February 28, 2009

Everybody loves a winner and everybody hates a loser

It's ironic that Obama gets elected with big plans to soak the rich at the very moment that the rich are suddenly much less soakable, but it's not really a random fluke. After all, if the markets hadn't collapsed, the margin would have been much closer, and Obama might even have lost.

In theory, it makes sense to squeeze the rich when the rich are riding high, and coddle them when they are down, but that's hard for human beings to do. We root for winners and despise losers, so we usually spoil businessmen and financiers when they are going great guns and smack them around after they stumble. (See "1920s-1930s, History of").

The success of Reagan's 1981 tax cuts stemmed from reversing the usual timing and giving the business class a boost when they were down and feeling unloved and unmotivated. But that's rare.

My published articles are archived at iSteve.com -- Steve Sailer

February 27, 2009

Two predictions about Obama's budgets

Obama's economic thinking remains stuck in 2007. He assumes he can turn American into a social democratic state by taxing the top two percent, by closing loopholes on hedgefund managers, and the like.

Yet, the problem of the rich getting richer largely solved itself in a few days in early autumn of 2008. I suspect that hedge fund managers won't be a bottomless source of taxable income in 2009, and for a number of years to come.

So, Obama will eventually realize that he'll have to squeeze the upper middle class: families making from, say, $90,000 to $250,000. He'll have to raise income tax marginal rates on this broad expanse.

But a lot of Obama voters fall in this range. Moreover, in the Blue States, $90,000 to $250,000 isn't necessarily a huge amount of money. A family of four making $150,000 in Tulsa is probably living well, while one in Manhattan is not.

So, I predict that eventually, Obama will be tempted to try to adjust the tax code for the local cost of living: impose higher tax rates on the Oklahoma family making $150k than on the New York family making the same income.

My published articles are archived at iSteve.com -- Steve Sailer

The Armenian route to a cheap but prestigious diploma

With everybody looking to cut down on expenses, I'm passing along a way that some Californian families could save a fortune on higher education. My wife heard this from a young Armenian-American lady. Armenians tend to to be high IQ but not as marinated in the Stuff White People Like verities as other high IQ groups, so they can bring a fresh perspective to working the status game.

This young woman dropped out of a private high school after tenth grade, took and passed the GED, and then enrolled at the local community college. Community Colleges tend to have a mediocre but decent learning environment because the students there want to be there. If they don't want to be there, they stop coming to class, so JuCos are not like high school where kids who don't want to be in high school disrupt classes.

She got her Associates of Arts degree by age 18, and then transferred to UCLA. (Although UCLA is very hard to get into as a freshman, it takes about 3000 to 4000 transfers per year, typically from California's community colleges. In fact, she was probably more likely to get into UCLA as a junior than as a freshman.) She was on track to get her prestigious UCLA degree at age 20, and then get a job.

So, she saved the last two years of Catholic high school tuition at say, $10k per year. JuCo tuition is minimal and she lived at home. Tuition and room and board at UCLA will probably cost her affluent parents $20k per year over two years. She can probably get a job paying $30k at age 20. Net cost at age 22 (including the $60k earned working) versus four years of private high school and four years of UCLA: zero for this route versus $100k for the traditional route.

My published articles are archived at iSteve.com -- Steve Sailer

Offering Obama a hand

Louis Soares writes in "A Postsecondary Degree or Credential in Every Pot:"

In his speech to Congress and the nation Tuesday night, President Barack Obama set a bold goal of retaking America’s global leadership in the number of college graduates by 2020. ...

For many Americans, it may come as a surprise that their country is no longer number one in the world in college attainment, with over 14 million undergraduates enrolled in higher education institutions in 2008 alone. But just because students enroll in college doesn’t necessarily mean they finish and attain a degree.

Some insight into this puzzle can be provided by digging a bit deeper into the president’s startling statistic that only 50 percent of undergraduates actually finish their degrees. While the proportion of individuals enrolled in college in the United States has grown since the 1970s, the proportion of students receiving diplomas has declined during the same period. Currently less than 60 percent of students entering four-year institutions earn a bachelor’s degree, and barely one-fourth of community college students complete any degree within six years. As a result, the United States now ranks 10th in college attainment for its 25- to 34-year-old population, down from third in 1991, according to the Organization of Economic Cooperation and Development.

Well, it's not really a puzzle why this is happening, although Barack Obama will never, ever tell you it.

But, here’s a reform for making some degree of “college attainment” more feasible, one that I’ve never seen suggested before:

Why shouldn’t four year colleges give out two year Associates of Arts degrees?

For example, say you graduate from a Los Angeles public high school with a C+ GPA, and you average 450 on the SAT test. You could go to LA Valley Community College and get an AA degree after two years and then, if you are so inclined, transfer to a four year institution to pursue a bachelor's. But everybody tells you that a four-year college is much more prestigious, so you decide to enroll at Cal State Northridge. Over the next six years, you finish three years worth of classes, but you are really stumped by a couple of required classes that you’ve failed twice, and now you are 24 and your girlfriend is pregnant and wants you to work full time, and so you drop out.

And thus you will go through life as a mere high school graduate, whereas if you had gone to community college out of high school instead of to a fancier Cal State, you’d at least have an AA degree to your name.

So, why not have four year colleges award AA degrees as well as BA degrees? Why shouldn't this guy have an AA degree from Cal State Northridge?

Similarly, as I've proposed before, high schools could award Associate high school degrees to those who complete the requirements through tenth grade, which would give the low end kids a plausible goal to keep them motivated into sticking with school through tenth grade, and provide future employers with a way to distinguish the dumb but okay kids from the real losers.

My published articles are archived at iSteve.com -- Steve Sailer

February 26, 2009

Slippery slopes and boiling frogs

Casey Martin, who was born with a terrible birth defect that crippled one of his legs, leaving him in recurrent pain, starred on Stanford's famous 1995 college golf team along with the full-blooded Navajo Notah Begay, who went on to win four times on the PGA tour before alcohol brought him down, and with Eldrick Woods Jr., who, last time I heard, remains employed in a golfing capacity.

Despite his disability, Martin enjoyed enough success on the minor league Nike tour to qualify for the PGA tour in 2000. His lawsuit under the Americans with Disability Act to be allowed to use a golf cart on the PGA tour went all the way to the Supreme Court, where he won in 2001.

Martin's was not a popular victory with players, with both Jack Nicklaus and Arnold Palmer protesting that it would open the door to other players getting a note from their doctor to be chauffeured about the course.

It was easy to imagine a player with a bad back like Fred Couples trying to get permission for a cart, and then the whole thing descending into carts everywhere.

And yet, eight years later, the PGA Tour hasn't slid down the slippery slope. So far, as far as I can tell, a cart has only been used once by somebody other than the severely unlucky Martin: Erik Compton rode in one tournament last fall because he had gotten his second heart transplant only a few months before.

Essentially, golf has a fairly healthy culture of sportsmanship where top players don't want to be seen as abusing loopholes. So, it hasn't been hard so far to restrict cart-riding to rare human-interest stories like Martin and Compton.

In the early 1970s, the Wall Street credit-rating companies (S&P, Moody's, Fitch) switched over from charging bond-buyers for rating to charging bond-issuers. In the mid-1970s, the government started writing regulations requiring certain levels of ratings from the big three ratings firms: in effective, establishing a legal cartel.

Anybody with a suspicious mind can guess what happened next: right down the slippery slope. The ratings firms succumbed to this conflict of interest and exploited their protected position to get rich by rating crud as gold.

Except, that didn't happen right away. The slope wasn't all that slippery. Apparently, the culture was sound enough that it took a couple of decades for the ratings firms to fall prey to the incentives.

Unfortunately, by then, everybody had forgotten that the credit ratings firms have a huge conflict off interest. They'd had that obvious conflict of interest for so long that people had stopped worrying about it. When I Google for it, I can't find an article talking about their "conflict of interest" before May 2007. A 2006 reference book entitled the Euromoney Encyclopedia of Debt Finance blandly asserts:
Although there would appear to be a conflict of interest as a result of providing a supposedly independent rating in exchange for a fee, this risk is fully mitigated by the market discipline imposed by the need for investor acceptance of the ratings.

