One of the biggest bullshit phrases around is when companies pay a massive fine to various regulators (SEC, Justice Department, etc) and then the two release a statement saying "Company [XYZ] neither accepts or denies responsibility for said infringements."
I hate that phrase.
Showing posts with label crime. Show all posts
Showing posts with label crime. Show all posts
Wednesday, September 2, 2009
Sunday, October 5, 2008
A half-assed simple explanation of the crisis
Note: I wrote this to a friend who was asking about the crisis a few weeks ago, I tried to explain it relatively simply, for someone without a background in econ. I don't vouch for the veracity of everything, it was just something simple so he could get the idea-
To explain what's happened, it's really important to understand the Federal Reserve and what it does. The Fed controls the money supply in the United States, most people know that. But most people don't know how it controls it, it doesn't print more-or-less money, it lends money to banks at certain interest rates. (It lends banks in a lot of different ways but that's the gist of it) As I'm sure you know, banks don't keep your money, they lend it out. The Federal Reserve is the organization responsible for most banking requirements. This is important to the current crisis in two ways. Basically, the Fed makes the requirements for what banks need to have on hand compared to what they loan out. (Reserve requirements) As such, when the Fed lowers their interest rate, banks can loan out more money and conversely if they jack it up a lot, the money supply will be tightened.
Also, the Fed can issue bonds, aka I-O-Us. The Fed is probably the most financially stable organization in the world, so people buy these by the truckload. It doesn't pay as much as more risky loans, but it isn't very risky and it pays consistently. So when the Fed wants to put more money out, they can also sell bonds. Basically taking debt on, and putting cash out there. Conversely, to restrict money supply they can buy back bonds which takes money out of the country. But the bonds aren't really the issue in this case.
That's essentially how it works. So what happened? Well, if you ask me, stupidity from all parties involved. But let's go to the beginning. There's a few ways to fight recessions, the main are fiscal and monetary policy. If you increase fiscal expenditures (Federal government) it helps mitigate it by putting money into people's pockets, directly or indirectly. The Federal reserve can also use its power to lower rates, thus pushing more money out there. (Fed govt= Fiscal, Feds= Monetary) So to combat the 2001 recession, the Fed cut rates to record lows. Like we're talking we've almost got free money here, 0.5% I believe was the lowest it went, but don't quote me on that. Typically it's somewhere between 2-5%, so this was low. So what happened? Well, banks had a lot of money to lend out, and rates were low.
It's no coincidence that the housing bubble started a few years after rates went down so low. Mortgages are huge loans, and so a few percentages has a massive impact. As such, people started getting bigger and bigger mortgages and banks kept lending them out. There's the issue- Democrats say banks were irresponsible and "predatory." True. Republicans say people were irresponsible and shouldn't have been getting such mortgages. Also true. It's both sides, but neither are honest enough with the full answer. These are the ones everyone's talking about, Subprime mortages, or basically mortgages to people with pretty bad credit ratings.
Just as banks don't sit around with your money, your mortgage isn't sitting there too. Investment firms buy into this kind of debt because it's generally steady income and it's lucrative. As the housing bubble started to pop, banks started to freak out that people weren't going to pay their mortgages. A rational reaction, considering savings rates are at all-time lows and credit card defaults are at record-highs. But that's not all of it.
Most of these people with subprime mortgages got adjustable-rate mortgages. Many loans are such by default. Basically, if the national interest rate goes up, you pay more interest. And vice versa. It takes inflation into account and Fed interest rate changes. But that's overtime. The Federal Reserve became worried that with oil prices spiking (they have a massive impact on our economy, because of transportation of goods and such) and this free money that inflation was coming. Inflation is not good. Not mega-inflation, like Germany post-WWI but anything over 5% is going to get the stock market and the Fed worried. So they started (slowly) over a few years jacking up the rates.
