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

What about the OCC ruling?

by divorced one like Bush

The OCC is: Office of the Comptroller of the Currency

The OCC was established in 1863 as a bureau of the U.S. Department of the Treasury. The OCC is headed by the Comptroller , who is appointed by the President, with the advice and consent of the Senate, for a five-year term. The Comptroller also serves as a director of the Federal Deposit Insurance Corporation (FDIC) and a director of the Neighborhood Reinvestment Corporation.

The OCC’s activities are predicated on four objectives that support the OCC’s mission to ensure a stable and competitive national banking system. The four objectives are:

To ensure the safety and soundness of the national banking system.
To foster competition by allowing banks to offer new products and services.
To improve the efficiency and effectiveness of OCC supervision, including reducing regulatory burden.
To ensure fair and equal access to financial services for all Americans.

Out of the 4 statements and I count 9 items, I think they only have achieved two items:
…allowing banks to offer new products and services
…including reducing regulatory burden.

Funding?

The OCC does not receive any appropriations from Congress. Instead, its operations are funded primarily by assessments on national banks. National banks pay for their examinations, and they pay for the OCC’s processing of their corporate applications. The OCC also receives revenue from its investment income, primarily from U.S. Treasury securities.

Ring a bell?
If yes, you are probably thinking about the one that got Elliot Spitzer and the other 48 AG’s pissed off. That one certainly needs to be reversed. Infact, the AG is going before the Supremes on the 25th. There is a push to get Obama et al to change this ruling.

WASHINGTON, D.C. –
For the past four years, the OCC has been championing deregulatory and minimal standards against states that have been trying to enact higher standards for banks and their operating subsidiaries. When states tried to monitor mortgage lending and protect consumers, the OCC invited national banks to contact the agency, which then wrote letters to banks and state banking agencies asserting that states had no authority to do so. The OCC also sided with national banks in the courts, writing amicus briefs arguing that state monitoring and enforcement in a variety of areas did not apply, and that only the OCC could investigate and enforce laws against nationally chartered banks.
After the Second Circuit Court sided with the OCC, the Attorneys General of all 50 states urged the Supreme Court to take up the case and reverse the appeals court decision. The Supreme Court agreed and, on March 25, the U.S. must file its brief in the case on behalf of the OCC, an agency under the Treasury Department.

With all the talk about re-regulating why have we not heard boo from Obama et al about changing this. I mean, he changed with a simple pen other bad positions from the last administration that are not related at all to the #1 issue of world wide economic collapse. What could be more simple and basic to steps to be taken to resolving this crisis than undoing the OCC ruling? Why is Obama leaving this OCC issue to chance when the Supremes already ruled in favor of Wachovia against Michigan?

This included the case decided by the U.S. Supreme Court last year against Michigan, in which the OCC sided with Wachovia Bank and argued that state mortgage lending laws and oversight could not apply to a national bank’s operating subsidiary.

Just read this article from 2005 about the issue to see what the pro-OCC crowd was thinking.

Ok, it wasn’t that ruling you were thinking of. Maybe you were thinking about the OCC ruling letting banks be realtors and real estate developers? I would understand, it was a 2006 ruling making it a little more fresh in the mind. Needless to say, the National Association of Realtors was not happy.

The OCC decisions permit U.S. national banks to engage in the business of real estate development by developing and operating a luxury hotel; financing, developing, operating and leasing space in a mixed use building (including developing residential condominiums for sale). They need only argue that a small portion of the project is needed for bank premises or that a part of the project is needed to make the rest economically feasible. They may also hold a 70 percent equity stake in a windmill business, qualifying for special tax credits. Three national banks were given the green light to engage in these business activities.

Well there goes the green powered economy Obama wants.

But there was another ruling from the OCC that I’m thinking of. A ruling that requires Obama to undo a Clinton era position from 1996. And, funny thing it had an entire industry all bent out of shape that today would not be recognized as completely and entirely distinct from the banks; the insurance industry.

Office of the Comptroller of the Currency; bank subsidiaries may sell insurance
WASHINGTON — Insurance groups are vowing to do everything possible to block a new ruling by the Office of the Comptroller of the Currency that could allow national banks to form operating subsidiaries that sell and underwrite insurance.