Or, perhaps more accurately, the conflict of interest won't be a problem until it starts being a problem.

My published articles are archived at iSteve.com -- Steve Sailer

Obama's budget will solve problem of rich getting richer.

Dave Leonhardt enthuses in the New York Times:

The budget that President Obama proposed on Thursday is nothing less than an attempt to end a three-decade era of economic policy dominated by the ideas of Ronald Reagan and his supporters.

The Obama budget — a bold, even radical departure from recent history, wrapped in bureaucratic formality and statistical tables — would sharply raise taxes on the rich, beyond where Bill Clinton had raised them. It would reduce taxes for everyone else, to a lower point than they were under either Mr. Clinton or George W. Bush. And it would lay the groundwork for sweeping changes in health care and education, among other areas.

More than anything else, the proposals seek to reverse the rapid increase in economic inequality over the last 30 years.

Moreover, Obama's budget, we are informed, will also the problem of increasing carbon emissions.

And, guess what? I bet that in 2009 the rich will be less rich than in 2007 and less carbon will be emitted.

My published articles are archived at iSteve.com -- Steve Sailer

February 25, 2009

Must Securitization Mean Secretization?

On this question of whether there's really a credit crunch, Robert Samuelson writes:

"So, we've gone from too much credit to too little. Contrary to popular wisdom, banks -- institutions that take deposits -- aren't the main problem. In December, total U.S. bank credit stood at $9.95 trillion, up 8 percent from a year earlier, reports the Federal Reserve. Business, consumer and real estate loans all increased. True, lending was down 4.7 percent from the monthly peak in October. But considering there's a recession, when people borrow less and banks toughen lending standards, the drop hasn't been disastrous.

The real collapse has occurred in securities markets. Since the 1980s, many debts (mortgages, credit card debts) have been "securitized" into bonds and sold to investors -- pension funds, mutual funds, banks and others. Here, credit flows have vaporized, reports Thomson Financial. In 2007, securitized auto loans totaled $73 billion; in 2008, they were $36 billion. In 2007, securitized commercial mortgages for office buildings and other projects totaled $246 billion; in 2008, $16 billion. These declines were typical.

Given the previous lax mortgage lending, some retrenchment was inevitable. But what started as a reasonable reaction to the housing bubble has become a broad rejection of securitized lending. Terrified creditors prefer to buy "safe" U.S. Treasury securities. The low rates on Treasuries (0.5 percent on one-year bills) measure this risk aversion.

Somehow, the void left by shrinking securitization must be filled. There are three possibilities: (a) securitization revives spontaneously -- investors again buy bonds backed by mortgages and other loans; (b) commercial banks or other financial institutions replace securitization by expanding their lending; or (c) the government substitutes its lending for private lending. Until now, it's been mostly (c). "

So, nobody is buying securitized assets anymore. Which is hardly surprising for two reasons:

1. American needs to pay off some debts, so we're buying fewer cars, etc.

2. The mortgage-backed securities fiasco shows that securitization too often equals secretization.

As the malaprop-prone brother-in-law (or, perhaps, the unnamed narrator) in my recent short story about the Housing Bubble in Southern California pointed out:
"In fact, I think I'm going to pick up one of these babies, too, and sell it in six months. We'll be neighbors! Sort of. The mortgage company get a little snottier about down payments and interest rates when you tell them it's an investment, so I'll just check the "owner occupied" box. The broker doesn't care. He gets his commission, then Countrywise bundles it up with a thousand other mortgages and sells it to Lemon Brothers. The Wall Street rocket scientists call this "secretization" because nobody can figure out what anything’s worth. It's a secret.

"Lemon sells shares in the package all around the world. The Sultan of Brunhilde ends up owning a tenth of your mortgage. Do you think the Sultan's going to drive around Antelope Valley knocking on doors to see if you're really living there?"

The geniuses on Wall Street have finally figured out that they can't use the Laws of Probability to convert a big pile of absurd IOUs into AAA securities. Worse, securitization means they can't figure out how bad it is.

So, the question is whether the entire process of securitization is salvageable? Would increased transparency help? Wired has an article by Daniel Roth called "Road Map for Financial Recovery Radical Transparency Now!" about XBRL, a standardized set of tags to make financial documents easily comparable. I don't know if this particular idea would work for securitized assets, but it doesn't sound impossible to develop standards that would get the job done.

I worked for many years for marketing research firms that used the huge amount of data from scanned bar codes on supermarket products. The UPC code was developed by a private industry cooperative initiative in the 1970s and has proved such a huge success that it long ago became a seamless part of life.

Is there really a credit crunch?

President Obama announced that the economy is hurting because of a credit crunch. But my teenage son, who recently got his first credit card, is still getting a couple of offers per week for a second credit card.

Perhaps he's the only one in the country. If so I really don't think he's going to be able to pull the economy out of the doldrums singlehandedly because most of his credit card bill line items look like this:

Burrito Barn $3.49
In-N-Out Burger $2.99

I think we need an economic strategy that goes beyond my son saying, "Why, yes, I will have fries with that."

My published articles are archived at iSteve.com -- Steve Sailer

February 24, 2009

Wall Street's infatuation with Gauss

Felix Salmon has a readable article in Wired called "Recipe for Disaster: The Formula that Killed Wall Street" on David X. Li's wildly popular 2000 financial economics innovation, the Gaussian copula function, which was used to price mortgage-backed securities by estimating the correlation in Time to Default among different mortgages.

Li has an actuarial degree (among others), and that appears to have been his downfall: he assumed mortgage defaults were like Time to Death to a life insurance actuary: largely random events that could be modeled.

Steve Hsu's website Information Processing has a 2005 WSJ article on Li's Gaussian Cupola, for looking at events that are mostly independent but have a modest degree of correlation:

In 1997, nobody knew how to calculate default correlations with any precision. Mr. Li's solution drew inspiration from a concept in actuarial science known as the "broken heart": People tend to die faster after the death of a beloved spouse. Some of his colleagues from academia were working on a way to predict this death correlation, something quite useful to companies that sell life insurance and joint annuities.

"Suddenly I thought that the problem I was trying to solve was exactly like the problem these guys were trying to solve," says Mr. Li. "Default is like the death of a company, so we should model this the same way we model human life."

Uh, maybe, maybe not. There just isn't much in the field of life insurance where selling more life insurance increases the risk of death. The life insurance companies figured out the basics of moral hazard a long time ago: don't let people take out insurance policies on their business rivals or their ex-wives to whom they owe alimony. No tontines. Don't pay out on new policies who die by suicide.

In contrast, giving somebody a bigger mortgage directly raises the chance of default because they need more money to pay it back. Giving them a bigger mortgage because you are requiring a smaller down payment, in particular, raises the risk of default.

His colleagues' work gave him the idea of using copulas: mathematical functions the colleagues had begun applying to actuarial science. Copulas help predict the likelihood of various events occurring when those events depend to some extent on one another. Among the best copulas for bond pools turned out to be one named after Carl Friedrich Gauss, a 19th-century German statistician [among much else].

The Gaussian distribution (a.k.a., normal distribution or bell curve) works like this: Flip a coin ten times. How many heads did you get? Four. Write it down and do it again. Seven. Do it again. Five. As you keep repeating this flip-a-coin-ten-times experiment, the plot of the number of heads you get each time will slowly turn into a bell curve with a mean/median of five.

Now, that's really useful and widely applicable. Processes where you randomly select a sample will tend toward a bell curve distribution.

But the Housing Bubble didn't consist of fairly random events that everybody was trying pretty hard to avoid, like with life insurance. Instead, human beings were responding to incentives. The closest actuarial analogy might be the big insurance payouts that fire insurance companies got stuck with in the South Bronx in the 1970s when decayed businesses that were now worth less than their fire insurance payouts developed a statistically implausible tendency to burst into flames in the middle of the night.

As I said last fall:

Human life really isn't all that random. That's because human beings respond to incentives. If you treat human beings as if they are just mindless probabilistic events, whose risks you can diversify away by dealing with large numbers of them at a time, they will outsmart you. They will put down inflated incomes on their mortgage applications. They will claim to be owner-occupiers when they are just speculators who will rent out the property to Section 8 tenants when they get into a cash flow bind. They will bribe appraisers to report a higher than actual value.

