Year: 2007

US Subprime Markets a “Dangerous Cocktail”

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Moodys Investor Services described the US subprime marketas a“relaxation of risk management and underwriting standards combined with the growth of little understood debt derivatives, many of them based on US sub-prime mortgages, had proved to be “a dangerous cocktail” yesterday.

You think?

A governor of the Bank of England said that, “there were still troubles ahead in the sub-prime sector and that the losses of large investors made it difficult to decide where borrowing costs should move next due to the volatility it created in financial markets.”

This is why I think that this is heading to an illiquid state. Exotic high risk instruments are coming home to roost, and when they do, prices will drop, because these instruments monitized (drove up the price) of residential real estate.

With people owning highly leveraged homes that are falling in value, they will be under water, owing more than they have in equity, and they will be unable to sell the homes.

Good News On Open Access on the Frequency Sale

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We have reports that the ‘Open access’ provision on the 700 mhz spectrum is favored by a majority of FCC commissioners.

It appears to be both of the Dems, and one Republican on the panel, the Republicans are “undecided” (translation, waiting to see who ponies up to the RNC).

This will allow people to attach to the network with whatever equipment and using whatever software that they want, like the land lines, and the Internet.

When one notes the explosion of innovation when AT&T was told to do this in the 1970s (you could get phones that weren’t black!), this is a good thing for everyone but the Baby Bells.

Us Screwing the Pooch in Afghanistan

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It appears that the Italy Foreign Minister is calling on the US to end operation Enduring Freedom in Afghaninstan.

The Italian foreign minister said Wednesday that the separate U.S.-led operation in Afghanistan overlaps with NATO’s mission and should be ended.

Massimo D’Alema, speaking to a parliamentary commission, said the NATO mission and the U.S. Operation Enduring Freedom raise problems of coordination, posing risks for the Afghan population.

His comments reflected recent NATO concerns that civilian casualties could undermine public support for the international security mission in Afghanistan.

Basically, this comes down to the fact that the US’s bomb-happy policies in Afghanistan are driving Afghans to the Taliban, and interfering with rebuilding and securing the country.

Basically, it appears that the US military needs adult supervision.

I don’t find this surprising. The US military has been disdainful of these sorts of operations since it adopted its post Vietnam mindset, as evidenced by steadfast refusals to apprehend people with credible allegations of crimes against humanity in Kosovo.

Faith Based Missile Defense

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I’ve just finished reading an articleabout the Congressional Research Service (CRS) on the travails of the Airborne Laser (ABL).

In a word, it’s a mess.

We have, “The Missile Defense Agency (MDA) dropped the traditional requirements-setting process in favor of a “capabilities-based” approach, intended to more quickly field a system capable of responding to some, if not all, of the current ballistic missile threats, according to the report.”

So basically, they will field this against something like an Atlas Class liquid fueled rocket, which derives structural integrity from internal pressure and a very thin walled skin.

Problem is that only the Atlas ever used this. Liquid rockets with conventional structures, like the Titan and the Soviet systems are more robust, and can be hardened to become mroe robust. Solid fueled rockets are more robust still.

Moving to those does not require anything but a bit of time and money…After it’s not…OK, it is rocket science, but it’s not hard rocket science.

Additional problems:

  • “The total ABL program cost cannot be given or estimated because of the acquisition strategy adopted by MDA for missile defense”. This is almost certainly a deliberate attempt to shield a program over budget.

  • “Nor has the final system architecture been identified, meaning that the total number of ABL aircraft to be procured has not been determined.”

  • “ABL will be a highly visible asset. It is very large, and will be escorted by fighter aircraft. Its high altitude will also help to distinguish it from other wide-body aircraft.”

  • Long in-theater on-station time for the ABL is premised on forward basing. These forward bases would likely not have chemical replenishment capabilities, meaning return flights to the United States if the laser is used.

This is an ill conceived program that has continued through inertia, and the fact that the person who cancels this will likely have their career ended.


White Elephant

Behold the Power of Cheese

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You must remember, you can’t support George W. Bush unless you are so terrified that you are at risk of wetting yourself.

Thus we have Airport security officers alerted to possibility of terrorists conducting dry runs for attacks.

The seizures at airports in San Diego, Milwaukee, Houston and Baltimore included ‘wires, switches, pipes or tubes, cell phone components and dense clay-like substances,’ including block cheese, the bulletin said. ‘The unusual nature and increase in number of these improvised items raise concern.'”

Another attempt to keep us all in a state of fear so that we will accept whatever Bush does.

Pathetic.

Home price depreciation at levels not seen since the Great Depression”

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At the Big Picture, there aresome thoroughly shocking quotes from Countrywide Financial Chief Executive Angelo Mozilo.

I agree with Mr. Ritholtz’s assessment that the shocker quote is, “Company is seeing home price depreciation at levels not seen since the Great Depression“.

