no third solution

Blogging about liberty, anarchy, economics and politics

Category Archives: Economics Lessons

Comments on Comments #10

March 20th, 2008

In response to my revised comment policy, David at 1955design.com counsels:

WordPress automatically adds a rel=nofollow tag to the link of all commenters.

For the most part there is absolutely no benefit to the commenters link as Google will not backlink to their site.

Does WP automatically add a rel=nofollow tag to the links contained within comments?

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In this edition of “Comments” I had planned to offer my rebuttal to Kip Esquire’s podcast, The Libertarian Case against Jury Nullification which is not exactly a response to my post On Jury Nullification, but topical nonetheless. But I just got around to listening to it today. My rebuttal will perhaps be a stand-alone blog post to appear at a later date, since I’m not prepared to publish the series of notes I took while listening to the podcast.

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The “Soviet Onion” comments about the underground network in Canada, led by conscientious objector to the Vietnam war:

Sounds like Agorist praxis to me. Finally, an anti-war strategy that emphasizes counter-economics over symbolic action.

Wishful thinking, and maybe reading too far in to my speculation about living off-the-grid, which doesn’t appear to be what most of the defectors are doing. Instead, they’re just trying to live normal lives in another country, not sure if it will accept them. I agree, though, that this unfortunate circumstance is an opportunity for agorism. By some accounts, there are 16,000 deserters, and the government has only prosecuted about 800 of them. There is probably an agorist way to insure against prosecution, the policy would pay money damages in the amount of legal fees incurred, as well as a predetermined monthly stipend to the victim or his family, if he is incarcerated as a result of desertion. It is also an opportunity (albeit, an unlikely one) to leverage activism.

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Regarding the people who are simply mailing the keys back to their banks (What Should You Do About Your Rising Mortgage Payments?), our friend Logan comments:

Ah yes, these homeowners are using the ol’ shirk-my-financial-obligations strategy I see…

And Francois Tremblay adds sarcastically,

Damn homeowners, how dare they want to own homes? I wish people would just be content with their low station in life.

Logan, “shirk” has such negative connotations! It is perfectly within the realm of accepted behavior to forfeit one’s collateral to the lender when one is unwilling or unable to continue servicing the debt as scheduled. The primary purpose of a mortgage is to secure the lender’s interest in the mortgaged property in the event that the borrower defaults on the underlying note.

The lender effectively says: “We will loan you money to buy this house, and you will pay us back according to the schedule. If you stop making payments, can’t make payments, or simply don’t want to make payments any more, we get the house (since you only owned it subject to our interest) which we can then sell. If the proceeds are sufficient to cover our costs, you get any surplus. If they are not, we eat the difference. In either case, you’ve destroyed your credit for the next few years.”

So, returning the keys to the bank, is not really shirking one’s obligations. It’s fundamentally not that much different than asking your bank to do a deed in lieu of foreclosure. Unfortunately, the current economic environment precludes most people from executing this sort of instrument, because the homes aren’t worth as much as the owners are indebted.

Why not?

The banks were loaning money that didn’t exist yesterday. This is pure, monetary inflation1, and this cycle can continue only so long as the banks continue loaning money tomorrow that doesn’t exist today. Eventually they start demanding to be repaid—principal plus interest. The principal was created yesterday, but the interest, well, it’s a sum of money which won’t exist tomorrow! This “interest” portion of people’s indebtedness has never come into existence, so it should come as no surprise that people are no longer able to service their debts as soon as the new money stops being created!

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1. I’ve previously blogged about core inflation and inflation proper, the latter being: When money is created out of thin air, inflation is the inevitable side-effect. Of this, there is no uncertainty. There is no such thing as “core” inflation; either money is being created (which causes inflation) or it is not

2. There is no 2!

Fed Reaches for Hammer, Again

March 19th, 2008

I’m a few days late on this, so please nobody accuse me of piling on. This will probably be my only post specifically related to Bear Stearns, because really I just don’t give a shit about the specifics anymore. Everything the Fed does, all government policy, is backwards, hamfisted, and counterproductive. So is the JPMC bailout of Bear. I’m not surprised.

Wasn’t it just last week, that the Fed “injected” something like $200B into the financial markets to promote liquidity? Something must’ve gone horribly awry, because the price of gas is going through the roof, and then this Bear Stearns fiasco happened, where with Uncle Sam’s encouragement, JPMC is able to buy the Fund at something like a 90% discount and get a federal guarantee on the toxic investments that they inherited for free! It must be really nice to earn risk-free profits, underwritten by the population at large.

Along with taking on the risks associated with Bear’s assets, the Fed

will now make it possible for investment banks to borrow money as long as they put up collateral. The Fed in effect is offering to be a lender of last resort for 20 major Wall Street firms, a role it has previously played only for commercial banks.

[These] “primary dealers” [will have], access to cash in exchange for assets in which the market is not currently functioning.

Nothing chaps my ass like someone telling me the “market isn’t functioning,” because what’s ordinarily happening is that there is no market, or what’s left of one is so hamstrung by regulation, interference, and distorted price signals, that functioning properly is rendered almost impossible. But these people are talking about the market for securities that nobody in their right fucking mind wants to buy, and lamenting the fact that nobody is buying them. Because there’s a qualitative difference between a market which isn’t functioning, and a market which clears goods and services at prices you deem unsatisfactory. Markets clear!

We’re bailing out the big boys, injecting liquidity, and watching smaller players (e.g., Countrywide, New Century, and now Bear Stearns) go under left and right, isn’t there a pretty serious problem here? A decade of loose monetary policy has just put us between a rock and another very hard place, and the only policy response is “more loose monetary policy.”

