rowyn: (studious)
Like all game economies, Flight Rising's is quirky. Some of Flight Rising's quirks make sense to me but are intriguing nonetheless.

For example, most MMO economies experience inflation, often rampant inflation, as more and more treasure chases the most desirable goods. But most of Flight Rising's player-based markets have been either fairly stable or deflationary over the month or so I have been informally watching. Silver ore has a low of around 1k and a high of around 3k*, gold ore has a low of 8k and a high of 15k, basic dragons of plentiful breeds have highs and lows from 3k to 10k depending on how hard-fought dominance is. Gened dragons and rarer breeds have become cheaper. When I first looked at imperials, the cheapest was 700k. Now, the cheapest is 350k. Cheapest pearlcatcher a few weeks ago was around 80k; now it's 40k. There's a few other miscellaneous goods that I watch that have stable price ranges.

(* Price ranges are based on "cheapest available at the time I looked". Players set the price for their goods when they offer them for sale to other players, so often there will be similar or identical goods for sale at several times the price of the cheapest.)

Dragons are a product of the passage of real-time: plentiful-breed dragons can breed once every 15 days and clutches take 5 days to hatch. Treasure is mostly a product of time spent playing the minigames, with a cap of 75k per day. There are some treasure-sinks: gene scrolls and other goods from the NPC marketplace, expanding your lair, adding nests, etc. Apparently, the treasure sinks are actually keeping up with treasure production to a degree. Demand for dragons also drops over time as lairs fill up and people have the kinds of dragons they want for their collection. Dragons consume food ( = money) and the only thing they produce is more dragons -- and that only if you've got nest space for them. So a lair stuffed with dragons is likely to cost more than it brings in. Now, many players (myself included!) are not playing to maximize revenue and want more little pictures of dragons populating our lairs regardless of monetary advantage or lack thereof. But the deflationary impact is still clear. Dragons don't die; you can choose to exalt them (which takes them out of play, contributes to the dominance struggle for your flight, and gets you a small amount of treasure) but that's the only way they leave.

Which is interesting but not inexplicable.

No, what perplexes me is the irrational pricing on swap goods.

The game doesn't have crafting as such (yet). But there's "Swipp's Swap Stand". Every two hours, Swipp offers a new site-wide trade, generally of a format "lots of X gets you one of Y". Here's a list of all his swaps..

Let's look at one of these: 200 Nightwing Bats (a food item) for 1 Runic Bat (a familiar). I think Swipp's is the only place you can get Runic Bats, and the only thing you can do with Nightwing Bats is eat them or trade them to Swipp's.

Cheapest Runic Bat on the player market right now is 28,000. Most expensive is 42,000.

So I'd expect Nightwing Bats to sell for no more than 1/200th of what you can buy a Runic Bat for, or 140-210 each. There might be some upwards pressure -- people who have 190 bats might be tempted to pay more to get the last 10 when the swap is available -- but also some downwards pressure, because it's annoying to visit Swipp's every two hours to see if he's got the right swap yet.

Actual price range for Nightwing Bats? 500-1000 each.

So the right economic ploy if I want a Runic Bat is to sell Nightwings to players and then buy a Runic from a player. (In fact, I just bought that 28k Runic Bat, even though I don't particularly want one, just so that I will never be tempted to save up Nightwings to do the swap.) And it's not that these are fictitious sell prices (ie, players hoping to get this much but there are no buyers) -- I have sold dozens of Nightwings for 450-750 each.

There's another chain that I play around with:

20 copper ore + 20 iron ore = 1 silver ore
5 silver ore = 1 gold
5 gold + 3 rusted chests = 1 gilded chest.

The first swap I don't bother with -- copper sells for 180-1000 each, which puts it far out of the range to justify making silver. Silver I will buy cheap and swap for gold, and then sell the gold. If I can get 15k for the gold (and I have several times), that makes the swap for a gilded chest about 83k (around 3k each for rusted chests). Gilded chests have been selling for 50k-80k lately, so not really worth it. Opening gilded chests seems even less worth it -- it's been something like 'one familiar, one clothing item, 6k-25k treasure, and a few random pieces of junk' for me, although perhaps there's a lottery effect where you might get something much more valuable from them.

You can also use 3 gold ore to make a platinum ore. Platinum ore sells for less than gold. I don't know if anyone ever does this swap; maybe people dig up the platinum that sells on the market instead. I really hope so.

Anyway, in other MMOs where raw materials sold for more than crafted goods, I understood that people were "skilling up" and didn't care about making money on the intervening steps -- perhaps didn't care about making money at all, even long term, just liked seeing the number rise. But the swaps are not a skill -- anyone can do them and you don't improve a stat by doing them. So it's interesting to me to see people still pursue them even when there's a monetary cost to making the swap over selling materials to players and buying the final good from players.


Nov. 21st, 2012 07:27 am
rowyn: (studious)
I need to say one thing at the start, because the silliest rumor on Twitter is "There will be no more Twinkies!" Which is ridiculous: whether Hostess liquidates or not, there will be more Twinkies. Hostess has a number of problems, none of which are "people don't eat Twinkies any more". If Hostess goes into liquidation bankruptcy, then some other bakery will buy the Twinkie brand name and recipe and start making Twinkies. Very likely, some one will buy the Hostess brandname itself and produce Hostess cupcakes and many if not all of their most popular snack cakes. They may not be quite the same, and there may be a delay in production, but they'll go on.

