Friday, May 29, 2009
Signs of fiscal stimulus
And these are large green signs about 4'x8' that proclaim "American Recovery and Reinvestment Act" that have come our way -- on a road of our commute -- Dalecarlia Parkway. So far I haven't actually seen any signs of shovels but at least the sign is there (and making signs counts as a fiscal stimulus, doesn't it)? Goodness knows, that road can really need an upgrade - often floods in the low spots during heavy downpours and definitely could use some repaving.
Why do liberals seem to hang out a lot on the streets?
And by this I mean the "volunteers" (paid or otherwise) who hang out on busy street corners trying to sign passers-by up for Greenpeace, PIRG, or whatever liberal cause there may be out there. One favorite corner is near the Borders on Friendship Heights which I happen to frequent frequently. But lately it has gotten so bad that I've either avoided going there (good because it stops me from spending) or I've taken the long way around to avoid them (good because it helps me exercise). I wonder why the NRA or pro-lifers don't seem to tack the same way.
Thursday, May 28, 2009
Behavioral bubles
Virginia Postrel's article on financial bubbles articulates what some have always believed - that asset bubbles are part of the human pyschology. It also shows the limitations of experimental economics because all of the examples cited in her article are based on experiments using mostly students. The limitations are not that the participants are students but that the experiments cannot approximate actual conditions that allow the observer to make informed decisions.
While asset bubbles are inevitable in all of the settings, learning quickly takes place and for the most part the bubbles disappear. In the real world, the markets can stay irrational longer than most investors can stay solvent. This cannot be explained by the experimental asset markets.
Interestingly, the article highlights the finding that bubbles form when either participants are "new" to the game or the security or rules of the game are "new" to the participants. Here is where human psychology takes over: Who can become the greater fool is perhaps a better name for this new game.
Is the lesson here that regulation should be more stringent when new securities are introduced? What happens if new regulations introduce new uncertainties which sets the greater fool game into motion? Should regulations be introduced to regulate regulations?
While asset bubbles are inevitable in all of the settings, learning quickly takes place and for the most part the bubbles disappear. In the real world, the markets can stay irrational longer than most investors can stay solvent. This cannot be explained by the experimental asset markets.
Interestingly, the article highlights the finding that bubbles form when either participants are "new" to the game or the security or rules of the game are "new" to the participants. Here is where human psychology takes over: Who can become the greater fool is perhaps a better name for this new game.
Is the lesson here that regulation should be more stringent when new securities are introduced? What happens if new regulations introduce new uncertainties which sets the greater fool game into motion? Should regulations be introduced to regulate regulations?
Why go away for a vacation?
Reading Confessions of an Introverted Traveler made me wonder why we choose to go away for a vacation. Going away requires me to:
1. Leave home (unattended) for an extended period of time which never fails to give me pangs of anxiety.
2. Choose what to bring with me - which leads me to inevitably pack too much (especially books). 3. Spend for lodging when we already have one if we had just stayed home!
4. Time spent driving or waiting in line in airports is dead time.
5. Try to overcome the inevitable hangover when we get back - catch up on e-mail, chores, and errands.
P.S. See also Six tips for introverted travelers (HT: MR).
1. Leave home (unattended) for an extended period of time which never fails to give me pangs of anxiety.
2. Choose what to bring with me - which leads me to inevitably pack too much (especially books). 3. Spend for lodging when we already have one if we had just stayed home!
4. Time spent driving or waiting in line in airports is dead time.
5. Try to overcome the inevitable hangover when we get back - catch up on e-mail, chores, and errands.
P.S. See also Six tips for introverted travelers (HT: MR).
Wednesday, May 27, 2009
Letter from the White House
We got one last week. K1 had spent some time crafting a letter to Malia in February and I think had pretty much given up all hope of hearing from her when a letter arrived from Michelle Obama. It looked like she (or someone) had given some thought to it even though it was a form letter - it looked as though it had been written by pulling in different paragraphs from different form letters. I don't know why I say that but the last paragraph seemed to read differently from the rest of the letter.
In any case, K1 hurriedly wrote a reply to Mrs. Obama. I did not encourage her nor did I discourage her. At most I enabled her. Hope the Secret Service doesn't tag her as a stalker. :)
In any case, K1 hurriedly wrote a reply to Mrs. Obama. I did not encourage her nor did I discourage her. At most I enabled her. Hope the Secret Service doesn't tag her as a stalker. :)
Perceptions and rumors
"Continental was in trouble and had been reporting a steadily increasing volume of problem assets for two years," [bank examiner] Patriarca says. As Continental's capital was drained off by the bad energy loans, his examiners saw signs of a creeping run on deposits. Market confidence was eroding.
The runs tarted in May 1984 on a false rumor. A Japanese wire service story reported that the U.S. Comptroller of the Currency was discussing with the financial giant Nomura Securities its acquisition of Continental Illinois. "Continental called us and said, 'What the hell are you doing?' " Patriarca recalls. "We issued a press release within hours denying it. But the world was goosey about Continental. The rumors had been going on for months in the trading pits. Once there was sufficient question about Continental's viability in the eyes of those large uninsured depositors, bang! - we had a run.
It began in Europe and Japan and quickly struck the United States. It was like no bank run in history; no lines of depositors gathered outside Continental. It was the world's first global electronic run, with billions sucked from the bank by computers in London, Tokyo, and Hong Kong.
From Moira Johnston, Roller Coaster: The Bank of America and the The Future of American Banking, pp. 216-7.
