Lesson of the Year

In 2012 I concluded
That my vote for the House is deluded,
Since the shape of my district
Regrettably IS tricked
To keep the opponent excluded.

As we count down the hours of 2012 with no deal reached in Washington on the basic questions of government revenues and expenditures, many wonder how it is possible for the Congress to remain so deadlocked in the face of a clear electoral outcome for the nation as a whole. The answer is, in part, that members of the House of Representatives do not answer to the nation as a whole, or even to the whole of their own districts. Rather, because most Congressional districts are gerrymandered to ensure the continued representation of the incumbent party, the typical house member feels most beholden to the extreme elements in that party who participate most intensely in the primary election.

In 2013, we must resolve to undo this gerrymandering, as a first step toward truly representative government.

Cliff Looms, Consumer Consumes

Said a retail consumption authority:
"Consumers now have the priority
Of avoiding the "Cliff",
Regardless of if
It's mystery to the majority."

As the days and hours before the fiscal cliff dwindle, and the year-end economic data accumulate, opinions differ sharply regarding the influence of the former over the latter. According to perpetually hyperventilating Business Insider, "everyone is talking about how the fiscal cliff is crushing the consumer." The Insider's sleepless economics editor Joe Weisenthal cites recent, weak data from MasterCard and the Consumer Confidence survey in support of his point.

"Total BS," replies the Guardian's Heidi Moore. Digging deeper into the data, Moore cites a litany of reasons for recent slowdowns in consumer spending. Seasonal factors, and the fact that Black Friday and Cyber Monday spending broke records, loom larger than the Fiscal Cliff, though the latter may still be a secondary concern.

Noël Greetings

Merry Christmas to friends far and near,
And retailing holiday cheer,
With a dovish Fed rule
To stimulate Yule,
And a fiscally balanced New Year!

 - Dr. Goose

This Is The End

An ancient foretelling of verity
Said the world with go out with severity,
But may really impend
The recovery's end
In Washington's leap to austerity.

The Republicans' fiscal cliff diver
Advanced a proposal that neither
The White House or Senate
Would ratify when it
Was passed, which it never was, either.

One shouldn't put too much reliance
On the art of political science,
Which tends to foretell
The future as well
As the calendar made by the Mayans.

If you are reading this, then the world did not end on December 21, 2012, as predicted by the Mayan calendar. The negotiations to avoid the "fiscal cliff", however, are another story. Earlier in the week, optimism ran high as proposals advanced by House Speaker John Boehner and President Barack Obama were "only" $200 billion apart in long-term revenue raising.

Seemingly at the last minute, the Speaker shifted gears and announced a "Plan B" that, although rejected in advance by the White House and the Democratic-controlled Senate, had placed enough constraints on tax hikes to garner the needed support of House Republicans. In the event, the legislation was pulled due to many many of those Republicans' resistance to even modest tax increases on the very wealthy. With legislators now heading home for the holidays, it appears that Mr. Boehner's reputation as a negotiator is preceding the federal budget over the cliff.

Mayan Hashtag Hijinx

With the approach of the end of time (as predicted by the Mayan calendar), the Twittersphere has teemed with end-of-the-world confessions by those wishing to go out with a clean conscience. Believing that confession is good for the soul of even the Dismal Science, Dr. Goose - who tweets under the name of @DrGooseEcon - created a hashtag to facilitate economists' unburdening:

#EndOfTheWorldEconfessions I answered the household survey under an assumed name.

— Dr. Goose (@DrGooseEcon) December 20, 2012

Thanks to noted economist Justin Wolfers, #EndOfTheWorldEconFessions became a trending topic among the global society of Twitter econ nerds. Here then are some of the top econ-fessions on Twitter:

#EndOfTheWorldEconfessions I secretly want to make Basel I, II, and III into the best movies ever.

— Rob Blackwell (@ABWashBureau) December 20, 2012

#EndOfTheWorldEconfessions I imagine the Fed's dual mandate as a duel mandate between Ron Paul & Ben Bernanke

— Betsey Stevenson (@BetseyStevenson) December 20, 2012

I have used Venn diagrams drawn on napkins to make a point in the context of a romantic spat #EndoftheWorldEconfessions

— Matina Stevis (@MatinaStevis) December 20, 2012

Accidentally announced a Blue Light special at the discount window. #endoftheworldEconfessions

— Philadelphia Fed (@philadelphiafed) December 20, 2012

#EndofTheWorldEconfessions Sometimes I forget to maximize utility.

— Binyamin Appelbaum (@BCAppelbaum) December 20, 2012

...and the number one econ-fession:

#EndOfTheWorldEconfessions: Every October I make early-morning prank calls to famous economists, in a convincing Swedish accent.

— Justin Wolfers (@justinwolfers) December 20, 2012

GDP, or GDI?

Though GDP seems to be surging,
Economists' views are diverging,
For if growth is discerned
By what's made (vs. earned)
May foretell if it's flat or encour'ging.

There are many ways of measuring an economy, among which are gross domestic product (GDP) - the value of all goods and services produced - and gross domestic income (GDI), the earnings of all economic actors. Theoretically, GDP should equal GDI, since the product I buy is equal to the income you earn. However, sometimes they diverge, and rarely more so than today.

