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July 24, 2007

Mortgage Apocalypse

Catchy headline, no?

A few days ago I had an unusual telemarketing call. I get a lot of telemarketers eager to refinance my mortgage. The good ones go away peacefully when I tell them I have a 5% fixed-rate mortgage. The bad ones refuse to believe me when I explain I'd be a fool to refinance because mortgage rates are a full percentage point higher than that today. And then I got a remarkable call that prophesied the end of the world is near.

Okay, that wasn't exactly their message. But that's what I heard. You see, they had the temerity to suggest I consider cashing out some home equity to invest it in the stock market! Yeah, awesome! In fact I'll invest it all in a hot stock my dentist told me about… When you start getting unsolicited investment advice from strangers, hold on to your wallet. Someone should've warned me it's 1999 all over again.

This isn't the first time I've heard that home equity suggestion, and it's not my purpose to ridicule it. For some people, taking on additional secured debt at a moderate interest rate might be reasonable to do for the potential of earning higher returns through investing. To do it takes a large appetite for risk: If markets are efficient, a "safe" investment will return only about the same as the mortgage interest! It's not a risk I'm willing to take, especially not now — I think the market and macro environment look awfully toppy and all my new investing is very defensive.

What's worth ridicule is the fact that this suggestion was part of the telemarketer's script. They had a lot of reasons to make refinancing sound attractive, but this particular reason is highly inappropriate for most people and could get them in serious financial trouble.

It's also an indicator of the mortgage industry that they're resorting to using reasons like this to convince people to refinance. The party is over and I wish they would stop calling me.


Trend: The mortgage interest deduction is gradually reshaping the landscape of debt as people come to the realization that debt is fungible but one particular kind of debt is tax-advantaged. More and more debt is being secured against peoples' homes for no economic reason — just because of the taxes. As I've mentioned before, it's distortionary. This deduction ought to be phased out.

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July 22, 2007

Renewable Lunacy

Yesterday some people who looked like college students were going door to door in my neighborhood. I didn't answer the door because I assumed they were door-to-door salesmen, but they weren't. After muttering something about how nobody in this neighborhood was home on a Saturday afternoon (or perhaps just not wanting to be bothered by strangers, I suggest) they put a card in my my door and left.

The people were from some local political advocacy group I'd never heard of before called The Bus Project and one entire side of the card was devoted to how cool they are because they have a bus. Sure, everyone loves a bus (the wheels go round and round, round and round…) but I have my own transportation, thanks.

The other side of the card mentioned some recent Oregon legislation. Among the items was a bill to require 25% of Oregon's electricity to come from renewable sources by 2025. I was disappointed to discover that this bill has already passed.

(Shockingly, the ~40% of Oregon's electricity that currently comes from hydroelectric plants doesn't count as "renewable" under this bill!)

Let's pretend for a moment that I don't know anything about power generation or mineral extraction or environmentalism or politics. From a purely economic point of view, this bill is lunacy. It's a government mandate for electricity generators to use higher cost methods to create the power you and I buy. Despite the claims of supporters that it will reduce costs, higher costs are an obvious reality for two reasons: (1) The existing PGE program for customers to buy power from renewable resources costs more than the standard program, and (2) If renewables were cheaper, no legislation or subsidies would be necessary to induce generators to switch — they are profit-seeking, after all.

It's mind-boggling that legislators and supporters croon about how many jobs this bill will create or how much money it will pump into local economies. Those focused benefits to a few people come at the diffused expense of everyone living in the state — and they do not cancel out. By mandating objectively less efficient means of electricity generation, this bill will cause a net loss to the Oregon economy.

Won't someone please think of the poor? A few extra dollars on my electricity bill won't cause me any hardship. But it will to someone who is struggling to make ends meet. This recently-passed bill is a poke in the eye to every poor person in the state. It makes me sick that people believe politicians who say (sincerely!) that they're looking out for the little guy, when in fact they're making the little guy's problems worse.

