Subprime Mortgage Mess

The Fed very likely ignited the housing bubble by keeping interest rates abnormally low from about the middle of 2002 through 2005. In general terms the interest rate should only be very low when output of the economy is too low. From 2002, in part due to the dot com bust and in part due to 9/11 the Fed kept rates unusually low, around 1%.

Twenty percent of mortgages are now from the bottom of the credit barrel, which allows lower income folks get homes. The problem is most of those loans went out at 95% of the value in the property. If property values always go up that's fine, but property values don't do that. About half the loans were made by companies that are almost completely unregulated. Half the loans required no documentation on income.

Usually the bank takes a keen interest in a borrowers ability to pay, but now they sell off these loans, often to off balance sheet entities of banks in Europe. The risk of mortgage default was sold off to these investors bundled with good loans based on ratings by firms paid for by the very companies selling the securities. Very often the mortgage initiator would call up the ratings firms asking how many more low quality loans they could squeeze into a bundle.

Some would have you believe that greedy people on both sides deserve what they got, but if you can't see opportunities to prevent these issues in the future and that this represents an efficient market at work, you have some very clouded glasses. For an amazing in depth loook check out The Economist.

Scent of a doggy

Our dog is extremely well behaved. She just has this nasty habit of waking up. While awake and we are out the neighbors say she likes to bark. Well they don't say it so much as write it ... anonymously. We have begun to hear the ominous beat of the war drums in the distance; I believe they are marshaling their forces.

This is an extremely unusual position for us, our last dog only barked when Republicans proposed legalizing Gay marriage, or Democrats won the White House and the like. It is a difficult thing to control your dog while you are away. We purchased a citronella collar that squirts her when she barks. It does seem to have slowed her down some; but she always has a lemony fresh smell about her now. Still the neighbors seem to be stowing their pitchforks and torches for the time being; perhaps it will work.

Good Grief

In our drive to find any solution in the morass that has become Iraq, we are now arming the Sunni militants. Since they have fallen out with Al Qaeda, we are arming them for the fight. The trouble is that this cuts at the heart of a stable Iraqi government. Arming militias responsible to no controls makes no sense when the Iraqis are not able to control their own country. We are so desperate to make 'progress' we will make this Faustian compact. It will surely come back to haunt us. The full story is here.

Fred Thompson

Fred Thompson is fast becoming the latest fad in a Republican search for anybody else. The parallels to last years adoption by the Democrats of general Wesley Clark comes to mind. But the more you look the less there is, this is a candidate headed no where. George Will, the undisputed best of the Republican pundits, has a great piece on him. At the very least he seems to have no common sense, doing an ad for a credit shark, written up by the LA Times (subscription required).

Rudy's Russkies

History is a passion for me, so it bothers me when folks throw around egregiously wrong facts and nobody says boo about it. Here is a link to Rush Limbaugh where he comments on a Rudy Giuliani interview with Larry King:

http://www.rushlimbaugh.com/home/daily/site_021507/content/01125107.guest.html

Guiliani is discussing American intel failures during wartime:

"The Battle of the Bulge was the biggest intelligence failure in American military history, much bigger than any in Vietnam or now. We didn't know that the Soviets were moving three, four, 500,000 troops. We missed it."

The battle of the Bulge was between the Germans, Americans and Western Allies; no Soviet troops to miss there and even if there were, the Soviets were our allies. The Germans had at best 200,000 men, not 500,000.

And then we get this snarky little tidbit from Rush:

"We missed it," and King says: The Battle of the Bulge? What was the Battle of the Bulge? That was, uh, uh... Wha? What was that? "

Making fun of King while missing completely the 500,000 Soviets that weren't there (and I thought I knew intelligence failures).

His cup runneth over

My son is just starting up baseball for the season. For the first time ever he needed an athletic cup to keep those family jewels safe. First thing he starts doing after getting it on is banging on it like Ricky Ricardo playing Babaloo.