Life insurance companies are in the selection business, not the influence business. Watching other people get rich buying and selling houses, however, influences behavior.

The life insurance actuarial model fails as an analogy for mortgages on other dimensions as well. For example, people die from a very large number of causes, making the distribution of deaths over time more Gaussian. Mortgages, in contrast, are more like being in the earthquake insurance business in California.

Further, Jim Morrison pointed out, the thing about life is that nobody gets out alive. In contrast, lots of people can imagine themselves selling the three houses in Temecula right at the top of the market and retiring to Dallas in comfort.

And there's a tournament aspect to competitive fields, such as homebuying. If you're in the Olympic boxing tournament and you get away with a few defensive lapses in your opening round match against a pudgy guy from Bhutan doesn't mean you can likely get away with them in the gold medal round against the Cuban. Similarly, when the median home price in California gets to $500k, it's not the same as when it was $200k. You can't use default data from when homes cost 40% as much. The margin for error has vanished.

Finally, the idea that just because there hadn't been a giant housing crash since WWII means there can't possibly be a giant housing crash is about 180 degrees backward. It's where there hasn't been a crash lately that you have to worry. What, did everybody expect the government to discourage home buying?

Statisticians need to be good with analogies, as well.

Happy 92nd birthday to my dad

That's our old trailer.

And here's one from his mid-fifties:


My published articles are archived at iSteve.com -- Steve Sailer

February 23, 2009

A business opportunity (shutting the barn door division)

We’ve all read about all the hundreds of billions of dollars lost by lenders and investors on mortgages made during the housing bubble that should never have been written in the first place due to low rent lying: Mortgage brokers telling buyers to make up jobs, income, spouses, and forget about other houses they own, previous bankruptcies, and the like. Appraisers adding 30% to values. Buyers claiming spouses they weren't married to, etc. etc.

I got to thinking: “If Procter & Gamble were in the mortgage industry, would they let themselves be taken to the cleaners by countless cases of petty fraud, the way Lehman Bros. and Washington Mutual and Fannie Mae and so many others did?”

No way.

If P&G were in the business of giving out a hundred billion in mortgages or buying hundreds of billions of other people’s mortgages, they would hire market research firms to monitor trends in the mortgage marketplace. They’d pay survey research firms to call up recent homebuyers to see how onerous their payments were turning out to be. They’d hire focus groups firms to talk to buyers and realtors and mortgage brokers to spill the beans about their business. They’d hire "mystery shopper" firms to pretend to be in the market for houses and see if any of the professionals were pulling any funny stuff. They’d have appraisers on their own payroll who were paid the same no matter how low they appraised the houses.

Procter & Gamble would spend the money to monitor the trillion dollar mortgage business as closely as they monitor the billion dollar toothpaste business.

But I’ve never heard of anybody being paid to monitor the mortgage market for monkey business. Have you?

By the way, if you think there might be a business opportunity here, go for it. Of course, even better, figure out what’s going to be the next Bubble after mortgages (alternative energy?) and set up systems that can help investors not be such damn fools in the future.

UPDATE: On second thought, the financial industry would just use marketing research reports on growing irrationality and funny business in the market to jump into the next big bubble even sooner and harder. Oh, well ...

My published articles are archived at iSteve.com -- Steve Sailer

Rotten boroughs are back

The next Census is a year away, and then legislative districts will be redrawn to reflect the new population. A crucial C0nstitutional issue is whether resident non-citizens, including illegal immigrants, should be counted in determining representation.
Some interesting data on rotten boroughs from Craig Russell:

1) In the last election, an average of 301,200 presidential votes* were cast per US House District.

2) In California, the US state with the highest number of immigrants, only 255,900 votes were cast per district.

3) The 22 House members of the Congressional Hispanic Caucus averaged only 161,500 votes cast in their districts…

4) The 413 non-CHC US House districts averaged 308,700 presidential votes cast.

5) Of the 10 highest immigration states (by percent), 8 voted for Obama; of the 10 lowest, 9 voted for McCain.

We are told by Obama & Co. how crucial sampling is because an “actual enumeration” (the Constitution’s exact words) would unfairly exclude immigrants. Based on this data they’re already being overrepresented. Is it fair to give a dozen or more House seats (and electoral college votes) to people who aren’t even in this country legally, or who aren’t citizens?

In most states, illegal immigrants are counted in allotting legislative districts, but the highest court to consider the issue said that's wrong:

In the majority opinion of the 1998 7th Circuit federal case "Barnett vs. City of Chicago," Judge Richard J. Posner ruled, "We think that citizen voting-age population is the basis for determining equality of voting power that best comports with the policy of the (Voting Rights) statute. ... The dignity and very concept of citizenship are diluted if non-citizens are allowed to vote either directly or by the conferral of additional voting power on citizens believed to have a community of interest with the non-citizens."

That decision applies only to three Midwestern states, however. The Supreme Court has yet to rule definitively on the issue.

It would seem like if the GOP wanted to bring it up, they'd better do it now.

But, they'd get smeared as racists for mentioning it, so, never mind.

My published articles are archived at iSteve.com -- Steve Sailer

February 22, 2009

Phil Gramm on the Community Reinvestment Act

My new VDARE.com column explains what former Republican Senator Phil Gramm is talking about in last Friday's Wall Street Journal, when he says it wasn't his financial reforms that caused the crash: it was loose money and politicized mortgages:

If you aren’t a regular reader of VDARE.com, you’d need a secret decoder ring to understand what Gramm means by “politicized mortgages”. The closest he manages to come to explaining what he’s talking about in his Wall Street Journal op-ed is his euphemistic reference to Fannie Mae and Freddie Mac’s 35 percent quota that “targeted geographic areas deemed to be underserved”.

You know and I know that “underserved” is Diversity Speak for black and Hispanic neighborhoods. Yet Gramm still can’t come out and say it in public. (In his oral presentation at AEI, he had used the somewhat more revealing term “inner cities and depressed areas”. But he didn’t dare be even that clear in the WSJ, or maybe the editors wouldn’t let him)

Moreover, that raises a fundamental question: How can Respectable Republicans like Gramm ever hope to persuade the public when they are terrified of saying what they mean for fear of being branded a “racist”?

I guess Gramm would prefer to go down in history as the man who blew up the world than to be accused by the SPLC of uttering hatefacts.

For example, it would strengthen Gramm’s case to point out that Crash was kicked off not just by a subprime lending crisis, but one concentrated in merely four states: California, Arizona, Nevada, and Florida. In August 2008, these accounted for 50 percent of all foreclosures and the vast majority of defaulted dollars.

But if Gramm were to mention that, it would also raise the unmentionable specter of Demographic Change.

There was overlending going on all over the world—yet the collapse started in a few rapidly Hispanicizing states in the U.S. Why?

You have to look at both sides of the equation: lending and repayment. In California and Company, not only was too much money being lent relative to past rates (which was happening in lots of other places, too), but, also, the earning capacity of the new homebuyers to pay back their loans was declining—as Americans moved out and Latin Americans moved in.

That double whammy in the Sand States of increasing lending and decreasing human capital is, more than anything else, what blew the gasket on the world economy.

Of course, we also needed a third element—political correctness—to keep investors from noticing what was happening.

And that, judging from Gramm’s timidity, appears to be as strong as ever.

More, including the inside story on how Angelo Mozilo's Countrywide Financial got away with it, here.

My published articles are archived at iSteve.com -- Steve Sailer

"Benjamin Button"

Watching "The Curious Case of Benjamin Button" is like listening to a Barack Obama speech. It's obviously something of a higher quality than the norm, and it induces a not-unpleasant trance-like state as it goes on and on, but it's hard to remember what the point was.

My published articles are archived at iSteve.com -- Steve Sailer

February 21, 2009

National Treasure III: Geronimo's Skull & the Sire of Presidents

You've seen it here before, but now the NYT is covering my favorite bit of weird Americana: the claim by future Sen. Prescott Bush, father and grandfather of Presidents, that he stole Geronimo's skull and put it on display in the fortress-like headquarters of Skull and Bones at Yale.

