Friday, November 30, 2007

Domino Theory

Back in February, I posted on of Mark Heard's songs One of the Dominoes. From the song:

Heaven help a seeker of truth
In an age of lies
Gonna make himself believe
That the truth is whatever he buys
Gonna buy what the world says to buy
In a monotone
Gonna cry when the whole world cries
And the truth is known

Heaven heaven help me
I'm one of the dominoes
Chain reaction coming
Blow by blow

Some economic blog commentators that I read have been mentioning a kind of economic "Domino Theory" of their own. A series of cascading financial failures through derivatives and debt instruments that will lead to potentially horrific economic losses. I'm not sure I'm smart enough to understand all this stuff. I'm trying to educate myself on macroeconomic theory and wade through the complexities. Hopefully, I've made the right decisions.

Heaven heaven help me. I'm one of the dominoes.

Traditional Propaganda has come out with some new demotivators. Here are my favorite two:

You know, if I were smarter, I'd convince Dr. E. L. Kersten that I should get a percentage of the sales from the references from my blog like I do from But I guess I'm just too big a sucker for that. From his latest e-mail to me (edited for grammar):

Why shouldn't you get suckered again? You're great at it! Marketing people like myself love that part of you!

"Really? You love me? Even though I'm a big-time chump?"

Not "even though." Because.

Tuesday, November 20, 2007

Toy Soldiers

I originally entitled this post "Outrage of the Decade." I have since thought that the current title is more appropriate for the story.

Wounded Soldier: Military Wants Part Of Bonus Back:


The U.S. Military is demanding that thousands of wounded service personnel give back signing bonuses because they are unable to serve out their commitments.

To get people to sign up, the military gives enlistment bonuses up to $30,000 in some cases.

Now men and women who have lost arms, legs, eyesight, hearing and can no longer serve are being ordered to pay some of that money back.

One of them is Jordan Fox, a young soldier from the South Hills.

He finds solace in the hundreds of boxes he loads onto a truck in Carnegie. In each box is a care package that will be sent to a man or woman serving in Iraq. It was in his name Operation Pittsburgh Pride was started.

Fox was seriously injured when a roadside bomb blew up his vehicle. He was knocked unconscious. His back was injured and lost all vision in his right eye.

A few months later Fox was sent home. His injuries prohibited him from fulfilling three months of his commitment. A few days ago, he received a letter from the military demanding nearly $3,000 of his signing bonus back.

"I tried to do my best and serve my country. I was unfortunately hurt in the process. Now they're telling me they want their money back," he explained.

It's a slap for Fox's mother, Susan Wardezak, who met with President Bush in Pittsburgh last May. He thanked her for starting Operation Pittsburgh Pride which has sent approximately 4,000 care packages.

He then sent her a letter expressing his concern over her son's injuries, so she cannot understand the U.S. Government's apparent lack of concern over injuries to countless U.S. Soldiers and demands that they return their bonuses.

If the Pentagon wants their money back, then give the soldiers their original limbs back. And their mental health back. And the time they lost with their families back.

I guess this is how the Bush Administration interprets "Supporting the Troops."

Monday, November 19, 2007

How Many Tears

This song, from the Dry Bones Dance CD, sure sounds like an anti-war song.

How Many Tears

Gunmetal grey for golden rules
White hot steel for the comfort of fools
Molten wills in iron hands
Forge new sons for the Motherland

How many tears will fall down
How many tears must fall
How many tears will stain this ground
How many tears must fall

Hidden mounds in jungle dust
Youthful voices forever lie hushed
Poets and peasants know the truth
But what in the world can one man do

How many tears will fall down
How many tears must fall
How many tears will stain this ground
How many tears must fall

A mother’s eyes ache with her hatred
Her lips they are crippled with fear
She waits for the news that she don’t want to hear
How many tears
How many tears
How many tears must fall down

Ain’t no funerals
Ain’t no prayers
Ain’t no blood in the Government Square
Reign of terror
True and tried
Dries the eyes before they’ve cried

How many tears will fall down
How many tears must fall
How many tears will stain this ground
How many tears must fall
How many tears
How many tears will fall down

Written by Mark Heard © 1990 Ideola Music

The song can be heard at It is song #8 at the link.

New "Elephant" Oil Field Discovered in Brazil

From Business Week:

Petrobras announced Nov. 8 it has found between 5 billion and 8 billion barrels of light oil and gas at the Tupi field, 155 miles offshore southern Brazil in an area it shares with Britain's BG Group and Portugal's Galp Energy. Tupi is the world's biggest oil find since a 12 billion-barrel Kazakh field was discovered in 2000, and the largest ever in deep waters. Perhaps more important, Petrobras believes Tupi may be Brazil's first of several new "elephants," an industry term for outsize fields of more than 1 billion barrels.

