Shout it - Yellen was Flawless at the Fed (Hopefully It Won't Be Another Century Before Another Woman is Fed Chair)

This Monday was our first day with Janet Yellen as Fed Chair in four years. The market marked her departure with the biggest ever one day drop in the Dow. Now that's a send off.

The job of Federal Reserve Chair has become more important since Congress has become more dysfunctional. In an ideal world, the government has a mix of fiscal and monetary tools to use to help to smooth out the inevitable bubble and busts of an economy. Now we really have just monetary policy, the tool of the Fed. In the recovery from the Great Recession, when unemployment was still above 8%, the media and Republicans made a great deal of noise about deficits. Now that unemployment is only 4.1%, the Republicans have decided to add another trillion to the debt this year with no noise from Republicans (they're the ones creating this) and very little noise from the media. This is backwards and the Fed has had to work against Congress in their efforts to keep the economy from extremes during the recovery. Yellen has done that flawlessly.

For 100 years we had Fed Chairmen. Then, four years ago, Obama appointed Janet Yellen to succeed Ben Bernanke as Fed Chair. Here is how the economy has performed during her four-year term.

The uninterrupted streak - a new record
When Yellen took over as Fed Chair, the American economy had been creating jobs every month for 40 months. That's great but on two different occasions, the streak had lasted longer: 46 months in the mid-2000s and 48 months in the late 1980s.

Not once did the jobs report come in negative during her time as Fed Chair. The streak is now 88 months and counting; she set a new record each month for the last 40 months of her tenure, shattering the old record and bringing the unemployment rate down from 6.7% to 4.1%. No other Fed Chair presided over a time in which every single monthly jobs reports was positive.

Second best annual job growth
Uninterrupted job creation makes it easier to create a lot of jobs. During her four years the economy did. Only one Fed Chair - Miller who served for only 17 months during the 1970s - presided over a higher annual average job growth.  (And wasn't it curious how the media continued to whine about so-so job creation rates, as if they had any instances of it being better during a four year or longer Fed term?)

Second best annual rate of stock market return
The market returns during her tenure were also second to only one other Fed Chair - Volcker. It seems fitting that the market began falling spectacularly after her last meeting Wednesday and before Powell's first day of work Monday. (Speaking of which, Powell did have a miserable start in his first two days. After Monday's huge sell off, the market return for his first day worked out to a 99.9% annual return which would have made him the first Fed Chair to have lost the entire stock market in his first year on the job. "Where are the returns Jerome?" "I don't know. Yellen seems to have taken them when she cleared out her desk.")

Lowest Inflation
The Federal Reserve has two goals: keep unemployment and inflation low. No one presided over lower inflation rates than Yellen. The goal is 2%. Her highest year was 2.1%. Only Bernanke - who was dealing with horrendous unemployment rates - was close to her and most Chairs were more than double that.

Trump, unsurprisingly, decided that Yellen's performance wasn't good enough to warrant a second term and thus hers will be the shortest term of any Fed Chair since 1979 when Carter decided that inflation was too high and he needed to truncate G. William Miller's term and replace him with Volcker.*

Of course it was unsurprising that Trump would replace Yellen. In Trump's final campaign ad, he lumped Yellen with Clinton, Soros and other world leaders as "globalist" financiers "who don't have your good in mind."

As it turns out, for a woman who didn't have our good in mind, she did pretty good. I'd go so far as to say that her performance was flawless. Let's hope it's not another century before a president has the good sense to appoint the second woman to head the Fed.

----------------------
*(It's worth noting that when Carter interviewed Volcker for the job as Fed Chair, Volcker warned him that his approach to squeezing out inflation would hurt the economy short-term and about the time Carter was running for reelection the economy would be in bad shape. Carter said, But this is what we need to do. And sure enough, in November of 1980 when Americans elected Ronald Reagan to take Carter's place, unemployment was at 7.5% and continuing to rise.)

Returns Without Risk - The Republicans Vision of Banking Reform And How It Makes Recessions Worse

Matt Yglesias at Vox reports on the extent to which Republicans are changing laws to profit them and their donors. In the midst of this list he reports on something hugely important.

Banks - or more broadly, the financial system that creates credit - are essential to an economy. If credit markets suddenly collapse, they bring down the economy with them.

Once upon a time, a bank would fail and the folks with deposits in that bank would lose all their money. Folks with money in other banks would panic and make a run on their bank to withdraw deposits. That could quickly put that bank under. And then more people would make a run on their bank to withdraw their money. And on it would go until the economy in that region was destroying jobs and wealth. Bank runs led to recessions.

In the first 33 years of the 20th century - from 1900 to 1933 - the US suffered from a recession 48% of the time. There were 10 recessions between 1900 and 1933 and the final one was such a doozy that it got the label of depression; during it GDP dropped by half and unemployment hit 25%.

After the Great Depression, legislators decided that they would protect depositors in banks so that a bank failing wouldn't automatically bankrupt its depositors. This helped to stop the runs on banks after one bank failed so that one bank's failure did not spread like a virus to take down other banks and communities.

Given the size of banks, it became increasingly difficult to bail out depositors and ignore failing banks. So legislators decided to offer what was essentially insurance to banks - bailout money - in return for those banks following certain rules. For instance, a bank would have to keep on hand a certain number of deposits, follow certain lending guidelines, etc. The government would protect the banking system and in return the banks would follow certain rules that lowered returns but also lowered risk.

Before the regulation that came in the wake of the Great Depression, the US was in recession half the time. 48%. After the regulations, it was in recession only 14% of the time. Then the Bush Cheney administration deregulated - lifting the rules that banks complained were too restrictive - and within just a few years the country plunged into the worst recession since the Great Depression. Banks got their higher returns. They also created more risk to the entire economy.

Dodd-Frank put back in place some regulations and quite simply reached the same conclusion the country reached after the Great Depression: a community cannot afford to let the financial system collapse so it will offer a combination of rules that keep banks out of trouble and insurance to keep the larger economy out of trouble. We will bail out banks but they have to follow certain rules that make that bail out less likely.

At the time, some Republicans said that this was ridiculous. Banks should be treated like any other business and simply allowed to fail, arguing that all those rules only inhibit smart bankers from making money. Let banks do what they want and let them fail if that turned out badly, these Republicans said. They were, essentially, asking for a return to how things were regulated before the Great Depression, the world that plunged the country into recessions about half the time.

