end of USPS, newspapers - things that should happen - part 2

three and half weeks ago i wrote about how GM should go bankrupt. now it seems like it's more likely to happen as the government rejected the automakers plan and forced out GM CEO. it's not quite an i told you so moment, but i think it will be in the coming months.

so here's another couple of things that should happen and so eventually will.

the US postal system will cut service (will soon be down to only 5 days a week) and in the next 20 years be phased out completely. likely, it will be replaced with some sort of government wide email system. packages will continue to be delivered by private companies (fedex, ups, dhl). when i graduated college, i got a permanent alumni email address that forwards to my current, main email (@yahoo.com). the alumni account has its own crude email interface but i prefer yahoo's. i believe that just like social security numbers, people will get an email account that they can forward. rain, sleet and snow may not hold back the post man, but budget cuts will. the problem of course is that the USPS currently employs nearly 800,000 americans. within 20 years, it's hard to imagine the USPS existing.

another thing that should happen is all print newspapers except for perhaps the WSJ, the NY Times, the USA Today and possibly a few gossip-like papers (eg ny post) will go out of business. the handwriting has been on the wall for a long time. i don't see why these money losing publications are even trying at this point. maybe they can survive as a web publication but the printing and distribution costs no longer make any economic sense except at massive scale. in a world where devices like the blackberry, iphone or kindle can provide real-time data at a fraction of the distribution cost, how do you justify a newspaper? i hear the argument about enjoying the experience of reading a paper newspaper, but it reminds me of the Luddites who refused to get or leave messages on answering machines. so farewell newspapers. i never figured out how to hold you on a plane without severely crumpling you or annoying my seat neighbor anyway.

lastly i want to send a shout out to one of my few readers tara. thanks for reading.

foreign policy reagan style

with the government and the country transfixed by the economic meltdown, the world is taking advantage of the very real weakness of our country to do things that would have been unheard of us during our more robust times. i am far from a reagan-phile, but you have to give the guy credit for taking down the soviets. here's how i think the gipper would have reacted to the following issues facing our country.

1. north korea is about to launch a missile - reagan decision: attempt to shoot down missile with SDI. if that didn't work, don't tell anyone.

2. russia about to plant its bombers in venezuela and cuba - reagan decision: blockade those countries. get the UN and NATO behind us on this. there is no way russia should have bombers in this hemisphere. even the lefty kennedy knew enough to do this.

3. mexico losing drug war - reagan decision: nancy reagan would have helped ronnie on this one. if we weren't stuck in iraq, it would have already been done. he would have put troops on the mexican border to stop the flow of drugs from mexico. i realize the drugs will come in from elsewhere but it will at least stop the border violence and may be even settle down mexico as a whole.

4. somali pirates running rampant - reagan decision: keeping the oceans safe off somalia is something the navy could easily do and give us pretext to keep more warships near the middle east. and it's something the whole world would appreciate(even russia would be happy with us).

5. darfur ravaged as president al-Bashir thugs around - reagan decision: send in lots of humanitarian aid. we say we are the last superpower but we do nothing for these people. it is really disgusting how little our country has done. we did more for the starving ethiopians under reagan. what's happening in darfur is even worse than the famines.

6. china is expanding its military capabilities - reagan decision: unfortunately, i think reagan would have turned this into another cold war. he would have done a show of force (see #1) and expanded our military budget. our economic dependency on china makes this thornier, but reagan showed us how to defeat the communists - bankrupt them into spending too much on their military.

there are many other foreign policy issues facing our country but these are some of the top. unfortunately, i think this is what our current administration will do on all them obama decision: rhetoric.

ron paul gets it

rather than explain what i think about this mini rally, i'd rather let this article on ron paul do the talking.