With more prescience than he may have known, [BofA] Corporate Comunications chief Ronald E. Rody, ..., told the conference, "People's perception of the facts is almost as important as what the facts really are. Because people act on their perceptions."
pp. 235-6.
The runs tarted in May 1984 on a false rumor. A Japanese wire service story reported that the U.S. Comptroller of the Currency was discussing with the financial giant Nomura Securities its acquisition of Continental Illinois. "Continental called us and said, 'What the hell are you doing?' " Patriarca recalls. "We issued a press release within hours denying it. But the world was goosey about Continental. The rumors had been going on for months in the trading pits. Once there was sufficient question about Continental's viability in the eyes of those large uninsured depositors, bang! - we had a run.
It began in Europe and Japan and quickly struck the United States. It was like no bank run in history; no lines of depositors gathered outside Continental. It was the world's first global electronic run, with billions sucked from the bank by computers in London, Tokyo, and Hong Kong.
From Moira Johnston, Roller Coaster: The Bank of America and the The Future of American Banking, pp. 216-7.
With more prescience than he may have known, [BofA] Corporate Comunications chief Ronald E. Rody, ..., told the conference, "People's perception of the facts is almost as important as what the facts really are. Because people act on their perceptions."
pp. 235-6.
Moral hazard everywhere - even in the playground?
Smithsonian Magazine ran an article on moral hazard on the 50th anniversary of the invention of the 3-point seat belt. There are some aspects of moral hazard that I agree with but I don't know if seat belts make drivers more reckless. (Though it is possible that drivers of SUVs or larger and stronger vehicles may behave more aggressively. For instance, I don't think I've seen an aggressive SmartCar driver yet though it may change when there are more SmartCars around.)
There has been a lively debate over risk compensation ever since, but today the issue is not whether it exists, but the degree to which it does. The phenomenon has been observed well beyond the highway—in the workplace, on the playing field, at home, in the air. Researchers have found that improved parachute rip cords did not reduce the number of sky-diving accidents; overconfident sky divers hit the silk too late. The number of flooding deaths in the United States has hardly changed in 100 years despite the construction of stronger levees in flood plains; people moved onto the flood plains, in part because of subsidized flood insurance and federal disaster relief. Studies suggest that workers who wear back-support belts try to lift heavier loads and that children who wear protective sports equipment engage in rougher play. Forest rangers say wilderness hikers take greater risks if they know that a trained rescue squad is on call. Public health officials cite evidence that enhanced HIV treatment can lead to riskier sexual behavior.
In K1 and K2's school, all the metal posts and poles on their playground equipment is wrapped with padded foam I assume to prevent injuries. It is so padded that kids now run into them just to see how far they can bounce backwards. Playground supervisors and teachers put a quick stop to this, however. Playground supervisors? Never had those when I was growing up.
There has been a lively debate over risk compensation ever since, but today the issue is not whether it exists, but the degree to which it does. The phenomenon has been observed well beyond the highway—in the workplace, on the playing field, at home, in the air. Researchers have found that improved parachute rip cords did not reduce the number of sky-diving accidents; overconfident sky divers hit the silk too late. The number of flooding deaths in the United States has hardly changed in 100 years despite the construction of stronger levees in flood plains; people moved onto the flood plains, in part because of subsidized flood insurance and federal disaster relief. Studies suggest that workers who wear back-support belts try to lift heavier loads and that children who wear protective sports equipment engage in rougher play. Forest rangers say wilderness hikers take greater risks if they know that a trained rescue squad is on call. Public health officials cite evidence that enhanced HIV treatment can lead to riskier sexual behavior.
In K1 and K2's school, all the metal posts and poles on their playground equipment is wrapped with padded foam I assume to prevent injuries. It is so padded that kids now run into them just to see how far they can bounce backwards. Playground supervisors and teachers put a quick stop to this, however. Playground supervisors? Never had those when I was growing up.
The good/bad old days?
Yesterday, K1 and K2 were fooling around in their room and broke one the CFLs on the ceiling. I wasn't there but I imagined that glass and mercury must have showered down on to the bed and floor. I was there to vacuum up the glass remnants but I did not see any trace of mercury anywhere. When I got to the scene they had thrown out most of the larger pieces of the glass in the trash. I'm not quite sure what they did with the mercury if they even know what it was.
It reminded me of the time when I was in 5th or 6th grade when a classmate brought mercury to school and we actually played with it. We watched it coagulate on our hands when we spread it around, etc. and thought it was kind of funny.
In any case we followed (some) of the advice on what to do about a broken cfl:
1. Washed all the sheets (yes even though it says not to do it in the washing machine) since we did not see any mercury on them.
2. Ventilated the room (but not till 2 hours later when M checked the web to see what to do)
3. Changed the vacuum cleaner bag (it was due anyway).
In any case, it reminded me of how the "bad" old days were back in the 70s as posted on Half Changed World (reading Judy Blume):
It reminded me of the time when I was in 5th or 6th grade when a classmate brought mercury to school and we actually played with it. We watched it coagulate on our hands when we spread it around, etc. and thought it was kind of funny.
In any case we followed (some) of the advice on what to do about a broken cfl:
1. Washed all the sheets (yes even though it says not to do it in the washing machine) since we did not see any mercury on them.
