Relevant and even prescient commentary on news, politics and the economy.

"…market discipline has in some cases broken down and the incentives to follow prudent lending procedures have, at times, eroded."

Ben Bernanke comments on the credit woes of the world. He is a master to calm the troubled waters of liquidity.

In recent years, mortgage markets have seen a remarkable wave of financial innovation. The advent of large secondary markets and the use of automated underwriting, for instance, have brought more capital into the system and, in most respects, have helped our mortgage markets function more efficiently while providing wider access to mortgage credit. But some of these innovations also have negative aspects. As the mortgage market has become more segmented and as risk has become more dispersed, market discipline has in some cases broken down and the incentives to follow prudent lending procedures have, at times, eroded. The consequences, as we are currently seeing, can include the proliferation of unfair and deceptive practices that can be devastating to consumers and to communities.

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OldVet rocks with another graphic on finance

Who’s gambling with our markets now?

In contrast to my own somewhat more gloomy views of our financial future, we have a different framing of the financial credit problem and the banking situation.

A new report by Stratfor’s George Friedman called ”China and the Arabian Peninsula as Market Stabilizers” takes a different slant on global finances and the US financial markets. In essence, he argues that the US has issued so many dollar debt instruments, and exporters have accepted so many of them over the years, that we are locked into our imbalances in trade.

He argues that with the dramatic rise in oil and commodity prices, and the implosion of the sub-prime mortgage market in the US, there should have been a collapse of financial markets before now. “The single most interesting thing about today’s global economy is what has not occurred.” Neither bond nor stock markets in the US have broken down, as would be expected under such stresses.

“This is not an act of charity. Dubai and the rest of the Arabian Peninsula, as well as China, are holding huge dollar reserves, and the last thing they want to do is sell those dollars in sufficient quantity to drive the dollar’s price even lower. Nor do they want to see a financial crisis in the U.S. markets. Both the Chinese and the Arabs have far too much to lose to want such an outcome. So, in an infinite number of open market transactions, as well as occasionally public investments, they are moving to support the U.S. markets, albeit for their own reasons.”

Mr. Friedman doesn’t see any other explanation for the relative stability of our financial markets till now, nor any likely moves being made to change that situation.

My thought is this: What if a worldwide credit freeze based on insolvency of individuals and institutions forces change anyway? What if the solution doesn’t involve the willing participation of the US, China, and the GCC?


This one by OldVet

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We are currently experiencing our first snow, possibly to 10 inches. Usually this is taken in stride, but because it started about 1:00 PM and was to include ice conditions and to peak during rush hour, schools let out early, which is very unusual. For some reason the ‘Storm Watch Emergency’ people suggested to businesses over the radio to let people out early.

Apparently they did. The roads are not yet bad (to me), but the traffic snarled on ALL major roads, Turnpike, and many of the side ‘escape’ routes one has to avoid congestion. People will be expected to take twice the time normally to get home.

Not a very good sign for escaping or evacuating a metropolitan area.


Worse than expected snarls, add triple time to get home, expect to make own dinner of cold meat loaf. Individual decision to apparently optimize behavior of cutting across intersection on a yellow light, and then stopping short when traffic stops to block the flow from the perpendicular, raises serious concerns how it adds any thing at all to optimizing the societal concern of better flow. No police in sight to enforce honesty. I believe maybe 5% cheating is all it takes to make cooperation less important. Boston area succumbing to lawless traffic jams.

Update 2:
Inability to pull off road to go shopping or eat a meal limits choices. No spots, no turns.

Update3: Normally I would be more sanguine about an unremarkable snowstorm over the course of the winter. Roads are clear in the burbs. Snow is fluffy. What caught my attention is the fact that it appeared businesses let people out at the same time per request and people left before the plows and sand trucks did their magic. The heavy equipment became part of the traffic jam. Hence not only Boston and towns close in but those further out over a very wide area experienced gridlock to the point of people simply parking and walking. Very different and unusual in that aspect, and quite the extended period of 6=7 hours.

People who waited to the end of the day were still stuck until 7 or later, eventhough others had left earlier. Yet today everything here looks normal except for parked cars filling parking lots.

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OldVet sends a note

Bush replaces neo-con shill Karen Hughes with Jim “Dow 36,000” Glassman at State Department.”

Dear Mr. President,

Nice hand parrot you’ve named there in Mr. Glassman! Maybe he’ll do better as chief salesman for the State Department in the Middle East. Better than the hard bitten thug in a skirt-Karen Hughes, to whom nobody listened.

Having failed to talk up investors in the West into pushing the DOW to 36,000 as he promised in his book in 2000, maybe he’ll have better luck with the oil sheikhs.

