Recommend
3 
 Thumb up
 Hide
29 Posts
1 , 2  Next »   | 

BoardGameGeek» Forums » Everything Else » Religion, Sex, and Politics

Subject: Debt ceiling negotiations -- have Republicans trapped themselves? rss

Your Tags: Add tags
Popular Tags: [View All]
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
Another blog post, this time looking at the recent gambits by McConnell.
2 
 Thumb up
0.01
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
I group him among a number of Representatives and Senators who are mainly part of the background noise. They're useful or problematic for their leadership (the GOP has used Tea Party strength as part of their game of chicken) but I'm mainly looking at the major players.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
I think there are two possibilities for why he's making that demand:

1. He knows that any major deficit reduction plan dies if it sees the light of day. Americans want spending cut right up until you tell them what is going to get cut; then they get angry. Americans want taxes cut and programs maintained and the deficit reduced. They want the debt ceiling to stay as-is but they also don't want the government to stop paying its bills. I could rant on for a while, but folks like you (who actually want major programatic cuts) are rare even among GOP voters. So the cynical view is that Obama has gained some momentum by proposing a big deficit reduction package and he wants to kill that initiative by subjecting whatever Obama puts out to death by a thousand cuts.

2. He really thinks that open discussion will lead to deficit reductions. If so, I think he's wrong but this is the optimistic view (about him).
8 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Calavera Despierta
United States
Tucson
Arizona
flag msg tools
badge
Avatar
mb
bjlillo wrote:
I was wondering what your thoughts about his demand that negotiations be done out in the open would have on things.


Did you even bother reading the whole thing before you asked this?

Chad Ellis wrote:
In that environment, Mitch McConnell has made two gambits. The first is to ask that Obama take his $4 trillion proposal from the private negotiation table and make it public. This is a fairly shrewd gambit because as Obama has stated himself his package includes things that are painful for all parties. Such a proposal can potentially be agreed upon by the leadership of both parties and then accepted by rank-and-file members, but they fare poorly if exposed to death by a thousand cuts. If Obama puts his specifics in public view his plan will be attacked by the left for spending cuts and by the right for tax increases and Republicans will be able to walk away from it without political cost.


And btw, Chad, every time I read your blog I hunger to get Republic of Rome back to the table...
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Walt
United States
Orange County
California
flag msg tools
Before terraforming Mars, Surviving Mars is required: Paradox Interactive; Steam.
badge
Please contact me about board gaming in Orange County.
Avatar
mbmbmbmbmb
Nice set of articles, Chad. Some thoughts:

California has radically redistricted due to an initiative that set up a non-partisan commission, instead of letting the politicians gerrymander. The districts are totally different from what they were. Any CA representative who seems to act unreasonably is cutting his own throat, it seems to me. That's 19 Republicans and 34 Democrats.

"McConnell's proposal ... that the President be able to increase the debt ceiling almost unilaterally (Congress would need a two-thirds majority to prevent the increase) provided he offer a plan for reducing spending by a greater amount." This is apples and oranges. Suppose your boss says, "You can increase your credit line as long as you decrease your take-home pay by more"? This is clearly a stupid thing to do, trading a one-time loan against a perpetual budget. The proposal is flummery.

Of course, if the President just needs to "offer a plan", not implement it, then the situation is different. He could offer politically impossible things like "disband the Air Force" or "stop all federal spending in Texas". Then the proposal is just silly.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Daniel Eig
United States
Huntington
New York
flag msg tools
mbmbmbmb
I would say that not just the Republicans are trapped - we all are. Even a month ago, it didn't seem realistic that when the August 3rd SS payment was in jeopardy. Now it does seem feasible. And thats scary... especially since I don't have any spare money to short the entire market.
1 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Walt
United States
Orange County
California
flag msg tools
Before terraforming Mars, Surviving Mars is required: Paradox Interactive; Steam.
badge
Please contact me about board gaming in Orange County.
Avatar
mbmbmbmbmb
dtolman wrote:
I would say that not just the Republicans are trapped - we all are. Even a month ago, it didn't seem realistic that when the August 3rd SS payment was in jeopardy. Now it does seem feasible. And thats scary... especially since I don't have any spare money to short the entire market.

Well, get your stop-loss orders in. But if bonds go down (as they would after a default), stocks generally go up.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Daniel Eig
United States
Huntington
New York
flag msg tools
mbmbmbmb
Tall_Walt wrote:
dtolman wrote:
I would say that not just the Republicans are trapped - we all are. Even a month ago, it didn't seem realistic that when the August 3rd SS payment was in jeopardy. Now it does seem feasible. And thats scary... especially since I don't have any spare money to short the entire market.

