Sunday, November 30, 2008

Housing Double Dips

Earlier this year, numbers from the Case-Shiller index were starting to look a little better. At one point, 9 of the 20 markets they tracked were showing price appreciations. However, the most recent data revealed that housing prices may be double dipping. Every single housing market they track lost value in the last month.

Cities like Dallas, Charlotte, and Cleveland, which had had positive appreciation rates for several months, showed a surprising deterioration.

I have a few guesses why this might be happening: Weaker economy, deflation, and seasonal variation (fewer purchases after school starts). However, I can't point to anything definitively just yet.

Mia Culpa: I have been suggesting for several months on this blog and a few others that housing prices were going to be effectively flat by this point. I was wrong. Not sure why though, until I figure out what has changed.

Pictures of Government Interference

Did the bailout prevent the market from finding a clearing price for mortgage backed securities?

A while back I introduced a market index for market backed securities, located here. I also used this augmented graphic below.

In the above graphic, I showed how the value of mortgage backed securities tanked when Henry Paulson finally announced that none of the bailout money was going to buy these assets. Interestingly, the value of these assets finally hit a bottom, and bounced back in value.

A coworker and I have been confused as to why no one wanted these assets because the implied rate of return was getting pretty huge. The Wall Street panic should end when no one has to write down any more assets.

If a bottom for this market could have been achieved back in August, panic would have subsided and many clear-headed investors would pour money back into these assets. Instead, the bailout increased uncertainty and delayed the ability of companies and investors from knowing where the bottom was going to be. Should they sell now or should they wait for the Treasury to buy them at a higher price? Should they buy or will prices fall further? The bailout prevented these questions to find answers, because the market was kept from performing its normal information gathering tasks.

Tuesday, November 25, 2008

Unemployment Benefits Cause Unemployment

David Henderson writes at Forbes today about the effects of extending unemployment benefits on the unemployment rate.

When the government subsidizes an activity, it gives people an incentive to do more of it. That's true also of unemployment benefits. To receive unemployment benefits, someone must be unemployed. The unemployment benefit system, in short, pays people to be unemployed.

By signing the law on Friday that will extend the length of time unemployed workers can receive unemployment benefits and by signing a similar law last July, President Bush has made our unemployment rate higher than otherwise. The legislation that Bush signed will provide seven additional weeks of payments to people who have exhausted their benefits or will exhaust them soon. Those in states where the unemployment rate is above 6% would be entitled to an additional 13 weeks above the 26 weeks of regular benefits.
I have alluded to this effect before, but Henderson lays this out pretty well with lots of data and links to academic journal papers. He doesn't mostly rely on pontification like yours truly.

What annoys me about this practice of extended unemployment benefits, is that many use a high unemployment rate to justify further interventionist policies.


Note - I am out of town this week, so forgive me if the posting is less than inspiring.

Monday, November 24, 2008

Where's the Money?

Milton Friedman once wrote:

Inflation is always and everywhere a monetary phenomenon.
—Milton Friedman, A Monetary History of the United States 1867-1960 (1963)

The Austrian school also believes that inflation is solely caused by Fed easing. The problem is this graph of the money supply and recent reports of deflation.

If the money supply has skyrocketed in an unprecedented fashion, how can inflation be falling? The only answer is cash is being hoarded. This harkens back to my cash bubble theory.

Where is it being hoarded? By banks at the Federal Reserve. Below is a chart of the deposits banks have at the Federal Reserve above what they are required. It is difficult to see the numbers earlier in the year, which is because they are so small. In the range of $42-45 Billion. The total deposits they have on hand have surged by $600 Billion. This account for 75% of the increase in the money supply. Data here.

My guess is that for many banks holding the cash is better than lending it. If they have to write down the value of the loan right after they lend it out, they will lose money and be in a worse financial position. So they hold cash.

The question now becomes, what happens once asset markets level hit bottom. Holding cash will no longer be desirable. As money starts to come out the incentives to lend will grow rapidly. Will the currency bubble burst with a huge jump in inflation? I'll be checking these data sources every day, to let you.

Now the Stimulus is $700 Billion

If anyone is aware of how I can invest in the future size of the coming "stimulus" package that would be great. Just a few weeks ago Obama was suggesting a $150 Billion package. Within that last week I was none too surprised to see Paul Krugman pushing "at least $600 Billion". Now, Obama's advisors are topping them all.

$700 Billion From Bloomberg.

Let's do some addition.

$450 Billion - deficit already.
$1,350 Billion - for the Wall Street Bailout ($1.2 Trillion bailout + $150 Billion in Pork) see update
$25 Billion - in Auto Loans (enacted not the new proposed)
$0 - No tax hikes on those evil rich people
$700 Billion - for stimulus
$2.525 TRILLION Deficit next year

And this doesn't count the other likely effects.
($?? Billion) - Lower Tax revenues from weaker economy
$50 Billion - Detroit bailout

Wonder if that will effect interest rates for the government to borrow 1/6th of the entire US economic output?


Whoops, I should have finished the entire article before posting. It's even worse!

The incoming administration may also enlarge the $700 billion financial-rescue fund enacted last month. It may surge to perhaps $1.2 trillion, said Martin Baily, who served as White House chief economist under Clinton and is now at the Brookings Institution in Washington.

Sunday, November 23, 2008

A Minor Victory

From James Pethokoukis' Blog at US News & World Report - here.

It now looks like Obama will not propose raising taxes next year, instead waiting for the end-of-2010 expiration of the 2001 and 2003 tax cuts. I guess this means he believes, on some level, that raising taxes hurts economic growth. So I guess it really was about "fairness" all along. I think every economic initiative for years to come will be graded according to whether or not it boost the economy . Go long "growth," go short "fairness."
Of course, this means the deficit will be even bigger. However, it does prevent further erosion in the economy. So in total, this is change that I can believe in.

Note - It also means that I was wrong on #3 of this post.

Saturday, November 22, 2008

Less Guns, More Crime

A few years ago, John Lott, whom I've had the privelege of exchanging a handful of e-mails with published a book called More Guns, Less Crime. In it, he lays out his analysis that more guns actually lead to less crime. This seems counter-intuitive, but he explains that guns are frequently employed to prevent crimes, such as a store owner scaring off a would be attacker by whipping out a .45. These crime preventions rarely get reported, so we have the mistaken belief that gun prevalence correlates to higher levels of crime. Before his writings, I was anti-gun, but also anti-gun control. Now, I have increasingly become pro-gun.

