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If the 1930s are really back, it won’t be long now before they remake Confidence, starring Oswald the Lucky Rabbit as an economist. Sorry, embedding was disabled.

Notes on the cartoon: Oswald was originally drawn, but not owned, by Walt Disney. A few tweaks and a change of species later, Mickey Mouse was born. Take a good look at the mice on drums in the band – it was probably an in-joke. Also, check the credits: Tex Avery (Bugs Bunny) and Walter Lantz (Woody Woodpecker), among others.

This is the first Veterans’ Day without my dad. He didn’t talk about it until he knew he was dying, and even then he didn’t say much. Smart-ass street kids from the Bronx without high school diplomas did not go to OCS. Usually, they were assigned to the infantry, but since he had volunteered for the Army Air Corps, they did the next best thing: they made him a ball turret gunner in a B-24. He was sent to the China-Burma-India theater on a troop ship to Calcutta (Kolkata), then flew over the hump to Chungking (Chongqing). In the hospital, he said a few words about being hauled out of the turret by his crew-mates before the plane bellied into a swamp, said a little about shooting at Japanese fighter planes and being shot at, talked a bit about flak, and mentioned strafing runs on Japanese trains, much too close to the ground. The only exit from the B-24 was at the rear of the plane, which was bad enough, but since he could not wear a parachute harness in the turret, let alone the parachute itself, his situation was essentially binary.

He must have been pretty good at it, though, because they promoted him and brought him back as a gunnery instructor. Nevertheless, he says he hated every minute of every day of the war. That may have saved his life, because they were offering early discharges to anyone who would sign up for the reserves; but he had decided that once he was done, he was done. It was 30 years before he would get on another airplane. As he said later, it was much nicer when no one was trying to kill him. The guys who took that offer went to Korea a few years later. Instead, Dad came back to the states to serve out his full enlistment, weighing 135 lbs., bright yellow from the malaria drugs, and bearing a heartfelt dislike of authority. All seven of his kids seem to have inherited that last characteristic.

Thank you, Dad, and good-bye. I hope we always have more like you when we need them.

Tuesday, October 21, 2008 is likely to be a decisive day in the credit crunch. That day is when credit default swaps (CDS) on Lehman Brothers debt will be settled.

Credit default swaps are sort of like insurance. One party offers, for a fee, to guarantee a certain bond against a “credit event,” usually something like a default, missed interest payment, restructuring, etc. If that happens, the insurer (seller) pays the difference between the bond’s face value and what it is worth after the event. In the case of Lehman Brothers, the company’s bankruptcy means that the sellers of the CDS will have to pay about $91 for every $100 of par value insured, since those bonds were selling for $8.65 per $100 par value at auction on October 10. Because there is no central market or clearing house for CDS trading, no one has a complete story on who will be paying and who will be trying to collect. The gross notional amount of credit default swaps on Lehman Brothers debt is believed to be approximately $300 billion to $400 billion. One hopes that the net amount is a lot less, maybe less than $10 billion after offsetting positions are netted out. One hopes, but one does not know.

(Update 10/19/2008: SEC Chairman Christopher Cox has a piece on the CDS issue in the New York Times.)

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A paraphrase of Beowulf (starting around line 1383).

Beowulf said “We must mourn our friends later; they have died, but we have not yet avenged them. While we live, we win whatever victories we can; so now let us hunt the monster, whether its trail lead through the middle of the earth or the bottom of the sea.”

The monster is hiding, but heroes are hunting it.

Link

Sry!

LGF is having way too much fun finding crazies in Barack Obama’s blog community. It looks like it was inspired by Daily Kos’s community of like-minded progressives, where everyone gets his own little sublease to part of the real estate. The problem is that Obama’s campaign has attracted all kinds of crazies. The people running and moderating the little bloglets are way out of their depth; they don’t catch some of the real poisonous things until Charles or one of his lizard minions finds it and publicizes it. Shortly after, the offending blog is removed and the archives are deleted.

Maybe it’s unfair to judge a candidate by his supporters. If it were just one or two, I might go along with that. In this case, though, there is a whole ward of drooling loonies who think Obama is their kind of guy, and Obama’s campaign furnishes them with a soapbox and a microphone.