As to that shortage of Foreign Service Officers overseas, amounting to a 10% shortage in posts other than Baghdad and Kabul, this should help recruitment. All you have to do is go “squawk squawk squawk” when the President clinches his fist, and you’ve got the job. Makes more sense than all those tests and interviews for regular State Department drones in the past.

Now we can get busy selling with a top salesman like Glassman in the job. That’s what we needed, not all those “policies” and “hard choices” and “strategy” the regular diplomats were always going on about. It’s not about making sense, it’s about making sales! Shouldn’t you have made him Chief Economic Deputy Secretary or something? Congrats, Mr. President the Decider. Insincerely, OldVet

(This is written by OldVet.)

Update: Now that picture was worth the wait

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Energy control

The NYT has an opinion on the current energy bill.

The centerpiece of the bill is the first meaningful increase in fuel efficiency standards in three decades — from today’s fleetwide average of 25 miles per gallon to 35 m.p.g. by 2020. To win necessary Republican votes, the Senate leadership agreed to drop one valuable provision contained in a measure passed earlier by the House: a requirement that all utilities provide 15 percent of their power from renewable sources by 2020.
Even so, the bill, as it now stands, contains not only the new fuel standards, which is a huge step forward, but also generous incentives for energy efficiency, for cleaner alternative fuels and for the new technologies that will be required to reduce the country’s output of greenhouse gases. By almost any measure, it is the most important energy bill that Congress has entertained in many years.
It is thus astonishing that President Bush would even think of vetoing it, especially since he called for much the same improvements in automobile mileage as those contained in the bill. In a statement Tuesday, however, the White House demanded that the bill be amended to make the industry-friendly Transportation Department solely responsible for regulating fuel economy as well as carbon dioxide emissions from automobiles.This would directly reverse the Supreme Court’s historic decision in April declaring that greenhouses gases are air pollutants under the meaning of the Clean Air Act and giving the Environmental Protection Agency the power to regulate them.

(italics are mine)

Why wouldn’t we use Homeland Security as the agency of choice?

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Southeast water update

The Georgia Public Policy Foundation suggests tiered pricing as a long term solution to their water problems.

Worse, water restrictions can harm conservation efforts by considerably reducing revenue to utilities and local governments, forcing rate hikes or shrinking funding opportunities for growth, maintenance and improvement of aging systems. Repairs and maintenance are a serious concern: Earlier this year, Baldwin in northeast Georgia revealed it loses half the water it buys before the water reaches customers. A leak-detection specialist said the city is just one of 54,000 water providers across the country experiencing high amounts of water loss – and that the loss is typical for North Georgia. The Environmental Protection Division’s goal is a maximum of 10 percent of water unaccounted for; utilities need the revenue to meet the goal.

Worst, Georgia’s mandated water restrictions make a mockery of conservation by offering so many exemptions that they pick only the lowest-hanging fruit: the hapless homeowner. Georgia’s conservation campaign includes a long-term public awareness program to reinforce the sought-after culture of conservation, and perhaps that will work. But nothing is more certain to promote efficiency among homeowners, business and water providers like an appropriate pricing structure will.

Appropriate pricing means eliminating flat rates for water use and encouraging the use of separate meters on every unit in Georgia’s apartment complexes. Of the 21 percent of Georgians who live in multi-family structures, many pay a flat rate to landlords, or utilities are included in the rent. Now that the federal government has lifted the regulatory burden surrounding sub-metering, landlords will find it easier to install meters to bill tenants for the water they use, and tenants will become conscious of the value of water and the price of excess.

Dynamic rates, which usually reflect seasonal supply and demand, also encourage customers to weigh their priorities. Long hot bath or shower? Sprinkler or soaker hose? New pond or xeriscaping?

In Georgia, one of the few water providers that come closest to an appropriate pricing structure is the Cobb County-Marietta Water Authority, which establishes a customer’s average water use at 125 percent of winter usage. Customers face a surcharge of 90 cents per 1,000 gallons in excess of the average; the excess is assumed to be used in outdoor watering. Cobb County and its cities and Gwinnett and Cherokee counties have implemented these summer surcharges.

Tiered rates don’t harm an average user; they motivate customers to use water more efficiently, and they bring home the value of the resource by charging more for excessive use. They delay the need for immediate utility expansions. Best of all, they allow utilities to recover the cost of providing services and adequately fund a business plan for the infrastructure maintenance, capacity expansion and upgrades required by aging, growing systems. Cobb’s good business plan is reflected in the fact that it has met the EPD goal of 10 percent of water unaccounted for.

The market approach is successful without being punitive. A 1999 survey of 12 utilities using a conservation rate structure revealed that yearly average consumption dipped 8 percent and peak-demand-month usage declined 7 percent.

