March 31, 2009

Thomas Geoghegan calls for anti-usury laws in Harper's

The print edition of Harper's has an article, "Infinite Debt," by the widely admired liberal Chicago lawyer Thomas Geoghegan calling for the restoration of laws against usury. It's not online, but Freddie at The League of Ordinary Gentlemen summarizes it at length here:
Geoghegan identifies the beginning of the instability and bubble/bust cycle that has come to dominate American finance as being a product of the United States essentially abandoning usury law in the 1970s. As Geoghegan points out, usury law (laws that regulate the kind of interest rates lenders can charge to their lendees) have been around in almost every civilization that has had a currency, stretching back thousands of years. And he points to this current crisis as a demonstration of the basic wisdom of [anti-]usury [laws].

Say the interest rate for prime customers is five percent. What higher interest rate would it take for lending to nonprime borrowers, with a substantial risk of default, to be profitable? For some it might take eight percent, for others 12 percent, for others 20 percent. You can see, though, that this interest rate starts heading upward at an ever-growing pace because the chance of default goes up as the interest rates go up.

Let's consider, for the sake of simplicity, a consol, a rare interest-only bond of infinite duration for which the principal is never paid back. Say I have a 10% chance of failing to make my 5% per year interest payments. So, nobody is going to lend to me at the prime rate.

What about charging me 15% per year to cover your 5% profit margin and my 10% chance of default? Swell, except now my risk of defaulting isn't 10%, it's a higher number, so I need to be charged an even higher interest rate, which in turn gives me a higher default likelihood. And so on.

This tree doesn't grow to the sky, but the interest rate and, more importantly, the default rate gets to be rather high rather quickly.

Now, what's the harm if two adults come to an agreement about a fair price?

Well, the problem is that defaults can have widespread costs to people who weren't parties to the agreement -- another case of privatizing profits and socializing costs.

For example, Joe Cassano of AIG bet Goldman Sachs that Goldman's mortgage-backed subprime securities wouldn't default, and now I and my descendants unto the 7th generation are supposed to pay off the damn things.

More subtly, if a firm lends money to people who have nothing to lose, there can be collateral damage. If the house next door gets bought by deadbeats who don't have a prayer of paying off the mortgage, but are just going to live in it rent-free until the sheriff finally kicks them out, I'm harmed. A foreclosure next door lowers my property value. Moreover, I had to live for two years next to deadbeats who shouldn't have been able to afford to live there. Very easy credit with very high interest rate opens up the door to all kinds of fraud and abuse.

Also, a generation freed from limits on interest rates is typically going to push them too far, with widespread damage. We saw that with Mike Milken's junk bonds back in the 1980s, which worked pretty well at first, but generated so much profit that ever junkier junk bonds came out, culminating in the 1991 recession.

So, it can make sense to have some maximum interest rate allowed to prevent the more egregious of this kind of thing. (Or, it could be that we just have to live through a crash to learn from our mistakes and lenders will be smarter next time.) I don't have a strong opinion on whether or not we should have legal limits on interest rates, but I do agree with Geoghegan that the subtle costs of not having any limits are too widely ignored in economics classes.

These are old lessons which we are relearning at painful cost.

Unfortunately, Geoghegan's article is kind of a mess at explaining the history of how anti-usury laws became a dirty word in modern upscale America. As a lawyer, he traces it back to a 1978 Supreme Court decision, but then he's baffled by the fact that it was written by his liberal hero William Brennan.

Because I was an economics major back then, it's easy to fill in what Geoghegan misses in his attempt to explain the triumph of anti-anti-usury:

First, the inflation of the 1970s made the old anti-usury laws impractical. If interest rates were capped at, say, 9% and prices were expected to rise 10% over the next year, then nobody would lend. So, getting rid of the old interest rate cap laws was justified as simply a practical expedient for adapting to an era of high inflation. (Of course, the laws weren't put back in place when inflation came back down.)

Second, the historical link between usury and Jews (e.g., The Merchant of Venice) meant that opposition to usury was increasingly seen as historically anti-Semitic (e.g., Henry Ford's kulturkampf against New York banks), so it became politically untenable after, say, 1967. Anti-anti-usurism and anti-anti-Semitism triumphed together.

This isn't to say that Jews were the only ones charging high interest rates, nor even a majority. For example, a key move toward higher interest rates on credit cards, which allowed banks to issue credit cards to anybody with a pulse, was the move by John Reed's Citibank to running its credit card business in 1981 out of South Dakota, which had just eliminated its interest rate caps. This legislation made South Dakota very attractive during a time of high inflation rates.

Still, since everybody knew that many of those pushing for elimination of legal and/or traditional limits on interest rates, such as Milken and countless economists, were Jewish, Geoghegan's kind of views were widely seen as antiquated and unenlightened and, to be frank, anti-Semitic.

Indeed, it might be worth exploring more generally how the ascendancy of Wall Street and the paucity of criticism of finance in recent decades was related to would-be critics' fears of being accused of anti-Semitism. As I pointed out recently in reply to a Maureen Dowd column based on her outmoded stereotype that Wall Street is run by WASPs, when you sit down and tote up the names of Wall Street big shots, it turns out that Wall Street isn't as Jewish as some might assume. Bigshots in the financial world come from a wide variety of backgrounds. Nonetheless, Jews obviously make up a striking fraction of the most aggressive players in the financial world, so criticism of aggressive financial tactics was often denounced by, say, the Wall Street Journal editorial page as more or less anti-Semitic. A perusal of WSJ editorials and op-eds defending Milken in the 1980s and 1990s might be eye-opening.

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

The Second Whitest City in America

From the New York Times on the success of the new professional soccer team in Seattle:

Ushers who work games at Qwest stadium for the Seattle Seahawks football team and now the Sounders say they are amazed by Sounder fans standing, stomping and chanting for the full 90 minutes of play, many waving bright green Sounders scarves. Joy, underwritten by one of Microsoft’s ubiquitous sponsorships, prevails.

“They wanted this,” said Grallin Butler, an usher presiding over Section 129 on Saturday.

Even in a city that has supported professional football, baseball and basketball teams for decades, many people say that something else is at work in the instant passion for the Sounders. They say it reflects the region’s well-established affection for soccer but also its conviction that it is not quite like the rest of America. When Seattle cheers the Sounders, it cheers its civic image.

“Soccer is kind of the alternative sport for the United States,” said J. B. Wogan, 24, a reporter for a suburban weekly newspaper. “And Seattle is kind of an alternative city.”

Mr. Wogan was standing with friends in a section where a man with a megaphone led cheers of “Seattle Sounders Olé.”

The promotion plan for the team has appealed to that notion as well as to the city’s international aspirations. The FC at the end of the team’s name stands for Football Club, intended to evoke a European feel. The Sounders scarves were another idea imported from overseas. Billboards, including one near the docks where salmon fisherman still leave for Alaska each spring, say: “The world’s game comes to Seattle.”

The funny thing, of course, is that Seattelites aren't worldly enough to realize that soccer is a prole sport in Europe.

From Stuff White People Like, #80 "The Idea of Soccer:"
Many white people will tell you that they are very into soccer. But be careful, it’s a trap.

If you then attempt to engage them about your favorite soccer team or talk about famous moments in soccer history, you are likely to be met with blank stares. This is because white people don’t actually enjoy watching soccer, they just like telling their friends that they are into it.

In fact, the main reason white people like soccer is so they can buy a new scarf.

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

"Adventureland"

Here's the opening of my review from The American Conservative of the film opening this Friday:
Mid-20th Century American writers competed on their dust flaps to list the most jobs held. The more proletarian occupations an author enumerated, such as short order cook, hod carrier, and lobsterman, the more legitimate was his assault on the Great American Novel.

