Video of the Day: CAUTION Stupidity may be Contagious!

If you haven't watched Ms Teen South Carolina, where have you been? God, it is the most amazing video ever! I first thought she froze under pressure, but after catching her on the 'Today' show (no, I don't usually watch the show, thank heavens, just collateral damage from channel-surfing!), I decided this was the real deal!

I never understood why paegents even care to ask these silly questions, which expose participants as stupid brainless bimbos! Does anyone really believe one of these good-looking clowns is going to solve world hunger?

American Wars: Death Tolls

Death Toll of US Troops in Major Wars of the Last 100 Years

World War I	116,708
World War II	131,028,000
Vietnam	58,209
Korea	36,516
Iraq	3,278 and counting

This is not to underplay the dealth of over 3,000 of our finest. But it is worth putting that toll in perspective - American troop casualties are still a lot smaller than in previous wars, and indeed despite the negativism of the media, the mission's in better shape. Iraq has a democratically elected government, as inept as Washington, for starters, and a people who seem committed to democracy, judging by the turnout at the last election. That's more than we could say about Korea or Vietnam.

The Abuse of Math

Economist magazine had a wonderful series of stories on the recent financial crisis. Wall Street forgot the lessons of Long-Term Capital Management and embraced math in a big way. Unfortunately, they forgot that all models are based on something called assumptions, and any model is only as good as its assumptions. How way off base were the models?

Goldman Sachs admitted as much when it said that its funds had been hit by moves that its models suggested were 25 standard deviations away from normal. In terms of probability (where 1 is a certainty and 0 an impossibility), that translates into a likelihood of 0.000...0006, where there are 138 zeros before the six. That is silly.

"The Fed Rescues the Market, It's Safe to Play Again"

If you believed the hype in the media and the much of the financial world, the Fed has saved the world. By cutting the discount rate by 1 percent, financial Armageddon has been saved, and we can all go back to how well stocks will do. The media's largely been pushing this idea, the idea that somehow everyone got a little excited, so there was a correction, but now the Fed has acted and all's well.

It's easy to forget what started this in the first place. Financial institutions have a ridiculous amount of risky financial assets that have been blessed as risk-free, and the realization that the blessing was from a charlatan might mean at some point we have to realize the reality. In a classic problem of game theory, everyone's ok as long as no one brings the system down, but if the system were to collapse, it's best to be the first out of the building. So institutions and brokers and the press try to play down the CDO scam (for more on CDOs, read my previous postings, here and here)

And yet it's worth asking what indeed a Fed discount rate cut means (mind you, this is not a Fed Funds rate cut which would lower the rate consumers pay). If anything, it's cause for concern that the Fed, uptil now so concerned with inflation, suddenly perceives threats so great that it could substantially affect growth. And if the US and the world is indeed so robust, why should changes in a discount rate affect markets so radically? I would argue it's because investors today are asked to place their faith on a string on tenous assumptions, the failure of any one of which could produce severe consequences.

But ignore the killjoys like me. Believe the fantasy - the Fed has rescued the world. We can all go back to watching Cramer now. Thank you.

Video of the Day: iPhone Bill is an Environmental Hazard!

Sickened by the Xenophobes: Fact Check!

Suddenly, a bankrupt Republican party is trying to capitalize on immigrant-hating to drum up a base that feels defeated without a single vote being cast. Just today, political architect Newt Gingrich, a potential candidate for the 2008 Presidency, said he is "sickened with Bush and Congress" for going on vacation while "young Americans are massacred" by illegal immigrants. Presidential hopefuls Guilani and Romney weighed in too, with the former referring to an invasion, all alluding to the high crime these immigrants bring along.

Unfortunately for them, it's a myth! The Immigration Policy Center at the American Immigration Law Foundation reviewed 2000 Census data and came up with some pretty interesting (and inconvenient, for the xenophobes) findings:

• A native-born man, ages 18-39, is 5 times more likely to be incarcerated.
  
• Foreign born incarceration rates are 2.5x less than the native white man and 17x less than the native black man.
  
• Across ethnic groups, the incarceration rates for the foreign-born men are less than those for the native-born men.