Well, people's wages are sticky and don't move as fast as they should, as in a perfect economy. Not to mention in the recession, people don't have as much money anymore. Because of this, their rate on their mortgages started raising higher and higher and higher, because they had adjustable-rate mortages. (On a side note, my sister-in-law locked in her student loans when it was record lows, her interest is like 3% right now. You can get CD's and money market accounts yielding that more.) If they had locked into a rate, they'd be fine. But they didn't.
So as I said, the banks started to freak out. Suddenly delinquencies were skyrocketing. A lot of these investment firms had bought up mortgages or underwritten these banks (financed) and started getting hit. After all, if someone can't pay their mortgage they can just leave. It hurts their credit rating immensely but more importantly the bank is left with a $100,000 loss. Multiply that times the 10s of 1,000s of mortgages that started (or threatened) to go belly-up.
As the crisis deepened, a lot of firms bet heavily on the fact that it would get better, and bought up more debt. I believe the Lehman brothers did that, and they just went bankrupt. 'Nuff said. Thus far most subprime home-owners have been getting owned pretty badly, but the Federal Reserve has been stepping in unprecedently to save some of these banks/investment firms. Left-wingers (sorry, it's true) have decried this, saying it's corporate bailouts and we're padding the pockets of Wall Street. Somewhat true, but they are missing the point.
The key power of the Federal Reserve is to affect monetary supply. If large banks (they loan first to big banks, who loan money to smaller, Fed works with Chase, not Fairport Credit Union) start to go under and cannot loan people money, then the Federal Reserve loses its' power to influence the economy, which as you can imagine is really, really bad. That's why they've been bailing out some of these massive banks, that and to restore confidence.
One of the further problems of this issue is called a "liquidity crisis or credit crunch." Massive companies all rely heavily on liquidity for a variety of things. Liquidity is just loans to finance stuff, sometimes to finance paying another loan. But if banks are getting hit hard (even if they don't go bankrupt) they are less willing and less able to loan out money. During a normal stock downturn, a company can borrow some money to cover its' costs when it's doing poorly. But since no banks are loaning out like they used to, a lot more companies are unable to secure short-term or long-term financing, and going bankrupt. That is what happened to Lehman Brothers, a Wall Street investment firm, they could not secure loans to cover their temporary losses.
The Fed hasn't bailed out all banks. And when they bail them out, they aren't really giving them free money. Most of the time the company is getting a major loan (The Federal Reserve has a lot of cash) to temporarily stay afloat, since no bank can do it right now. They are paying interest on it, and the Fed is getting collateral in return, aka a lot of mortgages and in general, some of the companies assets. Not ownership, but as collateral. Or sometimes. I'm not sure exactly what the Treasury is doing anymore, and I don't think anyone does. It's surprising to most people not because it's ridiculous, it's not like we're giving these companies free money, but a. because we're not really bailing out home owners (we sorta are) and b. the Fed has rarely done this kind of situation.
So because of the way the crisis is, with the liquidity problems or "credit crunch" the Fed needs to take more action than normal, otherwise they risk losing all of their power.
To explain what's happened, it's really important to understand the Federal Reserve and what it does. The Fed controls the money supply in the United States, most people know that. But most people don't know how it controls it, it doesn't print more-or-less money, it lends money to banks at certain interest rates. (It lends banks in a lot of different ways but that's the gist of it) As I'm sure you know, banks don't keep your money, they lend it out. The Federal Reserve is the organization responsible for most banking requirements. This is important to the current crisis in two ways. Basically, the Fed makes the requirements for what banks need to have on hand compared to what they loan out. (Reserve requirements) As such, when the Fed lowers their interest rate, banks can loan out more money and conversely if they jack it up a lot, the money supply will be tightened.
Also, the Fed can issue bonds, aka I-O-Us. The Fed is probably the most financially stable organization in the world, so people buy these by the truckload. It doesn't pay as much as more risky loans, but it isn't very risky and it pays consistently. So when the Fed wants to put more money out, they can also sell bonds. Basically taking debt on, and putting cash out there. Conversely, to restrict money supply they can buy back bonds which takes money out of the country. But the bonds aren't really the issue in this case.