Today, however, a generation of the well-educated has grown up assuming “there are jobs Americans just won’t do.” “Adventureland,” a witty, nostalgic love story is set in the summer of 1987, about the time when tuition started being inflated so high by competitive elitism and unskilled wages pounded so low by illegal immigration that “summer job” was increasingly replaced in the upper middle class vocabulary by “unpaid internship.” (By now, a few parents are paying fashionable employers to let their kids make photocopies and fetch coffee.)

A new Oberlin graduate, James Brennan, has his costly Eurail Pass backpack tour canceled by his parents because his alcoholic father’s executive career is wobbling. Suddenly needing a summer job to pay for tuition in the fall at the Columbia Journalism School, he finds that a resume featuring his SAT scores and his Renaissance Studies major doesn’t compensate for his lack of any work experience. Nobody in Greater Pittsburgh, it turns out, needs a fresco restored. He winds up at the employer of last resort, the Adventureland amusement park.

Writer-director Greg Mottola, who helmed 2007’s comedy hit “Superbad,” explains the origin of his quasi-autobiographical film with an ingenuous snobbishness that would have annoyed and amused John Steinbeck. “I was talking with a bunch of writer friends, and I was telling them these embarrassing stories about a summer in the ‘80s that I spent as a carnie working at an amusement park … It was the worst job I’ve ever had… I should have had a good job—I should have been a tutor or gone to Manhattan and been an intern at a magazine or something respectable ...”

Please note that Mottola isn’t, personally, a jerk. Judging from “Adventureland,” he’s an insightful yet gentle observer. That’s just the way people think nowadays.

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

March 30, 2009

My VDARE review of Thomas E. Woods Jr.'s "Meltdown"

The beginning of my new VDARE.com article:

During the Republican Presidential primary campaign in 2007 and early 2008, Congressman Ron Paul (R-TX) insisted on talking about such outré topics as the dangers of the Federal Reserve System and fiat money, for which he was widely snickered at. Back then, everybody just knew that the geniuses at the Fed had solved all our fundamental economic problems. Now the only one that remained was (as Barack Obama kept pointing out) how to more equitably divvy up the endless stream of wealth.

Granted, when your kids would ask you why a dollar bill was worth a dollar, you’d start out confidently enough, but soon find yourself waving your hands around and answering their increasingly skeptical questions with "Because Daddy says so!"

Yet, even though you, yourself, might be a little hazy on the details, you could be confident that Alan Greenspan and his protégé Ben Bernanke had this money thing all figured out. So, why listen to Ron Paul talk about something as obviously obsolete as the gold standard?

Early 2008 sure seems like a long time ago now …

Perhaps not surprisingly then, one of the surprise bestsellers of 2009 is Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas E. Woods Jr., a historian with the Ludwig von Mises Institute. Despite almost no reviews in what Treasury Secretary Tim Geithner might euphemize as the "legacy press"— Woods’s book (with its Foreword by Rep. Paul) has risen as high as #11 on the New York Times bestseller list.

Woods points to six main causes for the current economic travails, which began with the rise in mortgage defaults in 2007 (largely in the four Sand States). His assessment overlaps considerably with the under-reported aspects that I’ve emphasized:

The great sportswriter A. J. Liebling boasted: "I can write better than anybody who can write faster, and I can write faster than anybody who can write better," and Woods does a fine job of hitting Liebling’s sweet spot in lucidly presenting an Austrian School of Economics analysis of our current troubles.

The "Austrians" (most of whom are American these days) have been waiting a long time for an opportunity to make their case.

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

Do Indians just like memorizing stuff?

Here's a curious op-ed by Ashok Mitra in the Calcutta Telegraph that makes me fear I missed the point of "Slumdog Millionaire." I assumed that "Who Wants to Be a Millionaire?" was just a passing fancy in India like it was in America. But, I should have noticed by the fanaticism with which Indians in America approach things like spelling bees that something deeper was going on.
Parlous times, unless well-versed in the culture built around ‘quiz’ programmes, one would hardly be considered civilized. In one such programme, participants are grilled on their knowledge of the exact length of La Manche, otherwise known as the English Channel: is it 563 or 564 or 565 kilometres? Another ‘quiz’ wants participants to pick the number of children Queen Victoria bore: six, eleven, or whatever. Yet another demands to know whether the Gettysburg Address was delivered on March 25, 1865 or on February 28, 1860 or on November 1, 1863.

A multiple choice test on the date of the Gettysburg Address is reasonable because you can work it out from the concurrent date of the Battle of Gettysburg and the Fall of Vicksburg, which famously hit the newspapers on July 4, 1863. Of course, that's a reasonable question for Americans, not for Indians.

A multiple choice test on whether the English Channel is 563, 564, or 565 km long is just stupid for everybody.

Not just in India, but over the entire subcontinent too, a child’s intellectual prowess is being judged by the criterion of his or her ability to cope with frivolities of this nature. How does it matter to the realities of living for children in these former colonial countries if the length of the English Channel is a kilometre more or a kilometre less, or whether the Gettysburg Address was delivered on this particular date in the 1860s? To be well-informed on the number of children that prim woman, Queen Victoria, gave birth to is surely not a matter of life and death, either, for South Asian children circa the first decade of the 21st century. It could not, but it is being made out that it is. A great colonial haze hovers over the post-colonial sky. ...

A child’s mind can absorb only so much of information; ... In the given social framework, the vacuity of mind amongst the rich influences the roster of daily existence of children belonging to lower echelons. Once, within their circle, it is a matter of pride for sons and daughters of affluent households to know the precise length of La Manche, it becomes essential for children from financially far worse off families too to be equipped with the same load of junk; otherwise they will not be able to survive the competition.

The grand coalition of the creamy layer at home and the diaspora emerged as determinants of Indian culture and civilization. It is terribly important in the context of this nascent, but assertive, cultural milieu that the members of the new generation do not mess up the dates of earthshaking events in the United States of America and Europe.


Okay, but maybe Indians just like memorizing stuff. Maybe they're just good at it ... Remember how well Indian children did on that Wechsler Digit Span test of working memory? You don't? Well, then you probably aren't Indian.

But if Indians love historical trivia so much, how come they didn't write any down when it was happening to them? The Chinese, in contrast, kept records on everything. We know that the Crab Nebula was a supernova that became visible on Earth on July 4, 1054 because Chinese bureaucrats wrote down the exact date they first saw it. One reason Indians ask each other questions about Western historical trivia is because Indian history is so vague. Nobody bothered to write down what had just happened, so Indian history is hard to use as trivia questions, which need precise answers.

I mean, here's a paragraph from Wikipedia on the origin of the Gupta Empire:
The origins of the Guptas are shrouded in obscurity. The Chinese traveler Yijing(see also Xuanzang) provides the first evidence of the Gupta kingdom in Magadha. He came to north India in 672 CE and heard of Maharaja Sri-Gupta, who built a temple for Chinese pilgrims near Mrigasikhavana who lost their lives in epic battle . I-tsing gives the date for this event merely as '500 years before'. This does not match with other sources and hence we can assume that I-tsing's computation was a mere guess. Very recently a few scholars have linked Guptas with rulers mentioned in Bhagwatam; however, these things are largely disputed and the idea seems politically motivated and to promote the sale of books written and promoted by some entities.[1]

What the hell kind of trivia questions can you make up out of that? "What year did that Chinese guy visit India who first heard of something or other having to do with the Gupta Empire that was built "500 years before"?"

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

Obama Administration cracking down on the border ... the Canadian border

From the Toronto Globe & Mail:
Janet Napolitano has a message for Canadians: It's a border. Get used to it.

The new Homeland Security Secretary had only stern comments yesterday about the state and future of the Canada-U.S. border, at a symposium hosted by the Brookings Institution. ...

