Sunday, September 28, 2008

Song Graph

I sent this graph to GraphJam a few months back, but haven't seen it show up there:

Saturday, September 27, 2008

Economic Plan

Economist Arthur De Vany has an idea about how to price mortgage-backed securities:
Pricing Mortgage Securities When Nobody Knows Anything

* * *

Designing option-like contracts lets you pay when you do know.

It is easy to apply the Pay When You Know option principle to these distressed mortages and their derivatives. Let every holder of these instruments sell call options on their value. Make the options at least 5 years (preferably 10 years) before they expire so that they do not expire before there is time for a return of liquidity to the market. This would give time for the housing market to recover as well. The option would contain several strike points so that investors with different expectations, risk preferences, and current asset positions can choose to cash in at lower strike points for a quick return while others choose to wait for higher returns. At each strike point, the option would pay a percentage of the value of the asset.

The option would be designed so that the buyer earns a share of the future value of the mortgage security if it rises. The option would be of no value and would not be exercised if the value of the mortgage security fails to exceed the first, lower strike price. The homeowner also should receive a share of the future appreciation. This would give all the parties to the mortgage a share in the future appreciation. Had options of this sort been issued at the initial purchase of the home, the speculative aspect would have been properly separated from the homeowner aspect and this whole mess would not have happened. The homeowner/speculator would have sold all or some of the risk of future appreciation to the market.

So, through the use of the call options on appreciation, the security holder, the homeowner, and buyer of the option could all share in the future appreciation of the home. This creates good incentives for the homeowner to stay with the mortgage. The cash proceeds of the sale of the option would be shared by the mortgage holder and the homeowner. This gives the holder and the homeowner immediate cash which can be used to pay the mortgage and for the holder to improve the balance sheet.

* * *

Putting Mortgage options on a liquid and visible exchange would restore much of the liquidity to the mortgage and mortgage securities market that is so sorely lacking. I think it would solve most of the present crisis.

Friday, September 26, 2008

Environmental Law Review Article

This looks interesting:
The Sting of the Long Tail: The Problem of Delayed Harm in Environmental Law

Eric Biber
University of California, Berkeley - School of Law

August 30, 2008

UC Berkeley Public Law Research Paper No. 1261143


Many environmental harms share a characteristic feature - they occur only long after the human activity that caused them originally took place. Examples include birth defects from the drug DES, extinction of animal and plant species because of habitat destruction, the contamination of groundwater from improper hazardous waste disposal, and perhaps most importantly, changes in global climate resulting from human emissions of greenhouse gases. What is distinctive about delayed harms is that they present a particularly knotty problem for policymakers to solve. If a policymaker uses systems that are retrospective - i.e., liability - they may face insuperable administrative and practical difficulties in actually identifying the particular activities and actors that caused the harm and therefore should pay compensation. On the other hand, if they try to use regulation to prospectively address the problem, they may avoid the causation problems, but they will instead face steep political resistance to restrictions or prohibitions on activities that have long been taken for granted as acceptable social or economic behavior. Worse, even if regulation is successfully implemented and stops prospectively future harm-causing activities, there will be an extended transition period where the environmental harm will continue because of past harm-causing activities. The result can be a political backlash against the apparently "broken" regulatory system, as has occurred with the Endangered Species Act. The alternative that avoids both the causation problems and the political constraints - restoration, or active steps to undo the harm caused by past activities - is now being emphasized in the implementation of the Endangered Species Act, but can be extremely costly. These dilemmas will certainly confront policymakers seeking to address the problems of global climate change, and may require the use of restoration efforts - in the form of sequestration of carbon in the atmosphere - in order to make large-scale carbon emission regulation politically feasible.

Tuesday, September 23, 2008

Biden on Roosevelt

Joe Biden recently said, "When the stock market crashed, Franklin Roosevelt got on the television and didn't just talk about the princes of greed. He said, 'look, here's what happened.'"

Of course, that was nothing compared to how the nation was inspired by Abraham Lincoln's email dispatches from the frontlines of the Revolutionary War.

Monday, September 15, 2008

Word of Advice

If you are a parent of young children, and you have a substantial block of time that needs to be filled, do a load of laundry without double-checking to see if a used disposable diaper somehow ended up in the washing machine.

High Fructose Corn Syrup

Ezra Klein writes:
Over the past 10 years alone, Congress has appropriated more than $50 billion to encourage farmers to grow the stuff. But people don't want to eat $50 billion in subsidized corn. And if the cobs just sat around developing mold, Congress would cut off the spigot. Enter high fructose corn syrup, which sucks up the subsidies and created a world in which calories from a sweet, highly caloric additive have become the cheapest of all energy sources. That's the primary way the syrup contributes to obesity: Not by being more fattening, but by being so heavily subsidized that it makes it far cheaper to sustain yourself on sweetened carbohydrates than on nutritious food.
I agree that the federal government shouldn't be subsidizing corn growers at all . . . if we have to subsidize anything, it should be vegetables and fruits, not grains. But Ezra seems wrong in saying that it is "far cheaper to sustain yourself on sweetened carbohydrates than on nutritious food." It's virtually a tautology that processed carbohydrates like high-fructose corn syrup are used only in highly processed foods. And highly processed foods tend to be more expensive, both because of the processing involved and because they tend to be branded products that are heavily advertised. On a per-pound basis, staples like potatoes, apples, rice, beans, etc., are cheaper than most processed carbohydrates (such as cereal, candy, cookies, granola bars, etc.). By my rough calculation from past grocery trips, for the price of three large boxes of Oreos, I could typically buy two dozen eggs, a gallon of whole milk, a pound of apples, and a package of brown rice. So I'm not sure why Ezra thinks it would be "far cheaper to sustain" yourself on the Oreos (even if it's the case that Oreos would be more expensive absent subsidization for corn production).