Now the Republicans have full control of government. What have they chosen? Deregulation that allows banks to act more freely, even if that adds risk. Oh, and they've left in place the bailout money. What does that mean? Banks are more likely to take risks that raise returns and we the taxpayers get to bail them out.

One of the few certainties in finance is the link between risk and returns. The investments that offer the most return offer the most risk (think junk bonds or stock in a startup) and the investments that offer the least risk offer the least return (think bank savings account). The Republicans are now moving us closer to a world in which banks get the returns and we get the risk.

Banks are essential to a modern economy. They can be regulated by market success or failures, although that can plunge an economy into recession half the time. Or they can be regulated by government rules, something that cuts the odds of recession to about one quarter of what they would otherwise be but puts the taxpayer on the hook for bailouts. Or, as the Trump administration has chosen to do, they can be freed of market consequence with the promise of bailout money AND free of the  regulation of government rules. Thanks to the 2017 GOP, banks will be able to operate without the discipline of regulators or markets.

Let's be clear. With these rules, the rational strategy for bankers will be to take excess risk (and the excess returns that - at least temporarily - come with it). This type of legislation is guaranteed to trigger recessions more frequently and more severely. It makes the banking system more vulnerable and taxpayers liable twice: they'll suffer from the layoffs and drop in value of their pensions and 401(k) accounts when recessions hit with more severity and they will pay for the bailout of these banks.

I bet that works out well.

Podcast - Social Invention, Progress & Trump

Here is my very first podcast:

Social Invention, Progress & Trump, one in a series of Fourth Economy podcasts.

"History consists of a series of accumulated imaginative inventions."

- Voltaire

The simple argument is that it is a struggle to understand politics and policy today without understanding social invention. A wave of social invention is simultaneously creating new opportunities and threatening old identities. Among the major points made in the podcast:

1. Social inventions like banks and nation-states are as important to progress as technological or product inventions like steam engines and computers.
2. 100 years ago the rate of product invention accelerated. Now, the rate of social invention (e.g., the EU, NAFTA, Uber-like employment, same-sex marriages) is accelerating.
3. Progress in the West has come from treating social inventions like tools rather than as either sacred or disposable.
4. The three major social inventions and reinventions that resulted in freedom of religion, democracy, and the American Dream (essentially the democratization of financial markets) inform us as to what strategies and measures result in successful social invention.

What Made - and Still Makes - Western Civilization Great

INSTITUTIONS AS TOOLS OR SACRED OBJECTS

The battle between social conservatives and progressives

In last week’s speech in Poland, Trump warned about a threat to Western Civilization. He mentioned “history” six times and spoke of          “the bonds of history, culture, and memory,” and “the bonds of culture, faith, and tradition.” Speaking for the right, Trump is proudly pointing to the West as having a superior tradition worth fighting for.

Douglas Murray, author of The Strange Death of Europe: Immigration, Identity, Islam, argues that the Left in Europe is essentially embarrassed to argue that their culture is really better than any other and authorities have actually looked away number of atrocities, including honor killings (families killing their own sisters and daughters because of their shame at who they’ve married) because it might seem racist to prosecute these as crimes.

So we have the Right arguing for tradition and the Left arguing for cultural relativism. The one would head backwards and the other would stand around awkwardly, apologizing for seeming to suggest that their ways are any better than that of any other people.

What seems to be missing is the appreciation for history without treating historical institutions as sacred or a culture as synonymous with race or nationalism (which it is not).

The West was seemingly the first to do something that set it apart and set it on the road to progress. This is worth defending.

INSTITUTIONS AS SACRED OBJECTS OR SIMPLY TOOLS

How we think about institutions defines our communities. Three ways to characterize the great institutions of the West like church, state, and bank are:

1       Sacred objects that must be preserved: this the attitude of the social conservative
2.      Obsolete objects that must be eradicated: this the attitude of the radical
3.      Simply tools that everyone should have access to: this is the attitude of the progressive

The debate in the West today is between social conservatives and progressives. The radicals who in past generations argued to outlaw religion (as the French Revolutionaries and Soviets did), financial markets (as communists throughout the world did last century) and even the nation-state (as anarchists have) are largely ignored in today’s political debates. Institutions separate us from the other primates and the real argument is not over whether we should have them but how we should treat them.

The most defining revolutions of the West were led by progressives and transformed these institutions:

1.      Church - the battle between Protestants and Catholics that gave us freedom of religion between about 1300 and 1700
2.      Nation-state – the battle between royalists and revolutionaries that gave us democracy between about 1700 and 1900
3.      Bank - the democratization of financial markets that gave us the American dream between about 1900 and 2000

Each revolution turned a dominant institution ruled by elites into a tool used by the average person. These were not one-time events. For instance, democracy was a revolution but it took centuries more to extend it from white, property owning Protestant men to even 18-year-old minority women. Early forms of religious freedom just gave you a choice between Catholic, Calvinist and Lutheran, not the thousands of denominations and religions (including atheism) available today. Like economic progress, this social progress isn’t something that happens one year and then stops; it is on-going and progress is as dependent on social change as it is on technological change.

Social conservatives are more likely to wonder about the intentions of founding fathers. If you see institutions as tools, though, the idea of protecting them from change is about as odd as insisting that Rudolf Diesel or Henry Ford never intended for us to drive cars with cup holders or GPS. Even if true it’s irrelevant to those of us alive now.

It’s difficult to understand how visceral is the reaction to Trump without understanding how differently social conservatives and progressives think about our major institutions.

FREEDOM OF RELIGION

First amendment:
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

As it turns out, freedom of religion, free speech, a free press and political activism are all intertwined. Our founding fathers had genius enough to see that and packaged them into the same amendment. All have to do with freedom of thought but started with freedom of religion.

In 1302, Pope Boniface issued a bull that asserted his lordship over all of Christendom. By 1648 the Treaty of Westphalia essentially took away the pope’s power to dictate religion to a ruler and the ruler’s power to dictate religion to the people. The battle for freedom of religion played out between roughly 1300 and 1700 and gave us terrible atrocities like the Spanish Inquisition and the Thirty Years War that killed about ten percent of Europe’s population before reaching a resolution.

Had freedom of religion merely brought peace, that would have been enough. There is more, though. Once you’re free to choose your beliefs, you might just choose to base those beliefs on scientific evidence rather than religious revelation. As it turns out, freedom of religion allows scientific thinking to flourish.

In the early 1600s, the Church put Galileo under house arrest; by the late 1600s, England made Newton the Master of the Mint. Freedom of religion enabled the rise of science.