My published articles are archived at iSteve.com -- Steve Sailer

Barack Obama: President of the "nation of cowards"

Attorney General Eric Holder has accused Americans of being a "nation of cowards" for not talking about race. Wouldn't that accusation apply most of all to his boss, President Barack Obama, who spent 2007-2008 dodging discussing his own obsession with race, as manifested in his 1995 book Dreams from My Father: A Story of Race and Inheritance?

My published articles are archived at iSteve.com -- Steve Sailer

Chandra Levy Case: The Great White Defendant or the Usual Suspect?

It appears that the D.C. police are finally going to arrest somebody in the 2001 murder of Congressional aide Chandra Levy in Rock Creek Park in Washington D.C. No, it's not the Great White Defendant, former Rep. Gary Condit (D-CA), who was having an affair with her. Rep. Condit captivated the attention of the police and media in 2001 and distracted from the pursuit of the real killer. It seemed like a Law & Order episode come to life!

No, the prime suspect now turns out to be another boring, depressing usual suspect. (Actually, this guy had been on the radar screen for years.) Last year, the Washington Post's reporters Sari Horwitz, Scott Higham and Sylvia Moreno took a look at the man the police are finally saying is most likely to have done it:

While D.C. police focused most of their investigative efforts on Rep. Gary Condit and his relationship to missing intern Chandra Levy, they were slow to recognize another lead. It involved a man who was attacking women in the woods of Rock Creek Park.

The day Chandra disappeared, May 1, 2001, Ingmar A. Guandique, a 19-year-old illegal Salvadoran immigrant, did not show up for his construction job. Around that time, he went to stay with his former landlady, Sheila Phillips Cruz, the manager of an apartment building on Somerset Place NW. Cruz noticed that Guandique looked like he had been in a bad fight, his face battered and bruised. He had a fat lip, a bloody blemish in his eye and scratches around his throat.

Guandique (pronounced GWAN-dee-keh) had come from a hard-scrabble hamlet near the city of San Miguel in El Salvador. ...

Guandique wanted a better life in America. A friend of the family lent him $5,000 to pay a "coyote" to smuggle him across the Texas border with more than 50 others. The seventh-grade dropout left home in January 2000, eventually swimming across the Rio Grande, crossing the border near Piedras Negras and arriving in Houston in March 2000. From there, he made his way to Washington to join his half-brother, Huber, and other family friends.

Within a month, Guandique began picking up day jobs on construction sites and sending small amounts of money back home. He also had financial obligations to the family that paid his way. And he had another obligation: his ex-girlfriend, who was pregnant when Guandique left and later gave birth to a boy.

In fall 2000, Guandique met a new girl, Iris Portillo. ...

Guandique was having a hard time adjusting to living on the bottom rung of the American economy. He barely spoke English. He was not used to the routine: waking up at dawn, getting to the work site on time, spending the day toiling at a menial job. He struggled to pay the bills, send money home and buy the nice things Portillo wanted.

In early spring 2001, Guandique started to spend more time drinking and hanging around Rock Creek Park. He began to carry a six-inch knife wrapped in a red cloth. After finding letters from one of Portillo's old boyfriends from El Salvador, he struck her. He once bit her hard above her breast, leaving a scar, and he warned her not to stray.

He attacked at least two other joggers in Rock Creek Park in 2001:

- "Halle Shilling, 30, a tall, blond, athletic aspiring writer"

- "Christy Wiegand and her fiance were jogging in the northern section of Rock Creek Park. It had been raining on and off all day. Wiegand, 25, a former varsity rower at Princeton and a recent Cornell University Law School graduate, was an anti-trust lawyer for Arnold & Porter. Her wedding date was seven weeks away. She was tall and blond, her 5-foot-11 frame moving steadily along the trail, wearing her Walkman. Her fiance ran ahead and was soon out of sight."

It's a good article about the wildly different worlds of D.C., where Rock Creek Park serves as a border between two worlds.

The Condit connection should seem familiar to readers of Raymond Chandler detective novels, where a dead body leads to all sorts of embarrassing revelations about big shots as collateral damage. A dead body with a hole in it demands attention, and winds up shining a light on the private lives of people who didn't kill anybody, but were tangentially involved with the victim.

It shouldn't have taken until 2009 to arrest Guandique. Amy Keller wrote in Salon way back in 2002:

But while my colleagues speculated on the proximity of Condit's Adams Morgan apartment to the section of park where Levy's body was recovered on May 22, I wondered if the location of her body might point to another possibility: Perhaps Levy really was the victim of a random attack. I know the trepidation I feel each time I jog or bike along the park trails near my own neighborhood on the outskirts of Washington. The charming, leafy streets here are deceptive; Washington has its high crime areas, some just blocks from where members of Congress live in opulent brownstones.

I took a straightforward approach, and clicked through news databases, searching through stories about other crimes that might have been committed in the park. Eventually, I clicked my way to Ingmar Guandique.

Guandique is serving out a 10-year sentence in federal prison for brutally attacking two young women along the Broad Branch trail last May and July. That's the same section of Rock Creek Park where Levy was found. She had gone missing in May of 2001.

I knew I had a good story on my hands. But I had no idea that once I published it, other reporters following the Levy investigation would question my motives, or accuse me of being a pawn of Gary Condit.

My published articles are archived at iSteve.com -- Steve Sailer

February 20, 2009

Obama's muddled mortgage politics

Obama went to Arizona to announce the plan because of the giant number of foreclosures there, but the worst case scenario in his plan is a family that bought in 2006 and is $25k underwater and paying 42% of their income on their mortgage. In reality, most people in trouble in Arizona are over $100k underwater and looking at 50% of their income going to the mortgage. And let’s not even talk about California.

Geithner and Summers probably understand that there’s not enough money in the world to bail out the Bubble in the four Sand States — Arizona, Nevada, Florida, and California. But, by choosing Arizona for his big announcement, Obama signals that he doesn’t likely understand that a plan limited to people 25k underwater will mostly help people in Red States in the middle of the country (think Affordable Family Formation). Obama seems to think his plan will convert the heavily Hispanic Purple States Arizona, Nevada, and Florida to Blue forever.

Obama going to Arizona to announce a bailout plan that's not big enough to bail out Arizonans just shows that Obama doesn't grasp the situation.

If he really comprehended that Geithner and Summers wouldn't let him propose a big bailout, then he should have made a political virtue of it: go to, say, Pittsburgh and butter up the locals for slowly rebuilding their economy while other states were living high on the Housing Bubble hog, then say your plan is aimed not at the greedy but at helping out responsible folks like the Kowalskis here, who were paying off their $87,000 mortgage until the factory shut down due to the recession that was caused by the Bush Bubble.

Instead, Obama just seems lost amidst all the big numbers. I'm reminded of Randolph Churchill's tenure as Chancellor of the Exchequer in Britain (where they use dots instead of commas in big numbers), of which he later said: "I never could make out what those damn dots meant."

Investment Strategist of the Decade award goes to

Bernie Madoff, who is now said by the authorities to have made zero trades over the last 13 years with all the money he received to manage. Granted, who knows if that's true, and he still managed to blow it all, but I'm just sitting here thinking about what if I had cashed in everything I owned in 2000 and buried it in my backyard, instead of prudently investing it in index funds and CDs and the like. I could have had my own private non-trading Madoff fund, with myself as sole investor and sole (non-acting) hedge fund manager. Would I be ahead?

Personally, I've always been sympathetic to the poor sap slave in The Parable of the Talents who buries the money his master has given him to invest, while his smarter co-slaves get rewarded for earning 100% returns on investment. The dumb slave just gives the one talent of money back to the boss with no ROI and gets in big trouble:
Then the one who had received the one talent came and said, ‘Sir, I knew that you were a hard man, harvesting where you did not sow, and gathering where you did not scatter seed, 25 so I was afraid, and I went and hid your talent in the ground. See, you have what is yours.’ 26 But his master answered, ‘Evil and lazy slave! So you knew that I harvest where I didn’t sow and gather where I didn’t scatter? 27 Then you should have deposited my money with the bankers, and on my return I would have received my money back with interest! 28 Therefore take the talent from him and give it to the one who has ten. 29 For the one who has will be given more, and he will have more than enough. But the one who does not have, even what he has will be taken from him. 30 And throw that worthless slave into the outer darkness, where there will be weeping and gnashing of teeth’”

Jesus would have been a pretty demanding hedge fund client.