Tuesday, September 09, 2008

Wild Chickens

I was wondering the other day how come you never hear of chickens living in the wild. Well, it turns out that there have indeed been groups (herds?) of wild chickens in scattered places, such as Los Angeles, Fitzgerald, GA, Key West, FL, Weirton, WV, Fair Oaks, CA, Hawaii, Seattle, Suffolk, England, and even New Jersey. Apparently chickens can be more resourceful than I thought.

Saturday, September 06, 2008

Baby Selling

A few years back, I pointed out that it's odd that Richard Posner is often criticized for writing a "baby-selling" article a few decades ago, even though baby-selling is already legal in many different ways (adoption agencies, adoption lawyers, surrogate services, sperm donation, etc.). Now a law professor (Kimberly Krawiec of the University of North Carolina) has an article developing that point more fully.

Friday, September 05, 2008

Andrew Sullivan

Andrew Sullivan is scraping the bottom of the barrel with his reflexive opposition to Sarah Palin. He spent much time flogging the rumor that Palin's fifth child was really her grandchild. Even after that rumor had been shown to be biologically impossible (given that Palin's daughter is 5 months pregnant right now, and pregnancies generally don't overlap), Sullivan nonetheless demanded (more than once) that Palin disprove the rumor by releasing her gynecological records. Then Sullivan gave credence to the obviously incorrect theory that Palin had named two of her daughters after television witches. He then criticized the Palin family three times in a single post for letting different family members hold the baby at the convention (I can only assume that Sullivan has never held a baby for any length of time, because they get heavy in one's arms.)

Today, Sullivan adds to his list of off-the-wall criticisms:
Family Values Update:

Is the party of traditional marriage aware that the vice-presidential nominee actually eloped with her now-husband?
Am I missing something here? Is there an anti-elopement movement out there somewhere?

UPDATE: Then there's this, also from today:
There isn't much evidence in her term as governor of any major Christianist initiatives or appeals - unless you count her family's bizarre personal life.
How is her family's personal life either 1) "bizarre" or 2) a "major Christianist initiative[]"? That doesn't even make sense.

UPDATE TWO: After three blog posts pointing out that a former business partner of Palin's husband had filed to have his divorce proceeding sealed (the insinuation being that he was trying to hide evidence of an affair with Sarah Palin), Sullivan had to backtrack once it turned out that the guy had just wanted to protect his privacy from nosy journalists. Alaskans are bizarre that way.

The Trail of a Comment

I left a comment at a Washington Post blog on Wednesday. It has been well-traveled ever since.

A commenter there claimed that Palin had slashed special education funding by 62%. I found this claim implausible, so I did just a few minutes of digging. Sure enough, that commenter had made the elementary error of failing to check to see whether one line item had been moved elsewhere in the budget -- as it had. In fact, funding had increased for the items in question.

So here was my comment:
A commenter (Jim Syar) accused Sarah Palin of reducing the special education budget by 62%. That is false. The special education budget actually increased by nearly 12%, as explained below.

As Syar correctly notes, the Alaska 2007 budget for special education was $8,265,300. But that included $5,352,000 for the Alaska Challenge Youth Academy.

In the 2009 budgetary document to which Syar links, astute observers will note that there is no mention of the Alaska Challenge Youth Academy. Instead, you have to look elsewhere. And guess what: There is now a specific document providing $6,082,100 for the Alaska Challenge Youth Academy. So combined with the $3,156,000 that Syar notes, the total is $9,238,100. A nearly 12% INCREASE, not a 62% decrease.
Writing at the Washington Monthly, Hilzoy claimed that Palin had cut special ed funding, thus contradicting Palin's claim to be an advocate of kids with special needs. In the comments, blogger Rory from Parentalcation quoted my Washington Post comment, which led Hilzoy to issue a retraction. Michelle Malkin reprinted my comment, as did a Daily Kos blogger. An Education Week blogger made the same point in words that rather resemble mine (such as capitalizing the word "INCREASE").

Matthew Yglesias and Brad DeLong, on the other hand, repeated the false claim. For reasons unknown, neither has issued a retraction. Even Soledad O'Brien made the same false claim of a 62% cut in an interview on CNN. (I am rarely inclined to trust 1) TV journalists, or 2) prolific bloggers, neither of whom have time to check on whether they're being accurate.)

Anyway, it was interesting to see how quickly misinformation and its correction can spread.

Wednesday, September 03, 2008

Polyunsaturated Fat and Homicide

One of my favorite health-related blogs -- Whole Health Source -- has a couple of fascinating posts (here and here) discussing the evidence that increased consumption of vegetable oil leads to increased murder rates.