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Journal: Three baby mice

Journal by blue trane

August 13, 2014

In the bathroom at Millersylvania State Park, I found two baby mice. One was cowering against a wall, shivering, moving very slowly. Another was in the hallway, likewise shivering and not moving much or at all.

I thought of putting them outside, in the forest. I assumed their mother had been killed by a trap or something. (I had seen a squirrel earlier, running with what seemed to be a dead mouse in its mouth.)

I tried to pick up one mouse by the tail, but it kept squeaking and running away. I left it alone.

I went for a hike on the trails.

When I got back, I had resolved to get a box and move the mice outside. I went back to the bathroom to check on them.

I found a streak of fresh blood where one had been, it's flattened, mangled body a few inches away, jammed under a closed door. I found two others behind another door, also flattened and bloody.

I had seen only two, there must have been another behind a door somewhere.

I'm guessing someone, some kid, stomped on them.

I whistled Flee as a bird as I walked away from the bathroom.

I thought of Robin Williams recent suicide. A Fresh Air interview with him was replayed, a bit with the punchline: "Life is not for everybody."

But those mice weren't given a chance. They could have been saved. They didn't have to die violently, by murder, for no purpose other than that they perhaps annoyed someone.

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Journal: Lewis River dreams

Journal by blue trane

2014-7-14

Two dream scenes:

1) IMF associated with old growth trees, as if reserves were symbolized by the giant, 1000-year-old living trunks.

Is this how they think of reserves? I don't. Money reserves are artificial, human-invented, not natural like the trees.

2) My right hand being eaten by a fish, caught in the big fish's mouth, entirely inside the ring of the teeth. I awoke feeling pain in my right hand, trapped under a thigh.

Dream as a somatic warning.

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Journal: Island Camp dreams

Journal by blue trane

2014-7-15
Island Camp, WA

Two dream memories:

1) I was female. I was in a multi-story department store. My right arm would shiver periodically, and an amphibian-like creature, writhing, green, long-legged (like a frog), would come twitching out from my sleeve at a fast speed; it would shoot towards the floor, tumbling, then bound off somewhere. The offshoots springing from my (right) arm were different sizes, though all of the same general form (amphibian-like) and color (green on top, whitish belly).

I have a vivid memory of looking down at one as it emerged, at a greater speed than gravity would have given it had it just been falling from my shoulder's height; it felt as if it had squirted out from an aperture, a slit, somewhere on my upper arm, which I could not see because I was wearing a long-sleeved shirt (blouse?). The creature was falling beyond my sleeve upside-down, its whitish lizard-like belly at an angle slanted upwards, towards my head; its head cocked, its neck turned so it was making eye contact with me as it descended backwards towards the floor.

I was moving between floors in the department store, taking the stairs. I was trying to hide these amphibian births from the store security. I felt that if someone saw me squirting out these frog-like creatures, something bad would happen. It was embarrassing, if nothing else.

I had no control over the births.

---

Dream interpretation:

Day residue: I saw a frog a few days ago. And some tadpoles a day or so after that, a couple days ago. I still think of the salamanders I saw in a pond in the Willipa Hills, a few weeks ago.

I was feeling a lot of insect bites, or what I took to be insect bites, during the night before the dream. After waking up I scratched my upper right arm, wondering if there was an insect there giving birth?

I thought of the dream I had a few nights ago, in which my right hand was being bitten by a large fish. When I woke from that dream my hand was trapped under a thigh, being painfully squeezed. Was this latest dream some kind of somatic warning, as well?

Another interpretation:

The live births were memes, pushed out from my right arm as it wrote them down on paper. The memes (ideas, thoughts, written words) were dangerous to the employees of the business-oriented environment I was in, so I tried to hide. What I was outputting was out of place in the sterile, cut-and-dried world of the department store. My production was disruptive, disturbing, weird, uncontrolled.

2) Second dream memory:

I was consorting with a rich person, a businessman. He showed me a card with some ideas on it, asked my opinion. I wrote in my reactions on the card. He seemed interested. He was busy, and left. When he said goodbye I felt a sense of loss, as if I should have pressed him for further meetings about my ideas; why didn't he hire me, pay me a salary, give me some money for my contributions (which definitely interested him) so I could have a decent standard of living instead of living way below the poverty line.