Gary Hughes, vice president and chief counsel with the Washington-based American Council of Life Insurance, said his preliminary analysis suggests two possible levels of attack.

First, Mr. Hughes said, insurers could charge that Comptroller Eugene Ludwig does not have the power to adopt the ruling. Second, he said, insurers could say that even if the ruling is lawful, insurance underwriting is not incidental to banking and thus …

Are you seeing a pattern here? No? How about this 2002 ruling:

A recent ruling by the Office of the Comptroller of the Currency eased fears of marketers in the credit card industry about any possible new rules that could have hampered telemarketing of debt suspension and cancellation agreements.
In addition, the OCC declined to consider the agreements a type of insurance product. Doing so would have taken the agreements out of the hands of federal regulators and into the jurisdiction of the states, opening the possibility that they would be subject to 50 different state laws.

The OCC also ruled that marketers could provide consumers with short-form disclosures at the time of closing an agreement provided that they mail a long-form disclosure brochure afterward. The new rules take effect in June 2003.

How did the OCC get to do this? Guess!

Congress granted the OCC the authority to regulate credit card marketers when it passed the Gramm-Leach-Bliley Act in 1999. In 2000, the office published a notice of proposed rulemaking stating that it was considering changes regarding debt suspension and cancellation agreements.

I know we are all thinking the bad guys have been the prior Treasury, Fed and AG. But I gotta tell you, looking at these OCC actions, the OCC seems to be the real Ace under the table and NO ONE IS TALKING ABOUT THEM! Hell, they get their money from fees charged to the industry they regulate. And recently we heard that a part of their directorship duties, the FDIC, hasn’t been collecting the insurance premiums. Though that was do to congress I guess. I mean, no influence from the industry here (cough, cough, choking, choking).

I just can’t resist closing with this statement about why the fees were not collected. They (as in congress, bankers, financiers) really believed in the free lunch money from money theories.

But James Chessen, chief economist of the American Bankers Association, said that it made sense at the time to stop collecting most premiums because “the fund became so large that interest income on the fund was covering the premiums for almost a decade.”

Yeah, just like your 401K huh?

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Furthering my understanding of the money from money theory

By divorced one like Bush

I’m reading Kevin Phillips “Bad Money”. I want to understand where this idea that money is made from money comes from. On page 61 he writes:

In 1996 a much discussed article in Foreign Policy titled “Securities: The New World Wealth Machine” had set out the ultimate paper entrepreneurial opportunity: high-quality stocks and bonds could be issued against clusters and pools of existing loans and assets, an innovation that “requires that a state find ways to increase the market value of its stock of productive assets.” By such a strategy, “an economic policy that aims to achieve growth by wealth creation therefore does not attempt to increase the production of goods and services, except as a secondary objective.”

Professor Edmunds, the author of the article put’s it more bluntly on the first page than the quotes Mr. Phillips used. Referring to “Securitization– the issuance of high-quality bonds and stocks…”

Wealth was created when a portion of income was diverted from consumption into investment of buildings, machinery and technological change. Societies accumulated wealth slowly over generations. Now many societies and indeed the entire world have learned how to create wealth directly.

Now I don’t know but, is that not the grand slam of free lunch economics you have ever read? How could a learned person make such a statement?

In fact, googling for this posting I came across a thesis by a young man, 23 years of age written for his college work in 2001 in which he states:

What Edmunds refers to as “Securitization,” is nothing more than the shuffling of money from one market to another. However, this approach does create something known as a financial bubble; an instance in which an increase in speculation within a financial market, inflates the market value of stocks and bonds beyond their underlying value. It also results in a number of unpleasant systemic consequences.
First, an inflated financial market tends to exacerbate the trend for money to concentrate in the hands of the rich.
A second consequence of an inflated financial market is that it tends to draw money away from the productive sector that actually engages in the creation of wealth. This can put an economy in a very tenuous position, as was evidenced by Thailand in 1997.

Not bad for a student from a liberal arts college in 2001. All I can ask is: What the hell happened to the economist and money minds advising the last 2 and now the current president?

