I Don't Deserve a Bailout, But I'll Take One

From today's (10-22-08) Wall Street Journal (California Home Sales Revive, But Not Without Intense Pain By MICHAEL CORKERY and JONATHAN KARP):

People here talk a lot, and agree little, about what should be done to fix things. On a recent day in the Verona subdivision, an upscale development riddled with for-sale signs, Bill Knoff laid out pizza and beer for a half a dozen members of his van pool. The co-commuters, who drive nearly 80 miles from Los Banos to Silicon Valley each morning and then back each night, sparred over who's to blame for local foreclosures and whether the government should bail out mortgage holders.

Mr. Knoff's house has traveled the arc of the local market. Built on vacant land in 2002, it sold for $280,000. Its original owner unsuccessfully tried to sell it in 2006 for $450,000. Mr. Knoff bought it out of foreclosure in March of this year for $320,000. Today, based on local sales, he figures the house is worth about $220,000.

Mr. Knoff paid nearly half of the purchase price in cash, so most of his equity has been wiped out. But he said he believes in taking responsibility for such choices. "The government can buy up troubled mortgages. But it should kick the people out of their houses," said the 61-year-old information technology manager. "Why should I pay for someone to buy their house?"

Darryl Williams blamed mortgage companies for granting the easy loans that fueled the boom. "I don't like hearing that the people who got houses and couldn't afford them are the bad guys," said Mr. Williams, a 55-year-old warehouse-services manager. "These are families with children."

Then Steve Sherman Sr. spoke. "I am one of those troubled borrowers not making any mortgage payments," Mr. Sherman said. The 61-year-old shipping and warehouse supervisor refinanced his house in Los Banos two years ago for $365,000, spending much of the new loan on home renovations. Now, he figures, the house is worth $140,000.

Mr. Sherman said that while he can afford his payments, he had planned to sell the house in a year or so to supplement his retirement income. But now, he figures, he couldn't afford to live there as a retiree. So four months ago he stopped writing mortgage checks, setting the cash aside in his retirement savings. He says he's waiting for his lender to kick him out or to reduce his loan amount. He'd also be happy for the government to modify his loan.

"I don't deserve a bailout," Mr. Sherman said. "Will I take one? You are darned right I will."

What's Paris Up To These Days Anyway?

The following emails are all currently in my GMail spam folder (edited to make the list a bit more family friendly).

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Idea of the Century

From the "Why Didn't I Think of That?" department comes a post on Slashdot by way of the LA Times that some super-genius out there posted a $999 iPhone application called "I Am Rich." What does it do? Nothing. Except prove that the application's owner is, in fact, rich enough to throw away a grand. We'll leave aside for now the implications that this episode has on my continuing criticism of the book Nudge's premise that people are stupid and irrational.

Take this 401(k) plan and Shove it

Automatically enrolling employees in 401(k) plans is all the rage these days. The theory that the mass of people are too stupid or lazy to recognize what's good for them has been around for quite a long time in certain government and academic quarters. But, not surprisingly, this theory turns out to be unpopular with the people themselves (as well as with others in government and academic quarters who've seen how paternalism tends to pan out -- hence William F. Buckley's famous quote about preferring to be governed by the first 100 names in the Cambridge phone book than by the Harvard Faculty).

The paternalists are back now with a brand new idea: "We'll make people do what's good for them, but we'll let them opt out if they really want to do the wrong thing! That way, we can say we're preserving their freedom, but in truth we know that they're still too lazy or stupid to undertake the effort required to opt out of what we're making them do!" Hence, a new oxymoronic name: Libertarian Paternalism. And, hence, automatic enrollment in the 401(k) that you can nevertheless always cancel.

Exhibit A in the libertarian paternalism front today is a new book by Cass Sunstein and Richard Thaler, a law professor and an econmics professor, respecitvely, at the Univeristy of Chicago. Because goofy one-word titles are all the rage in nonfiction books these days (Blink, Collapse, Freakonomics) the book is not called "Libertarian Paternalism" but rather called "Nudge."

So, what's wrong with a little Nudge? Sure it's paternalistic, but hey, if you don't like it you can always opt out right? And I've heard some fairly smart people make arguments against libertarian paternalism that the Nudge authors have ready answers for. I won't rehash those here because I don't have anything new to add.

What I will say is that libertarian paternalism has long made me apprehensive even though I couldn't quite articulate why. Now I'm starting to get an inkling and it comes in the form of that old devil, the law of unintended consequences. The Wall Street Journal recently ran an article about the popularity (with regular folks, not with the paternalistic types) of 401(k) debit cards.(Click here, subscription required) It's always been possible to borrow against your 401(k), but it's a bit of a hassle. Now along comes a card that you just swipe, sign, and viola, you've just made yourself a loan.

Borrowing money from your 401(k) is crazy unless you really need to -- your just robbing yourself. But, according to the Journal, the availability of loans makes people more likely to join a 401(k) in the first place.