(Yeah, I know it's metaphorical, but still ...)

My published articles are archived at iSteve.com -- Steve Sailer

The Old Mulatto Elite


Eric Holder, the first black Attorney-General, wants us to stop being "a nation of cowards" and spend each February out of our "race-protected cocoons" having a National Dialogue on Race with each other.

So, let's talk about the Holder family's racial background, which is pretty interesting, although he forgot to mention it during his big Black History Month speech to his new charges in the Department of Justice.

I'm sure he won't mind us talking about his family's race, since he just insisted that we all talk about race all month.

Eric Holder is a Bajan-American.

His father was born in Barbados, as were his maternal grandparents. Barbados has the best educated, best behaved black population of the West Indies. Bajans generally look down upon other West Indians, much less African-Americans, as frightfully uncivilized.

Nation News of Barbados reported last summer:

A BRILLIANT LEGAL MIND who was raised in a "Barbadian home" in New York City will help United States Senator Barack Obama select his vice-presidential running mate...

[Eric] Holder, the son of Eric Sr and Miriam Holder, both Barbadians, served as the top federal prosecutor in Washington after a stint as a Superior Court judge in the nation's capital. ...

His late father, who was born in St Joseph, came to the United States when he was about 12 or 13 years old and later met and married his wife [the elderly lady on the left in the picture above] who was born in New Jersey of Bajan parents.

"I feel that I grew up partly in Barbados and partly in New York," said Holder, who was born in New York and was raised in what was essentially a West Indian enclave in Queens where Bajans, Jamaicans, St Lucians, Trinidadians, Guyanese and others were among the main homeowners.

Holder, who was recently in Barbados, has been visiting the island since the 1950s.

So, Holder grew up in one of those "race-protected cocoons," in a middle class "West Indian enclave" where he was kept away from African-American culture.

Here's is the Attorney-General's mother's description of his upbringing:

His mother traces the origins of those characteristics to his upbringing, his life growing up in Queens.

"He grew up, I guess you could say, in a West Indian home, and education was quite important," she said. "They knew they had to perform the way we wanted them to. Perhaps, I was a bit harder than I should have been. Education is always important.

"As Barbadians, you know that education has always been at the top of the list of their priorities, and that was the same in our home."

Religion was another key factor in their sons' moulding, worshipping at the Episcopal Church, a few blocks from their home in Queens. The two sons served as acolytes, attended Sunday School and were active in the church's youth group.

"The church was always very important to us," Ms Holder recalled.

In the home, the emphasis too was on the family and when it came time to sit around the table for a meal, typical West Indian dishes were on the menu.

So, how'd all that cocooning work out for Holder?

Pretty good, it appears.

Further, anybody familiar with the racial structure of the West Indies -- if you're not, Malcolm Gladwell's chapter in Outliers on his mother's family in Jamaica is a good introduction -- would recognize that Holder is from Barbado's mulatto middle class, rather than from its black agricultural masses. As Gladwell points out, West Indians who look like Holder (or Gladwell's mom) didn't get that way by accident. Generations of careful breeding requiring a fair degree of social segregation have typically have gone into keeping the mulatto elites of the West Indies from slipping into the black masses.

Mrs. Holder -- the lady on the right who looks rather like Meryl Streep -- is not a Bajan. She's a Harvard graduate obstetrician. Her older sister, Vivian Malone, was one of the two black students whom Alabama Gov. George Wallace notoriously "stood in the schoolroom door" to (unsuccessfully) prevent from integrating the U. of Alabama in 1963.

Judging from their three kids' looks, I wouldn't be surprised if careful breeding, involving "paper bag tests" and the like, went into Mrs. Holder's racial makeup as well.

My published articles are archived at iSteve.com -- Steve Sailer

America's Top Cop says: "Ve haf vays of making you talk about race!"

New Attorney-General Eric Holder announced at a Department of Justice shindig marking Black History Month:

Though this nation has proudly thought of itself as an ethnic melting pot, in things racial we have always been and continue to be, in too many ways, essentially a nation of cowards. Though race-related issues continue to occupy a significant portion of our political discussion, and though there remain many unresolved racial issues in this nation, we, average Americans, simply do not talk enough with each other about race.

America's most distinguished man of science, James D. Watson, talked about race back in 2007. How'd that work out for him?

It is an issue we have never been at ease with, and given our nation’s history this is in some ways understandable. And yet, if we are to make progress in this area we must feel comfortable enough with one another, and tolerant enough of each other, to have frank conversations about the racial matters that continue to divide us....

I'm just doing my Department of Justice-mandated job here at iSteve.

To our detriment, this is typical of the way in which this nation deals with issues of race. And so I would suggest that we use February of every year to not only commemorate black history but also to foster a period of dialog among the races. This is admittedly an artificial device to generate discussion that should come more naturally, but our history is such that we must find ways to force ourselves to confront that which we have become expert at avoiding.

What a brilliant new idea! Back in 1997, Holder's old boss, Bill Clinton, started his National Conversation on Race that went on every month for a year. Granted, that was an embarrassing flop. So, in complete contrast, Holder is calling for a National Dialogue on Race that goes on every year for a month. It's totally different!

As a nation we have done a pretty good job in melding the races in the workplace. We work with one another, lunch together and, when the event is at the workplace during work hours or shortly thereafter, we socialize with one another fairly well, irrespective of race. And yet even this interaction operates within certain limitations. We know, by "American instinct" and by learned behavior, that certain subjects are off limits and that to explore them risks, at best embarrassment, and, at worst, the questioning of one’s character.

So, Dr. Watson should get a big apology from everybody, right?

... And outside the workplace the situation is even more bleak in that there is almost no significant interaction between us. On Saturdays and Sundays America in the year 2009 does not, in some ways, differ significantly from the country that existed some 50 years ago....

But we must do more, and we in this room bear a special responsibility. Through its work and through its example this Department of Justice, as long as I am here, must -- and will -- lead the nation to the "new birth of freedom" so long ago promised by our greatest president. This is our duty and our solemn obligation.

Uhhmm, you guys at the Department of Justice, you have guns and badges and prisons, right? So, maybe it's a little creepy for you to be talking about what private citizens must do in private.

... There can, for instance, be very legitimate debate about the question of affirmative action. This debate can, and should, be nuanced, principled and spirited. But the conversation that we now engage in as a nation on this and other racial subjects is too often simplistic and left to those on the extremes who are not hesitant to use these issues to advance nothing more than their own narrow self interest.

So, what I'm hearing the nation's Top Cop say is that public debate over affirmative action is only okay if it's "nuanced" -- in other words, if it stays within the parameters of a Barack Obama sentence beginning with the word "Notwithstanding ..." Wouldn't it be more convenient for everybody if instead of demanding that citizens improvise their lines without stumbling into "extremes," the Justice Department would simply issues scripts for everybody to read from? It would be like a school pageant for grown-ups! Or better yet, we could all chant together President Obama's speech about Rev. Wright.

Our history has demonstrated that the vast majority of Americans are uncomfortable with, and would like to not have to deal with, racial matters and that is why those, black or white, elected or self-appointed, who promise relief in easy, quick solutions, no matter how divisive, are embraced.

"Easy, quick solutions" -- like voting for Barack Obama? You mean electing Obama President isn't going to fix anything? Damn...

We are then free to retreat to our race-protected cocoons where much is comfortable and where progress is not really made.

If we allow this attitude to persist in the face of the most significant demographic changes that this nation has ever confronted -- and remember, there will be no majority race in America in about 50 years -- the coming diversity that could be such a powerful, positive force

DIVERSITY IS UNITY

will, instead, become a reason for stagnation and polarization. We cannot allow this to happen and one way to prevent such an unwelcome outcome is to engage one another more routinely -- and to do so now.

Self-Criticism Sessions ahoy!

