Tuesday, October 26, 2010

Always get it in writing -- on paper

The foreclosure crisis has highlighted again a major flaw of our modern economy: the fragility of ownership and property rights in the Internet age. Quite apart from the possibility of an EMP field blanking out everybody’s servers, the sheer complexity of computer-managed structures such as securitization can make them very difficult if not impossible to unravel. At some point, we will all pay a major price for this flaw.

Securitization was always going to involve these kinds of problems. The idea that you can take a simple instrument like a home mortgage and dice up payments from it in hundreds of different directions, with mortgages being securitized and re-securitized, worked all right in the investment banks’ computers, but would never have worked on paper! Naturally, with sloppiness all round and a fair admixture of fraud, together with a lot of expensive lawyers available, the result has been an unholy mess. Even without fraud in the computer systems themselves, the passage of time, as not only the original deals but the original deal management systems become forgotten, will ensure that ownership rights become untraceable. For a substantial percentage – perhaps 5%, perhaps 10% -- of the mortgages written between 2002 and 2007, this process will result in the property rights, in both the mortgage and the underlying house, becoming unenforceable because the evidence for them does not exist in unambiguous form.

While securitization has given rise to the most immediate problems, there are other areas in which property rights have been rendered more uncertain by computerization. Dematerialized bonds and stocks, the great back-office fad of the 1980s and 1990s, mean that investors are now completely dependent on the record-keeping capabilities of New Jersey computer servers. Banks, investment companies and credit card companies increasingly badger their customers to go “paperless” thus leaving themselves with no tangible record of their assets and liabilities.

The dangers of this are obvious. The science fiction threat of an “EMP” nuclear attack is far greater now than it was in the early days of the Internet around 1995-96, although electronic equipment was already as vulnerable then as it is now. Back then, banks still sent paper statements and transactions in general generated a blizzard of paper, even though the Internet was rapidly becoming a popular means of communication. Hence an EMP destruction of the 1995-6 Internet would have left us with written records of almost all significant transactions. That is far from being the case today. Far from having improved our defenses against EMP we have made ourselves infinitely more vulnerable. Like holders of California subprime mortgages with inadequate documentation, our property rights have been sharply diminished.

Ownership rights were not particularly solid in the ancient world; there was always the risk that someone with more clout or simply a bigger band of thugs would dispossess you. Outside Song Dynasty China, the first attempt at a society with solid ownership rights occurred in the reign of England’s Henry VII. He established the rule of law, even applying it to the baronage and setting up a system of Justices of the Peace to enforce prohibitions against random thuggery. His Tudor and early Stuart successors violated property rights frequently, but after the Restoration the protection of property rights increased rapidly – an increase that coincided with Britain’s economic take-off and to some extent caused it.

The high point of property rights in Britain came under the great Tory governments of 1783-1830. By that time, the legal system worked well, under the benign guidance for most of the period of Lord Chancellor Eldon. With a sound monetary system, property rights could thereby be preserved over astonishingly long periods. In Anthony Trollope’s first Barchester novel “The Warden,” published in 1855 the plot revolves around a bequest for Hiram’s Hospital that had been made in 1434. By the time of the novel, roughly the late 1840s, the bequest has increased in value, providing an excellent income for the hospital’s warden, Septimus Harding.

The gradual erosion of property rights after 1830 is however illustrated by the novel’s central struggle to update the terms of the bequest more in line with the money values and moral principles of the Whig 19th Century, depriving Harding of most of his income. Harding and his supporters the Bishop of Barchester and Archdeacon Grantly base their case on the values of their pre-1830 youth; in the Whig world of two decades later they are eventually defeated. However the protection and expansion of the Hiram’s Hospital property rights for 400 years is a notable example of the stability of both money values and society as a whole that emerged in the centuries following John Hiram’s death.

Thus in Trollope’s world, 400-year old documents kept in strong boxes by family solicitors (or, in that case, those of the Diocese of Barchester) were still rock-solid evidence for the disposition of substantial sums of money. Those property rights had already begun breaking down in 1855 and were sadly further eroded by the 20th century tendencies of governments toward expropriation, ruinous taxation and currency debasement. The virtualization of records has now taken that unhappy process a massive stage further.

