May 14th, 2010

From _13 Bankers_

I've complained about people who talk about the housing bubble and act as if bubbles are a pricing phenomenon, and if the prices stay low then there wasn't a bubble (yes, you, Zoned Zone/Flatland inventor), when any reasonable definition of bubble has to include over-supply as well as inflated asset prices. But really, it's a larger problem.

Just like economists (based on a damn small sample size) have this weird prose style that involves inappropriately mixing metaphors, economists also have this Theory of Reality that veers off so sharply from my Theory of Reality that I just stop cold and go, what? Here's the latest example:

p 122:

"While investors might demand a high rate of interest to invest in an airline route from Los Angeles to Shanghai, they might accept a lower rate if that route were packaged with an option to buy oil at a cheap price in the future. [This makes _perfect_ sense to me. Southwest Airlines bought options on oil that matched how far out they sold plane tickets. They couldn't get boxed into a situation where the already-old-ticket wouldn't cover their costs. But no, here's what the economist says:] (If oil prices rise, hurting demand for long-distance flights, the option will increase in value.)"

!!!

In _my_ reality, if you package an oil option with an airline flight, it's _so you can continue to run the flight at a price people will pay even if oil does a rocket launch_. In Johnson/Kwak Reality, the oil option is there to console the investors, whose airline route died a horrifying death.

Does anyone else see a problem with this? Just to be clear, YES, it makes sense for an investor to want a consolation price. _I GET THAT._ But if you think that way all the time, after a while, you stop caring whether the pork bellies you are buying and selling are actually edible (you know, *bacon*). You don't care about the reality of raising pigs (which will eventually cause you problems when someone decides to actually regulate your shit pools.). It's all just numbers.

And I actually do understand at least some of the theory behind all this. The numbers are only right if people are really thinking through the underlying reality and acting, you know, rationally. If people start ignoring reality, the numbers can just float off into the ether.

More from _13 Bankers_

This is just inexplicable:

footnote on page 126:

"*Contrary to popular belief, not all subprime loans are to poor people. The classification of a loan depends on the relationship between [sic: I think he meant "a function of"] the borrower, the property, and the size of the loan. Chris Mayer and Karen Pence have found that "subprime mortgages are not only concentrated in the inner cities, where lower-income households are more prevalent, but also on the outskirts of metropolitan areas where new construction was more prominent." 11"

Yes, the footnote has an end note. It's to Mayer and Pence's paper, so it is actually not ridiculous. Okay, it is ridiculous. Whatever. Not my point here.

On the one hand, I don't know anyone who thinks all subprime loans are to poor people. Subprime loans are primarily to people who have not been tremendously reliable about paying on debt. (That's assuming it isn't a loan to someone who is prime but got sold something worse because they didn't know better.) Maybe they declared bankruptcy. Maybe they got a knockdown on credit card debt. Maybe they have limited credit history. Whatever.

But if you want to convince me that subprime loans aren't to poor people, telling me many of the loans were on properties on the outskirts of MSAs is a shitty way to accomplish that goal. I've heard the phrase "drive till you qualify". And I lived in Mayberry for a while. Poor can include house-poor.

_Waiting for Wednesday_, Mari Carr (kindle)

Third in the series about the large family of siblings that runs an Irish pub in Baltimore. The first entries (_Come Monday_ and _Ruby Tuesday_) were about two of the sisters; this is the first one about one of the brothers, half of a set of twins.

Tristan has spent quite a while enjoying Wednesday evenings chatting with Lane who comes in after her nursing shift. One night, however, he gets a call from her. She's finally left her verbally and emotionally abusive husband and he beat her up and she wound up in the hospital. He visits; she convinces him to leave -- and the next morning, she's left town, and doesn't come back for a year.

Lane was raised by her grandmother until that grandmother died, then in foster care until adulthood. Needless to say, she has some commitment issues. Part of why she hung out at the bar was to see the large Collins family in action. Pop Collins has a stroke and the kids hire her to rehab him, thus supplying a convenient excuse to have her move in upstairs. It doesn't take long for Tristan to Move Their Relationship To Another Level, and shortly after that he starts poking around in her past and her psyche.

Meanwhile, the ex resurfaces, using Lane's sole memento of her absent family (a picture of her dimly remember grandmother) to force her to meet with him. There's a bit of a suspenseful climax as her ex goes Right Over the Edge -- a little revenge fantasy, a little of the heroic rescue, a little of the no, let me take that bullet for you.

It continues to be a strong series, but now I actually have to wait for Ms. Carr to write the next one, because I foolishly read this one a little too quickly. As I have mentioned in reviews of previous books in this series, the publisher is Ellora's Cave and these are available only in electronic format.