Further articles and information can be found here.

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Cost benefit analysis and OIRA

OMB Watch has some strong views on current trends in federal agency regulation.

Federal regulators commonly use cost-benefit analysis as a means for assessing one or moreregulatory policy options. However, cost-benefit analysis is an unreliable and often inappropriate tool.The results of cost-benefit analysis obscure uncertainty and mask the value of those benefits thatagencies cannot translate into dollars and cents. For this reason, cost-benefit analysis should be onlyone of several analytical tools in regulatory decision making.Cost-benefit analysis should be an especially minor tool in the consideration of public healthrulemakings. Monetizing certain benefits of regulation, such as lives saved, is both economicallyflawed and morally suspect. In such cases, the results of a cost-benefit analysis are useless for policymakers.As illustrated by the debate over the revision to the ozone standards, executive power in theregulatory process, especially when wielded by OIRA, may trump any congressional mandate or needfor public protection. OIRA uses cost-benefit analysis to influence the regulatory process in twoways. First, E.O. 12866 and Circular A-4 mandate the preparation of a detailed cost-benefit analysisfor all rules carrying the “economically significant” designation. Such a broad and unyielding policyforces agencies to prepare cost-benefit analyses even in situations when Congress prohibits economicconsiderations or for public health rulemakings.Second, OIRA has granted itself final editorial authority over the content of RIAs and has becomeadept at using this authority to change the tenor of the debate over regulations. By elevating the RIAas the primary decision making tool for federal regulators, OIRA places the onus on agencies toestablish the economic viability of a regulation, rather than the public need or the requirement to fill acongressional mandate.These points highlight, in the view of OMB Watch, the need to reform the regulatory process toachieve a more equal balance between legal requirements and the political power exerted byexecutive branch offices, particularly OIRA. The manipulation of the regulatory process through the use of administrative tools like cost-benefit analysis distorts the balance of power between the twobranches and usurps agency expertise and discretion.It is the duty of Congress and the executive branch to choose the policies most responsive to public need and desire. Federal agencies and the White House should faithfully execute their congressionalmandates as a means of achieving the constitutionally intended balance of powers. Without appropriate balance, the federal government will find increasing difficulty in its ability to protect the public through effective health, safety, and environmental regulations.

(This is a pdf)

There have been many regulations that have changed in a very systematic way with the view to lessen the scope of the regulation, the personnel assigned to a task, penalties and fines, mission expectations, and of course then through the agency of a politically correctness officer.

‘Politically correct’ is a term used to trivialize information or a viewpoint, but in this case is more often pernicious.

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FTA and WTO progress

The GAO has published an interesting analysis of Free Trade Agreements made since 2002(WTO GATTS style).

Congress granted the President Trade Promotion Authority (TPA) in 2002 through the Trade Act of 20021 to negotiate agreements, including free trade agreements (FTA), which aim to reduce trade barriers and expand trade with selected trade partners. The legislation granting TPA stipulated trade negotiating objectives and procedural steps to guide the administration in these negotiations. These include mandatory consultations before, during, and after negotiations with Congress, as well as reports on the likely impact of trade agreements from the formal trade advisory committee system. This congressionally created trade advisory committee system, which includes both policy-level and technical committees, also provides ongoing advice throughout negotiations.TPA authority lapsed in July 2007, amidst questions about how this authority was used, the economic significance of the FTAs pursued, and the conduct of required consultations before, during, and after negotiations. Yet, the World Trade Organization’s (WTO) Doha round of talks aimed at liberalizing trade on a worldwide basis,2 as well as FTA negotiations with Malaysia, are still ongoing, prompting the President to urge Congress to renew TPA.To address these issues, we reviewed: (1) What FTAs have been pursued under TPA and why? (2) Overall, what is the economic significance of these agreements to the United States? (3) What is the nature of the consultation process for Congress and how well has it worked in practice? (4) What is the nature of the consultation process for private sector trade advisory committees and other stakeholders, and how well has it worked in practice?

As agreed, we will provide a second report in spring 2008 that will provide more information and analysis on the economic and commercial significance of FTAs, as well as a review of progress made by FTA partner countries in strengthening labor and environmental laws and enforcement.
1Pub. L. No. 107-210, Div. B, 116 Stat. 933, 993–1022 (codified at 19 U.S.C. §§ 3801-13).
2Launched in November 2001 in Doha, Qatar, these negotiations involve 150 nations and encompass a far-reaching agenda for liberalizing trade and bolstering development in poorer countries. Among other things, they involve efforts to reach agreement to reduce barriers such as tariffs (border taxes) and trade-distorting subsidies on agriculture, manufactures, and services trade. For further background see and GAO, World Trade Organization: Congress Faces Key Decisions as Efforts to Reach Doha Agreement Intensify, GAO-07-379 (Washington, D.C.: Mar. 5, 2007). Page 1

I have only scanned it but thought it worth attention.

