Insidiousness of the "Job Creator" Meme
Something that has gained a lot of traction over on the Right is the idea that the Rich are the ones who create jobs. Apparently just as a byproduct of being rich, jobs are thrown off by them like some kind of magical aura. And this is why, we are told, the Rich cannot be asked to pay any more in taxes: because then they might get mad and take their ball and go home and deprive us of the jobs that spring up miraculously from their blessed footprints.
This is a truly stupid idea. Jobs don't instantly spring up out of wealth, jobs are created whenever there is a demand for some good or service that is not yet being met. Demand creates jobs -- talking about any other factor is just fussing about details.
But there is something else at work here, something more subtle and insidious: the idea that hiring someone is a gift, like alms. If you look for it, you see this idea popping up everywhere.
This is a truly stupid idea. Jobs don't instantly spring up out of wealth, jobs are created whenever there is a demand for some good or service that is not yet being met. Demand creates jobs -- talking about any other factor is just fussing about details.
But there is something else at work here, something more subtle and insidious: the idea that hiring someone is a gift, like alms. If you look for it, you see this idea popping up everywhere.
Saturday, July 9, 2011
Obama Planning to Strong Arm Liberals Over Debt Talks?
It increasingly looks like President Obama intends to use the debt ceiling negotiations to force through some sort of deficit-reduction plan, and that this plan will mostly focus on reducing government spending.
For a long time I had been hoping that Obama was playing some kind of advanced 11th-Dimensional chess with Republicans for political purposes, but the Treasury Department’s recent announcement that the 14th Amendment does not provide a “silver bullet” for circumventing the debt ceiling fairly clearly indicates that Obama intends to strong-arm some kind of deal within the next few days. And that the people he may be intending to strong-arm are liberal Democrats.
Sunday, May 1, 2011
First Thoughts on Bin Laden's Death
UPDATED BELOW
I just logged in a few minutes ago to look something up on Wikipedia, and was shocked to see the news that U.S. forces shot and killed Osama bin Laden earlier today. So, of course, I went to a few news sites and watched President Obama's speech.
Of course, it is way too soon to know much about what happened and hopefully more details will be coming shortly. But like everyone else who pays attention to and writes about news events, I figured I'd jot down -- in no particular order -- my initial impressions and thoughts after watching Obama's speech.
(1) Isn't it nice to have a competent administration again? Isn't it nice to feel that the United States government actually can accomplish something? Since we let bin Laden get away at Tora Bora, and then decided to devote most of our military might to invading and occupying Iraq, I have had a real sense that the United States government just didn't seem capable of focusing on a goal and achieving that goal; still, you would think capturing or killing the mastermind of the largest terrorist attack on U.S. soil would be an important enough goal that we could get past our national ADD for at least a little while. The fact the government was able to finally accomplish this goal now, following hard on the heels of the federal government's speedy and effective response to the tornados that just ravaged Alabama and a lot of the Southeast (in stark contrast to the government's ineffectiveness after Katrina), just makes me feel warm inside, like proof that if we just make sure to give the levers of power to intelligent, competent people then that power actually can be used competently and intelligently.
I just logged in a few minutes ago to look something up on Wikipedia, and was shocked to see the news that U.S. forces shot and killed Osama bin Laden earlier today. So, of course, I went to a few news sites and watched President Obama's speech.
Of course, it is way too soon to know much about what happened and hopefully more details will be coming shortly. But like everyone else who pays attention to and writes about news events, I figured I'd jot down -- in no particular order -- my initial impressions and thoughts after watching Obama's speech.
(1) Isn't it nice to have a competent administration again? Isn't it nice to feel that the United States government actually can accomplish something? Since we let bin Laden get away at Tora Bora, and then decided to devote most of our military might to invading and occupying Iraq, I have had a real sense that the United States government just didn't seem capable of focusing on a goal and achieving that goal; still, you would think capturing or killing the mastermind of the largest terrorist attack on U.S. soil would be an important enough goal that we could get past our national ADD for at least a little while. The fact the government was able to finally accomplish this goal now, following hard on the heels of the federal government's speedy and effective response to the tornados that just ravaged Alabama and a lot of the Southeast (in stark contrast to the government's ineffectiveness after Katrina), just makes me feel warm inside, like proof that if we just make sure to give the levers of power to intelligent, competent people then that power actually can be used competently and intelligently.