As O'Brien, the Inner Party member, explained:

"We are not content with negative obedience, nor even with the most abject submission. When finally you surrender to us, it must be of your own free will. We do not destroy the heretic because he resists us; so long as he resists us we never destroy him. We convert him, we capture his inner mind, we reshape him. We burn all evil and all illusion out of him; we bring him over to our side, not in appearance, but genuinely, heart and soul. We make him one of ourselves before we kill him. It is intolerable to us that an erroneous thought should exist anywhere in the world, however secret and powerless it may be. Even in the instance of death we cannot permit any deviation . . . we make the brain perfect before we blow it out."

That said, I must strongly defend Attorney General Holder's mustache against all the snickering. Why, I ask you, shouldn't a man wear a mustache just because he is neither a homosexual, a fireman, nor a relief pitcher? Holder's is quite dapper in a William Powell gentleman-of-a-certain-age way.

I call for a national dialogue on overcoming prejudice against mustaches.

My published articles are archived at iSteve.com -- Steve Sailer

February 19, 2009

Obama goes to Canada

Barack Obama resumed the tradition of making the new President's first trip abroad to Canada. The only recent President to break that norm was George W. Bush, who made his first trip to Mexico, in order to symbolize Bush's master plan to make America less like Canada and more like Mexico.

Eight years later, we can say to Mr. Bush:

Mission Accomplished!

My published articles are archived at iSteve.com -- Steve Sailer

Obama Administration still baffled by its mortgage bailout plan

So far, response to Obama's new $275 billion mortgage bailout plan has been muted since nobody seems to understand it, including the Obama Administration. From the Washington Post's article "Mortgage Rescue Eligibility Still Being Finalized," we learn that the Obama brain trust has got all the details pulled together ... except for the absolutely essential one: Who gets the money?

A day after President Obama unveiled his $75 billion foreclosure prevention program, administration officials yesterday said they were still determining which homeowners should qualify.

The administration is developing a standard for lenders to use in evaluating applicants that seeks to exclude homeowners who are not in real need or are too far behind in their payments to be saved.

That is a bit of a conundrum, isn't it? If you make eligibility too restrictive, it doesn't have all the wonderful effects of saving the economy like Obama claimed it would have in his announcement yesterday. But if you make eligibility too loose, it costs all the money in the world, and more, as you sink into the quicksand of moral hazard.

So, I'll give the Obama Administration some advice on how to determine eligibility, taken from FDR's New Deal, although I don't think Obama will like how FDR thought about moral hazard. When Aid to Families with Dependent Children (AFDC) was dreamed up in 1935 as part of the Social Security Act, Harry Hopkins wanted to make it a big program. But Roosevelt thought it would be nuts to subsidize single motherhood, so it ended up being mostly just for widows, until the 1960s, when suddenly everybody knew better than prejudiced old FDR.

So, here's how Obama can make his mortgage bailout plan moral hazard-proof: You get bailed out if your spouse died between January 1, 2007 and yesterday. (We don't want a sudden surge in dead spouses tomorrow.) That's it. No disability due to back injuries, depression, fibromylagia, or your old man upped and made a run for the border. Only an official death certificate will do.

My published articles are archived at iSteve.com -- Steve Sailer

"The Wrestler"

Here's an excerpt from my review of "The Wrestler" in The American Conservative:
Hollywood’s Golden Age leading men tended to be disproportionately Irish-American, such as Jimmy Cagney, Spencer Tracy, and John Wayne. They were amiable tough guys from a concussion-centric culture who could throw -- and take -- a punch.

For a half decade after his stunning cameo as a professional arsonist in 1981’s “Body Heat,” Rourke looked to be their worthiest successor. The languid and cocky Rourke was the most magnetic star to emerge in the 1980s. The movie industry offered him the best and biggest parts—such as Eddie Murphy’s eventual role in “Beverly Hills Cop,” Tom Cruise’s in “Rain Man,” Kevin Costner’s in “The Untouchables,” and John Travolta’s in “Pulp Fiction”—all of which he rejected.

At first, Rourke’s determination to play sleazeballs rather than likable heroes was admired as a brave, even brilliant, artistic strategy. He was praised for his Method acting dedication that required him to stop bathing to play a Charles Bukowski-like drunken poet in 1987’s “Barfly.”

But when he didn’t resume washing his hair after shooting wrapped, suspicion grew that Rourke, who had racked up a 20-7 record as an amateur boxer in his teens, wasn’t quite right in the head. He proved it by becoming a professional boxer in the 1990s, winning six of eight bouts before his neurologist convinced him that he soon wouldn’t be able to count his winnings. His face needed at least four operations to repair the damage, including taking cartilage from behind his ear to rebuild his nose. (Combined with the muscle-building drugs he used to prepare for this new role— “When I’m a wrestler, I behave like a wrestler”—he looks only quasi-human in his comeback.)

In most artistic endeavors, a bit of madness is accepted, even encouraged. The stars of big budget movies, however, have to be approved by the firms that provide “business interruption” insurance. When producers are spending up to a million dollars per day, their insurance companies have to be sure that the main man will show up.

Nor was Rourke terribly suited for character roles, since he just might pull himself together long enough to show up the film’s stars as lightweights. Still, he kept working in dozens of trashy movies, while spending countless hours off-set with his therapist and priest, with impressive results.

My published articles are archived at iSteve.com -- Steve Sailer

Help Arne Duncan spend $5 billion!

From the AP:

WASHINGTON (AP) — President Barack Obama wants to do more than save teachers' jobs or renovate classrooms with his economic recovery bill. He wants to transform the federal government's role in education.

Public schools will get an unprecedented amount of money — double the education budget under George W. Bush — from the stimulus bill in the next two years. With those dollars, Obama and Education Secretary Arne Duncan want schools to do better. ...

The bill includes a $5 billion fund solely for these innovations, an amount that might not seem like much, considering the bill's $787 billion price tag. But it is massive compared with the $16 million in discretionary money Duncan's predecessors got each year for their own priorities.

"It's unprecedented that a secretary would have this much money and this much latitude," said Charlie Barone, director of federal policy for the group Democrats for Education Reform.

Congress laid out broad guidelines for the fund in the stimulus bill that became law on Tuesday. But it will be up to Duncan and the team of advisers he is assembling to decide how to dole out the money. They have until Oct. 1, when the next fiscal year begins, to start distributing the dollars.

What would the fund pay for? Rewarding states and school districts that are making big progress.

For example, Tennessee recently overhauled its graduation requirements and academic standards as it works to boost student achievement. As part of that effort, officials want more rigorous state tests; Tennessee has been criticized because students pass state exams with flying colors, yet they do poorly on well-regarded national tests. Better tests cost money.

Really? Raising the passing score from X% to X + 20% requires zillions from the feds?

Or in California, school officials would like to expand the ConnectEd curricula, now in 16 high schools, that links academics to actual work in aerospace, biomedicine and other careers. The program is aimed at getting students ready for college and keeping them from dropping out.

Okay, but if your program "links academics to actual work," why is it "aimed at getting students ready for college?" Perhaps I'm misinformed, but I was always under the impression that college is not work. You have to pay to go to college, but when you go to work, they pay you, right? So college<>work. ...

To get the money, states will have to show they are making good progress in four areas:

_Boosting teacher effectiveness and getting more good teachers into high-poverty, high-minority schools;

Why does everybody always assume it's a self-evidently good idea in the public schools to send good teachers to teach bad students, when nobody thinks that way about any other form of instruction?

Nobody has ever asked Barack Obama why he taught at the U. of Chicago Law School, which is full of very bright students from the upper middle class, instead of some fourth tier law school that caters to marginal students.

For example, Tiger Woods' swing coach, Hank Haney, is often considered the best golf instructor in the country. And everybody simply finds that perfectly reasonable: of course Tiger has the top swing expert. The best student can absorb the most wisdom from the best teacher. And of course the best teacher wants to teach the best student.

Yet, if I were to apply Arne Duncan's conventional wisdom about public education to golf teachers, I'd say: "It's a national disgrace that the best golf teachers waste their time on the best golfers. Why is Hank Haney frittering away his time trying to cut Tiger Woods's average score from 68 to 67 when he could be cutting my average score to 96 from 114? [Estimate based on my one round of golf in 2008, assuming I hadn't given up keeping score on the third hole in shame.]

