Archive for April, 2008
A few days ago, I went up to our rooftop deck to have a cup of tea, when, to my surprise, a very rare and strikingly beautiful Peregrine falcon landed not 15 feet from me, on a roofing gutter. It took a few glances at me and then flew away toward the Space Needle. Seeing the bird made me want to head to Google to find out which exact bird I’d seen (its foot was tagged). Today, I found out that the bird lives on the 56th floor of a building only a few blocks south of me, on University Street.
Seattle’s Washington Mutual Tower has been home to a breeding pair of Peregrine falcons before. From 1994-2005, love-birds Stewart and Bell raised many a clutch of baby falcons. In 2005, they both passed away, and the next year, no falcons occupied the roost on the 56th floor of the tower.
Last year, two different females apparently attempted to breed on the tower and we think that both laid eggs in the nest box. As a result, a total of eight eggs was laid in the nest box.
This was one of the largest clutches of peregrine eggs on record (four eggs are normal) and the remaining female was unable to incubate them successfully. Unfortunately, the site was subsequently abandoned and all of the eggs failed to hatch.
This spring, there is a new pair of adult peregrines perching at the nest box. They have made a “scrape” or shallow depression in the gravel which usually indicates that they are preparing to breed. We have a camera on the box and once again, the image is being piped to the branch lobby where people can observe the nesting activities as they happen.
If you’d like to find out more about our new breeding pair of falcons, check out the Falcon Research Group’s website at frg.org. To see the live image feed from the nesting box, click here (I’ve included a screen-capture from the feed. Your mileage may vary — you may or may not catch the falcons at home.)
News just hit that Eos Airlines (the upstart airline that offered 1st class/business class only flights between New York and London) has filed for chapter 11 bankruptcy. This is bad news for Seattle-based Maveron, the venture capital firm backed by Starbucks Chairman and CEO Howard Schultz. Maveron was one of three firms involved in funding Eos with $123 million
For reference, Maveron’s other investments include PinkBerry (a high-flying, quickly expanding, and soon to be out-of-fashion purveyor of delicious-but-overpriced custom-built frozen yoghurt), lucy activewear (a women’s activewear firm, the only real competitor to lululemon athletica), and eBay.
That Maveron has invested in these firms shows that their principals really know how to spot hot young brands that innovate/differentiate themselves into premium niches. What it doesn’t show is whether they’ll make money doing it.
Perhaps I should wait to pass judgment on Maveron – after all, they are a VC firm, and VC’s are known to strike out half the time, hoping for a big payoff in that one grand-slam they hit every once in a while that will bring their fund into the black.
And Maveron has hit plenty of grand slams: eBay, Shutterfly, Quellos, PeoplePC, Drugstore.com, Cranium (boardgame).
It’s just so easy for me to criticize these guys because I know their strategy so well. In fact, one of the strategies utilized in my ScarletStorm fund is finding growth candidates that have quickly established a premium brand by differentiating themselves and/or displaying real improvements over competitors’ offerings. At first glance, both Eos and PinkBerry fit the mold. The difference between my growth investments and Maveron’s is that I’m a strict value investor: I’ll only bite if the firm’s intrinsic value (as I calculate it) is higher than the price I can acquire a piece for. That restriction would have prevented me from throwing money at Eos, as they’re not even profitable (hence I’d value the firm at $0). Obviously, that means I would’ve never invested in Amazon.com, which went public years before it became profitable. Perhaps to hit home runs, you’ve got to take swings at pitches that don’t appear to be strikes.
I commend Maveron for doing something right. Perhaps someone over there could sprout some value-seeking sense and hit some solid doubles.
Seattle’s traffic isn’t as bad as L.A.’s, but the fact that the two are comparable in this regard is shocking.
The state ferry system, responsible for moving cars and people between the mainland and the myriad islands of the Puget Sound has recently shut down some routes, as they’ve determined that some of their boats are no longer safe. Appropriate funding to ensure that service is maintained has not been forthcoming.
The Alaskan Way Viaduct presents another problem. The elevated section of highway 99 is old, unsightly, and “seismically vulnerable” – cityspeak for “We’re doomed!” in the event of an earthquake.
To top that off, the Evergreen Point Floating Bridge connecting the Eastside to Seattle is in need of enlargement and/or replacement.