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July 20, 2007

Medical Protectionism

One of my co-workers broke his glasses yesterday. He couldn't get them replaced immediately because of a Washington state law (I don't know whether Oregon has a similar law) that you cannot buy eyeglasses without a recent prescription. He hadn't been to an optometrist in a long time, and didn't have one.

Hearing of the law when he went to a glasses-in-an-hour place, he wanted to see an optometrist immediately, but it was late and none were still open.

His situation affords me the opportunity to complain about two kinds of anti-consumer government interference in the health care market: Prescription and licensing requirements.

No one should be legally required to have a prescription to purchase eyeglasses, period. As an advocate of freedom I'll go further and claim that no prescription should be legally required in any circumstance whatever; I fully support the right of individuals to self-medicate. Prescription requirements are a form of rent-seeking by the health care industry — you have to have an appointment to get one, so they make money.

Prescription requirements will no doubt be defended on "safety" grounds, but the case of eyeglasses is transparent (heh) enough to expose the lie. It's easy to evaluate whether your corrective lenses are doing their job. If you can't see well, you'll know it, and a legal requirement adds nothing to your own motivation to have clear vision.

My co-worker had to find an old pair of glasses to wear. Those old lenses are less effective and leave him with worse vision. The legal requirement to have a prescription has made him less safe by delaying his purchase of new glasses. What was the reason for that requirement, again?

He has no medical need to see an optometrist. Only an artificial legal need to see one. He already knew his prescription; why should he have to pay someone to tell him something he already knows?

And yet, despite his willingness to nonsensically see an optometrist immediately, he couldn't. Their office wasn't open. They don't have customer-friendly hours because they don't have enough competition … because of state licensing requirements, another form of rent-seeking.

The "safety" argument is more convincing at first blush for licensing than for prescriptions, but it's still wrong. You're supposed to imagine irresponsible quacks peddling bogus medicines, but again especially in the case of vision correction the consumer is completely capable of evaluating the quality. A bad optometrist will lose customers to better ones. Even when the quality of care is difficult for customers to evaluate, private rating agencies could clearly substitute for state licensing, and then anyone who insisted on having an "approved" doctor could simply select one from their list.

The only advantage of state licensing over private rating is that licenses are administered by the state, and the state makes it illegal for anyone who doesn't have a license to practice. State power is used to artificially reduce competition, thereby increasing the incomes of the smaller number of practitioners. They tell you it's for safety, but it's really protectionism.

If optometrists had to compete more aggressively, some would succeed by offering customer-friendly hours, such as the late evening hours my co-worker needed. Licensing is anti-consumer — and anti-safety as well, because again this delays my co-worker's purchase of new glasses!

Prescription and licensing laws should be abolished. They increase costs, inconvenience consumers, and are antithetical to the free market.


Interestingly, Warren wrote a similar story a few days ago. From his comments I learned that, unsurprisingly, you can buy vision correction products in Taiwan without a prescription.

P.S., since my co-worker asked, my last pair of glasses (bought at Binyon's) cost $234: frames $72 and each lens $81. My lenses are very strong and I also sprang for the premium coatings after being bothered by lots of scratches on my previous pair. My price was after a large discount that I have no reason to believe they don't automatically give to everyone.

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July 15, 2007

A Bad Assumption in Justice

It's hard to believe that something like this can happen anywhere, much less in the United States:

FORT LAUDERDALE, Florida (CNN) — Francisco Rodriguez owes more than $10,000 in back child support payments in a paternity case involving a 15-year-old girl who, according to DNA results and the girl's mother, is not his daughter.

He now has DNA results that show the 15-year-old girl wasn't fathered by him. He even has an affidavit from the girl's mother — a former girlfriend from 1990 — saying he's "not the father" and asking that Rodriguez no longer be required to pay child support.

Yet the state of Florida is continuing to push him to pay $305 a month to support the girl, as well as the more than $10,000 already owed. He spent a night in jail because of his delinquent payments.

Why is he in such a bind?

He missed the deadline to legally contest paternity. That's because, he says, the paperwork didn't reach him until after the deadline had passed.

I've heard a lot of anecdotal horror stories about how badly men are treated by the family court system. This case is especially tragic because it could have been prevented so easily.