“It's a real border, and we need to address it as a real border,” Ms. Napolitano said, calling on both Americans and Canadians to accept this “change of culture.”

That culture changes most emphatically June 1, when the United States will require anyone entering from Canada to produce a passport or its equivalent. ...

Roberta Jacobson, who is Deputy Assistant Secretary for Canada, Mexico and NAFTA at the State Department, said that Canada and the United States should talk about border issues without involving Mexico, the third member of the North American Free Trade Agreement partnership.

“This is one where we ought to start with Canada,” she said. This has long been the wish of Canadian officials, who believe that bringing Mexico into border discussions prevents agreements in areas where Canada and the United States could work co-operatively.

But Ms. Napolitano doused that idea as well, reminding the gathering that “one of the things that we need to be sensitive to is the very real feelings among southern border states and in Mexico that if things are being done on the Mexican border, they should also be done on the Canadian border.”

It seemed to be another lesson learned: when it comes to national security, the Obama administration's policies are often consonant with its Republican predecessor.

Indeed.

The Obama Administration's goal here is presumably to build a coalition against enforcement on the Mexican border by annoying Congressmen on the Canadian border. When they complain, the Obama Administration will say, "Obviously, being tougher on the Mexican border than the Canadian border would be racist. You don't want to be racist, do you? So, you must join us in voting for making both borders laxer." And the far northern Congressmen will figure, "Hell, it will be at least a generation before illegal immigrants overrun my frigid district, so it's no skin off my nose to go along with Obama and Napalitano. Too bad about the bottom two-thirds of the country, but that's not my problem."

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

March 29, 2009

Are the Blue-Eyed Greedy? The Ethnicities of 40 Prominent Financial Players

Maureen Dowd's NYT column "Blue Eyed Greed?" convinced me to sit down and take a vaguely systematic stab at figuring out the ethnic backgrounds of the people whose names come up these days in relation to the universe of American finance.

I first wasted time some time squinting at pictures of Angelo Mozilo and Bernie Madoff trying to figure out what their eye colors were, but then I gave that up as hopelessly literal-minded. Obviously, Dowd (a red-haired Irish Catholic who felt undervalued because she has brown eyes) is using the code terms "blue eyed" and "white bread bankers" to refer to Northern European Protestants. So, it made more sense to look up ancestry, religion, and self-identification directly.

But, who to look up? I ended up making up a list of 40 figures important in the finance story of the last couple of years, drawn from both my writings and a list of about a dozen Wall Street figures sent me by a reader who long worked on Wall Street.

This is not the proper way to do it. The better way is to be staring at somebody's list of the Top Whatevers and then have it suddenly dawn on you that you could use this list to answer a question that the people who made up the list never considered. But, I already had my question and I didn't have a list. Also, I'm not sure if I could find a list that would fit my needs. So, I made up a list, trying not to be biased. It's not a very good list, but it's a start. It's got Wall Street bosses, national bankers, politicians, bureaucrats, and crooks on it.

So, here's what I found.

- The old stereotype that the financial world is run by Northern European Protestants from the Northeast appears outmoded. I came up with six WASPs out of 40, but three were politicians (George W. Bush, Bill Clinton, and Phil Gramm, only one of whom grew up wealthy); one was an accused crook of working class rural origin (Sir Allen Stanford); one was a Southern army sergeant's son (Ken Lewis of Bank of America); and one was from the Northeastern media elite, Daniel Mudd of Freddie Mac, son of newscaster Roger Mudd and a descendant of the doctor who set John Wilkes Booth's broken leg, who has managed to make the family name mud again. (If you want to count Barack Obama as half-WASP, you can make it 6.5.) This 6 out of 40 feels a little low, but that's what I've got.

- A lot of people assume that anybody with a German name who is famous for anything having to do with money was raised Jewish, but both Treasury Secretary Tim Geithner and Clinton adviser and former Fed chairman Paul Volcker were raised Protestant. I'm also guessing that Kerry Killinger of Washington Mutual is gentile German by background. So, that's three German gentiles.

- There was one Presbyterian Scotsman: John Thain of Merrill Lynch.

- There was one Norwegian name -- Treasury secretary and Goldman Sachs boss Hank Paulson (who was raised as a Christian Scientist).

So, I come up with 11 out of 40 names on the list being Northern European Protestants.

- Jewish individuals make up the largest single ethnic group on the list, but they might be less numerous than you'd think: 11 out of 40: Roland Arnall (Ameriquest subprime mortgages), Ben Bernanke (Fed), Lloyd Blankfein (Goldman Sachs), Rep. Barney Frank, Dick Fuld (Lehman Bros.), Hank Greenberg (AIG), Alan Greenspan (Fed), Bernie Madoff (Ryker's Island), Robert Rubin (Treasury and Citigroup), Larry Summers (Treasury), and Sandy Weill (Citigroup).

- There were four Irish, largely in political roles: Sen. Chris Dodd, John Taylor of the National Community Reinvestment Coalition, Richard Syron of Freddie Mac, and Sheila Bair of the FDIC (I'm just guessing with her because her middle name is Colleen).

- There were three blacks: Franklin Raines of Fannie Mae, President Barack Obama, and Joy Jackson of Stripper Fraud Mortgages. And there was one Mexican-American, Henry Cisneros of HUD.

- Two Asians: Vikram Pandit of Citigroup and rocket scientist statistician David X. Li.

- That leaves 8 of the 40 names belonging to one general group that has been overlooked in most ethnic theorizing about finance: Mediterranean gentiles.

- Two Italians: Angelo Mozilo (Countrywide) and Joe Cassano (AIG Financial Products).

- Two Lebanese Christians: John Mack (Morgan Stanley) and Nassim Nicholas Taleb (Black Swan)

- And four Greeks. Two are whistleblowers: Harry Markopolos, who tried to get the SEC after Madoff, and David Andrukonis, the chief risk officer of Freddie Mac, who clashed with his boss Richard Syron. Two are Wall Street big shots: Tom Kalaris of Barclay's and Jamie Dimon of J.P. Morgan Chase.

So, what does it add up to?

Well, first, Maureen Dowd's media stereotype about the financial world as dominated by an Old Boy's Network of blond, blue-eyed WASPs is badly out of date. Finance has evolved from an old Relationship Model to a newer Transaction Model about who can make you the most money in a New York minute.

Second, as the largest single group, Jews tend to set the tone, yet don't seem to be as dominant as some posit.

Third, the large numbers of Jews and Mediterranean gentiles suggests, unsurprisingly, that the financial world has a quite New York City flavor to it, with a lot of Outer Boroughs as well as Park Avenue.

Fourth, there is a sizable meritocratic element in the financial world. Of course, the emphasis on keeping objective score can lead to some of the problems we've seen, such as paying bonuses at the end of the year for transactions that appear profitable in the short run that might blow up the company in the long run.

A note about looking up ancestral backgrounds: if bigshots have parents or grandparents who were immigrants, they will generally boast about them to reporters. The people who tend to be hard to figure out are the Midwesterners like Killinger and Bair.

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

"Tim" v. "Tom"

David Warsh writes about the power struggle between Treasury Secretary Tim Geithner and NEC supremo Larry Summers, which reminds me of one of the deepest-rooted and most irrational prejudices I'm afflicted with:

Treasury Secretary Timothy Geithner, 47, was under fire again, some of it clearly fratricidal. Meanwhile, a talented and complaisant reporter, Noam Scheiber of The New Republic, rolled out a 6,000-word cover story assembled with the full cooperation of National Economic Council chair Lawrence Summers, 53: ''Springtime for Summers? Why the White House Needs to Unleash Him.''

Unleash him? Presumably he had in mind sending Summers back to the Treasury Department, which he had 18 months at the end of the Clinton administration. ...