That aside, the Wall Street Journal had an interesting opinion piece by Holman Jenkins on the problems at Hostess, suggesting that the core problem is union vs union. It appears Hostess's distribution costs are excessively high for their product: Jenkins argues this is due to the costs of Teamsters contracts and union rules. The bakers' union, therefore, is betting that their members will be better off under whatever entity buys Hostess out of liquidation -- which won't have the unusually high distribution costs and therefore will be able to pay the bakers a market wage instead of the below-market ones that are all Hostess can afford.

I have not done any research into the situation on my own, but this struck me as pretty interesting and the most rational explanation I'd heard for what's going on, so I figured I'd share.

Straw poll

Apr. 11th, 2012 10:04 am
rowyn: (studious)
[Poll #1832887]


Bonus question: why do you think the two should or should not be taxed at equal levels?
rowyn: (current)



The US Justice department is threatening suit against Apple and five major publishers, alleging collusion to raise book prices.


This is a fascinating situation to me. I do find it hard to see the whole agency-model thing as anything other than collusion to force Amazon to stop discounting e-books.  OTOH, it's not exactly clear that letting Amazon discount their way into the position of sole retail outlet for ebooks is the path to less monopoly power.


I don't know much about the law in this case, or what outcome I am rooting for.  But I'll be interested to see how it goes.

rowyn: (current)

One of the things that’s been kind of driving me nuts about the whole “mandatory insurance coverage for contraception” thing is that, of dozens of tweets and articles I’ve seen complaining about it or complaining about people complaining about it, only one actually addressed what I don’t like about it.  Here, have a link:


Allow me to pull out the key point:
Insurance is supposed to mean a contract, by which a company pays for large, unanticipated expenses in return for a premium: expenses like your house burning down, your car getting stolen or a big medical bill.


There are certainly good arguments for subsidizing contraception.  If the federal government wanted to up food stamp allowances and let people use them to buy condoms/birth control pills/etc., I could see that as reasonable.  In fact, the federal government already does subsidize birth control, in the form of grants to Planned Parenthood, which provides inexpensive birth control pills and annual check-ups to women across the country. They may even still be handing out free condoms.  I don’t know if this is the highest and best use for taxpayer dollars, but it is at least (a) pretty cheap on the scale of the federal budget and (b) reasonably efficient.


Insurance is not efficient. 


No doubt we could come up with a less efficient way to subsidize birth control than to:


(a)   Create a government  mandate that every company offer employees insurance that covers contraception from private insurers, necessitating that:
(b)   Private companies purchase insurance from those private insurers
(c)   Private companies report their insurance to the government
(d)   Private insurers report who’s bought insurance to the government
(e)   Individuals report whether they have insurance or not to the government
(f)     The government track what companies aren’t providing insurance
(g)   The government offer subsidies for those who aren’t getting insurance through an employer
(h)   The government penalize individuals who don’t get insurance and companies who refuse to provide it
(i)     Individuals who did get insurance get a prescription for birth control pills from a doctor
(j)      The doctor files a claim with the insurance company for $100 for the office visit
(k)   The insurance company spends $15 processing the $100 claim
(l)      Individuals get their birth control pills from a pharmacy
(m) The pharmacy files a $30 claim for the pills
(n)   The insurance company spends $15 processing the $30 claim
(o)   Insurance company reports all this back to the government to show they’re complying with the law.


I mean, I could think of a worse way of doing it. Perhaps we could get the TSA into the act?  They already do full-body scans, why not add prescription drugs?  Oh wait, I was trying for LESS efficiency.  I’m sorry, my imagination is failing me at the moment.


My point is that insurance is a HORRIBLE, NO GOOD, VERY BAD way of covering routine expenses.  It adds a whole extra layer of bureaucracy to every transaction, for no reason at all.  If you add $200 worth of annual routine expenses to what insurers are required to cover, then insurers are going to charge an extra $300-$400 of annual premium to your bill.  You don’t get “free” or even “cheaper” services this way.  You get more expensive services because now you have to pay for all the extra bureaucracy and paperwork and insurance company profit.  If you can afford insurance for a routine expense, you can afford the expense.  If you need a subsidy in order to get insurance for a routine expense, you could just get a subsidy for the expense itself and it’d be cheaper. 


But NO.  This is freaking America, and we have to do everything in the most insane and ridiculous way, and then call it 'compromise'.  Where 'compromise' means 'worse than what anyone on any side actually wanted'.  x.x

rowyn: (studious)
Obama Administrations Proposes Fannie Mae, Freddie Mac Phaseout

I am very happy about this, as you might expect. The FMs have long enjoyed bipartisan support in federal government, and they played a key role in the housing market boom and subsequent bust in the 2000s. It's awesome to see the Obama administration not only acknowledging that, but acknowledging that the best solution is to get rid of them. Woohoo!

Some of the alternatives offered are not a whole lot better than the FMs, alas -- option number 3 is "we'll make new FMs but guarantee their securities explicitly instead of implicitly" -- an FDIC for mortgage-backed securities. I don't think the mortage market needs federal backing to function, and giving it federal backing makes it more likely that the feds will be called in again for another rescue. I'd prefer the feds got out of the business entirely.

BUT! All of the options are better than the current system, and since reform in this area has always been a political hot potato, I'm just delighted that none of the options are 'keep on doing it exactly the way we have been but with New Improved Tighter Regulations(tm)'. I wish President Obama every success in getting the FMs out of the picture.
rowyn: (Default)
Warren Buffet's thank-you letter for the 2008 bailout.