Progressives see in Trump’s travel ban targeted at Muslims not just a challenge to freedom of religion, which is reason enough to be upset. They see it as an attack on freedom of thought. Trump “knows” that Islam is the wrong religion and that climate change is not real and that he’s being attacked by “fake news.” Social conservatives see Trump as protecting their true and sacred religion; progressives see him as attacking freedom of thought.

DEMOCRACY

The next big revolution played out between about 1700 and 1900. At its beginning monarchs had absolute power and by its end those monarchs were either constrained by law or had been removed. The nation-state had become a tool for the average person and not just the elites. Rule of law and a representative government are foundational to democracy and both continue to evolve.

Newton defined laws that could apply universally to any object, from planet to moon to apple. His friend John Locke argued for laws that would apply universally to any person, from aristocrat to merchant to laborer. Laws that governed the natural world and should govern the social world were a focus of the Enlightenment thinkers who inspired democratic revolutions.

When Trump asks the head of the FBI not to investigate his National Security Adviser, this is a challenge to the rule of law, taking us back to the old system of personal privilege. When he leads a task force to investigate voter fraud (that all studies suggest is nonexistent), he is actually moving to make voting more restrictive. (Although he does seem rather sanguine about foreign interference, even if he’s trying to block Americans without photo ID.)

The invention of the car was dramatic but no one with a choice between a Tesla and a Model T would choose to drive the T. Like the car, democracy continues to evolve. If 1776 was the moment Americans “invented” modern democracy it is worth remembering that voting rights continue to expand to include more people over time. It took 200 years before the 18 year olds we sent to war could vote.

The real question is, who should be able to define the policies that define the community they live in? Put differently, is the government a tool for anyone to use or is it reserved for just a few? Progressives and social conservatives have very different answers to this.

THE AMERICAN DREAM

The most recent of our great institutions to be made a tool of the masses and not just the elites is the bank (or, more broadly, financial markets that include credit and investment markets). This access has helped people to become more affluent and more able to define their own lifestyle.

The levels of consumption that enable individuals to pursue the American dream would not be possible without modern capital markets. Warren Buffet argues that his upper-middle class neighbors in Nebraska live better than John D. Rockefeller did roughly a century ago. The cars, smart phones, TVs, and polio vaccines the average American now has rely on vast amounts of capital. The billions it takes to produce and purchase this vast array of goods would boggle the mind of any adult living in 1900, even John D. Rockefeller.

Access to financial markets gives the individual access to the American dream and the credit card and 401(k) account might be the simplest symbols of this broadening of access. Keynesian economics is another element of this revolution.

One of Keynes most overlooked insights into capital markets was this: capital markets could reach equilibrium before labor markets did. In other words, it was possible for capitalists to stop investing before a community reached full employment. If capital markets were just tools for elites, communities would have to accept this; if they were to be tools for the masses, communities would have to adopt policies that changed this. Keynes gave us options for this.

Unemployment during the Great Depression hit 25%; during the Great Recession, it peaked at 10%. One big reason for the differences in severity was the application of Keynesian stimulus; Bernanke did all he could to prop up credit markets to encourage investment and consumption. Like church and state before it, the bank has been made a tool for the average person. Interest rates were used to maximize employment, not returns to capital.

Social conservatives don’t like the Federal Reserve or its charter to subject financial markets to larger goals like employment. Again, as with church and state, they feel that what we’ve inherited is sacred and should not be changed. For them, Keynesian is a bad word. The battle between social conservatives and progressives over banking regulations and Federal Reserve policy often seems obscure but there is a reason that bank is the first part of bankrupt. The consequences of getting this policy wrong are severe.

INSTITUTIONS AS TOOLS

For centuries, progress has followed from letting more people have access to these great institutions, using them as tools for their own benefit. Life got better when our founding fathers extended the use of government from just aristocrats to landed gentry; it got better again when it was extended to women in the early 20th century and to minorities in the late 20th century. There is no evidence that progress now lies in the opposite direction, in restricting rather than broadening access to freedom of religion, democracy, and the American dream. The more that people have been able to use church, state and bank as tools for their own lives, the better the world has become.

The Biggest Danger of the GOP - Or What The Comey Hearing Drowned Out

Thursday, the House GOP passed a bill to repeal Dodd-Frank. Friday, the NASDAQ fell nearly 2%. Meanwhile, the world fixated on a UK election essentially won by the party already in power and a Comey testimony in which we learned that Trump lies. The news of the day was good cover for bad legislation. Really, really bad legislation.

A little story

A little town is divided among three groups. One group is pro-football, the other is anti-football and the third group is mostly neutral.

The anti-football group got that way because a couple of kids were seriously injured. One will be in a wheelchair for life. The anti- group simply argues that no sport is worth this risk.

The pro-football group are simply fans. They love the sport, point to the tradition, the way it gives the kids something to come together on and cheer for, the way it builds a sense of community, and how it calls young men to excellence. 

The problem is, the pro-football group has been hijacked by a sub-group so repulsed by the idea of rules to make the game safer that they've gone in the opposite direction. Call this group the football fanatics. They think that kids shouldn't even have to wear helmets if they don't want to - or can at least wear the old leather helmets that were good enough for players in the 1920s.

Here's the problem. The pro- group is only one or two spectacular injuries away from losing football altogether. And given the way the fanatics are approaching this - eliminating "silly rules that just slow down the game" like flags on late hits or tackles that involve helmet to helmet contact, etc., they have greatly raised the risk of serious injury.

The people who should be most grieved by the fanatics are the fans who care less about any specific rules of football than they do about just having the game in town. Because what the fanatics are doing is making it probable that the anti-football group will get their spectacular injuries that lead to cancelling the program.

The real story

Which brings us to capital markets.

Thursday, buried beneath the tsunami of coverage of the Comey hearing and UK election - the House passed a bill to repeal Dodd-Frank. Two major provisions of this bill set us up for another Great Recession: one provision exempts financial institutions from capital and liquidity requirements to allow them to take on more risk and another provision puts in place bankruptcy provisions in lieu of "orderly liquidation." So, financial institutions are free to take on more risk and when that risk leads to bank failure it won't be treated systematically. That is, it sets up the conditions for a run on the banks like the one that lead to the Great Depression. People will need to withdraw capital to protect themselves at the exact moment that the banking system would need more liquidity. 

