Shots Across the Bow

I listened to folks calling in to the Hallerin Hill show this morning, asking questions from a TVA representative who was clearly out of her league in trying to answer specific questions. It really seemed like TVA sent her there as a PR ploy to try and calm people down without really telling them anything.

Of course, the callers, whipped into a frenzy by alarmist reporting done by folks either pushing an agenda or speaking out of total ignorance, didn't help much.

Like the guy who wanted her to list the total weights of each trace metal released in the fly ash, as if that number had any meaning whatsoever. How much you take in is much less important than how concentrated it is when you take it in, and over what period of time you take it in. If I told you to chug a bottle of hot sauce, you'd say no way; it would be too painful. On the other hand, if I told you to put a dash or two into your chili, then over a period of a few months, you'd consume the whole bottle without a second thought.

The lady from TVA was unable to express this to the man who called, which was really a lost opportunity for her, and the radio station for that matter, to calm a little of the hysteria that other, less responsible folks, are generating.

If I recall correctly, in the 80s and 90s, the Japanese economy went into a recession. Their bank cut interest rates down to near zero to stimulate the economy, and it worked for a short time, a couple of years or so. The banks began raising interest rates, but never got back to a normal level because a sudden collapse in the real estate market leveled the economy. The banks lowered interest rates to zero, but there wasn't enough leverage to spur the economy,and they went through a very serious recession.

Does any of this sound familiar?

By the way, the fed cut interest rates to zero yesterday. How many foreign governments are going to want to invest their dollars in T bills that pay zero?

An Iraqi journalist threw his shoes at President Bush. Not only are they adopting modern democracy, apparently they are adopting modern journalism as well.

I had a hard time deciding which category to use for this one. News? Humor? Entertainment?

"Homocide leaves an East Knoxville man dead."

Well, it usually does.

Police are calling it a homocide.

I shudder to think what the cause of death might have been.

Family members and neighbors wait in the road for some answers.
The victim's relatives say 27-year-old Antoine Watkins is dead

I'm guessing that wasn't the answer they were looking for.

Watkins aunt, Dorothy Moore says, "I just hope whoever did this is brought to justice."
She says he was staying in this house with his father.

Well then whoever did it should be easy to find then.

Come on people, you're getting paid for this! I used better grammar in the sixth grade! Just because you work in video doesn't mean you don't need to use basic English skills like proper spelling and avoiding ambiguous references.

If the Big Three crumble next year because Congress went on their two month break, once again without dealing with their responsibilities, then remember who had control of both Houses.

I'll take Democrats for 2.5 million jobs lost, Alex.

Give Reid and Pelosi credit; they are consistent. When the going gets tough, the tough go on vacation. I just hope that this time she leaves the lights on.

There's a word for what the Democrats are doing. It's called cowardice, pure and simple. They wanted control and now they are afraid to use it to do what needs doing. Instead, they're telling the President that he can do the bailout if he wants to; they'll be happy to take the credit but don't want to risk taking any blame.

Why does that sound so familiar?

Oh yeah. It's almost like they've decided to vote "Present."

I wonder where they got that idea?

As my fellow Tennesseans react with outrage to the TVA pay hike, almost nobody is talking about our legislators taking a pay raise in the face of a ballooning deficit that is forcing our universities to cut classes and raise fees.

I wonder why that is?

Forcing banks to make loans.

Isn't that what got us here in the first place?

Good.

Check out this chart.

The top part of the chart is the DOW and the bottom line represents the rate of change in the market. If you look closely at the line, you'll notice that the character of the line visibly changes around February of 2007. It begins to take much wider swings, indicating tremendous volatility in the market. On Feb 27, the DOW fell 416 points, based seemingly on a downward move on the Chinese markets. At that point, we can see from the chart that the US market began to behave differently, and then really went strange in July. That strangeness continued up to the crash of the last week.

What does this mean? I don't know, but it is very interesting that the extra volatility in the market has been building for 18 months now.

By the way, the market has lost over 40% of its value over the last year, which means we're halfway to the Crash of '29.

Question 1: How long did it take for the Crash of '29 to hit bottom?

A: 3 days.
B: A Week.
C: The worst was over in a few hours.
D: 3 Years.

Question 2: How long did it take for the market to recover it's value?

A: 2 Years.
B: 10 Years.
C: 15 Years.
D: 25 Years.

Question 3: What actions were taken to halt the slide?

A: Banks bought large chunks of falling stocks at above market prices to try and halt the slide.
B: Wealthy individuals did the same.
C: The US Government passed poorly considered legislation to try and stop the slide, but only made things worse.
D: All of the above.

Question 4: Did those actions work?