Granted, Haney could only cut my score by 18 strokes if I also went and practiced what he taught me. Admittedly, even though I live three blocks from a driving range, I've only hit one bucket of balls there in the last nine years. But the reason I never practice must be because of society's soft bigotry of low expectations based on what my swing looks like. (I have this feeling that other golfers at the range would say to me, "Hey, buddy, Charles Barkley called. He wants his swing back.")

_Setting up data systems to track how much a student has learned from one year to the next;

_Improving academic standards and tests;

_Supporting struggling schools.

Also, at the urging of Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, the fund sets aside $650 million for school districts or districts in partnership with nonprofit groups.

$650 million for nonprofit groups?

Paging Bill Ayers!

Enough sniping, however. Please help me in the comments come up with ideas that might actually improve education.

My published articles are archived at iSteve.com -- Steve Sailer

Japan Does the Impossible

From the Manichi Daily News:

Number of illegal foreigners in Japan reduced by half

The number of illegal foreign residents in Japan has decreased by nearly half over a five-year period from 2004, a government report has revealed.

According to the report released by the Immigration Bureau of the Justice Ministry, about 130,000 foreigners were illegally living in Japan as of the beginning of this year, as compared with roughly 250,000 in 2004. The current figure is close to the 1990 level before a sharp increase in illegal foreign residents occurred.

"We largely succeeded in achieving our target," said an official of the immigration bureau. In 2003, the government approved a plan to halve the number of illegal foreigners from Jan. 1, 2004, to Jan. 1 this year, which calls for revisions to the immigration control system.

Over the period, the number of foreigners who overstayed their visas dropped to 113,072 from 219,418, while the estimated number of those who illegally had entered Japan, including those who were smuggled by boat, has decreased from roughly 30,000 to between 15,000 and 23,000 as of Jan. 1, 2009.

My published articles are archived at iSteve.com -- Steve Sailer

February 18, 2009

Obama's worst-case "Family C" v. California's "Family Si"

Obama's mortgage bailout plan comes with a Q&A with three examples: Families A, B, and C, who all bought homes in 2006. Family A and Family B each put down at least 20% and are ineligible for the most lucrative subsidies. Family C, the worst case scenario in Obama's universe, put down 4.3% and are eligible.
Family C: Eligible for Homeowner Stability Initiative

  • In 2006: Family C took out a 30-year subprime mortgage of $220,000, on a house worth $230,000 at the time (they put less than 5% down). Their mortgage broker - Mom & Pop Mortgage - sold their loan to Investment Bank. The interest rate on their mortgage is 7.5%.

- Today: Family C has $214,016 remaining on their mortgage but their home value has fallen -18% to $189,000. Also, in November, one parent in Family C was moved from full-time to part-time work, causing a significant negative shock to their income.

Yes, indeed, that's about as bad as it got in the peak of the Housing Bubble in 2006, all righty! A two parent family put down only 4.3% on their mortgage and the value of the house has dropped a gigantic 18%. And now they are $25,000 underwater. Horrors!

    • Their loan is now 113% the value of their home, making them "underwater" and unable to sell their house.
    • Meanwhile, their monthly mortgage payment is $1,538 and their monthly income has fallen to $3,650, meaning the ratio of their monthly mortgage debt to income is 42%.

Let's come up with a more realistic Family C. Or, perhaps we should call them "Family Si" because they said "Yes" to a zero percent downpayment mortgage with a negatively amortizing teaser rate in California in 2006.

Roughly half of all the dollars tied up in foreclosed mortgages are in California, so let's talk about the Big C.

Instead of buying the house for $230,000, Family Si bought it for $460,000, still under the peak median in California of over a half mil.

Instead of putting $10,000 down, they put zero down, as 41% of the first time buyers in California did in 2006.

Instead of having paid off $6000 of the principle since 2006, they got a teaser mortgage that negatively amortized over the first two years so that their loan has actually grown by $6000.

Instead of their house falling by 18%, it's fallen by 45%. So, they now owe $466,000 on a house that might be worth $253,000.

Instead of their Loan To Value (LTV) being 113%, it's 184%.

And instead of being $25,000 "under water," they're $213,000 under water.

And instead of one of the two parents moving from full time to part time work, there were never two parents in the first place. The buyer's supposed husband was her real estate agent's brother.

And instead of one parent having a full time job, it was a NINJA loan -- No Income, No Job, or Assets.

Instead of the family making something like $58,400 annually when both parents were working, the one parent's maximum income when she is working is $11 per hour or $22,000.

And instead of 42% of income going to mortgage payments, 183% of monthly income goes to the mortgage (in theory, of course, since Family Si stopped paying during the second month of ownership). [Note: I'm just ballparking the monthly payment figures off the proportional difference in debt from Obama's Family C, so from here on the numbers are just guesstimated.]

Oh, and I forgot to mention, Family Si had already bought another house the month before and was planning to flip this one for a big profit.

  • Under the Homeowner Stability Initiative: Family C can get a government sponsored modification that for five years will reduce their mortgage payment by $406 a month. After those five years, Family C's mortgage payment will adjust upward at a moderate, phased-in level.

So instead of the two year teaser loan that proved so disastrous for all concerned, Obama will give out five year teaser loans!



Existing Mortgage

Loan Modification

Balance

$213,431

$213,431

Remaining Years

27

27

Interest Rate

7.50%

4.42%

Monthly Payment

$1,538

$1,132

Savings:

$406 per month, $4,870 per year

Quite a deal for the taxpayers -- only $4,870 per year for five years or $24,350 to save Family C's ancestral manse.

Of course, for Family Si, it would take something like $33,370 per year for five years or about $166,000 total in handouts.

And then Family Si would still default after five years because even with the government handing them $166,000 of the $466,000 they owe, their house still likely won't be worth the balance.

The bottom line is that there isn't enough money anywhere to bail out the Family Sis in the Sand States. Geithner and Summers probably know that, but does Obama? It's hard to tell from his rhetoric, which promises the moon in terms of saving the economy, but then also promises to not bailout anybody but the most deserving. If he's not willing to bail out the Sand States' Family Sis, why did he go to Arizona (California Jr.) to give his speech announcing his bail out? If he's really only going to give out $5k per year, he should have gone to North Dakota to make his announcement.

My published articles are archived at iSteve.com -- Steve Sailer

Globalist responses to Japan and China

I was struck recently by how cruddy the reliability of manufactured products often are today compared to where they ought to be if the positive quality trends in the 1980s and into the 1990s had continued full strength. This is not to say that they've gotten worse, but that they aren't getting better at the same rate as in the late 20th Century.

Granted, when a DVD player or whatever stops working after only two or three years, it doesn't seem like a big deal. The newer one is cheaper and has more features. Still, besides the down time and time wasted researching new models and looking for sales, there are hidden "systems integration" costs. When you finally get the gizmo home, you have to screw around with connecting everything up with cables, you have to learn a new remote control, and sometimes you never quite get everything working together right. When you add up all the costs, you realize it would have been worthwhile to pay more for a more reliable product in the beginning.

The shift in imports from Japan to China plays a role in this. An important point that gets forgotten sometimes is that just because people have epicanthic folds doesn't mean everything they make is Lexus-quality. The Japanese worked incredibly hard to build great brands like Toyota, Honda, and Sony that would be tremendous assets for the Japanese nation for generations to come. The Japanese have an elaborate ritual of shame that executives go through when a Japanese firm's products are scandalously bad, involving resignations and televised apologies to the nation.

In Japan, "nationalist economics" is a serious, well-thought out philosophy that entails short run sacrifices for the long run general welfare. In the West, our elites have been trained to scoff at nationalist economics as mere mindless populism, but the best minds in Japan have developed an economic culture that's perhaps too sophisticated for American economists and their fellow travelers in the punditry to understand.

The Chinese, in contrast, have followed the Taiwanese model of manufacturing anonymously under contract to Japanese and American brand names. They churn out stuff and let other countries' companies sell it as their own. For the Chinese, it's all about meeting minimum quality and cost parameters to get the next deal, not to build a reputation with the public for high quality. How many recognizable brand names have the Chinese created so far? There's Lenovo, and then there's ...

This fuels a "race to the bottom" in pricing, which comes with a cost in quality.

