News Round-Up

News Round-Up: This is my second one of these. Basically, I link to some stories and give my reactions. Because I am long-winded and like to meander, my commentary delves off into other topics that are loosely based on the article. Enjoy!


Fed Cuts Rates to Range of 0-.25%

Yeah, of course it was coming. The Fed has been very aggressive in cutting rates, it's the 10th time in 15 months. With the economy lagging, I know that everyone wants to make money cheaper. To keep from a deflationary cycle, it's probably the best we can do in the short term. Now that the Fed is out of it's primary hammer, what other, more subtle tools are they going to use to continue to stimulate demand? I mean, the rate cuts haven't been working; maybe we just have to take the castor oil for a little while. Maybe it will push Americans to take a long hard look at putting back some of the better regulations from Glass-Steagal. Maybe it will also make us question what kind of society we truly want- what is the best way to maintain a democracy with increasing economic inequality?
I truly need to reconcile my general liberal-ness with my more austere "monetarist" side. I'm a man of the people, didn't come from a lot of money, but I'm actually pretty conservative when it comes to monetary policy. I know that easy money helps to stimulate demand, and during these times, we'll do whatever it takes in that regard. But maybe lighting a fire under the special American brand of consumerism (you're doing your patriotic duty by shopping) is not what we need. People that know me know that I'm not big into fashion, or gadgets, or electronics, or keeping up with the Jonses in general. I spend money on my hobbies and gifts for other people- the cost of money can go up and I'll still find a way to enjoy myself- still be able to save some money. I guess what I'm saying is that consumerism is an easy way to create jobs- but is it the best or most equitable way?
The fiscal policies that I'd implement don't feel quite right in my head sometimes- progressive income taxation (not to Swedish levels but more than what it is right now) with a hard/sound money policy. The more I read, the more I think I come from German stock- I really like their policies (not to mention their excellent craftmanship, union density, delicious beers, delectable chocolate, and wonderful strategy games). I'm still trying to create a framework that combines the ordo-liberalism of German origin with a free trade regime that benefits developing nations. God I wish I was smarter!


Dick Cheney Says He's Done Well

I guess, he meant done well for himself, because even Dick Cheney can't think that Dick Cheney has done well for the country. Dick Cheney is a caraicture of the evil politician. I remember one time while I was working at Vintage Vinyl, me and a coworker (one of the few coworkers that I could talk about politics with) were talking about Dick Cheney. I called Dick Cheney evil, and he stopped dead in his tracks and told me that we should not call someone evil just because we have a policy dispute with them. At the time I demured, I figured he was right. That was back in 2005. Now though? Who can read this article, who can see that interview and not say that Cheney is evil. Aruging whether or not torture should be exacted on human beings is NOT a policy dispute- it comes down to the very moral fabric of our society.
People sometimes highlight abortion as a similar dispute- but it's not. In the case, there is a legitimate scientific dispute about whether or not a ball of cells is a person or not (for the record, I am pro-choice until the time that a fetus can survive outside the womb 22 weeks is the youngest on record. I'm extremely uneasy about abortion outside the first trimester though).
But there is no dispute about the humanity of the people we have imprisoned. Regardless of what they've done- I do not believe that we should torture, anyone, under any circumstances. And that's doesn't even take into account the fact that confessions from torture are not even reliable.