But then it gets even more interesting...

• Incarceration rates of foreign-born men, as well as other issues like family disintegration and drug and alcohol addiction, increase with duration of stay in the US, although still less than comparable rates for native-born men.
  
• Immigrants, especially from Latin America, give birth to fewer underweight babies and have lower rates of adult and child mortality despite poverty and barriers to proper health care.

Wow! That stunned me, and it should serve as a wake-up call to the populace that hate is not the answer. Their positions on immigration are a large part of why Guilani, Romney, Gingrich and others won't get my symbolic vote this election cycle. (Symbolic because I'm not a US citizen)

Go Diego Go

Turns out all those kids' "educational" programs aren't that great after all. Time magazine reports on a latest study that programs like "Baby Einstein" cause more harm than good. Turns out that video learning is overstimulation, and doesn't affect a kids' learning in the same ways as personal interaction. This is consistent with an earlier study on the detrimental effects of outsourcing child learning to Sesame Street. The good news? Turns out reading to your kids helps them develop language skills far superior to the control group.

This raises an interesting question, one I discussed at some length with the friend who sent me the story. Does this story basically call you to re-visit the stay-at-home parent concept? It isn't simply about the quality of daycare. After all, the explosion in educational TV is partly because two parents tired from a days' work don't have the mental strength to engage a baby.

If you have views on the subject, I encourage you to use the comment feature of this blog to let them be known. As with so many things, I'm weighing the pros and cons, and I always love hearing other points of view.

Let the Foreclosures Begin!

Many politicians are complaining about the rising wave of foreclosures, and insisting that government needs to step in and stem the crisis. Thankfully, President Bush has decided to do so such thing. Why not, you ask? Well, it simply isn't the government's place in a free-market system to insulate individuals from risk; such a practice simply encourages greater risk-taking and creates ever-greater bubbles until the protector is no longer able to be a hero.

Housing prices must correct! I hope to be financially in a position to benefit from a substantial correction down the road, but this isn't simply about the value investor in me who's hoping in asset price corrections to give me goods at bargain prices. We have frequently heard complaints that housing in most big cities is unaffordable. The Housing Affordability Index put out by the National Association of Realtors declined from a high of 133.2 in 1998 to 113.9 in March 2007, thanks to the housing boom. But even that understates the problem because it considers home prices across the US - the median price, for example, is $215,300 - good luck finding a home for that price in almost any decent-sized American city.

A real estate correction then is appropriate, and may be desirable in the long-term. Despite all the huey, one could argue that indeed price appreciation in excess of wages is rather undesirable, and if anything, government should consider tweaking tax policy to dissuade rampant speculation, including measures such as limiting the number of times you can flip a house before you lose capital tax gains.

This is hardly a popular position. We tend to get really excited when stocks or houses skyrocket in price, even if it means that the early buyers are being rewarded, while younger entrants are forced to pony up. But unlike stocks, housing affects livability, and government support of speculative efforts would be rather undesirable.

A side note You may have read that the Fed Reserve has been using something called repo agreements to purchase mortgage securities. Lest you think of it as a bail-out, here's a clarification I needed, from John Hussman of Hussman Funds:

Contrary to the apparent belief of investors, the Fed did not shift its policy, nor did it “bail out” the mortgage-backed securities market by “buying” them from banks. What actually happened is that the Federal Funds rate shot to about 6% on Friday morning, and the FOMC brought it down to its target rate by entering into 3-day repurchase agreements . The banks sold securities to the Fed on Friday, and are obligated to buy them back from the Fed on Monday at the sale price, plus interest. Such open market operations are designed to ease the immediate demand for liquidity, and to give the banks and dealers more time to find buyers in the open market for the securities they are trying to liquidate.

The Giant Insurance Fraud!

Bloomberg had a story about how insurance companies have been defrauding policyholders by underpaying on their claims, even when the claims are within coverage limits for their homeowners' insurance. Here's an excerpt:

Kevin Hazlett, a lawyer, sued Farmers Group after an April 2006 tornado struck his home in O'Fallon, Illinois. Farmers had offered to pay him $470,000 to rebuild the house. Royal Construction Inc., based in Collinsville, Illinois, estimated the cost at $1.1 million. Hazlett, 52, accepted a settlement for an undisclosed amount.