Before this is through, nearly everyone on the planet will have expressed an opinion on the sub-prime mortgage crisis. It’s a little late, but I thought I should get mine in. Here are some points about the issue that I don’t think have been given much discussion.

Mortgage-backed derivatives are not new. Some 20 years ago, FNMA introduced the REMIC (Real Estate Mortgage Investment Conduit). These were pools of mortgages that were split into various tranches or classes of maturity and quality, which were then sold separately, similar to the way today’s collateralized debt obligations (CDOs) are sold.

There were some important differences between this first generation and its descendants. I would like to point out some of the differences, since they may highlight the reasons behind the collapse.

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One reason the effect of the US subprime loan crisis has spread so far and so quickly is that financial institutions have many ways of participating in the debt market other than issuing or buying debt instruments. Most of the financial news I have read omits explanations of how it happens, other than generic references to “derivatives.” Here are some of the other ways to have a loss without touching a mortgage.

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“We have not released giant badgers in Basra, and nor have we been collecting eggs and releasing serpents into the Shatt al-Arab river,” Major David Gell told reporters.

Cue the Monty Python references.

The Dissident Frogman is back!

Reductio ad absurdum done right.

The Upside of Income Inequality

By Gary S. Becker and Kevin M. Murphy
From the May/June 2007 Issue of American.com

For many, the solution to an increase in inequality is to make the tax structure more progressive—raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same indi­viduals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect.

“But what this global war on terror bumper sticker — political slogan, that’s all it is, all it’s ever been — was intended to do was for George Bush to use it to justify everything he does: the ongoing war in Iraq, Guantanamo, Abu Ghraib, spying on Americans, torture.” — John Edwards, June 3, 2007

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1. Think of a set of three words that sound the same (homophones) but begin with different letters. Example: nice and gneiss sound alike and they begin with different letters, but there are only two of them. There is no third that I can think of that sounds like that. I can come up with four sets of three words, but I believe I have forgotten one.

2. How many English words begin with s but not sh, and are pronounced as sh? I can think of three, not counting derivatives of these three.

3. Give yourself 1 minute and write down all the words you can think of that are doubled syllables. Examples: bye-bye, Dada. Punctuation and capitalization do not matter, but spelling does (syllables must be spelled identically). See if you can come up with a primate, a flowering tree, an actress (her Magyar nickname for the name Susan, in English), and a treat.

On April 19, 1995, Timothy McVeigh set off a truck bomb that destroyed the Murra Federal Building in Oklahoma City. The truck was parked at the loading dock, directly under the day care center. My daughter, three years old at the time, was in the day care center on the first floor of the Kennedy Federal Building in Boston. It is next to the loading dock. My wife was working on the 19th floor. When I returned to work the next day, someone in the elevator joked that it was too bad the bomb hadn’t taken out the IRS. The ride was short, and I was able to stay still.

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CONCORD NH (Reuters) – Governor John Lynch today announced that he will begin the process to change the official name of the state to Tax-Free New Hampshire. This will require an amendment to the state constitution, which must receive a three-fifths majority in both houses of the state legislature and approval by a majority of the voters in the next regular election. “It’s clear that we will not have the change in place for the 2008 elections. In fact, that will be our earliest opportunity to get it on the ballot. We’re looking ahead to 2012.” The heavily-covered New Hampshire presidential primary is expected to give the new name wide exposure.

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The Personal Jetpack!

Those picturesque New England stone walls were not put there for their looks. They weren’t even the first choice of material. Fences were originally wood, using the zigzag design that calls for a lot of wood for the length. Wood became scarce and too valuable for fencing after the forests were cleared, so stone walls became the default.

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In today’s National Review Online, Mario Loyola argues that conservative esteem for the rule of law should extend to a refined understanding of international law, backed up with consistent enforcement of its principles (in other words, either both Kosovo and Iraq, or neither). Too late. That issue was settled over 60 years ago.

