National Journal Reports
When President Obama told Americans to contact their representatives to show support for his debt-ceiling plan, the response was so strong it knocked out several websites for leading GOP House members.
National Journal checks at 10 p.m. and 11 p.m. of websites for House Speaker John Boehner, R-Ohio, House Majority Whip Kevin McCarthy, R-Calif., and Rep. Michele Bachmann, R-Minn., showed a “Server is too busy” response on an otherwise blank screen. Boehner’s separate representative site was down, also, though the district and House Majority Leader sites of Rep. Eric Cantor, R-Va., were working.
The site for the speaker is up and running but I don’t know what is happening with Boehner’s seperate representative site. My search of www.house.gov* gives two dead links johnboehner.house.gov/ and johnboehner.house.gov/contact give pages with just
“Bad Request (Invalid Hostname)”
Huh ? Was the site hacked ? Did he shut it off ? is www.house.gov as functional as the House of Representatives ?
Results 1 – 10 for boehner.
John Boehner – 8th District of Ohio
Official web site for Representative John A. Boehner (R – OH).
Speaker of the House John Boehner | speaker.gov
13 hours ago – The official site of Speaker of the House John Boehner, Speaker.gov provides the latest news and information from Speaker Boehner.
E-Mail Me | John Boehner – 8th District of Ohio
In addition to the Washington, D.C. office, Congressman Boehner has two 8th District offices easily located for constituents in Butler County and Miami …
by Mike Kimel
Why Economists (On Average) are Terrible Forecasters
My colleague, Rebecca Wilder, had a post at her site entitled Economists are terrible forecasters – why trust them anyway?. The reason why economists as a general rule are lousy forecasters is obvious: there are no penalties to being wildly wrong.
Prominent examples abound. Dow 36,000 anyone? No housing bubble in 2005. I can go on forever, but these aren’t even as as it gets. At least these are bad forecasts of the future. There are plenty of bad forecasts of the past, or even the hypothetical past, too. My favorite example, in fact, of a bad forecast came in 2002, when a group of prominent policy economists, advisors to the then President, told the world that barring the 2001 recession, the US would have enjoyed double digit growth in fiscal 2002. And nobody said peep. It wasn’t front page in the newspapers. It wasn’t in the newspapers at all! Nobody involved paid any price for it, except the public who had to endure the policies “supported” by such an incredibly inane analysis. In fact, just about everyone involved went on to bigger and better things – Governor of Indiana, Dean of the Business School at Columbia, etc.
If there are no penalties to being wrong, there also usually aren’t any benefits to being right. Consider, well, me for example. Regular readers know I don’t make predictions often, but I like to be right when I do make ’em. I can’t think of anyone else who called both the start and end of the Great Recession, in both cases running against the grain, but you aren’t likely to see me on TV any time soon. (I will admit my forecasts weren’t perfect: I misunderestimated the stupidity of the policy responses of both Bush and Obama and thus didn’t expect it to be quite as bad as it turned out.) I can even think of two forecasts made for a then employer that I suspect together cost me a job, despite the fact that the forecasts turned out to be spectacularly right.
Its been said its better to be wrong in the same way as everyone else than to be right alone. That’s certainly true for economists. Unfortunately, that is a bad thing for anyone who listens to economists.
Republicans are crazier than I imagine possible even taking into account the fact that they are crazier than I imagine possible.
It appears that the debt ceiling deal under consideration includes $ 1 trillion in cuts, no tax increases and setting up a committee to pretend that there will be $ 3 trillion more. This shows that the Democrats are spineless and that they know the Republicans really are crazy and aren’t bluffing.
But wait not so fast. There is a stumbling block
But the two sides were still fighting over how to force Congress to produce the second round of savings. Boehner wants to set another debt-limit vote early next year, while Democrats are insisting on a plan that would postpone another debt-limit showdown until after the 2012 presidential election.
So far the Republicans have forced the very serious villager radical centrists to admit that they are crazy. New headline: “Opinions on existence of planet differ, maybe the Republicans don’t have a point.” They have also convinced a majority of self described Republicans that they are too unwilling to compromise and that taxes on the rich should be increased.
Thus they have decided that they are doing so well that the demand a chance to do it again just before an election.
Next week the Bureau of Economic Analysis will release its estimate of Q2 US GDP growth. Of 69 economists polled, the bloomberg consensus is that the US economy grew at a 1.8% annualized rate spanning the months of April to June over January to March. In all, this quarterly growth rate implies just 1.9% annualized growth during the first half of 2011. Not much of an expansion.
Economists have put their ‘hope’ into the second half of 2011. But high frequency data show that the third quarter is setting up to be a doozy as well. This is too bad because we’re talking about jobs and the welfare of American families here.