2. Ventilated the room (but not till 2 hours later when M checked the web to see what to do)
3. Changed the vacuum cleaner bag (it was due anyway).
In any case, it reminded me of how the "bad" old days were back in the 70s as posted on Half Changed World (reading Judy Blume):
1. Peter (age 9) gets to go to Central Park without an adult, as long as he's with another kid.
2. But not because it's safer than today -- Peter says his friend has been mugged three times, and he assumes he'll get mugged someday too.
3. Three fourth graders are left alone in charge of a 2 1/2 year old.
4. The reason Mrs. Hatcher goes back to the apartment is that she realizes that she forgot to turn the oven ON.
5. At Fudge's 3rd birthday party, the other kids are all dropped off and their parents leave -- even though one kid is a known biter and another is terrified.
Wednesday, May 20, 2009
Should I start on Twilight series?
Gretchen Rubin found the movie inspiring:
So, inspired by the springtime, and the memories of early love brought back to me by Twilight, I’m going to redouble my usual efforts to keep my resolutions related to love. Think of small treats or courtesies. Leave things unsaid. Give proofs of love. Don’t expect praise. Take time to be silly. Admire. Fight right.
Caitlin Flanagan found the series complex and interesting:
The salient fact of an adolescent girl’s existence is her need for a secret emotional life—one that she slips into during her sulks and silences, during her endless hours alone in her room, or even just when she’s gazing out the classroom window while all of Modern European History, or the niceties of the passé composé, sluice past her. This means that she is a creature designed for reading in a way no boy or man, or even grown woman, could ever be so exactly designed, because she is a creature whose most elemental psychological needs—to be undisturbed while she works out the big questions of her life, to be hidden from view while still in plain sight, to enter profoundly into the emotional lives of others—are met precisely by the act of reading.
Twilight is fantastic. It’s a page-turner that pops out a lurching, frightening ending I never saw coming. It’s also the first book that seemed at long last to rekindle something of the girl-reader in me. In fact, there were times when the novel—no work of literature, to be sure, no school for style; hugged mainly to the slender chests of very young teenage girls, whose regard for it is on a par with the regard with which just yesterday they held Hannah Montana—stirred something in me so long forgotten that I felt embarrassed by it. Reading the book, I sometimes experienced what I imagine long-married men must feel when they get an unexpected glimpse at pornography: slingshot back to a world of sensation that, through sheer force of will and dutiful acceptance of life’s fortunes, I thought I had subdued. The Twilight series is not based on a true story, of course, but within it is the true story, the original one. Twilight centers on a boy who loves a girl so much that he refuses to defile her, and on a girl who loves him so dearly that she is desperate for him to do just that, even if the wages of the act are expulsion from her family and from everything she has ever known. We haven’t seen that tale in a girls’ book in a very long time. And it’s selling through the roof.
So, inspired by the springtime, and the memories of early love brought back to me by Twilight, I’m going to redouble my usual efforts to keep my resolutions related to love. Think of small treats or courtesies. Leave things unsaid. Give proofs of love. Don’t expect praise. Take time to be silly. Admire. Fight right.
Caitlin Flanagan found the series complex and interesting:
The salient fact of an adolescent girl’s existence is her need for a secret emotional life—one that she slips into during her sulks and silences, during her endless hours alone in her room, or even just when she’s gazing out the classroom window while all of Modern European History, or the niceties of the passé composé, sluice past her. This means that she is a creature designed for reading in a way no boy or man, or even grown woman, could ever be so exactly designed, because she is a creature whose most elemental psychological needs—to be undisturbed while she works out the big questions of her life, to be hidden from view while still in plain sight, to enter profoundly into the emotional lives of others—are met precisely by the act of reading.
Twilight is fantastic. It’s a page-turner that pops out a lurching, frightening ending I never saw coming. It’s also the first book that seemed at long last to rekindle something of the girl-reader in me. In fact, there were times when the novel—no work of literature, to be sure, no school for style; hugged mainly to the slender chests of very young teenage girls, whose regard for it is on a par with the regard with which just yesterday they held Hannah Montana—stirred something in me so long forgotten that I felt embarrassed by it. Reading the book, I sometimes experienced what I imagine long-married men must feel when they get an unexpected glimpse at pornography: slingshot back to a world of sensation that, through sheer force of will and dutiful acceptance of life’s fortunes, I thought I had subdued. The Twilight series is not based on a true story, of course, but within it is the true story, the original one. Twilight centers on a boy who loves a girl so much that he refuses to defile her, and on a girl who loves him so dearly that she is desperate for him to do just that, even if the wages of the act are expulsion from her family and from everything she has ever known. We haven’t seen that tale in a girls’ book in a very long time. And it’s selling through the roof.
Monday, May 18, 2009
Jude Wanniski, Robert Mundell and Arthur Laffer
Unless the government enacted a tax cut of at least $10 billion that summer [1974], Mundell insisted, the automobile industry would suffer and egregious depression in the fall, and the rest of the economy would "fall off the cliff" in January. Unemployment, Mundell predicted, would reach a horrendous eight percent, and next year's budget deficit might be $70 billion. Wanniski remembers looking at Mundell and Laffer and observing how coldly mesmerized they were by these numbers. "Where they saw numbers, I saw people, and I felt sick to my stomach. I was in possession of awful, terrible wisdom that no one except us had. I asked them how they sleep at night? They told me all they could do was come up with ideas; they couldn't live them. But I had to live them or els go crazy. At that moment, I became a true zealot.