It pretty well sums up how I feel. It reminds me that Warren Buffet was, during that month, one of the few private investors still willing and able to express confidence in the market himself. He poured money into Goldman Sachs, I recall.
But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.

Yes. That was it. I'll never know if it was the right thing to do or not, but I think they did a pretty good job, under the circumstances.
rowyn: (studious)
A couple of years ago, I posted a rant about Fanny Mae & Freddie Mac's involvement in the economic trainwreck still unfolding today. (Summary: RARGH ALL THEIR FAULT WHY DIDN"T ANYONE STOP THEM?!?)

[ profile] jurann left a comment on my post last week that reminded me of this, and reminded me that I've never tried to organize all of my thoughts on What Went Wrong. Because of course, it's not all the fault of the FMs, although they helped.

I'm going to try writing about the gestalt now. I'm not sure I'm going to make it through everything, because there's just so much.

Fannie Mae is the Federal National Mortgage Association. It was created as a government entity to create a secondary mortgage market -- that is, to allow banks and mortgage brokers to make loans, and then sell those loans to other investors. Once the loans were sold on the secondary market, banks and mortgage brokers could go make more loans. This was a reasonable idea, as [ profile] xthread pointed out on my previous rant, because it diversifies risk. If Itty Bitty Bank makes a bunch of loans to people in Small Town, a crisis in Small Town could destroy Itty Bitty Bank. If Itty Bitty Bank sells a portion of those loans instead, and then buys some portion of loans from across the country, they're protected against localized crises. The secondary market also lets more people play in the game.

In 1954, Fannie Mae became a "mixed ownership" corporation (both private investors and the federal government held stock in it). In 1968, Fannie Mae was privatized and officially no longer owned by the government.

The big problem with the 1968 change is that no one has ever believed it. Click to read why! And other stuff about the financial collapse )
rowyn: (studious)
The Federal Reserve announced plans to buy $600 billion in Treasury bonds.

This ... really worries me. Government bond purchases are one of the things that the Federal Reserve can do to stimulate the economy. The Fed's biggest weapon is interest rates. In 2008, when the market was in freefall meltdown, the Fed lowered its target rate range to 0-0.25%.

It's stayed there ever since.

They also bought, over the last two years, $1.75 trillion in bonds.

Now, the economy currently sucks. Unemployment is high and while the economy is technically growing, this is mostly because it's shrunk so much in the last couple of years that getting bigger is no longer challenging. So I understand why the Fed feels presured to Do Something. It would be nice to fix the problem by Doing Something.

But ... glah. I don't know how to explain this. In the fall of 2008, I was afraid that the market was going to crash worse than it had in 1929. It felt like the entire world was terrified and running in a panic that was going to destroy the entire market-based economy, with devastating results. I wasn't afraid of the Great Depression II, which was crappy but survivable: I was afraid of something much worse. I was not the only one who saw the potential for an unparalleled disaster. When the Federal Reserve and the Treasury started twisting arms and forcing deals, lowering interest rates and buying bonds, when Congress authorized TARP, I hated it ... but I understood it. They were the leaders. They needed to show confidence when everyone else was scared. They needed to say "We will make our stand. We will make sure that the system does not fall." And because they stood behind it with the full faith and credit of the US government, it didn't fall. I don't know if everything they did then was necessary -- I never will -- but it wasn't TEOTWAWKI, and that by itself is something.

The economy today remains wretched, but it's no longer teetering on the precipice. Yet the Federal Reserve is keeping its target interest rate near 0%, and still buying Treasury bonds to boost the economy. And these things are ... gimmicky. Or maybe addictive is the better word. They don't really fix anything. They give the market a chance to fix itself and discourage people from making rash decisions. People are not making rash decisions right now. And the market is not the problem with the economy. The market is, if anything, too healthy given the state of the underlying economy.

I'm not sure what the underlying economy needs. A sense of stability and that the future -- in terms of taxes, regulations, mandates -- is predictable, maybe. But I really don't think that it's rock-bottom interest rates and the Fed buying government bonds. I don't think it's anything the Fed can do. One of the causes for the housing bubble was a long period of low interest -- and the rates then were higher than they are now. This is like, I don't know, taking uppers to make yourself forget that you're out of shape when you really just need to exercise more.

And worse, if we do have another crisis of confidence, when lowering interest rates would be the best thing to do -- how is the Fed going to drop rates below 0%? Sure there are things they can do ... but at some point, taking drastic measures sabotages confidence, rather than boosting it.

I hope they know what they're doing. I really do.
rowyn: (exercise)
I feel like this article missed a significant part of why "snacking" is on the rise and "meals" are on the decline. Yes, part of it reflects the general trend towards unhealthy foods. But part of it is an inversion of the "supersize me" trend in restaurant food. 

Here's how I see it. Some decades ago, fast food restaurants are looking for ways to compete. "I know," they think, "consumers love getting more! Let's up-sell them on items that give twice as much food for a 15% price increase. It's a good deal for them and it's good for us because our main costs are fixed (ie, labor, building, equipment, and other things that don't change in price much by selling more food in a single transaction.)"

Or you get trends like candy bars, which back in the 80s started getting bigger without rising in price -- more is better! And once one company starts doing it, all the other companies have to do it to stay competitive. You don't want to be the stingy restaurant who serves tiny portions.

Except that many consumers don't actually want MOAR. And eventually some of them point out to the restaurants that their portions have grown to three times the size that an person of average proportions needs to eat in one sitting, and maybe a smaller portion would be nice?