Believer in small government predicts 15-year depression

Here is a brief example of what ron paul thinks, "At some stage – Mr Paul estimates it will be between one and four years – the dollar will implode. “The dollar as a reserve standard is done,” he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s."

basically, he is indicating that we are finally paying for the move off the gold standard and the nixon shock.

it's going to get really, really awful.

is it me or does the press want obama to look like a saint?

this is from reuters

the PPIP is a giant scheme

the PPIP (public-private investment program) is designed to take toxic assets off the books of banks. i'm not even sure this is a severe issue for the banks anymore, but let's just assume it is.

one thing a bank could do is bid on its own assets. let's say a bank offers to buy its own asset at t $84 million. by putting up just $6 million in risk, (with the government putting in the other 6 and borrowing 6 to 1), they could buy the asset from themselves. if the real value of the loan of the asset is anything less than $78 million, it's in a bank's best interest to do this.

in this scenario, let's say the $84 million asset would have gone for $50 million in a real auction - well that would be $28 million less ($84 million - $6 million they had to put up - $50 million that it is worth) than what they got by buying it from themselves. further, to show the silliness, they could actually bid $840 million, putting up $60 million (which they would lose) but still getting $780 million net up front.

i have no doubt that there will be rules in place such that a bank cannot bid on its own assets however to think that there will not be related party transactions among these clearly morally corrupt institutions is silly.

so the banks get made more than whole, the taxpayer loses a ton and the dumb hedgefunds / banks who bought up the assets, salivating at the 13 to 1 leverage lose a bit too (though i'd bet that anyone who is putting up real money is going to get a kickback along the way from the banks that foist the toxic assets on them).

once again, goldman sachs wins.

this isn't going to work

the fed's plan seems simple enough. according to the US treasury, the plan works like this:

A Sample Investment In Toxic Assets
Step 1: A bank has a pool of residential mortgages with $100 million face value that it's seeking to divest. The bank would approach the Federal Deposit Insurance Corp.

Step 2: After conducting an analysis, the FDIC would determine that it would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio.

Step 3: The pool would then be auctioned by the FDIC, with several private sector bidders submitting bids. The highest private bid — in this example, $84 million — would be the winner and would form a Public-Private Investment Fund to purchase the pool of mortgages.

Step 4: Of this $84 million purchase price, the FDIC would provide guarantees for $72 million of financing, leaving $12 million of equity.

Step 5: The Treasury would then provide half of the equity funding, or $6 million, and the private investor would contribute $6 million.

Step 6: The private investor would then manage the servicing of the asset pool and the timing of its disposition using asset managers approved by and subject to FDIC oversight Source: U.S. Treasury

this isn't going to work for a whole host of reasons. basically it's a shell game where you take assets from one group, have the US taxpayers take on most of the risk, and give it to another group. you've done nothing to solve the problem. further, while banks may carry the value of the assets on their balance sheet at 100 million, this exercise will force them to mark the assets to something more reasonable (but not the actual cost since only a truly free market mechanism would achieve that).

ultimately, no shell game solves this problem. this problem is jobs. until the job situation is fixed or at least there's a path to fixing it, our economy will continue to decline. it's nice the stock market rallied on the news, but i think when earnings come out in april, we will set new lows.

the hedge fund piledrive

working in the hedge fund industry is like swimming in a shark tank.

there seems to be a perception that hedge fund guys get together in a cabal and move markets.

the reality is most hedge funds don't talk to each other. if they did, they could be considered to be acting in concert and would have to consolidate their ownership positions thereby perhaps triggering a poison pill, violating a standstill agreement or other sort of deleterious situation.

however, one thing hedge funds do in relation to each other is try to pile drive suffering funds.

for example, let's say hedge fund A is suffering redemptions. then, necessarily, they need to sell off some of their positions in order to get the cash to fulfill the redemptions. typically the hedge fund will cash out of positions they don't particularly like.

what ends up happening is that other hedge funds, B and C, hear about this and begin shorting many if not all of the positions of A. the more B and C short A's positions, the more A's positions get stressed. investors in hedge fund A see the performance of A continuing downward and so they redeem more.

this creates a downward spiral for all of A's positions. and A, under stress has to continue to liquidate. this is not a lot different than creating a run on a bank. at the end of this process, the good positions of A have been pushed downward to a point where there is a lot of value. this dislocation provides opportunity for the savvy investor.

post updates

i got a lot of flack for suggesting Geithner was a crook. however, i'm apparently in good company. even the left wing huffington post published an article essentially comparing him to nixon.