Back to Mr. Phillips, page 63:

Back in 1986, Minsky had written in Stabilizing an Unstable Economy that where as a banker’s orientation to cash flow was sober, “an emphasis by bankers on the collateral value and expected value of assets is conducive to the emergence of a fragile financial structure.”

I searched “Minsky” at AB. He comes up as early as 2004. Unfortunately, I could not find the actual post. I googled Professor Minsky and to my surprise found an original document

The Financial Instability Hypothesis
by
Hyman P. Minsky*
Working Paper No. 74
May 1992

The readily observed empirical aspect is that, from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control.

I guess it wasn’t to observed for the mantra I believe prior to the current fiasco was that everything was smooth sailing, the oceans have been tamed by man.
In this paper, I believe the following is the relevant aspect of his theory that we need to learn:

The theoretical argument of the financial instability hypothesis starts from the characterization of the economy as a capitalist economy with expensive capital assets and a complex, sophisticated financial system.

This Keynes “veil of money” is different from the Quantity
Theory of money “veil of money.” The Quantity Theory “veil of money” has the trading exchanges in commodity markets be of goods for money and money for goods: therefore, the exchanges are really of goods for goods. The Keynes veil implies that money is connected with financing through time.

It is the following in Professor Minsky’s paper that I believe would lead someone to make the statements Professor Edmunds made:

Thus, in a capitalist economy the past, the present, and the future are linked not only by capital assets and labor force characteristics but also by financial relations. The key financial relationships link the creation and the ownership of capital assets to the structure of financial relations and changes in this structure…In contrast to the orthodox Quantity Theory of money, the financial instability hypothesis takes banking seriously as a profit-seeking activity.
Banks seek profits by financing activity and bankers. Like all entrepreneurs in a capitalist economy, bankers are aware that innovation assures profits. Thus, bankers (using the term generically for all intermediaries in finance), whether they be brokers or dealers, are merchants of debt who strive to innovate in the assets they acquire and the liabilities they market. This innovative characteristic of banking and finance invalidates the fundamental presupposition of the orthodox Quantity Theory of money to the effect that there is an unchanging “money” item whose velocity of circulation is sufficiently close to being constant: hence, changes in this money’s supply have a linear proportional relation to a well defined price level.

And thus is born the idea that you can make money from money. That is if you ignor that Professor Minsky does not state that finance stands alone, or that “an economic policy that aims to achieve growth by wealth creation therefore does not attempt to increase the production of goods and services, except as a secondary objective”. On the contrary, he says nothing about primacy. He just notes that what is missing in the Quantity Theory is finance.

Thus, in a capitalist economy the past, the present, and the future are linked not only by capital assets and labor force characteristics but also by financial relations.

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Quote of the Day on Executive Pay

Via Mark Thoma, Uwe Reinhardt* hits one out of the park on economist’s research abilities:

Evidently, in the mind of economists, Lone Ranger C.E.O.’s can make truly astronomical contributions to a firm’s market capitalization, ceteris paribus, which justifies high bid prices for them. Why Lone Ranger C.E.O.’s who have trashed their firm’s market capitalization should be sent off to pasture with hundred-million-dollar golden parachutes — which occurs with remarkable frequency — seems to be not much analyzed by economists. Perhaps other things did not remain equal. [emphasis mine]

Or, as Warren Buffett famously observed (roughly): “If a good manager goes to a bad company, it is generally the reputation of the manager that is changed.”** And even Michael Porter, who never saw a manager he didn’t like, recently changed his tune:

When Porter started out studying strategy, he believed most strategic errors were caused by external factors, such as consumer trends or technological change. “But I have come to the realization after 25 to 30 years that many, if not most, strategic errors come from within. The company does it to itself.”

Those of us who know that economists use thr phrase “technological change” because “magic” would get them laughed out of meetings can only say, “Gee, Really?”

Reinhardt also notes that Robert Frank cites the Gabaix/Lander “study” of executive compensation. Reinhardt notes:

Readers may wonder about the survival of this theory, even among economists, as stock prices have begun to tumble sharply, starting in 2007.