Friday, April 22, 2011
A Modest (Financial) Proposal
I heard on the news that President Obama has instructed the Justice Department to conduct an investigation into the oil commodities market to determine whether the recent run-up in oil prices is the result (or partly the result) of market manipulation and/or speculating. I don't really have an opinion about this one way or the other -- at least for right now, I don't have sufficient information to form an opinion -- but it did remind me of something I've been thinking about for a while now.
Might there not be a recognizable benefit to eliminating (declaring illegal) all "naked derivatives trading?"
A large part of why the financial crisis became so bad, so big, was "naked" trading in Credit Derivative Swaps. Now, a "CDS" may sound complicated, but it essentially is just a type of insurance.
For example, suppose you own a bond (or a "market-backed security") or any other type of financial instrument that guaranteed a future payment in, say, 5 years and that had a face value of $100 million. Just as with regular Americans and their homes, this would be a pretty significant asset to have in your portfolio, and so you might want to take out insurance on it -- just the way regular middle-class Americans do on their homes. So, you could go to AIG, just for example, and purchase a CDS. And in exchange for a annual premium payment of, say, $2 million, AIG would insure that if the bond subsequently proved to be worthless AIG would pay you the full face value of the bond.
Five years of $2 million premium payments would knock your net payout on the bond from $100 million to $90 million, but you would have the security of having eliminated the risk that you might lose the entire $100 million. Not bad.
But "naked" derivative trading allowed Walls Street firms who did not own underlying bonds/mortgage-backed securities to purchase insurance on those same bonds anyway. AIG, which apparently believed the ratings agencies' AAA status on these things, figured the bonds could never fail and so thought the premium payments it was racking up constituted "free money." (It apparently never occurred to AIG -- or, more accurately, to AIG's subsidiary, AIG Financial Products, which was really issuing the insurance policies -- to wonder why all of these Wall Street banks, supposedly the brightest of the brightest, were willing to give it all of this "free money.") Accordingly, AIG issued insurance policy on insurance policy covering the same financial assets, happily taking home millions and millions each year in premium payments.
But think about what this means. Suppose AIG issued 20 different policies on the same $100 million bond. Now, instead of being on the hook for a potential $100 million loss if the bond defaulted, AIG would be on the hook for $2 BILLION. This is a substantial increase in liability, all of which turns on whether one single event occurs -- the same bond turns out to be worthless. No matter how unlikely you may think a future event is, the more money you gamble against that event occurring the more disastrous it will be for you if that event does, in fact, come to pass. This is exactly what happened when the music abruptly stopped in the game of financial musical chairs the big investment firms were playing a few years ago.
* * *
But really, what social purpose did it serve to allow investment banks to purchase insurance policies on financial instruments that they were not themselves invested in? How is this not just sheer gambling? Place a $2 million bet - once a year - with the chance of winning $100 million. If the banks actually owned the bond in question, then purchasing insurance on the bond makes sense, because they would just be limiting their risk. But if you don't own the bond, then you are just making a gamble.
Generally speaking, I am not allowed to purchase fire insurance on my neighbor's home. For one thing, there is no social value to my doing so. For another, it does tend to give me a motive to engage in a little bit of arson.
And doesn't it seem to you that something similar may have happened with the financial markets? After all Bank of America was one of the banks most heavily invested in CDS's, which insured mortgage-backed securities that consisted of a whole lot of subprime mortgages all bundled together. Is it a coincidence that Bank of America had a substantial interest in Countrywide Mortgage, the single greatest issuer of subprime mortgages in America?
Similarly, we know that Goldman Sachs got together with one of its richest individual investors and created a mortgage-backed security that consisted of only the worst of the worst mortgages they could cherry-pick. These mortgages were expected to fail. And then the investor and Goldman Sachs sold the security they had created to other investors, purchased CDS's on that security, waited for it to fail, and then demanded full payment on their insurance policies.