Case in point are the Somali Pirates. I was watching a news show today, where the reporter claimed that boat crews were using firehoses to fend of the Somali pirates. Let me get this straight, you are piloting a boat worth tens of millions with a cargo worth $100 million in waters known to be infested with pirates, and you don't have any guns? Maybe I'm naive, but how much would a gun turret and a few mortar tubes really cost?

Instead of putting a couple mercenaries on these boats with some high powered weaponry, we're sending warships to scour thousands of miles of open water in hopes of catching these pirates in the act. Let's do the math. As a Somali, one can barely avoid starvation in your war ravaged country by obeying international law or one can make boatloads of money, pun intended, ransoming ship cargo and risk being stopped 1 out of 50 times. Or we could have a plan where one risks a high probability of a few hundred 50 calibre bullets ripping through one's ship from a guy sitting behind an inch of steel plating. Which situation would lead a rational pirate to give up business?

Arm the Boats. More guns, less crime.

John Lott responded to my e-mail from last night with a link to a piece by the Chicago Tribune. In it they list a couple methods that ships have employed in recent years to defend themselves.
"There are some creative ways to do that. According to the International Maritime Bureau, a chemical tanker fought off pirates armed with automatic weapons by releasing foam from fire hoses into the waters around the ship. In 2005 a cruise ship used a Long Range Acoustic Device, capable of causing permanent ear damage and temporary vision loss, to fend off a pirate attack on Somalia's coast."

Update 2:
John Lott thanks me for my e-mail on his blog (at the bottom) We're totally BFF's now.

Obama Channels Hoover

Obama economic plan aims for 2.5M new jobs by 2011

From an AP story

President-elect Barack Obama promoted an economic plan Saturday he said would create 2.5 million jobs by rebuilding roads and bridges and modernizing schools while developing alternative energy sources and more efficient cars.
The president-elect said he has asked his economic advisers to flesh out the recovery plan -- one "big enough to meet the challenges we face.
Obama is joining the chorus of left wing econ wonks suggesting that the only mistake in a stimulus package is not making it big enough. Thus we see the quoted number for a new stimulus rise from $150 B -> "at least...$600 Billion" Yes, and if only had the Titanic been much bigger it could have just plowed right through those silly icebergs.

I have mentioned this topic before here, but now that the idea has moved from the wonkosphere to lips of the next President, it's worth mentioning again.

Here are the problems with this plan:

1. To create these new jobs that government is going to have to borrow money. To borrow money they will have to outbid other people wanting to borrow capital. The means that some who wanted to borrow money to consume or to expand a business won't be able to because the government is going to take that money. Less consumption, fewer retail jobs. Less investment, fewer new privately supported jobs.

Caveat A: It is possible that public job gains will be greater than private jobs lost. This is the assumption of the Keynesians I have read, and have no evidence to support otherwise.

Caveat B: Total Output may rise because of these programs, but only at the expense of future growth. Many, but not all, of these programs will effectively take capital from the market and flush it down a whole. Less capital, less growth.

2. Not everyone out of work right now knows how to run a cement truck and lay rebar. If you just got laid off of from Citibank, too bad, no jobs for you. We are increasingly a knowledge based society where the overwhelming percentage of jobs are service type, not manual labor.

3. What happens after the money is gone? The government slathers money on projects and industries that are not economically viable. The people who invest part of their lives developing skills in industries that aren't needed outside of government subsidies. It would be like paying high schoolers to get degrees in Classical Languages. What the hell do you do with it? All this does is exacerbate the day of reckoning for many people who need to develop the skills that the real economy wants to pay them for.

As the NYT's Paul Krugman and America's cheerleader-in-chief for Keynesianism admits at his blog: "But eventually the economy will have to come off life support. What will take the place of the stimulus? I don’t really know the answer..."

My Fear

As the government goes down this road of Keynesianism I fear that the economy will not recover. Deficits will continue to rage in the $1 Trillion rage, but there simply won't be the political will to end these "temporary" programs, because of continued economic malaise. The pressure will be to dramatically raise taxes to reduce the deficit.

Friday, November 21, 2008

I Told You So

I told my Senators to vote against the $700B bailout. I would have voted against the bailout. I was disappointed when John McCain voted for the bailout. On October 8th I wrote a post on why I thought McCain should have voted against the bailout. The post was subtitled "How McCain could have trounced his way to victory."

The Business and Media Institute published an article with this snippet:

Douglas Holtz-Eakin, a senior policy adviser to McCain’s failed campaign, said Nov. 19 that McCain’s support for the $700 billion bailout of the financial sector was the “key strategic policy error of the entire campaign.”
Sticking to Principles 1
Pragmatism and Strategy 0

Thursday, November 20, 2008

Paging Dr. Stranglove

Or How I Learned to Stop Worrying and Love Deflation

The Washington Post has an article Falling Prices Raise a New Fear: Deflation.
"Everyone is having these huge sales, and consumers know if they wait longer, the chances of them not having a good selection is fairly small and the chances are that the prices will be lower," said Charles McMillion, an economist who runs MBG Information Services. "So why buy today? This is exactly why economists are always scared to death of deflation."

Using the evidence I pointed to in my "Currency Bubble" post, deflation is expected to be a less than earth shattering -0.77% per year. I can imagine the throngs of shoppers hitting Best Buy, seeing a brand new flat screen for $2,000 and telling the salesman, "Why buy today? I can expect to get this same TV for $1984.60 next year." Maybe my time preference is a little high, but I'm not waiting a year for a <1% discount.

Even I rather rashly stated "Why buy a TV that costs $1000 today when it may only cost $950 next month?" Of course, this implies an annual deflation rate of 46%, which would be a little more distressing, but in the same sense, how many have started biking to work waiting on gas prices to keep falling.

Will people ever so slightly decrease their purchases? Sure. Will it lead to massive layoffs? No. Companies will do small things to cut wages like dropping 401K matches, increasing health care premiums, give out 3% annual raises instead of 4%, etc... They will hire new people at ever so slightly lower rates. As long as wage rates are allowed to change, they will change.

Executives would not want to take on debt while prices and profits are falling.