Initially, Tupi will produce about 100,000 barrels a day but may ramp up to as much as 1 million before 2020—more than the biggest U.S. field in Alaska's Prudhoe Bay, says Hugo Repsold, Petrobras' exploration and production strategy manager. "It's monstrous," says Matthew Shaw, a Latin America energy analyst at consultant Wood Mackenzie in London.

The oil industry is known for its "boom and bust" cycles. There is little doubt that the high oil prices are fueling the current boom. Although the article touts that this kills the idea of "peak oil," in reality it doesn't completely disprove the theory. The real idea of peak oil -- as I understand it -- is that oil will become increasingly expensive to extract.

Furthermore, the increasing use of hydrocarbons produce other environmental challenges due to the pollutants its use creates. These costs are externalities and cannot easily be quantified.

The high oil prices will also spur investment and study into alternative sources of energy. This will also reduce demand for oil as these alternative energy sources come into use. So far, the biggest impediment to alternative energy uses has been the NIMBY problem and (up to now) relatively large start-up expense. The latter issue is quickly resolving itself; what remains is to convince the public that some scenic views may have to be sacrificed, and (in the case of nuclear energy, if needed) that disposal of nuclear waste will have to be effected.

At some point, we will need to consider public financing of infrastructure to support the alternative energy sectors. I would find an analogy in the creation of railroads and highways. The real problem is how to avoid the problems of the past, namely: private profits underwritten from the socialization of costs.

Tuesday, November 13, 2007

Hydrogen Technology Now More Feasible

From Yahoo News: New technique creates cheap, abundant hydrogen: report:

CHICAGO (AFP) - US researchers have developed a method of producing hydrogen gas from biodegradable organic material, potentially providing an abundant source of this clean-burning fuel, according to a study released Monday.

The technology offers a way to cheaply and efficiently generate hydrogen gas from readily available and renewable biomass such as cellulose or glucose, and could be used for powering vehicles, making fertilizer and treating drinking water.

Numerous public transportation systems are moving toward hydrogen-powered engines as an alternative to gasoline, but most hydrogen today is generated from nonrenewable fossil fuels such as natural gas.

The method used by engineers at Pennsylvania State University however combines electron-generating bacteria and a small electrical charge in a microbial fuel cell to produce hydrogen gas.


In the past, the process, which is known as electrohydrogenesis, has had poor efficiency rates and low hydrogen yields.

But the researchers at Pennsylvania State University were able to get around these problems by chemically modifying elements of the reactor.

In laboratory experiments, their reactor generated hydrogen gas at nearly 99 percent of the theoretical maximum yield using aetic acid, a common dead-end product of glucose fermentation.

"This process produces 288 percent more energy in hydrogen than the electrical energy that is added in the process," said Bruce Logan, a professor of environmental engineering at Penn State.


One of the immediate applications for this technology is to supply the hydrogen that is used in fuel cell cars to generate the electricity that drives the motor, but it could also can be used to convert wood chips into hydrogen to be used as fertilizer.

The study appears in the Proceedings of the National Academy of Sciences.

Warren Buffett: Raise My Heir's Taxes

From CNN Money: Buffett: Tax my kin, please:

"Without the estate tax, you in effect will have an aristocracy of wealth, which means you pass down the ability to command the resources of the nation based on heredity rather than merit," Buffett told the New York Times in 2001. "[Repeal would be like] choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics."

Buffett also joined a campaign in 2001 to preserve the estate tax alongside 119 other wealthy Americans, including George Soros and Bill Gates' father, William H. Gates, Sr..


Typically, fewer than 2 percent of deaths result in estates sizeable enough to be subject to the estate tax. In 2006, for example, less than 1 percent resulted in taxable estates.

For more see my previous post: Estate Tax Reasoning.

Tuesday, November 06, 2007

Mortgage Servicers Gouge Debtors

A report in today's New York Times, Dubious Fees Hit Borrowers in Foreclosures, shows how mortgage servicers can profit from the foreclosure process to the detriment of not only the borrower, but the economy as a whole.

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.

Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

Here are some of the examples from the story:

In one example, [Katherine M. Porter, associate professor of law at the University of Iowa] found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower’s loan.


On Oct. 9, the Chapter 13 trustee in Pittsburgh asked the court to sanction Countrywide, the nation’s largest loan servicer, saying that the company had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007.

The trustee, Ronda J. Winnecour, said in court filings that she was concerned that even as Countrywide misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs.


Loan servicing is extremely lucrative. Servicers, which collect payments from borrowers and pass them on to investors who own the loans, generally receive a percentage of income from a loan, often 0.25 percent on a prime mortgage and 0.50 percent on a subprime loan. Servicers typically generate profit margins of about 20 percent.