... In late 1974 the Commerce Department had just completed final statistical revisions on the Gross National Product for the year 1971. Wonder of wonders,, because of the year's unexpected burst of inflation, Laffer's seemingly absurd forecast of $1.065 billion had turned out to be almost exactly right, one of the most accurate GNP forecasts ever recorded. "Get Laffer down here," ordered Donald Rumsfeld.
Laffer came to Washington in December, a month after the elections in which the Republicans suffered epic defeat. Rumsfeld was unavailable, but he dispatched an aide, Richard Cheney, to meet with Wanniski and Laffer. The trio met for drinks and dinner at a restaurant near the White House. It was a historic meeting, but not for reasons anyone else could have predicted. As Wanniski recalls the evening, Laffer, a man of uncontrollable energy, simply talked too fast to be comprehended by anyone not already versed in his views. As the meeting wore on, it became obvious the Cheney did not understand. In a fit of exasperation, Wannisky recalls, Laffer grabbed a paper cocktail napking and sketched a simple graph on it - a bell-shaped line that Wanniski would enshrine as the "Laffer Curve" - which showed how in theory two different tax rates might produce the identical amount of revenue for the government.
... Years later, after Laffer and Wanniski had had a falling out, Laffer would insist he could not remember the cocktail napkin incident. Neither could Richard Cheney. Yet Jude Wanniski, a born genius in the art of publicity would never forget it. "I just went wild over that curve," said Wanniski. And so would the electorate six years later, after Wanniski had made the "Laffer Curve" a household phrase.
... Kristol published the piece [by Wanniski], "The Mundell-Laffer Hypothess: A New View of the World Economy," the blue print for the as yet unnamed Supply Side movement. ... former Nixon economics advisor Herb Stein, wrote a column attacking supporters of the tax-cut idea as a bunch of "supply-side fiscalists," criticizing their lack of concern for monetary policy and inflation. Wanniski disapproved of Stein's orthodox conservatism, but he had to admit that the professor had a way with words. He seized Stein's phrase, lopped of the cumbersome "fiscalists," and dubbed the ideas espoused by himself and his friends "Supply Side Economics." Stein probably would never forgive himself.
-- From Worldly Power: The Making of the Wall Street Journal by Edward Scharff, pp. 258-264.
... In late 1974 the Commerce Department had just completed final statistical revisions on the Gross National Product for the year 1971. Wonder of wonders,, because of the year's unexpected burst of inflation, Laffer's seemingly absurd forecast of $1.065 billion had turned out to be almost exactly right, one of the most accurate GNP forecasts ever recorded. "Get Laffer down here," ordered Donald Rumsfeld.
Laffer came to Washington in December, a month after the elections in which the Republicans suffered epic defeat. Rumsfeld was unavailable, but he dispatched an aide, Richard Cheney, to meet with Wanniski and Laffer. The trio met for drinks and dinner at a restaurant near the White House. It was a historic meeting, but not for reasons anyone else could have predicted. As Wanniski recalls the evening, Laffer, a man of uncontrollable energy, simply talked too fast to be comprehended by anyone not already versed in his views. As the meeting wore on, it became obvious the Cheney did not understand. In a fit of exasperation, Wannisky recalls, Laffer grabbed a paper cocktail napking and sketched a simple graph on it - a bell-shaped line that Wanniski would enshrine as the "Laffer Curve" - which showed how in theory two different tax rates might produce the identical amount of revenue for the government.
... Years later, after Laffer and Wanniski had had a falling out, Laffer would insist he could not remember the cocktail napkin incident. Neither could Richard Cheney. Yet Jude Wanniski, a born genius in the art of publicity would never forget it. "I just went wild over that curve," said Wanniski. And so would the electorate six years later, after Wanniski had made the "Laffer Curve" a household phrase.
... Kristol published the piece [by Wanniski], "The Mundell-Laffer Hypothess: A New View of the World Economy," the blue print for the as yet unnamed Supply Side movement. ... former Nixon economics advisor Herb Stein, wrote a column attacking supporters of the tax-cut idea as a bunch of "supply-side fiscalists," criticizing their lack of concern for monetary policy and inflation. Wanniski disapproved of Stein's orthodox conservatism, but he had to admit that the professor had a way with words. He seized Stein's phrase, lopped of the cumbersome "fiscalists," and dubbed the ideas espoused by himself and his friends "Supply Side Economics." Stein probably would never forgive himself.
-- From Worldly Power: The Making of the Wall Street Journal by Edward Scharff, pp. 258-264.
Wii overdose or there is a Mii on my bed
At least that's what I thought I heard from K2 and 3 am - "There's a Mii on my bed." When I was more alert I found out it was "There's a bee on my bed". Chalk this one up to another insect dream sequel to "There are ants on my bed."
Paying students for grades
This article in the NYT challenges my biases:
For decades, psychologists have warned against giving children prizes or money for their performance in school. “Extrinsic” rewards, they say — a stuffed animal for a 4-year-old who learns her alphabet, cash for a good report card in middle or high school — can undermine the joy of learning for its own sake and can even lead to cheating.
But many economists and businesspeople disagree, and their views often prevail in the educational marketplace. Reward programs that pay students are under way in many cities. In some places, students can bring home hundreds of dollars for, say, taking an Advanced Placement course and scoring well on the exam.
I'm with the psychologists. Why?
1. Because this is something designed by economists - the same ones who brought us pay for performance and bonuses for financial executives. Sure, they will claim to be exculpable by saying incentives were badly designed because performance was badly mismeasured. If they are so convinced this works at each and every level then why don't they pay their own graduate students?
