Structuralism

A couple people have asked me about my response to prop 8 passing in CA.  I am making an effort not to delve into particular partisan issues and instead focus on higher, meta-issues.  Thus I will point out what I find most interesting in this.

There was $75 million dollars spent on pro-8 advertising.  This, of course, excludes the amount of time contributed to the campaign by volunteers.  These are people who are not directly affected by gay marriage themselves, and thus this can be thought of as a sort of charitable behavior (whether you agree with them or not, they are not doing this for personal gain).

Consider the implication of this; people chose to spend $75 million dollars of their charitable funds on this issue.  According to Children International, the cost of providing food, clothing, basic health care and education to a child in Africa is $264/year.  That money would have provided for 284,091 children for a year.  That is just for Prop 8 in California - two other states had such campaigns as well.  Regardless of my feelings on gay marriage, I cannot believe that ending gay marriage is worth the suffering of that many children.  Charitable dollars are fungible, and the structuralist approach to viewing causes should always look at such alternative use of those dollars.

Great tactic used against the IRA in the Washington Post::

One of the most interesting operations was the laundry mat [sic]. Having lost many troops and civilians to bombings, the Brits decided they needed to determine who was making the bombs and where they were being manufactured. One bright fellow recommended they operate a laundry and when asked ‘what the hell he was talking about,’ he explained the plan and it was incorporated — to much success.

The plan was simple: Build a laundry and staff it with locals and a few of their own. The laundry would then send out ‘color coded’ special discount tickets, to the effect of ‘get two loads for the price of one,’ etc. The color coding was matched to specific streets and thus when someone brought in their laundry, it was easy to determine the general location from which a city map was coded.

While the laundry was indeed being washed, pressed and dry cleaned, it had one additional cycle — every garment, sheet, glove, pair of pants, was first sent through an analyzer, located in the basement, that checked for bomb-making residue. The analyzer was disguised as just another piece of the laundry equipment; good OPSEC [operational security]. Within a few weeks, multiple positives had shown up, indicating the ingredients of bomb residue, and intelligence had determined which areas of the city were involved. To narrow their target list, [the laundry] simply sent out more specific coupons [numbered] to all houses in the area, and before long they had good addresses. After confirming addresses, authorities with the SAS teams swooped down on the multiple homes and arrested multiple personnel and confiscated numerous assembled bombs, weapons and ingredients. During the entire operation, no one was injured or killed.

(Via Schneier on Security.)

Interesting comments from Naked Capitalism. I had wondered what the new influx of T-Bills would do, but here is a better analysis than mine.

Bailout Bill To Make Money Market Liquidity Crunch Worse?

The bailout, I mean rescue plan, can be seen as nothing less than a new Ponzi scheme. It works like this:

Fed as only lender, in an attempt to keep the financial system from imploding;

TARP needed to keep Fed balance sheet intact so that it can continue as only lender;

Treasury will need to significantly increase the amount of Ts (public money) auctioned to fund TARP;

Panic serves to encourage T. buyers, especially for bills;

This represents a liquidity trap: TARP recipients of Ts will hoard cash to buy Ts: rinse and repeat.

This results in drying up of lending to corporations/crowding out private capital - no new credit lines;

The Fed becomes a holder of private capital, the later of which is now frozen to protect that capital from deteriorating, The rollover scheme will restrict even more lending in the private sphere for purposes of keeping the financial sphere on life support, but with the consequence of furthering the deterioration of the ‘real’ economy.

The counterargument is that the TARP will end the fear, breaking the Treasury-hoarding. But with banks (presumably) able to use the new phony prices paid by the TARP as marks for asset valuation purposes (whether they sold to the TARP or not), you get less transparency and hence less faith in bank balance sheets.

Further remarks from reader FairEconomist:

My thoughts exactly, Don. Plus the durations target the drawdown precisely on the capital we need most. We’re desperately short of 3 month working capital, and here comes Paulson to take $700 BB of what we’ve got left away and dump it in the mortgage industry. I don’t think you could devise a worse plan. We might be better of if he *did* steal it.

From Ex-bankers on pushing customers to rack up debt - CNN.com:

“Americans now carry $850 billion in credit card debt. Consumer groups are lobbying Congress to include better protection for credit card holders, demanding legislation to prevent what they call unjustified interest charges and deceptive practices, especially in light of the massive financial bailout now being considered.”

This article has some interesting comments from two women who worked in the MBNA call centers on the how they were instructed to push hard for card holders to max out their cards. This whole issue needs to be addressed now because this is the second credit crisis looming. There is no question that much of this debt will cause bankruptcy for card holders, and while it will not be as severe as the current crisis, it needs to get dealt with proactively.

As a rule, I dislike government intervention, but the credit card industry really cannot be called anything besides predatory. There are tons of cards marketed today with interest rates over 25%. Is there ever really a case where a loan needs over 15% to make it a good investment for the lender? I think we need a simple rule for the industry that caps interest rates at prime + X for some reasonable value of X (10% or 15% seem likely). That would at least lessen the number of people who got completely crippled by credit cards.

I have always doubted that emails or letters to congressmen made any difference. However, on the bailout issue, I actually contacted all of my representatives. Looks like I am not alone. See the following except from a congressional staffer.

“But, on this issue, the calls and e-mails are making a difference. Members and staffers are talking about it in the halls and in
meetings. The volumes are big”

- from Protests Against Bailout Bill Registering With Congress

My cofounder and I just made Inc Magazine’s list of the Top 30 Entrepreneurs Under 30. Obviously, I am pretty excited.

Top 30 Entrepreneurs Under 30 - Rahim Fazal and Noah Horton, Involver, Leading Your Company Article - Inc. Article

While I dislike bailouts on principle, the current proposal for buying up bad loans is possibly the worst idea in this entire crisis.  We will be dealing with the negative repercussions of this for decades.  The Washington Post has a great op-ed on better options.

Charles Calomiris of Columbia University and Douglas Elmendorf of the Brookings Institution have offered versions of another idea. The government should help not by buying banks’ bad loans but by buying equity stakes in the banks themselves. Whereas it’s horribly complicated to value bad loans, banks have share prices you can look up in seconds, so government could inject capital into banks quickly and at a fair level. The share prices of banks that recovered would rise, compensating taxpayers for losses on their stakes in the banks that eventually went under.

Sebastian Mallaby in the Washington Post

Bob Barr is making a great effort to scorch the electoral earth in Texas. He asserts that both the Democrats and Republicans failed to submit their candidates for inclusion on the ballot before the cut-off date specified in state law.  He is suing the state for including them on the ballot despite that fact.  This should be interesting to watch unfold, and will certainly raise the profile of the Libertarian party.

Freakonomics, a consistent source of great material, has an outstanding (albeit very long) explanation of the events of the last few days in the financial world.  This is a great source of comprehensive information on what happened and why.

Thanks to Jeff Nolan for pointing out this gem.

Thomas Barnett is a strategic planner for the Pentagon who has some amazing thoughts on the structure of the military vs the nature of the challenges we face. He presents a very compelling argument for a straightforward structure for the military that inherently focuses the right people on the right problems. Highly recommended viewing.

Thomas Barnett Draws a New Map for Peace

For those who enjoy the talk, his blog is at http://www.thomaspmbarnett.com/weblog/

Thanks to Tyler Willis for pointing this talk out to me.