Year: 2009

JSF Breaks Nunn-McCurdy Limits

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Which means that the F-35 Joint Strike Fighter is massively over budget.

They have finally gotten to the point where they cannot use accounting tricks to cover this up.

I expect the unit cost to rise sharply now, and be near that of the F-22.

A number of people have been predicting this, most notably the House Appropriations Committee, who have been pushing for more Super Hornets, and the DoD, who were trying to accellerate purchases, doubtless to beat this announcement. (paid subscription required)

Props to My Cousin

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Who I’ve never met, Dianne Feinstein*, it appears that even though Obama has issued an executive order banning torture, she is proceeding with legislation to make it the law of the land:

Senator Dianne Feinstein, Democrat of California and chairwoman of the committee, said that despite the executive orders she still planned to press for legislation mandating a single standard for military and C.I.A. interrogators. Such a law would be harder to reverse than Mr. Obama’s executive order, which he could alter or cancel at any time by issuing a new order.

Cool.

*Full disclosure, my great grandfather, Harry Goldman, and her grandfather, Sam Goldman were brothers.

More Calls for Swedish Style Nationalization

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And the press is beginning to cover just how well it worked, and it worked very well….A lot better than what the current free market mousketeers are trying here.

George Soros is pushing for something that it kind of halfway in between the two approaches, and I disagree. Solomon’s division of the baby gets one a dead baby:

The hard choice facing the Obama administration is between partially nationalising the banks, or leaving them in private hands but nationalising their toxic assets. Choosing the first course would inflict great pain on a broad segment of the population – not only on bank shareholders but also on the beneficiaries of pension funds. However, it would clear the air and restart the economy.

That being said, George Soros is right about an awful lot.

DNI Would Minimize Contractors

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Adm. Dennis Blair, the nominee for Director of National Intelligence, told the Senate Select Committee on Intelligence that, “one of his first duties if confirmed will be to transfer to federal employees any ‘inherently governmental’ work being done by contractors:

Blair said the government should rely on contract interrogators only in special circumstances, such as when a suspect speaks an obscure dialect.

“My strong preference is that interrogators in the intelligence world be a professional cadre of the best interrogators in the business,” Blair told the Senate Select Committee on Intelligence during his nomination hearing.

Committee chairwoman Sen. Dianne Feinstein, D-Calif., said she supported Blair’s call to reduce the intelligence community’s reliance on contractors. She referred to a 2007 Office of the Director of National Intelligence study that found that 27 percent of the intelligence work force is comprised of contractors, and an individual contractor costs the government $80,000 more on average than a career employee.

“I find this unacceptable,” Feinstein said. “Hiring contractors to interrogate detainees and contract psychologists to evaluate [them] is just the wrong thing for the government to do.”

Now if only we can apply this to the rest of the government, particularly the DoD.

Economics Update

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Well, it’s official now for the British, they are in recession too.

Not surprisingly, the Pound has tanked and the dollar is generally up on this news.

The Ruble further weakened too.

We also now have ING warning that France’s AAA sovereign debt rating is at risk.

Meanwhile, on this side of the pond, the New York Stock Exchange has lowered its market capitalization requirement for companies on the exchange.

They delisted a record 53 companies last year, and my guess is that they are worried about breaking 100 this year, so they changed the requirement to account for a tanking market.

A more general indicator of economic activity, the rail freight traffic, has fallen sharply.

Generally, the high energy prices of 2008 favored the industry, but when total economic activity falls, so does rail traffic, even as it grows relative to trucking. (H/T Calculated Risk: Rail Freight Traffic Off Sharply in 2009)

In the intersection of banking and real estate, it appears that the regulators of Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLB) are seriously tightening up regulations because they are still engaging in risky activity.

I just want to note that I suggested that this might be an issue in March of last year.

Also, it appears that the inventory and foreclosure numbers are worse than you think.

Banks are not wanting to flood the market, so they are holding back on placing some of their foreclosures on the MLS and delaying foreclosures on properties in default, so there is a “ghost inventory” out there that is not showing up in the numbers.

In energy, oil was up today.

Early Elections in Iceland

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Because the citizens of that nation are experiencing the wonders of Milton Friedman’s theories, and so they want to throw the folks out who created this clusterf^%$, with the attendant demonstrations and confrontations with police.

These folks are Viking stock, and I think that soon to be former Prime Minister Geir Haarde, who is not standing for reelection, realized that his head would be on a pike if he did not call for new elections.

We Need to Take Care of the Overpaid Part of “Overpaid and Incompetent” Too

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Floyd Norris notes that the recent collapse of Wall Street may lead to a reduction in pay for bankers of all stripes.

I would further add that this is a very good thing.

He cites a National Bureau of Economic Research working paper, Wages and Human Capital in the U.S. Financial Industry, 1909-2006, which notes that wages in the financial industry are at an all time high.

One of the authors the recent runup in wages to, “A new era of financial innovation,” and so the “The financial sector became once again a high-skill, high-wage industry.”

Talk about not getting the point. The stock brokers and bankers in 1929 were not highly skilled or intelligent, they had just figured out a scam that allowed them to get paid for putting the rest of the poor house, and the same applies to the investment bankers in 2007.

Banking and investment exploded as a portion of the economy in the late 1920s and 2001-2005 because it became an easy way to take people’s money. There was no real innovation, there was a simply pursuit of personal gain at the expense of the real economy.

Simply put, if you made robbing banks legal, the activity formerly known as robbing banks would explode.

