One of the pure vanities of blogging is the luxury of spilling one's late-night thought experiments out to a wider audience than may otherwise have been prudent. This is particularly riskless on a weblog that has no public comment system activated. This means that if, for instance, one grows more and more skeptical of the attitude that "The cost of taking care of old folks is going to go up a bit. We'll pay it. Relax."1 a thought experiment in the earning power of leftist fantasy taxation scenarios is not a difficult exercise to undertake and expose an audience to. Let us, in this direction then, away:

1. 1. CKMichaelson "SAR #9108/Weekender," Some Assembly Required (April 18, 2009).

A long time ago on a buyout far, far away I had occasion to learn far more than I wanted to know about customer service operations and their nature as an exception processing problem. The stand out for me from that time was the fact that a super majority of disgruntled customers later rate themselves "most satisfied" with their customer service experience if a few key rules are adhered to. This statistic extended out even to customers who wanted, but did not receive, refunds or credits for future services. This was something of a surprise to me, as was the simplicity of the key rules that bound the experience. They were codified as "information and agency." In my notes from that time, which I recently found when moving boxes, I wrote down a few key remarks from the Senior Vice President for Customer Service, one of the smartest executives who was ever fired immediately after a buyout. (We lost the auction to a more famous named buyout firm who paid nearly 35% more than our offer- the next highest bid. The winner hacked up the executive ranks immediately. The company is presently in tatters and I would be entirely unsurprised to see it file before long).

I spent a good deal of time reading and absorbing The Independent's stark and haunting take on Dubai,1 nicely cited today by Megan McArdle.2 I have spent quite a bit of time in Dubai and seen a number of sides of the "Middle Eastern Shangri-La," not least of which being the experience of a female expat in the jurisdiction. I can only describe this last as characterized both by the constantly disconcerting presence of an ill-defined malice (perhaps best understood as a sort of ambient white noise of potential danger) and the occasionally terrifying and instant materialization of real, even mortal danger from this shapeless white snow of audio. (This last I know only second hand, having watched the arrest of a friend without accompanying her into custody).

1. 1. Johann Hari, "The Dark Side of Dubai," The Independent (April 7, 2009)
2. 2. Megan McArdle, "Why Bankruptcy Matters," Asymmetrical Information (April 14, 2009).

In 1847 Don David Pacifico's home in Athens was attacked by an anti-Jewish mob. His allegations that ensued against the Greek government included the accusation the the sons of a Greek minister had participated in the vandalism and that the Greek police had looked on and done nothing. As Pacifico had been born in Gibraltar, he had a rather strong argument that he was a British subject. Hence, when the Greek government refused compensation, claiming (with some merit) that he had inflated his claims for damage, Britain, in the form of Henry John Temple, The Third Viscount Palmerston, the then British Foreign Secretary, adopted the cause and used the British Navy to blockade Greece. What resulted is now commonly called "The Don Pacifico Affair." The House of Lords proposed a censure of what it saw as poorly formed ministerial foreign policy and, Mr. Roebuck, member for Sheffield, moved a resolution in opposition which should:

...test the confidence of the House of Commons and therefore of the people of England in the government: "That the principles which hitherto have regulated the foreign policy of Her Majesty's Government are such as were required to preserve untarnished the honor and dignity of this country, and in times of unexampled difficulty the best qualified to maintain peace between England and various nations of the world."1

1. 1. Hansard CXII [3d Ser.], 380-444.

One of the sure signs that the beginning of the end has begun for a Ponziesque scheme (and this term is intended here in its broadest possible sense) is the rattling, metal-on-metal scraping sound of a key turning clumsily in the outside lock, distinctly audible on the inside as it latches the only door leading out of the room in which your cash is stored. Once capital restrictions start to appear you know the end is nigh. Broadening the scope of that analysis, the failure mode checklist for the effort to control any capital system universally has restrictive capital controls (explicit or implicit) as one of the last items. What is surprising is that this effect is not more often recognized as a member of a larger class of problems: the effort to close (or, more accurately, to isolate) open systems- an effort doomed in the physical world by the laws of thermodynamics before it is even conceived. That it seems difficult to convince what may loosely be called "The Regulatori" that there are corollaries everywhere where systems interact is both unsurprising and sad.