Capital markets are one of the great inventions of mankind. Credit can finance the construction of high-speed trains or a cup of coffee, finance your education that launches your career or your house that becomes your home. Credit can finance research that cures an old cancer or a new product. The capital markets that have emerged since about 1700 have transformed our world, giving us longer lives, and making us more productive and happy. The joy football has brought into Americans lives is microscopic in comparison to what capital markets have brought. 

The Republicans are philosophically opposed to regulations. They are the pro-football fanatics who believe that the game of capitalism would be made better if only we removed all those troublesome rules that just get in the way of a good game. And while it's true that the game goes slower with rules and regulations, it also saves people from serious injury that comes from the failure of one or two big institutions becoming catalyst for a Great Recession. 

Real fans of football would shut out the fanatics who try to eliminate rules. Real fans of capital markets would do the same to the anti-regulation fanatics who - just years after the worst recession in nearly a century - are working to eliminate the regulations that save us from serious injury. Anyone who wants to see capital markets survive, evolve and prosper to continue to enable prosperity, will come out against this deregulation inspired by ideology. 

The biggest danger of the GOP's approach to repealing Dodd-Frank is that it will enable anti-capital market forces to make more coherent arguments against them. We now have a president who supports dictators; we can easily have a president in a decade who supports communists. If you love football, you would shut down the fanatics arguing against making it safer; if you love capital markets, you would shut down the fanatics working against making them safer. 

Two Financial Regulation Models: NFL or WWE

One of the most dangerous things about a Trump presidency is what it could mean for financial regulation.

This weekend millions of Americans will watch football, a sport punctuated by flags, whistles, and officials calling back a run because someone cheated when blocking or granting yards on a failed pass because someone cheated when defending a receiver. The game is fiercely competitive and highly regulated. Americans love it. The teams want your money but they also want to win. All of them. And they have to follow clear rules that ensure that the competition involves football skill, not thuggery.

Far fewer will watch World Wrestling. Entertainment. At the WWE, the officials are props who circle the fighters and hopelessly flail, even when one of the fighters grabs a chair to hit the other over the head. This game is not competitive, as winners and losers are often negotiated beforehand. It's rigged. The wrestlers want your money but winning or losing is just part of their job. It's less about competition than theater.

Trump has hosted WWE events at his properties and has body slammed a guy whose head he later shaved. He and the Republicans in Congress largely believe that financial markets are self-correcting and don't really need regulation, suggesting that their ideal referee is more WWE than NFL.

Let's review what that means and start with a review of the Great Recession because it is so easy to forget.

The Great Recession
After January 2008, employment fell for 25 straight months - the longest streak since the 1930s. By February 2010, the "job deficit" was 12 million. (The job deficit equals the number of jobs lost plus the number of jobs that would have normally been created during that time. The economy destroyed about 8 million jobs in a period when it would have normally created about 4 million. Add them up and you're short 12 million jobs compared to any normal period.)

Long-term unemployment as a percentage of unemployment swung between 5% and 20% of total unemployment in the period after 1948. By April of 2010, it had hit 45% and would take years to drop to its old level.

GDP growth, too, was slow to recover. After the last two recessions GDP grew 6.2 and 5.6 percent in the years right after the recovery. This time it grew about 2%.

Between housing and financial assets, wealth fell about $18 trillion, an amount equal to annual GDP.

[All of these stats from Alan Blinder's After the Music Stopped: the financial crisis, the response, and the work ahead.]

These seem like cold stats. They're not. They represent millions who were made homeless, had careers and retirement plans derailed, and were unable to do things like help children with a college education or buy a car or pay a medical bill. They represent millions whose lives were set back. According to one study, the trauma of the Great Recession provoked 10,000 suicides and that is just the most extreme emotional consequence of an economy this brutal.


What Caused this Financial Crisis?

I think that a few things caused it.

Martin Wolf writes of the lead up to the 2007 - 8 Great Recession that "risk had been distributed not to those best able to bear it, but to those least able to understand it." Local bankers were less likely to own mortgage loans than remote investors.

Securitization let banks take loans and then turn them into securities that could be sold to investors who did not understand the underlying risk as well as local bankers might have. Coupled with loose regulation that allowed banks to issue NINJA loans (loans to folks with no income, no job, and no assets) that were then sold to largely ignorant third-parties who were misled by credit ratings agencies who called these good risks. (Michael Lewis tells this story in the Big Short.)

Financial innovation led to a rapid proliferation of new products that people didn't really understand. Imagine drug development that required no FDA approval or trials and you get some sense of the potential, unknown danger of these new products suddenly in circulation. The derivatives market exploded between 1998 and 2008; notional values grew from $72 trillion to $673 trillion. (If that sounds like a lot, it is. Total global GDP is about $50 trillion.) The market value of derivatives is considerably less than the notional value but even that grew from $2.6 trillion to a stunning $35.3 trillion by December 2008 at the cusp of the Great Recession. What's a derivative? It's a financial instrument whose value is derived from another, like a bet on a stock price or pork bellies. If a name like "financial derivative" makes your eyes glaze over and - at the same time - makes you feel impressed by the fancy term then it is doing its job; it is great to sell a product that is poorly understood but trusted as high-tech. Again, this is another example of risk being shifted from those who understand it to those who don't.

The rapid innovations in finance helped and was helped by the emergence of a shadow banking system. It was negligible in 1980 but by the early 2000s it had grown larger than traditional, regulated banking. In 2007 this shadow banking sector was about $13 trillion.

[Above facts are from Martin Wolf's The Shifts and the Shocks: what we've learned - and have still to learn - from the financial crisis.]

Banks had become public companies rather than private concerns. This gave them more capital to use but it also made them more accepting of risk. If you are a partner in a private bank, you want to make a good return on your money. But this is your money so you also want to avoid a lot of risk. If someone doesn't pay back your loan, you're out that amount. That was the old world. In the new world, banks were public and the money that bankers loaned was stockholders'. Bankers had incentives to originate loans in order to get big bonuses which often were paid at the time of the transaction, not slowly over time as the loan was paid back. Suddenly, the risk was someone else's and bankers wanting a bonus rather than protecting their own capital had an incentive to pursue returns with less discrimination.

Finally, the whole system was more fragile. The push for greater returns coupled with the ability to off-load risk and use someone else's money had driven the market to leverage more. Once upon a time banks had leveraged investments at a rate of 10 or 20 to 1. By 2008, they were leveraging investments at 50 to 1. That sort of leverage greatly inflates your returns on the way up but it disastrously exacerbates losses on the way down.