But a restaurant can't shrink their portion sizes! That's crazy talk. How are you going to advertise "Come to McD's and get LESS for your money?" Yeah, there's a winning campaign. But some consumers really do want less, and you don't want to ignore them ... aha! Let's add a smaller version of our existing menu items, and call it a 'snack'! Okay, so it's the same size and about the same nutritional content as our 'meal' items 30 years ago, but we can't call it a meal because it's not what people are used to seeing called a meal. It looks all scrawny and small on a plate.

It is, however, the right size for a meal and many people realize this. So they start eating the 'snack' sizes instead of the gigantic 'meal' sizes. And they call it 'snacking' because that's what the menu says it is. And thus the trend comes full circle. And only the language suffers. >:)

Yes, I'm sure that's not all of it. But I do think it's a significant contributor.
rowyn: (downcast)
Ysabetwordsmith linked to an blog post about Philadelphia taxing bloggers, which made me go "What? The city passed a tax specifically on blogging?" I followed the link chain back to Philadelphia's City Paper, which clarified the city is levying their $300 lifetime business privilege fee on anyone running a business in the city. Which seems almost reasonable until you realize that the city defines as "business" basically anything you could possibly due which results in someone giving you any amount of money, no matter how small.. So the blogger averaging $25 in annual revenue from ads is a "business" in the city's eyes, and needs to pay a flat fee for the privilege.

I don't know if Philedelphia is actually unusual in having this kind of fee, or if they're just unusual in choosing to enforce it on people who don't make money. It does remind me how much the government in general hates micro businesses, though. If you don't have the kind of entrepreneurial plan that you want to gamble hundreds of thousands on (or can convince someone else to do so), governments in America would generally rather your business did not exist, and will fine/tax/regulate it accordingly.

This is not quite fair, because American governments at various level also have programs to encourage small businesses, and if you are willing to navigate a sea of endless redtape, you can possibly -- if you are lucky and belong to the kind of group that government programs like -- get more help than harm from the massive schizoid bureaucracies that rule us.

Sorry, I must be feeling excessively cynical today.

But taxes and fees (from all levels of government) are scary, scary things to me. I haven't considered them during the handful of times in the past that someone has paid me to produce a piece of artwork. Maybe I should have. I'd been thinking that my hobbies cost me far, far more than they've ever earned me, and that the IRS would regard it as a hobby and not something I needed to file for. But even if that is the attitude of the feds, what about the state? City? County?

"Hire an accountant", they told her. For her business that hadn't earned enough in two years to pay an accountant for one hour.

I've seen [ profile] haikujaguar lament websites that don't have "donate" button. 'I want to support their work! Why won't they let me?'

Well. There's one answer for you. :(


Jul. 14th, 2009 08:27 am
rowyn: (just me)
The Wall Street Journal published this quirky article about a Mayfair city official's job to track down the owners of unoccupied mansions. Two things struck me from it:

Many owners decline to rent the homes due to local council tax rules, which tax properties at a lower rate if they are empty and unfurnished.

It is just like government to create a tax incentive for owners to leave properties vacant, and then, to fix the fact that people are actually leaving the properties vacant, employ someone whose job it is to find owners and force them to sell or occupy the properties. I mean, what else could they do? Stop offering the tax incentive? That's just crazy talk!

But this was my favorite part:

Mr. Palmer often takes a more sympathetic view to squatters than he does toward the owners of an abandoned property. [...] "At the end of the day, they have a similar goal of putting empty properties back into use," he says. "We just go about it in two very different ways."

Which is quite cool, especially since "they attract squatters" is one reason cities dislike vacant properties. OTOH, even squatters will make some effort to maintain the property they're living in.


Feb. 24th, 2009 09:53 am
rowyn: (cute)
How to spend your eight bucks!

These are answers from economists to a question posed by the Wall Street Journal, not an article in the Onion, so some of the answers are serious.  But you can tell it was a struggle for some of them to answer with a straight face.  My favorite:

Paul Kasriel, Northern Trust: I would use the extra cash to start a hedge fund, which would purchase newly-issued asset-backed securities. I would finance my position through the Fed’s TALF program.
rowyn: (thoughtful)
I've been reading here and there about the economic stimulus bill in Congress, but not very much about it in LJ. Which made me curious what my friends think of it. Hence, a quickie poll!

[Poll #1346426]

Also, if any of you are so inclined, I'd be happy to hear your thoughts in detail. :)
rowyn: (Default)
Banks Told: Lend More, Save More.

The link above is to an article, not an opinion piece, which is right because this is simply a fact. The message to banks has been "you need to lend more so we can get out of the recession, and oh also you need to save more so that you'll survive the recession." This message, of course, comes at a time when banks have less money than ever to lend or save, and fewer borrowers are creditworthy.

It's a variation on the same mixed message that gets sent to consumers: "We're in a recession because people aren't spending as much, but people need to stop spending and save more because we're in a recession."

There is truth in both halves of both statements. There are good reasons for wanting banks to, somehow, do more of both, just like there are good reasons for wanting consumers to do more of both. When regulators say "we're trying to strike the right balance", they're right: a balance needs to be struck.

One of my friends linked to an AP article that hyped up another fact, which is also mentioned in the WSJ article: TARP money is not being set aside to fund new lending, and in fact that the beneficiaries were not tracking allocation of TARP funds separately from the rest of their capital. The AP implied that this meant the TARP money must have been misspent, which is nonsense.