Since I don’t feel like retreading, here are links to PGL here in 2007 and Tom at the Legacy Blog in 2006, 2007, and 2008.

Reinhardt continues:

Readers may also wonder why, in the United States, the ratio of total executive compensation (including bonuses and deferred compensation, pensions and perks) to the comparable figure earned by non-management employees rose from 50 in 1980 to 301 by 2003 for the 300 to 400 largest corporations (and to 500 in very large corporations), while that ratio typically has remained so much lower in Europe and in Asia. Are corporate executives in Europe and Asia so vastly inferior to their American counterparts, or is the supply of potential C.E.O.’s so much larger there as to drive down the ratio in, say, Japan, to as low a 3?

Reinhardt promises to talk about the cl*st*rf*ck that is GE (last discussed by me here) in his next post.

Pass the popcorn.

*Note to Canadian readers:I’m told he’s the Bob Evans of Health Economists in the U.S.

**Of course, if Bob Nardelli trashes Home Depot and then goes to finish the trashing of Chrysler, he gets richer and it’s an outlier in the database (which has a growing number of outliers).

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How many "Free Trade" Economists will thank the Union?

I’ve said before that the “Buy American” provisions in the stimulus bill were not exactly a major issue. (I believe the phrase was roughly, “could drive a broken Mexican truck through the holes, even if dead drunk.”) Many economists (hi, Barkley) disagreed, even while some acknowledged that the income effect from “buying American” would be mitigated by the substitution effect on the FX rate, while others noted that reprisal threats just might not be credible.

But time went by, and Barry O. “yielded,” adding an explicit provision that “buy American” would follow current trade agreements—which the more aware economists later noted was basically an indication that we will support “free trade” only if the other guy does. (Sorry, China.)

So now is the time for credit-taking. And while the usual suspects want to be credited, the reality of what they asked for and what they received belies that claim.

Who came to the support of “free trade for free traders”? Why, the United Steelworkers Union, of course:

The news came only hours after the United Steelworkers pleaded Canada’s case to lawmakers from steel-producing states.

A written submission to the congressional steel committee from the Steelworkers’ president, Canadian Leo Gerard, asked that legislators exempt Canada from the provision.

“Because we are an international union, and because Canadian and U.S. manufacturing is so integrated, we encourage you and other members of the steel caucus to approach your counterparts in Canada to discuss a co-ordinated approach,” Gerard’s submission read….

The Steelworkers have said it’s Chinese steel, not Canadian, that’s the intended target of “Buy American.” American steel-makers have long accused China of employing unjust policies that give its steel manufacturers a competitive advantage.

Anyone wonder why they might believe that?

And, needless to say, EconomistMom’s organization is right in the middle of the fooforaw:

The steel company executives who showed up for Wednesday’s caucus hearing were skeptical of the “Buy American” warnings.

Dan DiMicco, chief executive of Nucor Corp., dismissed as “garbage” a recent study by the Peterson Institute for International Economics that “Buy American” could cost, not save, thousands of U.S. jobs.

“The American people are with us and with you on this issue,” he told the steel caucus members.

And they’re right. The American people support free trade—with countries that allow us free trade.

It seems that only some economists cannot tell the difference.

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Barro on Keynes Barro and Grossman

Robert Waldmann

Robert Barro wrote an op-ed in The Wall Street Journal. The substance of the op-ed is to report an estimate of the Fiscal multiplier 0.8 which is less than one. Thus, according to Barro, a stimulus will partially crowd out of investment, consumption or net exports and not just reduced leisure. Paul Krugman took Barro to task for using the huge WWII stimulus in his estimates, since the economy was at full employment during WWII. So have Matthew Yglesias using his Harvard BA in philosophy from Harvard and Kevin Drum using his BA in Communications from The California State University in Long Beach.

I might want to reassess Long Beach State, but I think the reason that Yglesias and Drum immediately make the same argument is Krugman is that Yglesias and Drum don’t know about modern econometrics. Barro is using an instrumental variables regression in which wartime military spending is considered to be an exogenous variable which is correlated with government consumption. The implicit assumption is that we can safely assume that the fiscal multiplier today is identical to the fiscal multiplier during World War II, because the economy is basically similar. Without training in modern econometrics it is simply impossible to assume something that stupid.