Rodriguez's odyssey began in 1990, when he says at age 16 he had a four- to five-month relationship with a woman CNN is not identifying. He says when the relationship ended, he did not hear from her again until child support papers arrived at his home in 2003.

"My wife and I both had a confused look, and we're wondering, 'Where is the DNA test?'" he says.

But it was long past Florida's deadline to contest paternity. A court had already named him the father three years before when he did not respond to notices to appear, notices he says he never received because he had moved a lot.

Legislators can prevent this from happening again with the stroke of a pen.

The incorrect assumption in this legal process is that something mailed is always received. That isn't true; the postal system is not reliable. There's a dyslexic person somewhere in my chain of mail delivery and I regularly get mail addressed to my neighbors, whose street address is a transposition of mine. I've received damaged mail with large pieces missing. Just last week I had someone else's mail stuck tightly to the back of my own. (I unstuck it and, since its stamp hadn't been canceled, just threw it in my outgoing mail.) Mail can be stolen from mailboxes, lost in truck or plane crashes during delivery, or lost in other ways. And yes, mail can be sent to an old address and could be thrown away instead of forwarded.

Legal deadlines should be established with respect to when the paperwork is received, not sent — that's basic fairness. And all that's needed to both confirm receipt and establish the deadline is to send paperwork by certified mail.

I believe spending $2.65 for certified mailing of the original notices to appear would have prevented this tragic situation.

Legislators, raise your pens. It is your responsibility to fix this broken process.

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Body Worlds

I went on Friday to see the Body Worlds 3 exhibit at OMSI. The exhibit is composed of many hundreds of "plastinated" pieces (it's exactly what it sounds like) ranging from individual organs up to complete human bodies in athletic or artistic poses presented in varying levels of dissection.

Be prepared to spend a lot of time at this exhibit. The materials at the museum stated most people took about 90 minutes to go through it. Jacque and I were there for three hours and had to rush at the end because we needed to leave.

If you are unfamiliar with anatomy, you will learn much. If you do know anatomy, you will still marvel at the presentation. Photographs and illustrations of the human body are totally inferior to viewing one in three dimensions.

The musculoskeletal displays are compelling. I was fascinated by an arm and hand showing all the muscles and tendons, and used it to show Jacque why a particular motion is impossible. Place your hands together so that your fingernails and first knuckles of your four fingers are touching, with your thumbs' sides and wrists also touching. Leaving everything else in place, point your index fingers forward (so the pads touch instead of the fingernails) and then you should be easily able to open and close a gap between them. Return your index fingers to the original position and try next with your middle fingers. It also works for your pinkies, but you'll find that it's impossible to do this with your ring fingers! If you want to know why, go to Body Worlds and look closely. :)

The most interesting displays for me were those of the circulatory system alone, with other tissues removed. They had a few whole-body animal examples of this in which some internal organs (lungs, liver) were especially prominent, and had a human head example as well. It's amazing to see the vessels for the scalp, and for the brain, and a gap between them where the skull would be. You have to slowly move your head as you look at these to get a proper sense of depth for understanding the sections further away from the skin. Some of these examples show surprisingly fine blood vessels.

Among some of the other highlights are a straightened digestive tract, side-by-side comparisons of diseased and healthy tissues, and a plastinated camel. There were a handful of medical devices included in the exhibit; an artificial hip joint and artificial heart valve as installed. There were several brains and very many brain slices, so be sure to tell your zombie friends.

The posed displays each have a different emphasis and the dissections vary, from getting a view into body cavities to seeing how organs fit together in the limited space to focusing on the muscles and joints. Several show multiple layers of dissection, or have whole sections moved away from others for better viewing.

Visitors can optionally rent a hand-held unit to get audio commentary on most of the specimens; this is absolutely worthwhile as a guide to appreciate what you're looking at, although if you have at least a high-school-level understanding of anatomy you may not learn much from the commentary.

If you're squeamish about sexuality you should know that most of the whole-body specimens are male, and everything is present. On the females they always left the nipples covered, although I don't know whether it was merely uncolored plastinated skin or some more deliberate kind of cover. (Most of the skinless specimens still had lips and navels, but they looked original, whereas the nipples looked wrong.)