In fact, the more you look at things like this, the less it looks like gambling. A closer analogy would be paying an electrician to install wiring in your new home, trusting he has done a competent job because you certainly are not competent to judge the wiring job yourself, and then -- when your house burns down due to substandard wiring -- watching as the electrician cashes in on the insurance policy he took out on your home.
Might there not be a recognizable benefit to eliminating (declaring illegal) all "naked derivatives trading?"
A large part of why the financial crisis became so bad, so big, was "naked" trading in Credit Derivative Swaps. Now, a "CDS" may sound complicated, but it essentially is just a type of insurance.
For example, suppose you own a bond (or a "market-backed security") or any other type of financial instrument that guaranteed a future payment in, say, 5 years and that had a face value of $100 million. Just as with regular Americans and their homes, this would be a pretty significant asset to have in your portfolio, and so you might want to take out insurance on it -- just the way regular middle-class Americans do on their homes. So, you could go to AIG, just for example, and purchase a CDS. And in exchange for a annual premium payment of, say, $2 million, AIG would insure that if the bond subsequently proved to be worthless AIG would pay you the full face value of the bond.
Five years of $2 million premium payments would knock your net payout on the bond from $100 million to $90 million, but you would have the security of having eliminated the risk that you might lose the entire $100 million. Not bad.
But "naked" derivative trading allowed Walls Street firms who did not own underlying bonds/mortgage-backed securities to purchase insurance on those same bonds anyway. AIG, which apparently believed the ratings agencies' AAA status on these things, figured the bonds could never fail and so thought the premium payments it was racking up constituted "free money." (It apparently never occurred to AIG -- or, more accurately, to AIG's subsidiary, AIG Financial Products, which was really issuing the insurance policies -- to wonder why all of these Wall Street banks, supposedly the brightest of the brightest, were willing to give it all of this "free money.") Accordingly, AIG issued insurance policy on insurance policy covering the same financial assets, happily taking home millions and millions each year in premium payments.
But think about what this means. Suppose AIG issued 20 different policies on the same $100 million bond. Now, instead of being on the hook for a potential $100 million loss if the bond defaulted, AIG would be on the hook for $2 BILLION. This is a substantial increase in liability, all of which turns on whether one single event occurs -- the same bond turns out to be worthless. No matter how unlikely you may think a future event is, the more money you gamble against that event occurring the more disastrous it will be for you if that event does, in fact, come to pass. This is exactly what happened when the music abruptly stopped in the game of financial musical chairs the big investment firms were playing a few years ago.
* * *
But really, what social purpose did it serve to allow investment banks to purchase insurance policies on financial instruments that they were not themselves invested in? How is this not just sheer gambling? Place a $2 million bet - once a year - with the chance of winning $100 million. If the banks actually owned the bond in question, then purchasing insurance on the bond makes sense, because they would just be limiting their risk. But if you don't own the bond, then you are just making a gamble.
Generally speaking, I am not allowed to purchase fire insurance on my neighbor's home. For one thing, there is no social value to my doing so. For another, it does tend to give me a motive to engage in a little bit of arson.
And doesn't it seem to you that something similar may have happened with the financial markets? After all Bank of America was one of the banks most heavily invested in CDS's, which insured mortgage-backed securities that consisted of a whole lot of subprime mortgages all bundled together. Is it a coincidence that Bank of America had a substantial interest in Countrywide Mortgage, the single greatest issuer of subprime mortgages in America?
Similarly, we know that Goldman Sachs got together with one of its richest individual investors and created a mortgage-backed security that consisted of only the worst of the worst mortgages they could cherry-pick. These mortgages were expected to fail. And then the investor and Goldman Sachs sold the security they had created to other investors, purchased CDS's on that security, waited for it to fail, and then demanded full payment on their insurance policies.
In fact, the more you look at things like this, the less it looks like gambling. A closer analogy would be paying an electrician to install wiring in your new home, trusting he has done a competent job because you certainly are not competent to judge the wiring job yourself, and then -- when your house burns down due to substandard wiring -- watching as the electrician cashes in on the insurance policy he took out on your home.
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