This has had interesting political effects. America's gigantic trade deficits with China in this decade were much less noticeable to the general public than America's trade deficits with Japan in the 1970s because Americans back then were seeing Japanese brand names everywhere, in the stores, on the street, and in TV commercials. This generated political pressure that brought about the Reagan Administration's highly successful protectionist move of imposing import quotas on Japanese car makers, which led them to build factories in the U.S.

In contrast, unless you look for the "Made in China" labels on products or read the trade statistics, you won't really notice the hollowing out of American industrial capacity.

Unless you, personally, lose your job at the factory. But, really, who cares about factory workers? For American business executives, offshoring manufacturing to China is less of a threat to their own positions than the Japanese competition of a generation ago. The big Japanese brands had their own executives and didn't need Americans except in subordinate roles. In contrast, today if you are an American executive in marketing, finance, or general management, you still get to run a seemingly big company, but you just offshore all that sweaty manufacturing to China.

So, the Chinese have fit much less threateningly into the Davos Man globalist worldview than the Japanese did.

Still, how's globalism working out for us lately?

My published articles are archived at iSteve.com -- Steve Sailer

February 17, 2009

The Bush-Obama Era in action

From the WSJ, we can infer that the "virtual fence" along the border is actually failing:

A troubled $8 billion project to erect a "virtual fence" along the nation's southwestern border has received a boost, with federal officials giving the go-ahead for Boeing Co. to resume work, and the economic-stimulus package providing new funding for it [$100 million, which might be the smallest dollar amount I've typed in a couple of weeks].

But the project's government overseer said significant challenges remain. Mark Borkowski, executive director of the Department of Homeland Security's Secure Border Initiative program, said the biggest may be tamping down public expectations that technology can solve the country's illegal-immigration and border-security issues.

"We fell into a message that this technology was going to be a great, God-given gift to border security," said Mr. Borkowski, who last October became the third official to head the project in as many years. "Now we need to do a better job of marketing what it will -- and won't -- be producing." He said the technology isn't a panacea -- it is meant only to be a tool for agents on the ground.

The government awarded the virtual-fence contract to Boeing in late 2006, in a project known as SBInet. The project aims to send real-time data on illegal crossings to border agents by integrating cameras, sensors, radar and mobile communications in a virtual fence along the Mexican border.

Technical hurdles have dogged the project ever since the concept of a virtual fence, designed by Boeing, was first tested on the ground. As a result, the government put the project on hold last year.

Early testing revealed problems ranging from radars that were tripped by rainfall to an inability to connect and integrate all of the system's pieces. "It's easy to think you can go buy off-the-shelf stuff and string it all together," said Mr. Borkowski. "But the reality is there is a certain due diligence we ought to have put into that in the first place."

Although many of the integration problems have been smoothed out, new problems emerged during later testing in New Mexico, Mr. Borkowski said. Software used to run the system is prone to crashing after extended periods of operation, he said. But he also said he thinks this can be fixed.

Despite the emergence of the additional issues, earlier this month the government allowed work on the project to resume.

If the problems are resolved soon, border patrol agents could start running the system and getting feeds on a regular basis by the end of the summer, Mr. Borkowski said.

C'mon, we don't need a breakthrough in string theory, we need a fence. It's not really that complicated. The Israelis built a non-virtual border fence that keeps out suicide bombers, who are, by definition, highly motivated.

Basically, the Bush Administration didn't want a working border fence and the Obama Administration doesn't either, so they both futz around with this bogus "virtual fence" as a distraction from finishing a real fence.

My published articles are archived at iSteve.com -- Steve Sailer

Obamanomics

David Leonhardt writes in the NY Times:

In a speech in Phoenix [on Wednesday], a signature real estate boomtown gone bust, President Obama will explain his plan to reduce foreclosures. And the key to understanding that plan will be remembering that there are two different groups of homeowners who are at risk of foreclosure.

The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments. Many took out loans they were never going to be able to afford, while others have since lost their jobs. About three million households — and rising — fall into this category. Without help, they will lose their homes.

The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are underwater. If they want to stay in their homes, they will have no trouble doing so. But some may choose to walk away voluntarily, rather than continue to make payments on an investment that may never pay off.

Scratch beneath the details of any housing bailout proposal, and the fundamental issue is whether it tries to help the second group or just the first.

Mr. Obama has evidently decided to focus on the first group, based on the previews of his speech that aides have offered.

So, let me see if I have this straight? Obama is going to throw money at the most hopeless cases, the people who never should have bought the house in the first place, many of whom are speculators and/or crooks who lied on their mortgage applications, but he won't help out the larger number of people who are doing the right thing?

And it's really not that hard to turn yourself into a hopeless case, especially if the government will pay you for doing so.

Further, a lot of deadbeats and potential deadbeats who look like hopeless cases based on their own individual incomes and assets have this thing called "relatives." Over the last couple of decades, I've twice written moderately sizable checks to get relatives through credit crunches. It's just what you do.

My published articles are archived at iSteve.com -- Steve Sailer

Are basketball centers smarter than forwards and guards?

You would think, all else being equal, that IQ would be the lowest at the center position in basketball, since there's such a premium on height there that everything else is at a discount.

And yet, a surprising number of the top ten centers in NBA history (here's Sports Illustrated's list of the top 10 and here's ESPN's list) have seemed like pretty bright guys.

- David Robinson scored 1320 on the SAT (old style scoring, equivalent to the low 1400s today) and graduated from the Naval Academy with a degree in math.

- Kareem Abdul-Jabar scored, I believe, 1130 (old style).

- George Mikan, the NBA's first superstar, was a successful lawyer after his playing days were over.

- Bill Walton attended Stanford Law School while out from the NBA with injuries.

- Wilt Chamberlain and Bill Russell always gave the impression in interviews of being sharp-witted men. Granted, my old impressions aren't terribly trustworthy, but these two guys did a lot of interviews back in the day. Russell was frequently called upon by the media to serve as a Yoda-like hipster guru who could explain the great social changes of the late 1960s and early 1970s. Chamberlain was less popular with the press than Russell because he endorsed Nixon, but he always displayed a certain ornery independence.

For the other four in the consensus top 10 (Moses Malone, Shaq, Hakeem Olajuwon, and Patrick Ewing), I can't think of any evidence for one way or another. My vague impression from living in Houston in the 1970s was that Moses Malone wasn't considered the sharpest tool in drawer (but he could vacuum up offensive rebounds!)

As an aside, I'll toss in the story of somebody who isn't a top 10 center, but has had a long career despite playing very little basketball as a youth: Dikembe Mutumbo from the Congo. He got into Georgetown as a regular admittee to study diplomacy. Coach John Thompson just about had a heart attack when he saw this unknown 7'-2" black guy walking across campus with a stack of books in his arms. That's why Georgetown had its unwieldy Twin Towers formation with Mutumbo and Alonzo Mourning -- nobody had recruited Mutumbo. He just showed up.

At other positions, you can pick out all-time greats who clearly had something going on upstairs, like Dave Bing, who became a successful steel mill owner. But, there seem to be more above average IQ types at center. At minimum they aren't less common at center, even though you'd expect height to dominate all else most at that position.

It's possible that hard-working book-smart guys do better at center than at other positions. Playing with your back to the basket is rather unnatural, and typically requires extensive coaching and drilling, whereas you can become a star guard or forward just by scrimmaging constantly.

More generally, I have this vague hunch that athletes below 75 or 80 in IQ are much more likely to fail to make the big time than ones over 90 because the low IQ ones screw up so badly -- get hooked on drugs, go to prison, get seriously hurt in a fight or an accident, or just miss various opportunities through knuckleheadedness -- that they blow their opportunities.

You might be able to do an interesting nature-nurture study by tracking extremely tall young men in a basketball crazy society to see what happens to people given lots and lots of breaks in life. First, you'd need to know what % of young fellows of a certain height -- say two meters or taller, make it to each level up the ladder in basketball. Then look at success rates by IQ. And look at the real failures among the super tall -- those who wind up in prison -- by IQ.

I don't think we have the data to do it in the U.S., but this study might be possible in a European country with universal conscription where they measure every 19-year-old male's height and give him an IQ test. It would have to be a country that is wild about basketball, too. All my Lithuanian and Croatian readers who are looking for social science dissertation topic, get cracking!

My published articles are archived at iSteve.com -- Steve Sailer