Bo Chessor, owner of Royal Construction, says he sees insurers refusing to pay coverage limits all the time. ``Most people just roll over and take it because they don't have the money to fight it,'' Chessor says. ``What the insurance companies are doing is purely robbery.''

It may be robbery, but it's rarely a crime. State insurance departments don't prosecute insurance companies, and the federal government has no oversight. The insurance industry wants to keep it that way.

I'm all for making a buck, but this is not capitalism, it's fraud! The only reason insurance companies get away with it is the $98 million they spent on lobbying last year. Hopefully, Sen Trent Lott (R-MO) will succeed in getting legislation passed to regulate the industry - he's pursuing this after the insurance companies tried to screw him over after Hurricane Katrina (he eventually settled his personal claim, but has seen first-hand the unscrupulous attitude the industry takes)

Pick and Pan of the Week: American History

Pick of the Week

Why do high school students hate history so much? Author James Loewen argues it's because our presentation of the material is so sanitized, so heroificied (he made that word up!) that history becomes not the story of real events past, but rather an attempt to force a recitation of cherry-picked, or sometimes invented, facts. The author argues that every college professor, and several high school teacher, knows that history is about controversy, the clash of ideas, of tortuous opposing viewpoints, and yet the presentation of this information is so distorted as to make a realtor proud!

But worse, it may be racist. Loewen argues convincingly that there is an inherent tendency to ignore the contributions of non-whites and overplay those of Europeans, even in the face of tremendous historical evidence to the contrary.

As someone who loathed history in high school and now am discovering a love for it, I concur! So it does excite me to learn (not in this book) that, for example, that George Washington likely defrauded his fellow veterans of the French and Indian War to obtain their lands for dirt cheap - it doesn't diminish, in my view, his very important contributions to the America we cherish today, but does make him more human, and me more optimistic.

Pan of the Week

I have a confession to make - I did not finish watching this film. Actually I didn't even come close. Ken Burns is an acclaimed film maker, but sometimes I wonder if he had learned his trade from Communist propaganda training schools. All the criticisms from Loewen apply to this film. The last straw was when a discussion of slavery came on, and they somewhat brushed Jefferson's hypocrisy on this issue as somehow that he realized he was ahead of his times, and chose incremental change over substantial reform.

Real Estate Bloodbath

From American Public Media's program, Marketplace:

This year alone, [Cayahoga country treasurer] Rokokis expects 17,000 foreclosures in his county. He blames careless, even abusive mortgage lending. According to Cayahoga county statistics, just one lender, Argent Mortgage, has seen about 25 percent of its loans in Cleveland go under.

Countrywide Financial CEO Mozila seemed to be overstating things when he talked about the worst housing slump since the Great Depression, but stats like this make you sit up. And keep in mind Ohio is supposed to have one of the more "affordable" housing markets.

Incidentally, one of my friends in Arizona has been texting me about great deals she's been finding in the overheated (in more ways than one!) desert, including a 5 bed, 3 bath house for 189k! If there is a good news in this bloodbath, it might be that those of us who don't work on Wall Street may finally be able to find a place to live and own.

Candidates@Google

If you're into politics, definitely check out the Candidates@Google forum, with videos on Youtube. Unlike the usual sound bite nonsense that you see on the TV channels, a candidate who has to talk for an hour has to get into the details. So, in this video, for example, Bill Richardson has to argue why he's for a cap-and-trade policy for controlling global warming rather than a carbon tax, the use of tax incentives to achieve policy goals, his health care plan or his energy policy initiatives, or of course, Iraq and foreign policy. I disagree with some of his ideas, as I did when watchhing Congressman Ron Paul earlier, but I know where they stand. And they educate you on fascinating aspects of public policy. Ron Paul may be perceived as a lunatic by many mainstream voters for his extreme conservative views, but his discussions of history and the constitution make you sit up.

