Tuesday, September 25, 2007

Easy Question

Monday, September 24, 2007

Ahmadinejad in New York

Andrew Ross, from the San Francisco Chronicle, declares that Columbia University's president, Lee Bollinger, wiped the floor with Iran's President Ahmadinejad during their high-profile theatrics yesterday.

With respect, I think Andrew's view is too US centric.

Ahmadinejad's actions, like Bollinger's, were designed to play to home crowds. Neither men were there to "debate" each other, and therefore there can be no "winners or losers" in the event.

Amhadinejad's stature is clearly improved by his association with Columbia. He can show that he's either building relations with this important ally (more on this later) or he can show how brave he was to walk into the lion's den and stand up to the US.

Bollinger's stature is raised amongst those who sympathise with a University's right to let in and keep out whomever they choose (the ROTC, Rumsfeld, Larry Summers, Ward Churchill etc.) As an added bonus, I'm sure he'll be an even more popular at Manhattan cocktail parties now than he was in the past ("so, what is that Amhadinejad fellow like anyway?")

Iran has made no bones about not wanting to be invaded by the US Army, and that it's counting on the support of the Democrats to protect it from the Republicans and Pentagon. In the Tehran Times, Major General Yahya Rahim Safavi states:
“I think that the rational people in the U.S. Congress and the Democratic Party will not allow the current U.S. administration to declare a new war [on Iran].”
Given that Columbia University, and Lee Bollinger himself, take a dim view of the Pentagon themselves, I can see Amhadinejad gambling that they would give him a platform.

Friday, September 21, 2007

What spooked the Fed?

As many observers have noted, even though the Fed cut interest rates by an unexpectedly large 50 points, long term interest rates are going up. I don't know why this is, but perhaps investors took this larger than expected cut to be a bad sign, and that the Fed knew things were even worse than they appeared. Clearly when Bernake called the reserve banks, they said things that scared him.

Thursday, September 20, 2007

GSE conforming limits

One option for dealing with the subprime problem is to raise the GSE conforming limit. My understanding is that Freddie Mac and Fannie Mae, two nominally independent private companies that are viewed as extensions of the government, and therefore backed by governmental guarantees, were set up to enable the government to give an arms length subsidy to low-income homeowners by having these entities back cheap home loans. "Cheap" means loans of $417K or less. Fed chairman Ben Bernake seems to want to have it both ways with these entities
Some have suggested that the GSEs could help restore functioning in the secondary markets for non-conforming mortgages (specifically jumbo mortgages, those with principal value greater than $417,000) if the conforming-loan limits were raised. However, in my view, the reason that GSE securitizations are well-accepted in the secondary market is because they come with GSE-provided guarantees of financial performance, which market participants appear to treat as backed by the full faith and credit of the U.S. government, even though this federal guarantee does not exist. Evidently, market participants believe that, in the event of the failure of a GSE, the government would have no alternative but to come to the rescue. The perception, however inaccurate, that the GSEs are fully government-backed implies that investors have few incentives in their role as counterparties or creditors to act to constrain GSE risk-taking. Raising the conforming-loan limit would expand this implied guarantee to another portion of the mortgage market, reducing market discipline further.
I'm not sure how Ben manages to both claim that 1) GSEs are not backed by the government, and 2) the government wants to step in and let the GSEs cover more loans because loans are doing badly. It would be easier for him to simply say "GSEs are backed by the government, which is why I don't want them to get even bigger than they already are".

I also think that it's rich that states like California are agitating for GSEs to cover larger mortgages because every house in California costs more than $417K. If GSEs started backing jumbo loans ($417K+) in California, the interest rates for those loans would fall. The last time interest rates on mortgages fell, the market response was to bid up the home price so payments stayed exactly where they were, but houses became expensive. This was great for people who owned houses, but bad for people who wanted to buy houses. If GSEs start backing jumbos, then there will be another one time transfer from non home-owners to home-owners. Since home-owners have just enjoyed the greatest burst of residential price appreciation in the past 100 years, I'm not sure why it's a priority to goose things a little more.

I would also add that if California is concerned about the price of homes, it could try making home construction legal again. While it's true that they are not making any more land, there is still acres of sky free and clear, just waiting for that second story.

Wednesday, September 19, 2007

Inflation is a monetary phenomenon

This article in the Telegraph says that Saudi is considering to break it's peg with the dollar, as the dollar continues to fall, aided downward by the Fed's surprisingly large 50 point rate cut yesterday. Similarly, inflation is running sky high in Dubai, which chose (for now) to maintain the peg.

I don't know how long the oil producing countries in the Gulf have pegged their currency to the dollar, but I remember this being the case when I was very young, so maybe over 20 years? In any case, right now there is no doubt that the Dubai economy (red hot) and the US economy (cooling) are operating out of sync, and while a rate cut may be the right thing to do for the US, it's almost certainly not the right thing to do for Dubai. But since Dubai has essentially outsourced it's monetary policy to the US Fed, they trimmed their rates by 50 points yesterday too.

The claim is that inflation in Dubai is 9%, which seems perfectly beleivable. Other areas seem to be even worse.

I'm not sure what options the region has aside from letting their currencies appreciate against the dollar.

Tuesday, September 18, 2007

Fantastic passive registration

Jottit has the best passive registration that I've ever seen -- fantastic!

