We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Glenn Reynolds posted a quote from the BBC and later discovered they edit the past.
As you know, I am not a skeptic of the science on this issue, something you never really see outside of journals… but I am utterly disgusted by the politics of it and the loathsome people purveying it for totalitarian purposes. This is not to say I will claim the writer was one of them, but that person may well have been pounced upon and forced to recant.
Perhaps I should note my own standards on this issue. I often ‘publish’ a late draft because my preview mode is not the best and do spelling, punctuation, link checks, syntax and such live. Sometimes in that interval I will make significant changes if I feel I did not make my point clearly. But once I am done, usually within 5-10 minutes of first publication, the article is forever frozen and any corrections (other than spelling or commas) is placed underneath the article in italics.
Making changes in the first few minutes after publication in this fast paced world is necessary. Going back hours or days later and making wholesale rewrites to the public record is not.
One might also note an exception: if one finds they have issued a libellous statement or accidentally published proprietary information or totally false information that is of course grounds for pulling the whole article… or striking out the offending phrase and placing a note like this one underneath. This is what the BBC should have done if they believed they had published incorrect data.
Note that I have been ‘playing’ with this article to explore with you the range of changes and time periods I feel comfortable with. There are some difficult issues here and I am not sure where the precise line is… although I am sure the BBC was well over it in this case.
Laird Minor, one of our commentariat who has spent a lifetime in this sector of the financial industry felt the first article on the subprime financial crisis gave an incomplete picture. He proceeded to fill in the rest of the story in such fine form that I am re-posting his comment here on the front page so that it will, in conjunction with the first article, give our readers a much better idea of what is going on and what to expect.
Having been a participant in one way or another in the subprime mortgage industry for over 20 years, this is a topic in which I possess a fairly substantial degree of expertise. The first article is reasonably accurate as far as it goes, but there is a lot more to the story. I could probably write a book on this, but I will try to keep this post as brief as I can.
The CRA only applies to banks, and while banks are the originators of a large number of mortgage loans, non-bank lenders have come to comprise a substantial portion of the mortgage industry. This is especially true in the subprime sector. Thus while the CRA was a typically bad Washington idea, propounded by “poverty lobby” zealots with no conception of how the market works, it isn’t really the principal source of the problem. That honor goes to Wall Street.
Subprime loans are not “agency-eligible”, which means that they can not be sold to Fannie Mae or Freddie Mac, the two huge quasi-governmental agencies that dominate the mortgage world. For this reason subprime lending remained a fairly small segment of the market, much like “payday lenders” are in a different market, until Wall Street figured out how to securitize the loans. Securitization is an extremely valuable financial tool, as it allows loans, which in essence are nothing more than streams of cash flows, to be combined into giant pools and carved up into separate “tranches” having different characteristics as to timing, default risk, etc. By separating these cash flow streams the tranches can be sold to different investors with different investment criteria (insurance companies, for example, have clear actuarially-determined timing needs for cash) which results in better pricing. Overall, securitization created a more efficient market for mortgages, which benefited everybody. Unfortunately, it got out of hand, primarily because of the rating agencies and, to a lesser extent, the monoline bond insurers.
Mortgage-backed securities are rated by Moody’s, Standard & Poors, and Fitch, to determine their investment grade. This affects both price and the appropriate universe of investors. As more and more subprime mortgages and especially unusual ones like “pay-option ARM” loans began to be placed into securitization pools, the rating agencies failed miserably in analyzing them and forecasting their performance characteristics. Monoline insurers, who provide bond insurance for the highest-grade bonds, similarly failed to adequately model these loans’ performance, and thus imposed inadequate credit enhancements (loss reserves, subordination levels, etc.) on the deals. Lenders found that they could sell all the loans they booked, with no meaningful penalty for weak credit quality, so of course they expanded their guidelines. They were merely reacting rationally to signals the market was sending, and do not deserve all the blame for the ultimate melt-down.
So the mortgage pools got riskier and riskier, but no one really appreciated that fact until delinquency levels began to surge last summer: there is a fairly long lag time between mortgage origination and delinquency. Once investors realized how bad the pools had gotten they stopped buying the bonds. The market for mortgage-backed securities ground to a halt almost overnight; pricing for existing securities went into free-fall, and new deals simply couldn’t be completed. And since banks and other financial institutions which own most of those securities are required to write them down to current market values, their paper (unrealized) losses ballooned. This is the reason for such events as the Bear Stearns failure; it had pledged those securities for its borrowings, and when the bond values plummeted and the loans were called they could not come up with the cash.
It is a typical Wall Street “bi-polar” overreaction, but the pain is very real. Property values, which had been driven up by speculative excesses and cheap money (as noted in the first article), are falling rapidly, especially in the areas where they had risen the most (Florida, southern California, Arizona, etc.), and until they bottom out the liquidity crunch will continue. Eventually that will happen, though, and when it does things will return more or less to normal. Hopefully the participants in this market will have learned something from the experience, but I am not sanguine about long-term wisdom; Wall Street has a short memory, and the next generation of traders will probably repeat at least some of these mistakes.
