Nitpicking Brad Delong on Fannie/Freddie

He writes (in response to Greg Mankiw):

The problem is that in the past year and a half the Federal government has stood behind the debts of not just Fannie and Freddie, but AIG, Bear Stearns, Merrill Lynch, Bank of America, Morgan Stanley, and Goldman Sachs--none of which bear any resemblance whatsoever to a "public plan." The government has stood behind Fannie and Freddie not because they were, before 1968, public enterprises but because they were--like AIG, Bear Stearns, Merrill Lynch, Bank of America, Morgan Stanley, and Goldman Sachs--too big to fail. The Treasury staff would have loved to have let Fannie and Freddie default on their bonds had they not feared the systemic consequences.

The fact that Mankiw can't find an example of his argument (2) makes me think that it is very weak, and that the real reason people oppose the public plan is (1).

I agree that the Mankiw's Fannie/Freddie example is emblematic of a weak argument against a public health insurance plan. But, I actually seriously doubt that Fannie/Freddie would have been allowed to fail their creditors under any circumstances.

Foreign central banks bought FF debt and MBS at least in part because FF securities were called agency securities. Subordinated debt on FF debt was not AAA, and so it is highly unlikely that foreign central banks would have invested in FF debt/MBS were it not for the ambiguous government guarantee, an ambiguity that arose at least in part because Fannie's debt was public before 1968 (Freddie was born in 1970). LBJ wanted Fannie debt off the government balance sheet so that the apparent Vietnam War deficit would be lower. Had FF been allowed to default on debt held by foreign central banks, Treasuries themselves might have been much less appealing. And if the government is going to make the Bank of China whole, it is also going to make grandma whole. It is striking that FF debt continued to trade at favorable prices even when they couldn't produce timely financial statements.

I have in this space argued that FF were not the primary causes of the crisis--they turned out to be slow followers of the "purely private" market in funding unsustainable mortgages. But let's not kid ourselves: the enterprises long have had an implicit subsidy, and they took advantage of it when they could.

Confirm Robert Groves as Census Director

From his first page of scholar.google.com:

B

OOK] Survey errors and survey costs
RM Groves - 2004 - books.google.com
WILEY SERIES IN SURVEY METHODOLOGY Established in Part by WALTER A. SHEWHART AND
SAMUEL S. WILKS Editors: Robert M. Groves, Graham Kalton, JNK Rao, Norbert
Schwarz, Christopher Skinner The Wiley Series in Survey Methodology covers ...
Cited by 1104 - Related articles - Web Search - Library Search - All 2 versions

[BOOK] Nonresponse in household interview surveys
RM Groves, M Couper - 1998 - Wiley-Interscience
Cited by 584 - Related articles - Web Search - Library Search

[BOOK] Surveys by telephone: A national comparison with personal interviews
RM Groves, RL Kahn - 1979 - Academic Pr
Cited by 334 - Related articles - Web Search - Library Search

Understanding the decision to participate in a survey - ►uiuc.edu [PDF]
RM Groves, RB Cialdini, MP Couper - Public Opinion Quarterly, 1992 - AAPOR
Abstract The lack of full participation in sample surveys threat- ens the
inferential value of the survey method. We review a set of conceptual
developments and experimental findings that appear to be informative about ...
Cited by 300 - Related articles - Web Search - BL Direct - All 5 versions

Consequences of Reducing Nonresponse in a National Telephone Survey* - ►pollcats.net [PDF]
S Keeter, C Miller, A Kohut, RM Groves, S Presser - Public Opinion Quarterly, 2000 - AAPOR
Abstract Critics of public opinion polls often claim that method- ological
shortcuts taken to collect timely data produce biased results. This study
compares two random digit dial national telephone surveys that used ...
Cited by 318 - Related articles - Web Search - BL Direct - All 10 versions

[BOOK] Survey nonresponse
RM Groves, DA Dillman, JL Eltinge, RJA Little - 2001 - Wiley-Interscience
Cited by 149 - Related articles - Web Search - Library Search

[BOOK] Telephone survey methodology
RM Groves - 1988 - books.google.com
WILEY SERIES IN SURVEY METHODOLOGY Established in Part by WALTER A. SHEWHART AND
SAMUEL S. WILKS Editors: Robert M. Groves, Graham Kalton, JNK Rao, Norbert
Schwarz, Christopher Skinner Wiley Seríes in Survey Methodology covers ...
Cited by 178 - Related articles - Web Search - Library Search - All 2 versions

Advances in strategies for minimizing and adjusting for survey nonresponse
RC Kessler, RJA Little, RM Groves - Epidemiologic Reviews, 1995 - Soc Epidemiolc Res
INTRODUCTION The decrease in survey response rates since the 1950s (1, 2) has
sensitized survey researchers to the importance of studying the effects of
nonresponse bias, of developing procedures to minimize the mag- nitude of ...
Cited by 207 - Related articles - Web Search - BL Direct - All 4 versions

Leverage-Saliency Theory of Survey Participation: Description and an Illustration* - ►ohio-state.edu [PDF]
RM Groves, E Singer, A Corning - Public Opinion Quarterly, 2000 - AAPOR
The literature on survey participation contains scores of alternative hypotheses
about influences on cooperation with survey requests. Unfortunately, there is an
embarrassing lack of replication of experimental findings (incentives some- ...
Cited by 132 - Related articles - Web Search - BL Direct - All 7 versions

[PDF] ►Frequency-independent equivalent-circuit model for on-chip spiral inductors
Y Cao, RA Groves, X Huang, ND Zamdmer, JO … - IEEE Journal of solid-state circuits, 2003 - vergina.eng.auth.gr
( ) characteristics beyond the self-resonant frequency. Using
frequency-independent RLC elements, this new model is fully compatible with both
ac and transient analysis. Verification with measurement data from a SiGe ...
Cited by 131 - Related articles - View as HTML - Web Search - BL Direct - All 15 versions

It would be hard to find someone more qualified--because he/she doesn't exist.

See The Visitor

A movie about an economics professor, music and immigration policy. It is a powerful and poignant indictment of how America's government treats those whose only "crime" is a desire to live here.

It is bad enough that where we happen to be born has so much to do with how life turns out for us. It is worse when something as artificial as national frontiers prevent those born into bad circumstances from improving their lots in life.

University of Newcastle releases its mid year offers

The University of Newcastle has released a record 1106 offers for mid-year enrolment.

Deputy Vice-Chancellor (Services), Dr Sue Gould, said the University of Newcastle was releasing the second largest number of offers in NSW.

According to Dr Gold, data from the Australian Graduate Survey shows that 82 per cent of the University's bachelor degree graduates under 25 find jobs within four months of finishing their degree. This is above the national average.

"Students are increasingly turning to the University of Newcastle's mid-year enrolments to start their studies. Mid-year entry means they do not have to wait until next year to commence studying and kick start their career."

The most popular degree programs are the Bachelor of Nursing and Bachelor of Teaching/Bachelor of Arts.

University wide:

• Total number of offers: 1106
• Total number of commonwealth supported offers: 1043
• Total number of domestic full fee paying offers: 63

By individual campus:

Callaghan campus

• Number of offers: 836
• Number of commonwealth supported offers: 784
• Number of domestic full fee paying offers: 52

Ourimbah campus

• Number of offers: 236
• Number of commonwealth supported offers: 227
• Number of domestic full fee paying offers: 9

Port Macquarie campus

• Number of offers: 34
• Number of commonwealth supported offers: 32
• Number of domestic full fee paying offers: 2

I am surprised the rate is so low

Luigi Guiso, Paola Sapienza and Luigi Zingales find in a working paper that once the value of a family's house falls to below 50 percent of its mortgage balance, the default rate rises to 17 percent, even among those who can afford to make payments. This to me shows how un-ruthless people are about default--about how responsible they feel to make their payments.

(ht to Leigh Ann Coates for pointing out the paper to me).

