Thursday, May 26, 2011

The Teacher Compensation Debate

In March I wrote a piece on how retiring teachers in my town are millionaires. It has become, by an order of magnitude, the most read piece on this blog. Last week, the New York Post ran it as an op-ed piece and this led a lot more readers directly to the blog. They appear to be mostly teachers union types, and they are angry! I get called lots of names.

This is because the game they play was not meant to see the light of day. Transparency is their enemy.

If you want to see the comment stream, it's here.

Tuesday, May 24, 2011

Tim Pawlenty Climbs a Notch

T Paw, as he is known, just came out against ethanol subsidies. Bear in mind that Pawlenty probably has to win Iowa to have any chance at the Republican nomination. This is the sort of principled stand that conservatives are looking for, as opposed to the carefully modulated views that Mitt Romney seems to utter.

T Paw has earned a closer look.

Song of the Self-Entitled

I hear it in lines at stores in the Hamptons. I hear as reservations are being argued over in tony New York restaurants. I'm sure if I lived in LA I'd hear it a lot.

But the fact is, sometime, somewhere, saying, "Don't you know who I am?" must have worked. Otherwise, why would we hear it so much?

Personally, I'd need proof that it worked, though, because every time I've seen the line used it resulted in every person within earshot thinking, what a douche.

(Pardon the language, but there was no other word in the English language that seemed to quite convey the proper meaning.)

So it comes is no surprise that Dominque Strauss-Kahn, who seems to already wrapped up the Self-Entitled Man of the Year award, (allegedly) barked "Don't you know who I am!" to the poor African cleaning lady as he attempted to rape her.

If it weren't so tragic it would be hysterical on multiple levels. The woman is poor immigrant from the obscure country of Guinea. The odds of her even knowing what the IMF is seem remote, let alone knowing which officious bureaucrat is currently running the place. Hell, I follow this stuff, and I couldn't have told you.

And what if she had known? Ah, yes, I know who you are. You are a very important man. Please rape me now.

And today it comes out that DSK's cronies are trying to bribe the woman's family back in Guinea to get her to drop the charges. Let's pray it doesn't work, because it just might.

Tuesday, May 17, 2011

Another Bad Idea, Courtesy of Dodd-Frank

Dodd-Frank says banks should stop behaving like hedge funds, which means, in practice, that they should stop making "bets" with their capital and simply make loans and service customer transaction flow. Like many ideas from Washington, this sounds great to anyone not actually acquainted with the situation.
For starters, how can you tell? Any trader has a "book" which shows what they are currently long or short. Is this speculation or customer-driven trading?

Allow me to explain. Let's say I trade treasuries notes. I can't always have a zeroed-out book. If someone want a bid on, say,  $10 million 10-years, I have to give them one. If the customer says, "done," I own them. Now, if I immediately sell them to someone else I assume the Fed will not think I am speculating. But what if I can't? What if I don't want to because I think the market will tick up this afternoon? What if I want to just carry them for customers who might (or might not) be looking for offers later?

The point is, where is the line between normal transaction business and speculation is impossible to define, and yet that is exactly what the Fed proposes to do. Their answer on how do accomplish this is to use the Sharpe Ratio.

For those of you not in finance, the Sharpe Ratio is a simple metric where you (basically) divide your returns by the volatility of those returns. High Sharpe Ratios are thought to be good because they mean you are getting good returns relative to the risk you are taking. (This assumes, of course, that volatility equals risk.)

The Fed would look at the numbers from each trading unit and say, "You are not speculating because you have a high Sharpe Ratio. Good boys." Or the opposite.

I have a number of problems with this idea.

First, high Sharpe Ratios don't necessarily suggest low risk.  In fact, really high ratios actually mean the opposite: run away. Long Term Capital had an excellent Sharpe, for example.

Without going into excessive detail, high Sharpe strategies tend to fall into two categories. The first is arbitrage strategies (like Long Term) where one takes small pricing inefficiencies and exploits them with a lot of leverage. The other is illiquid lending strategies (commonly known as PIPES) where one loans money to micro cap companies that can't otherwise raise capital easily. Both strategies look great right up until they don't.