The primary purpose of TARP was, and is, to stop banks from filing for bankruptcy. So far, it has accomplished this purpose. It's a pretty worthy goal, mind you, and TARP was conceived at a time where major financial institutions were collapsing at a rate of one every few days. That doesn't mean that TARP was necessary or the right move, but it shouldn't be dismissed out of hand as foolish. When Bernanke says that TARP is there to encourage lending, he is absolutely correct. It is encouraging lending. See, a bank that's lending 75% of what it lent a year ago is lending more than the 0% that a failed bank would lend.

My own opinion on the situation is that the current crisis is partly the result of inadequate capital reserves and lax lending standards. Asking banks to drain their capital reserves and resume lending at lax standards is just putting off the day of reckoning. Yes, banks cannot over-correct. We can't save our way out of a recession any more that we can spend our way out of it. Banks must continue to make loans to creditworthy borrowers.

But I strongly feel that Congressional and popular pressure on banks to dedicate TARP funds to lending is deeply misguided. Regulators know what they're doing when they tell banks to build their capital cushions, and pressuring banks to write down bad loans is much better than Japan's 10-year "pretend everything is OK" policy of the 90s.
rowyn: (sledgehammer)
The House Committee on Education and Labor hears testimony on nationalizing* pensions and 401(k) accounts.

Dear Congress:

I do not want a bailout. I do not want to be punished for having chosen to save for my retirement by having my savings taken away from me. I do not want my retirement savings to go bankrupt by the time I'm 65 the way the existing Social Security Administration is going to. In short:


Please keep your grubby hands off of my investments. K thx.

Love and kisses,

* Edit: [ profile] shaterri looked at the actual testimony (which I can't do at the moment, so see his comment below), and apparently the article linked above is at the least inflammatory if not outright fabrication: the testifying speaker doesn't advocate "confiscating" existing 401(k)s or pensions. I feel better. Thanks, Shaterri! And I'm sure Congress wouldn't take her seriously even if she had. Really. 99.9% sure, anyway.
rowyn: (sledgehammer)
Okay, here's what I hate about mainstream financial reporting.

It throws around big numbers with no context. It tosses about terms without defining them and misleads readers, very badly, about what's actually going on.

I'm going to try to explain what happened with AIG. I may even try to do it without ranting. Bear with me.

The AIG deal has been described as a "bailout" which "cost $85 billion". From this, one might conclude that the Federal Reserve gave AIG an $85 billion present with no strings attached. This is ... not true. See, I said I'd try not to rant.

The Fed gave AIG an $85 billion loan at a rate of Prime + 8% (that's currently 13%, and is a rate my bank would be ashamed to offer on unsecured loans). In return for this loan (not an investment, mind you, a loan) the Fed also received a 79.9% equity stake and forced the ousting of AIG's CEO*.

This is the Fed's "bailout" of AIG. It takes control of the company, dilutes AIG's shares, and charges an onerous interest rate. This is not a sweetheart deal. This is not something you want to have happen to your company. The directors' reaction to the offer was not "Praise the Lord! We are saved!" It was "... come to think of it, bankruptcy's not that bad." In fact, AIG's directors almost didn't accept. And yes, their only other alternative at that juncture was bankruptcy. The Fed's offer was so bad that it's just marginally better for AIG's shareholders than a bankruptcy filing, which would wipe them out completely instead of just mostly. It is significantly better for AIG's creditors and customers than a bankruptcy filing, since an AIG which is still in business is much more likely to pay them back in full. This is as it should be: shareholders get most of the benefits when a company does well and accordingly should shoulder most of the burden when it plunges. The deal was not offered for the benefit of AIG or its shareholders. It was extended for the benefit of AIG's creditors, customers, and the broader market. (Whether or not it is good for the broader market is debatable. It's supposed to calm fears but it's questionable whether it actually does, and moreover nationalization under any terms is usually bad for the overall economy).

Now, as a good little libertarian, I don't want my government in the business of selling insurance or leasing airplanes (those two arms of AIG's operations are in fine shape, btw) or engaging in credit default swaps** (which is what killed the company). So as a libertarian, I don't want them to own the company even at fire-sale prices.

That said, as a good little capitalist I gotta say that Mr. Paulson drove one heck of a bargain. I think he's appraised the risk well and that the deal for AIG was not only a reasonable valuation of its worth, but probably undervalues it. In other words, I think the taxpayer is going to make money on this deal in the long run, not lose money. That's not a guarantee of profit: this is a deal made under the capitalist system and this year's lesson is "Capitalism Involves Risk". Just because the odds are 60:40 in your favor doesn't mean you will win on any given bet. This is a bet. It may well lose money.

But what it's not is a gift. It is not an $85 billion Christmas present from Santa Federal Reserve to AIG. It is not an excuse for every other company to whine "but where's my present?"

You want what AIG got? Then bend over and grab your ankles.

And when Detroit automakers come complaining that they deserve a loan too, well, you can tell 'em this from me: if they want to offer an 80% equity stake in return for a loan at 13% interest, I bet they don't need to go to Washington to find a taker.


OK, I didn't manage to do that without ranting. Sorry.

* This last is a shame, actually, because the poor guy had only had the job two months and AIG's collapse was hardly his fault. I think giving him the sack was a political move, part of the Fed's message to other companies in dire straits: "do NOT let this happen to you or you WILL regret it".
** "Credit default swaps" are bets between two companies on whether or not a loan will default. Insitutional investors in loan securities, like those lovely subprime ones you've heard so much about, would buy credit default swaps as protection in the event of a default on their investment. AIG was on the side of the bet that said these wouldn't default. Obviously, this did not turn out to be a winning bet.
rowyn: (sledgehammer)
I am not an expert on financial matters, but I've been following financial news for the last ten years or so. I read it because I find the workings of the market and businesses ... fun. Some people like to read about politics or international incidents or local crime; me, I like hearing about why companies are succeeding or failing, why they're making the decisions they do. Business, at its root, is all about the things people do every day; maybe that's why it interests me.