One has only to think of the chances of making a successful claim in the year 2410 based on today’s computerized records to realize how far property rights have sunk. Computer databases are updated every 2-3 years and after a few “generations” of such updates become unusable. Even ten years ago, the massive panic over the Y2K problem, based on inadequate programs that were at that stage only 20-30 years old, shows how quickly data stored in virtual form can be rendered inaccessible. In addition, there’s the destructibility of the computers themselves, which has become a far worse problem with the new migration of data to cell-phones and tablets. (Desktops were equally likely to be smashed when you dropped them, but they were much less likely to be dropped, since they were not considered “portable.”)

If John Hiram’s will were made today therefore, and kept in virtual form, it would become a major data recovery problem by 2030 and entirely unavailable by 2050 or so. (Bizarrely destructive monetary policies might well also make his legacy valueless in that time!) Within a tenth of the period for which the original Hiram’s will was preserved by the Diocese of Barchester’s solicitors, and the value of his property preserved by good management aided by mostly sound monetary policies, the property of a new John Hiram would have been decimated, and the evidence for its existence destroyed.

This problem will get worse not better. Its ramifications will become exponentially more obvious as the virtualization revolution ages, and only concerted action, nowhere currently in view, can remove it.



A Mass Nervous Breakdown of the Left

The left can be mean, vicious, and deceitful. I've recently concluded, however, that the left is having, before our eyes, a mass nervous breakdown at the prospects of its collapse, exacerbated by the lost prospect of being on the verge of something really big. They thought they had won. Now, they're seeing it all crumble in a mountain of unsustainable debt, a loss of freedom, and an awakening of voter awareness of who's and what's at fault.

I first came to the conclusion that the left had crossed a sanity threshold to the point that its arguments were hurting its cause when President Obama and the patsy chorus on the left began attacking the U.S. Chamber of Commerce and other very American entities, without proof, of using foreign money on political ads.

The president himself had taken contributions of questionable origin. The left raises money from multinational sources the same way as those they accuse, but the left probably has a problem twice as incriminating. That angle of attack was a tactical error that sane, strategically thinking people would not make. It's irrational.

There have been many other instances -- too many to mention in this piece -- but I don't recall ever seeing the like of the disproportionate, unhinged attacks on Christine O'Donnell for her statements addressing the Establishment Clause in her Widener Law School debate with Chris Coons.

The left couldn't possibly want that one Delaware Senate seat enough to match their vitriol.

It's important to understand the context in which the Establishment Clause issue was addressed at the debate. Chris Coons said that only evolution must be taught in schools, and that intelligent design is prohibited from being discussed, even as a dissenting footnote to the conclusion that man was not created by God (who, then, consistent with Marxist doctrine, cannot be the source of our rights).

As I and others have pointed out, Ms. O'Donnell was right about the Establishment Clause. The mere debate, though, unravels many on the left.

Our president, for example, has stubbornly and repeatedly removed reference to "the Creator" from his quotations of the Declaration of Independence. That omission does little to motivate his base, enough of whom still believe God is the source of our rights, but it is a frontal attack on our most fundamental American principle -- that we are endowed with rights by God -- and is therefore an affront to most Americans' sense of being and security.

The omission is an irrational act, like the false, vitriolic representations of Christine O'Donnell's Establishment Clause comments. Those attacks on our fundamental, existential notions of who we are have already begun to unleash a torrent of thoughtful articles, blogs, and discussions about the bastardization of the Establishment Clause and, concomitantly, why control by the federal Department of Education should be replaced by state and local controls.

If nothing else, eliminating the Department of Education, which has been with us only since 1980 and is neither essential nor necessarily constitutional, would result in many billions of dollars saved for the states and localities. There is no constitutional question about fifty state departments of education, and once people understand how much money is spent and wasted by the U.S. Department of Education, and by states complying with its mandates, wiser heads will prevail.

Also, the national debate that will evolve will expose how the separation of church and state doctrine has become an excuse by which the left actually under-educates our children and is used to impede real First Amendment freedoms.

Religion, education, and even science, properly and thoughtfully addressed, are not only compatible, but often are inextricably linked. That's rational. Those who say religion may not be addressed in schools have an agenda, but that agenda is collapsing. And there are enough people on the left who understand correctly that the separation of church and state doctrine was not intended to remove discussion of religion, for religion's good or for its misuse, from the public square or within schools.

Would, for example, it be permissible for the federal government to ban the teaching of how religion has played a role in America's history, that religion played a role in the art of Michaelangelo, or that religion played a central role in the motivations and science of Galileo ("I do not feel obliged to believe that same God who endowed us with sense, reason, and intellect had intended for us to forgo their use")?