2. My reading is that the study is not very well designed in the following sense: Some economists will argue that it is not the grade on the test that should be the measure of performance but the long run life time income that the individual will earn. (This would be my measure of performance.) This measure is highly unrealistic but there are not enough efforts to create a better measure. Instead, economists are defaulting to the path of least resistance - grades, stock price index, whatever and these default measures do not measure what we are ultimately interested in.
3. The study does not "unpack" the relative importance of extrinsic and intrinsic rewards. In fact very little is being done in many economic studies to study the "black box" of what works.
I am skeptical but if the studies start to go down a different path that addresses #2 and #3 then I am willing to be convinced.
Update (5/28/09): This paper on paying people to lose weight versus posting a bond for losing weight may be relevant.
Obesity rates in the U.S. have doubled since 1980. Given the medical, social, and financial costs of obesity, a large percentage of Americans are attempting to lose weight at any given time but the vast majority of weight loss attempts fail. Researchers continue to search for safe and effective methods of weight loss, and this paper examines one promising method - offering financial rewards for weight loss. This paper studies data on 2,407 employees in 17 worksites who participated in a year-long worksite health promotion program that offered financial rewards for weight loss. The intervention varied by employer, in some cases offering steady quarterly rewards for weight loss and in other cases requiring participants to post a bond that would be refunded at year's end conditional on achieving certain weight loss goals. Still others received no financial incentives at all and serve as a control group. We examine the basic patterns of enrollment, attrition, and weight loss in these three groups. Weight loss is modest. After one year, it averages 1.4 pounds for those paid steady quarterly rewards and 3.6 pounds for those who posted a refundable bond, under the assumption that dropouts experienced no weight loss. Year-end attrition is as high as 76.4%, far higher than that for interventions designed and implemented by researchers.
For decades, psychologists have warned against giving children prizes or money for their performance in school. “Extrinsic” rewards, they say — a stuffed animal for a 4-year-old who learns her alphabet, cash for a good report card in middle or high school — can undermine the joy of learning for its own sake and can even lead to cheating.
But many economists and businesspeople disagree, and their views often prevail in the educational marketplace. Reward programs that pay students are under way in many cities. In some places, students can bring home hundreds of dollars for, say, taking an Advanced Placement course and scoring well on the exam.
I'm with the psychologists. Why?
1. Because this is something designed by economists - the same ones who brought us pay for performance and bonuses for financial executives. Sure, they will claim to be exculpable by saying incentives were badly designed because performance was badly mismeasured. If they are so convinced this works at each and every level then why don't they pay their own graduate students?
2. My reading is that the study is not very well designed in the following sense: Some economists will argue that it is not the grade on the test that should be the measure of performance but the long run life time income that the individual will earn. (This would be my measure of performance.) This measure is highly unrealistic but there are not enough efforts to create a better measure. Instead, economists are defaulting to the path of least resistance - grades, stock price index, whatever and these default measures do not measure what we are ultimately interested in.
3. The study does not "unpack" the relative importance of extrinsic and intrinsic rewards. In fact very little is being done in many economic studies to study the "black box" of what works.
I am skeptical but if the studies start to go down a different path that addresses #2 and #3 then I am willing to be convinced.
Update (5/28/09): This paper on paying people to lose weight versus posting a bond for losing weight may be relevant.
Obesity rates in the U.S. have doubled since 1980. Given the medical, social, and financial costs of obesity, a large percentage of Americans are attempting to lose weight at any given time but the vast majority of weight loss attempts fail. Researchers continue to search for safe and effective methods of weight loss, and this paper examines one promising method - offering financial rewards for weight loss. This paper studies data on 2,407 employees in 17 worksites who participated in a year-long worksite health promotion program that offered financial rewards for weight loss. The intervention varied by employer, in some cases offering steady quarterly rewards for weight loss and in other cases requiring participants to post a bond that would be refunded at year's end conditional on achieving certain weight loss goals. Still others received no financial incentives at all and serve as a control group. We examine the basic patterns of enrollment, attrition, and weight loss in these three groups. Weight loss is modest. After one year, it averages 1.4 pounds for those paid steady quarterly rewards and 3.6 pounds for those who posted a refundable bond, under the assumption that dropouts experienced no weight loss. Year-end attrition is as high as 76.4%, far higher than that for interventions designed and implemented by researchers.
Reporters living the subprime crisis
Henry Blodgett's Why Wall Street Always Blows It: Given his history as one of the analysts who pumped up tech stocks during the dot-com bubble I tend to take his stories with a grain of salt but this a fairly interesting read:
I experienced the next bubble differently—as a journalist and homeowner. Having already learned the most obvious lesson about bubbles, which is that you don’t want to get out too late, I now discovered something nearly as obvious: you don’t want to get out too early. Figuring that the roaring housing market was just another tech-stock bubble in the making, I rushed to sell my house in 2003—only to watch its price nearly double over the next three years. I also predicted the demise of the Manhattan real-estate market on the cover of New York magazine in 2005. Prices are finally falling now, in 2008, but they’re still well above where they were then.
... House prices, we are told by our helpful neighborhood real-estate agent, almost never go down. This sounds right, and they certainly didn’t go down in the stock-market crash. In fact, for as long as we can remember—about 10 years, in most cases—house prices haven’t gone down. (Wait, maybe there was a slight dip, after the 1987 stock-market crash, but looming larger in our memories is what’s happened since; everyone we know who’s bought a house since the early 1990s has made gobs of money.)