Models and Agents teach(es) us about Bank Capital

She writes:

So the first blunder comes early on when Greenspan talks about what he sees as a virtuous circle of rising stock markets, leading to improved credit conditions, higher lending and the resumption of economic activity… which in turn supports higher stock prices and so on.

While the idea that improved confidence can generate a virtuous circle has merits, what is questionable is Greenspan’s road to get there: The “newly created equity” in banks’ balance sheets as the prices of banks’ stocks go up.

Well that’s plain wrong. Regulatory capital, which is what matters for a bank’s ability to increase its lending, is not marked to market but at the price paid up originally to purchase equity in a bank. (Regulatory capital also includes other stuff, like retained earnings, which again are not marked to market but at the price when they were booked).

In other words, the increase in stock prices does NOT provide a “capital buffer that supports the debt issued by financial and non-financial companies” and does NOT “supply banks with the new capital that would allow them to step up lending.”

If there is one way higher stock prices help is if banks actually see it as an opportunity to raise new capital and expand their operations. Indeed, some banks have done so recently, but the main motivation was their urge to pay back the TARP money and rid themselves of the government’s watch. So new private capital replaced old government capital, without a meaningful improvement in banks’ ability to lend.

The problem with equity is that it is not as liquid as tier-one capital: if a bank tries to sell a bunch of its equity to raise cash, the value of the equity will fall.

Why some classes are harder (and better) than others

One excerpt from the profile on Hoffman:

Hoffmann once asked Richardson, who has studied the 1956 Suez crisis in depth, to suggest some relevant readings because he was preparing a lecture that dealt with it. “I recommended five books,” she recalls. “And he read all five!—even though the Suez crisis was only a small piece of the lecture. Stanley takes scholarship and teaching very seriously. He reads an extraordinary amount.”

In true European style, he is also happy to ask his students to do the same, and compiled impressively long reading lists for full-year courses like “War,” which had three lectures per week, plus a section. War and Peace could be the assigned text for just one of those lectures. When asked if that was unreasonable, and if an excerpt from Tolstoy’s magnum opus might not suffice, Hoffmann asked, “Which part of War and Peace summarizes the themes?”

A Nice Profile of Stanley Hoffman

Go here:

http://www.harvardmagazine.com/2015/07/le-professeur.html

Hoffman was among my two very favorite professors in college (my Shakespeare professor, G.B. Evans, was the other) and this article does a nice job of capturing him.

Everyone in my vocation should aspire to be as good as Hoffman, and nearly everyone will fail to do so.

Foreclosures up, but not that high -- GazetteXtra (HT to Kris Hammergren)

Morris Davis explains how RealtyTrac gets foreclosure numbers wrong. As households are trying to figure out what to do about their housing, getting numbers that are accurate is especially important.

Foreclosures up, but not that high -- GazetteXtra

Shared via AddThis

Identification Problem

Traffic has been moving remarkably smoothly on the 110 Freeway for the past week or so. Is it summer? Unemployment? Gas north of $3 per gallon? It seemed before that $4 was something of a magic threshold.

Perhaps some hope on California's Housing Market

According to the California Association of Realtors, existing home sales in May were up 18 percent from a year earlier. At the same time, my colleague Delores Conway is showing that the gap between house payments and rents is returning to its historical norm for Los Angeles.

But perhaps more interesting are anecdotes I heard at the Pacific Coast Builders Conference in San Francisco last week--buyers are going on REO "bus tours" and purchasing multiple homes--with their own money. It is not all all clear how widespread this phenomenon is, but if we see large numbers of vultures in a market using equity to sweep up REO properties and short sales, we have seen the bottom of the market.

Justice

On Wed, I am having the screening procedure that Katie Couric so vividly demonstrated some years ago. Basically the story is that if you have this procedure at age 50, any colon cancer that might be detected will be at a sufficiently early stage for it to be quite curable. So because I have good health insurance, I can be sure I will not die of colon cancer.

Those without insurance are not so fortunate. Such patients can only get the screening if they pay out of pocket ($2000-$3000) or, if they are patients at places like the LA County hospital, if they are symptomatic, which means the cancer might not be caught early. For the median family, $2000 is a lot of money; for those who occupy the netherworld of having too much money to get medicaid but not enough to afford health insurance, it is even more so.

I hope the new health care system rectifies this. Under the old system, this difference in service delivery was unjust.

[Updates: First, I misspelled "colon," which shows that I should never write things while being reflective at midnight. Second, it is worth saying something about cost benefit analysis and screening--according to this source, the cost per life year is about $45,000, which seems like a good deal to me].

One more take on Kartik Athreya's critique of economics bloggers

Athreya is arguing that the blogosphere's various critiques of modern macro are being made by insufficiently expert bloggers using insufficiently rigorous arguments. As is often the case, the best rejoinder comes from Mark Thomaand I suppose I don't have much to add myself. (I would link to the essay, but it seems to be broken right now)

But George Akerlof did [have a lot to add], way back in 2006, during his American Economic Association Presidential Address. which was entitled "The Missing Motivation in Macroeconomics." I remember finding the piece enthralling (I know, we economists aren't supposed to use such emotion laden words), because it made the very simple but devastating case that when the foundations of modern macro (the independence of consumption and current income (given wealth); the independence of investment and finance decisions (the Modigliani-Miller theorem); inflation stability only at the natural rate of unemployment; the ineffectiveness of macro stabilization policy with rational expectations; and Ricardian equivalence) are tested against data, they generally fail the test. I remember at the time that some economists thought that Akerlof had taken leave of his senses (and some friends of mine thought I had taken leave of mine because I so admired the address).

But in the end, we should be respecting evidence more than clever theoretical edifices. And yes, Kartik, while I am not an expert in macro, I did have to slog through lots of OLG models and rational expectation models and real business cycle stuff in graduate school, and pass prelim questions on them, so I have at least some idea of what it is that I find intellectually unsatisfying. Akerlof's view, expressed before we had the financial meltdown, that we really need to start over with modern macro, has, I think, largely been vindicated.

Austin Kelly adds to my brief explanation of the origin of Freddie

He writes:

The Federal Home Loan Bank System, chartered in 1932, was created to provide a national source of funds for local thrifts. Any thrift could borrow from their FHLB (cooperatively owned by the thrifts) and the FHLBs borrowed collectively in a national market.

Freddie was created as part of the Home Loan Bank System (owned by the Home Loan Banks, which were, in turn, owned by the thrifts) to get into the securitization game. A small thrift couldn't really expand its volume if it had to hold all its loans on balance sheet. But if it could sell them off like the mortgage banks could ...

Reading we alluded to in Business Institute today

On college and future success:

http://www.irs.princeton.edu/pubs/pdfs/409.pdf

I have rarely heard such a famous economist be so modest...

From today's Washington Post:

When Edward P. Lazear, chairman of the White House Council of Economic Advisers, broached the idea of limiting the popular mortgage tax deduction, he said he quickly dropped it after Cheney told him it would never fly with Congress. "He's a big timesaver for us in that he takes off the table a lot of things he knows aren't going to go anywhere," Lazear said.

Lazear, who is otherwise known as a fierce advocate for his views, said that he may argue a point with Cheney "for 10 minutes or so" but that in the end he is always convinced. "I can't think of a time when I have thought I was right and the vice president was wrong."

hmmmm...

Significant Features of the Property Tax is Live On-line

This is a new, valuable tool for those interested in property taxes.

http://www.lincolninst.edu/subcenters/significant-features-property-tax/

It is a joint project between the Lincoln Institute for Land Policy and George Washington Institute for Public Policy. My former GW colleague Nancy Augustine spearheaded it.

Rhonda Porter asks why we have both Fannie and Freddie

Back in 1987, when I started working on housing finance issues, I wondered this very thing. So I spoke with the person in charge of secondary market business for a Wisconsin Savings and Loan called First Financial (I wish I could remember his name now).