Second, the need to show a high Sharpe will drive all the trading desks to similar strategies, thereby increasing systemic risk. If everybody holds the same positions, what happens when they all run to the exit at once? This is guaranteed to happen.

Third, let's say the Fed decides your desk's Sharpe is too low. Then what? Do they order you to do something? If so, what? Does the Fed know better than an actual trader how to reduce risk? (The answer is no, in case you're dwelling on this.)

There is a better way, and a simpler one. What got us into the Big Mess of 2008 was, mostly, leverage. Too much of it, to be precise. Placing reasonable institutional-level limits on leverage make sense, and it doesn't require anyone to make qualitative judgments they're not equipped to make.

But leave it to Washington to find a more complicated way.

The Wonder That Is the IMF

A friend just wrote me the following, and I don't know how it can be said better.

Please explain to me why it makes sense for the U.S. taxpayer to borrow $108 billion a year from the Chinese only to send the proceeds to the IMF, so that they (the IMF bureaucrats and politicos) can live like spoiled kings, and then pass on our money to socialist basket cases in Europe (Greece), Africa, and elsewhere. How can that possibly make sense? In effect, a worker in Ohio is paying taxes so that someone in Greece never has to work.

Monday, May 16, 2011

Socialist Man

A friend of mine writes:

This man is innocent until proven guilty, BUT...

I have to admit. The thought of an elitist, multiculturalist, jet-setting, Frog-bureaucrat-snob ENA professor turned IMF President who was a likely Socialist candidate for President of France, sitting in the pokey in downtown Manhattan for jumping out of his hotel bathroom naked and trying to manhandle a chambermaid is a little too good to be true.

I had a good chuckle over that one. He writes, of course, about Dominique Strauss-Kahn, erstwhile IMF head. I continuously marvel at the enormous sense of entitlement guys like this seem to have, especially since most, like Strauss-Kahn, never seem to hold a real job.

Strauss-Kahn is a conspicuous consumer in Paris's fashionable quarters and he always flies first class for free on Air France. He stays in a $3000/night hotel room. You know who pays for that? Me and you. I love the fact that he asked the pilots to hold up the takeoff of his flight when he was waiting - he thought - for his cell phone to be delivered.

Women are apparently something he just takes when it pleases him, assuming they didn't kick too hard. A chambermaid, sure, I'll have that. Just an unimportant African girl whereas I, I am Dominique Strauss-Kahn, head of the IMF and future president of France! And, mon Dieu, it was only une fellation. Une petit chose!

What kills me is that these leftist elites are just that - elites. They supposedly represent the common man but would never actually be caught dead with one. And someone else always seems to pay their bills.

Don't get me wrong, the left does not corner the market in hypocrisy. The right will always have the occasional preening moralist who keeps a mistress or two on the side. The difference is this: a conservative philosophy recognizes man's fallacies, and as such seeks limits to power. Limited government limits the reach of avaricious politicians and officious bureaucrats. On the other hand, Obama, Soros, and all the other sherry-sipping globalists who hang out in Davos want to hand over the keys to people like Strauss-Kahn. He is, after all, the very embodiment of sophistication and certainly knows best how the rest of us should be living our lives. His moral trespasses come with the territory in any great man. The rest of us are unsophisticated rubes to expect such men to live by the pedestrian conventions of the middle class.

Monsieur Strauss-Kahn, enjoy the hospitality of the New York penal system. I'm sure your fellow inmates will revel in your bon mots and tales from the corridors of power. Just don't pick up the soap.

(Incidentally, for a great read on this general subject, I highly recommend Intellectuals by Paul Johnson.)


Newt spits the bit.

Gingrich has apparently come out in favor of the insividual mandate to purchase health care insurance. I find this almost bizzare as Newt was supposed to be one of the principled conseratives in the race. That's it, I'm done.

You can read about it here.

Mitch Daniels, you're up!

Wednesday, May 11, 2011

One More Example of How We're the Most Taxed Nation on Earth

I have written a great deal in the past on taxation, for instance Taxation and Morality. I have also suggested that people generally underestimate - vastly - how much tax they actually pay. This is because they focus on personal income tax rates to the exclusion of everything else - property taxes, sales taxes, state & local taxes, licenses, fees, etc., etc. The political/bureaucratic class is very efficient at spreading and hiding the pain so you're never completely aware of just how much you're sending their way.