It just goes to show that when the only tool you have at your disposal is a hammer, sooner or later, everything starts to look like a nail.

Sometimes, though, you just need to start tearing things down.

Comments on Comments #9

March 13th, 2008

“The power of individual conscience is profound when people start to wake up.” It’s time to start saying “No!”

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In Comments #8, Logan Flatt jests: “Ah ha! But, by me not following the rules of the carnival I am demonstrating anarchy, am I not?”

Nope. Not really even close.

Franc responds, “No… you’re not. Anarchy doesn’t mean no rules, it means no rulers. ;P”

But that’s OK, Logan’s comment appears to be in jest. <Borat> Happy times! </Borat>

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In “The Rats of El Toro,” Angelica’s response to my critique of her “street-food-libertarianism,” the Rad Geek rips new ones (read his entire response!)

…Even though you’re not willing to do anything personally about this putative problem through nonviolent means and on your own dime, you are willing to endorse a third party barging in to force the restaurateur to do what you want him to do (or else), because that course of action allows you to get your own way while forcing other people to bear the costs of your own hygienic preferences.

Have I got your position right, or is there something that I’m missing? If so, what?

To which Angelica responds:

Ah, personal responsibility. Such a favorite comeback for libertarians. I not really a big fan (sic)…

…If I take personal responsibility for the Rats of El Toro, I lose my job and betray my loyalty to the staff there. And for what? If I’m vigilant enough about sounding the alarm, I can probably put El Toro out of business. But the customers are not going to be any better off because every nice-ish restaurant they go to have the potential to be a rat-infested dump just like El Toro.

“Not really a big fan” of personal responsibility? You’ve gotta be fucking kidding me! This is coming from the same person who suggests that individuals should be responsible for the risks they take when buying bacon-wrapped hot-dogs from street vendors! You can’t have it both ways, Angie!

So, you’re afraid that you’ll lose your job and betray the other employees? Aren’t the employees and the proprietor betraying the customers each and every time they serve a plate of rat-nachos, or a rat-burger-with-cheese? Are these really the sorts of people — who knowingly serve crap to their customers — with whom you want to be associated?

Geek, it looks like you’ve really hit the nail on the head!

On a related note, Brad Warbiany, at the Liberty Papers asks: You think the government can keep us safe? They can’t even certify that what they buy themselves is safe! in reference to this glowing endorsement of government regulation in the meatpacking industry, published in the Economist:

Cows too ill or injured to stand were shoved along by forklifts or dragged by their legs across the floor. Downer cows, as they are called, are unfit for human consumption. But many at the slaughterhouse run by the Hallmark/Westland Meat Packing Company were killed, processed, and their meat sent to the National School Lunch Programme. “They’re going onto the plates of children,”

Charming, indeed!

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Tony responds to my post, “What Should You do About Your Rising Mortgage Payments?”

[I]f I had trouble paying, I would absolutely call the bank and threaten to walk. Incentives matter. I don’t want to wreck my credit, but like you wrote, the bank doesn’t want to own my house or pay for its upkeep until it can lose more money on the deal. Reality changes make both parties more willing to talk and renegotiate.

The biggest problem, for many people I presume, is arranging an alternative residence before you walk. If you’re happy paying rent for the next 2-5 years, no worries. But if you want to buy another house, you’re pretty well boned, unless you’re just able to qualify for another puchase-money mortgage, on a much smaller and more affordable house. But you clearly can’t do this until you’ve already committed to abandon your current home.

They can’t come after the rest of your assets, AFAIK, because the property secured the note. What will happen is you’ll get hit during tax season the following year.

Coincidentally, “incentives matter” was my Public Finance professor’s motto!

Banks need to stop pretending that a bunch of crappy residential mortgages will actually yield 8-9% over the next 20-30 years. The reality of the matter is that even as those mortgages which remain current continue to yield that sort of return, the number of mortgages in default, yielding effectively 0% (or negative) will reduce the aggregate return. At some point, it makes sense to revise their forecasts and say, “Fuck, we were dead-nuts wrong on this one. These loans could never have sustained the sort of yield we had anticipated. Better now to accept a smaller, more certain return, than to continue earning 8% on a diminishing amount of principal!”

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Suff White People Like comes recommended from a number of sources. It is hilariously accurate. Take, for instance #87 Outdoor Performance Clothes:

The main reason why white people like these clothes is that it allows them to believe that at any moment they could find themselves with a Thule rack on top of their car headed to a national park. It could be 4:00 p.m. on a Saturday when they might get a call “hey man, you know what we need to do? Kayak then camping, right now. I’m on my way to get you, there is no time to change clothes.”

Though it is unlikely that they will receive this call, White people hate the idea of missing an opportunity to enjoy outdoor activities because they weren’t wearing the right clothes.

Sounds kind of familiar…

Yes, the back seat of my Jeep looks like that, for the better part of the three grey months we colloquially refer to as “winter” here in Michigan. I have to keep it that way, because just as a freak downpour can ruin my weekend, on any given day a freak snowstorm is probably just as likely to have me leaving work an hour or two early in order to hit the slopes for a few precious hours, before the next 5-day stretch of 50+ degree weather melts it all.

In Michigan, even the winter-sport enthusiasts can hate the season.

I always make sure to keep my performance Timberland shell-jacket handy, as well as the North Face vest for warmer days.

Speaking of warmer days, it’s near 50 today and tomorrow. This weekend at Otsego might be the last hurrah.

no third solution

Blogging about liberty, anarchy, economics and politics