It's been an interesting time for business news recently, in the Chinese proverb sense. Some of this raises the kind of passion in me that most people reserve for political issues like abortion.

So just to warn you: this is a rant. I am ranting about mortgage lending, which is very topical if not normally considered the subject of ranting. I will endeavor to give some useful information and not be boring, but my biases will color my presentation. But I do know that Fannie Mae and Freddie Mac didn't really eat babies, kick puppies, cause global warming, or single-handedly destroy the global financial system. Honest.


Nine or ten years ago, when I was still new to banking, my boss talked to me about Baby Bank's plan to hire a new loan officer. "He's going to make mortgage loans for us to sell on the secondary market."

"Oh? How's that work?" Baby Bank did very few home loans, and I'd always wondered why not.

"We find borrowers who want loans against homes, and make them loans according to Fannie Mae's standards. Then we sell them to another bank, who pays us a fee. Then that bank sells them to Fannie Mae, who pays a fee to that bank to service the loans, and packages the loan together with other loans and sells them to investors as securitized investments ... bonds, basically."

"Investors ... like ... banks?" I said. "Like us?"


"Doesn't this sound ... unnecessarily complicated to you? Why don't we just lend the borrower the money ourselves and keep the loan?"

"They offer much better rates than we can. Twenty or third points better. We can't match their rates, so the only way for us to do these kinds of loans is to offer their rates and sell them the loans."

"Which are paying fee slices to two other parties and making a profit for Fannie Mae too? How do they do that?"

"I have no idea."

Thus began my distrust of the FMs. I learned more about them over the years, none of which made me like them any better. After we hired the new loan officer, I went to a seminar with him on how to make loans that met their guidelines. This would've been in '98 or '99. They touted products for customers with high credit scores that required downpayments of only 5% of the sale price and waived requirements to provide proof of income and other documentation they deemed superfluous.

Fannie Mae and Freddie Mac are, or rather, were, government-chartered institutions with a mandate to increase home ownership through loans to American home buyers and owners. However, they were not government-owned nor government-guaranteed. They were a private company. ("Private" here in the sense of "not government owned". They're publicly traded on the stock market, like Microsoft or Lehman Brothers.) When they made money, their stockholders benefited. If they lost money, their stockholders, in theory, lost money.

Except that no one ever expected the latter to happen. The FMs offered rock-bottom rates for their loans to consumers. Those who bought the securitized investments received commeasurately low rates for the investments. Because everyone, and I mean everyone, thought that if those investments ever nose-dived the Feds would bail out the FMs.

Meanwhile, the FMs worked at gobbling up the market, which is easy to do when you're offering the best rate in town. They doled out tens of millions of dollars lobbying Congress for less oversight and extensions to their charter. They wanted to raise the cap on the size of loans they could make, and lower their standards for the quality of loans they could make.

They are, as a result, huge. They own or guarantee roughly half the housing market in US. That's about six trillion dollars. Not billion. Trillion. 6,000,000,000,000. Fun comparison: the entire United States debt is a bit under ten trillion. But bear in mind that this six trillion is not money owed *by* the FMs -- it's money owed *to* them or to the investors they've sold it to. The money gets funneled around every which way. Also, $6 trillion is the face value; a substantial fraction of that portfolio is severely devalued as the result of the mortgage market meltdown. How much of it? No one knows yet. That's part of the problem. This isn't because the FMs are evil and trying to hide their losses, incidentally. It's because the market is still melting down and no one knows when it will stabilize or where.

However, the FMs, like everyone other lending institution in the world, is leveraged. The right analogy isn't "I took $10,000 out of my savings account and lent it to Bob, who didn't pay me back and now I'm out the money, wah." The analogy is closer to "I borrowed $10,000 from my bank and lent it to Bob, who didn't pay it back and now I have to file for bankruptcy." But it's more complicated than that, because the investors have varying levels of recourse. So: "I took $100 from my savings account, had Mary chip in $8000 that she'd only get paid back if Bob paid me back in full, had David chip in $1000 on the condition that he'd get paid back by Bob first, and borrowed $900 from a bank myself, and lent $10,000 to Bob" is a little more accurate. I am both simplifying and making up the ratios; I don't know the exact details of Fannie or Freddie's tens of millions of deals.

And of course, having all those extra people involved makes the chain a disaster when it unwinds, because at every step of the way someone will look for someone else to blame. Everyone's looking at the paperwork for loopholes, and if they find anything, they sue. The investors sue FM, FM sues the loan servicer, the loan servicer sues the broker. Also, since every loan is owned by a pool of investors and this complex chain of intervening layers, no one actually has the authority to renegotiate with a struggling borrower. The complexity of the chain forces foreclosure even when foreclosure is a lousy option, because the contract allows no other possibility. This problem is endemic to the mortgage market, not unique to the FMs, but it's still one of their problems.