What Did Geithner Know and When Did He Know It?

the pitchforks are beginning to come to goldman sachs. about 100 to 150 people protested outside of goldman's NY headquarters yesterday. i would like to include this in the i told you so category but since the protest was planned (although unknown to me) before i wrote the post, i don't think it quite makes it.

gold standard coming

there will be a major currency backed by gold in the coming years. free floating currency is only good for the standard bearer currency. currently, that currency is the US dollar. but while the fed buys treasuries by turning on the printing press, the international buyers of treasuries are not happy.

china is even beginning to discuss an alternate to the US dollar. if that happens, say hello to massive inflation! if countries stop buying US treasuries, our country is in trouble.

i think the most likely suspect for creating a gold backed currency is russia. russia is flush with natural resources. if they started demanding that they get paid in gold only for their oil and natural gas, things would change in a hurry.
it's not long before saudi arabia and other countries with hard assets begin asking for a hard asset back rather than funny money from the united states.

when nixon closed the gold window in august 1971, making the dollar no longer convertible into gold, he may have staved off bankrupting the US. we convinced the whole world that our funny money was worth something. but i think the world is wising up on us.

geithner is either a crook or clinically stupid or both - please vote in comments

tim geithner is either a crook or stupid. my vote is for crook. i hope he comes after me and sues me for libel because i would love for him to prove in a court of law that he is not a crook.

in anticipation of the court case, let's go through the evidence we have to date. i have no doubt, over time, there will be plenty more evidence of illegality and gross malfeasance.

1. he is an admitted tax cheat. if you or i cheated on our taxes, we would probably be incarcerated. let's be clear about his problems which he described as "unintentional". the man cheated on his taxes, not one year, not two, but for four consecutive years. so, either he is clinically stupid and has no right to be in any position of power or he is a criminal. the man went from cheating the IRS to being head of the treasury department which oversees the IRS! al capone did the same crimes and went to alcatraz (before it was a tourist attraction). i understand in the rush to put someone in there, congress was bullied. but when you put stupid and/or criminals in charge, bad things happen (see #2-5 below).

2. he was preceded as ny fed chief by william mcdonough who helped destroy merrill lynch. why does no one talk about this? how convenient that the fed crammed merrill lynch down the throat of bank of america but did nothing for lehman brothers. mr. mcdonough's role at merrill was to, "assist senior management in the company's business development efforts with governments". I will bet anything that when andrew cuomo gets the list of merrill execs with big bonuses mr. mcodonugh will be on the list. and guess who was the head of the ny fed which had purview over new york banks like lehman and merrill? that's right - tim geithner!

3. the AIG bonuses. while i don't care about $165 million compared to the hundreds of billions that this crook has doled out, it has clearly captivated the public. and geitner of course was the one who engineered the bailout of AIG while he was head of the NY Fed.

4. the continued funding of AIG to pay off foreign banks. i'm shocked there's not more outrage on the counterparties to AIG. i like how the press reports that AIG lost $60 billion last quarter. they didn't "lose" the money. they're not scratching their heads thinking, "now where did i put that sack of money." it was a wholesale money transfer from taxpayers to other banks. included in those other banks are foreign banks like HSBC or Soc Gen. Why, why, why is the treasury secretary of the united states of america taking my tax payer money and giving it to foreign banks without any concession from them?