So there is blame to go around: foolish laws and regulations; inadequate understanding of the effects of weakened credit standards; a few, but very few, truly predatory lenders taking advantage of unsophisticated borrowers; and greedy borrowers who were speculating in real estate values or who simply wanted to extract all of the equity in their homes for current consumption. In my opinion this last group is getting far too little of the blame. It was a market failure of monumental proportions, but as long as the politicians will stay out of the way the market will correct itself; it always does. Unfortunately, it now appears that politicians, who always want to be seen as “doing something”, whether it makes sense or not, will muck around in matters which they don’t understand and make things worse.
The Law of Unintended Consequences will come back to bite us. It always does.
I received and read a copy of this article from DC Downsizers early this month but have only today been given a go ahead for republication. I think you will find it an interesting and refreshing account of just who is responsible for the whole subprime mortgage problem.
You can watch hours and hours of news, or read columns of print in most newspapers, and come away no wiser about the causes and prospects for the current financial turmoil.
Most journalists and TV talking heads do not really understand the subject, and those that do speak and write using so much jargon that the average person must feel he or she is trying to follow a conversation in ancient Hebrew.
We are going to try to cut through the jargon, and explain the situation as best we can, in plain English. If you find our explanation of value, please forward it to others.
The current housing crisis, and all that flows from it, comes from two main sources, both deriving from Washington. → Continue reading: What you are not being told about the current financial crisis
XCOR’s press conference will start in LA in a couple hours and I have just found that the embargo on the Lynx Spaceplane press release has been lifted. For those few lucky ones who happened to catch my earlier article and then wondered why it vanished, it was due to a communications SNAFU. The person who sent me the info forgot to state it was embargoed so I blogged it. An hour later I received a frantic phone call whilst I was watching a DVD and pulled it as soon as he explained the mistake.
In any case, there is now a lot more information about the Lynx showing up. Rand Simberg, one of my business partners, will be there and no doubt live blogging it.
Disclosures: I might add that I spent several months doing software support for the aerodynamics guy. 🙂
The Lynx will fly within two years with Astronaut Searfoss at the controls.
Image: With thanks to XCOR.
XCOR will be holding a press conference this Wednesday about the spaceship they are building. It will be their third manned rocket powered vehicle so this is no idle threat.
This press event will be held Wednesday, March 26, at 10 a.m. in the Canon Room of the Beverly Hilton at 9876 Wilshire Boulevard in Beverly Hills, CA 90210. Lunch will be served afterwards. The speaker will be XCOR test pilot Rick Searfoss. Rick has also flown the Space Shuttle three times as pilot and commander. If you are a media person who would like to attend, I presume you should call XCOR as soon as possible, although the information passed to me did not give any details on this.
According to a source associated with XCOR:
The prototype propulsion system for the Lynx now has more than two hundred flight equivalents on it and is in flight test now.
Fourteen engine runs yesterday, probably as many today.
The key to economic space transport is safe, reusable, and operable propulsion.No one else has anything like XCOR engines in that regard. Because engines are the most difficult and expensive part of the vehicle to develop, XCOR has a big advantage over its competitors. That includes giant firms like EADS Astrium.
In fact, no one anywhere has ever built anything even close to the economic efficiency of the XCOR engines.
I must of course note that I have worked as a consultant to XCOR, which basically means I know from the inside how good they are at this!
I would tell you more but I would have to shred you afterwards.
According to Jane’s:
Evidence emerges of Iran’s continued nuclear weapons research
Documents shown exclusively to Jane’s indicate that Iran is continuing its pursuit of the advanced technologies necessary to develop a nuclear weapon, regardless of Tehran’s claims that its nuclear programme is purely peaceful. Jane’s was shown the information by a source connected to a Western intelligence service, and the documents were verified by a number of reliable independent sources in Vienna.
Who’d a thunk it?
I heard the very sad news earlier this evening. Arthur is a member of the Trinity: Asimov, Clarke and Heinlein, the greatest of the great Science Fiction writers. The first SF novel I ever read was “Red Sands Of Mars” when I was nine and by age fourteen I had read my way through every SF book in the Coraopolis Public Library and the Carnegie Library of Pittsburgh.
Arthur may have passed, but he is an immortal, a name which will be honored on far stars long after even after those of the greatest world leaders of our era are lost and forgotten.
Science is a matter of data, experiment and falsification. Nature has no interest whatever in your particular ‘ism’, whether it be liberal, conservative, left, social, commune, cannibal, left, or libertarian. The universe just is and it does not give a damn what you believe about it.
I happen to feel the science is on the side of human caused climate change, but that is not what I want to discuss. In fact, I am going to strongly discourage that particular debate to the point of removing comments arguing either “t’is!” or “No, t’isn’t!”