Oh really? I kind of remember my Dad buying a $2,500 IBM PS2 in the late '80s. Now Dell is advertising new desktops from $399. Since prices have been falling for 25 years, I find it odd that HP's Net Earnings per share have been increasing annually from 2005 to 2007. I also find it interesting that they increased their commercial market debt between 2006 to 2007 from $5.2B to $8.2B. Even in the case of desktop computers where the retail price has been falling by roughly 7% annually, companies are still increasing profits.

Apparel makers have been hit hard. The recent consumer price index report showed that apparel prices fell 1 percent last month.

Clearly they need a bailout! Hit hard? Are you kidding me? How about energy companies who saw oil and gasoline fall 50%.

Plenty of items get cheaper over time. DVDs, Cell Phones, HDTVs, Lasik Eye Surgery. Just because the retail price of their product goes down, doesn't mean that they make less money. If it is cheaper to produce these products their profit margin can actually go up over time. Imagine being a power plant operator right now with the price of oil and natural gas falling off a cliff: Huge margins!

Here's how the math works. If prices are falling by 3% a year, but I have a business idea that can make a 3% nominal return on equity with near certainty, my real rate of return is 6%, which beats this scenario's cash real rate of return of 3%. Economic calculation and risk taking still goes on.

Are there bad side effects about deflation? Sure. Anyone who owns a home loses equity as the value of their home falls. I don't like losing equity, but my gasoline costs have plunged, and soon so will electricity rates, food items, and airfares. Deflation is a mixed bag.

The fear that deflation evokes is from the early years of the Great Depression. Keynesians are putting the ox before the cart by suggesting that falling prices led to unemployment and economic contraction, and dub this a liquidity trap. In fact, wage freezes, massive tax hikes, the Smoot-Hawley act, and Fed interest rate hikes killed the economy, and only then did prices drop precipitously.

Wednesday, November 19, 2008

The Currency Bubble

What is a Currency Bubble? I’ll get to that.

Nobel Laureate Paul Krugman, has spent much time recently talking about the US entering a liquidity trap. Please forgive me for the temporary heresy, but he might be onto something. He is wrong on the details and the solution, but I think he’s right about the direction of the economy.

I am going out on a little limb here, so I will give updates in the future. Bookmark this post so that you can taunt me if I’m wrong.

What is a liquidity trap?

A liquidity trap is the theory that claims that during an era of both falling prices (deflation) and very low interest rates, like today, that the Federal Reserve is powerless to stop a shrinking economy because you can’t lower interest rates below zero. As prices fall, people hold onto their cash. Then, businesses can’t sell their merchandise and start laying people off. Investment falls. More hoarding of cash. More layoffs. Et cetera… Mr. Krugman claims this is like a black hole that we can only escape through massive government stimulus.

Why is this wrong?

I see no reason why individuals cannot continue to make appropriate business decisions in a period of falling prices. His theory is based on “sticky” prices and wage rates. As long as the government does not interfere, prices and wages will fall along with the general price level.

What is going on with prices?

Prices are falling. The most dramatic drops are in gasoline and houses. Other items are falling significantly as well. According to the AP “Core consumer prices, which exclude food and energy, fell by 0.1 percent last month, the first drop in core prices in more than a quarter-century”

There is also evidence that prices will continue to fall. There is a financial instrument referred to as TIPS. A TIPS is a bond with a principle amount that varies with inflation. The TIPS yield is a decent approximation for the real rate of interest. When you subtract the TIPS yield from the Treasury yield, you get an approximation for expected inflation. In recent history, this spread has hovered around 2%-2 ½%. Recently, however, this number has turned negative, coming in at -0.68% the last time I checked. This is not dramatic deflation, but it suggests that the market believes that the overall price level (more specifically the CPI) will fall over the near future.

Why are prices falling?

I believe that we may be headed into what I dub a “currency bubble.” There are few places to invest money to stay liquid and expect a positive return. Home prices are falling, stock prices are falling, even gold prices have been falling. When the general price level begins to fall, holding cash actually offers a positive rate of return. Why buy a TV that costs $1000 today when it may only cost $950 next month?

For Europeans, the value of the Euro and the Pound have been plummeting as well. If you lived in France and bought U.S. dollars on Sept. 22 and converted them back to euros on Oct. 22, you would have made a 15% return on your money. If you look at a historical chart of Euro/Dollar exchange rates, you can see that the recent appreciate is rather sudden and severe. As the dollar has increased in value, foreigners can make money (in euros) by simply buying and hoarding dollars.

If people continue both of these practices, this reduces the overall level of dollars in the economy. There will be fewer dollars chasing ample goods. Prices will continue to fall. If people begin to extrapolate and speculate on these recent trends, as I believe human beings have a tendency to do (but not always), this will create a bubble inflating cycle where more hoarding leads to lower prices which increases the rate of return on more hoarding.

If we are in a Currency Bubble, how do we get out?

Doing nothing is fine. All bubbles burst. Eventually people will start wanting to buy things with their hoarded cash. There is a limit to the deprivation to which people will subject themselves. As they do, deflation will begin to slow down. The rate of return for holding cash will drop, and the people with the strongest time preferences will begin to spend. By iteration, deflation will lessen more and more until the market reaches a tipping point where expected profits of hoarding cash vanish. At that point, I suspect that there will be a sudden inflation back to the long-term price trend (equivalent to the growth in money supply).

Why should we do nothing?

If we try to print our way out of a currency bubble, the inflation correction will be more severe, as increasing the money supply dramatically will move up the long-term price trend. If we try to spend our way out of a currency bubble, a la Paul Krugman, it would only help ease the price bubble by hurting economic output.

Right now, we have super low interest rates, deflation, less spending, more purchases of the dollar by foreigners, and the specter of confiscatory tax policies coming. I feel confident in my prediction, so let me know if I am way off in my logic.

Europe is Cutting Taxes on the Wealthy

Steven Malanga is one of my favorite columnists. He consistently provides much more meaty data than other economic writers with bigger reputations.

His column today, sums up the reality that much of the rest of the world is not planning on raising taxes on the wealthy like Barack Obama, they are cutting them. They are not moving to more progressive tax systems, but flat taxes.

The tax-cutting binge is taking place in what some have called “Old Europe.” France, Germany, Italy, and Spain have cut their top personal income tax rates since 2003. Germany, Italy, Spain and the U.K., meanwhile, have trimmed corporate tax rates, too, in just the past year.