He had a crisp explanation: Fannie Mae was a Savings and Loan for Mortgage Bankers, while Freddie Mac was a mortgage banker for Savings and Loans. This was in fact the reason for their original existence. Fannie has been around since 1938, and it became private in 1968, and its purpose was to raise money from capital markets to fund mortgages originated by mortgage bankers. Between 1938-68, its business was entirely FHA and VA loans; thereafter it could fund private sector loans.

Freddie was chartered in 1970 at least in part in response to regional differences in the availability of mortgage credit. At that time, around 60 percent of mortgages were held by Savings and Loan Associations. These S&Ls were local businesses, who could not lend outside of their communities (I will need to double check, but my recollection is that they could not lend more then 150 miles away from their front door).

As young people migrated from the Northeast and Midwest to the sunbelt, leaving their parents and grandparents behind, there was a geographic mismatch between the location of deposits and the demand for mortgage credit. Freddie was invented to buy loans from S&Ls, turn them into securities, and sell them in the secondary market. This allowed money to flow where it was needed.

The distinction between the two institutions disappeared in 1992, with the passage of the Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA). I am guessing that the reason we kept two around was to have some competition in the MBS issuance market.

The Blessings of Product Variety

A SoCal phenomenon I don't understand is In n' Out Burger. People around here rave about their burgers; to me they are not worth the calories and fat.

Don't get me wrong--I like lots of food that is bad for me. Tommyburger sends me to the moon. But while others find consumption of In N' Out puts them on indifference curves that are tangent to their budget constraints, it leaves me on an indifference curve that cuts the budget constraint.

Why 15 percent is a magic number for office vacancies

From Businessweek last April:

Stan Ross, chairman of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. He estimates that 15% of all office space across the U.S. is currently vacant. "We can live with 10% to 12%, but we start really feeling it at 15% to 18%," he says. "And we could get [to 18%]."

One metric for commercial mortgage underwriting is the "break-even" ratio, which is (Debt Service + Operating Expenses)/(Potential Gross Income). The most aggressive commercial loans have break-even ratios in the neighborhood of 85 percent. Thus when vacancies rise past 15 percent, some office buildings will have insufficient cash flow to cover their expenses and debt service. And in an environment where rents are falling, a 15 percent vacancy rate is worse than it looks.

Office vacancies in Manhattan are now around 13 percent--and Manhattan has about 25 percent of all Central Business District office space in the country--at least according to Cushman and Wakefield. Hang on to your hats.

Gwydir River - Rocky River

Photo: Rocky River School. This school, the first National School in northen New South Wales, was held in a slab hut intil 1870, when a brick classroom and attached residence (still standing) was built by Alexander Mitchell (builder of McCrossin's Mill, Uralla).

Following the introduction of compulsory education a new wooden schoolroom was built in 1885, and this, with two additions, forms the present school building. A second teacher was appointed in 1903, with enrolments peaking at 155 in 1916. Since then Rocky River has been a two-teacher school, apart from a brief period in the 1960s when a third teacher was appointed.

Downstream, Kentucky Creek becomes Rocky River. The little township is about 4 km from Uralla (2o km from Armidale) on the Bundarra Road.

Today little remains, but this was gold rush territory.

Gold was discovered at Rocky River in 1851. In September 1856 the population reached 4,500. In that year, 1856, Rocky River produced 40,000 ounces of gold, worth around $32 million at today's gold prices. This provided sometimes rich pickings for miners, storekeepers and the bushranger Captain Thunderbolt.

In my first post in the Gwydir series I mentioned that Thunderbolt had been killed at Kentucky Creek. Northeast from this spot on the New England Highway can be found Thunderbolt's Rock where Thunderbolt is reported to have watched for the gold coaches

Production declined thereafter, so that by 1866 the population had declined to 700, the majority Chinese. At this field, as with many others in New England, the Chinese were a major presence. The photo shows the interior of the Chinese Joss House, now vanished, at Rocky River in 1908.

For those who would like to visit Rocky River, please visit nearby Uralla first for an introduction to the history of the area.

Introductory post. Last post. Next post.

Superior Classical Music Blogging

So I am listening to Perahia's Goldbergs, and I run across this: http://jessicamusic.blogspot.com/. Jessica is clearly witty and informed. I'll enjoy reading through the archives.

Was the "Northwest" in North by Northwest the first example of product placement?

One commenter thinks it is perhaps so. You see the red tail when Carey Grant and Leo G. Carroll are headed for a plane from Midway to Rapid City. I don't know whether the coincidence of the airline name (actually Northwest Orient at the time) and the movie title was intentional or not.

I did forget to list NW among airlines. It is funny, because I think after United I have flown on it more than any other. There must have been a traumatic experience that made me want to forget....

North Coast Architecture - a note

In Diary of a travelling trainer - day two: Grafton, Sydney talking about my drive around South Grafton I noted there was a very distinct feel to North Coast architecture. Since then, I have kept an eye out for any material that might tell me something about the history and style of the buildings, but so far without luck. For that reason, I thought that I might put down a few rough notes for my own benefit.

Looking just at Grafton, you find the older buildings in both Grafton and South Grafton towards the river, essentially the old port areas. Because this was a timber area, wood construction was important. So we have two story pubs of wood construction with verandahs; there is a distinct style feel here including decorative use of wood that can also be found in the Macleay Valley to the south.

To analyse this, I really need to get photos to allow me to compare and contrast features.

The older houses in Grafton are not necessarily large but often very attractive. There seems little of the town house style architecture found in Armidale, although in both places iron lace work was commonly used as a decoration.

Outside the towns, the remains of the now diminished dairy industry with its milk sheds can still be found. As a child driving down from the Tablelands I always noticed the shift to the dairy style. Smaller houses, low, wood, with the milking areas nearby.

In part because of the connection between architecture, climate and economic activity, there appear to be shifting styles across New England. I always took this for granted. However, with change styles seem to be blurring, hence the need to document now.

Hard to believe

I was on the radio the other day, discussing the future of Fannie and Freddie, when another guest said that all we had to do was fully privatize the mortgage market for all to be well. I know that I can't expect everyone to be aware of the 1920s, but the period 2002-2006 was a period in which the "pure" private sector took away substantial market share from Freddie-Fannie, and look how well that turned out.

Of course in the end there is no such thing as a pure private market, because when large financial institutions get in trouble, the government comes to the rescue, either through an injection of funds or through extremely low interest rates. We are all GSEs.

Jack Guttentag found that mortgage rates in the 1940s were in the low fours.

Here is the link. [update: of course these were typically 20 year loans, so the comparison is not perfect].

Lisa Schweitzer on time-service quality trade-offs for transit and autos

She writes:

.

..People tend to like to separate travel time and service quality based on the arguments, like Litman uses, that the time in transit or walking is more pleasurable and productive than being in a car. But they are only right for people whose preferences align with theirs. For other segments of the mobility market, they are wrong. Moreover, it’s wrong to assume that these are the only things being traded: yeah, you hate to drive and you’d be happier not driving, but the extra half an hour that transit takes you means a half an hour you’re not with your kids, cooking, drinking wine with your spouse at home, watching the game, or any number of things you can’t do on transit, either. So yeah, I’d prefer to get the exercise walking than driving, but I prefer to spend the time cooking so that my kids aren’t sitting around hungry after school more than I prefer the exercise.

As she wrote this yesterday, I couldn't help thinking about it yesterday during my transit trip home. I take transit in LA every now and then, in part because that it the sort of guilty liberal I am. But yesterday, when all the stars were aligned (I arrived at bus from USC to Union Station at exactly the time in left; I only had to wait a minute or two for the Gold Line connection from Union Station to Pasadena), it took me just less than one hour to get from my office door to my front door. When I drive to work in the morning (at a strategic time), it takes me 20 minutes. When I return home in the afternoon (using surface streets until Hill or Figueroa meets the Pasadena Freeway), it rarely takes more than 35, and never more than 45. So my worst days in the car free up about an hour relative to transit. In case you are wondering, it is 11 miles from home to campus.

