Rebane's Ruminations

Ruminations – 13oct2008

George Rebane

The Rebane household contributed to the national sigh of relief this morning.  Finally, the markets did not plunge on opening, but actually went the other way.  Taleb’s Black Swan has now made its appearance and, looking in the rearview mirror, it becomes clearer every day how we got here.  People, professionals and consumers, in the finance world behaved more or less reasonably in a market that was becoming ever more distorted as Congress pushed its social(ist) agenda.  As with our tax code, that is now a stack of congressional band-aids applied layer by layer and understood by no one, governments are attempting to ‘fix’ our financial systems.  As a longtime observer of these shenanigans, I see this as another golden opportunity for bankrupt governments (led by ours) to stick new straws into our wealth creation machinery to suck out more money that will fund the usual vote buying programs while attempting to delay the Great Day of Reckoning.

Yesterday we attended the awards presentation program of the Business & Professional Women of Nevada County as guests of our friend Chris Holland.  She and Colleen Bond were among the ‘Women of the Year’ awardees for being co-founders of Helping Hands Caregiver Resources, which is a program providing respite for caregivers of disabled adults.  The awards program was a thinly disguised political event by this obviously liberal organization to promote the Democratic agenda and candidates.  The featured speaker was Charlie Brown, running for California’s 4th Congressional District against Tom McClintock.  Although all the awardees were justly deserving of their recognition, I did note that none of the ladies received awards for doing anything in the business sense of creating wealth for the community.  These gentle people – ranging from “activist” to proponents for “reproductive justice”(??) - were with organizations receiving transfer payments and charity.  Our beloved Onion had a reporter there who apparently saw through the whole thing for the political event it was, and reported accordingly in today’s edition (online version here).   

 

Musings from the Morning Paper – 11oct2008 WSJ

George Rebane

“… market-value accounting is out of touch with the banking business.” Writes John Woodlief, former audit partner of Chase Manhattan.  He argues persuasively that “letting the accountants set the rules without regard to public policy ramifications” is “not appropriate for bank lending activities” because “lending activities are long-term with profit determined by interest rate gap and ultimate collectability.  Conversely market valuation (mark-to-market) is short term and subject to wide and volatile fluctuations throughout the period to maturity.”  The point is that “loans are different from … investment securities for which market-value data is reported.”  Most loans don’t have a market price.  The bottom line is that collectability, not current sale price, defines the worth of loans.  Sounds about right to me since for the issuer/owner, a loan is a stream of future payments whose risk doesn’t have to hang only on present market conditions.

Former Finnish president Martti Ahtisaari got this year’s Nobel Peace Prize, and rightly so for his lifelong work in the vineyards of world conflicts trying to squeeze peace out of some pretty nasty grapes of wrath.  He ran the UN mission to Iraq in the early 90s and saw how Saddam ran his murder machine.  As a supporter of the US invasion, and in spite of the absence of a nuclear or biological WMD program he said, “Since I know that about a million people have been killed by the government of Iraq, I do not need much (of) those weapons of mass destruction” to justify regime change in that country.  Before and since then, the US has been damned for not going in to intervene militarily in other notable slaughters in Africa and elsewhere.  There apparently is no pleasing the consummate critics of America.

Columnist Peggy Noonan quotes Senator Tom Coburn, “The root of the problem is political greed in Congress.  Members … from both parties wanted short-term political credit for promoting homeownership even though they were putting our economy at risk by encouraging people to buy homes they couldn’t afford.  Then instead of conducting thorough oversight and correcting obvious problems with unstable entities like Fannie Mae and Freddie Mac, members of Congress chose to … distract themselves with unprecedented amounts of pork-barrel spending.”  Then Yale professor Jonathan Macey, in a separate piece, argues that the government is contributing to the panic and proposes that “it’s time to let markets do their messy work.”  In spite of that, we all are standing in the town square with hopeful upturned faces expecting government apparatchiks Hank and Ben to come out and tell us how they will herd the international collection of tomcats toward the final solution.

I’m old enough to remember when LSMFT (‘Lucky Strike Means Fine Tobacco’) was turned into Lord Save Me From Truman.  Maybe the T should now stand for Treasury.

 

Overlooked Hole in County’s Economic Bucket

George Rebane

The recent conference at Tahoe, where Nevada County’s economic history, health, and hopes were presented, overlooked THE major component of our county’s finances.  The PDF presentation by the Chico State’s Center for Economic Development has a slide of a bucket that shows the county's major cash inflows and outflows.  What struck me was that this image omitted probably the largest single cashflow affecting the county – the taxes we pay.  It, of course, included the arrow showing how “Federal & State Jobs & Dollars” flow back into the county, all apparently paid for by the good folks in Ohio.

Russ Steele gives a more complete accounting of this presentation on NC Media Watch.  However, it always amazes me how often the tax, tribute, and fee burden is omitted in economic analyses that issue from organizations and agencies paid for by such government mandated collections.  The corrected slide appears below.

Ruminations – 10oct2008

George Rebane

• ‘A Looming Policy Disaster’ by Jason Scott Johnston of the University of Pennsylvania presents a cool-headed look at the current climate change issue.  In it this paper makes the point that a “sustained, critical look at climate change economics and science is long overdue.”  For those still seeking a reasonable answer to this enviro-political conundrum, Johnston’s readable contribution is strongly recommended.  In it he examines the costs and benefits of various proposed responses including the difficulties in implementing the Lieberman-Warner bill and the potential tsunami of litigation it would start.