5. the lack of a cohesive plan. whether or not you believe his other actions are correct or not, clearly whatever plan he may have is ambiguous. tough decisions need to be made. but geithner is not making those tough decisions. in fact, it's unclear, what he's doing.

i know a lot of people say don't change a horse midstream but they are simply wrong. the argument seems to be that give him a chance... well, if he has screwed up this badly so soon, imagine what he good do if we gave him more months? intrade already says there's a 15% he's gone by june 30. joseph barr was only secretary of the treasury for 31 days. geithner has already outlived him. hopefully, not for much longer.

so is geitner just plain stupid or actually criminally complicit in giving money to his buddies (like he did at merrill lynch)? please vote in the comments.

told you so

in what i hope to be a series of told you so moments, yesterday i wrote that the US would devalue its currency. today the fed announced it would buy up US treasuries, effectively devaluing in the US dollar (i thought it would take longer but Obama and team are fast!)

Dollar Falls Most Since 2000 on Fed’s Plan to Buy Treasuries

on this news, the price of gold spiked $50. so had you taken my advice to buy gold yesterday, you'd be 4% richer today.

goldman - where's the outrage?

i had planned to write a post on AIG counterparties but then i found this article which is short but articulate

It's not the bonuses. It's that AIG's counterparties are getting paid back in full.

in 20 years, when they write the history of the "bailout", the AIG part will go down as the largest theft in human history.

further thefts the government has helped perpetuate include the no bid contracts in Iraq. this is not partisan. all sides are stealing from taxpayers and giving to their friends. with one hand, Obama is trying to cancel the no bid contracts in Iraq, with the other he is giving money to banks and failing industries.

the AIG thievery is appalling. so was Hank Paulson's institution of the "no short rule". while mere mortals like you and me could not sell short companies like Goldman Sachs, existing owners of the shares could sell with impunity. this effectively let owners of Goldman shares (and other financial institutions) cash out before the free markets were able to really put a price on the shares. and who were the big owners (and therefore sellers) of those shares? why, it was Goldman employees! (Hank Paulson, before enabling his friends to steal taxpayer money was CEO of Goldman Sachs).

there is so much nastiness going on in the financial world, but one company keeps showing up. it's goldman sachs. perhaps they never get busted for their thievery, but hopefully we will get justice, in this world or the next. probably will have to wait for the next since goldman seems all powerful.

for example, goldman can even bully around the new york times

NY times in a long line of people who refuse to tell Blankfein and Co where they can shove it

not only is goldman screwing over the US taxpayers directly, but they also have no problems hammering their own investors. while we were forbidden from short selling their stock, they were busy donkey punching their own customers

Goldman Targeted by Investor Complaints of Naked Short-Selling

instead of investigating the $165 million in bonuses paid at AIG, i would rather the senate investigate the $10 billion that went to goldman at the same moment they paid out $11.4 billion in bonuses. that is absolutely egregious. it's 100x the bonus pool at AIG. where's the outrage?

Goldman Crimes

switzerland first - us next to devalue currency?

with US foreign debt exploding - China holds over $740 billion in US treasuries and Japan over $630 billion - the US government will have a tough time paying back all these loans.

this explains why US CDS rates are currently higher than Campbell Soup's.

but a strange thing happened in the CDS market this week. european sovereign cds plummeted. specifically, cds on switzerland. certainly the updraft in the global markets helps explain this, but, switzerland cds went from 260 bps to 180 bps basically overnight. the major reason for this price drop was that switzerland decided to purposely devalue their currency.

funds that had been making money off the rise in expectations for default by european countries got destroyed. it's tough to bet against a country that has a printing press for their cash.

devaluation will clearly result in inflation in switzerland. but it helps them more easily pay off their debts.

Russia seems to devalue the ruble on a semi regular basis. perhaps they are doing this to allow for a soft landing in order to prevent what happened in 1998 when the ruble lost 71% of its value overnight.

with the US foreign debt piling up and demand for treasuries waning, it is not hard to imagine a day when a US president gets on national tv and announces that your dollar has a fraction of the buying power it had earlier that day. the specter of inflation is looming. perhaps it will take a year or two to kick in, but all the money we are paying for bailouts has to come from somewhere.

the nixon shock - where the US unilaterally obliterated breton woods - probably enabled us to finance the winning of the cold war. but floating currencies create a lot of uncertainty - more on the nixon shock to come. in the meantime, think about investing in hard assets - like gold, barrels of oil, real estate and non perishable food.