Then Geithner himself ran into confirmation problems - those $40,000 in underpaid taxes in the years when he was moving from Washington to New York - and barely squeaked through on a 60-34 vote.

His first tentative plans to restore banking stability underwhelmed markets; his role in the initial AIG bailout (when he was president of the Federal Reserve Bank of New York) came under fire; Democrats criticized his communication skills; and last week he was caught in a wicked crossfire over those bonuses....

No doubt that Summers possesses the skills to be a highly effective finance chief, beginning with the fact that he grew up as an economists in an intensely competitive arena, the quasi-official non-governmental policy institute that is the National Bureau of Economic Research.

Since moving to Cambridge, Mass., from Manhattan, in 1973 - and especially since Harvard professor Martin Feldstein (Summers's thesis adviser) became president, in 1978 - the NBER has become policy economists' West Point, a highly selective academy in which future leaders of the profession from all over the world meet, match wits, and learn to assess each others' strengths and weaknesses.

Indeed, much of the aura of unquestioned deference that Summers enjoys among his policy-circle peers derives from having successfully persuaded others of his credentials as an alpha male in innumerable late-night bull sessions in the early 1980s in the NBER offices, located midway between Harvard and the Massachusetts Institute of Technology. He has been remarkably good at forging alliances as well. Since entering the political world full-time, in 1990, as chief economist for the World Bank, he has honed a second array of skills, including a deliberate manner of speech that conveys gravitas, disarming humor, a comfortable girth, and a baleful glare.

Geithner, on the other hand, has no such base among an academic discipline. Nor do his boyish face, runner's frame, or matter-of-fact delivery convey authority through a microphone (he has plenty of power in a conference room).

That reminds me that I realized when I was about 12 that I assumed that guys named "Tim" were skinny while guys named "Tom" were muscular. It's partly that "Timothy" requires more delicate pronunciation work than "Thomas," but I think it's mostly the different shape of the vowels in "Tim" and "Tom:" slender vs. sturdy. Granted, this is about as stupid a prejudice as you can imagine, but I suspect I'm not alone in feeling this way.

And I further imagine that a bit of Tim Geithner's image problem is that he came along and partly validated this pre-existing stereotype of what a "Tim" should be like, and then he got a lot of the rest of the stereotype dumped on him.

P.S. A reader points out that psychologists talk about the "Bouba/Kiki Effect:" they draw a jagged shape and a rounded shaped and ask people which one is most likely to be a "Bouba" and which one a "Kiki"? To find out what most people around the world think, see here. The implication is that how a word sounds is not wholly arbitrary. So, maybe Tim Geithner really does seem like what people expect a Tim to be like.

P.P.S. Also, the two Tiny Tims (Charles Dickens's and Johnny Carson's) don't help.

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

March 28, 2009

Obama's brilliant management keeps Fargo from turning into flood ravaged hellhole

Just giving credit where it's due ...

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

Maureen Dowd: "Blue Eyed Greed?"

As I've mentioned before, many a female pundit's output consists in large part of demands that society's structures and values be revolutionized so that she, personally, will be considered hotter-looking.

Thus, Maureen Dowd writes in today's NY Times in "Blue Eyed Greed?"
At a press conference Thursday in Brasilia with Prime Minister Gordon Brown of Britain — who has a talent for getting himself into dicey spots — Lula started off coughing from some cheese bread he’d wolfed down. Then he suddenly turned accusatory.

“This crisis was caused by the irrational behavior of white people with blue eyes, who before the crisis appeared to know everything and now demonstrate that they know nothing,” charged the brown-eyed, bearded socialist president.

As the brown-eyed Brown grew a whiter shade of pale, Lula hammered the obvious point that the poor of the world were suffering in the global crash because of the misdeeds of the rich.

“I do not know any black or indigenous bankers,” said Lula.

That's just because Brazil is backwards in terms of affirmative action, not starting it until a few years ago. Here in America we've enjoyed the services of Franklin Raines of Fannie Mae and HUD, Stanley O'Neal of Merrill Lynch, and Henry Cisneros of HUD and various home-building schemes.

Perhaps Maureen and Lula got their demographic data from watching old Washington Mutual TV ads?

... The “Lula lulu” by the “Brazil nut,” as The New York Post dubbed it, became big news just as President Obama met at the White House with Vikram Pandit and a cadre of white-bread bankers who have taken the bailout — some of whom, like Jamie Dimon, have distinctly blue eyes.

And it is true, of course, that the upper-crust, underwhelming Anglo-Saxon leaders who allowed America’s financial markets to morph into louche casinos, George W. Bush and Dick Cheney, were very, very white men with blue eyes. ...

Before President Obama, whose brown eyes are opaque when you look into them, presidents have been more known for blue eyes. The ones with brown eyes, Richard Nixon and L.B.J., came a cropper.

Throughout history, whether it’s images of Jesus that don’t look Middle Eastern or Barbies who don’t look ethnic, blue eyes and white skin have often been painted as the ideal.

The cerulean-eyed Paul Newman once wryly predicted his epitaph: “Here lies Paul Newman, who died a failure because his eyes turned brown.”

Surveys show that people with blue eyes are considered more intelligent, attractive and sociable.

A 2007 University of Louisville study concluded that people with blue eyes were better planners and strategic thinkers — superior at things like golf, cross-country running and preparing for exams — while people with brown eyes had better reflexes, making them good at hockey and football.

Lula’s rant underscored an ancient rivalry.

When I was little, growing up in a house that prominently displayed a blue-eyed Jesus and a blue-eyed J.F.K., I felt my brown eyes were far less attractive than my brothers’ blue ones.

I obsessed on it so much, cutting out a picture of a beautiful brown-eyed model and keeping it in my scrapbook, that my mother finally reassured me:

“You look at blue eyes. You look into brown eyes.”

Later, of course, there would be the thrill of Van Morrison serenading a “Brown-Eyed Girl.”

Before Barack Obama, when I interviewed the brown-eyed sons of immigrants who were thinking of running for president, Mario Cuomo and Colin Powell, they seemed torn about taking the big plunge, given how far they had come in relation to their dads.

I asked Governor Cuomo if he was leaving the field to “the privileged blue-eyed WASPs” like Bush senior and Dan Quayle who felt entitled and never worried about their worthiness.

Barack Obama and his family have already had a profound effect on the culture in terms of what is beautiful and marketable. Black faces are popping up in all kinds of ads now — wearing straw boaters and other prepster outfits in Ralph Lauren ads.

With Michelle urging students to aim for A’s and the president promising to make school “cool,” brown eyes may finally — and rightfully — overtake blue as the windows of winners.

Sorry, Maureen, but your nemesis, Catherine Zeta-Jones, is brown-eyed, so you can't actually blame society's prejudice against brown eyes for you not snagging Michael Douglas.

So, I spent some time looking at photographs of Bernie Madoff, Joseph Cassano of AIG FP, Allen Stanford, Angelo Mozilo of Countrywide, Kerry Killinger of WaMu, Roland Arnall of Ameriquest, Joy Jackson of Stripper Fraud Mortages, and various other people who have distinguished themselves in the financial world in recent years, and I came to the conclusion that it's really hard to tell what color eyes people have from candid photographs. Most people have boring-colored eyes.

Unless you have Paul Newman's eyes, you have to be as vain/insecure as Maureen Dowd and spend enough time and money on having your hair dye and lipstick complement your eye color and then have the best glamour photography to make your eye color as readily apparent as her's in her column photo.

By the way, can we finally lose the term "white-bread?" I suspect that for a few decades now, blue-eyed people eat less white bread per capita than brown-eyed people.

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

JournoList: Unclear on the Concept

The point of having an invitation-only closed email list is to let people say and hear in private the insightful things that it would be bad for their careers to say and hear in public.