All of this comes at a time when planning, spending, and action on these big transportation issues has been lacking, and the economy looks increasingly gloomy, which will certainly tighten public spending that any such project(s) would rely on.
Governor Christine Gregoire has not been the lightning-rod leader on these issues that the state needs (her website shows her strong commitment to ending our problems with its feature on her family dog, Trooper, who has apparently just turned two).
Nobody else (Greg Nickels, et al) has stepped up to the plate to fill the void on transportation leadership.
Gubernatorial candidate Dino Rossi recently proposed a statewide transportation plan that addresses many, if not all, of the aging-infrastructure and traffic bottlenecks that confound Washington commuters.
Sadly, his plan isn’t perfect:
Mark Hallenbeck, director of the Washington state Transportation Center at the University of Washington, said Rossi’s numbers are “completely divorced from reality.”
“He lowballs almost all the estimates and never says where all the funds are going to come from. It’s a political statement. It’s complete silliness,” Hallenbeck said.
Rossi isn’t forthcoming on what programs will be cut to generate the promised $15 billion in spending to finance his lofty proposal. Critics like Mr. Hallenbeck above argue that Rossi’s plan would in reality cost much more than $15 billion and slash spending on other programs including education and healthcare. Mr. Rossi supports diverting $10 billion in new and used-car sales-tax revenue from the state’s general fund (which already faces a $2 billion deficit) to help finance the transportation plan. All that ends up turning the state’s budget into a sleight-of-hand game, with taxpayers footing the bill for the deficit in the end. Why not find a way to do all of this without increasing the deficit (or while eliminating it altogether?)
Rossi does introduce some fantastic new ideas. I like the idea to move the auto sales-tax revenue to finance transportation projects. However, it needs to be comprehensive and feasible, eliminating shortfalls in the state’s general fund.
Hopefully, Rossi will get to implement some of his ideas, or at least some of them will be embraced by his opponent in order to ease congestion and please Washingtonians. The last thing we need is old ideas and no action.
Albert Einstein is quoted as saying that compounding interest is “the most powerful force in the universe.”
“Media mogul David Geffen [...] recently spent about $10 million on a 1,473-square-foot two-bedroom house [in Malibu]. [...] What makes the transaction interesting is that Geffen owned this same property once before. He bought it in 1996 for approximately $1.2 million and sold it two years later…”
David Geffen bought it in 1996 for $1.2 million, sold it, and bought it back 12 years later for $9.8 million (which amounts to a more than 800% markup over the original purchase price).
Seems like Geffen got taken, no? Well, the magic of compound interest suggests otherwise. See, that 800% gain over 12 years amounts to only a 19% annual property appreciation rate, and shrewd businessmen like Mr. Geffen can often increase their net worth at rates above that level. They have investment options such as private equity funds (which generally aren’t available to those worth less than 8 figures) which historically generate returns above 25%. Warren Buffet, the famed stock investor, has averaged gains above 25% over the last 30 years. If we assume Mr. Geffen was using appropriate instruments to increase his wealth at these rates, then perhaps his $1.2 million sale and $9.8 million repurchase make sense:
$1,200,000 * 1.2510 = $11,175,870
$11,175,870 – $9,800,000 = $1,375,870.
Mr. Geffen’s gains from investments at an assumed 25%/year on $1.2 million dollars from 1998 to 2008 would turn his principal into $11,175,870 pre-tax. Buying the home back in 2008 for $9.8 million means that he would pocket an additional $1,375,870 (his investment gains minus the 2008 purchase price), would have avoided paying waterfront property taxes for 12 years, and still own the home. The only thing that he would’ve missed out on is use of the home for those 12 years, which wouldn’t hurt Mr. Geffen at all because he already owns a multi-lot palace nearby. This calculation is extremely conservative – Geffen probably pocketed much more than this projected $1.375 million because he probably sold the home in 1998 for more than the $1.2 million that he paid.
Assuming a 10% appreciation rate on the beach house in 1996 and 1997, Geffen would’ve sold the home for $1,452,000 in 1998, increasing his investment principal by $252,000, and his total to $13,522,000 in 2008, leaving him an additional $3,722,000 instead of the $1,375,870 we calculated earlier without adjusting for real-estate appreciation.