Facebook takes down Google

Right now, Google has a market cap of about $100 billion which is severely depressed from its all time high of nearly $180 billion. That's quite a tumble, but not nearly as big of a tumble as Facebook has taken. Facebook went from a valuation of $15 billion in Oct 2007 to about $2 to $2.5 billion on secondary markets like SecondMarket.

Facebook is going to absolutely dominate the future of the internet. Social networking is more popular than email and growing at an astounding clip.

Search will continue to keep the top ranking. But it's not hard to imagine a time when Facebook launches its own search engine. I have no doubt in my mind that in the next 6-24 months, Facebook will launch it's own search.

Search is all about brand. I know people like to claim that Google search results are better than Yahoo's and that's why they've dominated, but it's simply not true. In 2007, Yahoo overtook Google as the top rated search engine, even as their market share declined.

Facebook, when they launch their search engine, (and again, it is inconceivable that they will not) will know who all your friends are and what their search queries and clicks have been. With that data, even a terrible programming team could make the results slightly better than existing search engines. And Facebook seems to have great programmers. So shortly after they launch, Google will see itself facing a competitor who has better search results and a better brand. That is a one, two punch that will clobber Google.

Facebook will take market share from Google search. I think there is a very real chance that Facebook search eventually eclipses Google search in the next 5 to 10 years.

I know the dig on Facebook has been that it doesn't have a revenue model. But, check out this article from 2002.

Google's toughest search is for a business model

Facebook will find a revenue model and Google market share will be pared. So, if you can scoop up Facebook shares at $2 billion, it's a steal.

random fact monday

you can't have portable microwave ovens - microwave ovens work by passing microwave radiation at a frequency of about 2.45 gigahertz (which has a wavelength of about 4.82 inches).  so theoretically, a 5 x 5 inches.  perhaps smaller than currently popular, but not something you would want to take camping.

st. patrick rid ireland of snakes - well, not really but people think so.  post-glacial Ireland never had snakes but after a few pints, you won't care.  or maybe you don't care now.

unemployment of 85% - i don't think it will get that bad here, but as of 2003, the unemployment rate in Liberia was 85%.  

mondays are tough on everyone - the most common day to commit suicide is on a monday.  but don't do it.  you'll miss the good post tomorrow!

25-75% please

we live in a world where everyone wants to be the best. we laud athletes that can swim the fastest. we put out magazines listing the richest people. we hold contests for the most beautiful woman.

but in reality, i think being average is on the whole probably better.

guys who are 6'10" want to be a little shorter and guys who are 5'5" want to be a little taller. girls with small breasts want bigger ones and girls with big breasts want smaller ones.

certainly when it comes to physical attributes, being in the top or bottom quartile presents its own sets of challenges.

i suspect this rule also holds true for everything else in your life. the richest people i know are often the most lonely. but being super poor seems like it's awful too. the smartest people i know are some of the most difficult to get along with, while the dumbest people have many of doors closed to them.

i don't think it's a good idea to strive for mediocrity, but i also realize it's lonely at the top. so when your kid comes home with a B or a second place in the swim meet, realize, they're probably net happier than the top people. and when you see the list of billionaires, if you're not on it, count yourself lucky.

and if there are any billionaires reading, please give me a billion so that you can be happy and i'll deal with the pain it brings.

bits for blondes

when i have nothing better to write about, i'll write a little explanation of something from computers / programming. i know a lot of sites try to simplify programming (like programming for dummies) but i don't think any do a good job for a lay person.

i entitled this bits for blondes because (a) it's alliterative which makes me seem clever (b) blonde people often get confused. i say this semi tongue in cheek, but i wonder if there there is any real statistical research on the cognitive abilities of blondes. and i don't mean only girls, i know lots of blonde guys who think a "bit" is a horse's mouthpiece (they happen to be right - why are blonde guys rich horse riders and/or surfers - is it causation?).

and of course, there are plenty of exceptions. Marissa Mayer was in a lot of my comp sci classes at Stanford (more on her in later posts).

now that all the disclaimers out of the way, here's the first lesson. what is a "bit"?

a bit is an on/off switch. either the bit is turned on (or thought to be "1") or it is turned off (in "0" position). and that's all a bit is.