A great example was handed to me just yesterday across the counter at the Enterprise Car Rental office at Denver International. I had rented a Jeep Grand Cherokee for two days for the all-time awesome rate of $7.43 a day. When I got the bill, it came to $98.50! Whatchoo talkin' 'bout, Willis!?

Let's break it down:

Basic charge                           $14.86 (7.43 x 2)
Collision Damage Waiver          29.98
Accident Insurance                   10.00
Supplemental Liability               23.90
Road Safety Program Fee           4.00
Facility Use Fee                         3.20
Concession Recoup Fee              5.42
Sales Tax                                  7.14

Total                                        98.50

The bottom four items are taxes, plain and simple (the Denver Airport is a public facility). They total $19.76, which is more than the rental cost!

The other biggie was insurance, totaling a whopping $63.88. Yes, it's optional, but it really isn't. I would argue this is, at least in part, a tax as well. It is an artificially high number because of our completely screwed up tort system, a situation which exists solely because trial lawyers are huge political contributors. Your money goes to the plaintiffs bar, and then a chunk is forwarded to their buddies in the Beltway. From where I sit, I'm getting taxed, only this is even worse since with normal taxes there's at least a (small) chance that the money goes to something useful. Here, it goes into the campaign kitties of politicians that I uniformly detest.

(As an aside, no one should interpret this as a swipe at Enterprise, a company that has uniformly excellent service.)

Wednesday, May 4, 2011

Where Are the Howls of Outrage from the Left Today?

It's awfully quiet out there, considering:

  • We sent these guys in to specifically assassinate Osama
  • No arrest, no trial, he was unarmed
  • The intel came from Guantanamo
  • The White House is not denying waterboarding was used (so it was)

Where is Seymour Hersh, saying we sent in a death squad and have blood on our hands?
Where is Keith Olberman, calling Obama a torturer and a murderer?
Where is Cindi Sheehan...where is Cindi Sheehan?

There has been nothing but praise for Obama from the right. Can you imagine the reaction from the left if this operation had been conducted by Bush?

Monday, May 2, 2011

Bin Laden's Death - What Kind of Bump for Obama?

Osama...Dead Man

 We can all rejoice this morning, because that bastard, Bin Laden, is dead. All of us in the New York area lost people we knew and the wound is still fresh. Congratulations to all who had anything to do with this operation, especially the Navy SEALs who put their lives on the line. I wish I could buy dinner for whoever made the kill shot and sent that stone-age coward off to his virgins.

(pause...composing myself...)

That Obama will reap political benefit from this is a given. That's the way it works, and he did give the order. The question is, how much, and how long will it last?

There is an interesting precedent, which is the Camp David Peace Accords, orchestrated by Jimmy Carter in 1978. I went back and looked at the numbers and Carter's approval rating was, at the time, quite near Obama's today: 42% vs. 46%. What ensued was a rapid 10-point bump. I'd guess we'll see about the same for Obama, which will put him well comfortably above the critical 50% level thought to be necessary to secure re-election.

But will it last? Carter's didn't. Four months later, he was back to where he was and then even lower. We can also remember that Bush 41's incredible 90% rating on the heals of his Gulf War triumph fell all the way to 30% in sixteen months. Bush 43 also hit 90% after 9-11 but fell steadily to 58% over a similar 16 months (and would later fall to 26%).

The election of 2008 was highly unusual in that its primary focus was foreign policy. (Yes, the market fell out of bed just before the election, but the lingering wars in Afghanistan and Iraq were the public's primary focus over the long election season.) Most elections are about the economy, and, barring something extraordinary like another 9-11, 2012 will be no different. Obama will live or die based on the unemployment number. And given that his economic policies - particularly his health and environmental initiatives - are massive job killers, I believe his prospects remain tenuous. (In this, I would part company with the prediction futures market which has his re-election odds at 60%.)

Obama should enjoy his moment, because history suggests he'll only be able to enjoy it for a few months.