Later I saw something produced by the rich man's company. It was the same card he had showed me, and my ideas and scribbles were on it. He had photocopied the card with my contributions and was distributing it. I wasn't credited. He appeared to be making money from the card. I wasn't.

Interpretation: A businessman takes my ideas and profits from them, without crediting of paying me. I'm not pushy, so I don't ask when I have the chance to be part of the business.

User Journal

Journal: Recorder

Journal by blue trane

2014-7-15

Island Camp, WA

I've been playing the recorder a lot. A group occupying the shelter at this campsite left this morning, so I have the camp to myself. Yesterday they left in one car during the day, so I practiced then too. But it's better when I'm not worried about them returning.

I practice "Paper Doll", "When The Saints Go Marching In", "It Don't Mean A Thing", "Someday", "Basin Street Blues", "All of Me", "Don't Fence Me In", "Do, A Deer" (in different keys), "Blue Skies" (just started today), "Summertime", and a Boogie Woogie bassline.

I'm trying to get a prettier, less breathy sound, especially in the high notes. I think I hit a high B today. High G I can get fairly consistently now, high A is more iffy.

It's nice, playing with the birds, squirrels, deer. Sometimes I start playing and birds start chirping.

I'm learning how to use breath control to make notes and phrases swing.

---

I recorded three or four songs on my phone. But I can't transfer them to the computer. I was able to before; it was fairly straightforward: email the 3gp sound file to myself, then download it and convert it into mp3 format using Audacity. However, on a different computer (Windows 8), I am no longer able to play the 3gp audio files: they are silent, or don't transfer at all, or don't show any waveform when imported into Audacity. The 3gp files play on my phone, but that's it.

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Journal: Lewis River

Journal by blue trane

2014-7-12

Lewis River

Bathed in the upper Lewis River today. The water was cold, but the air temperature was in the 90s. I thoroughly washed my feet and splashed water over all the rest of my body.

Yesterday I hiked a trail through old growth forest from the Upper Falls (on the Lewis River) to the Middle Falls, and back. Again the temperature was close to 90 degrees, so I took my shirt off. I crossed at least six or seven groups, a lot of them women.

One group had five or six women and one little boy. The boy had his shirt off, like me. When I crossed them the second time (on the way back), one girl looked like she wanted to take her shirt off, too.

It is exhilerating, finding an isolated place in the forest where I can walk naked, playing the recorder...

I spent the first night of this trip on the east end of the Swift Reservoir. I started the night in a tent, but I was right next to the water, and it was so humid the inside of the tent smelled moldy and the sides were wet. So I pulled my pads and sleeping bag out and slept on a tarp outside. The tarp was covered with dew drops by morning. Luckily the morning brought sunshine and hot weather so I dried everything out.

Second night, on the Upper Lewis River, I tried the tent again. But it smelled of plastic and was making me feel tense all over. After sunset I pulled out the pads and sleeping bag again, to sleep on a tarp next to the tent. This time it wasn't humid.

Third night: I slept in the tent. The plastic smell seemed less after airing it out all day. It kept the bugs off me. In the morning I noticed some congested sinuses which I didn't have when I slept with no tent outside...

User Journal

Journal: Some figures on the housing bubble 1

Journal by blue trane

http://www.milkeninstitute.org/pdf/riseandfallexcerpt.pdf provides some numbers:

The total value of housing units in the United
States amounts to $19.3 trillion, with $10.6 trillion
in mortgage debt and the remaining $8.7 trillion
representing equity in those units as of June 2008.

Of the approximately 80 million houses in the
United States, 27 million are paid off, while the
remaining 53 million have mortgages. Of those
households with mortgages, 5 million (or 9 percent)
were behind in their payments and roughly 3
percent were in foreclosure as of mid-2008.

So, say 10% of $10.6 trillion was at risk of default, or $1 trillion.

The notional amount of CDS
increased from less than $1 trillion in 2001 to slightly
more than $62 trillion in 2007, before declining to
$47 trillion on October 31, 2008.

So the derivative market inflated the real value of the mortgages by about a factor of 6, and then magnified the size of the possible default problem by a factor of 15.

I'm reminded of a sentence from John Lanchester's book, I.O.U. (another journal of mine on the book):

"Even once it's explained, however, it still seems wholly contrary to common sense that the market for products that derive from real things should be unimaginably vaster than the market for the things themselves."

Note that the total value of derivatives, according to the May 2014 BIS Statistical Release, was $710 trillion. So the $62 trillion 2007 figure has been increased by a factor of 10, again.