Driving the Western European governments is aggressive tax policy in New Europe, that is, Eastern European countries, which are competing for workers and investment. Many of these countries had the opportunity to design their own tax systems after the fall of the Soviet Union and they have often opted for tax schemes that are simpler than the U.S. or Western European systems. Many feature only a few tax brackets and a few are flat tax schemes. Bulgaria has a new flat tax rate of 10 percent, down from a top tax rate of 29 percent in 2004. Estonia has cut its flat tax rate to 21 percent from 26 percent, while the Slovak Republic has trimmed its top rate from 38 percent to a flat tax rate of 19 percent. Romania has eliminated its top rate of 40 percent and gone to a flat tax of 16 percent.

In Asia-Pacific, Hong Kong’s low taxes (top rate, 16 percent) have continued to make it a magnet for both people and money and prompted tax cuts in other countries. Australia cut its top income tax rate two percentage points to 45 percent to try and lure back talent fleeing to Hong Kong and Singapore, but Australia has a long way to go to be competitive. Singapore has countered by slashing its top rate to 20 percent from 22 percent.

How embarrassing that we have regressed into the past.

Tuesday, November 18, 2008

The El Paso Paradox

The city of El Paso statistically and geographically has much going against it in regards to the standard assumptions about crime, yet it is one of the safest large cities in America. It was featured briefly in the Oscar winning movie “No Country for Old Men”. The movie presented the Texas border areas as wild lawless regions of cross border drug violence. The movie could not be more wrong.

In the El Paso metro, per capita income is well below the national average; a whopping 43% less than in Houston's metro, and even 23% less than the relatively poor San Antonio. Cities with high minority populations tend to have more crime as well. El Paso is 93% non-Anglo. Easy accessibility to guns is often blamed, erroneously, and we know that Texas is a very gun friendly state. Added to all of these is the fact that Ciudad Juarez, a city twice the size of El Paso and so violent that police officers are routinely gunned down by drug cartels, lies right across the Rio Grande.

Given all these headwinds, one would expect El Paso to be plagued with crime and murder. It isn’t, though. Not only does it not have a murder problem it is the 2nd safest urban center of at least 250,000 in the United States. It has a murder rate 1/3rd that of San Antonio and 1/5th that of Houston or Dallas. The city is so safe that it ranks better than cities with stellar reputations like San Diego, Portland (Oregon), and Seattle. It is even safer than a number of suburban cities in Texas like Grand Prairie, Carrollton, and Irving.

One might think that murder is just an exception to other violent crimes. Of the 72 cities above 250,000 reporting information to the FBI, El Paso ranks 7th best, ranking it just ahead of the Los Angeles suburb of Anaheim, home of Disneyland.

¿Qué está pasando con El Paso?

NYT Endorses the Colombia FTA

As I have expressed several times, Congress needs to pass the Colombia Free Trade Act. The New York Times Editorial Board stated their support for the agreement today. The opening sentence makes you do a double take, and reveals just how overwhelming the facts are to support this agreement.

Choice excerpts:
We don’t say it all that often, but President Bush is right: Congress should pass the Colombian free-trade agreement now.

We believe that the trade pact would be good for America’s economy and workers. Rejecting it would send a dismal message to allies the world over that the United States is an unreliable partner and, despite all that it preaches, does not really believe in opening markets to trade.

We, too, have strong concerns about human-rights violations committed by the government of President Álvaro Uribe. But Democrats opposing the trade pact on these grounds are ignoring undeniable improvements. Violence has abated considerably during the Uribe administration as it has taken on the left-wing guerrillas of the Revolutionary Armed Forces of Colombia, or FARC, and right-wing paramilitaries. The number of trade unionists killed, a major Democratic concern, is still too high but has dropped sharply.

Monday, November 17, 2008

Unseen Losers

Today I exchanged e-mails with an old friend who works for a small bank with branches in the single digits. His bank never got into sub-prime loans and stuck to its conservative practices. Because of this, his bank is doing very well right now and has little worries of collapse.

One of the unseen side effects of the bailout, as exemplified in his e-mail, is that banks that didn’t take risks nor made mistakes should be seeing explosive growth, but they are not. The government insurance and bailout plans are keeping bad banks afloat and preventing good banks from making the just fortunes they deserve.

Here is his e-mail with permission: (I have [replaced] some words for anonymity)

Due to the government’s interference, people at banks that are going to fail or have failed like Wachovia have been reassured and are not leaving. Even the depositors at [regional] bank that I warned was going to fail decided to keep their deposits there. When the govt. says, "don't worry" people tend to listen. That is one of the most irritating things about banking right now. We are doing great and would be getting all kinds of deposits from larger institutions if there wasn't any government involvement. As for loan requests, it seems that most commercial loan customers are in a sit and wait position. We are still getting requests, just from the same old sources. Not many new people who are qualified and just can't find credit. Might be something to do with [our market] and the plethora of community banks in it.

Sunday, November 16, 2008

Heck No You Guys to the Detroit Bailout

Fear is a laxative for the desperate. The Big 3 carmakers were out in force this weekend peddling scatological stories so frightening as to make Stephen King blanch.

I saw this rather dishonest video on DrudgeReport that summarizes the wild claims of the Big 3 automakers. Supposedly, their research reveals that if all three American carmakers were to completely shut down permanently that America would lose 3 million jobs, hurtling us into a massive recession.

The analysis ignores the fact that many of these workers would be hired by the foreign carmakers who ramp up production to replace them. The person who sells cars for a Chevy dealership would suddenly find himself much in demand at the Honda dealership. The person who screws in bolts in Flint, Michigan could move to Kentucky and put together Toyotas. It is even possible that a company like Volkswagen would buy a shuttered plant in Detroit and retool it to produce Jettas.

This would be a difficult and painful transition, right?

Not necessarily. In 2006, the U.S. unemployment rate fell from 4.8% to 4.4%. The total number of jobs increased by nearly 2.4 million. How many people lost their jobs during that year of healthy economic expansion? 16.2 million initial jobless claims were filed during the year.

If the economy can absorb over 16 million in jobs losses by creating nearly 19 million, how concerned should we be by the loss of 3 million jobs? This is especially true given the domestic auto industry’s motivation to provide the scariest number possible under the worst-case scenario of utter collapse and shutdown. Logic tells us that a significant portion of these jobs would quickly shift over to other automakers.