That's essentially how it works. So what happened? Well, if you ask me, stupidity from all parties involved. But let's go to the beginning. There's a few ways to fight recessions, the main are fiscal and monetary policy. If you increase fiscal expenditures (Federal government) it helps mitigate it by putting money into people's pockets, directly or indirectly. The Federal reserve can also use its power to lower rates, thus pushing more money out there. (Fed govt= Fiscal, Feds= Monetary) So to combat the 2001 recession, the Fed cut rates to record lows. Like we're talking we've almost got free money here, 0.5% I believe was the lowest it went, but don't quote me on that. Typically it's somewhere between 2-5%, so this was low. So what happened? Well, banks had a lot of money to lend out, and rates were low.
It's no coincidence that the housing bubble started a few years after rates went down so low. Mortgages are huge loans, and so a few percentages has a massive impact. As such, people started getting bigger and bigger mortgages and banks kept lending them out. There's the issue- Democrats say banks were irresponsible and "predatory." True. Republicans say people were irresponsible and shouldn't have been getting such mortgages. Also true. It's both sides, but neither are honest enough with the full answer. These are the ones everyone's talking about, Subprime mortages, or basically mortgages to people with pretty bad credit ratings.
Just as banks don't sit around with your money, your mortgage isn't sitting there too. Investment firms buy into this kind of debt because it's generally steady income and it's lucrative. As the housing bubble started to pop, banks started to freak out that people weren't going to pay their mortgages. A rational reaction, considering savings rates are at all-time lows and credit card defaults are at record-highs. But that's not all of it.
Most of these people with subprime mortgages got adjustable-rate mortgages. Many loans are such by default. Basically, if the national interest rate goes up, you pay more interest. And vice versa. It takes inflation into account and Fed interest rate changes. But that's overtime. The Federal Reserve became worried that with oil prices spiking (they have a massive impact on our economy, because of transportation of goods and such) and this free money that inflation was coming. Inflation is not good. Not mega-inflation, like Germany post-WWI but anything over 5% is going to get the stock market and the Fed worried. So they started (slowly) over a few years jacking up the rates.
Well, people's wages are sticky and don't move as fast as they should, as in a perfect economy. Not to mention in the recession, people don't have as much money anymore. Because of this, their rate on their mortgages started raising higher and higher and higher, because they had adjustable-rate mortages. (On a side note, my sister-in-law locked in her student loans when it was record lows, her interest is like 3% right now. You can get CD's and money market accounts yielding that more.) If they had locked into a rate, they'd be fine. But they didn't.
So as I said, the banks started to freak out. Suddenly delinquencies were skyrocketing. A lot of these investment firms had bought up mortgages or underwritten these banks (financed) and started getting hit. After all, if someone can't pay their mortgage they can just leave. It hurts their credit rating immensely but more importantly the bank is left with a $100,000 loss. Multiply that times the 10s of 1,000s of mortgages that started (or threatened) to go belly-up.
As the crisis deepened, a lot of firms bet heavily on the fact that it would get better, and bought up more debt. I believe the Lehman brothers did that, and they just went bankrupt. 'Nuff said. Thus far most subprime home-owners have been getting owned pretty badly, but the Federal Reserve has been stepping in unprecedently to save some of these banks/investment firms. Left-wingers (sorry, it's true) have decried this, saying it's corporate bailouts and we're padding the pockets of Wall Street. Somewhat true, but they are missing the point.
The key power of the Federal Reserve is to affect monetary supply. If large banks (they loan first to big banks, who loan money to smaller, Fed works with Chase, not Fairport Credit Union) start to go under and cannot loan people money, then the Federal Reserve loses its' power to influence the economy, which as you can imagine is really, really bad. That's why they've been bailing out some of these massive banks, that and to restore confidence.
