POOR GOVERNMENT A GLOBAL STAPLE

Chicago Mayor Rahm Emanual is a controversial figure. He also has close ties to President Obama.

Now before anyone gets bent out of shape and suggests this is a politically-motivated screed, we say chill. These are facts, hard facts. And if anyone out there can disprove them, have at it.

Now we know Chicago has a rapid transit system that many use to commute, but this is a story that not just the city's motorists but everyone should read. With upcoming elections around the country, voters everywhere have a right to know what they're getting for their money.

And in this case it's just another example of  poor government increasingly going on around the globe.

Complete Failure: Chicago's Speed Camera Traps Fail To Bring In The Revenue Mayor Emanuel Counted Upon

October 22, 2014 Share It | Print This

Source: Tech Dirt

Speed cameras, just like their red-light camera brethren, have been pretty well established as nothing more than revenue machines for local municipalities. Their application results in a myriad of issues, such as the fact that the cameras don't work, not to mention that the cameras don't work, oh, and the cameras don't work and the companies behind them might try to fudge the evidence if you dispute a ticket. The excuse for these cameras that don't work has always been that they are designed to make the roads safer under the theory that if motorists know that the cameras exist, they will be less likely to speed. That supposed justification is belied by two facts. The first is that some people who have tried to warn motorists that the cameras exist have been dragged to court for doing so, which sort of defeats the entire supposed purpose of the cameras. The second fact that disproves the justification is that Chicago just can't help going all Chicago on itself.

Local reporters have the glorious story of the latest Chicago budget crisis that has Mayor Emanuel scrambling for only one reason: Chicago motorists are way better behaved than he'd planned for in his previous budget.

You heard that right: Good behavior is bad for the budget. Real bad, reports CBS 2 Chief Correspondent Jay Levine. CBS 2 has learned the speed cameras caught far fewer speeders than expected. According to the Mayor's 2015 Budget Overview, there have been "lower than expected violation rates."

How much lower? Fifty million dollars lower. Emanuel's administration had figured on $90 million in fines to help balance this year's budget, but they can only count on $40 million. That's a $50 million shortfall, putting pressure on the next spending plan.

Think about the logic here for a moment: Rahm Emanuel wrote a spending budget for the third largest city in the country that relied on a certain revenue number from speed cameras. Where's the incentive for better behavior on the road in that? There is none. The fact is that Chicago drivers are far better behaved than the city expected. That's an outcome you'd think the city would be celebrating. Instead, it's considered a negative, because the speed cameras were neverabout safety, they were only a method to fill the city's coffers to the tune of milliions of dollars. That isn't so much public policy as it is an extortion racket that happens to have failed."It was a combination of the camera company’s salesmanship and the city's greed," says camera critic Barnet Fagel.

You may not want to forgive the camera company their sales tactics, but how much do you really want to fault them? They're a large company beholden to nothing beyond the profit motive. They can't be expected to have the best interests of a city's population at heart. The Chicago city government on the other hand? Most citizens likely didn't elect Mayor Emanuel out of a sense of sadomasochism or the theory that we all just have a bit too much money in our pockets. Stories like these are among the reasons that Emanuel isn't considered invulnerable in the upcoming mayoral election.

THE MSM MORASS

In our recent post, "Pro Choice Not Welcome Here," we mentioned there is no such thing as a pro-business political party in America, just two pro-my interests versus yours and our choices are always better for you than yours.

Public opinion polls about Americans' perception of politicos is about as low as a fat duck's belly. But if you think that's bad the perception of MSM is not much better. 

According to a Gallup survey that was conducted last month, only 40 percent of all Americans have a “great deal/fair amount” of confidence in the mass media. That ties the lowest level that Gallup has ever recorded.

One of the things that point in this direction is studies show Americans are getting more of their news from the Internet theses days. And there are good reasons.

Of  course, like MSM, not everything on the Internet is to be trusted either. But there are plenty of good sites and one has to use one's judgement. Here is a post from one site on the subject. You decide.

http://themostimportantnews.com/archives/10-things-about-the-u-s-news-media-that-they-do-not-want-you-to-know

PRO CHOICE NOT WELCOME HERE

Trade tariffs take many forms.

One again free enterprise takes a kick in the groin from the so-called well meaning as Michigan joins four other states banning direct sales of the growing-in-popularity electric car Tesla.

Republican Governor Rick Snyder, bogged down in a tight re-election raced, signed "legislation banning Tesla Motors Inc. (NASDAQ: TSLA) from selling directly to Michigan consumers. As interpreted by Tesla, the legislation even prohibits the company from opening a gallery where it can show off the car and talk to customers about it in person."