We consider following our agent’s advice, but then we decide against it. House prices have doubled since the mid-1990s; we’re not going to get burned again by buying at the top. So we decide to just stay in our rent-stabilized rabbit warren and wait for house prices to collapse.
Unfortunately, they don’t. A year later, they’ve risen at least another 10 percent. By 2006, we’re walking past neighborhood houses that we could have bought for about half as much four years ago; we wave to happy new neighbors who are already deep in the money. One neighbor has “unlocked the value in his house” by taking out a cheap home-equity loan, and he’s using the proceeds to build a swimming pool. He is also doing well, along with two visionary friends, by buying and flipping other houses—so well, in fact, that he’s considering quitting his job and becoming a full-time real-estate developer. After four years of resistance, we finally concede—houses might be a good investment after all—and call our neighborhood real-estate agent. She’s jammed (and driving a new BMW), but she agrees to fit us in.
By the spring of 2007, we’ve finally caught up to the market reality, and our luck finally changes: We make an instant, aggressive bid on a huge house, with almost no money down. And we get it! We’re finally members of the ownership society.
You know the rest. Eighteen months later, our down payment has been wiped out and we owe more on the house than it’s worth. We’re still able to make the payments, but our mortgage rate is about to reset. And we’ve already heard rumors about coming layoffs at our jobs. How on Earth did we get into this mess?
The exact answer is different in every case, of course. But let’s round up the usual suspects:
• The predatory mortgage broker? Well, we’re certainly not happy with the bastard, given that he sold us a loan that is now a ticking time bomb. But we did ask him to show us a range of options, and he didn’t make us pick this one. We picked it because it had the lowest payment.
• Our sleazy real-estate agent? We’re not speaking to her anymore, either (and we’re secretly stoked that her BMW just got repossessed), but again, she didn’t lie to us. She just kept saying that houses are usually a good investment. And she is, after all, a saleswoman; that was never very hard to figure out.
• Wall Street fat cats? Boy, do we hate those guys, especially now that our tax dollars are bailing them out. But we didn’t complain when our lender asked for such a small down payment without bothering to check how much money we made. At the time, we thought that was pretty great.
• The SEC? We’re furious that our government let this happen to us, and we’re sure someone is to blame. We’re not really sure who that someone is, though. Whoever is responsible for making sure that something like this never happens to us, we guess.
• Alan “The Maestro” Greenspan? We’re pissed at him too. If he hadn’t been out there saying everything was fine, we might have believed that economist who said it wasn’t.
• Bad advice? Hell, yes, we got bad advice. Our real-estate agent. That mortgage guy. Our neighbor. Greenspan. The media. They all gave us horrendous advice. We should have just waited for the market to crash. But everyone said it was different this time.
And more recently, Ed Andrews' My Personal Credit Crisis:
If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.
But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.
... As I quickly found out, American Home Mortgage had become one of the fastest-growing mortgage lenders in the country. One of its specialties was serving people just like me: borrowers with good credit scores who wanted to stretch their finances far beyond what our incomes could justify. In industry jargon, we were “Alt-A” customers, and we usually paid slightly higher rates for the privilege of concealing our financial weaknesses.
I thought I knew a lot about go-go mortgages. I had already written several articles about the explosive growth of liar’s loans, no-money-down loans, interest-only loans and other even more exotic mortgages. I had interviewed people with very modest incomes who had taken out big loans. Yet for all that, I was stunned at how much money people were willing to throw at me.
Bob called back the next morning. “Your credit scores are almost perfect,” he said happily. “Based on your income, you can qualify for a mortgage of about $500,000.”
What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob figured, it was my job to decide whether I could afford it. His job was to make it happen.
“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”
You had to admire this muscular logic. My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. ... But given my actual income after alimony and child support, I couldn’t possibly have qualified for a standard mortgage. Bob’s plan was to write a “stated-income loan,” or “liar’s loan,” so that I wouldn’t have to give the game away by producing paychecks or tax returns. Unfortunately, Bob’s plan hit a snag a few days later. “Ed, the underwriters say that your name is on another mortgage,” he told me. “That means you’re carrying too much debt.”
Bob didn’t get flustered. If Plan A didn’t work, he would simply move down another step on the ladder of credibility. Instead of “stating” my income without documenting it, I would take out a “no ratio” mortgage and not state my income at all. For the price of a slightly higher interest rate, American Home would verify my assets, but that was it. Because I wasn’t stating my income, I couldn’t have a debt-to-income ratio, and therefore, I couldn’t have too much debt. I could have had four other mortgages, and it wouldn’t have mattered. American Home was practically begging me to take the money.
I experienced the next bubble differently—as a journalist and homeowner. Having already learned the most obvious lesson about bubbles, which is that you don’t want to get out too late, I now discovered something nearly as obvious: you don’t want to get out too early. Figuring that the roaring housing market was just another tech-stock bubble in the making, I rushed to sell my house in 2003—only to watch its price nearly double over the next three years. I also predicted the demise of the Manhattan real-estate market on the cover of New York magazine in 2005. Prices are finally falling now, in 2008, but they’re still well above where they were then.