One of the further problems of this issue is called a "liquidity crisis or credit crunch." Massive companies all rely heavily on liquidity for a variety of things. Liquidity is just loans to finance stuff, sometimes to finance paying another loan. But if banks are getting hit hard (even if they don't go bankrupt) they are less willing and less able to loan out money. During a normal stock downturn, a company can borrow some money to cover its' costs when it's doing poorly. But since no banks are loaning out like they used to, a lot more companies are unable to secure short-term or long-term financing, and going bankrupt. That is what happened to Lehman Brothers, a Wall Street investment firm, they could not secure loans to cover their temporary losses.
The Fed hasn't bailed out all banks. And when they bail them out, they aren't really giving them free money. Most of the time the company is getting a major loan (The Federal Reserve has a lot of cash) to temporarily stay afloat, since no bank can do it right now. They are paying interest on it, and the Fed is getting collateral in return, aka a lot of mortgages and in general, some of the companies assets. Not ownership, but as collateral. Or sometimes. I'm not sure exactly what the Treasury is doing anymore, and I don't think anyone does. It's surprising to most people not because it's ridiculous, it's not like we're giving these companies free money, but a. because we're not really bailing out home owners (we sorta are) and b. the Fed has rarely done this kind of situation.
So because of the way the crisis is, with the liquidity problems or "credit crunch" the Fed needs to take more action than normal, otherwise they risk losing all of their power.
Saturday, February 9, 2008
America Behind Bars
People like to commonly refer to democracy as "rule of the majority." This may be theoretically correct, but in most democracies in the world, it would more properly be described as "rule of the majority" while protecting the rights of the minority. The second part, as previously mentioned, is often forgotten but is an integral part of the situation.
Liberals, and Democrats, like to claim a monopoly on minority rights. During campaigns we hear them promising to "protect the downtrodden," and make the government work for the less priviliged. Republicans and conservatives also claim to protect minority rights, such as CEOs and business owners that have been villified by the media and the left.
However, though both claim to defend the "indefensible," with the success of the Republicans in the last few decades, Democrats have joined Republicans in the "law-and-order" campaign. Democrats promise to crack down on offenders while growing police numbers. This shift has caused a serious problem in American politics. No major party is willing to stand up for the criminals, unless they can score some talking points in doing so.
The numbers get worse and worse, the most recent survey shows that currently, as we speak, more than 1% of Americans adults are in prison, 2.3 million. Both in raw data, and per-capita, the United States leads the world in incarceration, ahead of countries like Russia, China, and Ukraine. One out of 9, more than 10% of young Black men are in prison. This is an absolute stain on the American government and American society. We are expending billions of dollars to imprison these people and losing untold dollars in lost potential.
Despite the stagnant crime rate, the incarceration rates have been steadily growing. Terrible policy like "Three Strikes laws" and the inherrent fear instilled in Americans have caused this growing crisis. In Kentucky, the crime rate rose 3% in approximately 30 years, while the state's inmate population rose 600%. This is an absolutely obscene number. Not only that, 1 in 32 Americans are either in prison or on parole. I couldn't find any statistics that indicate how many Americans have been in jail, but I would guess it is near 7-10%. This is a huge problem. Our incarceration rate per-capita is 6-7x the world average.
Why is it so high? Are Americans inherrently more criminal, or is our society less tolerant? Certainly not the former, the statistics are impossibly outside even several standard deviations. Who is to blame? Well, first, politicians, for their awful policies and campaigns to pander to voters. And secondly, of course, the voters. I'm not sure voters understand the magnitude of this situation. We created scapegoats for society's problems and no one, except organizations such as the ACLU and Libertarian Party, were willing to defend them.
How can we fix it? Ultimately, it rests with the voters. But we need to change the way this country looks at crime. First- no jail time for non-violent crimes. Before we campaign to legalize drugs (as I believe it's everyone's right to do whatever they want, if it doesn't hurt others) we should focus on decriminalizing drugs. There is no reason to throw drug users in jail, as long as they aren't committing other crimes. Fine them and send them on their way. It is mutually beneficial to both sides.