---

The Fed bought up trillions of the MBS assets, thereby letting off the hook the CDS holders who had insured them, I think. Pension funds held a lot of CDSes, so a SIGTARP report stated that it was prompted to action to save retirement accounts. Yet when Detroit experienced a dramatic increase in its liabilities due to an interest-rate swap with UBS, the Fed and the national government did not step in to help. Why not?

Fed Chairman Bernanke stated somewhere that helping state and local governments were too political for the Fed to get involved in. So it is the realm of fiscal policy. Why couldn't he say outright that the government can run a deficit to help out state and local governments? It worked for the Fed helping banks; why shouldn't it work for the government helping states and cities?

User Journal

Journal: Web pages jumping around

Journal by blue trane

I was just reading the introduction to an article on Slashdot's front page. Suddenly, the page refreshed, and reloaded leaving me with a view of the top of the site. I had lost my place, my concentration, and the train of thought I was engaged in.

The early internet wasn't like this. Now, when a page loads it jumps around. So I start reading some text, and suddenly an ad above the area loads, and the text jumps off the screen.

This happens even on wikipedia.

Is it a deliberate strategy on the part of advertisers to get you to notice their ads?

Is it an unintended consequence of loading pages in parts, not leaving enough space for the top parts?

Is my viewing experience not important to the developers?

Whatever, it is really annoying to me when i'm reading something and then suddenly the browser moves it out of my view.

User Journal

Journal: Paradise Cove 1

Journal by blue trane

January 5, 2014

One of the main goals of this road trip was to visit the site of Rockford's trailer.

In the 1970s, according to the evidence in the Rockford Files, Paradise Cove had free public access to the public beach. In one episode (The Queen of Peru) a motor home parks next to Rockford's trailer and Rockford, despite being annoyed by the kids' noise-making, nevertheless tells the father that he has a right to park there since it's a public beach.

Today, Paradise Cove seems to have been fully privatized. The Paradise Cove Cafe charges for beach access ($20 for walk-in, $30 for beach parking). There is a large trailer park in the Cove which now covers the hills behind Rockford's trailer, which in the 1970s were wild. In one episode, Rocky runs up the hill behind the trailer; today there are fences and roads and signs saying "No access to the General Public".

Things were better in 1970s pre-Reagan America.

I liked Rockford because money didn't faze him. He met a lot of very rich people, but he didn't want what they had. At the ends of lots of episodes he gets stiffed out of his fee or reward money; his reaction is invariably to laugh it off. Sometimes he wins, and celebrates. When he doesn't though he doesn't lose his cool. Money played some part in the game Rockford played, but it wasn't the goal. He didn't worship money or use it to keep score.

Another reason I like The Rockford Files is the sunshine under which a lot of the outdoor shots were filmed. It's 75 degrees here in the middle of winter. Looking at maps in the chilly Pacific Northwest, I wanted to see what some warm weather felt like. Today I went for a swim!

Some more pictures of Paradise Cove, and also the mudrock (?) formations in the adjacent Santa Monica hills, are in this folder of road trip pictures.

User Journal

Journal: Stockton

Journal by blue trane

"The Miwok Indians lived in the Central Valley among the delta's waterways, using them for food and transportation." (http://en.wikipedia.org/wiki/Stockton,_California)

Stockton is a shock after coming from Indian Grinding Rock Park, where the Miwok ground acorns.

The park was relatively quiet, and the air was fresh. Lots of trees.

Stockton is industrialized, with a constant sound of trucks and trains. I'm in a Motel 6, next to a large trucking yard. All through the night trucks drove past. There's also a garbage dump down the road.

I went for a run to get out of the room which was giving me a headache. I passed an electric traffic warning sign on a small trailer, alerting drivers to a street closure. The end date of the closure was 12/31/2013; it's 1/4/2014 now. So they haven't taken away the out-of-date warning sign. Symptomatic of the city's budget problems?

I should have stayed at the park campsite. The charge was $30, and I didn't have it in cash.

This city reinforces the feeling that western civilization has gone completely wrong, and the Miwok had a better idea of how to live. The air was fresh in the park; here, back in the motel room, already the headache is coming back.

What if we had not overrun the Miwok in the mad rush for gold? Things could have been done differently; white settlers could have coexisted with the Indians, mutually benefited. Civilization could have brought technology but learned to keep population down and live in balance with the environment. We could have had a much more utopian setting instead of the Stockton that exists today.