The discussion I would like to see is about the answers we as libertarians have if climate change is indeed real. Now if you believe as I do that it will happen, then obviously you have already been thinking about this issue. If I am wrong and nothing happens, then so much the better. If you believe there is no change, as I am sure many of you do, and you are wrong… the end result could be a complete loss of credibility and a delegitimization of everything we hold dear. The populace will not suffer gladly those who are wrong, especially if they have lost their homes and livelihoods.
Greenists, leftists, socialists and so forth have policies to ‘deal’ with the problem. In many cases these policies are simply their same old statist wish lists intellectually applied to the problem at hand. If change does occur, and most particularly if it occurs and appears or can be claimed to have been ameliorated by those policies they will use it against us.
This need not be the case. I am quite sure there are answers (and better ones) to all, or at least as much of the problem from our framework as from any other. Here is a range of scenarios for our discussion:
We get 1-2 degrees of overall warming.
We get between 1 and 10 meters of rise in mean sea level.
As wildcards, with low probability but not low enough probability:
Fresh water influx from the Greenland icecap modifies the salinity of the North Atlantic deep current and this pushes the Gulf stream southwards, adjusting Europe’s climate to match that of the same latitudes in Canada.
A major iceshelf in Antarctica ‘ungrounds’ and causes really major sea level rises of 30 meters or more over a period of a several decades.
The scenario would unfold over time as follows:
CO2 output hits its maximum value in the late 2020’s or early 2030’s and then begins to fall, despite continuing population increases, due to technological changes in primary energy and fuel production. I do not know whom the market winners will be, only that some technologies will supplant our current way of doing things.
Population peaks around 2060 and then tails off by several billion by the end of the century. This is based on a UN demographic projection whose trends have been roughly correct for as much of my life as I have been interested in such things.
The total CO2 and other factors causing more energy to be absorbed by the Earth climate system lag the CO2 input maximum by some time and begin to trail off around 2050.
No solar Maunder type minimum’s occur, ie, insolation of our planet remains pretty much constant over this century.
Most of the climate changes are neither dramatic nor sudden, although a change in the Gulf Stream might only take a few years if it did happen.
Some examples of the questions to ask are:
How would we handle the disastrous consequences for low lying nations? Would we have a class action suit of the form: ‘Individuals Residing in Bangladesh, Florida, The Netherlands, Pacific Islands et al v. Fossil Fuel Using Individuals’, for recompense for loss of real estate?
To what extent does amortization of property purchases write down the losses?
There would be winners and losers. For example, the US breadbasket would move northwards into Canada; some areas would become arid that were not; some areas would become tropical paradises that were not. As I have said before, complex non-linear systems can do just about anything when you pump energy into them. We will have to presume the results will be surprising and unpredictable. Some places might become hell hole swamps and others find themselves under glaciers. Mathematical chaos moves in strange ways. How should people deal with these unknowns?
Given this set of possible worlds, what do you feel are libertarian solutions which would turn more people towards our ideas than against them? If we do not have and sell our alternatives we are going to see policy decisions by others that we are not going to like one little bit, climate change or no climate change.
As the Boy Scouts say: Be Prepared!
Remember, this is not a debate about climate change. Such comments will be deleted to keep things focused. I want discussion to center on how free individuals would deal with the worst, should it happen.
Earlier today business partner Jim Bennett passed this SR-71 story along to me.
Mach 3.5 at 80,000 MSL… It just makes me go all quivery inside.
Not a single SR-71 was scrapped: every last one has been given an honoured and well-cared for retirement.
Photo: copyright Dale Amon, All Rights Reserved
University of Tennessee law Professor Glenn Reynolds has an excellent paper on jury nullification, a subject near and dear to the hearts of libertarians.
Jury nullification is a common law concept with ancient roots in Anglosphere law. During the run up to the American Civil War it was used repeatedly, and much to the State’s chagrin, to make the Fugitive Slave Act unenforceable. Juries would not convict persons arrested for assisting in the escape of slaves.
Law in the US has again taken a turn towards State convenience and interests over those of the individual and liberty so it is high time we dust off this legal concept and start telling judges and the legislature to ‘shove it’.
As many of our readers already know, Carla Howell succeeded in collecting a sufficient number of signatures for her ballot initiative to end the Massachusetts income tax. There may be further legal challenges but it will almost certainly be on the ballot this year. With polls showing a dead heat between yes and no voters the inappropriately named “Massachusetts Taxpayers Foundation” is already preparing its defense of high taxes.
Although the core battle is months away, politicians are already hitting back. Can you guess which party this statement came from?
“I personally understand why someone would vote for it out of
frustration that Beacon Hill has not been doing its job for quite a
few years now,” says Torkildsen, a former congressman. “A lot of
people on Beacon Hill start the argument with how much money would
they like to spend,” he says. “A better starting point is, ‘What’s an
appropriate level for people to pay?’ and then ‘What’s the most
economical way for the public officials to use that money?'”
It was from Peter Torkildsen, the Republican state party chairman of Massachusetts.
And you wondered why libertarians do not flock to the Republican Party?
The correct answers to Torkildsen’s quiz are: “Zero” and “Leave it with the honest folk who earned it”.
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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