A Houston-based Texan State Senator said, “We have 5,500 D.W.I offenders in prison,” he said, including people caught driving under the influence who had not been in an accident. “They’re in the general population. As serious as drinking and driving is, we should segregate them and give them treatment.”
We need to lessen the amount of non-violent offenders who go to jail. Repeat offenders need help, not jail time. Parole violators deserve fines, not to be thrown back into jail. Sadly, in this two-party system, we are going to need one of the parties to stand up and have courage. They need to defend those who society, and the media have already convicted. Unless there is a change in culture...we are going to continue down this path and more defenseless Americans are going to be serving time in prison.
Liberals, and Democrats, like to claim a monopoly on minority rights. During campaigns we hear them promising to "protect the downtrodden," and make the government work for the less priviliged. Republicans and conservatives also claim to protect minority rights, such as CEOs and business owners that have been villified by the media and the left.
However, though both claim to defend the "indefensible," with the success of the Republicans in the last few decades, Democrats have joined Republicans in the "law-and-order" campaign. Democrats promise to crack down on offenders while growing police numbers. This shift has caused a serious problem in American politics. No major party is willing to stand up for the criminals, unless they can score some talking points in doing so.
The numbers get worse and worse, the most recent survey shows that currently, as we speak, more than 1% of Americans adults are in prison, 2.3 million. Both in raw data, and per-capita, the United States leads the world in incarceration, ahead of countries like Russia, China, and Ukraine. One out of 9, more than 10% of young Black men are in prison. This is an absolute stain on the American government and American society. We are expending billions of dollars to imprison these people and losing untold dollars in lost potential.
Despite the stagnant crime rate, the incarceration rates have been steadily growing. Terrible policy like "Three Strikes laws" and the inherrent fear instilled in Americans have caused this growing crisis. In Kentucky, the crime rate rose 3% in approximately 30 years, while the state's inmate population rose 600%. This is an absolutely obscene number. Not only that, 1 in 32 Americans are either in prison or on parole. I couldn't find any statistics that indicate how many Americans have been in jail, but I would guess it is near 7-10%. This is a huge problem. Our incarceration rate per-capita is 6-7x the world average.
Why is it so high? Are Americans inherrently more criminal, or is our society less tolerant? Certainly not the former, the statistics are impossibly outside even several standard deviations. Who is to blame? Well, first, politicians, for their awful policies and campaigns to pander to voters. And secondly, of course, the voters. I'm not sure voters understand the magnitude of this situation. We created scapegoats for society's problems and no one, except organizations such as the ACLU and Libertarian Party, were willing to defend them.
How can we fix it? Ultimately, it rests with the voters. But we need to change the way this country looks at crime. First- no jail time for non-violent crimes. Before we campaign to legalize drugs (as I believe it's everyone's right to do whatever they want, if it doesn't hurt others) we should focus on decriminalizing drugs. There is no reason to throw drug users in jail, as long as they aren't committing other crimes. Fine them and send them on their way. It is mutually beneficial to both sides.
A Houston-based Texan State Senator said, “We have 5,500 D.W.I offenders in prison,” he said, including people caught driving under the influence who had not been in an accident. “They’re in the general population. As serious as drinking and driving is, we should segregate them and give them treatment.”
We need to lessen the amount of non-violent offenders who go to jail. Repeat offenders need help, not jail time. Parole violators deserve fines, not to be thrown back into jail. Sadly, in this two-party system, we are going to need one of the parties to stand up and have courage. They need to defend those who society, and the media have already convicted. Unless there is a change in culture...we are going to continue down this path and more defenseless Americans are going to be serving time in prison.