There is also a severe gap in economic theory, at least as remembered by Robert Barro. Wouldn’t one think that there must be some model in which correlations vary depending on the general conditions of the economy — say like whether at current prices there is excess demand for goods or excess supply of goods.

Of course, no one could expect Barro to know that there is a vaguely Keynesian model, which differs from the neoclassical model only because of rigid nominal wages and prices, in which the economy can be in one of three different regimes, Keynsian (with insufficient aggregate demand), Classical (firms can sell as much as they want but real wages are too high so workers are unemployed) and repressed inflation (excess supply of labor and goods).

I’m mean who’s ever heard of the Barro-Grossman model (A General Disequilibrium Model of Income and Employment Barro, Robert J.; Grossman, Herschel I.; American Economic Review, March 1971, v. 61, iss. 1, pp. 82-93 [stable JSTOR link added for those with access])? Certainly not Robert Barro.

The passage quoted by Krugman about what Keynes thought is inconsistent with The General Theory. However, it can be corrected easily. The accurate description of the history of economic thought is “John Maynard Keynes Robert Barro and Herschel Grossman thought that the problem lay with wages and prices … will mean that wages and prices do not have to fall.”

Look I sympathise. Like Barro, when I was young and reckless I did embarrassing things which I have tried to cancel from my memory. I really wish I could do that as well as he has.

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Reads of the Day for the start of 2009

All (somewhat***) via Mark Thoma:

Thomas Frank in the WSJ tells me why I always disagree with Robert (and the Other Economists) on the role of rating agencies:

And who makes sure that Moody’s and its competitors downgrade what deserves to be downgraded? In 1999 the obvious answer would have been: the market, with its fantastic self-regulating powers.

If you look at the spreads of various debt products, you can see that the market was doing that type of job even in 2007. For instance, the debt market priced [“rated”] Bear Stearns’s five-year bond issue in August 2007 at 245 over: rather closer to “junk” status than its rating would have implied. If you compare the debt and stock markets, it’s easy to see which is closer to “rating.” Unfortunately, the area where information is more valuable* is not the one discussed and understood in the press, where BSC kept trading up for several more months.

If a market “regulates” but no one notices, does it make the WSJ?

Brad Setser finishes the destruction of Tyler Cowen’s LTCM “argument” begun by Buce, while revealing its underbelly:

The big banks called to the New York Fed were the creditors of LTCM and they were in some sense “bailed-in.” To avoid taking losses on the credit that they had extended to LTCM, they had to pony up and recapitalize LTCM. [footnoted exception for BSC]

It just so happened that the market recovered and it was possible for LTCM to exit many of its positions without taking large losses, or in some cases any losses. The banks that took control of LTCM when LTCM was on the ropes were able to unwind LTCM’s portfolio in a way that didn’t result in additional losses. But the result Cowen desired — large losses for the banks and broker-dealers who provided credit to LTCM – was quite possible if LTCM’s assets weren’t sufficient to cover all its liabilities. No creditor of LTCM was able to get rid of its exposure as a result of the Fed’s actions. [emphases mine]

It used to be a standard rule that if you wanted to bury something in a newspaper, you published it on a Friday, or the day before a holiday. This seems to be what the NYT is doing with Casey Mulligan (previously discussed here here), who dropped the other shoe yesterday and was, amazingly, worse than expected. PGL at Econospeak does the read and calls out the deed:

Mulligan is essentially saying that those poor saps who have lost their jobs actually quit so they can game the mortgage system. In other words, there is no such thing as involuntary unemployment or being forced to either lose one’s home versus enter into one of these mortgage modification programs.

As noted in the WaPo two weeks ago (via Stan Collender at Capital Gains and Games),** qualifying for the “mortgage modification” program (i.e., reducing the principal on your loan to not more than 90% of the current market value) is an onerous task:

He was hoping he could qualify for the federal government’s Hope for Homeowners program, which allows the Federal Housing Administration to insure a new mortgage if the lender voluntarily writes down the mortgage principal to 90 percent of the new value of the home. But when he asked his bank about that, he was told he would have to be on the brink of foreclosure or have an adjustable-rate mortgage.

