Monday, March 17, 2008

Article Excerpt from

Do Americans Care About Big Brother?

Pity America's poor civil libertarians. In recent weeks, the papers have been full of stories about the warehousing of information on Americans by the National Security Agency, the interception of financial information by the CIA, the stripping of authority from a civilian intelligence oversight board by the White House, and the compilation of suspicious activity reports from banks by the Treasury Department. On Thursday, Justice Department Inspector General Glenn Fine released a report documenting continuing misuse of Patriot Act powers by the FBI. And to judge from the reaction in the country, nobody cares.

Must it come to another revolution in the future? Seems this is the case. -Erik
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We better get ourselves out of it.

…Democrats accused Bush of not doing enough to relieve the situation.
"Now we are in the soup and we better get ourselves out of it before the consequences get drastic," Democratic presidential contender Hillary Rodham Clinton told reporters. [excerpt from AP]

The above was recently stated by Hillary in response to the incredible market turbulence we’ve seen this past week (most recently triggered by the Bear Stearns collapse). So I wanted to analyze the statement a bit just as I did with Obama in a previous post.

The soup Hillary is referring to is the “credit crisis” or “subprime mortgage meltdown,” which both refer to a destructive phenomenon in US markets that started last summer. To explain it briefly, for several years now banks and other lenders have been lending money at increasingly attractive rates and terms. As you know, when you go to a bank to get a loan the bank takes your information and decides what terms to give you based on your “risk factors.” If you have lots of debt, low income, or a history of late payments, you will not get as much money or as good of terms as someone like my mother, who keeps track of money perfectly and always pays bills on time. So, banks had been steadily “lowering the bar” when it came to the individuals they would choose to provide loans to. Suddenly, this past summer, the banks started realizing they had lowered the bar too low, and too many individuals were defaulting (not paying back) on their loans. Banks can always handle some degree of non-payers, but these “sub-prime” defaulters were growing in number and the banks started to lose (lots of) money. Instead of making money on subprime loans they were now losing money, because they had set the bar too low- lending to people that they ought not to lend.

Thus, we have the “mortgage meltdown.” The effects and subsequent collapse of financial institutions, which were leveraged increasingly on subprime mortgages, has been occurring ever since, and nobody really knows how bad it is or will get. This is why the stock market has been so volatile during the last 8 months… every piece of good news makes investors think the subprime crisis isn’t so bad and every piece of bad news sends investors into remorse.
Hillary Clinton, when she refers to “the soup,” is trying to address this crisis and obviously blames the Bush Administration (because Bush is a Republican and she’s a Communist). She may also soon blame Obama. So let’s examine the quotation above… "Now we are in the soup and we better get ourselves out of it before the consequences get drastic."

First of all, what is her thesis? What is her helpful message behind the rhetorical metaphor? Her message, I think, is, “Americans are all drowning in a broken economy mismanaged by the Republicans and us Democrats know exactly how to fix it.” But who, exactly, is actually harmed by this so-called “crisis?” By the way, the founding fathers of America should have stipulated that politicians never be permitted usage of the word “crisis,” for it is slung about much too frequently and is always followed by the suggestion of new government programs and regulations. Never will you hear a politician use “crisis” to describe the actual government (other than Ron Paul)… though that is perhaps the only legitimate usage of the word. Anyway, who is harmed by the subprime crisis? Is it every American? Is it only certain Americans?

Fortunately, there is a super easy way to find out who is harmed by it… and that is to look at individuals that were exposed to certain types of financial risk (namely those related to the housing or stock markets). Those people that were exposed to the housing and stock markets are the ones who are “in the soup.” For many people, the subprime “crisis” will hardly affect them at all. For example, if you are a normal American that rents a home or apartment and does not have equity in the stock market… I don’t think you’re much affected by this “crisis.”
Likewise, if you are a homeowner that got a mortgage on terms you could actually afford… I don’t think you’re much affected by this “crisis.” Who is most affected? Banks, who exposed themselves voluntarily to tremendous risk and stock equity owners, who did the same. Or, if you are an idiot that took out a mortgage for more than you can afford, and suddenly your rate skyrockets because the bank wakes up and realizes you are risky… you are likewise in big trouble right now.

The point is this: the only people really swimming in the soup are those that dared to walk around the outside of the pan, either out of ignorance or profit seeking. Sure, many Americans will be indirectly affected (as in any interconnected market) because of this subprime phenomenon, but the only ones really in trouble are those who accepted certain risks. That’s what risk is… RISK! And unfortunately, she’s not really suggesting “we get ourselves out of it” but rather that the Government does this for us. Am I misreading her?

So what do I think should be done to get people out of the soup? Nothing. Nothing on the part of the Government, at least. The people that made bad decisions should make better ones… can’t we leave it at that, please?? Must the Government always act when someone is having a bad day? Is that its proper role? Some banks made mistakes and they’re paying (heavily) for it. Some individuals made mistakes and they’re likewise paying for it. End of story. Be responsible.

Hillary sees some people suffering (resulting from their own actions), slaps the label of “crisis” on it, applies it to all of “America,” and then leverages the resulting heap of smoldering, rhetorical garbage to propel herself into office with golden promises of remedy.

Shame on you, Hillary.
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Sunday, March 16, 2008

Currencies and Indians

Below are two interesting, interrelated articles about globalization and the macroeconomics of Dubai.

I believe both articles are actually good news for me, living over here. The first one describes how, because of the falling dollar and UAE’s currency peg to the dollar, the UAE is actually suffering from America’s falling currency. Why is this good for me? Because I believe that in 6-18 months the UAE government will un-peg the Dirham from the Dollar (the government has been meeting about this very issue recently, and it’s all over the newspapers here). Upon this event, the Dirham should shoot up, because it’s being artificially held down by the Dollar. Suddenly, instead of having $10,000 worth of Dirhams in the bank I’ll overnight have perhaps $11,000 worth. As the Dirham appreciates relative to the dollar I will continue to benefit, especially if I decide to move back to the US at some point in the future. The second article discusses the rising costs of labor along with cement and steel. This is obviously happening because of the construction boom not only in Dubai but throughout the GCC. This will cause A) fewer buildings to be constructed because the profit margins will be lower and B) demand for housing will further outpace supply, meaning my apartment will appreciate! At the very least this should help delay any housing “bust” that some have predicted in this part of the world (I don’t buy it). To all you economists out there… am I making any incorrect claims here?

What I love about all this is watching (relatively)free-market capitalism in action. The boom over here, fueled by low taxes and trade combined with capital-rich wealthy people, has put heavy demand on labor. This first provided jobs to hundreds of thousands of Indians and now it will mandate that their salaries are increased as construction companies have to bid up their offerings to meet demand. So, from several thousand wealthy people we now see hundreds of thousands of poor Indians getting what they consider to be great opportunities. The money they remit back to India (as most of them do) will in turn help develop their poverty-stricken villages back home. Maybe now they can have bread that is a little less moldy and water that is a little less bacteria-ridden. All this resulting from self-interest and a bunch of greedy bastards that want nothing more than the latest Ferrari… it’s beautiful. Too bad so many Westerners see the Indians working for less than they themselves think appropriate, and dismiss the successes over here as some abhorrent, immoral mixture of “oil and slaves.”

Unfortunately, however, the government here has just decided to put a price cap on several basic food items throughout Dubai. I know, I fainted also! Further to my horror, a number of letters to the editor of Gulf News hailed this move as “smart and necessary.” I hope this is an isolated hiccup in an otherwise enlightened economic policy. If the Arabs start becoming communist, I don’t know where I’ll go! Maybe Richard Branson has a private, undersea society that I can join? Article page