Carpe Diem

The Global Stock Market Boom: CD on CNBC

A version (top graph) of a Carpe Diem graph based on this post (bottom graph) was featured tonight on CNBC’s “Kudlow and Company,” the second time in two days that a CD graph was featured on Kudlow’s program!

Larry Kudlow: “Let’s run this graph of the global stock market boom; I may run this graph every day for the rest of the week – we’ve set a new record for the world stock market. We had a $14 trillion dollar increase in the last year, and we are up to $60 trillion of capitalization in the global stock market boom. It’s because of the global spread of free market capitalism.”

Carpe Diem!

Carpe Diem

Close-up of One Subprime Mortgage Deal Gone Bad

Fortune has an excellent article about subprime mortgages, with a detailed analysis of a specific $494 million mortgage-backed security (MBS) issued by Goldman Sachs (GSAMP Trust 2006-S3) in 2006 backed by second-mortgages, probably typical of many other MBSs issued by Goldman Sachs, Merrill-Lynch, and other investment banks. Here are some details of the GSAMP Trust-2006 S3 MBS:

Number of individual second-mortgages in Goldman Sachs’ GSAMP Trust 2006-S3 MBS: 8,274

Average equity that the second-mortgage borrowers had in their homes: 0.71%

Average loan-to-value of the issue’s borrowers: 99.29%

Percentage of loans originated in California: More than 33%

Percent of loans that were no-documentation or low-documentation: 58%

Number of tranches created in the MBS: 13

Number of tranches that were originally investment-grade: 10 (see chart above)

Percent of the MBS originally rated investment-grade: 68%

Number of tranches currently investment-grade: 3

Number of tranches currently in default: 6

Moody’s projection of Moody’s projection of loans that would default: 10%

Actual number of loans in default in September 2007: 18%

Read the article for more details, it’s fascinating.

Bottom Line: Given that most of the original borrowers had no equity in their homes, the only way this story could have turned out positive is if home prices had continued to appreciate. It’s also amazing and surprising that Moody’s and and S&P could have rated 68% of the issue investment grade.

Carpe Diem

Political “Solutions”: Socialism on Installment Plan?

From economist Thomas Sowell’s op-ed Political “Solutions”:

It is remarkable how many political “solutions” today are dealing with problems created by previous political “solutions.” Three examples that come to mind immediately are the housing market crisis, the wildfires in southern California, and the water shortages in the west.

Sowell outlines a dangerous pattern:

1. Based on some perceived market failure, a political solution (regulation, subsidies, legislation, tariffs, price controls, property rights restrictions, below-market insurance programs, zoning laws, real estate regulations, etc.) is implemented to solve the “problem.”

2. The political solution is inherently distortionary, introduces inefficiencies, and makes the original situation even worse.

3. Additional politcal solutions are then proposed to addresss the growing problems created by the previous political solutions.

Steps 1-3 continue to repeat, leading to the possibility of “socialism on the installment plan,” or Hayek’s concept of “The Road to Serfdom,” because of the “fatal conceit” of policymakers.

Carpe Diem

What’s The Difference Between Wall St. and D.C.?

From the WSJ’s editorial today Wall Street Reckoning: A CEO gets “marked to market”:

Washington is the one place where no one is being held accountable for the subprime boom and bust. That includes in particular the Federal Reserve, whose far too easy monetary policy created a subsidy for debt that fueled the housing and subprime mortgage excesses. One difference between Wall Street and Washington is that in the latter no one ever admits a mistake, much less suffers for it.

Carpe Diem

Google Government

FOXNEWSPresidential candidates Sen. Barack Obama, Rep. Ron Paul, Sen. Sam Brownback, Sen. Mike Gravel, Rep. Dennis Kucinch and Mr. John Cox have all embraced the concept of “Google government” by signing the Oath of Presidential Transparency — which is sponsored by a non-partisan coalition led by the Reason Foundation.

By signing the oath they are promising, should they win the presidency in 2008, that they will issue an executive order during their first month in office instructing the entire executive branch to put into practice the Federal Funding Accountability and Transparency Act of 2006, a Google-like search tool that will allow taxpayers to hop online and see exactly how their tax dollars are being spent on federal contracts, grants and earmarks.

“Every American has the right to know how the government spends their tax dollars, but for too long that information has been largely hidden from public view,” notes Sen. Obama. Rep. Paul explains, “When government spends the people’s money, it must be done with utmost possible transparency.”

Since these comments reflect such a basic principle of accountability, one is left wondering what Hillary Clinton, John Edwards, John McCain, Fred Thompson, Mitt Romney and Rudy Giuliani have against providing taxpayers with details on how well their money is spent.

Via Adam Smith Institute blog.
Carpe Diem

Harvesting Cash: Urban Farming in Mpls.-St. Paul

From the Minneapolis-St. Paul StarTribune:

Year after year, the federal government sends farm subsidy checks to homes nestled in some of the most expensive neighborhoods in Minneapolis, far from any corn or soybean field.

The urban payments total millions of dollars out of the nearly $1 billion sent to Minnesota farmers in 2005, according to federal records sent to the Star Tribune under a Freedom of Information Act request.

The flow of federal largesse comes thanks to rules that allow landowners — including some 2,000 in the Twin Cities metro area — to collect subsidies without farming the land themselves, a legal and increasingly common practice as farm ownership has consolidated over the past few decades.

See map above of urban “farmers” in the Minneapolis-St. Paul metro area receving farm subsidies.

(HT: JJ Howe)

Carpe Diem

Global Stock Market Capitalization Sets New Record

Carpe Diem Exclusive!

According to global stock market statistics from the World Federation of Exchanges, the world stock market capitalization reached an all-time record of $59.74 trillion in September 2007 (see graph above, click to enlarge). Comared to last September, world stock markets have increased in value by 31% over the last year, adding $14 trillion of new stock market wealth to the world economy in just the last 12 months.

Over the last five years, almost $40 trillion of stock market wealth has been created, as the global market capitalization rose from about $20 trillion in September of 2002 to almost $60 trillion in September 2007.

In other words, more global wealth (measured by stock market value) was created in the last 5 years ($40 trillion total, or almost $6,000 for every person on the planet) than was created during the thousands of years it took to create the first $35 trillion of stock market value, a level reached in 2000.

Not a bad record for globalization and the significant amount of wealth created in its wake.