When the downturn hit - and downturns always hit - the system was fragile and poised for massive losses. The result has already been mentioned (13 million job deficit, $18 trillion in wealth disappeared, etc.)

"The crisis takes a much longer time coming than you think, 

and then it happens much faster than you would have thought."

- Rudiger Dornbusch

We Americans depend on Wall St. and the banks. Finance is to the economy what oxygen is to an ecosystem. The purpose of financial regulation is not to make the game noncompetitive but instead to ensure that competition is about creating value rather than hiding risk, about creating sustainable returns rather than unsustainable bubbles, and protecting the naive from the manipulative. With good financial systems, people still get filthy rich but fewer people go bankrupt. Someone like Elizabeth Warren understands the importance of NFL style regulation. Trump's sensibilities seem to run more towards WWE. That should have frightened voters last week. It should frighten you now.

As to timing of this? I don't know. Glass Steagal was repealed in 1999 and the Great Recession hit within a decade. There is a small chance that Trump and the Republicans have learned the lesson of the Great Recession and won't deregulate. It seems optimistic to assume this. There is a better chance that it takes at least two year for new regulations - or deregulations - to be put in place. And at that point the impact of the return to fragile finance could take a year to manifest or two decades. It's harder to predict than the impact of a rate hike or tax cut.

Alibaba at a Quarter of a Trillion? Bargain or Bubble?

After its first day of trading, Alibaba was valued at $231 billion. Here is how it compares to some notable American companies.

	Market Cap ($B)	Relative to ALIBABA
Apple	604.54	2.6
Exxon	414.19	1.8
Google	403.18	1.7
Microsoft	391.56	1.7
JnJ	304.56	1.3
GE	263.79	1.1
Wal-Mart	247.62	1.1
Chevron	236.99	1.0
Alibaba	231.44	1.0
P&G	228.72	1.0
IBM	193.53	0.8
AT&T	183.95	0.8
GM	54.46	0.2
Yahoo	40.71	0.2

IBM's Watson has learned to play chess better than any other person. It's now learning how to diagnosis illness. That, it seems to me, has some potential. Oh, and IBM has lead the world in the number of patents for years now so Watson is by no means it's only play. And Alibaba is worth twenty percent more than IBM? Either IBM is under-valued or Alibaba is overvalued.

Why iPay May Be Apple's Most Lucrative Product Yet

iPay may prove to be Apple's most lucrative product.

Today, Apple announced the release of two new iPhones, an iWatch, and iPay, which will work like a mobile wallet. They've teamed with various credit card companies like VISA, Mastercard and AMEX to enable iPhone users to simply pay with their phones as if their favorite device was a credit card.

On the surface that might sound fairly innocuous. They are certainly not the first to offer the ability to make a digital purchase, as reported by Molly Wood here. But it's worth remembering that Apple wasn't the first company to make a digital music player. They just made it wildly popular.

First, some background. During the 20th century, a quiet revolution transformed finance. One of the reasons it might have been so quiet is that it has the oddly eye-glazing name of banking disintermediation. But disintermediation gets to the heart of how the Information Economy transformed finance, which plays right into Apple's new market.

Once upon a time, bankers were uniquely positioned upon a wall that separated the folks saving money from those who wanted to borrow it. They could take money from the savers, paying them 1% for their money, and then loan it to the borrowers at 10% (less or more). Upon their wall, they were uniquely positioned to see each party, parties who could not see each other. Savers and borrowers didn't know each other so the banker played intermediary. This is a pretty lucrative position to be in. Still. (Last year Citigroup's revenues were $76 billion.)

But information technology has made it easier for borrowers and savers to find each other without the bank playing intermediary. As the cost of information has dropped, this wall separating borrowers and savers has slowly lowered, and with it the bankers' lofty perch. This disintermediation has a long history, one I explore in my book. The most recent instance of disintermediation is peer-to-peer lending. Lending Club, a San Francisco-based company founded in 2007, has facilitated $4 billion in loans. They are to lending what eHarmony is to romance. Why pay the banks the 9% difference between what you get for saving and she has to pay to borrow when you two can split the difference? There are billions - trillions - that can be retained within households by cutting out the bank. But of course far fewer people know and trust Lending Club than Apple.

Now Apple will get millions of people comfortable with the natural extension of what Dee Hock, VISA's founding CEO, realized years ago: money is just information. As millions of Apple users become comfortable with the idea of using their phones for purchases, it won't be long before they become comfortable using their phones - and the extensive networks they represent - for loans. People hate banks and love Apple. It's perfectly plausible that Apple's foray into finance will do to banks what their popularization of the iPod did to record companies.

And there is a lot of money to be had in finance. More, even, then in music.

Dow Tops 17,000. Are Stock Market Returns Steadily Improving?

The Dow closed above 17,000 for the week. In the 1999 bull market, it peaked at about 11,500 and in the pre-Great Recession market of 2007, it peaked at nearly 14,000. It is at a new high. I may have to re-think taking advice from the Tea Party. If they are right that he's a socialist, it is terribly confusing that capital markets have performed so well during Obama's administration.

Here's an interesting list ranking stock market performance during a president (using the closing number as the end of the year they left office - typically 9 to 11 months after their successor is sworn in).

	Dow Jones, Avg. Annual Returns

Calvin Coolidge (R)	32%
William Clinton  (D)	26%
Ronald Reagan (R)	24%
Dwight Eisenhower  (R)	19%
George H. Bush  (R)	17%
Franklin Roosevelt  (D)	15%
Warren Harding  (R)	13%
Harry Truman  (D)	10%
John Kennedy  (D)	8%
Gerald Ford  (R)	4%
Lyndon Johnson  (D)	3%
Teddy Roosevelt  (R)	1%
George W. Bush  (R)	0%
William Taft  (R)	0%
Woodrow Wilson  (D)	-1%
James Carter  (D)	-2%
Richard Nixon  (R)	-6%
Herbert Hoover  (R)	-17%

During Obama's administration the market is up an average of 21% per year, which would put him between those other socialists, Reagan and Eisenhower. It would also mean that 4 of the last 5 presidents are among the top 6 administrations in terms of stock market performance. That suggests that market returns have been going up in the last 30-some years.

This chart, however, suggests that it is less a matter of positive years getting better than it is negative years becoming less severe. Perhaps this has nothing to do with presidential policy but instead reflects the fact that the Federal Reserve is getting better at mitigating risk in the market. Market contractions are becoming shorter in duration and less severe. That's enough to help anyone's performance.