NATO Must Be More Than Military Force

Yeah it really should be. On the foreign policy "Millman Chart" I am a cross between Alexander Hamilton and Woodrow Wilson. I guess the marriage can be explained like this- I think that ultimately we need a realistic international approach to foster our international values. If I were President- I'd use my chief diplomat (Sec of State) to act as Hamilton/the bad cop, and I'd use my pulpit to act like Wilson/the good cop (without the blatant racism). Tactically speaking, being Hamilton just makes sense.
Which is why I think that NATO is acting foolishly when it tries to recruit Georgia and Ukraine into NATO. And it is foolish to add missile defense near the Caspian. We're not going to get attacked by Russia! Repeat, we are not going to get attacked by Russia. We need to be worrying about loose nukes, and working with Russia would be a perfect display of the potential for a Hamilton/Wilson marriage. The Hamilton side is that we do not want the loose nukes to fall in the hands of terrorists and we want to shore up our relationship with a resurgent Russia. The Wilson side is the message it will send about our commitment to disarmament.
NATO has to have a clear poltical perspective, and the ever growing divorce between the values of the US and the values of the EU is going to take a heavy toll on the viability of this military alliance going forward. Although, then again, I'm not totally against NATO disbanding and being replaced with something with more clearly defined internationalist aims, and one that does not carry the Cold War baggage (which would help Russia save at least a little face when we inevitably start to build up in its former satellites).
The troubles facing us in Afghanistan call for such a reform.


Army Riots Escalate Zimbabwe Crisis

And that right there is the problem when your legitimacy from the military. What happens when they don't get paid? At this point, Mugabe has to go, and I'm actually for whatever it takes to get him out. The African Union's troops are stretched incredibly thin though; Darfur and Somalia are taking up pretty much all of their manpower. Mugabe has accused the Movement for Democratic Change, the opposition party, of working with Britain to oust him. I for one applaud that- at some point (when there is legitimate and honest reasoning) we have to say fuck all of this sovereinity stuff. Now, I don't think British troops should land- a multi-lateral peacekeeping force has to.
I say this again, but I think that Africa would benefit the most from severely beefed up regional governance. That, along with a forgiveness of debt (all of it), allowances for tariffs for key national industries, and a unilateral reduction of trade barriers by the developed world would also be needed. Changes by the IMF and World Bank, and Africa would be WIDE open for development. The problem, of course, is internal political stability, which I think would be helped by the regional outlook. It would be great if I could just fiat all of this. Man I miss debate.

Joint Default Improbability
(The link actually goes to a different story about the forced selling of insured muni-bonds which made their yields higher than uninsured bonds, the article I've written about is only in the print edition)

Finally, a story from work. Right now, municipal bonds with insurance have higher yields and higher reset rates than municipal bonds that are uninsured. The turmoil in the municipal bond insurance industry has fostered this, but it's an incredibly stupid market reaction, and the illiquidity of the muni market is the culprit. Even after the monoline insurers were downgraded from their AAA ratings, they still add enhancement to the underlying credit of the issuer. Why would having insurance, even "crappy" insurance make u less credit worthy?
Right now, rating agencies use the "credit substitution" method, which means that they just subsitute the rating of the insurer or letter of credit provider for the rating of the issuer. That just strikes me as an incredibly lazy way to give ratings. What this article is arguing for is using the joint default probability, the probability of both the issuer and the insurer defaulting on their principal and interest payments. The correlation between the two events would also need to be taken into account. It has already happened in one case, but the commentator is arguing that it should be the industry practice.
Ultimately I think two things would come out of this. First, there would be a proliferation of insurers, which would lower the cost of obtaining bond insurance. There would need to be some kind of specific regulation that say insurers must be rated at least A1. But more monoline insurers would be a good thing, I think, if we want to lower the cost of borrowing for poor hospitals. Thorough inspections of the balance sheets of these insurers would also need to take place. Downgrades for the AAA monolines were warranted long before they were actually downgraded and that should not happen again.
Second, it would open up the tax exempt market for weaker credits (like safety net hospitals). AAA insurers wouldn't touch some of the weaker credits because they would not be able to maintain their AAA rating- the default risk was too large. But an A insurer? They would be able to take on some of the weaker underlying credits while still maintaining their rating. I could see a day where the stronger credits would get insurance for basically nothing, just because it would help insurers book of business when it came time for the rating agencies to audit them. Overtime, this would also have the effect of closing the spreads not between ratings, but between issuers.