I did notice several specimens were missing the backs of several thoracic vertebrae but there was no one around to ask why. I believe all the eyes I saw, except possibly one pair, were artificial. These did not detract from the experience.

This is a great exhibit, but it's leaving OMSI in early October, so see it while you have the chance.

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July 12, 2007

A Dangerous Attitude

Today I ran across an article about an on-air spat between Michael Moore and CNN's medical correspondent Dr. Gupta about Moore's movie "Sicko". I haven't seen the movie and the background is largely irrelevant for my purpose. What I want to comment on is this:

"The government actually used to do things right," Moore said in response. "The problem is who we put in power."

This is an extremely dangerous attitude.

It is also extremely common. Liberals and conservatives alike expend enormous energy on getting elected with the goal of using government power to change whatever is bothering them. Too seldom they consider what will happen when the government apparatus they create falls into the hands of their political opponents. Then they will be furious, watching their glorious system be twisted to support those opponents' goals.

This is inevitable. In this democracy constitutional republic, no political party or ideology has maintained control of the government over long periods of time. It hasn't happened and it isn't going to happen. People you dislike, distrust, or hate will be elected — and they will wield the power your well-intentioned programs provide. And you will not like what they do with it.

There are fundamentally only two methods for strengthening a program against the people who run it.

The first is to have a solid process. Embed the policies of operation into the program and give little flexibility to the people running it. Those people must assume the role of administrators, not policymakers. They must be unable to exert their policy preferences. If you succeed in laying down the correct principles at the beginning, what you have created will survive for a long time.

The problem with this approach is that the kinds of government programs people want to create are all about policymaking! In the inevitable political compromise to get anything controversial enacted, you won't lay down the principles you wanted. Everyone will be dissatisfied and tempted to tinker, and this tinkering will erode the solid foundation you wanted the program to have. It will accumulate things you disagree with, and you will want the administrators (who currently think like you, of course) to have the flexibility to disregard the bits you don't like. The program is now susceptible to the whims of whoever is in charge, and you will be as unhappy as Michael Moore when your political opponents come to power and appoint new administrators who will corrupt your once-beautiful program. (Even if the administrators aren't political appointees, over time there will be turnover, and you might not like the new guys.)

The second approach to building a strong program is to recognize the futility of the first approach and to give up on the whole endeavor. The only true protection against a program becoming corrupted is to not create the program in the first place. If you wouldn't want your ideological adversaries to wield a power, you must forbid it to your ideological friends as well.

I'll provide one concrete example to make the problem clear: If Michael Moore got his wish for socialized health care, would abortions be covered?

<crickets chirping>

Liberals cry "of course!" and conservatives shout "hell no!" and it's obvious that this is exactly the sort of policy issue that would sour the program. Political fighting over this would open the floodgates — cosmetic care, heroic care, quality-of-life care… it would all become tragically politicized in a once-size-fits-all system rather than left up to the decisions of the individuals involved. If we let people keep their money, instead of paying the higher taxes to fund a socialized system, they could afford "controversial" care and would not be subject to the whims of politicians.

You should run, not walk, from anyone pitching a government program that will only work when "our guys" are in power. When (not if) they lose an election, you'll have given the "other guys" more power. I don't think you want that.

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July 08, 2007

Can We Fix This?

…please?

People who had been waiting to apply for permanent residency were thrilled in mid-June, when the U.S. Department of State announced that a backlog of applications had been cleared. The department said that all those who were in the country on work visas and had met the requirements for permanent residency could apply in July.

Hundreds of thousands of legal immigrants across the country, many of whom had been waiting years to become eligible for so-called green cards, rushed to get in their applications.

But on Monday, the State Department said its initial announcement was wrong, and that no applications would be accepted until at least October. It's still unknown how many will be accepted then.