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Sewerage in the Shenendoah and Chesapeake Bay

The other end of the the water problem continues as well.

A group of environmental advocates is suing Virginia over a decision it says allows a sewage plant to continue polluting waters that flow into the Potomac and Chesapeake Bay.
The discharge from the North Fork Modular Reclamation and Reuse Facility was considered so harmful that a Rockingham County judge in February deemed it “a substantial threat to public health and the environment” and ordered the owner to install millions of dollars’ worth of new control measures.

But the commonwealth has now abandoned those mandates, said Shenandoah Riverkeeper and Potomac Riverkeeper, the nonprofit groups that first filed suit last year against the plant’s owners.

Since the owner, S.I.L. Clean Water LLC, went bankrupt, the Shenandoah Valley town of Broadway inherited the plant. Virginia then brokered a consent order with the town that sets a much slower schedule for cleanup, the groups said Friday.

The continuing discharge includes nitrogen and phosphorus — both linked to the Bay’s “dead zones” — that flow into the Shenandoah North Fork, which flows eastward.

The Environmental Protection Agency has also objected to the terms of the order, which allows the town more than three years to bring the plant into compliance.

“I’m very disappointed in how this was done,” Shenandoah Riverkeeper official Jeff Kelble said.

It’s an ironic fight, considering that the commonwealth had joined the environmental groups in suing the plant’s private owners. Now, the former allies will square off in the same court over the consent order.

Bill Hayden, spokesman for the Virginia Department of Environmental Quality, said the agreement will “allow time for the town to bring its systems up to standards.”

Broadway Town Manager Kyle O’Brien called the new lawsuit counterproductive, arguing it shifts the focus from cleaning up the discharge to fighting a court battle.

“One of the key things that we have to remember here is we’re walking into this plant that has been nonfunctioning for the last eight years,” he said. “Nobody … can walk in the next day and wave a magic wand and bring this plant into compliance.”

The plant serves nearby towns and two major chicken slaughterhouses.

Eight years of dumping is a long time, public or private. And compliance probably will take longer than expected. How common is this problem that is rarely reported with a clarion call of “iiiiiiick”?

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OldVet writes about strong dollar policy

We know who’s smart and who’s not. It isn’t Secretary Paulson, who’s been speaking platitudes about a “strong dollar policy” for his entire term. Now China, main beneficiary of its basket-peg to the Dollar, makes pious noises that echo Paulson. Two birds are singing the same song, and neither is very sincere.

Strong Dollar Policy
“China supports a strong dollar,” said Zhou Xiaochuan, governor of the People’s Bank of China, at a press conference today. The Federal Reserve’s decision to cut the benchmark U.S. interest rate also affects China’s monetary policies, the effects of which must be studied, he said.
“The Fed decision has quite a big impact on China’s rate policy,” Zhou said. “What we’re concerned about is whether the Fed’s looser monetary policy will create new financial liquidity, because China’s liquidity problem is connected with excess cash in the world’s markets.”

The US trade deficit isn’t declining much, even with some recent weakening of the Dollar against European currencies. Why?

from census

One reason our trade deficit isn’t narrowing very much? Predatory currency manipulations by China, Russia, Japan (via its interest rates), and the GCC which sells us oil. With Europe and countries where we have mutually free and flexible exchange rates, our currency has moved more towards it’s trade-predicted value and the balance-of-trade moved more into balance. Japan charges zero interest to borrow money, which investors borrow and then sell the Yen by the bucket full to make investments elsewhere – an indirect manipulation that keeps the Yen very cheap. The others intervene directly to keep their currencies cheap and the US buying. They call this “vendor financing” in business.

And now China has the nerve to complain? Ha. China has created its own problems in order to strip the manufacturing capacity of the world and plant it in China, and to employ massive numbers of Chinese workers.

A second reason for our ongoing trade deficit is the rampant US consumerism more worthy of a pack of wild glut-hogs than of human adults. This is financed, not by wages earned but rather by money borrowed. Aiding and abetting consumerism (up till now) has been cheap long term credit pushed by every bank and financial institution in the US. Too much has never been enough, no excess too extravagant. Since the borrowing is used largely for consumption, and not productive investment, consumers get deep in debt.

A word of advice to US policy makers: There is no such thing as a “consumer economy.” That term describes only half an economy. Without an equal amount of production, your policy creates impoverished parasites and billionaires. Let’s hope the next crop of business leaders and politicians makes more sense than this lot, and sings a different tune.

This one written by Old Vet.

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