Perhaps Mr. Geffen didn’t let compound interest beat him, and instead, he taught the power of interest a lesson.
Israel and Palestine can’t seem to agree on anything.
Any agreement that would further the peace process is stifled by two inconvenient realities:
-No agreements can be debated in the first place because one side, Palestine, is politically fractured. The internationally-recognized but impotent Fatah government controls the West Bank, and the universally denounced and politically radical Hamas government controls the Gaza Strip. No government will agree to negotiate with Hamas due to their ties to terrorism, thus hampering discussions.
-Any potential agreement between the two states would be politically infeasible for an Israeli leader to endorse. An Israeli leader calling for the return to 1967 borders or for the return of the Golan Heights to Syria would face strong opposition from both the Knesset and the Israeli media (not to mention residents of settlements). Though advancing the peace process, one might decimate their chances for re-election.
So, how do humans negotiate for progress when nobody is willing to negotiate in the first place?
The only solution is for an outsider to negotiate an agreement, drawing concessions from both sides. The Solution is named Jimmy Carter.
Sadly, the solution is not being welcomed by the arrogant and ignorant Israeli government. Israel’s ambassador to the United Nations called former President Jimmy Carter “a bigot” yesterday for meeting with the leader of the Hamas in Syria.
Are ad hominem attacks the new standard Israeli response to all peacemaking attempts?
Now, I’m not defending Hamas. I don’t think anyone could lay out an argument that legitimizes war or terrorism as they practice it. However, I do believe that to defeat Hamas and bring back support of the relatively reasonable Fatah government in Palestine, Israel must negotiate with Hamas so as to end the suffering of the Palestinean people in Gaza by ending the sea and land blockade that strangles their economy. Ending that suffering will erode the popular support of radical Hamas.
Hamas gets support because the people feel they have no one else to turn to. We saw the same in 1930′s Germany. With this much historical reference, I believe the Solution is before us. Will anyone listen?
Israel’s UN ambassador calls Jimmy Carter ‘a bigot’
Playing Pacific Dunes, one of the top courses in North America:
(click photos to enlarge)
During his speech, he outlined 10 steps he believes would assist humanity in its quest towards equality, ending poverty, and creating a sustainable global society. Two of the steps, number two and eight, involve reducing population to responsible levels. Here are some of Sachs’ comments on the issue:
The second challenge is that not only is the per capita income going up but the world population is on track, on the relatively optimistic medium forecast of the United Nations Population Division, to reach more than 9 billion people by mid-century — another 2.5 billion people, net, added to the global population on a planet that’ already extraordinarily crowded. With all of that increase, at least in the initial point, coming in impoverished countries that already are not creating jobs/livelihoods, and in many cases are already under remarkable environmental stress. But the poorest of the poor are still having 6 or 7 children, maybe 4 or 5 survive to adulthood, each mother is raising 2 daughters to adulthood, each generation therefore is roughly doubling every 25 years, in the poorest lands. And this is against a backdrop of extreme poverty, massive disease burden, great water scarcity, and a tremendous amount of conflict. And the migration pressures that will come as climate change interacts with population growth are going to be phenomenal. And of course we don’t even want to talk about those things. And we have a global policy sophisticated enough to say, basically, ‘people get shot when they try to cross borders’.
So population is the second great challenge. And it’s one that’s not even discussed anymore, because first it’s not deemed to be a matter of concern to our government, and reasons such as, I suppose, the religious right, and others who don’t want to talk about it, and we’ve forgotten about it in public discussion, and again, to our [own] peril.
Eight. I would start refinancing, again, the UN Population Fund. Do you know that we cut all funding for the United Nations Population Fund at the beginning of the Bush administration? Just to make sure that the poorest and most unstable countries in the world don’t have contraception, don’t get their fertility rates under control, and therefore, somehow, are going to help solve these problems in the world, makes absolutely no sense from any point of view: economic development, environmental sustainability, or US national security. And we have to get back to some basic realities: the United States used to lead the effort to help spread family planning, voluntary fertility reduction, contraceptive availability, access to sexual and reproductive health services. And it would make a world of difference for our own security to continue to do that.
Hopefully, Sachs won’t be the last global power broker come to his senses, and embrace responsible population as the real solution to global problems.
Dealbreaker posted a pretty funny excerpt from (of all things) a bond prospectus issued by the Republic of the Philippines.