Yet, the liberal reporters and pundits on the JournoList closed email list apparently view their list as an opportunity to exchange with each other exactly the same ignorant eye-rolling, the same politically correct inanities that they spout in public, just with more bad language!

Mickey Kaus has some leaked emails, and Your Lying Eyes absolutely nails the analysis.

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

March 27, 2009

Medical School Test Scores, GPAs, and Acceptance Rates by Race

Also of potential interest: Law School Admissions Test (LSAT) scores by race

Nicholas Kristof recently wrote a NYT column about how pundits should be graded by how accurate their predictions are. But most of my predictions are really boring and depressing. So, none of the other pundits would touch making predictions about topics I'm interested in.

Everybody else likes to make predictions about tournament-like phenomenon that are inherently interesting because they are hard to predict: e.g., Who's going to win the NCAA basketball championship? Who's going to win the next election? Will the stock market go up or down? So, most pundits aren't much more accurate than random, but they are popular.

In contrast, I hate being wrong, so I like to make predictions about things that have a track record. I've been following social science stats for 37 years now the way Bill James follows baseball stats. (National Review published a letter from me commenting on Ernst Van Den Haag's review of Christopher Jencks' Inequality: A Reassement of the Effect of Family and Schooling in America when I was a freshman in high school.) Over that time, not all that much has changed.

For example, after I posted LSAT scores of law school applicants by race, a reader asked about MCAT scores of medical school applicants by race.

So, I said, to myself: I bet the MCAT scores will be a lot like the LSATs, except for the Asian non-verbal boost that will show up more in the MCATs than the LSATs.

From the American Association of Medical Colleges, here are the 2007 MCAT scores and GPAs for both applicants and matriculants (i.e., people who were accepted and enrolled). I spent some time converting them from raw mean scores (which you can find at the link above) to where each group would fall on the white percentile ranking. In other words, the mean score for whites is set to always be the 50th percentile. So, the mean score of the Mexican-American applicants on the MCAT's Verbal Reasoning subtest would fall at the 21st percentile of white applicants, the African-American mean would fall at the 10th percentile, and the Asian-American at the 36th percentile. (This is based on the means and the standard deviations, so it assumes normality. Your mileage may vary, but this should be close enough.)

2007 Med School Mex-Am Af-Am Asian-Am White
Total Applicants 1,034 3,133 8,390 24,136
% of total applicants 2.4% 7.4% 19.8% 57.0%

Percentile if White
MCAT Verbal Reason 21% 10% 36% 50%
MCAT Physical Sci 25% 14% 61% 50%
MCAT Biological Sci 25% 10% 54% 50%
GPA science 26% 15% 45% 50%
GPA non-science 32% 24% 45% 50%
GPA total 26% 16% 45% 50%





Acceptance rate 43% 36% 42% 44%





Total Matriculants 441 1,139 3,535 10,632
% of total matriculants 2.5% 6.4% 19.9% 59.9%

Percentile if White
MCAT VR 23% 12% 43% 50%
MCAT PS 25% 15% 67% 50%
MCAT BS 27% 14% 61% 50%
GPA science 19% 12% 49% 50%
GPA non-science 29% 24% 48% 50%
GPA total 24% 15% 48% 50%

Obviously, there's a lot of affirmative action in the med school racket: the acceptance rate (43%) for Mexican-Americans is virtually the same as for non-Hispanic Whites (44%) even though Mexican Americans average around the 26th percentile of the white distribution in MCATs and college GPA. And 36% of blacks get accepted compared to 44% of whites even though blacks scores and grades are down around the 17th percentile of the white distribution.

In fact, the AAMC posts offical grids showing how much easier it is to get into medical school for Non-Asian Minorities (NAMs) than for overall applicants. For example, 32.4% of "self-identified" NAMs get accepted to medical school with 3.00 to 3.19 GPAs and MCATs of 21-23, while only 13.4% of overall applicants get in with the same credentials. For applicants with 3.40 to 3.59 GPAs and 24-26 on the MCAT, 67.1 of NAMs get in versus 27.5% of the overall applicants (and somewhat less for Whites/Asians, of course).

In summary, it's probably a good idea to get a second opinion.

There just aren't many high-scoring NAMS. Only 45 of the 1,682 applicants who scored 39-45 on the MCAT (the highest bracket) were NAMs. In contrast, NAMs made up 1,731 of the 2,705 in the lowest scoring bracket of 5-14.

Asians are accepted at a 42% rate versus 44% for whites, which sounds about right because their test scores are almost exactly the same and their grades are slightly worse.

One interesting note is that white applicants to med school have slightly better grades in college than Asians, both in science and non-science courses. I suspect that whites who apply to med school tend to be individuals who want to be doctors, while Asian-Americans who apply to med school tend more than whites to be individuals whose parents want them to be doctors. Hence, the much higher percentage of Asians who apply to medical school, and their slightly less impressive college grades.

Also of potential interest: Law School Admissions Test (LSAT) scores by race

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

Maximizing Uncertainty for Fun and Profit

People who have actually successfully managed something larger than their own images, such as former Intel CEO Andy Grove in his Washington Post Op-Ed "Mr. President, Time to Rein in the Chaos," have been urging President Obama to prioritize and concentrate. For example, Obama has been going out of his way to keep an immigration amnesty an open possibility, even though such an attempt would likely prove politically disastrous for him.

A reader explains why Grove's advice is naive:
There is an important observation to be made about what Obama is doing, and I wish that you would say something about it.

Suppose a new president came to Washington and said, "I basically won't change a thing. My motto is 'Business as Usual.'" What kind of attention would that president get from lobbyists? Obviously, none. Campaign donations would drop precipitously. Corporations would lay off their lobbyists.

The opposite of that is a practice of keeping all the balls in the air, with massive regulation proposals in the works for all major industries. Massive financial system reform! Massive healthcare reform! Massive energy reform! This gets every lobbyist involved. It maximizes the shakedown.

Shakedown is maximized as long as all the balls are kept in the air. Should any reform be settled, lobbying efforts could wind down.

Washington journalists love "Massive X reform." It's good for the local economy, and no doubt helps them collect bribes and gifts. What would they think of a president who said, "Business as usual?" They would hate him. He would be bad for the Washington journalism business.

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

LSAT and IQ

A continuing theme here is the distinction between acceptable public discourse about IQ (it's meaningless, it's biased, it's evil, it's useless) and private behavior (it's important, it's what makes me better than those Sarah Palin fans).

For example, consider law school admissions, which are a key part of the American power structure. Top law schools place a strong weight on one's test score on the Law School Admissions Test (LSAT). I never took that test, but at a quick glance, it strikes me as a very good test of verbal IQ.

Of course, compared to, say, Raven's Progressive Matrices, it's culturally biased (it's only in English, and it helps to be familiar with the subject matter of the reading comprehension selections, such as the practice question discussion of Ralph Ellison's Invisible Man), and it obviously helps to study up on the tricks for figuring out logical puzzles using pencil and paper. But those tricks are worth knowing in general, and if you really want to make lawyering your life work, well, it's hardly asking too much to practice taking the test.

Via the interesting quant blog Le Carrefour de la Sagesse, I found the Law School Admissions Council report "LSAT Performance with Regional, Gender, and Racial/Ethnic Breakdowns:"
... Designed to measure analytical (or deductive) and verbal (or informal logic ) reasoning skills and reading comprehension, the specific item type makeup of the scored portion of the current test is as follows:

Item Type Number of Items
Reading Comprehension 26–28
Logical Reasoning A 24–26
Logical Reasoning B 24–26
Analytical Reasoning 22–24

A 35-minute writing sample is also administered at the end of the test. Prior to the 2005–2006 testing year, the time given for this writing sample was 30 minutes. Writing samples are not scored, but copies of the writing assessment are sent to all law schools to which the test taker applies.