The bottom line for Thaler and Sunstein is that a theory is only as good as its practical results. Yes, you can probably get people to contribute to their 401(k) by automatically enrolling them; the laziness that keeps people from enrolling also keeps them from unenrolling. But it's not clear that this changes ultimate behavior. Will people just borrow more on credit cards because they figure they're in good shape for retirement? Or, will they be even more direct and just borrow right of the 401(k) you just put them in? No one knows this for sure yet, so it isn't game over for Nudge. But it's worth considering that the Journal article also mentions legislation that would ban 401(k) debit cards. For everybody. No opt-outs. That's not a Nudge, it's a Shove, and it's where paternalism has always tended to end up.

Does my Facebook page count as my 15 mintues?

From A.O. Scott's review of "American Teen" a documentary about a group of high school students in Indiana:

But the members of the class of 2006, to which the subjects of in “American Teen” belong, are part of a generation whose media-saturated lives make Andy Warhol and Marshall McLuhan look positively naïve.

The Single Best Paragraph Yet Written on Inflating the Housing Bubble

Meanwhile, China and other big exporters to the U.S. had to find something to do with all the dollars we sent them. Many of those dollars flowed back into U.S. mortgage securities. That lowered the cost of home loans further, helping more Americans buy houses. We then needed more Chinese-made stuff to fill those closets . . .

Jame Hagerty, Wall Street Journal, July 9, 2008

Don't Bother Reading This (Book Review: How to Talk About Books You Haven't Read)

So I've just finished a book called "How to Talk About Books You Haven't Read." It's by a French professor of literature and psychoanalysis named Pierre Bayard. I recommend it, I found it entertaining and interesting. Despite it's title, the book is less about how to talk about books you haven't read then a refreshing call for us to cease being ashamed of not having read certain books. First, you don't have to have read a book to talk about it. I've never read Moby Dick but I can refer to all kinds of things about it that I'm sure are true. Second, even if you have read a book and you wish to converse with someone else about the book you and the other person may have completely different ideas about the book--so different, it's as if you didn't even read the same book. And there's nothing wrong with that, it's what makes talking about books interesting. Here, he gives a nice example of an anthropologist who, believing great literature is universal, takes Hamlet along with her for a stay with an African tribe. She tries to tell them the story, but it turns out that they don't believe in ghosts and aren't at all offended by Hamlet's mom marrying his uncle soon after her husband (and Hamlet's father's) death. So things kind of go downhill from there w/r/t the universality of literature.

Finally, Bayard notes that even if you really, truly, honestly did read the whole damn book, you've probably forgotten it by now. So what does it matter if you've really read it? You have some impression of the book (probably) but you could have the same impression without needed to actually have read the whole darned thing. This point intrigued me so, forthwith, a list of books I've read but forgotten, when I read them, and what I remember about them:

The Red Badge of Courage (7th or 8th grade): I hated this book very much. Our English teacher devised a brutally clever means of ensure we read the book under the guise of teaching us about symbolism. We had to keep a list of every page on which the word "red" or some synonym appeared. Let me tell you, Stephen Crane knew how to use his symbolism. But mostly I found the book boring and dry. Almost literally dry as in the one part I still remember has the main character wandering around bleeding after a battle in the oppressive summer heat wearing a wool uniform. The whole book felt like that to me.

A Catcher in the Rye (10th grade?): This book really annoyed me. It was supposed to speak to adolescents and it was even supposed to be risque with all its naughty words. I found it pretentious and ridiculous. First off, "damn" and "hell" just don't count as swears anymore. Not if you're older than, say, 8. Second, I thought Holden Caufield's use of swear words was all wrong. Like someone who's a fluent, but not native, English speaker.

1984 (10th Grade): I enjoyed this book a lot. (I'm sort of cheating a bit here because I've re-read parts of this recently (and it's even scarier now--it really is like a handbook for modern politics)). Still, whether you've read the book or not you probably already basically get it.

To Kill a Mockingbird (10th grade?): Eh.

Great Expectations (12th grade): I just hated this book. It was way too long and utterly pointless and ended with a surprise ending that I found utterly unbelievable. Surely Dickens' reputation is not being enhanced by this book? I like A Christmas Carrol though; or, at least, the Muppet Movie version of it.

Crime and Punishment (12th grade): I loved this book and it's one of the few books I read in High School with a scene so powerful I can still remember it vividly. Raskalnikov has a dream where a man beats his horse to death. It's unbearable. I need to read more Dostoevsky.

Madame Bovary (12th grade - college): Much to my surprise, and contrary to most of my classmates' opinions, I enjoyed this book a lot. I read every single word. I could not tell you a damn thing about it beyond it having to do with some woman in France who maybe had sex with people. Maybe someday I'll re-read it.

Descartes's Meditations (Freshman year college): I remember sitting down one afternoon and reading this whole thing through. I hadn't gotten through an entire assign book for the "Great Works" class all year and I was determined to crank this one out, and I did it. The only problem was, even though the words were passing in front of my eyes, I retained absolutely nothing. This is different from the Madame Bovary case above where I have since forgotten all about the book. I mean as soon as I stood up from my chair the only thing I could remember about Descartes was "I think therefore I am." And heck, I knew that much going in.