"wait?" you say... "you've used a computer and it does not resemble an on/off switch?", well, in reality, a computer is just millions of on/off switches.

when the bit is turned on ("1"), it allows electricity to flow through, when off ("0"), it does not. the sequence of on/off switches allows your computer to do everything. a "byte" is just a convention meaning 8 bits together. it's an arbitrary designation, stemming from when computers could only examine whether 8 switches were turned on/off at a time. computers these days can read billions of bits at a time.

think of the digital picture you took with your camera. let's say you save your picture on your hard drive and the size sapicture you took is 4 megabytes. that means your picture is 4 x 8 bits per byte x 1,000,000 = 32 million switches to determine what your pictures looks like. change one of those bits and your picture is ever so slightly different (maybe a tiny part goes from blue to a different shade of blue that to a human looks exactly the same). you'd probably have to change thousands of bits before your picture looked any different to you.

so now think of your hard drive with 500 gigaabytes on it. that's 500 x 8 x 1,000,000,000 bits = 4 quadrillion switches to store your data. the blonde in you thinks, "there's no way there's 4 quadrillion tiny on/off switches in my computer." but, i assure you, there is. that's why if you unplug your computer and there's no power and you turn it back on, all your data is still there. because the switches don't change. they are physically either on or off. and it's why to really erase your data, you have to do some seriously crazy things. spill a giant glass of wine on your hard drive... guess what, you're in luck, the switches stay where they are. magnets? hah! silicon (what those switches are made of) are non metallic. in order to have a magnet effect your hard drive, you'd need a magnet "powerful enough to suck the iron out of your blood cells".

so dear blondes, that's a bit. rest assured, there is nothing you could do by accident to make your hard drive unreadable, but you might do something that could make reading that hard drive prohibitively expensive. so pour that chardonnay into your mouth, not onto your friend's macbook air.

poor lonely jews

in this article appearing in the Jerusalem Post today

Too expensive & lonely to be Jewish

the author suggests that it is too expensive to observe judaism (kosher food, religious schools) and also that there are too many jewish girls.   he writes, "The Jewish community seems to have two women for every man, which creates an unnatural scene where the women appear desperate."  

while i'm not sure i agree, one thing i've definitely noticed is there are more jewish guys who end up with non-jewish women than the other way around which may account for the imbalance he writes about.  

his proposed solution is ludicrous - "It should be the business of parents, rabbis and friends to push Jewish men to act honorably. Our women should not spend their lives chasing commitment-phobic men."

i don't have a great solution, but certainly the desperation that the author quotes and that i've seen on many a jewish girl in new york is not an attractive quality.  conversely, maybe jewish guys are just too cool and therefore in too high demand?

china can do whatever it wants

china can pretty much do as they please in the world and no one can stop them. they are super conservative these days and haven't made many waves internationally lately but if there was a change in top leadership or a major local uprising, china would likely do something.

what sorts of things?

well, for one, they could invade Taiwan and the US would be able to do nothing.

the reality is that china is the largest holder of US treasuries (surpassing Japan this past September). if China wanted the dollar to collapse and send this country into an economic fiasco, all they would have to do is start selling these treasuries. if China simply stopped buying US treasuries, we wouldn't be able to finance all these giant spending plans.

right now, it is in China's best interest to keep the US economy chugging along since we are the biggest buyers of their products. i'm glad they're on our side. there's even speculation that China is dumping European bonds in an effort to strengthen the US dollar. we are in a situation where we need China and for now China needs us. but with mutually assured economic destruction, the country that flinches first will lose. and China's politics allow it to flinch last.