User Journal

Journal: Burr

Journal by blue trane

From "Burr", by Gore Vidal, page 420:

An usher opened the front door. In the muddy courtyard, a groom stood with my horse. Jefferson looked at me curiously. "I must say that I had rather thought you would be coming back to live here."

"To this house?" I asked most pleasantly.

"Why not? But I meant to Washington City, to this Congress, representing one of the western states."

"It is still a possibility."

"You ought not to waste yourself, Colonel."

"I do not think that it is I who have done the wasting."

Jefferson blushed; and bade me farewell.

From Matthew Davis's biography of Burr (in the Preface):

I soon discovered that Colonel Burr was far more tenacious of his military, than of his professional, political, or moral character. His prejudices against General Washington were immoveable. They were formed in the summer of 1776, while he resided at headquarters; and they were confirmed unchangeably by the injustice which he said he had experienced at the hands of the commander-in-chief immediately after the battle of Long Island, and the retreat of the American army from the city of New-York. These grievances he wished to mingle with his own history; and he was particularly anxious to examine the military movements of General Washington on different occasions, but more especially at the battle of Monmouth, in which battle Colonel Burr commanded a brigade in Lord Stirling's division.

Further on:

Four days after, viz., the 28th of June, the battle of Monmouth was fought. It was on this occasion that General Washington ordered the arrest of General Lee: 1stly, For disobedience of orders in not attacking the enemy on the 28th of June, agreeably to repeated instructions; 2dly, For misbehaviour before the enemy on the same day, by making an unnecessary, disorderly, and shameful retreat; 3dly, For disrespect to the commander-in-chief, in two letters, dated the 20th of June. On the 12th of August the courtmartial, of which Lord Stirling was president, found Lee guilty, and sentenced him to be suspended from any command in the armies of the United States for the term of twelve months. The history of the battle of Monmouth, with all the consequences that followed, has long since been given to the world by the friends and the opponents of the respective parties. It is only necessary to state here, that Colonel Burr, on that occasion, was ranked among the supporters of Lee, and had himself real or imaginary cause of complaint against the commander-in-chief.

In this action Colonel Burr commanded a brigade in the division of Lord Stirling, composed of his own regiment and some Pennsylvanians, under the immediate command of Lieutenant-colonel Dummer. Gordon, in his History of the American Revolution, says, "The check the British received gave time to make a disposition of the left wing and second line of the main army in the wood, and on the eminence to which he had been directed and was retreating. On this were placed some batteries of cannon by Lord Stirling, who commanded the left wing, which played upon the British with great effect, and, seconded by parties of infantry detached to oppose them, effectually put a stop to their advance. The British, finding themselves warmly opposed in front, attempted to turn the American left flank, but were repulsed."

Shortly after the action had become general, Burr discovered a detachment of the enemy coming from the borders of a wood on the southward. He instantly put his brigade in motion for the purpose of checking them. It was necessary to cross a morass, over which a bridge was thrown. He ordered Lieutenant-colonel Dummer to advance with the Pennsylvania detachment, and that he would bring up the rear with his own regiment. After a part of the brigade was over the bridge, Colonel Barber, aid to General Washington, rode up, and said that the orders of the commander-in-chief were that he should halt. Colonel Burr remonstrated. He said his men, in their present position, were exposed to the fire of the enemy, and that his whole brigade must now cross the bridge before they could halt with any safety. Colonel Barber repeated that the orders of General Washington were peremptory that he should halt, which was accordingly done, and the brigade, in their divided state, suffered severely. Lieutenant-colonel Dummer was killed; Colonel Burr's horse was shot under him; and those who had crossed the bridge were compelled to retreat.

So, Burr had the feeling of being wasted those in command over him at Monmouth.

(More on the Battle of Monmouth: http://www.historynet.com/battle-of-monmouth.htm, http://en.wikipedia.org/wiki/File:Battle_of_Monmouth.Dean.USMA.edu.history.gif)

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Journal: Israeli inflation

Journal by blue trane

http://www.tradingeconomics.com/israel/inflation-cpi

From http://www.jewishvirtuallibrary.org/jsource/Economy/eco5.html:

The linkage system was very successful. In major economies around the world, consumers often feel the pinch of just 2-7% annual inflation. But Israelis, who had to deal with a much higher inflation rate, went about their business practically unaffected. For three and a half decades, their real income was protected by this index-linked mechanism. Furthermore, over this period the standard of living rose at an average rate of close to 4% annually.