A: NO
B: Heck NO
C: Bwahahahahah! You're a funny guy.
D: They just made things worse.

Question 5: (Short Answer) Are the actions taken over the last two weeks different in any material way from the actions taken 80 years ago? If they aren't, why would we expect them to work any better?

Answer in comments.

One more reason I'm happy to live in Sevier County.

As an adult, I've been subject to random urinalysis in nearly every job I held until I started contracting. That's over 20 years of peeing into a bottle any time I was told to, often with an observer watching over my shoulder to make sure there was no funny business.

Sometimes the only way to get them to back off and give me some space was to go for a little over-spray.

But here's the thing; I was operating nuclear power plants for a living. My sobriety directly affected the health and well being of a few thousand people, at a minimum. And more importantly, I knew going in that it was a requirement of the job. I could refuse to take the test, and quit my job at any given moment.

Now we want to similarly invade our children's privacy for the simple act of going to school. I volunteered to give up some of my privacy in order to make a living; now our kids are being stripped of their privacy in order to go to school.

And if they don't go to school, we'll arrest them and then search them!

This is the nanny state folks, and it comes from the left and the right, and most importantly it comes from you, the people, who whine about how the state must do something to keep our kids safe, whether it is effective or not.

Remember yesterday's post, where I explained that a bank's ability to loan money is tied to the value of its assets, and that value is more or less based on the market's opinion of that value? Well, getting a little deeper into the details, banks are required by the SEC to value their assets based on their current market value. It's called the mark to market rule, and it is one of the primary contributors to the current crisis. If nobody wants to buy mortgage backed securities, then their current market value is zero. This valuation dramatically reduces a bank's ability to lend, and thus causes a credit crunch. Today, the SEC has clarified the mark to market rule, allowing banks to take into account other factors, like the future value, when valuing securities that have no current market, as long as they also incorporate the risk as well.

What this means is that rather than value their securities at what they would fetch on the market today, banks are now allowed to value them at what they may bring at a future date. Essentially, this is what the bailout plan was going to do, albeit in a very different way.

As proposed, the .gov was going to buy the bad securities at a cost approximately equal to the expected future value, then sell them off at or near that price. The taxpayer would only be on the hook for the difference between the sale price and the buying price, not the $700 billion you kept hearing from the media. This plan would have had the same effect on the banks as today's SEC ruling, by removing the bad assets from their balance sheets, they'd be able to resume extending credit.

So the good news is that the credit crunch will ease up tremendously, and fairly quickly. More good news is that Congress had nothing to do with it, which is also the bad news, if you're a believer in representational government.

It bothers me that unelected and basically unaccountable bureaucrats in a back room somewhere changed an accounting rule, and virtually eliminated much of the current problem. Not because it's the wrong answer but because the capacity to find the right answer eluded the folks we elected to represent us.

If we don't need them, why are we paying them?

I also wonder what unintended consequences this rule clarification will have down the line. I'm envisioning Enron and Arthur Anderson types abusing the crap out of this rule relaxation. If a two bit one semester accounting student like me can see about a zillion ways to game this new ruling, just think what a guy who lives and breaths this stuff for a living could come up with.

I'm thinking that there's a very good reason why the SEC didn't make this rule clarification much earlier in the process, and that the fact that they did change the ruling indicates the severity of the crisis we faced. But for right now, the worst of the crisis has passed us by.Give the banks a day or two to figure out the new guidelines and to revalue their investments, and we should see credit begin to flow again, which will make my son Isaac very happy, since he's been waiting for his student loan to disburse for about 6 weeks now.

From Casey Peters:

All papers signed, home got pwned! Shower door to come next week along w/ remote control for fireplace. w00t!

How hard can times be when you get a remote control for your fireplace?

I should talk, I have a remote for my ceiling fan...

Congrats Casey on the new home!

According to Democrats, it's all the House Republicans' fault.

Which is kind of odd, since Democrats hold a majority in the House and the Senate, and the plan had the backing of President Bush and both Presidential candidates. The House Republicans don't have the votes to stop it and nobody mentioned the f word, so I don't see how the Republicans could have stopped the bail out.

As nearly as I can tell, it was a lack of a spine among Congressional Democrats that killed the deal. All Obama, Reid and Pelosi had to do was lead.

They failed. Concerned about the fallout of approving a $700 billion bail out without being able to blame it on Republicans come election time just turned their guts to water. As is all too common in Washington, they put their own selfish interests ahead of the their constituents.

Pretty pathetic.

But hey, at least we got a debate on TV!

But is it the right one?

Liberals, arm yourself with facts and links and tell me how this video is inaccurate.