Here's a sample analytical reasoning question:
A law firm has exactly nine partners: Fox, Glassen, Hae, Inman, Jacoby, Kohn, Lopez, Malloy, and Nassar. Their salary structure must meet the following conditions: Kohn’s salary is greater than both Inman’s and Lopez’s.

Lopez’s salary is greater than Nassar’s.
Inman’s salary is greater than Fox’s.
Fox’s salary is greater than Malloy’s.
Malloy’s salary is greater than Glassen’s.
Glassen’s salary is greater than Jacoby’s.
Jacoby’s salary is greater than Hae’s.

If Malloy and Nassar earn the same salary, what is the minimum number of partners that must have lower salaries than Lopez?

(A) 3
(B) 4
(C) 5
(D) 6
(E) 7

Answer on P. 21. "This is considered an item of “middle difficulty.”" These kind of questions are helpful in figuring out if somebody can work through the logic of a proposed contractual clause to figure out if does what the clients want it to do. Much of lawyer work resembles computer programming in a language based on 15th Century English. You write a lot of if-then-else statements and then debug them.

And here's a Logical Reasoning question, most of which seem to involve pointing out logical fallacies:
A study has shown that there are still millions of people who are unaware that they endanger their health by smoking cigarettes. This is so despite government campaigns to warn people of the dangers of smoking. Reluctantly, one has to draw the conclusion that the mandatory warnings that tobacco companies are required to print have had no effect. Which one of the following, if true, would refute the argument in the passage?

(A) Many people who continue to smoke are aware of the dangers of smoking.
(B) Some people smoke cigarettes for legitimate reasons.
(C) Government has had to force companies to warn potential customers of the dangers of their products.
(D) Some people who are aware of the dangers of smoking were made aware of them by the mandatory warnings.
(E) Smoking is clearly responsible for a substantial proportion of preventable illness in the country.

Answer on p. 23-24. "This question is classified as “difficult”; only 44 percent
of test takers answered it correctly." Forty percent of test-takers fall for a red herring answer.

How is it scored:
As the content of the LSAT has evolved over time, the scale used to report LSAT scores has also been changed on a couple of occasions. The original LSAT scale of 200–800 remained from 1948 until 1982. Due in part to a concern that this scale gave the impression of too much precision, a scale that ranged from 10–50 was established in June 1982. This scale was later reduced to 10–48. Major changes incorporated into the current version of the test, introduced in June 1991, resulted in another score-scale change, establishing the 120–180 scale...

The results form a near perfect bell curve with mean/median/mode just above 150. (See Figure 2) with a standard deviation of about 10. So, a 180 would be three standard deviations above the mean, which, since the mean test-taker is well above average, is off the charts.

Men outscore women on averge by 1 to 2 points, with men and women split almost exactly equally among test takers.

Mean scores by race for 2005-2006:

African Americans: 142.3
Native Americans: 147.3
Asian Americans: 152.1
Caucasian: 152.7
Hispanic: 146.5
Mexican American: 147.7
Puerto Rican: 138.3
Other: 150.7
No Response: 155.2

So, we see the usual one standard deviation difference between blacks and whites, what La Griffe du Lion calls the Fundamental Constant of Sociology. The Mexican American score (o.52 standard deviations lower than non-Hispanic whites) is a little better than what we usually see.

The low scores of African Americans and Puerto Ricans relative to Mexican Americans are probably related to the large number who take the test (11,288 African Americans and 2,274 Puerto Ricans) relative to Mexican Americans (only 1,789).

In comparison, 72,700 Caucasians and 8,976 Asians took the test in 2005-2006. The tiny percentage of test-takers who were Mexican Americans (1.8% versus about 10% of the population) reflects another theme common at iSteve: that America's Eastern elites vastly underestimate the impact of illegal immigration on America because it doesn't provide much competition for their own children. They just don't notice Mexicans around much in the circles in which they move. (On the other hand, since they don't pay any attention to them in their daily lives, they are suckers for bad ideas about them in their business and political lives: "Should we purchase a Mortgage-Backed Security consisting of 1,000 half-million dollar zero money down loans in California? Sure, why not? What's the worse that could happen? Who ever lost money betting on California houses?" etc. etc.)

The really bad Puerto Rican scores probably also have something to do with the test being given in Puerto Rico, but the LSAT is only given in English. Puerto Rico has its own little universe of colleges and law schools that nobody in America has ever heard of because they use Spanish as their language of instruction, but the LSAT is so useful that Puerto Rican law schools insist on their applicants taking it (along with a GRE-like test in Spanish).

The LSAT is one test where African-American men outscore African-American women, but only about 60% as many black men take the test as black women.

Le Carrefour goes on to offer an LSAT to IQ conversion chart. I suspect, however, that it slightly underestimates IQs relative to LSAT scores. It assumes that somebody who scores 151 on the LSAT has an IQ of 105, which strikes me as five or ten points too low for somebody who is close to graduating from college or has already graduated and is considering three more years of study.

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

My Obama book now available for Kindle: $7.99 from Amazon

My book, America's Half-Blood Prince: Barack Obama's "Story of Race and Inheritance," is now available for Amazon's popular Kindle book reader. You can get an instant download for $7.99.

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

March 26, 2009

Fixing the NCAAs

Now that the NBA requires one of college basketball (or European pro play) before it will draft young stars, the NCAA basketball tournament has become much like American Idol, with a different cast each year. This has its appealing side, but it's also lacking in continuity. It's not like the 1984 NCAA championship game, when super centers Patrick Ewing of Georgetown and Akeem Olajuwon of Houston, both of whom had lost heartbreaking final games in previous seasons, fiinally faced off.

This year, I haven't been paying any attention all season so all I know about the participants is that there's this giant homeschooled mulatto kid and his older brother on one of those schools in Oklahoma.

Personally, I would like to see college players stick around longer. For example, Kevin Love was an All-American as a freshman last year at UCLA because of his Bill Walton-like skills. His father Stan Love played for Portland in the NBA. (His father's brother Mike Love is a Beach Boy.) He looked awesome through the first four rounds of the tournament, until he ran into Memphis's NBA-quality athletes in the semifinal, where he looked short and slow.

So, he might not have personally carried UCLA to an NCAA championship, but what a team player to recruit around. If he had announced he was staying all four years, UCLA could have recruited star guards and forwards for a year or two of NCAA glory. And Love, with four years at UCLA and the hereditary Beach Boy connection, would have been a lifelong god in LA no matter what he did in the NBA.

Except, they don't pay you to play college basketball.

So, he went pro, was drafted #5, and is guaranteed $5.4 million over his first two seasons. He's playing for the Minnesota Timberwolves, averaging 25 minutes per night, and, while he's not doing much scoring or passing, he's leading all rookies in rebounds per game with 9.0.

He and his dad are very sharp basketball minds, so they probably made the right decision

What top college players can do to make sure they get paid eventually is borrow money to buy disability insurance policies that pay off if they never sign a pro contract due to injury. A few dozen college basketball players do that each year. But few pay off because just about everybody who's highly ranked enough to be eligible to get an insurance policy (insurance companies don't want to write policies on players who just aren't good enough to make enough money to pay back the loans) will sign some kind of pro contract. Insurance polices that guarantee you a certain amount of income are more expensive.

But why should players have to borrow their premiums? Let the teams' boosters pay. The NCAA could have a rule where each college gets to pay for income insurance for, say, one player per class (i.e., a maximum of four at a time). This would encourage more players to stay in college, where they really do get better coaching in fundamentals, provide continuity, but keep a few teams from stockpiling all the best players.