But don't I find driving unpleasant? Not really, I can plug my i-pod into my car stereo, or listen to NPR or the BBC, or a CD...In the morning, when traffic is clear, I get pleasure from driving my car at freeway speeds. I do miss the walk that I get when I use transit.

To some extent, the problem is that the street system in Los Angeles, with lots of redundancy, works too well. In Washington DC, Metro was a viable alternative to driving--it would often get me to work faster than taking my car. The street lay-out in Washington, set as it was in the late 18th century, was not designed to keep auto traffic moving. Metro is also very good--when people in DC complain how how awful it is, I want to laugh.

At the same time, I don't think a transportation system whose principal mode is people driving alone is sustainable. We need to think about some system in between driving alone and fixed route transit. It seems eminently doable to me, but it will take some imagination to make it work.

More on airlines

I didn't mean to pick on United in my last post, it just happened to be the airline that the woman worked for. I hear people complain a lot about United, but as I have said before, I don't think they are too bad. They give frequent fliers extra room (an excellent loyalty program benefit), and you can hear the pilots communicate with ATC. I find this calming. The ground staff and flight attendants are generally very nice.

So here is my list, best to worst, of domestic airlines I have flown:

Jetblue
Midwest Express
The Old TWA (RIP)
United
Delta
Continental
Southwest
American
US Airways

The bottom two tie for worst--I try to avoid them.

Among international carriers, my list is

Singapore (in my egalitarian dream, everyone gets to fly it at least once)
Lufthansa
Cathay Pacific
KAL
ANA
Emirates
KLM
Air France
Thai
Air Canada
Alitalia
Air India
The Ukrainian National Airline--soviet era plane smelled of oil

Framing

When I was in Philadelphia last week, I met a woman who had worked in the HR department at United Airlines. As one might expect, the employees at United are not a happy group, but they also don't want to leave. I asked the woman why, pointing out that people such as flight attendants are quite intelligent, and could presumably make more money doing something they might like better.

She said the issue is that the flight attendants love the travel benefit (talk about your busman's holiday!). I asked the HR woman whether the travel benefit compensated for the pay lost not working in other areas. She said no--that many workers could make tens of thousands more, which would, of course, suffice to pay for a large number of plane tickets. But beyond this, people could use the money to buy things other than plane tickets, were they to chose.

This seems like a classic example of framing. Flight attendants see their travel benefit as an entitlement, and they would have to be paid something more than the value of the entitlement to let it go. Economics needs to get better at figuring this stuff out.

Mark Thoma thinks Ben Bernanke should be reappointed

He writes:

I'd reappoint him. If forced to choose between Yellen and Summers, I'd choose Yellen.

I agree. I think Bernanke has done a remarkable job, and I think his temperament is much better suited to the job than Summers' (not that it matters, I suppose, but I also prefer Bernanke's academic work to Summers'). I also worry about the appearance of having a Fed Chair who has taken such large speaking fees from companies that he would be regulating.

Gwydir River - Kentucky Creek

Photo: Kentucky Creek at the point where the bushranger Captain Thunderbolt (Fred Ward) is reported to have been shot and killed by Constable Walker. And here.

As I write I am eating a piece of toast with some rather nice Gwydir River honey, gazing at a map of the Gwydir catchment area.

As I said in my introductory post on the Gwydir, it is one of New England's major west flowing rivers.

The Gwydir River catchment, covering 25,900 sq kms (10,000 square miles), is one of the major northern tributaries of the Barwon-Darling River. The river flows north-west from Uralla and Guyra in the east to Collarenebri in the west. Major tributaries drain from the New England Plateau in the east, the Mastermans Range in the north and the Nandewars in the south.

Most major tributaries join the main river above Moree. Downstream of Moree the river has the characteristics of an inland delta with important wetlands. In floods, water can flow to and from the adjoining river valleys. Another important feature is the Gwydir Raft, an immense accumulation of timber, debris and sediment which has been deposited in the former channel, forming a 30 km long blockage. It is assumed this formed during early European settlement due to tree clearance and subsequent erosion.

Rainfall decreases across the catchment from an annual average of over 1,100 mm (43.3 inches) in the east to 500 mm (19.7) in the west. Rainfall patterns are significantly affected by the mountain ranges surrounding the catchment. Summer rainfall dominates the rainfall pattern, and much of this rain can occur in heavy storms of short duration.

Kentucky Creek lies in the far south-east corner of the Gwydir catchment south of Uralla (and here). This is traditional central New England Tablelands' country, with the creek flowing north-west through open grazing country including Kentucky Station, one of New England's original squatting properties.

Most people drive past Kentucky Creek along the New England Highway without even noticing it other, perhaps, than a brief glance at the attractive valley as they top the hill on either side.

I think that it's always been the case that the major north-south highways linking Brisbane and Sydney create a north-south orientation. That's a pity, because the east-west transverse contains some of the most interesting history and country.

In the case of Kentucky Creek, this is Thunderbolt Country. Now the bushranger Fred Ward, aka Captain Thunderbolt, roamed widely across New England from the Hunter in the south into the Queensland portion of the New England Tablelands, so many places can and do claim a connection. But he was shot and killed in Kentucky Creek, just north you can find Thunderbolt's Rock where he used to watch for the gold coaches, while Uralla cemetery is his final resting place.

As children, this was an area that we knew well because Aunt Kay and Uncle Ron had a property at Kentucky, the mixed orchard and grazing area to the east of the highway.

Driving down to Glenroy from Armidale we often played on the rock - it seemed very big to us kids - then south past the Kentucky Station drive, down the hill before swinging left onto the Kentucky road. Here the country changed as we went over the divide to the east, entering small farming country, then through the little village and on to the property. Memories.

Introductory post. Next post.

Stuart Thiel knows why people are unhappy (about George Bush)

Stuart (my Econometrics TA in Graduate School) has been tracking this relationship for some time. Looks pretty robust to me.

Great Piano Moments I have heard

Martha Argerich playing the Chopin F-minor with the Minnesota (I was 16 and I think I fell in love)

Duke Ellington at Interlochen. His technique was not all it once was, but who cared...

Count Basie accompanying Ella Fitzgerald at Carnegie Hall.

Maurizio Pollini playing the Wanderer Fantasy at the Kennedy Center.

Two Rudolph Serkins: Beethoven Op. 81 and Schubert B-flat at Symphony Hall in Boston, Beethoven Op 53 at the Kennedy Center.

Ivan Morevic playing the Appasionata in Jordon Hall in Boston. He just exploded into the coda.

Bobby Short at the Cafe Carlyle, and at the Kennedy Center

Mitsuko Uchida playing Mozart (in particular the C-minor Fantasy and Sonata)at Strathmore, our magnificent new hall in Montgomery County, Maryland.

Alfred Brendal playing the List Sonata at the Kennedy Center

Strangely, I have never heard my favorite piece (The Goldberg Variations, with which I have something of an obsession) in concert. I can't wait to hear the Disney Hall.

If we have hit peak oil, what won't I mind giving up.

I don't mind driving a small car (especially now that we don't need a minivan to cart around the kids, their friends, and their props for their various shows). I never have minded walking and using public transport. I'm willing to eat less meat so we use feed grains more disparately and efficiently. I don't mind living in a small house close to transit. I would still own a car, but just for those days when I need to get around town more than the commute in and the commute home. I would keep my heat off almost all the time in Southern California, and use AC lightly.

For me, the only hard thing to give up would be travel. Walking the streets of London, Paris, Florence, Rome, Stockholm, Amsterdam, Kiev, Krakow, Hong Kong, Tokyo, Seoul, Cairo, Dubai, Mumbai, Hyderabad, Singapore, Quito, Lima Dhaka and even TJ has taught me as much about urban and real estate dynamics as any spreadsheet or map--and I love spreadsheets and maps. If environmental conditions require us to do less of this kind of thing, I will cooperate. But I won't be happy about it.

NME says the youtube Lhevine recording of La Campanella is authentic

The commentary is here.