Here is how the Economist defines regulatory capture:

Gamekeeper turns poacher or, at least, helps poacher. The theory of regulatory capture was set out by Richard Posner, an economist and lawyer at the University of Chicago, who argued that “REGULATION is not about the public interest at all, but is a process, by which interest groups seek to promote their private interest … Over time, regulatory agencies come to be dominated by the industries regulated.” Most economists are less extreme, arguing that regulation often does good but is always at RISK of being captured by the regulated firms.

Familiar examples of regulatory capture in the US would include those agencies charged with setting rates, fees, and prices. The ICC, originally meant to keep railroads from overcharging farmers with no other means of shipping their commodities, eventually became a means by which trucking companies and interstate bus lines set prices, limited competition, and allocated routes. The FAA, until deregulation in 1978, assured airlines of an orderly and profitable division of routes, without the prospect of interlopers disrupting the arrangement. Similarly, the United Nations, formed in the very act of destroying a murderous tyranny, came to become a system for regulating tyranny and allocating the areas in which tyrants might operate without interference.

The immediate predecessor of the United Nations was actually not the League of Nations, but the Atlantic Charter between the United States and Great Britain. This was purely an Anglo-American document in terms of its principles as well as its origin. The two signatory nations disavowed any territorial claims, embraced consensual sovereignty and self-determination for all people, and stated their support for international economic cooperation, freedom of the seas, and eventual worldwide demilitarization. Even though the US had not yet entered the war, the treaty embraced the destruction of the Nazi regime as a common foreign policy objective. It also contemplated, but did not establish, “a wider and permanent system of general security.” The original agreement between the two countries was signed August 14, 1941. On January 1, 1942, the representatives of 26 governments, including some governments in exile, signed the “Declaration by United Nations, Subscribing to the Principles of the Atlantic Charter.” The United Nations then became the formal name of the anti-Nazi allies.

The signatories included the USSR. Stalin’s government had no intention of following most of the principles set forth in the treaty; its signing was a transparent fraud. The Atlantic Charter and the United Nations were designed to restrain the practices of aggression, brutality, dictatorship, and government-sanctioned murder, yet the United Nations brought in one of the most brutal and murderous dictatorships as a founding member. Stalin’s USSR set a precedent which is followed to this day.

The contradiction was present from the beginning in the UN Charter:

Preamble
The Purposes of the United Nations are:

1. To maintain international peace and security, and to that end: to take effective collective measures for the prevention and removal of threats to the peace, and for the suppression of acts of aggression or other breaches of the peace, and to bring about by peaceful means, and in conformity with the principles of justice and international law, adjustment or settlement of international disputes or situations which might lead to a breach of the peace;

2. To develop friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples, and to take other appropriate measures to strengthen universal peace;

3. To achieve international co-operation in solving international problems of an economic, social, cultural, or humanitarian character, and in promoting and encouraging respect for human rights and for fundamental freedoms for all without distinction as to race, sex, language, or religion; and

4. To be a centre for harmonizing the actions of nations in the attainment of these common ends.

These ends were not and could not be harmonized. They were in fact placed in opposition:

Article 2
Nothing contained in the present Charter shall authorize the United Nations to intervene in matters which are essentially within the domestic jurisdiction of any state or shall require the Members to submit such matters to settlement under the present Charter; but this principle shall not prejudice the application of enforcement measures under Chapter VII.

Article 55
With a view to the creation of conditions of stability and well-being which are necessary for peaceful and friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples, the United Nations shall promote … universal respect for, and observance of, human rights and fundamental freedoms for all without distinction as to race, sex, language, or religion.

Note the contrasting strength of the language in these two provisions (“nothing …shall authorize” and “shall promote”). If human rights are truly universal, the interposition of national boundaries must be irrelevant, since they exist everywhere. As a practical matter, Violations of human rights were defined as outside of the scope of the UN, as long as they took place within a country’s borders. It is as though there had been no reason to fight Hitler except for his invasion of Poland.

We cannot defeat tyranny by leaving tyrants safe and secure, as long as they stay close to home. The rights to life, liberty, and property are not just local customs. Either human rights are universal, or they are nothing.