Those who had spent thousands of dollars and countless hours preparing their applications were devastated. [source]

Several of my alien co-workers have to periodically do a bunch of paperwork and have medical exams and then wait angrily while the government drags its feet. But this is all absurd. These are great people and there's absolutely no reason they should have to check in with, or be checked on by, the government.

The official word on the current situation is that this year's employment-based visa cap has already been met.

I humbly suggest that there should be no cap, xenophobes and protectionists be damned. If my co-workers want to work in this country, it should be easy. If they want to become citizens, that should be easy too! I cannot fathom what alleged evil the INS USCIS is protecting me from by inconveniencing my friends.


I have been trying hard not to pay any attention to the 2008 election cycle yet (it's too early!) but I was prompted to write about this because I saw a segment on the news this morning with one of the candidates (Tom Tancredo, R-CO) talking about immigration. His position is that the United States should crack down on employers who hire illegals and also cut by three-quarters the number of allowed legal immigrants.

I do have sympathy for people who just wish the laws were enforced. But in this case the law is an ass, and Tancredo wants to make it worse! The law is the problem, not the people who break it.

I'm going to go on record in favor of amnesty. I know it's unfair to people who have been patiently enduring the legal immigration process, but trying to be "fair" by putting the current illegals through something unpleasant would not make the legals any better off. When you realize you've been harming people, the proper course of action is to stop. If you've been harming one person more than another, don't keep harming one of them until they're "even". Stop the harming altogether!

P.S., They took our jobs!

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July 05, 2007

Asking For It

There are many countries in the world with bad governments. Some of them are so bad that the countries are just begging to be invaded. No, really:

Zimbabwe's leading cleric has called on Britain to invade the country and topple President Robert Mugabe. Pius Ncube, the Archbishop of Bulawayo, warned that millions were facing death from famine, unable to survive amid inflation believed to have soared to 15,000%.

"People in our mission hospitals are dying of malnutrition. We had the best education in Africa and now our schools are closing. Most people are earning less than their bus fares. Theres no water or power. Is the world just going to let everything collapse in on us?"

The situation in Zimbabwe is worse than you think, and yes it's all the government's fault. An invasion to topple the government would be a humanitarian act.

The United Nations isn't going to do a damn thing. They couldn't be bothered to do anything useful about Sudan, and in Zimbabwe there isn't even a racial angle to stir up faux passions and grandstanding. (I suppose this is actually for the best; if the UN actually got involved they would only screw the locals.)

Of course any individual country that tried to help would be immediately and viciously condemned as "imperialist". I'm sorry Zimbabwe, but it looks like you're on your own.

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July 02, 2007

Mark to Market

I'm one of the very many people who know very little about hedge funds. Despite (because of?) my ignorance, I thought this article was fascinating. If you follow financial news you've probably heard that a small Bear Stearns hedge fund recently made some bad trades and one of its creditors made a margin call (I simplify), seizing its collateral and selling it at auction.

Neat. But what's so interesting? The assets in question here, CDOs, do not have clear market prices:

Unlike Treasury bonds, which are remarkably standardized financial products, CDOs are handcrafted. No two are exactly alike in the way they distribute risk, the amount of this and that they mix, the yields they offer and how they react to market stress. And unlike Treasury bonds, which trade frequently, CDOs trade infrequently. And when they do trade, they often trade privately, which provides very little price information to the public market.

Wall Street still has to value its portfolios, of course, even in the absence of public prices. To solve that problem, the investment houses that invented, packaged and marketed these infrequently traded securities and their derivatives invented mathematical models that priced their products.

The author speculates that part of the motivation of Merrill Lynch for seizing and selling the assets, rather than working out a financing deal with Bear Stearns, is to gather real market price data for these assets. It's a straightforward plan:

  1. Gather market price data.
  2. ???
  3. Profit!

(Nah — #2 is "Improve CDO valuation models.")

There's something deliciously satisfying about this. It's obscure economic theory made visible in plain action — it's the old "economic calculation under socialism" arguments in a novel setting. Merrill knows that its models are a poor substitute for a real market, and is taking the opportunity to learn from one!

If true, this pleases me, and I hope they make a great heaping pile of money by having better information than everyone else.

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Tiny Island