I myself am befuddled--but this recording is quite wonderful--the phrasing during the first 40 seconds is magic, and the ability of the pianist--whoever it is--to articulate while playing quite rapidly is remarkable.

The USC Graduate Real Estate Association has a Blog!

http://trojangrea.blogspot.com/

FWIW

I have spoken recently with a couple of real estate brokers that I trust (i.e., those who tell me when the market is bad). In the western San Garbriel Valley, stuff in the 500K range is selling very quickly--often receiving multiple offers within a week of listing. They are not distressed sales, either.

I still worry about shadow inventory of REOs that have not yet been placed on the market. But it is hard to ignore the change in activity over the past four or five months.

One more point about fixed-rate mortgages

They seem to be safer. From the Mortgage Bankers Association of America:

On a seasonally adjusted basis, the delinquency rate stood at 6.17 percent for prime fixed loans, 13.52 percent for prime ARM loans, 25.69 percent for subprime fixed loans, 29.09 percent for subprime ARM loans, 13.15 percent for FHA loans, and 7.96 percent for VA loans. On a non-seasonally adjusted basis, the delinquency rate fell for all loan types.

The foreclosure starts rate increased for all loan types with the exception of subprime loans. The foreclosure starts rate increased six basis points for prime fixed loans to 0.69 percent, 17 basis points for prime ARM loans to 2.29 percent, 18 basis points for FHA loans to 1.46 percent, and eight basis points for VA loans to 0.89 percent. For subprime fixed loans, the rate decreased nine basis points to 2.64 percent and for subprime ARM loans the rate decreased 39 basis points to 4.32 percent.

Some of this may just be that people who take less risk select themselves into fixed-rate loans, but even so....

Bob Hagerty blogs about Patrick Lawyer on Fixed Rate Mortgages:

He writes, in part:

Allotted only about 10 minutes to share his vision, Mr. Lawler....first made the obligatory statement that he was expressing his own views and not those of his federal agency. Yeah, right, I thought, and reached for my triple espresso.

But then Mr. Lawler launched a frontal assault on the most sacred element in U.S. housing-policy dogma: the 30-year fixed-rate mortgage loan, providing the right to refinance at any time, with no prepayment penalty. If more members of the audience had been fully awake at this moment, I feel sure that their gasps would have been audible.

Now, Americans are very attached to their 30-year fixed-rate freely prepayable mortgages. They like not having to fuss about the possibility of 28% interest rates in 2032, even though most of us will move or die long before then. They love to refinance every time rates drop and then brag to their neighbors about how much they are saving per month.

What they don’t stop to realize often enough is that they are paying a very large price for that privilege– twice.

The context is important.  One of the reasons the 30 year fixed rate mortgage is ubiquitous is the United States may be the existence of Fannie and Freddie.  If we do away with FF, we may also do away with the 30-year fixed rate mortgage.  So let me defend the 30-year fixed a bit with something I wrote about 3 years ago:

The problem with advising people to use adjustable rate mortgages, however, is that ARMs give households liabilities that have short duration--that is, liabilities whose market value remains close to face value at all times. This is because the rates on ARMs by definition change to meet market rates on a regular basis. Houses, on the other hand, are assets with lots of duration. The services they give to homeowners (shelter and a set of amenities) is pretty much invariant to market conditions. Consequently, house values change with market conditions, such as changing interest rates.

Good financial management practice suggests that to minimize risk, the duration of of assets and liabilities for any institution, including households, should be matched. In the case of houses, this means that households looking to minimize risk should use a fixed rate mortgage to finance their house. There are exceptions--if one buys a house and expects to sell it in five years, a five year ARM makes lots of sense, because the duration of the asset (housing services over five years) and the liability would match.

This is not to say there is anything wrong per se with people getting ARMS, so long as they explicitly understand the risk embedded in them. But a principle I have been pushing for years is that if people can't afford a house with a fixed-rate mortgage, they probably shouldn't buy a house. It is one thing to have the option of the FRM, and then decide to take the risk of the ARM anyway. One of the nice things about the United States is that FRMs are easy to come by--this is not true in most countries around the world. It is something else to be forced into taking a risk in order to buy. Under these circumstances, buying probably isn't worth it. 

Everything involves real estate: music edition

I went to hear the Concertgebouw Orchestra in the Concertgebouw last Friday night.  There is no experience like it--the hall is remarkably intimate, and the sound washes over listeners without being blurry.  Bass notes in particular both rumble and have great pitch definition.  Not even Symphony Hall in Boston, Orchestra Hall in Minneapolis, or Disney Hall here in LA (all of which are terrific venues) compare.  One of the reasons the orchestra has a consistent and unique sound (beyond, of course, the magnificent players) is its building--real estate creates sound character.

Yet buildings need to be renovated from time to time, otherwise they just wear out.  Yet any change to the Concertgebouw--the upholstery, the wood on the stage, maybe even the paint--has the potential to change those special acoustics.  What does one do to preserve such a place?

p.s., a young woman name Susanna Malkki took over from an ill Jansons.  She was really, really good.  Perhaps I saw an early performance from a future superstar?

Detroit has not had the largest peak-to-trough decline in percentage terms among American large cities

Although it is getting close.  Detroit has lost about 58 percent of its 1950 population; St. Louis has lost about 59 percent.  And Detroit's population is much bigger than it was in 1900; St. Louis has lost about 30 percent of its population since 1900 (just prior to the 1904 World's Fair, when 20 million people visited St. Louis).

Detroit Shrinking

The New York Times has a good story about it this morning.  It reminds me of the Talking Heads song Nothing but Flowers:

Where, where is the town

Now, it's nothing but flowers

The highways and cars

Were sacrificed for agriculture

I thought that we'd start over

But I guess I was wrong

Once there were parking lots

Now it's a peaceful oasis

you got it, you got it

This was a Pizza Hut

Now it's all covered with daisies

you got it, you got it

I miss the honky tonks,

Dairy Queens, and 7-Elevens

you got it, you got it

And as things fell apart

Nobody paid much attention

you got it, you got it

I dream of cherry pies,

Candy bars, and chocolate chip cookies

you got it, you got it

We used to microwave

Now we just eat nuts and berries

you got it, you got it

This was a discount store,

Now it's turned into a cornfield

you got it, you got it

Don't leave me stranded here

I can't get used to this lifestyle

I have nothing to add...

...to Brad Delong and Paul Krugman's posts on the firing of Dan Froomkin from the Washington Post. Except to say that I once thought that Brad was too harsh with the Post. I was wrong.

Hugh Frewen's "Imogene - an odyssey"

Hugh Frewen's Imogene an odyssey (Australasian Publishing Company) was published in 1944. In her forward to the book, Dame Mary Gilmore wrote that it was a record of impressions and reflections in verse during journeys across four continents and over many countries. It is also part of the story of a man.

I have written about the book and the history of the Frewens in Saturday Morning Musings - Hugh Frewen: a New England story.

Gwydir River - Introduction

Map: Gwydir River catchment.

I am not sure that the above map is goming to come out in any readable form. But you should be able to see the full map in bigger form by clicking on it. I won't know, however, until I load the post - it did, I see.

My last introductory post on Bingara reminded me that I had said very little about New England's western rivers, those rivers flowing west from the New England Tablelands. While these rivers carry less water than the better known coastal rivers, they are still major streams in their own right and form a significant part of the Darling River system.

The Gwydir River is one such, rising in the Tablelands to the south of Uralla. Over coming posts I will tell a little of the Gwydir River story.

Posts

Gwydir River - Kentucky Creek

Gwydir River - Rocky River

Jumbo Conforming Spreads widen again

I looked at the Wells-Fargo web site this morning: the difference on APRS between jumbo and conforming 30-year fixed rate mortgages was 156 basis points.

I looked at the Citibank web site this morning: they were requiring five (five!) points to get a 30-year fixed rate mortgage; the difference in APRs was more than 200bp (and this assumes points are amortized over the full term of the loan--the real gap is actually larger).

I looked at the National City web site this morning: they are not quoting rates on jumbos.