So Mulligan is basically blaming (1) those whose ability to keep their home depended on keeping their job and (2) those who took Alan Greenspan’s venal advice to go into ARMs just at the point at which he started raising rates. Class act.

And, finally, lest you think I’m always bashing Tyler Cowen, he notes a phenomenon in chess and suggests a reasonable conclusion:

I also see a general principle operating: the more exact a “science” the game becomes, the smaller is the value of accumulated experience relative to sheer skill.

The sheer is dicey, but the identification of the shift in proportionality may be accurate, and probably has applications in economics as well.

*The debt market is less liquid and therefore considers information more valuable. This is effectively the corollary of the DeLong, Shliefer, Summers and Waldmann papers: if you can’t depend on momentum trading, you take more care not to be the “greater fool.”

**Yes, I saw the Collender-bashing in my previous post. I’ve said before that CG&G became significantly less readable after the election, and am foolishly optimistic enough to believe that they may be returning to rationality. Besides, he happened to be correct: any given from increased military spending is definitionally no better (and likely worse) than spending the same amount on public infrastructure.

***I read PGL’s piece before seeing it in the links, but they’re all there.

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Random Notes, or, More Posts I Don’t Have to Write

Greg Mankiw presents Yet Another Reason to regret skipping the AEA this year, though somehow the word “intentional” was left out of the description.

Stan Collender, of all people, does the job I wished someone would do on Martin Feldstein’s WSJ op-ed. I may have beaten him by a day in calling it out, but there’s nothing so perfect as Collender’s conclusion:

Finally, something that’s not in the Feldstein piece: dollar for dollar, military spending doesn’t provide as much an economic return as domestic spending. Building an extra tank or missle that then sits idle because it’s not needed provides a one-time boost to the economy. But building a road, bridge, tunnel, sewer, or information superhighway that is needed continues to provide benefits as people, goods, and information travel faster, less expensively, and far more productively than would have otherwise been the case.

That means that starting with the headline, Feldstein was seriously mistaken.

Differences between now and 1992, positive version: In 1992, Dave Barry made a legendary appearance at the National Press Club. At some point during the Q&A, he declared that he was going to end all of his answers with the phrase “failed Clinton Administration.” (There may have been cheering.)

UPDATE: I was trying to think of a nice way to be rude about Tyler Cowen’s NYT piece on how “the seeds of the crisis” were planted by the resolution of the LTCM crisis.* () But Buce at Underbelly saves the day with a two-point takedown (not the three-pointer of Collender, but still aces) called Long-Term Confusion:

Tyler Cowan has an amazingly confused piece in this morning’s NYT arguing tht we owe our current plight in large part to the “bailout” (I use the term advisedly) ten years ago of Long-Term Capital Mangement (link). But the point of LTCM, as Tyler’s own piece acknowledges (but Tyler ignores) is precisely that LTCM was not a bailout, except perhaps in the sense that the Feds provided lunch.** Okay, and a little bit of arm-twisting. But I should think that would be on the approved list for even the most hairy-chested libertarian. The message was: look, we love ya, and we will work with ya, but we will not put skin in the game. [italics mine, but they could have been his]

In 2008, the NPC appearance of note is by Paul Krugman (h/t EconLib, again of all places), whose six part presentation and q&a session is available on YouTube and therefore easier to watch for the Internet-impaired than his Nobel Lecture.***

McMegan Wuz Robbed! Then again, that’s nothing compared to the abomination of this voting, where something that’s already remainder and long-forgotten appears to be winning.

And, finally, proof that it’s really TOUGH to live in Hoboken.

Happy New Year!

*If Robert Samuelson had published the same piece, Brad DeLong would not have been nice. As it is, we can just assume DeLong hasn’t read it yet amidst his globetrotting.

**Meaning in this case literally the food for the sixteen conversants, fifteen of whom anted up.

***Yes, I assume anyone who accesses YouTube from a non-networked machine has a downloading program. Also, am I the only one who just realised that YouTube is maintained on a Linux-based server?