However perfect, the linkage machine itself was fueling the fire of inflation at an increasing pace. As inflation evolved into hyperinflation, the price spiral was taking a toll on economic output. Dealing with daily linkage adjustments and their repercussions was draining the time and resources of households and businesses.

In July 1985, the government adopted the Economic Stabilization Policy, which called for interference in the economy to an extent that would be considered "reactionary" among economic theorists. A total freeze of prices of all goods and services was imposed and the linkage mechanism was suspended. Everything from price tags in shops and stores, charges for services, prices specified in contracts, wages and public budgets to foreign exchange rates, remained fixed at the exact nominal quotation on the day the policy was declared.

It worked. In 1985, inflation fell to 185% (less than half the rate in 1984). Within a few months, the authorities began to lift the price freeze on some items; in other cases it took almost a year. In 1986, inflation was down to just 19%.

The linkage system was reinstated as soon as the stabilization policy showed signs of success, although the Bank of Israel began to take stricter measures to supervise the monetary aspects of the economy.

Can linkage be automated so that it becomes seamless, and inflation transparent?

Can some method similar to Brazil's response to hyperinflation be used to fight the psychology of inflation?

From http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil:

People would still have and use the existing currency, the cruzeiro. But everything would be listed in URVs, the fake currency. Their wages would be listed in URVs. Taxes were in URVs. All prices were listed in URVs. And URVs were kept stable - what changed was how many cruzeiros each URV was worth.

Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros.

The idea was that people would start thinking in URVs - and stop expecting prices to always go up.

From Generating a Sharp Disinflation: Israel 1985, by Michael Bruno:

In the past two years it became evident that balance-of-payments and
foreign reserve difficulties may arise even when the current account
improves, due to problems associated with the capital account. In part, at
least, these problems stem from loss of public confidence in the government's
ability to control the economic system, leading to massive private
purchases of foreign currency and capital flight.

Unfortunately, the most common explanation of rising inflation due
to an increase in the government deficit (argument a) can at best account
for a rise in Israel's inflation rate in the early 1970's but not in
subsequent periods. The step-wise leaps in inflation from 30-40 percent in
1973-76 to nearly 500 percent annually in 1984-85 (point 851 in Figure la
refers to January-July 1985) occurred while the budget deficit, though
large, was more or less stable at 12-15% of GDP (see Table 2).

An alternative and somewhat complementary line of argument to that of
the inflation tax explains the step-wise nature of the inflationary process
in terms of price level shocks (which account for the jumps) coupled
with full monetary accommodation (which explains why a price level shock
translates into a jump in the rate of inflation). The price shocks may be
entirely exogenous (e.g. oil and raw material price increases in 1973 and
1979 or the shock introduced with the October 1977 reform) or may be
induced by balance of payments difficulties (leading to devaluations and
price increasing fiscal measures such as subsidy cuts, as in 1974, 1983,
1984).

Why, under this view, has inflation almost always only gone up and not
down ? one reason may be that positive and negative price shocks are not
symmetric in their effects on the dynamics of inflation. When the general
thrust of fiscal and monetary policy is expansionary and there is a temp-
orary unexpected downward shift in the inflation rate expectations will
not be revised downward. The effect of such asymmetries is to make a
sequence of positive and negative shocks of zero mean impart an upward
thrust to the inflation rate.

So, inflation is psychological to a large degree. It seems there are wild expectations of inflation that fuel themselves. The fix for inflation is to somehow get people to stop expecting inflation; I think the actual budget deficit amounts don't really matter. It's the perceived effects of deficits in people's minds. Change those prejudices and you can deal with inflation without having to reduce government spending.

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Journal: Govt deficits and private surpluses 2

Journal by blue trane
In Gurley and Shaw's Money in a theory of finance, Table 3 on page 29 presents a "social balance sheet" for a "rudimentary finance" economy. In the table, the government's tax receipts are zero, while its purchases of goods and services are 10. So the government runs a deficit, in this "Rudimentary Finance" model. Further on (pages 38-39):

We have shown that real incremental demand for money during growth can be satisfied, in the rudimentary economy, by deflation of prices and money wage rates. But it can be satisfied too by growth in nominal money at stable levels of prices and money wage rates. If price and wage levels are to be stable during growth, the private sectors of the rudimentary economy must maintain surplus budgets and government must run a continuous deficit. The private sectors must save, lend, and accumulate nominal money while government must dissave, borrow, and issue money.