Would such teachings violate the separation of church and state? Or would the absence of such teachings deprive students of real knowledge?

The media, by showing a consuming, irrational rage over one relatively inconsequential race, has opened Pandora's box. They have made a larger debate front and center. The Tea Parties and new, fresh candidates will challenge notions and assumptions that have not been challenged enough in decades by go-along Republicans.

The left will laugh and mock those attempts. That's good. That's what got them into trouble in the first place. They're too crazed to understand that.

In fact, many people never experienced personally the savage, disingenuous, doctrinaire political media attacks until they became active in the Tea Parties. A sane person on the left would understand that what the left is doing is actually fulfilling Christine O'Donnell's "I'm you" ad. Sane-thinking people don't do things intentionally that hurt their own cause.



Comparing Jews to Nazis Meets NPR's 'Editorial Standards and Practices'

"[Juan Williams'] remarks were inconsistent with our editorial standards and practices, and undermined his credibility as a news analyst with NPR." - Statement issued by NPR

Remember what National Public Radio did to its foreign editor Loren Jenkins last year after he said, "Israel has used Gaza as a bombing target practice"?

They did nothing to him, for he was simply espousing the reckless anti-Israel hyperbole that is business-as-usual for NPR. Addressing an audience at an Aspen public radio event, Jenkins also said that Israel "created the biggest ghetto we've ever known" and is therefore responsible for the likelihood that Gazans "are all going to be turned into Palestinian terrorists because they have nothing else to do."

Andrea Levin of the Committee for Accuracy in Middle East Reporting in America (CAMERA), who reported on Jenkins' inflammatory falsehoods, also recounted his history of equating Jews with Nazis and softening the image of Palestinian terrorists:

That Jenkins, who clearly harbors prejudicial views about Israel, remains ensconced at NPR with influence over what is broadcast about the Middle East should be a worry to those who care about decent and factual coverage of the region.

An earlier CAMERA study of NPR bias found its editors and reporters working on behalf of organizations that vilify the Jewish state:

... Significantly, Jenkins has regularly appeared at events sponsored by the stridently anti-Israel American-Arab Anti- Discrimination Committee (ADC), and [reporter] Kate Seelye was for a number of years beginning in the late 1980's the ADC's Manager of Media Relations.

Not surprisingly, the report found, "[e]ntirely one-sided programs were commonplace, whether devoted to assailing Ariel Sharon as a 'war criminal,' to characterizing Israel as a 'Jim Crow' nation which should be done away with in its 'apartheid' form, or to blaming Israel for excessive violence, anti-American riots in Arab capitals and erosion of a supposed Arab commitment to peace."

Perhaps nothing reveals NPR's true colors more dramatically than their hiring of Hamas enthusiast Ali Abunimah (perhaps best-known as an early ally of President Obama on Mideast issues) as a commentator -- and their promise in 1998 to blacklist terrorism expert Steven Emerson when Abunimah demanded it.

Jeff Jacoby noted that Steven Emerson had achieved the status of "the nation's foremost expert on Islamic terrorism" when Abunimah set out to have him silenced.




The fallacy of TARP profits: "In the end, we were right. The entire Wall Street bailout has cost taxpayers billions while not improving the economy in the slightest. It surely has not improved the housing market or the job market — the unemployment rate stands at a high 9.6 percent. In fact, a Congressional Oversight Panel report says that ‘there is very little evidence to suggest that (TARP) led small banks to increase lending.’”

Insurance lessons from Alabama: "While Alabama certainly has some ambiguous laws and archaic regulations, the federal government ought to take a lesson from Alabama when it comes to property insurance. In an effort to keep the state’s insurer of last resort solvent (meaning it will have enough money to pay the claims people are likely to file), Bob Groves, manager of the state-run insurer, announced that they will no longer issue policies for homes built over or standing in water.”

One more reason why Britain really does not need the European Union: "Idly browsing, as I do, I came across this fascinating little post about the cost of transport. As a decent approximation, getting 30 tonnes of anything from anywhere to anywere now costs around $5,000. If, and only if, you’re on the container routes (either sea or rail). Which means that, again to a reasonable level of approximation, distance is no longer really a concern in trade matters. … It simply isn’t true any more that geography determines the costs of trade: thus geography shouldn’t be an influence upon trade policies.”

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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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