Financial Markets and a New Definition of Taking a Bath

Global financial assets are well over $200 trillion, doubling every decade since 1990. In 1990, total debt and equity outstanding was $50-some trillion. By 2000 it was over $100 trillion. By 2010, it was over $200 trillion.

Between 1995 and 2007, only one quarter of this additional financing went to corporations and households. This money is not being used to start or expand businesses or even to finance purchases by households of everything from refrigerators to university educations.

Every decade we double our financial assets but of late those assets are merely going into speculative sorts of enterprises as opposed to financing actual economic activity.

The result is something akin to water in a bathtub, waves sloshing about in a closed system. Financing is used to finance financial activity and it rushes in and then out, creating odd turbulence without actually flowing into anything new.

The problem is not the volume of financing. That's actually a wonderful thing. The problem is that our limit no longer lies in the quantity of financing; that financing is limited by where it can go. We still haven't created enough viable opportunities for that financing, from public to private sector ventures. Until we do, we'll keep trying to predict the movement of waves in a tub.

The Dow Set a New All-Time High Yesterday And That's No Big Deal

Imagine that you put $1,000 into a savings account that paid 1% a month. (An obviously fictional example.)

At the end of month one, you'd have $1,010. At the end of month two you'd have $1,020 and some change. By the end of the year, you'd have $1.126.83. 

Every month, your savings account would set a new record. It would hit a new, all-time high every single month. That's what happens with a steady rate of return.

Which brings us to the market. For the first time this year, the Dow has hit a new all-time high. Analysts are making noise about whether this means the market has topped out, wondering where else to go with their money.

Whether or not the market is poised for a sell-off has little to do with whether or not it is at an all-time high. In a world with less volatility and no business cycle, the market would be hitting an all-time high every month. Just like your savings account. This is what investments do. 

Obama - Tea Party Founder

It's easy to dismiss the Tea Party. For one thing, they seem fond of a 18th century lifestyle that preceded the age of big corporations, big government, and life expectancies that extended much beyond one's thirties. But while they seemingly lack intellectual appeal, they do resonate emotionally with a chunk of voters. Enough voters, in fact, to cost Obama the 2012 election.

In the decade of the 00s, bankers made billions and then cost us trillions. As CEO of Goldman Sachs, Hank Paulson made $37 million in 2005 alone. He left banking with a net worth of $700 million when he became the US Treasury Secretary. Not only did he engineer a bailout of trillions for the banking industry (including billions for Goldman Sachs) but included in the bailout legislation clauses protecting bankers from any liability for the financial meltdown of 2008.

The financial meltdown cost millions to lose jobs and homes and wiped out retirement accounts for millions more. No one has gone to jail for this bank robbery. Countrywide CEO Mozilo did have to pay $67.5 million in fines and settlement fees, which sounds like a lot until you realize that he made $470 million in just the six years leading up to the bursting of the bubble. Not only did Mozilo escape jail time or financial hardship, but even the ratings agencies that assured bond holders that packaged subprime bonds deserved AA and AAA ratings were allowed to continue to do business without any penalties for their egregious failures to warn investors.

What Obama should have done is appoint someone as savvy as Elliot Spitzer to investigate the players in the drama leading up to the costliest financial collapse in history and found people to penalize and even imprison. Not only would this have bolstered his support among his base, it would have won over so many of the independent voters whose outrage at Wall Street led them to join forces with the Tea Party. By failing to address the injustice of systemic abuse of American taxpayers, Obama fed the emotional energy that the Tea Party has tapped.

And to prosecute would not just salve the anger of Americans. Prosecution would have helped to curtail bad behavior by bankers, letting them know that while the American government could not afford to let the financial system collapse, it certainly could afford to prosecute and jail a number of bank executives. As much as trillion dollar bailouts, prosecution would have helped to strengthen the banking system by making bad behavior costly.

Obama's apparent disdain for the emotional cost of the 2008 crisis may cost him re-election. And may even give him a place in history as the co-founder of the Tea Party.

California Mortgage Market Has a Bad Hair Day (or, how to make a billion dollars a day)

As of 2000, a Californian who wanted to sell home loans could get a license without taking a single class. By contrast, to become a professional barber he or she would need 1,500 hours to qualify for a state license.

From this simple contrast, we can conclude which of the following?

1. Californians better understand the consequences of a bad haircut than they do a bad home loan.
2. Financial market deregulation became confused with financial market anarchy just before the bust.
3. Appearances are everything.

Oh, wonder why jobs still aren't coming back into the construction industry? It is possible that the market got a tad over-built as a result of sub-prime mortgages. Between 2000 and 2005, the volume of sub prime loans quadrupled. Not only did house prices rise, but so did the amount borrowed against them and the number of houses built.

One hedge fund manager who bet against this bubble began to make one billion a day in 2007 when the sub prime market began to unwind. Now, four years later, the construction industry still has not recovered.

Financial markets are competitive, and that's good. But like sports, even competition - especially competition - suggests the need for rules. Just think how much better off we'd be if we took finance as seriously as sports and properly made and enforced rules to keep play fair. Or even if we took finance as seriously as haircuts.

Facts taken from Sebastian Mallaby's More Money Than God: Hedge Funds and the Making of a New Elite, pp. 323-331.

History from the Future: The Burger Craze of 2014

It was hard to know exactly when futures markets had begun to drive commodities prices. Oil, obviously, was one place where speculations on financial markets drove the everyday price at the pump - causing prices to rise and dip like seagulls in a squall. And then the same thing began to happen to wheat, rice, beef, chicken .... And before long, the prices at restaurants and grocery stores began to move in tandem with these commodities prices, like prices at the gas pump. And then somebody got the really bright idea of pricing food like stocks and the real fun began.

The pushing and shoving in line at the fast food joints as the first indication that something profound had changed. Customers were bidding for burgers like traders on the floor of the stock market. Prices were bouncing up and down like the price of Yahoo stock. From the time someone got into line to the time they ordered, the combo meal they wanted might have gone up or down a dollar. But that was just at first. Soon, this market, like so many before it, began to be defined by derivatives and speculation.