Tell your representatives to vote “No” to an auto bailout.

End the Fed, Ron Paul, and Wackos

Apparently, I've gotten on some libertarian phone lists, and was called tonight about a rally in Houston called "End The Fed". The keynote speaker will be U.S. Representative Ron Paul. There will be "End the Fed" rallies at all 39 Federal Reserve bank locations throughout the United States on Nov. 22nd. A link to the Houston site is here.

I am not a fan of the federal reserve as I believe in a dollar peg, and lean towards the Austrian Business Cycle Theory which lays the blame of most economic cycles at the feet of the reserve. So, no tears shed at its elimination.

The man on the phone seemed pretty reasonable and the website seemed pretty tame. They also encouraged me to wear business attire so that media would be less able to represent attendees as wackos. I am a little leery of Ron Paul supporters, but I thought I might attend this one and hope to learn a little.

Alas, I went to the national website here. You scroll down a little bit and you see a blurb linking the JFK assassination to his position on the Fed. A sponsor on the right column is the "Republic of Texas", a Texas secessionist group.

To all you Ron Paul supporters: Drop the conspiracy crap. All it takes for a bad idea to survive a long time is group think and vested interest. Drop the people who believe in rash behavior, like secession. No one of significant station is going to want to risk being photographed next to signs or t-shirts emblazened with related messages. If your ideas are sound and you patiently convert America you will win. Don't be lazy. You have to put in the real work of changing minds.

Friday, November 14, 2008

Mortgage Backed Securities - A Graphic

A company called MarkIt keeps a market index for Asset Backed Securities, which appear to be synonymous with Mortgage Backed Securities after doing a little digging on their site.

I slightly altered their graphic from here by adding historical events.

I'm not completely sure what differentiates the two indexes other than the fact that they are made up of a number of mortgage related funds from different investment houses. The point is the movement, not the actual numbers.

1. It's easy to see that the value of these securities was dropping like a rock until mid-July.

2. Rumors in August and September of a bailout began to surface.

3. Paulson announces the bailout plan to buy up these assets on Sept. 18th. The price jumps.

4. The price reaches its pinnacle about the time that the House passed the Senate version.

5. News snippets start coming out that the Treasury department wasn't actually buying any of these assets, and was moving to shore up bank balance sheets at a number of banks. The price begins to drop.

6. Then on November 12th, Paulson announces that the Treasury isn't going to buy any MBSs. The price drops like a rock.

Analysis - The actions by the Treasury kept these securities from reaching their market clearing price. It will be interesting to see what their price movements are over the next few weeks. Will they plummet? Or will investors move in to snatch up these oversold assets. Given the fact that foreclosures are starting to level off, I wouldn't be surprised.

A Vocabulary Question

A little light-hearted question for a Friday.

With a friend here at work, I was trying to come up with a word that describes a particular emotion. It's that horrible sick feeling that occurs right after schadenfreude goes awry.

A hypothetical:

Let's say you hate a particular football team, and especially their quarterback. This team is well on its way to a spectacular season. However, through some great cosmic fortune they are losing to a team that they are supposed to beat handily. Time on the clock is down to 30 seconds, your nemesis is down by 4 points, and he just got obliterated by a sack at his own 15 yard line, forcing a 3rd and 18. Thus the schadenfreude.

Here you are, simply ebullient at the misfortune applied to the object of your wrath. You are reveling in exaltation of his and their defeat.
Then on the next play, this quarterback steps back to pass and heaves it down field. The camera pans along with the ball, revealing, much to your horror, that a receiver is somehow 10 yards past his defender. The ball lays itself perfectly over his shoulder hitting him in stride as he races into the end-zone. This is usually followed a very loud expletive.

Does anyone have a good word for that feeling?

David Brooks Gets it Right on Big 3

David Brooks of the New York Times writes his column today on the potential bailout of the Big 3 automakers. While I disagree with his sentiments for a broad social safety net he has a number of good points directly relevant to the issue.

Over time, American government built a bigger safety net so workers could survive the vicissitudes of this creative destruction — with unemployment insurance and soon, one hopes, health care security. But the government has generally not interfered in the dynamic process itself, which is the source of the country’s prosperity.

Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line. It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. A Detroit bailout would set a precedent for every single politically connected corporation in America.

In short, a bailout will not solve anything — just postpone things. If this goes through, Big Three executives will make decisions knowing that whatever happens, Uncle Sam will bail them out — just like Fannie Mae and Freddie Mac. In the meantime, capital that could have gone to successful companies and programs will be directed toward companies with a history of using it badly.

He goes on to rip Obama. (I know! A liberal columnist at the New York Times writing something critical of Obama. Surely a sign of the apocalypse)

The second part of Obama’s plan is the creation of an auto czar with vague duties.

Are we really to believe there exists a czar omniscient, omnipotent and beneficent enough to know how to fix the Big Three? Who is this deity? Are we to believe that political influence will miraculously disappear, that the czar would have absolute power over unions, management, Congress and the White House? Please.

Come on David, take this argument to its logical end. It's Hayek's Fatal Conceit on display. The government cannot successfully run any part of the economy. The knowledge of a few planners cannot supercede that of millions of individuals.

Thursday, November 13, 2008

California Foreclosures Beginning to Fall

RealtyTrac released their new data for October today. Total foreclosures were 56,954 which is 13% higher than last year. But, this is an 18% drop from last month, and a whopping 44% drop from the all time high in August.

Below is a graph. Sorry for the gap for April and May of this year, but I can't find the data on the RealtyTrac website.

An important question needs to be asked. If foreclosures are beginning to trend downward, does the government need to institute policies to slow them? For any policy to be implemented it will likely take months to even get started. I beleive that the market will beat the government to the punch and fix the situation first.

Wednesday, November 12, 2008

Odds and Ends

A few interesting things I ran across today:

Paul Krugman, before his recent dementia, wrote an interesting column in 2005:

In Flatland, a housing bubble can't even get started.
In other words, the Zoned Zone is prone to housing bubbles.

Hank Paulson announces that the Treasury is completely trashing the original bailout plan and just starts handing out money to banks.

It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets – our initial focus – would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.'

Economist Robert Murphy has some funny comments on the whole affair.

John Tamny argues here that we should let GM fail.