The country’s bond prospectus includes a list of risks, and the following were found under “Recent Political Developments”:
Election Protest of Legarda
Arrests in Connection with Coup Attempts
Impeachment Complaints Filed Against President Arroyo
Communists and Affiliated Groups
Abu Sayyaf and Moro Islamic Liberation Front
Government Expropriation of Ninoy Aquino International Airport Terminal 3
Proposed Amendments to the Constitution
So what, maybe they’ve got a few “risks”?
It reminded me of this exchange between a panelist and an editor during a 1986 stock-picking roundtable for Barron’s, as documented by Peter Lynch:
Ed Goodnow (a panelist touting Philippine Long Distance Telephone Co.): I understand the service is not so good out in the provinces. One of the problems is that it’s hard to get the guys to go up the poles to fix the lines because they sometimes get picked off by snipers. But other than that, they’ve got a very solid operation.
Barron’s Editor Alan Abelson: Do you call that a “long shot”?
Death and taxes.
The latter I took care of early this year, the former I recently approached twice.
If you can’t guess what that means, I’ll spell it out. I was near death twice this last weekend.
On Friday morning, I was nearly choked to death by a drunken and very violent member of University of Washington’s Zeta Psi fraternity, John Getty, from Gig Harbor. He choked me so forcefully and for so long that I passed out. In my book, that kind of choking is called attempted murder.
On Sunday (the 13th, of all lucky days), my girlfriend and I bid adieu to our friends at the Mariners game and took a taxi home to avoid getting rained on. Our taxi spun 360 degrees at full speed on the highway and crashed into a cement barrier, with us in the back.
Luckily, I’m (we’re) fine.
Better luck next weekend? I sure hope so.
Barry Goldwater is a true patriot, a promoter of freedom, and, from what I read in these quotes attributed to him, he’s pretty funny as well:
“If everybody in this town connected with politics had to leave town because of chasing women and drinking, you would have no government.”
“Everyone knows that gays have served honorably in the military since at least the time of Julius Caesar.”
“You don’t have to be straight to be in the military; you just have to be able to shoot straight.”
“I think any man in business would be foolish to fool around with his secretary. If it’s somebody else’s secretary, fine.”
“If you don’t mind smelling like peanut butter for two or three days, peanut butter is darn good shaving cream.”
Goldwater was an opponent of religion being injected into politics. He famously spoke this great condemnation:
“On religious issues there can be little or no compromise. There is no position on which people are so immovable as their religious beliefs. There is no more powerful ally one can claim in a debate than Jesus Christ, or God, or Allah, or whatever one calls this supreme being. But like any powerful weapon, the use of God’s name on one’s behalf should be used sparingly. The religious factions that are growing throughout our land are not using their religious clout with wisdom. They are trying to force government leaders into following their position 100 percent. If you disagree with these religious groups on a particular moral issue, they complain, they threaten you with a loss of money or votes or both. I’m frankly sick and tired of the political preachers across this country telling me as a citizen that if I want to be a moral person, I must believe in “A,” “B,” “C” and “D.” Just who do they think they are? And from where do they presume to claim the right to dictate their moral beliefs to me? And I am even more angry as a legislator who must endure the threats of every religious group who thinks it has some God-granted right to control my vote on every roll call in the Senate. I am warning them today: I will fight them every step of the way if they try to dictate their moral convictions to all Americans in the name of “conservatism.”
Goldwater was famously a critic of Jerry Falwell, as well as the rising contingent of fundamentalist Christians in the Republican party in the 1990′s, who set the stage for the election of George W. Bush in 2000. Had Goldwater been alive today, he’d undoubtedly be a harsh critic of Bush’s big-government tendencies, as well as his policies on faith-based initiatives.
Anyone following the elections in Zimbabwe knows that, according to any impartial count, Morgan Tsvangirai has won. Sadly, the government hasn’t yet released a final count (though local tallies have already been posted on the doors of all polling places). The Movement for Democratic Change, which has won the election, said that about 200 of its polling agents, campaign workers and supporters have been arrested, beaten or kidnapped since the March 29 election.
The honorable thing to do now is to pressure the government to step down and allow the winner’s government to reign. Surrounding nations (and the world) should call for this to take place, and should meet with, congratulate, and declare support for the winner, Mr. Tsvangirai.