Historically, the jumbo-conforming spread is less than 50 basis points. It is going to be very difficult for coastal markets to get unstuck so long as so much fear is gripping the market.

Why Rent-to-Price ratios vary

I was talking to my colleague Tony Yezer yesterday about measuring rent-to-price ratios for different zip codes for Washington. It got me thinking about why rent-to-price ratios vary so much from place to place.

First is expected growth in prices. Places that are losing population (Detroit, Cleveland) will not see prices go up, because they have excess supply of housing, and will for the foreseable future. They must therefore have igh rent-to-price ratio (or low Price-Earning ratios for housing). Places that are gaining population but have no brakes on development will also not see prices go up, because house prices will not rise above replacement cost. For example, when house prices in Dallas go up a little bit, developers rush in to supply the market until prices fall back to construction cost. The only exception are places like the Park Cities, which have excellent schools that are not easily reproducible. Because prices don't go up in Dallas, the rent-to-price ratio is high.

Conversely, San Francisco and Maui are not replacable, so while they are somewhat volatile, the underlying house price trends are upward. As Gyourko, Sinai and Mayer point out, as people in the upper reaches of the income distribution get richer, they outbid each other for these unusual places: they can be viewed as the Monets of real estate. But these places are unusual.

The other thing that can influence rent-to-price ratios is the tax code. Because mortgage interest is deductible, owning is relatively more valuable in places with high federal and state marginal tax rates (i.e., Cailfornia, New York, New Jersey, Maryland). The large place with the highest combined Federal and State Tax Rate is likely San Jose; that with the lowest is El Paso. Sure enough, rent-to-price ratios in San Jose are very low; in El Paso they are very high.

Mark Thoma explains why people are unhappy

For the past four or five years, I have gone to a meeting that the CFO of DC convenes to get views on the state of the area real estate market. At the most recent of these meetings, a hack "economist" declared that people were (I am paraphrasing here) pessimistic without reason about the economy.

Neil Irwin in The Washington Post had a similar complaint, and argued that people's pessimism arose from the fact that the indicators they see on a regular basis, such as gas prices, have been alarming to them.

But I think Mark Thoma has the real answer:

Part of the problem is the presumption in the question, which has been around for several years now and is basically "why are people so gloomy when the economy is doing so well?" If you ask instead, "why are people so gloomy when the economy has all these problems, reduced economic security, stagnant real wages, rising health care costs, falling home values, rising college costs, rising food costs, loss of employer based retirement programs, rising energy costs, worries about the future, etc., etc.," there's really no mystery.

I think both the "economist" at the meeting and the Washington Post reporter have limited capacity to think about what it must be like to be the median income household now. The median income household has now had (at best) many years of stagnant living conditions and worsening economic security.

Does The Greatest Trade Ever produce evidence of prospect theory?

There is a statement in Gregory Zuckerman's terrific book that really struck me: he notes that people hate negative carry, and far prefer positive carry (I don't had the book in front of me right now, so I need to paraphrase).  In Paulson's context, he was able to buy credit insurance very cheaply--this limited his downside risk in a way shorting would not, while allowing him to invest consistent his bearish views on the housing market. But it also meant he was paying out cash flow and not gettting anything in return until subprime mortgages and other instruments began failing.

To some extent, there is a discounting issue here: if investors take losses on the negative for several periods, the gains they receive in the future will be discounted.  But still, it is an interesting question whether investors discount negative carry trades too much--whether the typical Wall Street investor sold Paulson insurance that was, under reasonably discounting, an ex ante positive NPV bet for Paulson.  I am not sure how one would go about testing this, though....

Bingara launches new web site

Photo: Monument to the Myall Creek Massacre

My thanks to Nicole Payne from John Campbell Communication & Marketing for drawing my attention to the new Bingara web site developed by Bingara and District VISION 20/20, a community focus and action group.

It's a good site and reminded me that I have yet to do a story on Bingara. I will do so.

A Sharpe Rule for Compensation?

As we think about the extent to which compensation incentives caused the financial mess, we might start with a basic fact: annual internal rate of return is a bad metric for evaluating performance. The largest problem with it is that it rewards return without punishing risk.

When firms use leverage to invest, they increase the risk they are taking on. The value of a firm's assets divided by its equity gives a rough multiple of risk created by leverage.

Suppose a firm has $100 in assets, and its return in one year can be either -$5 or $15, each with 50 percent probability. The expected return to the firm is 5 percent, with a standard deviation of 10 percent.

Now suppose it can borrow half the money to purchase the assets at an interest rate of 3 percent. Its expected return is now higher, because it will expect to earn $3.50 (13.50*.5+(-6.50)*.5) on a $50 investment, or seven percent. Thus positive leverage gooses the return.

But now the standard deviation or risk) of the investment is 20 percent (the investment produces a return swing of plus or minus $10 on a $50 investment). So while the return has improved, so too has the risk of the investment. Compensation strategies based on return would fail to recognize the risk.

This would not be the case if compensation were tied to a company's Sharpe Ratio. The Sharpe Ratio is corporate return less a risk free rate divided by the standard deviation. In our case, in the first instance, the sharp ratio is .2 (.05-.3)/.1. In the second case, it is also .2 (.07-.03)/.2). If the Sharpe Ratio were used to determine compensation, managers would not be rewarded for goosing returns via leverage. And we could avoid all kinds of future trouble.

Paul Krugman on the how the Obama Financial Reform Plan is Insufficient

He writes:

True, the proposed new Consumer Financial Protection Agency would help control abusive lending. And the proposal that lenders be required to hold on to 5 percent of their loans, rather than selling everything off to be repackaged, would provide some incentive to lend responsibly.

But 5 percent isn’t enough to deter much risky lending, given the huge rewards to financial executives who book short-term profits. So what should be done about those rewards?

Tellingly, the administration’s executive summary of its proposals highlights “compensation practices” as a key cause of the crisis, but then fails to say anything about addressing those practices. The long-form version says more, but what it says — “Federal regulators should issue standards and guidelines to better align executive compensation practices of financial firms with long-term shareholder value” — is a description of what should happen, rather than a plan to make it happen.

Two things:

First, one of the things that got investment banks in trouble is that they did hold on to part of the securities they created. Indeed, they held the riskiest stuff--the lowest rated tranches of subprime and commercial MBS. The reason: so long as they performed, they captured the margin between the rate on the underlying debt instrument and the rates paid to the higher tranches. They borrowed short term at low interest rates to invest in these high risk, high margin securities, and earned spectacular rates of return, for awhile.

Investment bankers had incentives to take risks, because while they were earning spectacular returns (IRRs), they got paid huge bonuses. But when their investments fell apart, they only lost their jobs--there was no claw back. While their companies failed, their total compensation for the time they worked remained high.

So, point two is that compensation schemes must align long-term company interests with pay. There are two ways to do this: through clawbacks (which are complicated) and through long-term restricted stock (which is how employees at Google get paid).

I should note, however, that I am very pleased with the administration's proposal for financial institution capital. That by itself will solve a lot of problems.

The Wisdom of Paul Samuelson

Two nuggets from an interview with Conor Clarke

Last thing. Mea culpa, mea culpa. MIT and Wharton and University of Chicago created the financial engineering instruments, which, like Samson and Delilah, blinded every CEO -- they didn't realize the kind of leverage they were doing and they didn't understand when they were really creating a real profit or a fictitious one.

and

Well, I'd say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that's the raw material out of which any of your conjectures or testings will come. And I think the recent period has illustrated that. The governor of the Bank of England seems to have forgotten or not known that there was no bank insurance in England, so when Northern Rock got a run, he was surprised. Well, he shouldn't have been.

But history doesn't tell its own story. You've got to bring to it all the statistical testings that are possible. And we have a lot more information now than we used to.

Catch a rainbow....trout!

Back in November 2006 in Secrets of New England - along the Fossickers Way Day Two I mentioned Nundle's Arc-En-Ciel Trout Farm. The Farm is now offering visitors the unique opportunity of catching their own Rainbow Trout and cooking it fresh on the barbecue.