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

PennyMac is here to help

Sanford Kurland, who was Angelo Mozilo's right-hand man at Countrywide Financial through 2006, has a new business, PennyMac, which buys dubious mortgages for pennies on the dollar that the Federal Deposit Insurance Corporation has wound up with from taking over collapsing banks.

It all makes perfect sense. Who knows more about toxic assets than Countrywide executives?

Interestingly, one of the largest banks to be "resolved" by the FDIC last year was IndyMac.

IndyMac, PennyMac. Hmmhmm ... Must be just a coincidence.

Except, that IndyMac was another spinoff of Countrywide. Wikipedia says:
IndyMac Bank was founded as Countrywide Mortgage Investment in 1985 by David S. Loeb and Angelo Mozilo as a means of collateralizing Countrywide Financial loans too big to be sold to Freddie Mac and Fannie Mae. In 1997, Countrywide spun off IndyMac as an independent company.[7] "Mac" is an established contraction for "Mortgage Corporation," usually associated with Government sponsored entities such as "Freddie Mac" (Federal Home Loan Mortgage Corporation) and "Farmer Mac" (Federal Agricultural Mortgage Corporation). Indymac, however, had always been a private corporation with no relationship to the government.

PennyMac is also a private corporation, although it does a lot of business with the federal government. Perhaps, though, this whole distinction between private for-profit businesses versus government entities has become academic in the Bush-Obama Era.

For 20 months now, I've been reading about how it's completely beyond the power of human comprehension to untangle mortgage backed securities and figure out about what they are really worth, that no mortal man could possibly understand their complexity, that not enough computing power exists to make sense of them. I guess I kind of believed that when I heard it back in August 2007, but that was a long time ago.

I suspect that insiders have been working hard on this question for some time, and Tim Geithner's new "legacy asset" plan has come along at just the right time for them to cash in.

Funny how investors with less than $10 billion are not allowed to bid ...

March 25, 2009

The kind of people the smart money boys at AIG bet on

From the Washington Post:

Woman Pleads Guilty in Mortgage Fraud Scam

By Henri E. Cauvin

A former stripper accused of orchestrating a massive mortgage fraud scheme pleaded guilty yesterday in federal court in Greenbelt, admitting that she played a central role in swindling desperate homeowners out of millions of dollars.

Joy Jackson, who lived lavishly while the real estate market boomed, wore a green jail jumpsuit with the word "PRISONER" across her back. She was a world away from her $800,000 wedding at the Mayflower Hotel in 2006, where she was feted by more than 300 guests and serenaded at the reception by Patti LaBelle.

Jackson, 41, who was the president of the Metropolitan Money Store in Lanham, faces a decade or more in prison.

Instead of helping people hold onto their homes, as they promised, Jackson and her co-conspirators took titles to properties, drained them of equity and charged exorbitant transaction fees, according to prosecutors.

Jackson, her husband and several others were indicted in July by a federal grand jury. Six of the defendants, including Jackson's key accomplice, Jennifer McCall, have pleaded guilty.

Appearing yesterday before U.S. District Judge Roger W. Titus, Jackson pleaded guilty to conspiracy to commit mail and wire fraud, which carries a maximum prison term of 30 years. With no known criminal record, she is likely to face a sentence of 10 to 12 years.

Three defendants, including her husband, Kurt Fordham, are scheduled to go on trial in July.

The conspiracy spanned from September 2004 to June 2007. Already, 115 victims have been identified in Maryland, and that number is expected to grow, a prosecutor said. Jackson's sentencing is Nov. 16.

In a statement, U.S. Attorney Rod J. Rosenstein said: "Joy Jackson presided over a 'money store' that was in the business of ripping off homeowners and mortgage lenders by submitting fraudulent paperwork to support over $16 million of loans that were never intended to be repaid."

Mighty AIG got taken to the cleaners, in effect, by thousands of small-time grifters like Joy Jackson. As the last participant in the food chain that led from broke nobodies through Joy Jackson through various financial institutions, they were the most clueless about the quality of the mortgages they were insuring against default.

Here's from an earlier WaPo article on Jackson:
With her long hair and shapely figure, Jackson was one of his most popular dancers, earning well over $1,500 a week in tips, said Schwapp, who owns the Legend Nightclub. He said Jackson danced under the name "Night Rider" from 1997 to 2003. One of her most memorable stunts involved riding in on a white stallion, a la Lady Godiva.

"She was very popular, very creative," he said. "She stood out."

It wasn't just the patrons who noticed Jackson's act. Kurt Fordham, a popular disc jockey in Prince George's clubs, liked her, too, and the two started dating.

Jackson eventually stopped dancing to focus on her career as a loan officer, moving from one mortgage firm to another. In September 2004, she teamed with McCall, 46, to open Metropolitan. They advertised on gospel and R&B radio stations and other African American media outlets, promising to help homeowners with cash-flow and credit problems.

Veronica Savoy was two months behind in mortgage payments on her Waldorf home when she contacted Metropolitan in summer 2006.

She said the firm promised to keep her home from going into foreclosure and to get her a mortgage with a lower interest rate. She signed on. Now the deed is no longer in her name, and $100,000 in equity is gone, she said.

"I guess that's where the equity in my home went," Savoy said after hearing about Jackson's big day. "It went to her wedding."

* * *

Investigators say Jackson and McCall ran a sophisticated foreclosure rescue operation that included family and friends, many of whom Jackson taught the ins and outs of the real estate industry.

Essentially, the company would enlist investors with strong credit as "straw buyers" who would take ownership of the houses. The original homeowners could live rent-free for a year and then buy back their homes at the end of the year.

But when the homes passed to the straw buyer, Metropolitan would borrow as much as possible against the value, effectively siphoning out the equity and increasing the cost of the house, according to the suit. The original owners were often unable to repurchase their property; some said they were unaware they were signing over their deeds. ...

Neighbors knew little about the couple but said signs of conspicuous consumption were everywhere. Eight cars were regularly parked outside their home, including a Jaguar, a Porsche, a Corvette and a Cadillac Escalade, several neighbors said. Fordham was seen each day outside wiping down his vehicles and moving them from space to space, neighbors said. A limousine arrived daily to take Jackson's 15-year-old son to a nearby private school.

"We knew when they came on the street they had a lot of drama. They weren't friendly at all," neighbor Roger Liggins said. "It was always about them."

Explain to me again why credit default swaps (i.e., insurance against defaults by mortgage backed securities) don't create moral hazard? If you are Goldman Sachs, you can buy up mortgage backed securities made up of fraudulent refis done by ex-strippers and get AIG to insure them against default. Heads you win, tails AIG loses. What's not to love? Except for the possibility that AIG is so clueless that they'll insure everybody's stripper fraud mortgages so when AIG goes broke you have to go through the inconvenience of calling the latest Goldman Sach's alum heading the Treasury Department to get the federal government to give billions in the taxpayers' money to AIG to pass on to you for the MBS's you own full of stripper assets.

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

"English Lessons"

From my article "English Lessons" in the March 23, 2009 issue of The American Conservative:
I was visiting a typical Southern California public high school, one in which the student body is close to three-fourths Latino, when it dawned on me that virtually all the kids’ hallway conversations with friends were conducted in English. Indeed, most of the students spoke English without an accent. Well, to be pedantic, they had teen accents -- it’s practically impossible for a high school girl to roll her eyes and exclaim “That is so gay” without sounding a little like Moon Unit Zappa in Valley Girl -- but only a minority of the Hispanic students had Spanish accents.

Nor, I recalled, had I heard teachers lecturing in anything but English. I found out later that a couple of percent of all the classes were conducted in Spanish for the children of parents who requested it, but few parents did.

I realized then that I had barely heard any public discussion in half a decade about the once contentious topic of bilingual education. Yet, it had been promoted adamantly by America’s educational and political establishment from 1968, when Congress passed the first of five Bilingual Education Acts, through the 1990s.