From the New York Times:
On Wednesday, the opposition standard-bearer and self-proclaimed winner of the election, Morgan Tsvangirai, traveled to Botswana, where he met that nation’s president, Seretse Khama Ian Khama. The opposition spokesman, Nelson Chamisa, said that Mr. Tsvangirai would meet with heads of state in many of Zimbabwe’s neighbors “to get them to appreciate the magnitude of the crisis in Zimbabwe.”
Sadly, some enemies of democracy have recently shown that they cannot be trusted to call upon Robert Mugabe’s government to do what is right.
But South Africa, the one country most likely to hold sway in Zimbabwe’s crisis, took pains on Wednesday to distance itself from the [winning party]. A spokesman for South Africa’s president, Thabo Mbeki, said he had no plans to meet [election winner] Mr. Tsvangirai, although a spokesman [..] said Mr. Tsvangirai had requested a meeting.
Separately, South Africa dismissed calls for an international effort to address Zimbabwe’s crisis in the United Nations, saying the political situation there was an internal political matter. [...] Mr. Mbeki, Africa’s favored mediator in Zimbabwe’s political crisis, has sometimes been accused of treating Mr. Mugabe’s harsh rule with kid gloves. Asked Wednesday whether South Africa had again rebuffed Mr. Mugabe’s opponents, Mr. Chamisa replied, “Time will tell.”
The outspoken Mr. Mbeki
The world should condemn Thabo Mbeki in his failure to support the election winner. Though I understand that South Africa prefers Zimbabwe’s rule under a dictator to another civil war in the region, Mbeki needs to understand that this election outcome could and should proceed as a peaceful handover of power, not unlike the Orange Revolution in Ukraine, which shared many similarities with this development including vote rigging and a potential runoff.
According to a breaking MSNBC article, the Southern Africa Development Community (a regional alliance of governments) is to hold a meeting with Mugabe, Mbeki, and Tsvangirai in attendance, and Tsvangirai may meet Mbeki beforehand, contrary to earlier reports:
“Tsvangirai, who was traveling throughout the region to ask Mugabe’s peers to push him to end the standoff, was headed Thursday to South Africa to meet with President Thabo Mbeki, Mlilo said. “If Mr. Tsvangirai is in town and before the president leaves for the next meeting and his program allows it, it is important to hear what Mr. Tsvangirai has to say,” said Aziz Pahad, South Africa’s deputy foreign affairs minister.
The Seattle Times’ crack team of investigators has uncovered that *gasp* 3rd avenue has a bunch of loud, sketchy thugs who loiter and cause trouble.
“There are a lot of young kids with nothing to do and not a lot of police,” said Leesa Warren, a clerk at the Money Tree on Third Avenue. “Once I saw one guy hit another over the head with a hammer. He just went down. When the police do come everyone scatters.”
Alan Jacobs, the manager at Leroy Menswear on Pike, said little has changed in the neighborhood even though a number of businesses have installed security cameras.
“Still the same crack addicts running around. Even with cameras they continue to do it,” he said.
These complaints about the downfall of the neighborhood come from employees of a usurious payday-lender to the poor and a maker of “colorful pimp-suits”. Clearly, the presence of their classy establishments is not responsible for attracting any of this riffraff onto our honorable city’s streets!
R.B Harrison, president of Macy’s Northwest, said the area’s congestion and litter are of concern to the department store, but he doesn’t believe business at the chain’s flagship store on Third is being hurt by the problems.
Really? Well, Mr. Harrison, I’d like to let it be known that I wouldn’t be caught dead in your store, and the sketchy location and sketchy people are much to blame. Why is it, then, that I feel completely at home inside Nordstrom, just one block away, on 5th?
Have any of your former schoolmates made it big?
My friend James Grabowski always wondered aloud at who in our graduating class would break through first. We both put our money on Josh Caldwell, who has since won an MTV movie award for his work as an independent filmmaker.
Little did we know that Bellevue High School alum Nick Kamerling would garner press at such a young age (22) for being involved in a pump-and-dump stock scam:
A Seattle grand jury on Wednesday indicted a Bellevue woman and her son, along with six others, on 21 federal counts, accusing them of participating in a securities-fraud scheme.
