You got to explain this to me: what toxic assets?

I have been listening to talks about toxic assets for three years and I still don't get it. Please help!
I always thought that the idea of bundles (you link a lot of good houses with one or two risky-toxic ones) was very good: it is the way to go because it limits the risk.  Also, we all know that the price of houses can level or fall because it happens every time that an average house costs more than two median salaries can afford. I know that: it was a big problem when I was still in Paris in the 80s. So of course bankers take that into account.
I have been in school long enough to know that you can estimate how much risk you can take, and banks do that every day, so what happened? I read that the banks did not care because they insured their risk.
Fair enough.
Now it is the insurance's business to estimate risk. How are they going to make money on your life if they don't know when your prostate is likely to lose its ... its spongicity? They got tables, they push a button, and they know how much of a risk you are. Estimating the risk is what they do for a living, right? And they are widely used to the theory of bundles: they bundle the risk of a hurricane in coastal zones with the risk of tornadoes inland. It is their profession to estimate the risk and to bundle it to their advantage. It is all about statistics, whether you buy, or sell, or if you are a a banker and in the end, even more so if you are an insurer.
So, if you would stop throwing to my face words like greed and toxic assets, which look like they explain the crisis but don't, and tell me what really happened,  I would be grateful: I don't get it. There are always toxic assets, being in life insurance or in housing or in car insurance. That is what estimating risk is about. I am under the disquieting impression that we are treated like a bunch of idiots. It is simple: I want to know who cheated.

The perfect car

I understand that engineers want to add a television, a GPS, an all electric/gasoline choice, an automated parking, all kinds of electronic controls (the more the better), electric windows which change tint with the sun and a seat that calculates the best position for you. It was all in Detroit and it is not what I want.

I want a small basic car light but secure with very low gas consumption, a tight turning circle, a low repair expectancy and a cost of less than 7,000 dollars.

Am I the only customer for it?

Spending more to fix the economy?

One one hand, we get called names for using too much credit, and that killed our economy. On the other hand, we are supposed to spend more to support the economy because we do not spend enough and that kills the economy.

It does not make sense. Ah, wait a minute! The US Gross Domestic Product is about 14 trillion dollars a year, about the same as the European Union and twice as much as China. But most of it is made of services (79% compared to 19.8 for industry and 1.2 for agriculture). What is services? Everything not included in the two other categories: transport, health care, finance, retailers, etc). It means that over three quarters of the economy is built on our capacity to spend: buy or rent houses, dresses and books and go to the movies and end up in a restaurant. It has been decades now that businesses look for more stuff to put in our hands, from hoola hoops to cell phones. They calculate a shorter and shorter lifetime for everything we buy to force us to buy the same thing again, be it a house, a computer, a car or a refrigerator. then of course we need credit to buy the stuff. And businesses outsource and import to make more profit. So our industrial capacity disappears.

Unhappily, the more unemployed and poor retirees like me, the less we spend and the economy shrinks. This US economy: the one that is more built on spending than on building.
So the real solution is not for the government to throw a trillion dollars around, it should be to get more industry in the US. Let us get back to a 30% industry and agriculture: that is the real wealth of a country. Working and creating before spending.

The beauty of coincidences

Cerberus had three dogs heads and the tail of a dragon. It was keeping the gate of hell. The image comes from a beautiful French site about antiquity: remacle.org

On one hand, Chrysler has been asking for "A $7 billion secured working capital bridge loan by December 31, 2008."ref from Time.com
On the other hand, Chrysler was bought last year at 80% by the private firm Cerberus "for $7.4 billion from the German carmaker Daimler" ref from the NYT

Huh! I do know it is just a coincidence. But it reminds me (something or other does every morning) that I am not just as smart as I thought yesterday night.

Bizarre, bizarre all over again.

Bailing out Detroit

Yesterday, I was all in favor of bailing out the car industry because 1) I am worried about Detroit and 2) I am old and sentimental.
I should not have listened to the debate today; I changed my mind. I am so naive even in my advanced years that I thought they would come with a plan. They did not: they came with justifications for their need of money. With a few billions more, they cant even innovate, they are going to produce the same misunderstood cars and promote them through the same crooky advertisers.
I really thought yesterday, and that tells you how stupid I am, that they would come back and say stuff like:

- look, the average car price has been 40% of the median American salary every year since 1990: we are going to change that. Refrigerators and TV prices went down, we should do the same.
- We realize that hybrid cars are too expensive for now, we are going to propose a totally electric subcompact at a very low price and get into the low car rental with our unsold big cars. We are even going to offer a 10-days free rent of a big car to anybody who buys a small one. Most people buy bigger cars just to visit their mother once a year: let them do that for free.
- With all the battle for more electronics in everybody's car, we have forgotten that there is a market for cheap cars. We are going to look back at the Bug and the 2CV Citroen and produce an elegant go anywhere, cheap, robust little car with low gas consumption and low price for parts.
- We want to invest in a woman's car with stuff like a place for driving shoes.
- We are sick and tired of watching people take a buggy at the grocery store, fill it up, get everything out to pay, put everything back in, go to the car, put everything in the car and go to the house and take everything out again.From now on we produce our cars with a sliding buggy that stays upright, with a mechanism like ambulance beds. Furthermore, we are going to buy the patent to read the prices of the produces you buy directly in the buggy without putting them on a counter.

You see? That is a plan. Maybe not the best, but it is a plan.

Not only I am dangerously naive, I am also dangerously disappointed: let them die. Cut them in chunks and let a new generation of CEOs deal with each chunk.

With 10 billion dollars, you can pay and train 200,000 people for one year. Get 10 billions in reserve for pension plans(but it is not enough), 5 billions as a stimulus to small, bolder car makers. Who needs the old fusspots?

We need a car to love.
PS They are getting some money, thanks congress for that, but I still hope they will make better cars.

Economists should work as chemists do

The notebook of Marie Curie, tragically, is smeared with radioactive fingerprints: people of her generation did not know how dangerous radiations could be. This image is from aip.org


If like me you keep a look on C-SPAN, you got to admit (surprise, surprise) that some people in Washington are smarter than you and me. So what is it that does not work? It is not corruption, we always have too much corruption, but not enough to justify our stagnation.
Some people get so exasperated by our muddy economics, that they would gladly let go of the federal reserve altogether (check for instance the interesting site of co-stumbler LesLafave here). But I am not sure that any ideology is the guilty part: past experiences show that zero intervention does not work and too much intervention does not work either.
I think that sometimes, smart people get lost in the details instead of keeping the aim in mind. They should do like the old chemists did.
Many years ago, a chemistry Prof of New Zealand, Keith Hunter,check him here told me that a chemist notebook should always start with writing down what is the aim of the experiment. In a chemistry notebook, you write down everything, because trivial things like using glass or plastic could explain why you have contamination or why you cannot reproduce earlier results. Why do you write down the aim? Because you can get lost in so many sub-experiments, such as checking the use of plastic vs the use of glass that your original intention can very well get lost in the details.
Dear economists, please work as chemists do. After consulting, getting counter-proposals, after the interventions of various ideologues, politicians and lobbyists, after incorporating all the details you had forgotten in the first place, please check again your final thoughts against what you first wanted to accomplish. Are you off course? Does your solution answer the question?