Joining New Jersey, Texas, Maryland and Arizona, Michigan's action was expected.

Auto dealers in the five states succeeded in persuading legislators that the property and sales taxes the dealers pay combined with the number of workers they employ are far more important than letting customers chose to buy what they want. 

The new law requires all new vehicles sold in Michigan to be sold by a network of franchised dealers.

So much for free consumer choice and meritocracy. Though not mentioned by name in the new law, Tesla is the only electric car maker banned. The bipartisan vote tells you want we've been saying for a long time, there is no such thing as a pro-business political party in America, just two pro-my interests versus yours and our choices are always better for you than yours.

And we all know who's going to win that one as long as we continue to accept it.

BEWARE OF BUREAUCRATS BEARING GIFTS

If the term covered is new to you, it shouldn't be.

In the option game one can sell covered calls or buy puts and they in general meet the definition of covered as in less than totally exposed.

Much of the criticism of the ECB President Mario Draghi and the European Central Bank is it hasn't done enough of "whatever it takes." 

But the bank's new program is now underway. As the Financial Times states today:

News of the European Central Bank has begun its programme of buying covered bonds from banks in Spain, France and Germany will only whet the market's appetite for full-blown quantitative easing.

Covered bonds--considered palatable assets because they give the buyer dual recourse, to both underlying collateral and the issuing bank--are part of Mario Draghi's recipe for lowering banks' borrowing costs, boosting their lending and strengthening the ECB's own balance sheet.

Now lets jump on the Good Ship The Other Hand for a quick voyage across the Atlantic.

The Federal Reserve is not a true government entity and neither are Fannie Mae and Freddie Mac. And that gets us to the other hand.

Freddie and Fannie apparently under the guidance of Federal Housing Authority chief Mel Watt is pushing banks, according to the Wall Street Journal, "to repurchase loans that don't meet their (bank) standards."

If you smell a paradox here, try not to hold your nose in public. Once burned and forever-threatened-with fines, big banks like JP Morgan and Bank of America "have faced tens of billions of dollars of such repurchase demands. They have paid tens of billions more to settle litigation over sales of faulty assets."

So like any twice stung, MSM-vilified investor, banks took steps to protect themselves. To avoid such costs in the future, banks have put in place lending standards that intentionally overshoot the Fannie and Freddie requirements. The result of these so-called credit overlays is that it is harder for borrowers to get mortgages than regulators would like, the Journal notes.

At the same time officials at the Federal Reserve warned banks, as this headline again from the Journal, notes: "Fed Tells Banks to Shape Up or Break Up."  

Federal Reserve officials sent a warning shot across Wall Street on Monday telling bank executives they must do more to curb excessive risk-taking and improve employee behavior at their firms or face  stiff repercussions, including being broken into small pieces.

So lets see if we can get this straight. We have one central bank, the ECB, buying debt to stimulate their economy, but the bonds are hardly the most risky kind lounging around on bank balance sheets, the kind that slow down lending and consume capital. 

And here in America we have more of these ubiquitous bureaucrats telling bankers to clean up your act on the one hand but you need to relax your lending standards and, just trust us on the other, we "will provide details on what faults can trigger a repurchase even after a loan has entered a so-called safe-harbor after three years." 

You got to love the arrogance of these guys and gals. One can only wonder, recalling Dante's Inferno, if there's a special place in hell for these folks.
t. man hatter










 

OUR VIEW

 

In Monday's Wall Street Journal, Simon Nixon in his Europe File, "When a Crisis Looks Chronic, The Political Risks Multiply," raises the real question about what's going on there, one we've been writing since the crisis began.

It's a simple question, as simple as one that gets asked nearly every morning at breakfast: "How do you want your eggs, scrambled or over easy?"

Forgetting for the moment about the debate whether what's needed is more monetary stimulus or more financial discipline couched in the term austerity, here's what Nixon writes:

At the heart of this divide lies the central conundrum of the euro crisis: whether it survives on German or Italian terms. Is the euro to be a strong currency sustained by fiscal discipline, competitive economies and national responsibility? Or a weak currency forced to rely on deficit-spending, devaluation, inflation and ultimately the mutualization of debts to extricate itself from a crisis?

There in a paragraph is the heart of the matter, a question that can be asked in numerous ways. Do you want more of what you've got and had with the Italian-French connection to laxity, debt and devaluation or something new and better and more stable that takes time, discipline and competitiveness?

This clash is polarizing around two major issues: whether to effectively junk the eurozone’s fiscal pact in the face of France and Italy’s refusal to obey the rules; and whether the ECB should buy sovereign bonds despite German opposition.

