New Deal Again

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.

Veterans’ Day II

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.

What’s Next?

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.)

Read more