Monday, April 02, 2007
History Is Important
"In particular settings, teachers of history are unwilling to challenge highly contentious or charged versions of history in which pupils are steeped at home, in their community or in a place of worship."Of course all history is offensive. It's a sad tale of stupidity, woe, war, famine, more war, famine, failed states, injustices, etc. Isn't it all the more necessary to learn of all this? If you don't learn from your mistakes, doesn't each generation tend to repeat them?
The story did remind me of much of the delusional rhetoric on the housing and mortgage markets of the last few years. Exactly the same thing happened. Ignoring all long-term rules, everyone started pretending that the last two or three years of experience trumped 60 years of experience. The results are not pretty and continue to get worse.
Housing Wire carries a story that most are unwilling to address - the rising defaults in jumbo prime loans. Here are a few telling stats:
- Home equity loans now have a serious delinquency rate of 7.62% during the third quarter 2006.
- Prime jumbo (higher values than the FNMA limit, but otherwise conforming) serious delinquencies increased 16% for the fourth quarter YoY.
- Prime jumbo early delinquencies are increasing YoY too, in contrast to the last few years when they were dropping.
- Here's the killer - YoY, jumbo foreclosure rates rose 51%, and jumbo REO (lender owned after foreclosure) rose 85%.
No one wants to discuss it, but one of the measures of how overloaded borrowers are is that delinquencies are converting to foreclosures at more than double the historical rates. And we have more price drops to follow, meaning delinquencies and foreclosures are doomed to keep rising.
If Congress, banks, big financial companies or the federal and state regulators had pondered this historical truth of the mortgage market back in 2004, they could have moved fast enough to mitigate the whole situation. As it is, we have just begun to deal with an extremely unpleasant economic situation caused by ignoring reality. The effects are going to be felt by most of us. The environment we created is going to cause losses for a lot of borrowers who did not lie about their income, did not buy over their heads, got a fixed-rate mortgage but find themselves in trouble because of factors beyond their control. They won't be able to sell to avoid that trouble in most markets.
It's a real shame. It didn't have to happen.
Other things that didn't have to happen are our dependence on foreign oil. If we could have dealt with reality, we could have worked out a national energy policy which would have prevented our huge trade imbalance from developing, kept energy prices more stable, thus keeping more manufacturing jobs in the country, controlled pollution, boosted our economy with jobs and investment, and generally made all of our lives a lot better. Because we let ourselves be whipsawed by fanatics who don't understand what they rant about - just like the global warming nutcases - we didn't deal with reality and we didn't adapt to reality.
We should all keep firmly in our minds that the economic pangs of the next two years are our own fault. We didn't take care of business, and we are going to pay dearly for that. The citizens of a democracy have no one to blame but themselves for governmental incompetence.
And guess what? There is no Social Security trust fund. We haven't dealt with that either. In less than ten years, we will be funding Social Security checks with income taxes rather than the proceeds of Social Security taxes. We are already paying for Medicare with income taxes. The government pension and insurance scheduled payments aren't allocated for either, so the private sector earner is going to have to pay even more income tax to pick that up. Needless to say, the private income earner is going to rebel.
Don't think this is somehow going to go away. It won't. On the other hand, we can pull up our socks and start fixing it any time we want to cope with the real world. Any time! Any time at all! The only thing preventing us is our own capacity for societal self-delusion and a willingness to ignore history.
Wait until the next year goes by. People have done this because it works, and once it stops working they will change their tactics.
Are you serious? How can the citizens of the US affect the monetary policy of the FED? Please don’t say through their elected representatives. The FED was specifically created to be independent of the people (i.e. the government). And, even if they could control the FED, how can they understand the implications of monitory policy until long after the effects of that policy are in place.
I find your economic analysis excellent. Your history as per Iran and the Falklands, and religion as per analysis of Heresy is very much wanting. How does one show such meticulous quantitative logical scientific analysis in one field go off on such hyperbolic ideological analogies in other fields? Interesting. Is it hubris? I know this, therefore I know that?
I think the Fed is reacting to some situations that the Fed does not control. It's easy to say that the Fed made an error in lowering rates too low - but the Fed was dealing with a very difficult and dangerous situation post 9/11 and the dot.com bust.
The Fed, over and over again, has brought up the same issues to Congress. Over and over again Congress has not addressed them. The failure runs across both parties. Maybe it's the voters?
Regarding Iran, that one I have really researched. It truly reminds me of Italy under Mussolini. There are a group of quite rich interests, a large group of workers who lately have been trying to unionize and have been crushed by their own government (arrests, beatings, imprisonment, government funded thugs on streets), and then the mullahs. It's a nasty, brutal combination.
As to your question about hubris, I have had major brain damage. One of the things pretty much destroyed in me for a very long time was the ability to process language normally. The way I thought for over twenty years, if I thought at all, was by making a mental model of things. The only thing I can truthfully tell you is that I am following the same process in each instance. However, I don't categorize abstract nouns in terms of linquistics at all, but in terms of a physically mapped model of how what that noun represents relates to other constraints. So if you are sure that I'm wrong on Iran and religion, you probably ought to discard my economic writings as well. That's seriously the best advice I have for you.
PS: I'm not offended at all. I much prefer honest people. I hope my explanation helps somewhat.
I began reading you for the economics. Now I will read for your epistemology. Very Interesting!
Just want to make sure I know where you stand on this one:
"just like the global warming nutcases - we didn't deal with reality and we didn't adapt to reality." Do you support the theory of global warming? Or do you think it's phooey?
As for CO2, basically I am a conservative type and I would like to lower CO2 emissions because of my general risk-averse nature. But I can no longer claim that the current scientific data shows that CO2 level rises are producing a rise in temperature. So I'm not going to pretend my druthers are based on science, because they are not.
One of the things that changed my mind about CO2 as a climate forcer were the better ice core resolutions. Before (when Kyoto was conceived), the ice cores seemed to show that when CO2 rose, temperature rose. But the latest sets of studies showed that CO2 rose centuries AFTER the temperature rose, and that CO2 dropped AFTER the temperature dropped. It's a pretty consistent pattern that hasn't registered in the popular press yet. The case for solar variation and cosmic ray flux influencing temperature seems much stronger. It turns out that the sun is more variable than we thought.
What finally convinced me personally about the sun being the driver was that I found several sites that track solar coronal emissions, and sure enough, after big ones there would be heat waves lasting several weeks. Also they have done studies on isotopes from the ice caps, and those seem to show that an increase in solar activity correlates well with climate changes - unlike CO2 changes.
Okay, so if the sun has that strong an influence on climate (which seems to be confirmed by my personal observations), and if CO2 is rising centuries AFTER temperature increases, then CO2 must be a rather weak climate driver if it is at all. Otherwise, we should have seen runaway heating rather than a variation with sun. Another factor which seems to disprove the idea that the climate is quite sensitive to CO2 levels is that further glacier studies show sudden warmings and coolings, which are not going to be the product of CO2 and also confirm a highly variable sun.
CO2 is a greenhouse gas, but it is a very weak greenhouse gas, and it doesn't seem to have much influence on climate at all. Still, being conservative, I actually live a very low polluting-carbon-emitting life. I took one of those tests and it told me my "carbon footprint" was extremely low. If only all those who are screaming about CO2 would do likewise!
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