• ‘Global Warming: Correcting the Data’ by Patrick Michaels of the Cato Institute is a companion piece in the Fall 2008 issue of Regulation.  In here Michaels brings us a fresh look at the temperature data the presentation of which forms the basis of the claimed crisis.  This summary of the relevant science is from an independent perspective to the coverage that MSM provides, and that is the focus on blogs such as NC Media Watch and Watts Up With That.

• With the election drawing nigh, I invite you to view this video about Aaron Klein who is running for re-election to the Sierra College Board of Trustees.  Based on the record of his previous term, intelligence, and energy, Jo Ann and I are unabashed Aaron Klein supporters.

 

The Approaching Armageddon of America’s Agriculture?

George Rebane

“Last spring, (Switzerland) began mandating that geneticists conduct their research without trampling on a plant's dignity.” reports the 10oct08 WSJ on its front page.  The piece goes on to detail how new constitutional modifications are making research in plant genetics a tortuous trail of following mandated procedures which are beyond silly.  Some excerpts from the article by Gautam Naik.

The rule, based on a constitutional amendment, came into being after the Swiss Parliament asked a panel of philosophers, lawyers, geneticists and theologians to establish the meaning of flora's dignity.

Where does it stop?" asks Yves Poirier, a molecular biologist at the laboratory of plant biotechnology at the University of Lausanne. "Should we now defend the dignity of microbes and viruses?

Things took a surreal turn when it was disclosed that some (plant ethics) panel members believe plants have feelings, Dr. Poirier says.

Defenders of the law argue that it reflects a broader, progressive effort to protect the sanctity of living things.

In another unusual move, the people of Ecuador last month voted for a new constitution that is the first to recognize ecosystem rights enforceable in a court of law. Thus, the nation's rivers, forests and air are no longer mere property, but right-bearing entities with "the right to exist, persist and...regenerate."

Dr. Keller in Zurich has more mundane concerns. He wants to breed wheat that can resist powdery mildew. In lab experiments, Dr. Keller found that by transferring certain genes from barley to wheat, he could make the wheat resistant to disease. … In June, about 35 members of a group opposed to the genetic modification of crops, invaded the test field. Clad in white overalls and masks, they scythed and trampled the plants, causing plenty of damage. … "They just cut them," says Dr. Keller, gesturing to wheat stumps left in the field. "Where's the dignity in that?"

So how long will it be until the Moonbeams of America will start mobilizing – first in California, of course – to write into law the newly ‘discovered’ rights of plants and entire ecosystems.  Led by California, America has been the major breadbasket of the world – above all the other things we do well, we can grow stuff like no one else on this planet.  Will we soon begin to have highly publicized demonstrations in our wheat and soybean fields, and at the gates of John Deere and Caterpillar demanding that the dignity of these crops not be violated?  I can see the mandated requirement for species-specific, fieldside memorial services before any crop is harvested.  After all, this is America and we will have to show some leadership in this new area of eco-sensitivity.   

Beyond Bar Stool Economics

George Rebane

A correspondent sent me a ‘made simple’ version of our federal tax policy that is attributed to David R. Kamerschen, Ph.D., Professor of Economics, University of Georgia.  The anecdote, while accurate enough as far as it goes, leaves out an important point that seems to be the crux of the socialist’s argument for a more equal distribution of income.  I’ll cover that after we read the good professor’s economics lesson.

“Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers, he said, 'I'm going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.

Ruminations - 7oct2008

George Rebane

 

Two back-to-back trips in as many weeks.  Last weekend we celebrated my 50th high school reunion in southern California with a bunch of old geezers who didn’t recognize each other – well, a few did.  And now we’re back from a weekend on Vancouver Island attending a triennial gathering with friends.  The scenery was classic northwest with low scudding clouds, bands of rain, and intermittent impenetrable fogs.  We took the ferry from Port Angeles to Victoria, a wonderfully scenic and tidy city with sweeping views of the Strait of Juan de Fuca.  After a day plus exploring the town’s waterfront and antique stores, we drove through aboriginal forested mountains and lakes to the small resort town of Tofino nestled in the archipelago that shields the Pacific side of the big island.  On the way back after the festivities, we stopped for lunch in Port Alberni, the island’s biggest inland town and former home to several pulp mills.  Now only one remains and uses technology to produce more with a couple of hundred employees that formerly numbered over four thousand.  These people know economic hard times.  We took the long and picturesque ferry ride from Nanaimo back to the mainland.  It is now an hour’s wait to cross the border back into the US of A.  Remember the good old days of going to and coming from Canada?

During the current financial crisis, a correspondent is appropriately angered by what he considers as piling on in an already difficult situation.  He suggested that I insert his short rumination among my own - 
“Producer, advertisers, and writers of the Good Morning America show should be arrested for doing the equivalent of "yelling fire in a crowded theatre."  Their fear peddling has gone over the line.  With a demographic of retirees and homemakers GMA has stooped to the selling of panic.  They have a Financial Crisis Hotline icon flashing constantly as they interview doomsday interviewees and anchormen, and women with nothing more than a communications (or theatrical) degree assume the role of financial planners and economists.  The same pseudo anchormen and women spend the mornings peddling fear in the hopes of creating ‘runs on banks’ and a ‘run on the stock market.’  Fear sells, and GMA should have sold out weeks ago.   Lock the bums up.”