Well, get your stop-loss orders in. But if bonds go down (as they would after a default), stocks generally go up.


I suspect in this case both will plummet in lockstep
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
Tall_Walt wrote:
dtolman wrote:
I would say that not just the Republicans are trapped - we all are. Even a month ago, it didn't seem realistic that when the August 3rd SS payment was in jeopardy. Now it does seem feasible. And thats scary... especially since I don't have any spare money to short the entire market.

Well, get your stop-loss orders in. But if bonds go down (as they would after a default), stocks generally go up.


Soooooort of. Bonds have had periods with zero beta, positive beta and negative beta. There is often a short-term negative correlation between price moves because some common events affect stocks and bonds differently. A sharp increase in inflation concerns, for example, is negative for both but far more negative for bonds since stocks have somewhat of an inflation hedge. Anticipated recession is often bad for stocks but good for bonds.

One of the great problems with using beta and historical correlation in risk assessment (and one of the reasons why I'm on Munger's team when it comes to CAPM) is that it doesn't really apply to massive events. If the U.S. were actually to default on its bonds, that would have significant consequences for the global economy that are unlikely to be captured in rules of thumb like stocks going up when bonds go down.
2 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Dan Schaeffer
United States
Unspecified
Illinois
flag msg tools
badge
Avatar
mbmbmbmbmb
Chad_Ellis wrote:
Tall_Walt wrote:
dtolman wrote:
I would say that not just the Republicans are trapped - we all are. Even a month ago, it didn't seem realistic that when the August 3rd SS payment was in jeopardy. Now it does seem feasible. And thats scary... especially since I don't have any spare money to short the entire market.

Well, get your stop-loss orders in. But if bonds go down (as they would after a default), stocks generally go up.


Soooooort of. Bonds have had periods with zero beta, positive beta and negative beta. There is often a short-term negative correlation between price moves because some common events affect stocks and bonds differently. A sharp increase in inflation concerns, for example, is negative for both but far more negative for bonds since stocks have somewhat of an inflation hedge. Anticipated recession is often bad for stocks but good for bonds.

One of the great problems with using beta and historical correlation in risk assessment (and one of the reasons why I'm on Munger's team when it comes to CAPM) is that it doesn't really apply to massive events. If the U.S. were actually to default on its bonds, that would have significant consequences for the global economy that are unlikely to be captured in rules of thumb like stocks going up when bonds go down.


I'm with Taggart here,,,

1 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Jeff Brown
United States
Colorado Springs
Colorado
flag msg tools
badge
Avatar
mbmbmbmbmb
Chad_Ellis wrote:
Tall_Walt wrote:
dtolman wrote:
I would say that not just the Republicans are trapped - we all are. Even a month ago, it didn't seem realistic that when the August 3rd SS payment was in jeopardy. Now it does seem feasible. And thats scary... especially since I don't have any spare money to short the entire market.

Well, get your stop-loss orders in. But if bonds go down (as they would after a default), stocks generally go up.


Soooooort of. Bonds have had periods with zero beta, positive beta and negative beta. There is often a short-term negative correlation between price moves because some common events affect stocks and bonds differently. A sharp increase in inflation concerns, for example, is negative for both but far more negative for bonds since stocks have somewhat of an inflation hedge. Anticipated recession is often bad for stocks but good for bonds.

One of the great problems with using beta and historical correlation in risk assessment (and one of the reasons why I'm on Munger's team when it comes to CAPM) is that it doesn't really apply to massive events. If the U.S. were actually to default on its bonds, that would have significant consequences for the global economy that are unlikely to be captured in rules of thumb like stocks going up when bonds go down.


This is what bothers me about all of the rules of thumb that are used in finances and money management. If we rely on them to heavily they become problematic. For example the rule of thumb that real estate always goes up in value. It was relying on this that caused the bubble which eventually made the rule null and void.

Just because something in the past has worked doesn't mean that it always will especially if you throw in a black swan into the mix. Which looks very possible.