FWIW, Mr. Mozilo also said, “no one saw the deterioration of real estate values coming“. I beg to differ.

There were a few people, including me, who were noting that house prices were insane, as early as 2002. (Not on this blog, on a message board)

I’ve also said that the dollar and the balance of payments in the US is unsustainable, and this will create a situation where interest rates going up makes real estate illiquid, and rates going down puts the US dollar through the floor.

We’ll see how it goes.

More GOP Family Values

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Former GOP aide admits to sexual battery
Wednesday, July 25, 2007
Jim Nichols
Plain Dealer Reporter

The former head of the Michigan Federation of Young Republicans admitted Tuesday that he sexually abused a colleague during a national convention in Cleveland last summer.

Michael Flory, a 32-year-old attorney from Jackson, Mich., pleaded guilty to sexual battery on the day his rape trial was to begin in Cuyahoga County Common Pleas Court.

The college student he overpowered in a downtown hotel room gasped and dabbed her eyes as Flory replied to Judge Peter Corrigan’s question, “Are you indeed guilty?”

“Sure yeah,” Flory said.

Sure, yeah….That’s showing remorse.

Assistant County Prosecutor Carol Skutnik said Flory’s lawyers, Henry Hilow and Bill McGinty, surprised her with a plea offer as trial witnesses from several states arrived to testify.

Translation, when the other half dozen or so victims showed up, he decided to cop a plea.

The plea bargain, she said, doesn’t include any suggestion of leniency, and the state will seek incarceration. She also said she hopes to present evidence of several “other incidents of sexual misconduct” in which Flory took advantage of vulnerable young women.

…..

She and some supporters lamented when the incident became public last winter that Flory and his followers within the Republican organization smeared her reputation in retaliation for accusing Flory of rape. Skutnik said she found that to be true.Lovely fellow, huh?

Pathetic Republican Wife Beater

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Well, former US Representative John “Drunken Wife Beater” Sweeney is in the news again.

Sweeney says he lied about domestic spat
Ex-congressman claims he wanted to shield wife from blame

By KATE GURNETT, Staff writer
Click byline for more stories by writer.
First published: Tuesday, July 24, 2007

JOHNSTOWN — Former U.S. Rep. John Sweeney admitted to a gaggle of TV cameras Monday that he lied last year in a news conference when he said “there was no domestic violence” at his home.

He’s claiming that she hit him.

Yeah….sure.

….

On Monday, Sweeney turned to a former wife to defend him publicly. Betty Sweeney went on camera to admonish Gayle Sweeney for allegedly assaulting her ex-husband, saying “I am appalled.”

Hiding behind a former ex-wife? Classy dude, huh?

Last November, with her husband’s congressional seat on the line, Gayle Sweeney, 36, made an 11th-hour campaign commercial accusing Gillibrand of leaking the report in a bid to win office. Mrs. Sweeney told the Times Union last week she was “coerced” by her husband’s political advisers into making certain statements defending him on the eve of the election.

Once again proving that the only thing lower than a Republican politician is a Republican political consultant.

The US Government Wants to Record Religion, Sex Habits, and Politics

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The Grauniad has a the scoop on what the US Government wants for Britons coming to the US.

Highly sensitive information about the religious beliefs, political opinions and even the sex life of Europeans traveling to the United States is to be made available to US authorities when the European Commission agrees to a new system of checking passengers.

It appears that the EU is upset about this agreement. So am I.

Eventually, Karl Rove is going to want to get his hands on this sort of information for political micro targeting, and considering that we know that DHS has been compromised politically, he will get this information too.

Why You Should Run Numbers on Stories Like This

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Typical headline, Microsoft, Feds, and Chinese authorities seize $2bn in pirated software. It’s a typical lie. One that could be revealed in 10 minutes with paper and pencil, 5 minutes with a calculator.

Both software and drug busts suffer from the same inflated reporting.

Assuming Microsoft products have a value of $500 each, which is generous considering discounts, site licenses, bulk discounts, etc, that would say that they seized 4 million, that’s right 4 followed by 6 zeros copies of their software.

A CD is about 1-½ mm thick, 4 million would stack over 3-½ miles high.

My guess is that they are using the bogus $50-100K/copy number that comes up in copyright cases.

It’s like those drug busts during my college days, they would quote a street value for the pot that was 10-20x what I paid retail.

The UK Government Shows Copyright Sanity

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Well it looks like the UK government is going to come out against copyright extension, leaving it at 50 years.

Good for them.

You will, of course, get hand wringing from the usual morons like this:

The Guardian quoted Fran Nevrkla, kingpin of Phonographic Performance Limited (PPL), the outfit which collects the rakeoff from clubs, restaurants, and broadcasters: “This announcement effectively makes all performers and record companies second class citizens,” he said.