---

I think Stephanie Kelton makes a similar point, in What Happens When the Government Tightens its Belt? (Part I) and Part II. From Part I:

Because the economyâ(TM)s financial flows are a closed system - every payment must come from somewhere and end up somewhere - one sectorâ(TM)s surplus is always the other sectorâ(TM)s deficit. As the government "tightens" its belt, it "lightens" its load on the teeter-totter, shifting the relative burden onto you.

This chart drives home the point graphically. Kelton's model is not "rudimentary"; it models the existing economy. Gurley and Shaw are talking about price and wage stability during growth. But the overall idea is the same: public sector deficits are necessary for private sector profits.

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Journal: Focus vs. Dispersion

Journal by blue trane

Just awoke from a dream where I felt Tracie was influencing it, lying in the next bed in this hotel room. We've made an appointment for Tykee and Buddy at a vet tomorrow, in Seattle, and decided to take all the birds on a little vacation, to spend the night in this hotel, before going to the vet's tomorrow, further north.

In the dream I experienced a series of sensations I can best describe by comparing them to tubes. At first I was a tube that bent, flexibly; then I became aware of a straightening, strengthening impulse; the tube that I was became focusing, as if electricity sent through it would travel straighter, faster. Or if a bullet was shot through it, the bullet would go further because the tube protected it from outside influences such as wind.

At first the stronger, straighter, focusing tube seemed obviously better than the bent, flexible, dispersive, porous one that I had been before. But I was uncomfortable, made more so by Tracie's audible groan or snore that accompanied me waking up with the thought of these two tubes still vivid. It seemed as if she was highlighting or reinforcing the thought that the straighter tube was better; but I wanted to resist that idea.

Other episodes followed, containing the same theme of a flexible, dispersive tube followed by a straighter, more rigid, more focusing one. Each set of tubes was conveying something different; a bullet, then sound, then electricity, photons, light, etc.

At the end of each episode, Tracie woke me with some audible sound, a grunt or a groan or a snore, and I had the feeling she approved of the more focused tube that I had become (or become aware of) in the dream. But I resisted the idea that the focused tubes were better.

In thinking about the series of dream episodes, I realized I was more naturally bent towards the dispersive element, the unfocused tubes that spread out signals. I think there is some dispersive vs. focusing force in nature. I think society currently chooses to reward the focusing impulse. This is arbitrary, a fickle whim. Why can't society support both forces? It is a matter of politics, policy, not physics. The two forces exist in nature without judgment; why can't society let them coexist without prejudice?

I thought that birds tend towards the dispersive, the chaotic, the spreading: bird calls have wide frequency ranges, spread out over a broad spectrum rather than focused like a tuning fork. Birds also disperse seeds far and wide. When birds eat they shake their heads, spreading some of the seeds they're eating around them.

Armstrong's trumpet sound is like a bird call in that it too is spread out over a wide frequency range. Armstrong's genius was that he could also focus, play perfectly in sync when he wanted with other performers. Armstrong could combine the two tendencies for dispersion and focus, for discipline and elasticity, in one performance or in one note.

In monetary policy, the two forces are called "discipline" vs. "elasticity". My tendency is to support elasticity, creating more money, expanding the money supply, ending the artificial scarcity of money. The disciplinary approach believes in making money scarce, raising interest rates, forcing austerity policies on others.

I think monetary and/or fiscal discipline should be voluntary. Each individual should decide for themselves if they want to practice austerity in their own lives. Government should enable each individual to make a free choice, for themselves. Government can encourage austerity but should not impose it.

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Journal: Balancing Budgets

Journal by blue trane

I think balancing budgets becomes a fussy compulsion, almost a fetish: you want things to look neat. You want the figures to come out even, regardless of the consequences for individuals you don't know, far off at a distance somewhere. When the people who experience the repurcussions of your budget-balancing have no communication with you, and you only hear about their plight mediated through many third parties, it becomes easy to tell yourself a story about why they are suffering, and ignore or discount their real situation; because your own story, that you want your ledger book to "look nice", is so much more compelling and immediate.