I like to follow two weekly indicators to get a feel for the labor market and the corporate trucking business. The message is clear: the economy is not improving.
READ MORE AFTER THE JUMP!
First, the bellwether of the state of the US labor market – weekly initial unemployment claims – continues to disappoint. In the week ending July 16, seasonally adjusted initial claims increased 10,000 to 408,000. The 4-week moving average was 421,250, which is just 19,000 below its May peak of 440,250. This week’s report fell on the BLS’ survey week, so the July employment report is likely to be another weak one (weak is of course a euphemism for the June report).
The chart below illustrates the annual growth rate of the non-seasonally adjusted 4-week moving average of initial unemployment claims. I use this for comparison to the second series, diesel consumption, which is not seasonally adjusted. I include the recession bars for association with the business cycle. Claims really are more of a coincident indicator – but the frequency is helpful for gauging the state of the real economy.
The weekly claims are not indicating a recession – they are contracting on an annual basis. However, the contraction in claims is slowing, -8.4% Y/Y, which is much slower than the average -13% annual drop in claims during the first quarter of 2011. Unless claims start to fall more precipitously, the labor market will continue to be stuck in neutral – not good.
Second, the US Energy Information Administration releases weekly estimates of distillate fuel oil supplied to the end user in thousands of barrels per day (real). This is important because roughly 90% of this number is comprised of diesel fuel.
Given that diesel fuel is a primary input to construction and commercial
and industrial trucking, the weekly series serves as a high-frequency
indicator of domestic demand for goods that are transported across the
country. There are seasonalities to this data , but the message is clear:
demand for diesel fuel suggests that wholesale demand is inherently weakening.
Unlike diesel prices, which can be impacted by number of factors including taxes, refining capacity, and most recently by IEA’s petroleum release, consumption measures absolute demand.
The chart below illustrates the same representation of demand for distillate fuel (primarily diesel) as the annual growth rate of the 4-week moving average. The latest data point is July 15. The annual decline was a bit less severe in the week of July 15 – but this series is quite a bit more volatile, and the downward trend in fuel consumption has been established.
by Mike Kimel
Revisiting the Cactus Theory of Development
It is a common view that North America had to play catch-up, but the extensive data sets in this paper suggest that North American wages were up to twice as high as the general level of wages further south.
Honestly, I don’t know how anyone could be surprised. I think I covered the topic fairly well a few years ago so I’ll reproduce it in its entirety below.
I mentioned one of my old Professors, Arnold Harberger, a few times in recent posts. I can be argumentative, and I got into a lot of arguments with him. As a general rule, when I argued with Harberger, I was wrong. There is one thing, and one thing only that I can think of that I disagreed with him that to this day I still think I was right about. So here’s that story…
When I finished my comps, I had a few rudimentary germs of ideas I was considering for thesis topics. My favorite was a theory of economic development. I had spent some time thinking about Mexico and Brazil and the United States – each was the flagship, so to speak, of a colonial power, but the first two are charitably described as developing countries, and the last, well, is the United States.
I also thought about the period from World War 2 onward. At the end of the war, much of the world was in pitiful shape. There wasn’t much to differentiate, say, West Germany from East Germany, or Taiwan from China, or South Korea from North Korea, or England or France from Poland or Czechoslovakia. And Mexico and Brazil were probably in better shape than most, if not all of those countries. And yet, 50 years later there were definitely winners and losers among those countries.
So what was the difference? Here’s what I thought… the difference between Mexico and Brazil and the United States in the 1500s had nothing to do with Mexico, Brazil, and the US, but rather with Spain, Portugal, and England. Spain and Portugal were dying empires, and they basically looted everything they could, often destorying much that they couldn’t loot in the process. England was the most advanced country on earth; it didn’t need anything from the New World, and if anything, there was an outflow of capital (mostly human capital) from England to its colony.
I also thought a bit about Mexico and Brazil and other countries: South Korea, Taiwan, Japan, West Germany, East Germany, Poland, England and China. At the end of World War 2, arguably Mexico and Brazil were in better shape than the other countries I mentioned. South Korea and Taiwan had never been particularly advanced; Japan and West Germany were in ruins. And yet, 50 years later, Mexico and Brazil were lagging behind South Korea and Taiwan and Japan and West Germany. Not so much East Germany and Poland.
What’s the difference? Well… the winners were those that the United States effectively colonized. (And if you don’t think we effectively colonized, say, England, bear in mind there are still US military bases there. As to Taiwan, they were colonized twice – first, when the Nationalists took everything that wasn’t nailed down in China and much that was to Taiwan, and second, with US participation after Quemoy and Matsu. South Korea, Japan, and the rest of Western Europe – I think colonization was self-evident.) In other words, there was an inflow of human capital from the most advanced country on earth. East Germany and Poland were effectively colonized by an empire that was already dying – there was more of a transfer of capital toward that empire (consider reports of Soviet soldiers stealing toilets from German apartment buildings) than the other way.
