Critical Exponent

A friend at work suggested the following thought experiment with regards to the current financial crisis:

We are currently considering a $700B bailout for Wall Street. Assume that the value of the homes being foreclosed because of the crisis is the same order of magnitude (more on this below, but that’s tangential to the thought experiment).

An alternative solution could be for the government to take the money that it is about to give to Wall Street, and instead buy out all the bad debt directly from citizens: in other words, give people with bad debts the money to purchase their homes outright. If you prefer, give them just enough money to bring their debt down to a manageable level, and leave them to pay the rest off. Depending on how the numbers work out, this could be cheaper or about the same as the Wall Street bailout. For the sake of argument, assume this alternative is cheaper. Question: why not implement this?

Under these assumptions, this bailout costs taxpayers less than the Wall Street solution. The beneficiaries of the government largesse would be individuals rather than corporations. The profit from the bailout would not go to the companies that would remain solvent and still require payment of their loans; the profit would go to individuals who have part or all of their debt paid off (though the companies would continue to stay afloat because any remaining consumer debt would now be serviceable).

I doubt this proposal would fly, however. I suspect people would resent that neighbors who got into debt over their heads are now being rewarded with a handout from the government that enables them to own too-expensive-for-their-means houses, while responsible folks who bought only as much house as they could afford receive no such gift and are stuck with more debt for less floor space.

But how is this different than the corporate handout? The companies that issued loans to risky borrowers are rewarded with the higher profits of the bubble and the government cash to survive the crash. Responsible companies that did not profiteer from questionable loans did not get the extravagant bubble profits and need no government handouts to survive the crisis.

Something seems wrong, no? Discuss.

[Here's a back-of-the-envelope calculation: One source cites approximately 300,000 foreclosures in August, so estimate twelve times that for the year: 3,600,000 foreclosures. The mean home price in the US is $212,000. Multiplying these two figures, we can estimate that the current value of foreclosed properties is about $763B (actually, slightly higher, since a large fraction occur in CA, where the mean house cost is higher). If we say that only half the mortgage debt needs to paid off for the remaining debt to be viable, we arrive at a $380B bailout, cheaper than but still the same order of magnitude as the current plan in DC.]

UPDATE: DailyKos came out with its own estimate of the numbers, lower than the one I present above.

I am not an economist. I certainly do not understand the ins and outs of the current financial crisis. The bottom line, though, seems to be this: the big shots on Wall Street with the outsize compensation and the opposition to government regulation now need the tax payers to bail them out.

I am willing to believe that, at this point, the only feasible option is the bail-out. However, intervention must come with regulation to prevent this problem from recurring. I think it’s unethical to have an economic system that privatizes the profits and socializes the risk. And it is hypocritical for so many supporters of such a system to belong to the party of “personal responsibility.”

Robert Reich makes the point much better than I can. If you agree, please contact your elected officials.

Today we hiked Smith Rock. The Rock is a prominent igneous feature in the Oregon high desert plateau, and provides breathtaking views as one hikes first around and then across it. Misery Ridge, they call it—and so it was for a height-anxious Knox….

A mecca for rock climbers everywhere, Smith Rock also provides good eye candy and inspiration to further explore whether I would be passionate about climbing. My one class intrigued me with the required balance of concentration, dexterity, and what-am-I-doing-up-here panic control. This winter, maybe?

On our second day in Bend, OR, Knox and I descended from a balmy, sunny 85°F to a cool, still 42°F inside the Lava River Cave. With USFS-provided lanterns and backup headlights we ventured the mile-long trek into the bowels of the earth, feeling cool drafts of air and catching glimpses of variegated igneous rock textures.

Although the hubby was stoically fighting clammy anxiety (what if there’s an earthquake right now when we’re underground? would they find us? look for us?), I decided that I may have a future in caving yet. It was actually quite fun to channel Tom Sawyer to Knox’s Becky Thatcher! I think spelunking might feel too claustrophobic for me (at least the way Knox has described it), but exploring this open cave, at least, was quite the meditative experience.

To see what it would really feel like to be alone, I had Knox take the lantern around a bend in the cave. I turned off my headlamp and just let things be….

It is not in the expanse of space but rather in the depths of the earth that one finds the utmost, thickest blackness! One’s soul floats, solitary, in a medium at once viscous and immaterial, constricting and liberating. The constant dripping of moisture on the rocky floor is the only rhythm perceived beyond the eddies projected by eyes rendered irrelevant….

My hermit nature has found its siren call.

Somewhere between a vacation and a staycation lies the webcation. On a webcation, one is not completely disconnected from daily life as in vacations of yore; neither is one staying near home, as in a staycation. A webcation is a web-enabled vacation where one checks personal e-mail and the news thanks to the ever-present Wi-Fi hotspots and cell phone data networks. Webcations often take the form of road or bike trips made possible by Web 2.0 features: researching tourist information on the go from one’s cell phone, looking up traffic and maps on Google, downloading apps and blogging from the car….

Next stop: Crater Lake, OR

I’ve set up a guest account on my Linux boxes using xguest. The Mac has a Guest account. I’m guessing most Windows machines do, too.

So why doesn’t the iPhone?

The iPhone is still enough of a curiosity and non-ubiquitous tool that people are always asking to look at it, use it, fondle it. I’m happy to oblige my friends, but I wish there were away to squirrel away my private data, open applications, and email. You know, a guest mode.

How about it, Apple?

I don’t like setting my alarm clock on vacation, but I’m glad I did this morning. We went joy-riding with the blue-hairs up the Rogue River! We saw ospreys and eagles and deer as we traversed grandiose scenery, had lunch, and got wet “braving” the rapids. The splashing was mostly gratuitous showmanship, but nonetheless I tittered with all the grandmas as we banked turns on the water and sped through narrow channels.

We have now crossed the California border. Tomorrow: redwoods!

A week or two ago, I finally upgraded WordPress from 1.5.x to 2.6.2. After the upgrade, I had problems with the layout of the initial page, and problems logging in. Removing the inScript plugin directory and disabling wpPaginate (and updating the Giraffe theme) seemed to fix things. In the meantime, I got many spam comments.

The spam should have been cleared now, and the blog working as normal. Let me know if you encounter any problems….

BTW, I recommend the WordPress Automatic Update plugin. It does make life simpler.

Day three of our honeymoon finds us at The Inn at Spanish Head. This is the first building in my experience where the street-level lobby is on the ninth floor. Balcony views of the coast and an outdoor swimming pool lured us to pause our drive south for an extra night. The hotel restaurant and lounge offer lackluster food and service (though the chef’s smokehouse salmon is good). But no problem: after a late night swim, we snacked on Croatian fig jam and Camembert cheese baguette sandwiches, ingredients courtesy of our local Whole Foods back in Seattle. The plan for today: beach walks, more swimming, reading, and maybe geeking out.