The latest losses at General Motors reveal yet again that it is the living embodiment of managerial ineptitude, and to ensure that it no longer fails its customers while harming the well-being of Americans more broadly, it's essential to let the firm die.

While I agree that the Big 3 should be allowed to fail, I don't see it as necessarily managerial ineptitude. Government regulations have left these companies as sick and gnarled monsters that need to be put out of their misery. From silly CAFE standards to entrenched Union power, it is only through bankruptcy can any of them hope to emerge as successful and profitable businesses over the long term.

Tuesday, November 11, 2008

What is Capital?

I have thrown around the word capital quite often recently in my economic analysis. I have struggled to find a concise definition, so here’s my own. Capital is all accumulated resources not intended for consumption now or in the future.

The five bucks in your wallet that you plan to use at Burger King for lunch is not capital, but the five bucks you stuck in a jar last night to save up for that restaurant you want to open is capital. Capital is not necessarily money. Money is only a medium for exchange. Money only represents the goods that you plan to buy. Money for a hamburger is not capital, but money for the hamburger oven is. Any item you plan to use, but not consume is capital.

What is the Role of Capital?

Capital allows individuals to pursue increases in output and material comfort.

Imagine being on a deserted island. In the lagoon are fish and in the trees are coconuts, both you are able to harvest. However, there are also wild chickens on the islands. They are too fast to catch, but occasionally you run across their nests and take their eggs.

You realize one day that if you built a chicken coop. The chickens will stay close by because they would feel safe in the coop, and you can harvest the eggs more frequently. If there exists no spare time away from harvesting coconuts and fish, the coop can not be built. You must save food for the construction period. This savings is capital.

This capital allows you to pursue an increase in material comfort by tiding you over while you pursue this new idea. You can then build the chicken coop and your food intake will grow commensurately. This is how the economy grows. Less capital, less growth. More capital, more growth.

What is the Role of a Capital Market?

Capital markets link those with capital and those with ideas. It allows new ideas for increased production by those without sufficient savings to pursue those ends. It also allows those with capital to increase their wealth by finding a use for their capital.

Assume now, in the story above, that you have no savings and have no ability to save up fish and coconuts without starving. However, Susan is a much better fisherman that you and has some savings of dried fish. Susan is not very handy with building so she cannot build the coop for herself. If you present your plan to Susan and she believes that you can build the coop in the amount of time you estimate the two of you can make a deal. She gives you her capital, the dried fish, and both of you share the output of eggs. You are better off by expanding your diet with an easy bounty of eggs, and she is better off as well.

Why is Redistributing Wealth Bad?

To conceive of new ideas for production requires a focus in the pursuit of these ideas. Those without this focus are unlikely to conceive of new ideas. To develop a valuable skill set that allows for production above sustenance, like Susan, requires a focus on that task as well. The greater the focus, the greater the output, and the greater the accumulation of capital. By taking money away from those focused on increasing new skills and new ideas for production, and giving these resources to those focused on just consumption we reduce the amount of capital in the economy. With less capital, we achieve less growth and less material comfort.

Using our story, imagine a government requiring you and Susan to give the wood for your chicken coop over to John who uses it for firewood. John is able to enjoy a brief increase in material comfort, but all three are worse off in the end because there are now no eggs to eat.

Monday, November 10, 2008

What Happened to Peak Oil?

Just a few months ago the world was running out of oil. Worldwide production had peaked and it was going to be all downhill from there. If this was the case, what should have happened to oil prices? If there is a short supply of a highly desirable product, the price should go upwards. If we were running out with few alternatives the price should begin to approach infinity.

Now that the price has dropped 56% from it's all-time high for West Texas Intermediate, what happened to the worldwide shortage? Did it ever exist?

My friend John Tamny of RealClearMarkets repeatedly claimed that oil prices were merely a product of a weak dollar. I gave him some credence, but thought he was blowing the dollar-oil link out of proportion.

Here's a graph I compiled going back to 1986, using data from the EIA, the dollar index from the Fed Reserve. I inverted the dollar index for illustrative ease. I adjusted the WTI price by the Consumer Price Index to get the values in constant 1986 dollars. A higher red line means a weaker dollar.
The correlation isn't perfect, but clearly John is on to something.

The quick and dirty theory goes like this. The value of the dollar weakens, which means we have to pay more for imported goods. Oil, more and more, is an imported good. Weak Dollar = High Oil Prices. Strong Dollar, like we've had over the last few weeks = Low Oil Prices.

Friday, November 7, 2008

Make Work Redux

Another week means that another terrible idea from Barack Obama moves its way to the top of the heap. Unemployment jumps, so what do we need to do? Give people random tasks to accomplish. At only $150 Billion over 10 years, it’s a bargain as well.

The Left is ratcheting up their writing output to make the case for this classic make work plan. I try not to read children’s literature, but I plodded through this article written by Robert Pollin from the magazine “The Nation”. You’ve little need to read the whole article given this snippet near the start:

The recession is certainly here, so the question now is how to diminish its length and severity. A large-scale federal government stimulus program is the only action that can possibly do the job.

He goes on to mention that the $150 Billion stimulus earlier this year didn’t do much, nor the $700 Billion Treasury bailout, but the Fed’s $540 Billion guarantee of money market funds was spot on. I guess batting .333 is pretty good for baseball, so surely that’s golden proof we need to risk another $300 Billion at Mr. Pollin’s discretion (his plan is different than Obama's $150B).

What he and Mr. Obama are proposing is to “invest” billions into government directed “green-collar” jobs. The government apparatus will allocate these precious funds to various alternative energy projects, as we move into a new age of carbon free utopia. Apparently, even millionaire venture-capital environmentalists are too thick to invest in this sort of wishful thinking, so the government is going to fill the gap with rainbows, bubble gum, and the well oiled machine of government bureaucracy that we all know and love. If we all clap our hands and believe our little hearts out, those lobbyists circling over head won’t feast on this doe-eyed little program either.

If it gives people jobs, what can it really hurt? Well, Kenneth Green at the American answers:

Unfortunately, the idea of government “job creation” is a classic example of the broken window fallacy, which was explained by French economist Frédéric Bastiat way back in 1850. It is discouraging to think that, nearly 160 years later, politicians still do not understand Bastiat’s basic economic insight.