Now, what is magical about being colonized by whatever the most advanced country on earth? Well… I think it’s a few things. I would imagine that when a country leads the world, it is generally because it has better institutions and a relative strong economic situation. And the institutions, along with capital (human and otherwise) get transferred to the colonies. All of that happened in England and South Korea and so forth, but it did not happen in Mexico or Brazil or Argentina. (Some wag once called them the MBA countries.)
Note that I am not advocating colonization as a way of development. (No “Mouse that Roared” scenario here.) I believe the same effects could be accomplished by copying the institutions from countries that are successful and getting massive infusions of resources.
And yes, I note there are exceptions – places like Luxembourg and the Scandinavian countries – but these seem to have pretty good institutions of their own. Other exceptions include countries where oil was discovered (but an argument could be made the US effectively colonized, if not Saudi Arabia, at least its economy), or one-off special cases; trading posts like Hong Kong and Singapore.
Anyway, Harberger thought this didn’t make sense, and wasn’t a good topic, so I scratched it off the list of thesis topics. But it was one of the things about which he didn’t convince me. And its been over a decade and I still think about this now and then, I still believe there’s something to this. Your thoughts? Am I missing something obvious?
As I said earlier, I think it holds up reasonably well. Looking back a few years, I think I didn’t emphasize enough the transfer of capital and overemphasized human institutions. As I get older and more cynical, I start to think more and more that the supposedly “honest” countries that succeed often have the same corruption as the dishonest ones that don’t, but success sweeps problems under the rug.
For instance, I’m starting to think that Brazil is no less corrupt now than it was, say, in 2000, but since then it discovered oil and gas, and its ethanol has become far more valuable due to rising prices of oil and gas. The Japan that spawned so many scare stories in the American press in the 1980s had a society no different than the Japan of today. Ditto the Argentina of 1990 and the Argentina of today, the Russia of mid-1990s and the Russia of today, the Baltic Tigers of the late 1990s and the Baltic Tigers of today, etc.
Capital flows are vital, and they often flow for reasons that are divorced from reality. (Put another way – the people who allocate capital don’t understand the real world any better than anyone else, its just that by allocating capital they do change reality a little bit at least for a time.)
Agree? Disagree? What else is this little theory missing?
Even the normally level-headed Buce—who knows better and lets us know he knows better—tries to give Tyler Cowen’s broadside at Fannie and Freddie the benefit of some (contrived) doubt. I’ve already screamed about the legerdemain of Cowen’s post elsewhere, so let’s go for the philosophical underpinnings.
Let’s give some ground first. Buce is spot-on with:
One is the question whether Fannie/Freddie misbehaved in the years leading up to the pop. On that point, I don’t think anybody can quarrel that Fannie (at least) has an appalling record of institutional misbehavior: rapacious and corrupt and willing to do whatever it could to pervert the lawful structure of good government–in short, they behaved like a money center bank. [emphasis mine]
I can and will quarrel that it depends on how you define “misbehaved.” As Bakho notes chez DeLong:
Freddie/Fannie responded to the housing bubble once they started losing market share. The pressure on the private F/F was to regain market share.
Would a fully public F/F be under the same pressure to increase market share? No. The pressure would have been for a public institution to not compete with the private sector and only write those loans the private sector was unwilling to write.
Again, I’ll quibble that last sentence—it should read “loans the private sector could not make profitably,” but that’s part of the argument below and generally the phrases should mean the same. But if you believe the risk is being managed properly by the money center and investment banks, there’s no reason ex ante to believe that Fannie and Freddie misbehaved. The “non-conforming” products all fill a consumer need, though some have very limited markets that are truly appropriate.
Balloon mortgages, floating-rate mortgages with (and without) long-term caps, or even IO mortgages make sense for a small subset of people. For balloon mortgages, think people who receive regular, annual bonuses. The second is a yield-curve play for the borrower: either the upfront cost of the cap charged to the borrower gives the bank a cushion or the risk of high rates remains with the borrower. (The latter is a bad idea for anyone at risk of being liquidity-constrained.) The third is more difficult to justify—partially because it should carry a higher interest rate—but might be appropriate for second-home mortgages and the like.
Even I won’t try to defend negative-amortization purchase loans. Any bank or firm that believed—and certainly those that still believe—that such a product has any reason to exist should be closed with prejudice, since its managers and directors clearly have no clue how to run a mortgage-related business.
(Exception noted: reverse mortgages are philosophically reasonable, though I personally don’t believe they are either reasonable or valuable as they are currently sold, especially if you consider all of the non-economic reasons. But reverse mortgages do not have the same risk profile for the bank that reverse-amortization loans do, so the argument is more over demand than supply.)