I went home and read up on bilingual education. I quickly discovered the topic of educating “Limited English Proficient” (LEP) students is buried under a bureaucratic jargon that appears to consist of literal translations from some distant language unknown to Earthlings. For example, when an LEP child masters English, he becomes a Reclassified-Fluent English Proficient (R-FEP). His R-FEP status is tabulated at the federal Office of English Language Acquisition, Language Enhancement, and Academic Achievement for Limited-English-Proficient Students (OELALEAALEPS).

Eventually, I discovered that bilingual education is by no means dead. Yet, it has clearly lost the momentum, the sense of inevitability, it long enjoyed.

That means that America may have dodged a bullet, a long-term threat to our national unity, because nothing divides a country more than multiple languages. In contrast, a shared language enables shared sentiments.

In the three decades when America’s great and good actively promoted Spanish in the public schools, giving official blessing to a second language, it seemed plausible that our country was inflicting upon itself something that could turn into another Quebec a generation or two down the road. Or worse, a Kosovo, which was plunged into war in the 1990s by decades of unassimilated illegal immigration from Albania into a Serbian part of the republic formerly known as Yugoslavia.

And, it struck me, the man who did more to head off the dangers posed by bilingual education is a friend of mine. In fact, he’s my boss: The American Conservative’s publisher Ron Unz.
Okay, I’m biased. But a decade after the 61-39 landslide victory of Ron’s initiative, Proposition 227, put bilingual education on the ropes in California, America’s forerunner state, it’s time to review how the seemingly predestined triumph of bilingualism was knocked off track.

The history of educational plans in America is notoriously littered with broken dreams. Unintended consequences predominate because the reigning dogma of the education industry—the intellectual equality of all students—is wrong. This obdurate refusal on the part of everybody who is anybody in the education business to admit publicly the manifold implications of some kids being smarter than others makes it difficult to get anything done in the real world.

Thus, for example, George W. Bush and Ted Kennedy got together in 2001 to pass the No Child Left Behind (NCLB) law, which mandates that by the 2013-2014 school year, every student in America’s public schools score on reading and math tests at the “proficient” level (roughly, a B+). This, I can assure you, won’t happen.

Yet, the terrible irony about the decades wasted pushing bilingual education is that the conventional wisdom that no child need be left behind is much truer for young children learning English than for anything else in American education. That’s why the otherwise often zany NCLB has helped consolidate the progress initiated by Unz’s pro-English initiatives.

The most popular public rationale for bilingual education -- that the children of immigrants need to be taught in their native language so that they don’t fall behind academically while they spend many years learning English -- sounds plausible as long as you forget how remarkably good small children are at learning a new language.

Read the rest here.

March 24, 2009

We can only hope the title of this 2008 book isn't already obsolete

History's Greatest Heist: The Looting of Russia by the Bolsheviks is a Yale University Press book by historian Sean McMeekin about the tragicomic Communist economic policies of 1917-1923, which largely revolved around organized and not-so-organized crime.

Russia had been one of the great success stories of the capitalist world in the decade leading up to WWI. War and wartime inflation undermined the government's legitimacy, however, and led to power falling into the hands of increasingly leftist elements, ending up with Lenin.

The Bolshevik takeover led to the near paralysis of the Russian economy. In the midst of the world's largest forest, the Communists were soon running out of the paper to print their decrees, propaganda, and currency. What did they have to sell to buy imported weapons to help them stay in power?

Treasure. The gold, silver, and jewelry amassed over the generations. Lenin and Trotsky imposed a policy of looting on a mass scale. As Marx had prophesied: "The knell of private property sounds. The expropriators are expropriated."

This didn't prove as immediately successful as the Bolshevik braintrust had hoped. For example, "inventory shrinkage" proved a recurrent problem. When Lenin and Trotsky called for mobs to sack local landowners, bourgeois households, and churches and send the loot to them, the amount received wasn't as lucrative as expected. Rather a lot seemed to stick to the fingers of local Party operatives.

For instance, the murder of the deposed Czar and his family could have been a gold mine for the regime since the daughters had diamonds stuffed in their undergarments. But, not much got back to Party Headquarters. As late as the 1930s, Stalin would send the Cheka to the villages around where the Romanovs were murdered and the goon squads would find locals who had 100-carat diamonds stuffed away.

Just as it was hard for poor peasants to fence humongous diamonds, it was hard for the Bolsheviks to fence their robberies, of which the largest was the Russian government's huge central gold reserves. The French, in particular, were honorable about not fencing the stolen properties of their old allies, who had saved Paris in 1914 by launching the Russian Army on a kamikaze offensive into Eastern Prussia.
Germain Seligman, whose father Jacques had been one of France's leading dealers in Russian art before the revolution, was invited to Moscow by Mikoyan in fall 1927 to inspect items the Bolsheviks wished to sell in Paris. Taken on a tour of the Gokhran's jewelry storerooms, Seligman later recalled the impression that he had been ushered into "a great cave of ormolu and gilt bronze, with stalactites and stalagmites of gold and crystal. Hanging from the ceiling ... was an incredible array of chandeliers and candelabra." Although impressed by the sheer volume of gilt objects on display, Seligman informed Mikoyan that he was an art dealer, not a jewelry thief...

Although an enormous amount has been written about "Nazi gold" laundered through Switzerland, the much larger amount of "Bolshevik gold" laundered through Sweden in 1918-1923 has previously received little attention. Lenin's problem was that gold ingots stamped with the tsarist Russian seal were obviously stolen by the Bolsheviks, so they traded at a large discount. He found a capitalist, Stockholm bank Olof Aschberg, to sell him the rope. Aschberg would buy Russian gold in Estonia, ship it across the Baltic, and have the Swedish Royal Mint melt down the gold and put its own insignia on this. In return, Aschberg would sell the Soviets weapons needed for their civil war and subsequent 1922 war with their own peasantry.

On the political front, British PM David Lloyd George tired of blockading the Baltic, and legitimized Soviet trade representatives in order to get orders for British factories. The British signed a trade agreement with the Soviets in 1921 and the German Foreign Office, which had done so much to put Lenin in charge of Russia in 1917, signed a loan deal with the Bolsheviks at Rapallo in 1922, just as their gold stock was running out.

By the late 1920s, moral scruples like Seligman's seemed old-fashioned. U.S. Treasury Secretary Andrew Mellon bought dozens of Old Master paintings from the Hermitage in 1930-31, which helped Stalin finance his war on the Ukrainian peasants. Those fenced goods now form the heart of the collection of our National Gallery on the National Mall in Washington, D.C. McMeekin writes:
In one of the most grotesque ironies of Communisms, it was Western fat-cat capitalists like Mellon who inherited the great part of Russia's patrimony, while the Russian proletariat received only the lash. It is hard to imagine a better program for destroying a country's wealth than by robbing and murdering its most successful wealth-producers and shipping their riches out of the country. In this way the Russian people were robbed not only of their cultural past, but of their economic future as well.

History's Greatest Heist: The Looting of Russia by the Bolsheviks is available from Amazon.

P.S. Looking through the book's handy appendix summarizing its Dramatis Personae, it becomes evident that, yes, a lot of the figures involved were Jews, such as the key Swedish banker Olof Aschberg. With Aschberg, ethnocentrism doesn't seem to have played a large role: as well as all the help he provided Lenin and Trotsky, he had previously arranged loans for the Czar in 1916 and for Kerensky in 1917. In general, he was a man of the left (he remains a hero to Swedish Social Democrats), but mostly he'd seen his opportunities and he took them. On the other hand, some of the good guys in the book, such as Germain Seligman, were Jews, and many of the book's bad guys who helped the Bolsheviks cling to power, such as Lloyd George and the German diplomats and generals, were not.

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