How does keeping to a promise that was made to the performers and to the public 50 years ago treat them as “second class citizens”. Copyright is not about guaranteeing that artists make money. It’s about making sure that artists have an incentive to create.

Retroactive extension is not an incentive to create.

Copyright is a limited time exclusive license, not property, and the idea that you could retroactively rewrite the contract while works are literally dissolving in vaults is a disservice to society.

Air Force Special Ops Command Looking for Toys

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The Air Force Special Operations Command (AFSOC) is looking to use a bomber as its next gunship platform, and it is looking at a significant increase in its air fleet (both subscription required).

I can’t see how this really serves any purpose except to sell the Air Force’s next gen bomber.

The use of something like the Osprey would be a significant increase in operational capabilities, allowing special operations troops to deploy via vertical insertion at greater distances, and to be extracted at greater distances, as opposed to a parachute insertion. This is a significant improvement in capability.

Additionally, the use of a stealthy platform to insert small numbers of troops might be a capability that might be occasionally (very occasionally) useful, and an upgrade to a higher performance airframe for gunships, such as the C-130 J, A400, or An-70 (the latter two would give a higher top speed too) would be an improvement, both in payload/range, and in reliability.

However, the application of a stealthy airframe to the gunship roll is nonsensical. The gunships only operate in conditions of air supremacy where there is no heavy air defense system. Certainly nothing beyond shoulder launched SAMS and light (57mm and less) AAA.

When the gunship is operating, it is orbiting a fixed position, and lighting it up. This is an inherently non-stealthy activity. The additional cost and performance hit for stealth buys you nothing.

My assesment, and I am not alone in this, is that the bulk of future deployments for the military in general will be in peacekeeping/counter insurgency operations, where the high equipment of an Air Force gains very little.

Air operations in Iraq would be much the same with the current fleet of F-15s and F-16s. Adding the F-22 and F-35 to the mix would change nothing. In fact, if a modern F-4 Phantom or F-105 Thud with modern systems would operate in exactly the same way.

The B-2 really gains nothing over the B-52, and the B-1 significantly underperforms both of them, requiring more tanking, and operates at lower altitudes which put it in range of optically guided AAA.

In any foreseeable engagement, the Air Force would achieve air superiority in hours, and air supremacy in days, even if some opposition aircraft (MiG-29, Su-27, Rafale, Typhoon) might nominally have superior air performance, because of superior situational awareness.

Integrated air defense networks will be non-existent when AFSOC deploys gunships, and so a transport would be superior, giving lower operational costs, and greater range/payload than a bomber or bomber derives platform.

Why Did We Think She Was Competent?

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Here is an interesting article on Condoleeza Rice. It appears that a view months ago, she wrote an article about Lebanon and how public/private partnerships might help in rebuilding the country.

Problem was, no on was willing to publish it. It came back from the “Wall Street Journal, the New York Times and perhaps other papers before the department finally tried a foreign publication, the Financial Times of London, which also turned it down.”

Think about that. A sitting Secretary of State could not get a paper to publish her OP/ED because it was so hactacular.

As a last-ditch strategy, the State Department briefly considered translating the article into Arabic and trying a Lebanese paper. But finally they just gave up. “I kept hearing the same thing: ‘There’s no news in this.’ ” Floyd said. The piece, he said, was littered with glowing references to President Bush’s wise leadership. “It read like a campaign document.”

The author goes on tho show how Bush politicized the State Department, as his administration has every other bureaucracy that they could get their hands on.

This misses the real point. The real point is that Condoleeza Rice is a complete incompetent who, much like Dick Cheney and Don Rumsfeld, has an unbroken record of failure.

This failure exceeds my wildest imagination. The fact that an academic, who was secretary of state was unable to write an article of sufficient quality for publication is a truly pathetic statement. In the publish or perish world of academe, this is inconceivable.

  • In the 1980s, she was lecturing troops in then West Berlin, and when someone wanted details, she did no know what a unit honorific in the Soviet army was.

  • In 1991, she was adamant that Boris Yeltzin not be given head of state protocol, because the USSR was going to reconstitute itself.

  • Throughout her career, she has been the only Sovietologist who did not recognize the sickness of their economy and society.

  • In 2001, she told Clinton’s natinal security team that she wasn’t worrying about al Queida, that the real threat was a resurgent Russia.

She is a fraud, elevated through right wing affirmative action, because it was convenient to have someone with a PhD in Sovietology to parrot right wing talking points.

No doubt her position as a double minority, black and a woman, has also served to elevate her stature in the party and with the pundits too.

Republicans believe that government is stupid, so they leave the stupid to govern.

Prime Mortgages Going Bad Too

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The refrain of the NAR, and other people pimping for real estate has been that the meltdown will be confined to sub-prime mortgages.

Coffin, meet nail.