Wednesday, June 27, 2007
Violent Crime in New Orleans
This picture will never fully convey the anguish and the pain going on in New Orleans. For every red dot on this GoogleMap image of New Orleans, there has been a murder in 2007. We are only 6 months into the year, it is likely that this map will continue to be colored red. In 2006, a Tulane University professor estimated that the murder rate was the highest ever recorded in the United States, beating New Orleans previous national record set in 1994, when 425 people were killed. In July 2006 alone, 26 people were killed. By comparison, in the same month, 43 US soldiers were killed in Iraq. There's something seriously wrong when a city is losing almost as many people as an occupying force in a warzone. Compared per capita, it's disturbingly close, considering we are not in a war. (New Orleans had an estimated population 223,000 in July '06, the US had about 140,000 troops in Iraq, and given the fact that Iraq is much much much larger than the city of New Orleans.)New Orleans is down on its' knees, and the murder rate is killing our potential reconstruction and rebirth. The city is beginning to see white flight, which threatens us economically and culturally. The violence is a huge deterrent to tourism, which accounts for 40% of New Orleans income as well as 85,000 people. (Not including the multiplier effect) Combining these two losses, it's unlikely rebuilding will proceed at any reasonable rate and the already-strained social services will be cut back even further. While the influx of Latinos (to a traditionally "Chocolate City") has provided cheap labor to aid reconstruction, it has fuelled a violent drug gang war between Blacks and Hispanics.
What's the solution? I'm not sure, but I am sure what's in place is not working. It is clear that the city of New Orleans needs federal and state aid, they do not have money to police the entire city. (One reason why they commissioned University Police as full police officers at all New Orleans colleges this Spring) This deficit only allows for more violence which perpetuates the downward spiral. A dearth of economic and educational opportunity also causes the violence. New Orleans public schools are barely functional, I can't even imagine what the dropout rate is. Good decent paying jobs are leaving the area and we are left with dead-end reconstruction which is generally being filled by imported Mexicans.
To save New Orleans, the city, state, and federal governments need to act. We need to immediately deploy more police to stop the senseless killings, but at the same time we need functional schools. New Orleans and Louisiana needs to woo companies to come to New Orleans (the 4th largest port in America and within 30 miles of the 4th largest port in the world) to provide decent jobs to attract talent to the city. (Read: wealthy taxpayers) We need to rebuild the oil and gas infrastructure destroyed during Katrina. (Southern Louisiana is the 2nd biggest oil refiner in the US after Texas. Wonder why gas prices shot up during Katrina and still remain high? We're still operating far below capacity)
Whatever the solution, Nagin, Blanco and others must act now, otherwise New Orleans is well on track to reclaim the ignominious title of the United States' murder capital for the 3rd year in the 21st century.
What's the solution? I'm not sure, but I am sure what's in place is not working. It is clear that the city of New Orleans needs federal and state aid, they do not have money to police the entire city. (One reason why they commissioned University Police as full police officers at all New Orleans colleges this Spring) This deficit only allows for more violence which perpetuates the downward spiral. A dearth of economic and educational opportunity also causes the violence. New Orleans public schools are barely functional, I can't even imagine what the dropout rate is. Good decent paying jobs are leaving the area and we are left with dead-end reconstruction which is generally being filled by imported Mexicans.
To save New Orleans, the city, state, and federal governments need to act. We need to immediately deploy more police to stop the senseless killings, but at the same time we need functional schools. New Orleans and Louisiana needs to woo companies to come to New Orleans (the 4th largest port in America and within 30 miles of the 4th largest port in the world) to provide decent jobs to attract talent to the city. (Read: wealthy taxpayers) We need to rebuild the oil and gas infrastructure destroyed during Katrina. (Southern Louisiana is the 2nd biggest oil refiner in the US after Texas. Wonder why gas prices shot up during Katrina and still remain high? We're still operating far below capacity)
Whatever the solution, Nagin, Blanco and others must act now, otherwise New Orleans is well on track to reclaim the ignominious title of the United States' murder capital for the 3rd year in the 21st century.
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