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GOP Senators! Why do you hate NASCAR?

by Bruce Webb
(h/t to Hilzoy commenter nortzax for the idea)

I mean it is bad enough that failure of the Big 3 means the loss of maybe 3 million jobs. Why are you trying to put Dale Earnhardt Jr. out of a job?

Seriously what would the economic impact be to red states if not only NASCAR but all the other car and truck racing circuits collapsed? NASCAR made a run at getting Washington State to build a track here at taxpayer expense with the claim that the positive economic impact would dwarf the expenditure. (The Leg didn’t bite). But you can’t deny the economic impact of having some hundreds of thousands of fans visiting town for a couple of weekends a year.
NASCAR schedule Sure there are some blue states on the list. But this article claims the impact of the Daytona 500 alone is over $1 BILLION Paddocktalk “Well we stuck it right to the Yankees. Ha Ha! Too bad there won’t be any races at Kentucky Speedway this year. Or ever again.” Somehow I am not sure Mitch McConnell really thought this one through. How much is he really willing to put on the line to have GM workers take a $3/hr paycut a couple of years earlier?

Plus I hear football is kind of popular in both red and blue states. Who is going to pay for all the truck commercials? I suppose that as long as Americans don’t give up drinking beer that televised sports will continue. But the economic impact of the Big 3 goes far beyond parts makers and car dealers. The GOP is playing with dynamite here, the political ads practically write themselves.

UPDATE: Skip Sauer of The Sports Economist was also all over this one on Tuesday, though somewhat cautious:

My sense is that brand loyalty — NASCAR is the marketing king of sport — may be the key factor. It is not uncommon in NASCAR country to see window stickers on a Ford truck that show a punkish-looking boy pissing on the Chevy logo. A strong form of negative brand identity, I submit. If the Ford and Chevy brands are irreparably damaged, will those loyalties transfer to Honda and Toyota?

UPDATE TWO: Must have been something in the air. The NYT weighs in: NASCAR sponsors hit by sticker shock

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Another Meme Busted beyond Repair

Brad DeLong sends us to Rex Nutting at MarketWatch:

U.S. nonfarm payrolls plunged by an astonishing 533,000 in November, the worst job loss in 34 years, the Labor Department reported Friday.

It’s only the fourth time in the past 58 years that payrolls have fallen by more than 500,000 in a month. Since the recession began 11 months ago, a total of 1.9 million jobs have been lost.

The unemployment rate rose from 6.5% in October to 6.7% in November, the highest jobless rate since October 1993.

Of course, October 1993 was part of a steady decline in the unemployment rate. (Always check those derivatives.)

And it, arguably, gets worse:

In a separate survey of households, the government found that employment fell by 673,000, the largest lost since August 2001. Unemployment rose by 251,000 to 10.3 million, while 637,000 people dropped out of the workforce. [emphases mine]

Anyone else remember when the Household Survey was being pushed by, e.g., Kudlow as the “true measure” of the economy?

Wonder if he’ll do that today.

UPDATE: Can’t tell if he did, but it’s “nice” to know some things never change.

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English translation, or Kleptocracy Defined

Via CR, the Fed announcement this morning:

The Federal Reserve Board on Tuesday announced the creation of the Term Asset-Backed Securities Loan Facility (TALF), a facility that will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA).

Let’s go through this. The government is now insuring securities based on

  1. student loans,
  2. auto loans, and
  3. credit card loans*

Note that this is not support for schooling, the automobile industry, or credit card borrowers—just the people who buy (or bought) the paper.

In short, f**k the people who actually produced the underlying value of that financial asset. Save Wall Street with Main Street’s tax monies.

I give up. Yves Smith’s old description of Paulson’s “Mussolini-Style Corporatism in Action” seems so quaint by comparison to this abomination.

*SBA loans are omitted from discussion, since there is a reasonable argument that the government insuring SBA loans is has no net cash flow implications. (The argument will prove false when it is discovered that SBA loans are being made profligately to Bush Administration contributors, but that’s a side issue.)

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