... House prices, we are told by our helpful neighborhood real-estate agent, almost never go down. This sounds right, and they certainly didn’t go down in the stock-market crash. In fact, for as long as we can remember—about 10 years, in most cases—house prices haven’t gone down. (Wait, maybe there was a slight dip, after the 1987 stock-market crash, but looming larger in our memories is what’s happened since; everyone we know who’s bought a house since the early 1990s has made gobs of money.)
We consider following our agent’s advice, but then we decide against it. House prices have doubled since the mid-1990s; we’re not going to get burned again by buying at the top. So we decide to just stay in our rent-stabilized rabbit warren and wait for house prices to collapse.
Unfortunately, they don’t. A year later, they’ve risen at least another 10 percent. By 2006, we’re walking past neighborhood houses that we could have bought for about half as much four years ago; we wave to happy new neighbors who are already deep in the money. One neighbor has “unlocked the value in his house” by taking out a cheap home-equity loan, and he’s using the proceeds to build a swimming pool. He is also doing well, along with two visionary friends, by buying and flipping other houses—so well, in fact, that he’s considering quitting his job and becoming a full-time real-estate developer. After four years of resistance, we finally concede—houses might be a good investment after all—and call our neighborhood real-estate agent. She’s jammed (and driving a new BMW), but she agrees to fit us in.
By the spring of 2007, we’ve finally caught up to the market reality, and our luck finally changes: We make an instant, aggressive bid on a huge house, with almost no money down. And we get it! We’re finally members of the ownership society.
You know the rest. Eighteen months later, our down payment has been wiped out and we owe more on the house than it’s worth. We’re still able to make the payments, but our mortgage rate is about to reset. And we’ve already heard rumors about coming layoffs at our jobs. How on Earth did we get into this mess?
The exact answer is different in every case, of course. But let’s round up the usual suspects:
• The predatory mortgage broker? Well, we’re certainly not happy with the bastard, given that he sold us a loan that is now a ticking time bomb. But we did ask him to show us a range of options, and he didn’t make us pick this one. We picked it because it had the lowest payment.
• Our sleazy real-estate agent? We’re not speaking to her anymore, either (and we’re secretly stoked that her BMW just got repossessed), but again, she didn’t lie to us. She just kept saying that houses are usually a good investment. And she is, after all, a saleswoman; that was never very hard to figure out.
• Wall Street fat cats? Boy, do we hate those guys, especially now that our tax dollars are bailing them out. But we didn’t complain when our lender asked for such a small down payment without bothering to check how much money we made. At the time, we thought that was pretty great.
• The SEC? We’re furious that our government let this happen to us, and we’re sure someone is to blame. We’re not really sure who that someone is, though. Whoever is responsible for making sure that something like this never happens to us, we guess.
• Alan “The Maestro” Greenspan? We’re pissed at him too. If he hadn’t been out there saying everything was fine, we might have believed that economist who said it wasn’t.
• Bad advice? Hell, yes, we got bad advice. Our real-estate agent. That mortgage guy. Our neighbor. Greenspan. The media. They all gave us horrendous advice. We should have just waited for the market to crash. But everyone said it was different this time.
And more recently, Ed Andrews' My Personal Credit Crisis:
If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.
But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.
... As I quickly found out, American Home Mortgage had become one of the fastest-growing mortgage lenders in the country. One of its specialties was serving people just like me: borrowers with good credit scores who wanted to stretch their finances far beyond what our incomes could justify. In industry jargon, we were “Alt-A” customers, and we usually paid slightly higher rates for the privilege of concealing our financial weaknesses.
I thought I knew a lot about go-go mortgages. I had already written several articles about the explosive growth of liar’s loans, no-money-down loans, interest-only loans and other even more exotic mortgages. I had interviewed people with very modest incomes who had taken out big loans. Yet for all that, I was stunned at how much money people were willing to throw at me.
Bob called back the next morning. “Your credit scores are almost perfect,” he said happily. “Based on your income, you can qualify for a mortgage of about $500,000.”
What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob figured, it was my job to decide whether I could afford it. His job was to make it happen.
“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”
You had to admire this muscular logic. My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. ... But given my actual income after alimony and child support, I couldn’t possibly have qualified for a standard mortgage. Bob’s plan was to write a “stated-income loan,” or “liar’s loan,” so that I wouldn’t have to give the game away by producing paychecks or tax returns. Unfortunately, Bob’s plan hit a snag a few days later. “Ed, the underwriters say that your name is on another mortgage,” he told me. “That means you’re carrying too much debt.”
Bob didn’t get flustered. If Plan A didn’t work, he would simply move down another step on the ladder of credibility. Instead of “stating” my income without documenting it, I would take out a “no ratio” mortgage and not state my income at all. For the price of a slightly higher interest rate, American Home would verify my assets, but that was it. Because I wasn’t stating my income, I couldn’t have a debt-to-income ratio, and therefore, I couldn’t have too much debt. I could have had four other mortgages, and it wouldn’t have mattered. American Home was practically begging me to take the money.
What I've been reading
1. Robert Kaplan's Hog Pilots, Blue Water Grunts - enjoyable. I agree that these are dedicated men and women who are doing a tremendous job with what they have. There was a nagging feeling however that Kaplan was holding back on some of his feelings. There was a scene where he described the triumphant scene at a base he was at when Bush beat Kerry - he felt lonely. He also describes why the grunts tend to lean Republican or at least share some the outlook of Bush especially with regards to the war on terror. Along the way, he notes the role of contractors and how they leave a smaller footprint than a regular military deployment. Also interesting was the military outlook with regard to China and how they are preparing for it. All in all it was an insightful read.