Now that big lenders are originating fewer mortgages, servicing revenues make up a greater percentage of earnings. Because servicers typically keep late fees and certain other charges assessed on delinquent or defaulted loans, “a borrower’s default can present a servicer with an opportunity for additional profit,” Ms. Porter said.

The amounts can be significant. Late fees accounted for 11.5 percent of servicing revenues in 2006 at Ocwen Financial, a big servicing company. At Countrywide, $285 million came from late fees last year, up 20 percent from 2005. Late fees accounted for 7.5 percent of Countrywide’s servicing revenue last year.

But these are not the only charges borrowers face. Others include $145 in something called “demand fees,” $137 in overnight delivery fees, fax fees of $50 and payoff statement charges of $60. Property inspection fees can be levied every month or so, and fees can be imposed every two months to cover assessments of a home’s worth.


Jeffrey M. Norton, a lawyer who represents the Trevinos, said that although MERS pays a flat rate of $400 or $500 to its lawyers during a foreclosure, the legal fees that it demands from borrowers are three or four times that.


Based on the study, mortgage creditors in the 1,733 cases put in claims for almost $6 million more than the loan debts listed by borrowers in the bankruptcy filings. The discrepancies are too big, Ms. Porter said, to be simple record-keeping errors.

Michael L. Jones, a homeowner going through a Chapter 13 bankruptcy in Louisiana, experienced such a discrepancy with Wells Fargo Home Mortgage. After being told that he owed $231,463.97 on his mortgage, he disputed the amount and ultimately sued Wells Fargo.

In April, Elizabeth W. Magner, a federal bankruptcy judge in Louisiana, ruled that Wells Fargo overcharged Mr. Jones by $24,450.65, or 12 percent more than what the court said he actually owed. The court attributed some of that to arithmetic errors but found that Wells Fargo had improperly added charges, including $6,741.67 in commissions to the sheriff’s office that were not owed, almost $13,000 in additional interest and fees for 16 unnecessary inspections of the borrowers’ property in the 29 months the case was pending.

“Incredibly, Wells Fargo also argues that it was debtor’s burden to verify that its accounting was correct,” the judge wrote, “even though Wells Fargo failed to disclose the details of that accounting until it was sued.”

And to think that this is probably just the tip of the iceberg. Examples like these show why regulation of the mortgage industry is sorely needed.

Tanta, at Calculated Risk, has her own take on the article -- including her questioning of some of the assertions made in the article.

The Next Gold

With the advent of global warming, potable water will become an increasingly scarce commodity. As the arctic and antarctic ice caps begin to melt in summer, sea levels will begin to rise. Couple this with poor urban planning (much like what is happening in Atlanta right now) and you have the makings of a potential crisis for millions of people.

There is one thing America is known for: ingenuity. We need to apply our ability to come up with innovative solutions to known water problems. An idea that I think should be given consideration is building desalinization plants along the coasts and pumping converted sea water into potable -- or at least non-potable, but usable -- water.

Certainly the main obstacle to such a project is its capital-intensiveness. And critics could argue against it either because the cost is perceived to be prohibitive and unnecessary based on the premise that global warming doesn't exist (the conservative argument) or because it could become just another case of private profits and socialized losses.

Something that many people don't know is that in the Native American tradition, things that are produced by the earth or nature belong to everyone and should not inure to the benefit of private companies or individuals. The question that begs to be asked in this line of thought is this: Who made the water? Who made the air we breathe? Who made the soil? (Did man make the water, air or soil -- and by extension, the minerals produced by natural processes?) It goes to the heart of property rights that have formed the basis of our legal system.

Ultimately, we must recognize that we owe it to our country -- and our world -- to make the best use of our natural resources. The implementation of a water supply from converted sea water will take many years to implement. The point in its favor, however, is that the need is foreseeable years -- even decades -- in advance.

Obviously, there are other problems related to increasing use and need for other commodities. Energy demand is growing every day, not only due to developing economies in Asia (which, long term, may end up becoming the center of the next empire), but also due merely because of an increasing global population and the energy needs to grow crops to feed them. Overfishing is causing a natural food supply to become more scarce and innovative techniques are needed there as well. That will require a non-polluting and renewable energy source.

As a result of these challenges, we need to create a national energy policy based on sustainable technologies. This problem, too, is foreseeable. There are many technologies based on sustainable energy: wind, solar, hydroelectric, tidal and geothermal. The effectiveness of each of the natural energy supplies vary depending on location. What is needed is a national program to maximize the use of these various natural energy supplies.

I haven't been writing much lately. I told you I've been thinking a lot. See what happens when I do that?