Beverlee Kamerling, 63, and her son, Nicholas Alexander, 22, allegedly got control of four small companies, caused shares of those companies to be issued unlawfully and promoted the sale of those shares through hyperbolic news releases and unsolicited faxes.
The U.S. attorney’s office in Seattle also alleged that the defendants committed four counts of mail fraud, one count of international money laundering, and several counts of conspiracy to obstruct justice, perjury and obstruction of justice.
The indictment also alleges that Kamerling failed to pay taxes on nearly $850,000 in 2004 and 2005. Some of that money was derived from the securities scheme.
Bellevue attorney Tolan Furusho, the Kamerlings’ business partner, has pleaded guilty to conspiracy and tax-evasion charges and is cooperating in the investigation.
Nick is being explicitly targeted for shredding documents in order to frustrate the investigation, and switching to untraceable prepaid cellphones in order to evade FBI wiretaps.
It’s too bad that Nick’s shadowy family got him involved in their shady dealings. They should’ve learned their lesson from their many previous incidents with law enforcement.
For the Kamerlings, this marks only the most recent in a strings of legal troubles and improprieties. Beverly was given a 10 year ban from dealing in Canadian securities in 1989 amid charges of fraud, and once safely south of the border, she soon found herself touting art in what has become a continent-wide scam. Beverly and conspirators used shadowy art galleries and rotten accounting to pump up prices of art pieces by relative unknown “Sky Jones”, which they sold to unsuspecting amateur collectors.
A 2003 SEC complaint alleged that one co-conspirator overstated the value of forty-one paintings by “Sky Jones,” which they claimed had a value of $1.7 million. The SEC said it proved at trial that the paintings were worth no more than $10,350. Sky Jones, whose real name is Michael Richard Whipple, cranked out more than 8,000 pieces of “artwork,” mostly while holed up in a trailer outside Fort Worth, Tex., without electricity, running water or even a telephone. He invented fictional appraisers to value his own paintings at astronomical values. While Sky Jones was not a household name in Sotheby’s circles, the painter surmounted this problem by using numerous alto egos, especially Joseph B. Banker, a fictional character who, as founder of the Bankers Art Museum, was a big fan. Bankers Art Museum currently lists Beverly Kamerling as an “offender”, a.k.a. an art thief who has outstanding “unreturned consignments” by the artist.
After the art scheme, Ms. Kamerling went back to illegal stock touting. She secretly gained control of United Fire Technology sometime between 1994 and 1997, then made overzealous, misleading, and false statements about the company while illegally selling stock. Kamerling was ordered to disgorge her ill-gotten gains of $1.06 million, pay an additional $412,000, and be permanently prohibited from serving as an officer or director of any publicly traded corporation. On June 9, 2000, Kamerling’s assets were ordered frozen after she failed to pay the $1.5M disgorgement. Despite the fact that she had funds to pay at least part of the judgment, during the three months following the judgment Kamerling used nearly $400,000 for personal expenses, including the purchase of $68,000 of items from an October 1999 auction of Marilyn Monroe’s personal property. Kamerling displayed some of the Marilyn Monroe items she purchased on an Oprah Winfrey broadcast on November 8, 1999. Her shady lawyer Mr. Furusho said that Ms. Kamerling was bidding on behalf of others, with their money. Right.
In 2004, she was involved in fraud involving Alberta Goldtech Mining Corp. She was fined $75,000 and was permanently banned from Alberta capital markets. Tolan Furusho, her lawyer, was fined the same amount.
Since then, they’ve been busy. Their current legal trouble counts fraudulent activities involving America Asia Energy, Coattec Industries Inc., Detex Security Systems Inc. and Global Gaming Network Inc. All are based in Washington except Detex, which is based in Tel Aviv, Israel.
My question is, how do these kinds of criminals continue to evade meaningful punishment? They keep at it, failing to learn their lesson, and they’re always able to move on to more gullible targets elsewhere. What’s the solution to this kind of rampant fraud? Permanent imprisonment?
I hope the next notable Bellevue High alum attains notoriety for something considerably more legal and honorable.
UPDATE: October 20th, 2008
According to anonymous sources close to the defendant(s), Mr. Kamerling (AKA Nicholas Alexander) was confined to home detention with an ankle bracelet for months before ultimately being convicted of the crimes charged.