So there might be a market for all of the products that got headlines in the early and mid-Noughts. The problem is that—even with the size of the U.S. housing market—those niche products are likely to be unprofitable, given the fixed costs, reporting requirements, and back-office operations needed to manage and evaluate the products.
To no one’s great surprise (I trust), the first thing that went was conformance to those reporting and management requirements.
But that still wasn’t enough, especially in the case of the Bubble, so people who might have survived bullet loans or even amortizing floaters with or without caps ended up getting, er, encouraged to take loans that had a worse profile for them. Buce carps:
[The GSEs] were willing to make the right noises about serving public purpose but at the end of the day they had no more interest in the larger public good than Stan O’Neal, Dick Fuld or Jimmie Cayne.
That may have been true at the top—my view of Daniel “acts like Harry” Mudd’s guidance of Fannie is no secret—but the risk controls at Fannie were far superior to the controls Jimmy Cayne enabled. Don’t believe me? Ask Paul Friedman:
“It took two or three weeks to mark,” explained Friedman. “It literally took a dozen people on the mortgage desk night and day, and a bunch of our research people night and day and weekends, three weeks to value this stuff, which tells you just how illiquid it was.”
By the time they did figure out what most of it was worth, the firm had miscalculated badly. “We thought there was $400 million-ish of cushion, and in fact, as it turned out, we missed by like $1 billion out of $1.5 billion,” says Friedman. “It was not even close. You would think you could get it to the nearest billion, and a lot of it was the market deteriorating dramatically in that five or six weeks. But it was just a guess to begin with.”
Don’t get me wrong: I consider this the equivalent of the Bancroft family getting all uppity about how Rupert “ruined their brand” or whatever. Instead of paying for projects and systems that could do that work, Bear upper management—not excluding Paul Friedman—took the cash home every year and budgeted their IT department(s) for the next year. The man who controls the purse strings and prioritization complaining about the system inadequacies may well be the 21st century equivalent of the obligatory teen who kills both her parents and pleads for mercy because she’s an orphan.
But, taking Paul Friedman at his word, his systems couldn’t do in 2007 what Fannie Mae’s could do in 2001. And if the risk cannot be evaluated properly, the price isn’t going to be right. Doesn’t mean it’s too high or too low, just that it’s not going to be right.
So when those “bridge securitizations” (as it were)—mortgages purchased to securitize—become “pier loans” because no one wants to buy the security, you better have priced the loan appropriately, because it’s all going on your books and against your capital.
From what I can tell, what made Bear—and very probably Lehmann—different from all others is that they had their own mortgage origination units. So after all the other “private label issuers” (read: non-GSEs) stopped buying mortgages for MBSes around Hallowe’en of 2006, Bear was still buying from its own pipeline for another two or three months. (By February of 2007, even Bear wasn’t buying.)
Note therefore, that
And any economists can tell you what happens when Qs > Qd. But Buce has more fun:
Or, they wanted that until they didn’t want it, which is to say until they started pouring gasoline on a bonfire.
I suspect that’s not exactly true. Looking at the flows, it appears more that the Mudd Dynasty (and a poke or two from the Bush Administration) resulted in the GSEs being basically the only Origination game in town—“extend and pretend” started early. As I* have often noted, by August of 2007, both Lehmann and Bear were issuing debt—and, with due respects to Felix (and Robert multiple times etc.)—the market (as I have noted before) knew that all was not well and any investor who was truly “rational” was paying attention to spreads. (The rest were running “money market funds.”*)
So if you want to argue that the GSEs extended the crisis, you’ll get no argument from me (so long as you note that, even there, they had help from the Administration and its allies).
So where am I quibbling? Try here:
I do think that defenders of Fannie/Freddie get a bit ahead of their skis sometimes, and I suspect the reason is that they fear for the institutions per se; the defenders see their enemies as wanting to put Fannie/Freddie out of business and they don’t want Fannie/Freddie to go. Me, I’m still on the fence on that issue. It’s not obvious to me that we need government-sponsored mortgage market makers. I can see you don’t want to terminate tonight–or there would be no lending at all. But schedule departure for five, ten years down the road, could be a good idea.
Uh, “our enemies” do want “to put Fannie/Freddie out of business.” They have said so. So the quibble is whether it is “obvious we need government-sponsored mortgage market makers.” And the evidence of that—remember the past, live the present—is clear that we do.
But that’s the next post.
*Only someone as deliberately clueless as Tim Geithner acts, or an economist, could believe that just because something calls itself a “money market fund” means it cannot “break the buck.” The number of the Deliberately Clueless has been expanding in recent months.