The Long Term Capital Management debacle is another example of this and that was only a few years ago as well. Will we ever learn from our mistakes.
2 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
What's strange to me is that the problems with CAPM and beta as a risk measure are pretty glaring. The traditional risk premium of stocks is much too large to reflect nothing more than standard annual fluctuations or regular cycles of inflation and growth. It only makes sense if it reflects the risk of really serious events. So why should we assume that a correlation of how an asset performs compared with stocks in normal times gives any indication of how it will perform during an extreme crisis?
2 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Jeff Brown
United States
Colorado Springs
Colorado
flag msg tools
badge
Avatar
mbmbmbmbmb
Chad_Ellis wrote:
What's strange to me is that the problems with CAPM and beta as a risk measure are pretty glaring. The traditional risk premium of stocks is much too large to reflect nothing more than standard annual fluctuations or regular cycles of inflation and growth. It only makes sense if it reflects the risk of really serious events. So why should we assume that a correlation of how an asset performs compared with stocks in normal times gives any indication of how it will perform during an extreme crisis?


So what I've been wondering about is why the "smart people" make such glaring mistakes so often.

For instance after the Long Term Capital Management debacle that caused huge problems Merrill Lynch observed in its annual reports,
Quote:
that mathematical risk models "may provide a greater sense of security than warranted; therefore, reliance on these models should be limited.


Then just a few years later made the exact same mistake relying heavily on a mathematical risk model called Value at Risk or VaR, which didn't account for the extreme fluctuations in the market. This then led to them exposing themselves massively to the Sub Prime Mortgage crises leading to their downfall and eventual sell off to Bank of America.

I just read the book that Ken suggested a while a go called "All the Devils are Here". I just can't get over how people make the same mistakes over and over again in the name of greed.
2 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
I think there are a number of contributing factors.

On the side of the risk-takers, there is often a very skewed set of incentives, where they capture a much bigger chunk of any successes than they do of any failures.

Suppose there was a casino game where they rolled a die. On a 1-3 you lose your money. On a 5-6 you double it. On a 4, nothing happens. This is clearly a bad risk, and the expected return is negative.

Now suppose that you've got $1 million of my money and our deal is that if you make money you get to keep 20% but if you lose you don't have to make up my losses. Suddenly betting $1 million on the game becomes very sensible -- on a 1-4 you lose nothing and on a 5-6 you make $200K.

That's a dynamic that's present in some of the really high risk behavior, but there's an equally dangerous one. Imagine a new game. This time we roll a d10. On a 1-9, you make 5% on your money. On a 10, you lose it all. Again, it's a bad bet...but you're a money manager and your alternative is a safe 3% return. Your peers are all on the 5% boat (and they all win/lose off of a single die), so year after year you're going to look bad if all you bring back is 3%. You get a smaller bonus, some clients pull their money out, etc. Now imagine that instead of a die roll it's a black box game and some experts claim that the 5% return is guaranteed. You think there's a chance of a wipeout but you can't really be sure and no one else seems to think so.

Add to that the very common human bias of egocentrism and you've got the full potion. People think they're better than they are, that their money managers are better than they are, that fortune will smile on them more than it will, etc. If one expert says that the housing market is about to crash and another says that it will continue to rise indefinitely, most people will believe the latter and continue to invest. If computer programs designed to value assets get increasingly complicated to the point where the folks running them no longer understand them it's unlikely that their reaction will be, "This is dangerous...we should pull back and tell our clients that the system is not under control." Instead they are more likely to believe that their system is just that good.
10 
 Thumb up
0.50
 tip
 Hide
  • [+] Dice rolls
Exceptio probat regulam
msg tools
mbmbmbmb
They aren't mistakes in the name of greed. The people benefiting from this are not surprised by the size of their paychecks and bonuses, nor by the fact that bubbles must burst eventually.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
gyc365 wrote:
They aren't mistakes in the name of greed. The people benefiting from this are not surprised by the size of their paychecks and bonuses, nor by the fact that bubbles must burst eventually.


I don't think it's quite as simple as that. I used to work for an investment bank and the maxim that people will tend to believe things that would benefit them if true is very much in evidence. I think it's quite plausible that people underestimated risks and believed in fairy tales -- that the number who were true villains is much smaller than the number who thought it would all end well.
5 
 Thumb up
0.05
 tip
 Hide
  • [+] Dice rolls
Walt
United States
Orange County
California
flag msg tools
Before terraforming Mars, Surviving Mars is required: Paradox Interactive; Steam.
badge
Please contact me about board gaming in Orange County.
Avatar
mbmbmbmbmb
jeff brown wrote:
Chad_Ellis wrote:
Tall_Walt wrote:
dtolman wrote:
I would say that not just the Republicans are trapped - we all are. Even a month ago, it didn't seem realistic that when the August 3rd SS payment was in jeopardy. Now it does seem feasible. And thats scary... especially since I don't have any spare money to short the entire market.

Well, get your stop-loss orders in. But if bonds go down (as they would after a default), stocks generally go up.