Mr. Green explains the Broken Window fallacy in his article and you can read it on Wikipedia. You can also go to my Amazon applet and buy Bastiat’s book. Destroying wealth can not possibly help the economy. If so, Hiroshima and Nagasaki owe us some money for the stimulus package we dropped on them in August of 1945. In a similar vein, the government can not create new jobs by taking resources away from other job producing entreprenuers.

He wraps it up with a good synopsis:

Obama’s “green jobs” plan would indeed create jobs, but it would do so by killing other jobs. Is that really the type of energy policy Americans want?

Obama’s policy idea is called Central Planning. History does not seem to show that this kind of activity works out very well. This is the same sort of make-work scheme that FDR employed to help the Great Depression needlessly drag on.

Thursday, November 6, 2008

Where Did the Republicans Go Wrong?

In a word, Competence.

The autopsy on this election cycle for Republicans has already begun. Two camps are forming, like they do after every Republican loss. Should the party go to the right or to the center?

The political scientists believe that the Republicans should go to the center. After all, it is easier to find uncommitted votes in the middle. They want to plot a strategy that will satisfy those waffling centrists.

The party faithful, mostly want to move more conservative. They argue that conservative principles give a passion to the race that motivates the base and draws all Americans to a distinct difference between the two parties. They believe that the Left withers when a clear comparison of the ideals of the Left and the Right are placed against each other. Some would even prefer to go down fighting for what they believe in, even if it is not a winnable strategy.

The reality is that the political scientists have it all wrong, and the party faithful have it mostly wrong. The difference between John McCain and Ronald Reagan was not position on the issues, it was command of the issues.

While John McCain may be supremely qualified to be Commander and Chief of the Armed Forces, when he said, “The issue of economics is not something I've understood as well as I should”, not only was it a gaffe exploited by the Democrats, it was also an admonition of incompetence. Before the economic storm hit in October he seemed to be satisfied with his ignorance, and was left scrambling for answers. When Barack Obama dropped his guard and let some of his soft socialist sentiments slip out, John McCain lacked the wherewithal to offer a different vision. Sure, he could note the dark connotations of Obama’s words, but his understanding of economics was too poor to score the kind of knockout blows that flowed so freely from the mouth of Ronald Reagan.

The fatal mistake that Republicans have made for a decade now, is wanting to win politically and strategically, but not morally and intellectually. We need to stop complaining about the coach and start hitting the weight room. We need to do our homework. Those who want to be the Republican leaders of tomorrow need to stop trying to “Rebrand” their ideas, and make them deep and clear. They must know what they believe and why, to be expressed with an elegant ease that burns through the slick veneer of silver-tongued salesmen.

The problem for McCain and all of the other also ran Republican primary candidates was that no single person was fully competent in every aspect of their belief. None rose above mediocrity in their grasp of economics, defense, and social issues. So you disagree with the party base. Who cares? So the political center doesn't agree with you. Doesn't matter. Know what you are saying and stick with what you believe. If you are confident, passionate, and accurate, you will persuade.

So my advice to Republicans? Stop trying to look better, just be better. Get to work.


Addendum: This Ann Coulter piece just cracked me up. You can hate her, but you have to admit she's funny.

Wednesday, November 5, 2008

About My Blog

I have now been writing this blog for about 16 months. In that time, I think that I have grown considerably by the simple compulsion to post. Finding more information, more ideas, and deepening my understanding of economics, has been a fulfilling pursuit. Hopefully, those who have traveled this blog along with me these last months have grown in their own sophistication and understanding of virtue of free markets.

I believe my role as a blogger is to be a bridge. The talent of mine that I exploit is making complex concepts into simple terms. The level of discourse on this blog is still fairly high, but I also send out an e-mail letter with an audience who appreciates simplicity. I hope to get back to some of my more passionate essays more frequent a few months ago.

While I may quote blogs and papers from professional economists, I do not consider my role to be their equivalent. I do simple data analysis from time to time, but I am not an academic and don't want to be held up as an authority on their par.

Having said that, I do ridicule some very intelligent economists from time to time, even ones that I overwhelmingly agree with. Because of this, I invite all the vitriole that the internet has to offer. I try to respond to every message left on my blog. My goal is not merely to speak my beliefs, but to perfect my ability to persuade. If you believe in the virtues of an unfettered market, make me be better. Challenge me whenever you do not understand what I try to explain, and criticize me when my point is inaccurate.

Thanks to all who read, comment, or e-mail.

Be Careful What You Wish For

Just a few thoughts on the election last night:

I have to smile at the sentiment, and truth, of this post at the Club For Growth.

Bipartisanship? Are you serious? You think that after so many members of the Left reflexively marginalized the conservative talk radio set with unsubstantiated vitriole that those people are going to come up smiling? Then you talk of passing the Fairness Doctrine to muzzle their medium? Are you serious? You don't put out fires with gasoline.

It is a learning experience to see how a powerful narrative can allow so many people to glaze over alarmingly dangerous ideas. This explains a lot about history.

I concur with this post from Arnold Kling at EconLog.

Tuesday, November 4, 2008

Major Economist Agrees With My Bailout Comments on McCain

I'm starting to think that I know what I'm talking about. I wrote here that

"As I watched the debate between McCain and Obama last night, I began to realize that if McCain had voted against the bailout he could [have] completely slaughtered Obama. Had he kept his vote close to the vest and rebuked the bailout at the very end, it would have passed the Senate and likely the House, and Obama would be left holding the blame."

Here's Bryan Caplan's post:

Blase's magic bullet is simple: McCain should have opposed the bailout. There was a lot of popular resentment of it; it would have put a mile's distance between McCain and Bush's failures; it would have given McCain a great populist issue to ride; and it would have put Obama in the awkward position of defending Bush to the country. Even though the public wanted to "do something," McCain could easily have screamed "Yea, but not this!" from the rooftops - and people would have listened.

The main counter-argument: If McCain had opposed the bailout, it might not have passed - making it much harder to campaign against it. Indeed, Obama might have seen the trap and opposed the bailout, too, making it even harder for McCain to make the bailout his central issue. I wouldn't dismiss these possibilities. But even if they came to pass, an anti-bailout McCain would have had better chances than he does today.