UPDATE: October 26, 2008
Nick is confirmed to be an inmate at the Federal Detention Center, Seatac, Washington.
When government oversteps its bounds and imposes undue regulation upon private business, it’s rare that anything good comes of it.
Ill-advised government mandates on lenders to lend money to poor people are partly to blame for the subprime mortgage meltdown, according to economics professor Stan Liebowitz:
In the 1980s, groups such as the activists at ACORN began pushing charges of “redlining” – claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants; this allowed various studies to be ginned up that seemed to validate the original accusation. In fact, minority mortgage applications were rejected more frequently than other applications – but the overwhelming reason wasn’t racial discrimination, but simply that minorities tend to have weaker finances.
Yet a “landmark” 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic.
That study was tremendously flawed – a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination.
…No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: “discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.”
Some of these “outdated” criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant’s ability to manage debt.
Sound crazy? You bet. Those “outdated” standards existed to limit defaults. But bank regulators required the loosened underwriting standards, with approval by politicians and the chattering class. A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities. It also let community activists intervene at yearly bank reviews, shaking the banks down for large pots of money.
…Flexible lending programs expanded even though they had higher default rates than loans with traditional standards. On the Web, you can still find CRA loans available via ACORN with “100 percent financing . . . no credit scores . . . undocumented income . . . even if you don’t report it on your tax returns.” Credit counseling is required, of course.
Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed “the most flexible underwriting criteria permitted.” That lender’s $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.
Who was that virtuous lender? Why – Countrywide, the nation’s largest mortgage lender, recently in the headlines as it hurtled toward bankruptcy. In an earlier newspaper story extolling the virtues of relaxed underwriting standards, Countrywide’s chief executive bragged that, to approve minority applications that would otherwise be rejected “lenders have had to stretch the rules a bit.” He’s not bragging now.
There are myriad reasons to oppose Hillary Clinton’s whitehouse bid, but something that happened this weekend put me over the edge.
Clinton has voiced her opposition to free trade before, primarily during the battle over the Corn Belt states, like Ohio. When news hit the wires that her chief pollster/strategist Mark Penn took a meeting with Colombian government to help them secure passage of a bilateral free trade agreement, Clinton fired him. Apparently it was no matter to Hillary that Mark Penn’s meeting was done in his private-sector role as a public relations consultant and completely out of the scope of the presidential campaign.
Penn’s firing paints Hillary not only as an outspoken opponent of free trade, put also an opponent of free speech and freedom of thought. Penn assisted a cause that Hillary is publicly opposed to, and instead of respecting the difference of opinion between them, she punished him for his independence.
Americans (and all citizens of the world) need to stand up for good economics in the name of free trade, and stand against those who stifle progress and the expansion of prosperity. Hillary Clinton, I stand against your trade policy, and strongly suggest you take a basic economics class and banish your Caveman-era protectionism.
- Featured (492)
- Politics (251)
- Humor (191)
- No F***ing Way (187)
- Music (174)
- Business (173)
- Philosophy (162)
- Finance (147)
- Quotes (137)
- Seattle (125)
- Technology (114)
- Economics (102)
- Europe (97)
- Conversations (86)
- Emerging Markets (67)
- Must. Have. (66)
- Fashion (62)
- The Web (60)
- Photography (59)
- Cellphones (49)
- Out and About (41)
- Design (40)
- Travel (34)
- Responsible Population (32)
- Sports (31)
- Video (30)
- Gotham (28)
- What I'm Reading (28)
- City of Angels (26)
- History (24)
- Health (18)
- Restaurants (10)
- Movies (6)
- F1 (3)
- Art (3)
- January 2013
- December 2012
- November 2012
- August 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- June 2011
- February 2011
- January 2011
- December 2010
- November 2010
- October 2010
- September 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
- May 2009
- April 2009
- March 2009
- February 2009
- January 2009
- December 2008
- November 2008
- October 2008
- September 2008
- August 2008
- July 2008
- June 2008
- May 2008
- April 2008
- March 2008
- February 2008
- January 2008
- December 2007
- November 2007
- October 2007
- September 2007
- August 2007
- July 2007
- June 2007
- May 2007
- March 2007
- July 2005
- May 2004
- July 1999