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Journal: Detroit's bankruptcy 4

Journal by blue trane

From a thread in the Economics of Money and Banking, Part Two MOOC:

GJM:

http://www.moneynews.com/FinanceNews/Detroit-banks-derivatives-swaps/2013/08/16/id/520795

The money view? Banking regulations? Exploitation? Why did this happen?

---

Robert S Mitchell:

"In the swap deals, the banks would pay the city if rates rose, while the city would pay the banks if they fell. As it turned out, rates fell and the city had to pay the banks about $50 million a year and pledge $11 million a month in casino tax revenue as collateral."

From http://detroitdebtmoratorium.org/the-detroit-bankruptcy/:

"Detroit's financial expenses have increased significantly, and that is a direct result of the complex financial deals Wall Street banks urged on the city over the last several years, even though its precarious cash flow position meant these deals posed a great threat to the city. The biggest contributing factor to the increase in Detroitâ(TM)s legacy expenses is a series of complex deals it entered into in 2005 and 2006 to assume $1.6 billion in debt. Instead of issuing plain vanilla general obligation bonds, the city financed the debt using certificates of participation (COPs), which is a financial structure that municipalities often use to get around debt restrictions. Eight hundred million dollars of these COPs carried a variable interest rate, which the city synthetically converted to a fixed rate using interest rate swaps.

These swaps carried hidden risks, and these risks increased after the Federal Reserve drove down interest rates to near zero in response to the financial crisis. The deals included provisions that would allow the banks to terminate the swaps under specified conditions and collect termination payments, which would entitle the banks to immediate payment of all projected future value of the swaps to the bank counterparties. Such conditions included a credit rating downgrade of the city to a level below âoeinvestment grade,â appointment of an emergency manager to run the city and failure of the city to make timely payments. Projected future value balloons in low, short-term rate conditions. This is because the difference between the fixed swap payments made by the city and the floating swap payments projected to be paid by the banks increases. Because all of these events have occurred, the banks are now demanding upwards of $250-350 million in swap termination payments."

---

I wonder if the LIBOR rate manipulation affected Detroit's interest rate swaps, since LIBOR was manipulated downward, and Detroit's swaps were long on rates.

---

GJM:

It seems like fraud on the public to me. Thank you for your information.

---

Robert S Mitchell:

I was reminded of Professor Mehrling's explanation of how AIG failed, in Lecture 20 "Credit Derivatives". From the Lecture 20 Notes:

"When the referenced risky asset started to fall in price, the value of the insurance rose. This is a liability of AIG, so it cut into their capital buffer (AIG had no dedicated reserves against these CDS because it thought they were essentially riskfree). Not only that, but AIG had agreed to post collateral, and mark the CDS to market, so these losses were not just book losses but involved payments into a segregated account that Goldman Sachs controlled, about 30 billion at the time AIG failed."

AIG was exposed on credit default swaps, Detroit was exposed on interest rate swaps. But in both cases, the banks on the other side had written into the contract terms that triggered big payments, in case of a ratings downgrade for example. So when rates went down, Detroit was downgraded by the ratings agencies, and UBS (similar to what Goldman Sachs did in the case of AIG) demanded payment immediately of the future projected values of the swaps.

The Fed bailed AIG out, though. From wikipedia:

"AIG's credit rating was downgraded and it was required to post additional collateral with its trading counter-parties, leading to a liquidity crisis that began on September 16, 2008 and essentially bankrupted all of AIG. The United States Federal Reserve Bank stepped in, announcing the creation of a secured credit facility of up to US$85 billion to prevent the company's collapse, enabling AIG to deliver additional collateral to its credit default swap trading partners."

Why doesn't the Fed and/or the government step up to help Detroit? Why not have a SIGTARP for distressed cities, and states?

According to Kevin Puvalowski, testifying before Congress, shown in Q&A with Neil Barofsky, from about 50:35 to 51:13:

"And if you add all of those programs up, and assume that every program was fully subscribed at the same time, you get a total amount of support, from the government, of 23.7 trillion dollars."

$23.7 trillion for banks, but the government can't help Detroit with something like $18 billion? (And that figure might be inflated to better make the Emergency Manager's case).

SIGTARP mentions "retirement accounts" as a concern of the FRBNY leading to the AIG bailout, on page one of its report. Why isn't it concerned about the retirement accounts of the inhabitants of Detroit?

In 1869 the waffle iron was invented for people who had wrinkled waffles.

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