Now, our problem with the FMs is multifold. Arguably, they never should have been chartered. Having been chartered, they should have been stuck with their original mission of increasing home ownership among low-income citizens, and not allowed to expand in every direction. Having been allowed to expand in every direction, they should have been subject to a whole pile more scrutiny. Congress made this problem, and Congress had a multitude of chances to rein it in and chose not to. Anyone who looked could see that the FMs were a disaster waiting to happen. The Wall Street Journal has been preaching against them for years. But the FMs were allowed to sail on. Their meltdown was their own doing: they're the ones who provided the financing for the run-up in housing prices in the first place.

I hate -- and unless you have been watching these people steal business from your bank for years based on lies and political incest, you cannot understand the depth and passion of my hatred -- I hate that the Feds bailed them out. Because, of course, that's the whole reason they had this giant competitive advantage over the rest of the industry; that's the way they drove the rest of the industry into increasingly risky ventures in a vain effort to compete. Because everyone always knew that they'd get bailed out. The feds wouldn't let them fail.

But, even more depressingly, I know that at this stage of the game it's much too late for the feds to do anything else but bail them out. The FMs can't be allowed to simply fail and force all their stockholders and all those buyers of securitized investments to take a bath. Because that's everyone. Everybody holds those investments. They're considered almost as stable as Treasury bonds (because, you know, everyone "knew" the US gov't would guarantee them in the end -- and look! they were right! *FUME*) As bad as the whole premise of the FMs was and as much as they deserved to fail, their collapse would take down the global market. It wouldn't be quite as bad as the US federal government defaulting on its debt (that would be TEOTWAWKI), but it'd be close.

So the US taxpayer will bail them out, because the US taxpayer was already going to get screwed one way or the other and this way is cheaper than another Great Depression would be.

Not that I'm not bitter.

In conclusion:

The FMs are an example of "private profit, public risk". For decades, the FMs raked in the cash for their shareholders and investors. Now that their bets have finally soured, the US taxpayer is going to pay for their risks. This is not a failure of the free market, because the free market didn't make the FMs: Congress did. The FMs represented the worst aspects of the market and government; it didn't even have the benefit of a nationalized institution where at least the taxpayer makes money when the agency.

I'm not saying that everything driving prices in the market down right now is the fault of the FMs. Lehman Bros. filing for bankruptcy is pretty much the result of normal free market forces. But this rant is long enough already. If I muster up the energy I'll write more about that later.
rowyn: (studious)
Encouraging risk-taking is a big part of American society. It's one of the reasons that capitalism works: it encourages risk-taking by offering big individual rewards for success. Pure communism discourages risk-taking by offering very little reward for success (perhaps fame or some trickle-down benefit gaiined from helping everyone, but no jackpots).

The flip side of the reward for success is the cost of failure. A high penalty for failure discourages risk-taking. This is, to a degree, good, because you want to discourage people from taking stupid risks. But if the penalties are too severe, then otherwise good bets will start to look bad. For example, let's say I want to invest money in an idea that I believe has a 75% chance of returning 200% on my investment, and a 25% chance of losing everything. From a pure-math standpoint, this is a rational risk. My average return would be 125% of my investment: clearly right.

But let's say that I need $1,000 to invest, and that this is my rent money and I'll be evicted if I lose it. Suddenly, the total price of failure is significantly higher. It still might be right to invest, but I'm going to be much less happy about it if I lose.

Now let's say I need $10,000 to invest, and the only way I can get it is by borrowing money that I won't be ably to pay back if I lose on the investment. Let's assume I'm facing both eviction and bankruptcy if I lose now. That extra $20,000 3/4ths of the time isn't looking so great compared to financial ruin 1/4th of the time.

As a last example: imagine that there are no bankruptcy laws and America has debtor's prison instead, with jail sentences of two months for every $1000. In this instance, borrowing the money to invest it in something so risky would be wholly irrational if not outright insanity.

In my ideal world, I think I want this investment to look, roughly, about as attractive whether I have to borrow the money to invest it or not. I don't want it to look more attractive if I'm borrowing the money (because it's not "my" money) but I don't want it to look markedly less attractive, either (because of horrific penalities for failure to repay). It's a good risk: I want to encourage people to take it.

By contrast, I do not want my ideal world to encourage people to take bad risks. A program that said "you can claim as a tax credit any losses on investments" would be horrible, because that would make otherwise stupid risks rational. A scenario where there's a 95% chance of total loss and a 5% chance of doubling the investment would suddenly become mathematically right, because the government would be covering my losses 95% of the time and I still get to keep my gains the 5% that it works out. This is bad.

I'm a libertarian in part because I believe that government intervention far more often encourages bad risks than good ones. For example, I don't like the idea of a government bailout of any of the parties (lenders, borrowers, or investors) to the real estate market meltdown, because these are all people who engaged in risky behavior that would have profited them greatly had it worked out. It did not work out, and ameliorating that risk for them means encouraging them and others after them to take similar poor risks and expect a government bailout.

But as I think of the distinction between "debtor's prison" and "bankruptcy", I wonder if there are other ways in which law could encourage responsible risk-taking. What could the government do to help people to take good risks without making bad risks attractive?
rowyn: (studious)
I'm in a good mood today, despite being short on sleep.

Last Saturday, Lut, [ profile] terrycloth and I levelled our supervillains on Virtue to 50th, so we'd be able to play the new villain epic archetypes when issue 12 comes out. I don't think there was any big rush on this -- last I saw issue 12 hadn't even gone live on the test server yet. But we pushed a bit for it anyway.