Countrywide feels pain of ailing mortgage market – Los Angeles Times
CEO reports that even ‘prime’ borrowers are having more trouble making payments. Company’s second-quarter profit slides 33%.
By Annette Haddad
Times Staff Writer

2:25 PM PDT, July 24, 2007

Shares of Countrywide Financial Corp. tumbled today after the nation’s biggest mortgage lender signaled that rising defaults and delinquencies were spreading beyond the troubled sub-prime market to higher-quality “prime” loans.

The Calabasas-based company reported a 33% drop in its second-quarter profit and slashed its outlook for the rest of the year, citing an “increasingly challenging” housing market.

“We expect difficult housing and mortgage market conditions to persist,” said Countrywide Chief Executive Angelo Mozilo.

During the quarter ended June 30, softening home prices in many areas of the country caused delinquencies and defaults to rise for Countrywide borrowers with all kinds of mortgages, Mozilo said.

…

People paid more than they could afford for houses because they were afraid that rising prices would lock them out forever, and they paid too much, and got mortgages that were too bkg.

More JASSM Shenanigans

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Aviation week has an article, USAF Needs A Year to Assess Jassm’s Progress(subscription Required), in which the USAF says that the JASSM needs more time.

….

The Pentagaon will wait until at least spring 2008—a rare yearlong pause—to certify that its newest cruise missile is ready to move forward following myriad technical problems and a 42% failure rate this year.

The Lockheed Martin Joint Air-to-Surface Standoff (Jassm) missile fell under scrutiny again this year after the Air Force informed Congress it had breached cost expectations by more than 25%. USAF and company officials are still trying to assess how high the amount will soar above the current $5.8-billion mark. The program’s goal in the mid-1990s included a $400,000-per-unit charge.

Senior Pentagon officials had been considering terminating Jassm because of the escalating price. The technical problems, including a GPS dropout issue brought on by an interface with the Selective Availability Anti-Spoofing Module (Saasm) in the missile, have only increased the level of scrutiny facing the effort. In recent tests, the GPS problem contributed to three missiles missing targets by nearly 200 ft.

Because of the 25% cost increase, the Nunn-McCurdy law dictates that the Defense Dept. must certify to Congress the program is sound on several points before proceeding. These include: the program is deemed critical for national security; no alternatives providing equal or greater capability exist for equal or lesser cost; new program estimates are reasonable, and management for the program is adequate to control cost.

…..

Meanwhile, Taurus Systems GmbH. is working with its new U.S. partner, Textron, on how to market its KEPD-350 missile to the Pentagon. So far, Germany, Spain, Sweden and South Korea are either purchasing the missile or in discussions. The Taurus pitch for a niche in the U.S. market—offering the German/Swedish KEPD-350 for the hard and deeply buried target set—is already underway. Taurus can penetrate through concrete more than twice as far as Jassm. Some officials in the combatant commands have begun to show an interest in Taurus as a Jassm alternative, according to industry sources.

…..

This is not about making the missile work. This is about Air Force Generals who want to work at Lockheed after they retire.

The system does not work. It’s over budget. There is an alternative. This is throwing a defense contractor a lifeline so that the defense contractor can throw some lucrative consulting or executive gigs to the people supervising the program.

Russia Wants India to Dump Dollars and Use Euros for Future Arms Deals

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This is significant. Russia considers the protection of its remaining defense infrastructure to be a crucial part of both its economy and its military capabilities. The fact that it is willing to risk alienating India over this in the midst of a huge competition to replace the IAF’s MiG 21s, indicates that they have a very real concern about the dollar crashing.

A Euro Exchange for India’s Russian Accounts (Subscription Required)
Aviation Week & Space Technology
07/23/2007, page 36

Neelam Mathews
New Delhi

India considers shift from the dollar for its Russian military contracts

Printed headline: A Euro Exchange

A fallen dollar has pushed India into a corner on its Russian military contracts.

A recent Russian insistence that India must pay more for defense equipment—how much is not known—to offset the effects of a weaker dollar has unnerved the Indian defense ministry, which already faces demands for an additional $10 billion in procurement.

India, which wants to keep its Russian military purchases on track, has begun studying Russia’s suggestion to convert purchases to the euro. But if it chooses to do so, the bill would be high: The exchange rate is currently nearly $1.38 to €1.

…

Is this another nail in the dollar’s coffin?

Disowning Rumsfeld

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There is an interesting article in the Military Times about the Pentagon rethinking the drawdown of troops in Europe.

The article claims that “The idea of cutting troops from 68,000 in 2001 to 28,000 by 2012 was part of an initiative by former Defense Secretary Donald H. Rumsfeld to transform the military into a leaner, more cost-effective force,” but it was really all spite.

Rumsfeld began this policy when the most of the governments of Europe were unwilling to follow him into Iraq. It’s a part and parcel of his “old Europe” slam.

Gates realizes that reality prevents this.