In 2014, there was the great quarter pounder craze. As the pace of social change quickened, demand for comfort food surged. Coupled with a bad wheat harvest that year, savvy speculators realized that beef prices would soon be going up. A day trader who'd become rich speculating on gold around the time of the Great Recession, Chaz Mingus, tried to corner the market on quarter pounders and the folks at Goldman Sacs began to bid against him. It was surprising that quarter pound burgers rose to $10. What was more surprising was that this actually created a resurgence of interest in quarter pounders. Worried that this American classic might soon be priced out of reach, Americans lined up to buy it before prices went higher. This, of course, made prices go even higher. Commentators were soon explaining that it only made sense that quarter pounders would cost $120. Hadn't Americans been paying exorbitant prices for fine dining for decades? And what was more classic than the burger? And then prices hit $500 and as had happened decades before at Ford and GM, the new credit and financing divisions of Burger King and McDonald's began to make more profit than the actual restaurants. Stories abounded of people who were paying the equivalent of monthly mortgages for their quarter pounder habit.

The derivatives market began to trade in the concept of the hamburger. How could you price something so iconic, people began to ask. And then the prices got really out of hand.

Curiously, the market bust about a year later when Wendy's introduced the fifth-pounder. Prices plummeted and millions of Americans were left holding the bag on $2,000 hamburgers.

The Simple Financial Reform Act

My plan for financial reform is simple.

Bankers get two kinds of bonuses: positive and negative.

Let me elaborate.

If a bank makes a billion dollars in profits, some banker in it might get a bonus of a million. This kind of thing actually seems like a pretty good deal for banks and their shareholders. If some guy can find you a billion in profit that you weren't going to have before, it only seems fair that you share the wealth. I honestly have no problem with institutions like banks sharing profits with people who take initiative. In this way, banks (or corporations) do what smart governments have done for business people for centuries: let these individuals keep a portion of the money they make. (And countries usually let entrepreneurs and individuals keep about 50% to 70% of what they make, whereas banks and corporations only let their employees keep about 1% to 20% of what they make. If anything, banks and such may give too little for a bonus.)

So business people within a country have an incentive to take risk. They start a business to make money. To get a return, they have to take a risk. One of the simplest rules of business and investing is this: higher risk yields higher return. But the business person is also careful about taking risk. Because the even simpler rule is that more risk means more risk. The business person could lose his business and his house. He's bold but not reckless.

The problem with bankers is that they, too, have an incentive to take risk. They make up new financial instruments, make investments, and try new things in seek of higher returns. If these risks work out, they get a big return. But if these risks don't work out, they get nothing.

It is easy to say that the bankers are greedy. But really, how would any of us play this game? The more risk you take, the more you can make. Oh, and if you lose the bet, you get nothing. That's right. You don't get a negative amount. You simply don't get a bonus. You would be right to take huge risks. But of course, even if you can't do worse than zero, the bank can lose billions or even trillions.

An easy way to continue to motivate bankers to move banks forward is to continue to give a bonus. An easy way to make sure that the risks they take moving forward are bold but not reckless is to mandate that their bonuses can be negative as well as positive. Sure you can make a million but you can also lose a million. Or, if you are playing options and the like, perhaps lose tens of millions.

This is not something that bankers will adopt themselves, any more than popes willingly gave up religious control over regions of Europe or kings willingly gave up control over portions of their kingdom. Nobody with huge power ever just voluntarily gives it up.

But as long as governments are insuring banks - as they should - they can stipulate how something like a bonus is calculated. And I suspect that no one regulation would do more to ensure a balance between the necessary risk taking to keep the industry innovative and the cautious risk avoidance that would keep the financial industry from regularly imploding.

Those Anti-Market Forces Are Ruining Everything

From yahoo:

One year ago, the economic crisis dragged stocks to their lowest in more than 12 years. The S&P 500 is up 68.5 percent since then --the strongest one-year rally since 1936, according to Standard & Poor's, but still 27.6 percent below its all-time high.

Damn that anti-capitalist, socialist Obama.

Quaint Victorian Notions About Capital in a Modern World

We Americans live in the richest, most economically driven country in the history of the planet. And still we’re ambivalent about money and debt. Our revulsion to debt is literally Victorian.

There was time in history when capital was scarce and hard to get or create. Social inventions that helped to overcome this limit made communities rich. Social inventions included new norms, like traditions of saving and investing, and new institutions, like modern banks, and bond and stock markets.

One of the social inventions that helped in the early days of capitalism was uneasiness about debt, something shared by British and Americans in the 1800s and early 1900s.

19th century preachers inveighed against debt, teaching that it mars and stains the soul. Protestant preachers liked to quote Paul, "owe no man anything but love." Debt was proof that one failed at self-denial. Charles Spurgeon, the best-known English preacher of the late 1800s, described the trinity of evil as "debt, dirt, and the devil."

And yet by the early 1900s, debt had become obviously essential to economic progress. This is still a point little appreciated, it seems, but it has to do with establishing new industries. You'll have to follow a few steps here, but I'll try to keep it simple.

1. Imagine a world where everyone has to farm to be fed.

2. Then, someone invents a machine (capital) that can do the work of 100 men. This means that 99 men are freed up to work on something else.

3. 99 men are unemployed. 1 man is incredibly rich. Or would be, if only the 99 hungry and unemployed men had money.

4. Inventors and entrepreneurs create new products and services – from the sublime to the silly. [Look at the end of this post for a list that comes from the years around 1900.]

5. These inventions and business ventures require financing. Debt even. Debt creates. Getting these new industries started is an act of faith. It requires capital investment for building factories and stores. It requires capital for making payroll to manufacturing and sales people. And it requires consumer credit so that people can begin buying this new thing. Once established, though, capital gets its return and there is a new source of sales and salaries. Debt can create new wealth. And yes, even consumer debt that isn't obviously directed at creating wealth can be instrumental to this.

6. These new ventures and inventions don’t just make life more interesting, richer, and confusing: they create jobs for the 99 people made redundant by productivity gains in the old industries.

All this to say that reluctance to take on debt can hobble progress. One of the worst things you can do in an economy is treat what is scarce as abundant and what is abundant as scarce. Victorian England - with its social stigma against debt - was actually creating the right culture for that stage of capitalism. Capital was scarce and people should have treated it carefully. The reality behind the billions made in venture capital, junk bonds, and credit cards today, though, is expressed in Michael Milken’s observation that, “In an industrial society, capital is a scarce resource, but in today’s information society, there’s plenty of capital.” Today, jobs are scarce and capital is abundant; an economy that goes into debt because it is mis-using its capital but creates jobs so as not to mis-use its labor has an edge over an economy that leaves a large percent of its work force under- or unemployed.