Situated 20km outside the historic village of Nundle, in the beautiful mountains of Hanging Rock, Arc-en-Ciel has been providing Rainbow Trout to restaurants and gourmet food outlets around Sydney, the Hunter and New England North West NSW for the past 25 years.

On a guided tour, which costs $7 for adults and $5 for children, visitors can learn some trout breeding secrets and see how an aquaculture farm operates. They can then spend some time fishing at the dam. All fishing gear is supplied. There are barbecues available for those who want to make a meal out of their catch on the spot.

A limit of four fish per rod is applied. While a catch is not guaranteed, your chance of catching at least one trout is pretty solid, according to Arc-en-Ciel’s owner, Russell Sydenham. The fishing costs are $8 per rod and any trout caught is then charged at a rate of $15 per kilogram (they clean and gut and pack them for you, too).

Mr Sydenham said trout fishing is very popular among families with children, grey nomads and older teenagers. A family pass, which includes the tour and fishing for two adults and two children, costs $49. The farm is also open to bus tour groups, who usually take the guided tour, then relax with refreshments. A smoked trout and scrambled egg breakfast can be arranged for groups of 12 to 50.

There’s a coffee shop on site, where you can enjoy some delicious cake along with a hot or cold drink.

If you haven’t got the energy to catch a trout yourself, the Arc-en-Ciel farm shop sells fresh and smoked trout, whole or filleted, trout caviar, as well as smoked trout pate and gravlax, a cold-cured trout. Arc-en-Ciel’s Rainbow Trout Gravlax won a bronze medal at the Sydney Royal Fine Food Show this year.

The farm is open 5 days a week from 10am to 4pm. It is closed on Saturdays and Tuesdays.

For further information, please phone 02 6769 3665 or visit www.rainbowtrout.com.au

Why I remain a New England New Stater 1 - Introduction

I was asked the other day why I still pursued the dream for New England Statehood. I know that time has moved against me. But I still think that this is the only way to control our future in a meaningful sense.
Let me take a simple, practical, if disguised example.

Note to reader: Upon reflection, I have removed the example because I felt uncomfortable that it might be recognised even though disguised. I will use some other examples in later posts to make the point.

Still later: I have decided to use this post as an introductory post for a series of short posts using a range of examples to explain why I think that New England's future really depends upon the renewal of agitation for self government, the reactivation of the New England New State Movement.

At one level it does not matter whether we get self-government or not, although that remains my personal aspiration. In simple political terms, the very existence of new state agitation forces Governments to recognise and respond to New England needs in a way that does not presently happen.

The examples that I will use are all drawn from my own experience. They show the often unseen ways in which existing structures work against New England interests. Longer term reforms cannot be achieved without changing those structures. In the short term, political pressure can force responses from existing structures.

Some of the examples will seem small, even trivial. But it is the overall pattern that I want to draw out, because the cumulative effects are not trivial in the slightest.

Posts in the series:

• Why I remain a New England New Stater 2 - Industry Representation
• Why I remain a New England New Stater 3 - the conservation laboratory case
• Why I remain a New England New Stater 4 - Cockington Green
• Why I remain a New England New Stater 5 - the case of Tasmania
• Why I remain a New England New Stater 6 - conflicts in NSW tourism branding
• Why I remain a New England New Stater 7 - the case of the big river
• Why I remain a New England New Stater 8 - the electricity asset grab
• Why I remain a New England New Stater 9 - the price of neglect
• Why I remain a New England New Stater 10 - the sad case of Newcastle
• Why I Remain a New England New Stater 11 - capturing local talent
• Why I remain a New England Stater 12 - frustrations with New England tourism
• Why I remain a New England New Stater 13 - the fallacy of the NSW economy
• New States and Ontario
• Sydney's 1995 electricity heist

La Campanella Liszt-Busoni Performed by Lhevinne

My freshman year college roommate introduced me to Lhevine's playing. I didn't much care for my freshman roommate, and when I for some unaccountable reason googled him, I saw that he gave money to Swift Boat Veterans for the Truth. But, he both motivated me to find great roommates (Curt, Harry, John and Jon) for my remaining college years; he also had great taste in pianists.

Natural Experiments in the Marginal Productivity of Labor

Tiger Woods made everyone in my family a golf fan. Before Tiger, I might watch the last round of the British Open, but that was about it (I know the Masters is the truly great tournament, but even when Tiger plays in it, it is too stuffy for me to enjoy).

My suspicion is that we are not alone. So the first difference in television ratings between last year's British Open and this year's might help establish a lower bound for Woods' marginal productivity. A robustness check will be the first difference between this year and next year. (I have tried to find how ratings points translate into advertising rates per minute, so far without success).

Big Sky Tourism's Aboriginal Heritage Tour

I was pleased to see that the Big Sky Tourism people have put together material outlining some of the Aboriginal attractions across the Northern Tablelands and Western Slopes.

I have long argued that we need more thematic tourism material to make New England's attractions more accessible to visitors. I think that this is especially important in making our indigenous heritage available to both locals and a wider audience.

Mark Thoma Points us to Robert Shiller on Unlearned Lessons

Did the false belief that land suitable for building houses was becoming scarce help to drive the housing bubble?:

.Unlearned lessons from the housing bubble, by Robert J Shiller, Project Syndicate: There is a lot of misunderstanding about home prices. Many people all over the world seem to have thought that since we are running out of land in a rapidly growing world economy, the prices of houses and apartments should increase at huge rates.

That misunderstanding encouraged people to buy homes for their investment value – and thus was a major cause of the real estate bubbles around the world whose collapse fuelled the current economic crisis. This misunderstanding may also contribute to an increase in home prices again, after the crisis ends. Indeed, some people are already starting to salivate at the speculative possibilities of buying homes in currently depressed markets.

But we do not really have a land shortage. Every major country of the world has abundant land in the form of farms and forests, much of which can be converted someday into urban land. ...

I think Shiller is largely right but for two things.

First, there are a small number of places on earth for which there is no close substitute: Santa Barbara, Aspen, Paris come to mind. Rich people will always outbid the rest of the world for these places, whose fundamentals are more similar to those of Monet paintings than real estate. But these are a very small number of places indeed, and we can argue about what they are.

Second, I think Shiller underestimates the power of NIMBYIsm to prevent housing construction. He should visit places like Mumbai and Johannesburg, where regulations limiting residential density have driven values well beyond what middle-income people in those places can afford. I agree that land shortages are an artificial, rather than a natural, phenomenon. But it remains a powerful phenomenon nevertheless.

The North Coast's Robinson Family - a note

I have referred to the Robinson family a number of times because of their pioneering role in the development of transport within New England.

A web search led me to notes prepared by Andrew Lancaster on the early history of the family, recorded here so that I do not lose later track of them.

The Miracle of Southwest Airlines

I am sitting in the Tucson airport awaiting a flight home to LA. I just watched a Southwest 737 stuffed with passengers load and unload in about 20 minutes.

United Airlines can't turn around a regional jet in less than 40 minutes (they always claim they are "cleaning" the plane, but I never see much evidence of cleaning). It is little wonder that Southwest has performed better financially over the long haul.

What's the matter with Rich Liberals?

Derek Thompsonn, in an Atlantic blog, argues that rich people who support higher taxes are just a befuddling as Thomas Frank's Kansans, I am not so sure.

If people are at all introspective, they will recognize that fortune can be fleeting--that anyone can get a bad draw. Catastrophe call befall anyone, because of illness, because of natural disaster, because of unexpected changes in business conditions. For example, while it is possible that the demise of the newspaper industry was foreseeable many years ago, I am not sure that it is likely. As a result, many people who thought themselves secure in their work are now being laid off.

We can think of taxes as being both user fees and as insurance premiums. Social Insurance helps the rich--as well as their parents and children--survive at a minimum living standard even if the world turns on them. While we all like to think we have some control over our lives--and to some extent we do--we are also all subject to chance, and for some of us, it is good to know there is a society that cares about the misfortune of others should we encounter a bad draw.