2. Anthony Holden's Big Deal: A Year as a Professional Poker Player was fairly entertaining although it tended to drag a bit in parts. I was quickly lost in the poker jargon right away but it reminded that the best analogy to sunk costs and marginal costs was perhaps the pot (sunk) and the bids (marginal). Yes, we do have to spend money to make money.
3. Edward Scharff's Worldly Power: The Making of The Wall Street Journal (out of print, unfortunately) was an extremley enjoyable book which documents the rise of the Wall Street Journal from a trade sheet that was always viewed as being a little shady to its rise as a newspaper with over 2 million subscribers in the late 1980s. He describes well, the origins of WSJ's conservative outlook - not Ivy League types but Midwestern DePauw graduates who were suspicious of the East coast elites and tended to hire from the midwest.
Most enjoyable were the quotes of various writings from the early editors and writers of the WSJ such as Barney Kilgore who fills at least half of the book and his successor Warren Phillips. He also describes the irony of the 70s when its conservative outlook (support of the Vietnam War and Nixon) was at odds with those of most of its liberal writers. For most of its existence (in the book) WSJ repoters were paid much lower than those at other newspapers such as the NYT and continued to lose talent because of this.
The tension between the Dow Jones wire service and the newspaper itself as well as its desire to become a general newspaper versus a business newspaper were the underlying currents in the WSJ which I imagine continues today. Given the current state of the WSJ and print newspapers in general, this book should be updated and would probably be popular.
2. Anthony Holden's Big Deal: A Year as a Professional Poker Player was fairly entertaining although it tended to drag a bit in parts. I was quickly lost in the poker jargon right away but it reminded that the best analogy to sunk costs and marginal costs was perhaps the pot (sunk) and the bids (marginal). Yes, we do have to spend money to make money.
3. Edward Scharff's Worldly Power: The Making of The Wall Street Journal (out of print, unfortunately) was an extremley enjoyable book which documents the rise of the Wall Street Journal from a trade sheet that was always viewed as being a little shady to its rise as a newspaper with over 2 million subscribers in the late 1980s. He describes well, the origins of WSJ's conservative outlook - not Ivy League types but Midwestern DePauw graduates who were suspicious of the East coast elites and tended to hire from the midwest.
Most enjoyable were the quotes of various writings from the early editors and writers of the WSJ such as Barney Kilgore who fills at least half of the book and his successor Warren Phillips. He also describes the irony of the 70s when its conservative outlook (support of the Vietnam War and Nixon) was at odds with those of most of its liberal writers. For most of its existence (in the book) WSJ repoters were paid much lower than those at other newspapers such as the NYT and continued to lose talent because of this.
The tension between the Dow Jones wire service and the newspaper itself as well as its desire to become a general newspaper versus a business newspaper were the underlying currents in the WSJ which I imagine continues today. Given the current state of the WSJ and print newspapers in general, this book should be updated and would probably be popular.
Monday, May 4, 2009
Dislocated shoulder
Slipped and fell down the stairs about 2 months ago and dislocated my shoulder.
Coincidentally, so did Anders Fogh Rasmussen:
At the Second Forum of the Alliance of Civilizations in Istanbul Turkey got its revenge by the fall of the new NATO secretary-general Anders Fogh Rasmussen that resulted in a dislocated shoulder.He had apparently tripped down the stairs of his Istanbul hotel where he was staying in the middle of the night as he waited for his appointment to Nato to be confirmed, and dislocated his shoulder. Dubbed Denmark’s Tony Blair, he seldom put a foot wrong as prime minister, despite facing crises such as the Iraq war and the outcry over blasphemous cartoons of the Prophet. Then on the eve of his greatest triumph he slipped on a hotel stair.
Click through the link to see the picture. My shoulder brace did not even look close to his. It's nice to be in good company. Or maybe not.
Coincidentally, so did Anders Fogh Rasmussen:
At the Second Forum of the Alliance of Civilizations in Istanbul Turkey got its revenge by the fall of the new NATO secretary-general Anders Fogh Rasmussen that resulted in a dislocated shoulder.He had apparently tripped down the stairs of his Istanbul hotel where he was staying in the middle of the night as he waited for his appointment to Nato to be confirmed, and dislocated his shoulder. Dubbed Denmark’s Tony Blair, he seldom put a foot wrong as prime minister, despite facing crises such as the Iraq war and the outcry over blasphemous cartoons of the Prophet. Then on the eve of his greatest triumph he slipped on a hotel stair.
Click through the link to see the picture. My shoulder brace did not even look close to his. It's nice to be in good company. Or maybe not.
FIOS redux
After about one month of FIOS our phone stopped working but the Internet access continued to work. So I tried to contact Verizon through the web for service. After numerous attempts with no confirmation of receipt I ended up having to call them. To their credit they came the next day. The tech explained that when FIOS was installed the installer failed to disconnect the copper line which blew out. He disconnected it - and voila!
The only fly in the ointment is that if we tried to switch carriers, for instance, to ATT who leases the copper lines from Verizon - we can't because the copper line from our house to the pole is now blown. M thinks that this is all a conspiracy by Verizon to keep its FIOS customers.
The only fly in the ointment is that if we tried to switch carriers, for instance, to ATT who leases the copper lines from Verizon - we can't because the copper line from our house to the pole is now blown. M thinks that this is all a conspiracy by Verizon to keep its FIOS customers.
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