I was a little melancholy about Untainted (my highest level villain) hitting 50th, actually. In Warcraft everyone's always excited to reach the level cap, because there's all this stuff to do in the game that you can't do until you reach the level cap. The endgame is all about raiding and getting phat lewt and whatnot. But City of Heroes really doesn't have much content for heroes and villains who are at the level cap. Which I like, because I don't enjoy raiding or getting phat lewt very much. There is some stuff -- taskforces and strikeforces and fighting giant monsters and whatnot -- but not things most people want to do over and over and over again. Not the way WoW guilds will have 20-man raids on Karazhan every night for 5 hours. No, in City of Heroes mostly what people do after hitting 50 is play new characters.

So the three of us started talking about making up new characters, since our existing stables of 15+ each spread across two or more servers were clearly insufficient*.

* It's the costume generator, I think. CoH lets you have 12 characters on each server and it's still not enough.

We eventually settled on /storm controllers with a kind of "bad kung fu flick" theme to the characters. Although between my character (who looks like a slightly freaky kid) and [ profile] terrycloth's (a humanoid Chinese dog), it's more of an animated kid's show than an action flick:

Foo Fires (Terrycloth): Maybe I should try again. I don't really think this character fits with the two of yours.
Jade Winds (Me): No, it works. I'm the plucky kid, you're the animal mascot, and Six Demon Bag (Lut) is our grumpy mentor.

They both took fire/storm as their powersets, and I took illusion/storm to be a little different. And we started the new characters on Justice, because there's a Repeat Offenders supergroup there, "Pressure Cookers", that's all illusion/storm and fire/storm controllers. (Repeat Offenders does this sort of thing a lot: find quirky powersets that work well if you get a whole bunch together at once, and then make a supergroup of just those character types.)

No one from Pressure Cookers was around when we came on, so we haven't signed up yet. Instead, we spent a few hours cutting a swath through crime in Paragon City. At one point we were rooting gang members out of a burning building:

Jade Winds: Did one of you get a little careless?
Foo Fires: What? No no, I didn't burn *this* building down.
Hellion Gang Member (NPC): Look out, it's Foo Fires! Get him!
Six Demon Bag: The building's on fire, and they know Foo by name.
Foo Fires: Coincidence!
Six Demon Bag: One should always be suspicious of coincidences.
Jade Winds: Six also uses fire magic. And he knows Foo as well.
Six Demon Bag: Coincidence.
Jade Winds: I'm suspicious.
Six Demon Bag: And well you should be.
Six Demon Bag: Er, I mean: pay no attention to that.

The characters made it to 7th level, just barely, before we logged for the evening. I convinced Lut to stay up long enough to do a bank mission and get temp travel powers, because those make life a lot easier.

One of the quirks of starting the new crew on Justice is that none of us had any characters on the server. So there were no level 50s around to drop a couple million influence on us for petty cash.
This doesn't bother me. In fact, I'm actually happy about it, as I get to see how long it takes me to amass wealth starting from zero.

You don't really start from zero in CoH, as it happens. The tutorial zone supplies you with two third-tier inspirations, and these sell for 10-50,000 on the auction house. (Except during the Halloween events, when the market for them crashes because the game hands them out like candy during it. Literally.) 25,000 is more than enough to get anything a new character's little heart desires from NPC vendors in the game. And it's not like EQ: the NPC vendors sell everything a PC needs to be competent.

Still, there's some nice things that one can only get from other PCs via the inflated prices of the auction house. And since I enjoy fiddling with the market to make money, I'm doing it here.

So Lut and I pooled our cash and he handed me his third-tier inspirations and I set to work. I guesstimated that I could get to a million influence before 12th level. This is going to be even easier than I thought, due to our preference for battling only magic-based villains. Magic-based villains, especially as you get higher in level, get rarer and are also more difficult to fight than tech-based varieties. As a result, the salvage that drops from them is correspondingly a lot more valuable. Also, even the salvage that new characters get is still in use by the highest levels (ie, the ones with the most cash to spend).

My other characters all hoard their magic salvage in their vaults against the day that they'll need it. But since these new ones needed money before they were going to be making anything, this morning Jade Winds sold off everything she'd accumulated the night before, most of it priced to move. Between that and selling the four inspirations, I had almost a quarter of a million to start arbitraging with. Arbitraging with lowbies is kind of a pain, because your character's inventory space expands as you level and when you're 7th you don't have very much. But we were in King's Row, where the market is close to an NPC vendor, so it wasn't horrible. Jade bought and sold eight or so recipes in a hurry this morning, and made, I'd guess, around 100k in profit from it. I left a bunch of bids up before I logged out this morning, so probably this evening she'll be able to make considerably more.

One of the things that makes this interesting for me is that in EQ, there used to be hordes of lowbies mobbing high traffic spots and begging for money. I don't see that in CoH, and I think that the ease with which lowbies can raise cash from the market is a big part of that. In some sense, the lowbies are getting charity from the rich, but it's instutionalized instead of individual.

Another example of charity: you can get badges for making invention-origin enhancements. This is mainly a hobby for the rich, as making IOs is costly. But IOs can olny be sold to other PCs. So most of the IO enhancements that get made for badges are auctioned off, and many of them sell for rock-bottom prices -- far, far less than the cost of their components. I scooped up several of the less popular ones cheaply for Jade.

Alas, I'm not likely to play Jade Winds much for the next several days. Lut has a raid in WoW tonight and tomorrow night I'm flying to Florida. So tonight I'll pack for the trip when I get home, and then play some other character in CoH or CoV afterwards.

But I expect I'll do some more quick arbitrage runs tonight and tomorrow morning with her. Because I have a weird idea of fun. :)

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