The battle of the uptick continues unabated despite the fact that the campaign it underlies lacks even the most ethereal semblance of foundation. It takes no more thought than the realization that certain prices, (gasoline, crude, wheat, corn, soy, cotton) are not expected to trace an ever-upward path, or at least that it is considered bad if they do, to recognize the pure and rank hypocrisy that is the misguided "War on Declines."

Consider for a moment the implications of "up only." Are there no equities, none at all, that will, in fact, turn out to be overpriced today? That is, that the net present value of the total sum of their actual future cash flows for any reasonable discount rate is far exceeded by the current share price of the issue? A moment's reflection on this basic thought experiment should lead the erudite finem respice reader to the inevitable conclusion that any attack on short sellers is akin to the concept that mere belief in overvalued equities, much less the willingness to back this up with cash, is problematic.

Interestingly, the star of Member of the European Parliament Daniel Hannan has, quite literally overnight, ascended to dazzling heights and now burns brightly in the sky, propelled, one hopes not yet to its zenith, by his acerbic greeting of the "devalued Prime Minister" Gordon Brown of a "devalued government" on the occasion of the Prime Minister's visit to the European Parliament just yesterday.1 Those of us who have been quiet followers of Hannan's for many years now are pleased to find audiences in Europe, the United States and elsewhere apparently well conditioned enough, after the absolute nonsense of the last two or three decades, for the wit and thrust of his discourse to rack up over a third of a million views in a day.

1. 1. "The Devalued Prime Minister Of A Devalued Government," Daniel Hannan, MEP (South East England), Strausberg, France (March 24, 2009).

The Treasury today unveiled a fourth pillar in the battle to re-inflate the bubble to provide us with the asset prices to which we have grown accustomed. This one is focused on legacy assets, that is, mortgage backed securities and loans that have gone to custard, and a public-private partnership to pull them off the books. The idea is that the FDIC will evaluate the loans and assign a leverage ratio it feels acceptable. The FDIC will then backstop non-recourse loans to cover up to 85% of the purchase price for the securities. Or the Fed will provide loans directly, in the case of securities. The rest of the purchase price will be a 50%/50% split with the government matching private investors dollar for dollar to fill in the equity capital.

Of course, lest you forget, the other pillars of the crisis are:

• Falling Home Prices
• Frozen Credit
• Bank Capital Strength

When Barney Frank stands up and says "We should act like owners," with respect to, for example, AIG, it brings up some rather interesting questions. For instance: Who holds the stock certificates on the preferred and common stock "the government" purchased? Who holds the notes for the debt? I sort of assume the answer here is "The Treasury" or "The Federal Reserve," as I'm not sure what structure Congress would even have place to take possession of equity, for instance.1 So, in the case of the former, the Treasury is a part of the Executive Branch. In the latter case, obviously the Federal Reserve is a part of the "Not A Government Branch" Branch. Can Barney, or any member of Congress, attempt to derive any power or privilege of ownership in these assets in a system that enshrines the doctrine of Separation of Powers? I'm not even sure Congress gets to vote the stock, much less claim some sort of extra regulatory powers that flow from ownership. Not that we are near there yet, but am I alone in thinking this would be an exceptionally interesting Supreme Court Case?

1. 1. Actually, the correct answer is "Jill M. Considine, former chairman of the Depository Trust & Clearing Corporation; Chester B. Feldberg, former chairman of Barclays Americas; and Douglas L. Foshee, president and chief executive officer of El Paso Corporation," as these are the three trustees of the A.I.G. government trust. They are vested with "absolute discretion and control over the A.I.G. stock, subject only to the terms of the Trust Agreement, and will exercise all rights, powers and privileges of a shareholder of A.I.G." ("Who Owns A.I.G.? (A Continuing Story)," Dealbook, February 5, 2009).

Serious question: Is the reason that we never hear about cabinet appointments (of whatever political denomination) going through background checks and finding that the IRS owes them for overpaid taxes because it never happens, or because it simply isn't reported? This seems a very odd and strangely coincidental imbalance to me, just statistically speaking.