so while we may talk tough to china, the reality is that China is truly the only super power still standing. China can do what it wants. if china wants to take Taiwan, they will. the US will sit idly by.

things that should happen eventually happen

this may seem obvious and perhaps it's simply a corollary to Occam's Razor, but things that logically should happen, almost always do happen.

when Obama said, "I believe the nation that invented the automobile cannot walk away from it," he was obviously wrong.  as has been pointed out numerous times, it was Karl Benz of Germany who invented the internal combustion engine and built the first automobile.  but more importantly, even if the US did invent the automobile, is there any reason to keep an auto industry alive in this country?

first of all, it's clear that cars as we've known them for the last 100 years will change dramatically in the next 10.  the internal combustion engine will be fazed out entirely except perhaps in super large trucks.  

the nation that also invented the typewriter (Christopher Sholes in 1865 in Wisconsin) walked away from it (typewriters are no longer manufactured in any quantity in the US).  and we will certainly walk away from the auto industry as we know it too.

the US also invented sneakers (or at least the waffle outsole that is standard on all athletic shoes) and yet almost all of nike's factories are overseas, in particular in asia.  the factories are there because it is economical to for them to be there.

if it is not economical for there to be a car factory in the US, then there will not be a car factory in the US.  the US government can delay the inevitable, but things that should happen eventually do happen.

so, GM will go bankrupt.  likely the company will continue to exist in some form but relatively quickly, if wages remain high the US (and i hope they do), all car manufacturing will be moved offshore.

and while we're at it, another thing that makes logical sense and so eventually will happen is GE will file chapter 11 and/or they will split the company up isolating the disastrous finance division.

debtor's prison

debtor's prison is alive and well in Greece and the UAE. Seriously!

when someone can't pay their debts in the US, people declare bankruptcy which is probably annoying (i've never done it but i assume it is). sure, their credit rating takes a hit, but these days no one is applying for a loan or credit card anyway.

there's no moral hazard for borrowing tons of money and then not paying it off. if i graduated college in 2005, rang up 100k in credit card debt by partying like a rockstar and never working, i would have no downside. ultimately, the US taxpayers end up footing the bill when the credit card is defaulted on and the banks take government money.

if the US taxpayer ends up paying the debt of these people, the US taxpayer should get some work out of them.

with all these public works projects coming, instead of forgiving the debt, give these people jobs at a sustenance level building roads and bridges until they've paid off the debt they forced us to shoulder. their debt would be paid when: going wage per hour - sustenance level per hour x hours = their debt.

the US already incarcerates people for fraud. how is their borrowing and failing to pay back any different than fraud? the US also jails people for failure to pay child support and alimony. and in a way, forcing the US taxpayer to pay their debts amounts to taking money away from education and other social goods. if this practice were instituted, defaults on loans and credit cards would be drastically reduced - people would be more cautious and/or they would work like crazy to figure out how to pay it off.

and we would have better roads and bridges.

New York City nuclear CDS

There's a lot of confusion about what CDS is.

CDS = credit default swap which is a fancy way of saying you pay a premium and in the event of a default, you get a big check. and that is fancy way of saying you're basically buying a life insurance policy so, in the event of death you get paid.

people bought lots of CDS on Lehman Brothers. when Lehman failed, the owners of the CDS got huge checks, written by the writers of that CDS (in many cases AIG).

you can buy CDS on anything these days. one popular thing to buy is CDS on sovereign nations.

typically, CDS agreements have an annual payment schedule and are good for 5 years. In the case of the United States, the CDS trades at 100 bps, roughly meaning you would have to pay 1.00% of the insured amount each year for 5 years. if at any point during those 5 years, the US defaults on its loan obligations (ie, goes bankrupt), you would get paid the insured amount. so if you wanted $100 insurance on the US government, you would pay $1 each year for 5 years. If the US defaults during that time, you would be paid $100. approximately, this suggests that there is a 5% chance that the US defaults in the next 5 years.