Soooooort of. Bonds have had periods with zero beta, positive beta and negative beta. There is often a short-term negative correlation between price moves because some common events affect stocks and bonds differently. A sharp increase in inflation concerns, for example, is negative for both but far more negative for bonds since stocks have somewhat of an inflation hedge. Anticipated recession is often bad for stocks but good for bonds.

One of the great problems with using beta and historical correlation in risk assessment (and one of the reasons why I'm on Munger's team when it comes to CAPM) is that it doesn't really apply to massive events. If the U.S. were actually to default on its bonds, that would have significant consequences for the global economy that are unlikely to be captured in rules of thumb like stocks going up when bonds go down.


This is what bothers me about all of the rules of thumb that are used in finances and money management. If we rely on them to heavily they become problematic. For example the rule of thumb that real estate always goes up in value. It was relying on this that caused the bubble which eventually made the rule null and void.

On where the money goes, it has to go somewhere. Big investors cannot put it in the bank: they'd be way over FDIC limits. No big national bonds are really safe: the EU is a mess with the PIIGS (apologies to the nationals involved). Russia is a mess; is China trustworthy? The Swiss are safe and trustworthy, but they aren't big enough. That leaves corporations.

For the record, my money is where my mouth is: in US stocks. Which doesn't say I won't put in stop-loss orders anyway.

As for, "the rule of thumb that real estate always goes up in value," that's an urban myth not a rule of thumb. Look at the inflation-adjusted Schiller price index:


As you can see, inflation-adjusted prices have only varied much from 110 by being below during the Great Depression and above during booms. Each of these booms--1970s, 1980s, and 2000s--have corresponded (and resulted, IMO) from reduced lending standards, thus more money chasing the same number of homes; each boom had flipping which most people thought would never end. People are optimists. The urban myth that real estate always goes up in value; the facts say, real estate never goes up in value.

The red is a projection, which I agree with. The tiny bounce before the red has lead to this being called a double-dip recession. In the stock market, this is known as a "dead cat bounce": if you throw it at the floor hard enough, even a dead cat will bounce.
2 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Jeff Brown
United States
Colorado Springs
Colorado
flag msg tools
badge
Avatar
mbmbmbmbmb
Chad_Ellis wrote:
gyc365 wrote:
They aren't mistakes in the name of greed. The people benefiting from this are not surprised by the size of their paychecks and bonuses, nor by the fact that bubbles must burst eventually.


I don't think it's quite as simple as that. I used to work for an investment bank and the maxim that people will tend to believe things that would benefit them if true is very much in evidence. I think it's quite plausible that people underestimated risks and believed in fairy tales -- that the number who were true villains is much smaller than the number who thought it would all end well.


I agree that it generally isn't done on purpose. I wonder though if the greed and competition with other greedy people is a strong contributing factor to people becoming willfully ignorant. Meaning that they will only let themselves see the benefits and refuse to see the risks.

For instance Stan O'Neal the CEO of Merrill Lynch was deeply involved in the LTCM case at Merrill and told himself that he would never fall for that again. Yet became totally involved in the next bubble at the VaR model mainly because of his own greed and competitive drive to be like Goldman Sachs.

There were some who saw the risks and raised warning flags but they were either marginalized or let go altogether. So it can't be claimed that the warnings weren't there. They just willfully ignored them.

The same exact thing happened in several different companies.

It seems to be the same Greek Tragedy over and over again which is that Hubris causes you to be willfully ignorant of your risks and overconfident in your strengths.

Greed and Hubris are systemic and I don't think were going to wake up in time.

1 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Jeff Brown
United States
Colorado Springs
Colorado
flag msg tools
badge
Avatar
mbmbmbmbmb
In any case as always I enjoy your blog and read every installment.

Sorry if I got things off topic. It's been on my mind.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
MGK
Canada
Toronto
Ontario
flag msg tools
badge
Avatar
mbmbmbmbmb
bjlillo wrote:
Looks like the GOP has added a balanced budget Constitutional Amendment into the mix. I like it.


Balanced budget amendments are terrible ideas generally (unless they're designed very, very carefully) and this one doesn't appear to be an exception to that rule.

As an aside, how many Republican politicians who support this balanced budget amendment also supported the Paul Ryan healthcare reform? Because that bill wouldn't survive under a balanced budget amendment. Do they even think about things before they say "let's do this" or is it just a kneejerk reaction to do stupid things? I vote the latter.
6 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Walt
United States
Orange County
California
flag msg tools
Before terraforming Mars, Surviving Mars is required: Paradox Interactive; Steam.
badge
Please contact me about board gaming in Orange County.
Avatar
mbmbmbmbmb
Chad_Ellis wrote:
...the number who were true villains is much smaller than the number who thought it would all end well.