Thursday, September 13, 2007

Timing is everything

I felt stupid about not buying Apple stock as soon as the iPod came out (just like I feel dumb about not buying Nintendo when I first got the Wii). I bought the first generation iPod in late 2001 and thought it was fantastic -- finally, someone had done an mp3 player right (although how was I ever going to fill up 5GB?)

This graph from the WSJ shows Apple's stock price as it updated the iPods. If I had bought in 2001, the stock would have gone sideways until 04, when Apple released the iPod Photo (which I didn't think much of). Goes to show you.

Wednesday, September 12, 2007

Most worthless sentence of the week

This week's prize for most worthless sentence goes to:
The number of new computer science majors today has fallen by half since 2000, according to the Higher Education Research Institute at UCLA
I cannot speak for the report's author, Nick Schulz at TCSDaily, but I was alive in 2000 and recall it being the very peak of the tech bubble when the best way to get rich was to start an Internet company. This makes 2000 a useless year for comparisons. Today we can read such a thing and laugh, but in 60 years will anyone automatically know that 2000 was the technology bubble year?

How much poorer do falling home prices make consumers?

One of the big questions about the deflating housing bubble, apart from how large it will be, is how much impact will it have on the broader economy. By clearly, different people have different conceptions of what the "broader economy" means. The always-glum Nouriel Roubini has this to say:
It is a insolvency problem as you have now millions of US households that are near insolvent and will default on their mortgages; dozens of sub-prime mortgage lenders who have already gone bankrupt; dozen of home building companies that are under distress; many financial institutions in the US and abroad - such as hedge funds and other highly leveraged institutions – that have already gone belly up...
I would not consider hedge funds, mortgage lenders, home building companies, durable goods manufacturers, etc. part of the "broader economy" -- they are all part of the housing economy as their business is fundamentally tied to houses -- either directly or through their financing. If you believe that housing prices became too high (ie. that there was a bubble) -- and some people don't -- then prices have to fall. If prices have to fall, then any party that's counting on rising prices will be caught on the wrong foot.

Moreover, I'm not sure that higher housing prices make an economy richer overall. Everyone needs somewhere to live, and if your house price goes up, and so does the price of any home you might ever want to move to, then how is anyone richer? You're still swapping a house for a house? If you own multiple houses, then yes, you are wealthier as prices rise, but if you own no houses, you are poorer. I'm guessing that overall, multiple home owners and renters come out a wash for the economy as a whole.

Certainly, it's hard to make an argument that expensive real estate makes everyone richer when you look at how much disposable income it uses up. If people give up playing the home lottery, move to cheaper rentals, and then put that extra cash into savings, or buying other stuff, that seems like an efficient allocation of resources from an overvalued asset (real estate) into better assets, or consumption.

UPDATE: I did not notice the details in the article that spoke about renters. It found that both housing prices and rents have risen by similar amounts. That has not been my personal experience in Boston or California, but the degree to which the ratio of rents and prices has stayed constant is the degree to which the increase in housing prices has been driven by fundamentals.

UPDATE: Boingo's idiots are worse than I thought

I recently wrote about how wifi provider Boingo is run by idiots. This executable that I found on my desktop does nothing to reverse that impression. I'm glad that I have a Mac so the .exe could not run, infecting my system with awfulness.

Tuesday, September 11, 2007

Boingo is run by idiots

I'm using the wireless network in the new terminal in Baltimore's BWI airport. The terminal is very nice, and BWI has picked Boingo to provide their wifi network.

Boingo is run by idiots.

I occassionally need a wireless network on-the-run, and I'm OK paying the $8-$10 they charge for an hour or so's connectivity. It's a small price to pay for being able to get some work done.

The problem is that when I use these networks, it is a disposable transaction -- I have no interest in signing up for a monthly account -- and I have even less interest in trying to remember a name and password. T-Mobil irritates me greatly by asking for a login every time I have the misfortune of having to use one of their wifi networks. I must have 6 accounts with them now, and end up having to create a new one everytime I use their network. How much this costs them, or how much it corrupts their business data I do not know, but it's not enough.

Boingo not only asks for a login and password for their 24 hour accounts, but also asks to backup this password with a PIN. A PIN! For a disposable account! If I'm using a disposable password on a disposable account, often with a disposable username, why do they think I'm going to remember anything as hard to remember as a PIN?


Sunday, September 09, 2007

Benazir returns to Pakistan

Both of Pakistan's ex-PMs Benazir Bhutto and Nawaz Sharif seem to be returning to Pakistan. Bhutto seems to be returning with support from the US State department, and Nawaz Sharif is returning because Bhutto is returning. I guess State wants to replace the Pentagon's guy, Musharraf, with their own.

Benazir Bhutto's last two rules in Pakistan were marked by the utmost venality and corruption. Her return will not help the country, and will be worse than having Musharaf in power (not that I'm a great fan of his either). However, her Harvard degree means she knows how to sweet talk the boys the State department, and the fact that they bought her story reflects on them very poorly.

Friday, September 07, 2007


Great piece on the mortgage crises by Michael Lewis:
So right after the Bear Stearns funds blew up, I had a thought: This is what happens when you lend money to poor people.

Don't get me wrong: I have nothing personally against the poor. To my knowledge, I have nothing personally to do with the poor at all. It's not personal when a guy cuts your grass: that's business. He does what you say, you pay him. But you don't pay him in advance: That would be finance. And finance is one thing you should never engage in with the poor. (By poor, I mean anyone who the SEC wouldn't allow to invest in my hedge fund.)