So, with all the worry about debt, what does this suggest? To me, this change suggests that we ought not to worry about wasting capital that is abundant. Rather, we should worry about wasting labor. Our economy will be made stronger by employing more people into productive ventures, not by avoiding debt. Once we’ve got employment back up and have created jobs, we can worry about debt. But not about eliminating it – just in shifting it into the creation of new industries and services.


--------
Some of the inventions from the decades around 1900:
central heating; the safety razor; stainless-steel implements; the striptease; the electric toaster; iron, oven; sewing machine; dishwasher; electric elevator; dial phone; portable typewriter; radium treatment for breast cancer; heart surgery; the psychiatric clinic; contact lenses; toothpaste in tubes; motion pictures; musical comedy; the gramophone; volleyball and basketball; the Ferris Wheel; the jukebox; breakfast cereals; milk delivered in bottles; packaged produce; Coca-Cola; margarine; the ice cream cone; the refrigerator; public libraries; the correspondence course; the full-range department store; the chain store; the shopping center; the coin telephone; the traveler’s check; fingerprinting; the automatic pistol; the electric chair; the automobile and the airplane; the underground city subway train; the pneumatic tire; color photography; rayon and other artificial textiles; chewing gum.

Ill-Timed Fiscal Responsibility

Imagine the kid least clear on the topic getting to deliver the lecture in class and you get a sense of what happens to economics in a modern democracy.

Democrats are talking fiscal responsibility now. They've heard from their districts that Americans are aghast at our level of deficit spending. And, of course, Republicans have been harping on deficits ever since spending plans have shifted from the military to health. This is terrible timing.

Geithner and Obama have both signalled that they're aware of the need to reduce deficits and that they dare not do it too soon at the risk of tilting us back into a recession.

When the economy was expanding, the Bush administration ran chronic deficits and hardly a word was said. This was ridiculous. Large deficits during good times guarantee huge deficits in bad. And deficits in good times just fuel speculation, price inflation, and new ventures that cannot be sustained. It is during good times that we ought to speak out against deficits but it is during good times that a people feel they can afford to take on such debt.

During bad times, there is a sense that we spent our way into financial trouble and this reckless spending ought to be stopped. Americans in particular have always been uneasy about credit. Few remember that commercial credit met as much opposition in the late 1800 and early 1900s as homosexuality meets today: the apostle Paul wrote more clearly and as often about avoiding debt as he did homosexuality. We get very moral about debt during bad times. This is unfortunate, like getting squeamish about blood during surgery.

Deficit spending is necessary during bad times and is - at best - an annoyance during good. Economics is, of course, continually subordinate to popular opinion in a democracy, so what makes for good policy matters little. Lots of people claim that medicine is a conspiracy but the individual who believes in modern science and medicine can still visit a doctor: if enough people see economic policy as a conspiracy rather than the best we know, all of us get banned from seeing the doctor. Talk show hosts who fell asleep during economic lectures will fume and sputter and callers will chime in with their outrage and these kinds of people will send letters, organize voters, and set policy.

Keynes was a genius but there are lots of coffee shop diners who understand economics better than he did (and, presumably, understand physics better than Einstein). For the record, Keynes recommend government surplus in good times and deficit in bad. Right wing talk show hosts recommend the opposite. You take a guess as to who can be trusted more.

We Are Financing the Chamber of Commerce to Work Against Us

Read this article to see why I once thought that Elliot Spitzer would be - and should be - our president in the next decade:

The U.S. Chamber of Commerce must be stopped. Here's how to do it.

The intro ...

The U.S. Chamber
of Commerce—the self-proclaimed voice of business in Washington—has been
wrong on virtually every major public-policy issue of the past decade: financial
deregulation, tax and fiscal policy, global warming and environmental
enforcement, consumer protection, health care reform …

The chamber remains an unabashed voice for the libertarian worldview
that caused the most catastrophic economic meltdown since the Great Depression.
And the chamber's view of social justice would warm Scrooge's heart. It is the
chamber's right to be wrong, and its right to argue its preposterous ideas
aggressively, as it does through vast expenditures on lobbyists and litigation.
Last year alone, the chamber spent more than $91 million on lobbying, and,
according to lobby tracker Opensecrets.org, it has spent more than twice as much on lobbying during the past 12 years as any
other corporation or group.

The problem is, the chamber is doing all this with our money. The chamber
survives financially on the dues and support of its members, which are most of
America's major corporations listed on the stock exchange. ..

How, you might ask, do we own these companies? Public pension funds and
mutual funds are the largest owners of equities in the market. They are the
institutional shareholders that have the capacity to push management—and the
boards of the corporations. Yet the mutual funds and pension funds have failed
to do so.

News Warp Up for the Week

I was going to post about the plausible reasons why Obama was awarded the Nobel Peace Prize but my list includes only one item: he got Cheney to leave office without any violence. (It's not hard to imagine a scenario in which Biden would have given his acceptance speech with his skin sprinkled with bird shot.)

Communication major Sarah Palin's comments about the value of the dollar now leap straight from Facebook to the Financial Times. Meanwhile, analysts are scratching their heads about why the traditional media is floundering.

And speaking of journalism that makes you wonder who they have not laid off at these papers, Bloomberg has a headline, U.S. Trade Deficit Unexpectedly Falls as Exports Rise. Given that the trade deficit = Exports - Imports, it would only be unexpected if the trade deficit fell as exports rose. This headline is akin to "Residents Surprised to Find Streets Wet After Latest Rain Storm."

NASA scientists had an interesting idea: turn cameras into high-speed projectiles and aim them at what you want to photograph. Their good idea of smacking two spacecraft into the moon as a means to photograph it did not work too well. Curiously, the crashed cameras have yet to return any pictures. This could still change photography, though. Imagine news conferences in which every photo session looks like the incident in which Muntazer al-Zaidi threw his shoes at Bush. Instead of throwing rice at weddings, guests may just throw disposable cameras at the lucky couple. As if celebrities don't hate paparazzi enough already, just wait until they adopt the latest from NASA.

Rush Limbaugh may buy the St. Louis Rams. [The rich and poor just have different toys, Martina Navratilova says. "The rich guys buy a football team, the poor guys buy a football."] If he does, the team will be easy to defend against. You can hear the defenses they face look at each other before every play, shrug and say, "What do you think? They'll go right again?"

There is a conservative effort to expunge the Bible of its liberal tendencies. In this version, Jesus still heals people but charges for his services.