Hanlon's Razor: Never attribute to malice that which is adequately explained by stupidity.


bjlillo wrote:
Looks like the GOP has added a balanced budget Constitutional Amendment into the mix. I like it.

Without the stimulus applied by both parties, the Great Recession would have gone into depression. Even Republicans were handing out money to poor people when their political asses were on the line in 2006-8. Why? Poor people spend money immediately, so it goes right into the economy as direct revenue to businesses and individuals. Rich people may just save the money, and if they invest it, they will generally want the best return possible--that's how they got and stay rich--the effect is only to raise stock prices and drop interest rates, both slightly.

The Great Depression was induced, many Economists hold, because the Republican Presidents of the time wrote their budgets as if a balanced budget amendment existed. If you lose your job, you don't stop feeding the kids or sell what you need to get a new job--you run a deficit. If you're very conservative, your deficit comes out of an emergency fund that can fund you for a year--but very few people have the conviction that that big a reserve is even necessary. It's easy to think bad things can't happen in a good economy.

Edit: bold added for clarity
1 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Mac Mcleod
United States
houston
Texas
flag msg tools
Avatar
mbmbmbmbmb
The key to your statement is "inflation adjusted dollars".

Also, the chart has a slight increase (100 to 110- and likely to 115 this time-I think the red line overshoots to the low side by a few thousand)-- maybe due to rising population pressures.

There is more pain to come. But if we hit a period of high inflation- the entire red line might not occur.

 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Walt
United States
Orange County
California
flag msg tools
Before terraforming Mars, Surviving Mars is required: Paradox Interactive; Steam.
badge
Please contact me about board gaming in Orange County.
Avatar
mbmbmbmbmb
maxo-texas wrote:
The key to your statement is "inflation adjusted dollars".

Indeed: in other words, "real money" or "real value".

maxo-texas wrote:
Also, the chart has a slight increase (100 to 110- and likely to 115 this time-I think the red line overshoots to the low side by a few thousand)-- maybe due to rising population pressures.

Looking at the returns to 110 from the 1960s to the 1990s, I have to go with 110. A danger is that we might see a post-boom dip as after the 1970s.

A structural danger that may make the projection optimistic is that the baby boomers are hitting retirement age (1946-2011). This could put downward pressure on big homes as retirees move to smaller homes, apartments, or senior communities, often rentals.

The chart is too big in some ways: 1890-1945 aren't very relevant to today. OTOH, the 1890-1930 period shows how unstable things were before the financial reforms after the Great Depression. Having lived all our lives with those reforms and regulation, it's easy to forget they exist. If you're for an unregulated market, that's 1890-1915--very unstable.

maxo-texas wrote:
There is more pain to come. But if we hit a period of high inflation- the entire red line might not occur.

The chart is inflation adjusted. Inflation might make the seller happy, but the buyer may hold off thinking the inflation adjusted price is too high, or he may have his savings eroded by inflation so he can't afford the down payment. I don't see inflation as a good thing, and the chart is almost a year old, a year with further declines in home prices.
1 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Robert Loblah
Canada
Toronto
Ontario
flag msg tools
designer
mb
maxo-texas wrote:
The key to your statement is "inflation adjusted dollars".


Okay, I'm extremely confused by your response...please don't take this in a pejorative light, but do you understand what inflation is? Without adjusting for inflation, any chart of house prices (or the price of anything, for that matter) over significant amounts of time would be meaningless (okay...maybe not meaningless - you could use it to track inflation).

maxo-texas wrote:
But if we hit a period of high inflation- the entire red line might not occur.


This doesn't make any sense to me either, because the chart is inflation adjusted. So if there is tremendous inflation, you can adjust for that and still have the red line on the chart.

EDIT: DAMN! ninja'ed
1 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chris R.
United States
Unspecified
Missouri
flag msg tools
badge
Avatar
mbmbmbmbmb
The president says that 80 percent of Americans want higher taxes.

I think the number is closer to 34 percent. Mr. Obama really is bad with math.

If President Obama wants to run for re-election using the Walter Mondale-strategy during this complete turd of an economy, Mitt Romney could easily win over 40 states including your native Massachusetts.
2 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
1 , 2  Next »   | 
Front Page | Welcome | Contact | Privacy Policy | Terms of Service | Advertise | Support BGG | Feeds RSS
Geekdo, BoardGameGeek, the Geekdo logo, and the BoardGameGeek logo are trademarks of BoardGameGeek, LLC.