in the case of Icelandic CDS, the rate is 1000 bps so you have to pay $10 each year for 5 years and if Iceland defaults, you would get $100. so the market suggests that there is a 50% chance of Iceland defaulting.

if you can buy insurance for anything and for any duration, why not buy insurance against a catastrophic event? now this is super grim, but, what do you think the CDS would trade at for protection against an atomic event happening in manhattan? ie, in the next 50 years, what is the chance that some sort of atomic detonation occurs in new york?

makes me want to move to a city that is already a wasteland, like LA.

good luck cable companies

it's so obvious that blu-ray is dead on arrival. many people have said it before, but let's be clear, any sort of disc, no matter what the extras is just silly in today's day and age.

for non technophiles that don't have broadband and in countries that don't have the infrastructure to support high bandwidth, the improvements that blu-ray may offer are not interesting.

and for those with high speed access, the simplicity, value and vast selection that internet video on demand (through netflix, amazon, itunes and many others) offers is much better than having to physically buy a blu-ray disc.

i love my home theater. i have a roku that is connected to my netflix and amazon account. between the two, i can watch just about any movie at any time. i can even digitally buy movies from amazon. i will never get a blu-ray player. good luck with that one sony.

any i used to pay $4.99 for cable on demand movies that weren't available via netflix streaming. now with amazon, i only pay $3.99. at best companies like Time Warner Cable and Comcast will have to cut costs. But with the essentially infinite selection available on Amazon, I don't see how cable on demand will ever see another one of my dollars.

and, oh, i also cancelled all my pay channels. good luck making your quarter content and cable companies.

Russia helps Iran

by most accounts, russia budgeted their government spending by pricing oil at somewhere around $80 / barrel. with oil trading at $40, the government is in severe trouble of facing default, runaway inflation or some other similarly disastrous scenario.

the market vectors russia etf (RSX) is down from a high of nearly $60 to $10.

many of these disasters that Russia faces are cured by higher oil prices. assuming that russia is not concerned with the pain and suffering and death of other humans (outside of russia in particular) then it's in russia's best interest to see some sort of conflagration in the middle east which would bolster hard asset prices, in particular oil prices.

when Obama suggests that the russians should help the US keep Iran from attaining nuclear weapons, i think he fails to understand that (a) it's inevitable that Iran will attain nuclear capability and (b) that it's Russia's best interest for increased tensions if not all out war in the middle east.

with regard to (a), human history has shown that technology cannot be kept in the bottle forever. one need only look at the palestinians who had crude rocks during the first intifada of 1987 and now have rockets that can nearly reach Tel Aviv from Gaza. with determination and funding, everything is within reach.

regarding (b), not only is it in Russia's best interest, but also Venezuela and all other oil producing countries that would not see a supply disruption from a conflict. so far from preventing Iran, Russia is likely to help Iran.

The Internet is the Destroyer of Worlds

i graduated college in 1997. when i did, everyone was saying the internet was creating all this value.

when i graduated college in June 1997, the dow was about 7800. today, the dow is 6600. so what happened?

i'm not particularly smart but i like to follow people who are. in april 2000, Warren Buffet said, "For society, the internet's a wonderful thing. But for capitalists it's probably a net negative."

and that's exactly what happened. the internet is a lubricant of transactions. it disintermediates. the middleman is gone. margins have to be compressed. and that's what's happened across the board. the advent of the internet caused margins to be compressed. how can best buy charge a lot for something when when amazon has the same thing for less or better yet, ebay has it used for even less.

the credit bubble enabled some financial shenanigans to keep companies profits up for a bit, but it was inevitable that rather than creating value, the internet was going to destroy margins and therefore companies.

sure, google and ebay and amazon and other internet companies that have survived have created a lot of shareholder value, but when you look at the value destruction of newspapers and circuit city and KB Toys and others, you quickly realize, that the internet is the destroyer of worlds.