Put crudely, German euro-skepticism is being fueled by fears that Germany is being asked to shoulder the ever-rising debts of countries that refuse to reform broken economic models based on cronyism and the protection of vested interests. At the same time, French and Italian euro-skepticism is being fanned by fears that German-inspired policies threaten to crush their economies and way of life without regard for national sovereignty.

Nixon concluded with:
 Prolonged stagnation risks widening this rift to the point where the market may question whether the eurozone’s survival is possible on either German or Italian terms. That’s when the euro crisis will truly be back.

Those who keep calling for monetary stimulus, though they will deny it, care very little about the strength and sovereignty of the euro for now as long they can quickly wash over the badly needed structural reforms and make the sun, however temporarily, shine again. 

The European version of socialism is no longer badly bent. It's broken. And this is a contagion, if these folks get their way, that will be far more difficult to contain than any Ebola virus. 

That's our view. We hope you know yours.

MARGIN DEBT INDICATOR

  
      Chart shows margin debt for S&P 500 to August 2014.

  
The last time the S & P 500 dropped 10 percent of more was 2001. Rising right along with this huge equity bull-run these years has been margin debt, another term for leverage.

Leverage works both ways. It can make one lots of money and, if not well-managed, can likewise lose one chunks of money. According to data from the New York Stock Exchange as noted in the Financial Times, margin debt "peaked in February at $466 billion and stood at $463 billion in August."

So there's still a lot of it around. What's the significance? Well, investors love upside volatility when they're heavily margined, but downside volatility is a horse of another breed. The peak in margin debt in 2007 before the fat lady cleared her pipes was $382 billion. In early 2009 it cratered at $173 billion, per the Times.

Moreover, the  Fed's ZIRP magic encouraged the use of margin owing to the lower carrying costs.When the Fed finally end QE, informally known as the punch bowl, investors will get, if they have not already, a sense of what it feels like to fly without a safety net.

During the Greenspan-run Fed, from1987 to 2000, Sir Alan exercised what became known as the Greenspan Put. When things got dicey he increased liquidity by lowering the Fed Funds rate, creating a negative real yield and thus encouraging risk taking to revive stock prices.

For some time now many market observers have viewed QE in a similar light. Buying on margin as noted can help boost returns. But huge downside volatility as happened last week squeezes margins and triggers broker margin calls forcing investors to sell, creating in the process more downside volatility.

Free lunches are only free until they aren't free anymore. And what a lot of investors don't apparently see is the Fed's huge QE program was a free lunch for many unless one was living on a fixed income.

 t. man hatter

TWO-WAY AFFAIR

 
 The effects of fear are a two-way affair.

For a good example take a look at the recent changes in high-yield junk bonds and Treasury securities.

Fear is pushing the prices of one down and the prices of the other up. Just the reverse is true on the yields of both. Yields for junk bonds are rising and for Treasuries declining. Much of this reaction, though they and their supporters are apt to deny it, can be placed at the entrance of the Eccles Building in Washington.

Forget for a second the concerns about slowing global growth. When you flood the market with bunches of free money you raise the specter of possible inflation whether you want to admit it or otherwise.

Easy money usually translates into to a weaker currency or decreased purchasing power, a form of inflation whether those officials want to admit it or not. Zero interest rates make folks chase riskier, higher yielding investments. Now you have a brief picture of what more QEing does.

 Since July when Fed Chair Janet Yellen mentioned her concern about valuations in some assets, one of which was high yield, high yield bonds have been under pressure pushing down performance and helping further push up Treasuries.

Lots of money recently flowed out of junk bond funds as yields went up and total returns declined. Some bond fund managers are now suggesting there's money to be made in the high-yield bond market.

Early last week the Wall Street Journal noted: 

High-yield bonds tracked by the bank yielded 6.61% on Tuesday, closing in on June 2013’s high of 6.95% during the so-called “taper tantrum” when investors rushed out of risky debt.

Energy and mining junk bonds were especially hard hit, as investors fled to the safety of government bonds and pulled the yield on the 10-year U.S. Treasury bond at one point below 1.9%, to its lowest level since May 2013. Still, many large high-yield investors saw the dip as little more than a buying opportunity.

Patrick Maldari, senior fixed-income investment specialist at Aberdeen Asset Management, which oversees about $550 billion of assets, said the firm was busily reducing cash it had piled up on the sidelines by adding to its junk-bond portfolios.

“We’re putting money to work,” he said. “We think the trajectory for credit is still pretty good.”

Like we said: Fear and its effects are a two-way affair.