Certainly, there was some additional talent attracted by this money, but the real attraction was that this was easy money for stupid people to make.

And anyone with half a brain, as Andrew Lahde so eloquently stated in his resignation letter could take them to the cleaners:

….. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America. …..

But the important thing to remember here is that the, “low hanging fruit,” continued to make excellent wages, and obscene bonuses anyway.

Too many people have been failing upward for years because who their daddy and mommy were, and a disproportionate number of them seem to be Harvard MBAs, like this guy.

People on wing pic courtesy of The Big Picture.

Clinton Senate Replacement

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New York Governor David Paterson has picked Kirsten Gillibrand to replace Hillary Clinton in the Senate.

She’s a member of the Blue Dog caucus in the house (**blarf**), probably because she is in a Republican leaning district, but we have already seen some evidence of moderation, as she recently came out* for marriage equality and the repeal of DOMA and DADT, so she is making nice with the gay community.

It appears that she has thrown a few elbows, and because of this she is not particularly popular with other members of her delegation.

Additionally, even if she moderates some of her views, I think that the fact that she has a 100% rating from the NRA, and that will antagonize many of the New York state Democrats, particularly Carolyn McCarthy, who is already threatening an aggressive primary challenge.

This is not surprising. Rep. McCarthy takes gun control very personally, as her husband was murdered, and her son gravely injured by the Long Island Rail Road killing spree of Colin Ferguson.

In any case, let’s see how she does over the next year.

*Pun not intended.

I Hope That He is Not Serious

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In his confirmation hearings, Timothy “Eddie Haskell” Geithner aggressively supported a strong dollar policy.

I understand that this is the conventional wisdom, because much of the money made in Wall Street comes from borrowing cheaply and lending expensively, because the strong dollar policy makes it an attractive reserve currency, but in the long run it’s unsustainable.

He probably had to say it. I just hope that he’s not another Bob “Under Investigation for Insider Trading” Rubin about this.

BTW, the Senate Finance Committee voted in favor of his appointment by 18-5 and sent him to the Senate floor.

On The List of Middle East Commentators Who I Thought I Would Never Link to ….

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Muammar Qaddafi, yes, the Libyan colonel, writing in the IHT.

He suggest a unitary state encompassing Israel and the territories, which he dubs “Isratine”.

I disagree with him, I think that this became impossible some time in the 1990s, and that today it is as nonsensical as suggesting a reconstruction of the USSR or Yugoslavia, actually more so than suggesting the reassembly of the USSR, as that separation was mostly non-violent.

There has been too much blood spilled in the last 1½ for it to work, and the trend world wide is toward the division of countries over roughly the same period.

That being said essay is well written and reasonable, so he, and/or whoever wrote/translated it with him, did a good job.

He is remarkably genteel and diplomatic.

There is an interesting nugget here, and it says something about the Arab view of the Palestinians, he is talking about the complete return of Palestinians to the region:

Further, a Palestinian state in the West Bank and the Gaza Strip would do little to resolve the problem of refugees. Any situation that keeps the majority of Palestinians in refugee camps and does not offer a solution within the historical borders of Israel/Palestine is not a solution at all.

This reflects, in an off hand manner the fact that the Arab nations with significant Palestinian populations expect most of them to simply leave if the opportunity arises.

It’s been 60 years, and the idea that most of these people will want to leave what has been their home for all , or the overwhelming portion, of their life is unrealistic.

Even if Qaddafi’s vision were realized, you would not see quite the mass migration expected, unless we saw the institution of something rather more extreme than the “genteel ethnic cleansing” that happens to non-Francophones in Quebec and Russian speakers in the Baltic Republics.

The truth is that, with the exception of Jordan, these sorts of policies are largely in place with things like prohibitions on owning land (Lebanon) and a denial of citizenship to Palestinians by virtue of being born in country (Saudi Arabia, Lebanon, and IIRC Syria, at least).

One interesting thing here is how, unrelated to his commentary, is the provision of aid and support has distorted the conflict, much as it has in Eastern Congo, where they have provided a base of operation for the remnants of the genocidal militias from Rwanda. (It’s a pet peeve of mine)

Without the UNRWA providing free ghettos, many of the Palestinians would be full citizens of these countries, because it would simply have untenable to maintain refugee camps as such for so long, and they would be leading better lives today.

Economics Update

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The weekly new claims for unemployment jumped last week by 62,000 last week, to 589,000, the highest level since 1982, and more than predictions.

The 4 week average was flat, and continuing claims were worse than predictions too, at 4.607 million.

If that weren’t enough housing starts fell by 15.5% to 550,000, which, according to Calculated Risk,is, “by far the lowest level since the Census Bureau began tracking housing starts in 1959.”

Mortgage applications fell by 9.8% last week, because interest rates bumped by 0.37%, and most of the action right now is ReFi.

Over in Asia, the Bank of Japan is buying corporate bonds, because the credits markets have frozen there, and China’s economic growth fell to a 7 year low for the 4th quarter.

Meanwhile, it looks like the humongous loss phenomenon is moving from the banking giants to the regional banks, which may have a larger effect on business output, since they do a lot less of the high finance and a lot more lending to mom and pop businesses.

In commodities, steel production fell 1.2% in 2008, the first annual drop in a decade, while oil was up a few pennies today.

In currencies the dollar was down vs. the Euro and Yen, but up against the Pound…but then again, everything is up against the pound.