What I'm Watching

Thank You, Lady Bird!

Yesterday was a gorgeous day, and I drove up the Shenandoah mountains with my windows down, I couldn't help but reflect on the contributions of Claudia "Lady Bird" Johnson. The former First Lady, who recently passed, was instrumental in the beautification of the nation's capital and national highways. I confess having been raised outside the US, I knew little about Lady Bird - in fact, I didn't initially recognize her to be Mrs LBJ. However, her passing has made me ponder just how big her contributions to landscape beautification are. I don't know that road trips would be quite the same without the wonderful plantings and the limitations on billboards that Lady Bird was instrumental in bringing forth. Goodbye, Lady Bird, we'll miss you!

Book of the Day: All Over But the Shouting

The Pulitzer-prize winning journalist talks about his growth from Ricky of rural Applachia, born into poverty of an alcoholic father and a mother who did her damnest to do right by her kids, to become a famous (ok, he later became infamous, but that's another story) writer for the New York Times. This story will move you, make you laugh but also paint an incredible picture of what the rural South is. Ricky's honesty at times in unnerving, and sometimes finds a quest for your own true emotions that can at times be discomforting. A must-read!

Amazon link

Quote of the Day: Chris Rock

Comedian Chris Rock about the over-hyped urgings of hypocritical stars:

I pray that this event ends global warming the same way that Live Aid ended world hunger.

Video Calls in Korea

Anyone else think the American cell phone industry sucks? It's one of the least innovative industries in this country, and when we do get a decent product, it comes with a fair bit of sticker shock! What precipitated this not-quite revelation on a Sunday morning was a news story that Korea's largest provider, SK Telecom would allow video calls between mobile phones and Internet phones. But what amazed me wasn't the technology (I for one would never really want to use a video phone), but the price tag - at W30 per 10 seconds (about 18 cents a min) it's cheaper than US cell subscribers pay for going over their minutes!

Outsourcing Child Care - Onion Alert!

People are always telling me to lighten up. Since I have trouble doing that, I'm outsourcing it to the Onion.


Report: Many U.S. Parents Outsourcing Child Care Overseas

Video of the Day: Mac v PC

Revenge of the PC! For full disclaimer, I use both, and while I think there are some cool features in a Mac, but the Mac World is a bit too full of hype!

Quotes of the Day: Gas Prices

National Review Editor Rich Lowrie on the Newshour with Jim Lehrer on PBS:

There are also some doubts about how much [higher fuel efficiency standards] will actually do to reduce greenhouse emissions, because there are all sorts of strange incentives where you -- if you make cars -- if you basically make it more efficient to drive cars, people will drive more. And the horn of dilemma of energy politics is what really drives concern about this energy in this country, at the gut level for most people, is high gas prices. And if you really want to fight global warming and try to reduce our carbon emissions, the cleanest, easiest, most rational way to do it would to make the price of gas even higher through very stiff gas prices. And, of course, that's what no one is willing to contemplate or talk about.

David Frum of the American Enterprise Institute, with a great op-ed piece on American Public Media's Marketplace program (listen to the piece)

[Presidential candidates Clinton, Obama, Romney are] all echoing President Bush. At the start of the year, the president told a Delaware audience that he thinks it appropriate to spend taxpayers' money on new energy technologies. Does anybody remember that we've been here before? In the 1970s, the Carter administration spent — sorry, invested — tens of billions of dollars to develop alternatives to imported oil. The results? The Synfuels Corporation — one of the most flagrant boondoggles in American economic history. A market-flunking exercise that made even the farm program look like sound public policy. Why would anyone want to go down that road again? ...
There's only one way to bring oil alternatives to market: keep energy prices high, with tax increases if necessary. Under that price umbrella, entrepreneurs, firms, and consumers will develop their own next-best solutions — cutting back on consumption, devising substitutes and so on. ... But no politician wants to tell voters that they have to pay more for fuel to achieve energy independence. Instead, they offer delusions that government investors can somehow do what trillions of dollars in private capital cannot: discover a cheap and abundant alternative to oil that will deliver cleaner fuel at lower prices.