Certainly some rich people are also motivated by altruism and their desire to repay a country that had given them so many great opportunities. But people pay all sorts of insurance premiums; to some extent, taxes are another.

My Hard Drive Failed about a week ago...

On a Sony Vaio PCG-V505EX. I really like the machine, so I am currently making recovery disks (using safe mode) and hoping I can get the thing running again. If anyone has been through this, and managed to recover their system, I would love to hear about it.

Bumsoo Lee, Peter Gordon, James E. Moore, II, and Harry W. Richardson tell us how many trips we take, and the reasons we take them.

My soon-to-be colleagues do so here: RESIDENTIAL LOCATION, LAND USE AND TRANSPORTATION: THE NEGLECTED ROLE OF NONWORK TRAVEL.

They find that less than one out of five trips is for work, and that in 2001, the average person made more than four trips per day (reinforcing my point in my last post on gas prices and urban land).

I should also mention that according to Zillow, for the Washington area, house prices in nearby Montgomery County have fallen by 7 percent in the last years, while in exurban Prince William County they have fallen by 24 percent. Paul Carrillo and I have done preliminary estimates that show that prices in the District have not fallen at all.

As for changing urban form, it will take awhile, but it could happen. Houses in the exurbs will likely not be torn down, but they will depreciate rapidly, while houses near employment centers and amenities will increase in relative value, meaning there will be incentives for dense redevolopment. For a good treatise on "filtering," see Ed Olsen's classic AER paper.

University of Wisconsin Union Terrace

One my favorite chunks of real estate (especially in summer!).

One Mortgage GSE?

At the Wisconsin Housing Conference in Madison last week, Curt Culver of MGIC forecast that Fannie and Freddie would be merged into one public sector entity for mortgage funding. I am not so sure...

When Turtle talked about "Cheap money," we should have known there was a bubble

As part of my *ahem* research for living in Southern California, I started watching the first season of Entourage. In the second episode, Vince decides to buy a $10 million house after he has turned down a $4 million movie contract. Drama tells him it is OK, because it is, after all, California, where a house worth $10 million this year will be worth $20 million next year. And Turtle tells Vince "he can get money cheap."

The show's first year was 2004. Should have tipped us all off....

Sweeney Todd - London National Theatre Cast

This is how imagine Victorian London--I think Dickens would love it.

Southern Cross University's Whale Studies

New research which investigates the migratory movements of humpback whales between Antarctica, the east coast of Australia, New Zealand, the Pacific and the west coast of Australia, has been presented to the International Whaling Commission.

The three reports were prepared by Southern Cross University’s Whale Research Centre using photo-identification catalogues of humpbacks from Hervey Bay, Ballina, New Zealand, Western Australia and Antarctica. The research involved collaboration with scientists from the South Pacific Whale Research Consortium, The Centre for Whale Research, Western Australia, the New Zealand Ministry of Fisheries, The International Fund for Animal Welfare and Greenpeace International.

You can find more details here.

View of Lismore 1891

This photo of Lismore in 1891 is from the A J Campbell collection held by the National Library in Canberra. The raw, cleared, nature of the ground is typical of New England towns during the period.

A little more on Gas and Urban Land

Yesterday, I made an assumption that each household made five trips per day--this was pulled out of thin air, because I couldn't find an estimate.

I have found one here: in 2001, the average American made four trips per day. The average household has a little more than 2.5 people, meaning that the average household made ten trips per day. According to the US Census, 77 percent of these trips involve a driver without passengers; 11 percent involve carpooling. If the average car pool has two passengers (that is probably too high), then car trips per day per household is more like eight than five. From a static standpoint, I underestimated the impact of gas prices on urban form. But as one commenter noted, dynamics will tend to attenuate some of the impact (on the other hand, close in places where transit is a choice will now be at a greater advantage than places on the fringe).

People often wonder why European densities are so much higher than US densities. Part of it is history (Paris and London largely developed before automobiles); but part of it is that Europeans have been paying high prices for gasoline for a long time, and that they have had transit as an alternative. That said, the dynamics of European cities has been toward sprawl--central Paris has been losing population to its suburbs for the past fifty years. But I will leave the discussion of that to another post.

Blogging from 7 miles up

First internet connection off the ground, on Airtran flight 226. It works really well!

My Upcoming Industry Talks

June 25, Real Estate Capital Markets After the Credit Crisis, UBC Center for Urban Economics, Vancouver.

June 26, Pacific Coast Builders Conference, San Francisco

September 11, Commercial Property News Conference, New York

September 18, Multihousing World, Denver

$4 per gallon gasoline and the urban land market

Over the past six years, the price of gasoline has risen about $2 per gallon. What does this mean for relative urban land prices?

Let's say the average household makes five one-way trips per day--for work, shopping, entertainment, etc. Let's also say that the average car gets 20 mpg in city driving. Each mile of distance to work, shopping, etc. is therefore now 50 cents per day per household more expensive than before. A household living immediately adjascent to work and shopping should then be willing to pay $5 per day more in rent than a household 10 miles away compared with six years ago, all else being equal. This becomes $150 per month, or $1800 per year. Assuming a five percent cap rate for owner occupied housing, this translates to $36,000 in relative change in value. Given that the median house price in the US is about $220k, this is kind of a big deal.

The assumptions here are pretty crude (particulalry the ceteris paribus assumption), but if gas remains at its current real price, we will see the shape of US cities change.

He looked things up

Which for me, is the ultimately tribute. RIP, Tim Russert.

A line in Clark Hoyt's final column bothers me

He writes:

There is also no question that The Times, though a national newspaper, shares the prevailing sensibilities of the city and region where it is published. It does not take creationism or intelligent design as serious alternatives to the theory of evolution.

This is not sharing "prevailing sensibilities."   This is simply reporting overwhelming scientific evidence.  It is no more about sharing sensibilities than not taking flat-earthers seriously is about sharing sensibilities.

 

Robert Waldmann on Redistribution

This is worth reading (and is relevant to our discussion today in the GW Business Institute).

http://rjwaldmann.blogspot.com/2015/06/possible-efficiency-gains-due-to-taxes.html

Housing/Community Development Focus of 2015 Policy Summit ::

Housing/Community Development Focus of 2015 Policy Summit ::


Federal Reserve Bank of Cleveland

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Some random thoughts on Cleveland

The day before yesterday, I participated in a conference at the Cleveland Fed (I will post the slides in a bit). I got into Cleveland the afternoon before the conference, and so had a chance to walk around its downtown and take in a ball game at Jacobs Field. It was my second visit to Cleveland, and it confirmed my impressions from around 10 years ago: it is a very pleasant city. The Midwest has four declining cities that I quite like--the others are Milwaukee, St.Louis and Pittsburgh--and so it pains me that they are in decline.

The way to explain decline is in one sense easy: lots of literature has shown that since World War II, cities in cold climates have had a very difficult time competing with warmer cities, and cities that relied on manufacturing have been at a disadvantage. Yet some cold climate cities (Boston, Chicago and Minneapolis) have done quite well, and Cleveland has remarkable assets, including one of the World's great medical centers, a first rate university, and among the finest orchestras and art museums anywhere.

Cleveland is also, distinguished, however, by an eye-popping number: a high school graduation rate that is, according to Jay Greene of the Manhattan Institute, 28 percent. High school graduation rates are difficult to calculate, but even if Greene's estimate is off by 10 percentage points, Cleveland's educational system resembles that of a developing country, and its kids are not equipped to be productive.

The poor performance also explains an anomaly: a city with lots of vacant houses has suburbs with newly constructed houses. Its not that the old houses are good--they are not--but given Cleveland's infrastructure, it would be more sensible to raze the vacant houses in the central city, assemble the parcels, and encourage new development rather than have development on the periphery. But one could hardly blame parents looking for houses for avoiding a school district with a high school graduation rate of less than 1/3.