5 Myths about the Great Depression

A nice article in the WSJ today on the Great Depression. Nothing terribly deep, but a good summary of the time period. Some excerpts: (Myths are underlined)

- Herbert Hoover, elected president in 1928, was a doctrinaire, laissez-faire, look-the-other way Republican who clung to the idea that markets were basically self-correcting. The truth is more illuminating. Far from a free-market idealist, Hoover was an ardent believer in government intervention to support incomes and employment. This is critical to understanding the origins of the Great Depression. Franklin Roosevelt didn't reverse course upon moving into the White House in 1933; he went further down the path that Hoover had blazed over the previous four years. That was the path to disaster.

- Enlightened government pulled the nation out of the worst downturn in its history and came to the rescue of capitalism through rigorous regulation and government oversight. To the contrary, the Hoover and Roosevelt administrations -- in disregarding market signals at every turn -- were jointly responsible for turning a panic into the worst depression of modern times. As late as 1938, after almost a decade of governmental "pump priming," almost one out of five workers remained unemployed. What the government gave with one hand, through increased spending, it took away with the other, through increased taxation.

In the same way, George Bush is often painted as a free-market ideologue. This is a gross exaggeration. Bush has a thought pattern I see most often with people with MBAs. They believe in markets and supply-side economics, but their understanding is superficial. When you get into the smaller details they believe in numerous limitations on personal freedom.

Monday, November 3, 2008

On a Totally Unrelated Note

Because election day will be consumed by politics out the whazoo I wanted to write about a very important topic that provided some heated debate at my office yesterday.

Do football referees have a cognitive bias towards media darlings?

To preface, I graduated from Texas A&M, and I have been an Aggie football fan ever since I was a little kid. This past Saturday night, ABC Sports showed the match up between two of my school’s archrivals: Texas Tech and the University of Texas. It’s a toss up which of these two teams we are supposed to hate more than the other each year. While Texas Tech won the game with some late game heroics, I felt that it was obvious that the calls heavily favored the Longhorns of the University of Texas.

For several years now, the Longhorns have consistently benefited from poor refereeing. However, I do not believe that there is any kind of conspiracy; I simply believe that all schools that have a recent history of being very good or happen to be media darlings receive better treatment by referees. Were I to watch a large number of games by USC or some other powerhouse I would expect to feel the same way. Furthermore, I do not believe that referees during the game are aware that they have a bias. There is simply a cognitive difficulty in seeing the game as it truly is when there is a preconceived notion of who is “supposed to win” the game.

In the NBA, it is generally accepted that star athletes get the benefit of the doubt and receive fewer penalties and their opponents are called for more penalties than reality would dictate. Players with bad reputations, such as Dennis Rodman and Ron Artest, often suffer more penalties than they ought to as well. I do not think this bias is intentional, it just simply is a product of preconceived notions. I see no reason why this same bias would not be extended to whole teams and other sports.

Having said that, I do not believe that this is simply an unpleasant fact that must be accepted. When I was young, I was your typical fan who always saw my own team as the one getting the short end of the stick. As an adult, I don’t see it that way. It has actually been quite some time since I have seen my team, the Texas A&M Aggies, face a significant number of bad calls.

My officemates, who just happen to be Longhorn fans, claim that my analysis is based on my bias against their team. But, in my defense, the only other team that I have accused of consistently receiving favorable refereeing was the Utah Jazz. When I finally met a Jazz fan in college from Salt Lake City and confronted him with my accusations that John Stockton built a career on the “moving pick” and roll, he laughed and said that he totally agreed with me.

AIG Bailout Won't Work?

This Washington Post article has some interesting news on AIG's bailout. (I know I linked to a Houston Chronicle reposting, but the Washignton Post requires a password) Because I am an employee of AIG I won't post any commentary.

"A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing."

"Echoing some other experts, Ann Rutledge, a credit derivatives expert, said she is not sure how badly the financial system would have been rocked if the government had let AIG file for bankruptcy protection"

"What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said.

Saturday, November 1, 2008

Are Male Hispanic First Names Dying Out?

While the percentage of children born to Hispanics is rising, the popularity of traditional Hispanic first names for male babies is declining. As opposed to everyone's grandmother who claims that "They are just taking over the place", Hispanics seem to be conforming to U.S. culture and using traditional Anglo and modern American first names.

Using data from a Houston Chronicle applet that mines Social Security Data, I charted the rise and fall of new male Hispanic baby names over the last 45 years. If a name was the 100th most common name I gave it a value of 0. If it was the most popular baby name, I gave it a value of 100. If it did not make the top 100, it was given a value of 0.

Here is my chart.

Notes: I wasn't sure if Angel and Diego were specifically or overwhelmingly Hispanic names, so I left them off. They actually showed rapid increases in popularity during the last decade, but both declined in popularity in the last year (2007).

Another Economist Groping in the Dark

Economist Arnold Kling, at Econ Log, talks a little bit on this post how most explanations for the housing bubble have one serious problem: The international nature of the boom.

He quotes Robert Shiller (Of the Case-Shiller Index)

Dramatic home price booms since the late 1990s have been in evidence in Australia, Canada, China, France, India, Ireland, Italy, Korea, Russia, Spain, the United Kingdom, and the United States, among other countries.

Kling goes on to say:

What makes this a difficult fact is that so many explanations of the house price boom are U.S/ specific. It is hard to argue that the Community Reinvestment Act or the repeal of Glass-Steagall are what account for the home price booms in Norway or Spain. In fact, Shiller's view is that bubble/contagion is the only theory that can account for the multinational nature of the home price boom.

Not to beat a dead horse, but housing supply restrictions are the only reasonable solution to the geographic differences in the housing boom. Every single one of the other explanations fails to account for both the international nature of the boom, and the fact that Texas, and other high growth areas, had no boom. I have sat through presentations of Smart Growth/New Urbanism for the U.S., U.K., Australia, New Zealand, and France. I am willing to bet that many of the booms, but not all, can be explained by the significant increase of land use restrictions.

To review, here’s a list of the common culprits of the housing boom and whether they can account for the international and State-by-state differences with the housing boom.

Community Reinvestment Act – Nope
Repeal of Glass – Steagall (Deregulation) – Nope
Rampant greed and fraud – Nope
Fannie Mae/Freddie Mac – Nope
Low interest rates by the U.S. Federal Reserve – Nope
Arnold Kling’s Securitization Theory – Nope
Land Use Regulations/Supply Restrictions - Yes

Most of these explanations probably had some bearing on the situation, but they fail the critical test of geography.

One last note: I do give some credence to Shiller’s contagion theory, but only as an ancillary cause.