This morning the Bureau of Economic Analysis released the third revision of 3rd quarter GDP.  As Matt Yglesias blogged in Slate: "the news is good. What was initially reported as growth at a 2 percent annual rate and then revised up to a 2.7 percent annual rate now stands at a very respectable 3.1 percent annual rate. In nominal terms, we now have Q3 clocking in at 5.9 percent growth which is the kind of thing that's consistent with catchup." So, all's well? Not quite: GDI grew by only 1.4%. Now, ours is a big economy and certainly not easily measured, but that's a big divergence. Yglesias suspects that the more optimistic GDP number is closer to the truth, on the evidence of President Obama's decisive electoral victory. After all: in politics, "it's the economy, stupid."

The Futility of Liquidity

Though the Fed may be funding us cheaply,
Recovery's not rising steeply,
Until and unless
We consumers express
More demand again, broadly and deeply.

This was the message conveyed by Federal Reserve Bank of Dallas President Richard Fisher in a speech in Gainsville, Texas on Tuesday. While "quantitative easing is a necessary but insufficient tool to spark job creation," said Mr. Fisher, "employers will not deploy the cheap and abundant capital on hand toward job creation while there is so much uncertainty surrounding final demand for the goods and services they sell." This is actually a mild statement for the Dallas Fed president, who, while not a member of the Fed Open Market Committee, has consistently opposed its stimulative measures, arguing that quantitative easing and Operation Twist would have little impact against the resistance of regulatory burdens and tax uncertainty. In his latest remarks, he sounds almost Krugmanesque.

The End (Of the Fiscal Cliff) Is Near

Said the President: "Well, We are possibly
Confounding the ominous prophecy.
If I may be concise,
We differ on price,
And not fundamental philosophy."

Reports are that President Barack Obama and Speaker of the House John Boehner are close to a deal that may avert the "fiscal cliff." The New York Times reports that the President has offered a deal that would raise revenues by $1.2 trillion over the next decade but keep in place the Bush-era tax rates for any household with earnings below $400,000. This offer is not very far from that which the Speaker proposed on Friday, suggesting that the two sides are dickering on price rather than looking out over an unbridgable gulf.

At this rate, a solution to the Federal deficit standoff may be found before the December 21 end of the world predicted by the Mayan calendar.

More QE, Please

Said Bernanke: "More QE is planned
To give job creation a hand"
(Though it's tricky to know
How banks full of dough
In the aggregate, pump up demand).

Ben Bernanke's announcement of a shift in Fed policy has baffled many in the markets, as Heidi Moore writes in the Guardian. Having moved from a regimen in which rate-setting was linked to both unemployment and inflation, to one in which low inflation is simply assumed while a jobless rate cap of 6.5% is targeted, has raised a number of questions as to implementation and projected timing of eventual interest rate hikes.

More broadly though is the question of how, when US banks already have over $1 trillion in reserves, flooding the system with even more cash will make a difference in the pace of hiring. Most economists agree that the proximate cause of our unemployment level is the lack of aggregate demand. The Fed's purchasing of more billions of Treasury and mortgage bonds may lower yields and therefore move investors into riskier assets such as equities. However, with regard to job creation, quantitative easing is more of a desperation play by a central bank that wishes that the Federal government would hire people to fix the damn infrastructure, already, but expects that they won't.

Monetary Policy Shift

The Fed made a policy shift
To render employment a lift
By buying more bonds,
As liberals and cons
In Congress are "fiscally cliffed."

Said Bernanke: "This monetization,
Which we do without sparking inflation,
Will terminate when
I'm happy again
With the pace of employment creation."

He continued, dispensing liquidity
To the bankers within his vicinity:
"Let the buying commence
Without the pretense
Of an end-date to QE Infinity."

The Federal Reserve Open Market Committee ended its latest two-day meeting with a blockbuster announcement: Chairman Ben Bernanke and colleagues will keep interest rates super-low until the unemployment rate falls below 6.5%. It's the first time that an explicitly quantitative criterion has been publicly articulated for the setting of interest rates. According to the Fed's own labor market projections, we can therefore expect near-zero short-term rates until 2015. Mr. Bernanke expressed frustration with the slow pace of the recovery, as well as the additional roadblock created by the fiscal cliff. "If we could wave a magic wand and get unemployment down to 5% tomorrow, obviously we would do that," he said.

The Investment Pitch Before Christmas

'Twas the month before Christmas, and all through the land,
Marketers hoped for consumer demand.
Investment promoters accordingly yearned
For a Holiday boost to the fees that they earned.

"At this time of year, there exists such a clutter,
We'll never break through!" the marketers mutter.
But the folks at Fidelity had a bright flash:
"Use verses to gather new customers' cash!"

"It's a Yuletide maneuver whose fire is sure:
A poem in the style of old Clement C. Moore."
So what in my e-mail inbox should appear
But Fidelity's version of Holiday cheer.

Inside was a message, official and sleek,
From a 529 plan entitled "UNIQUE"
(It's the school savings plan of the State of New Hampshire).
They started their pitch like an eager, young Prancer:

"Dear Dr. Goose," I was greeted by name,
But I didn't much care for what thereafter came.
The language - how trite! How the rhyming would wobble,
With emphasis placed on the awkward syl-LA-ble.

The sentiment - fulsome!  The meter - how sloppy!
Did interns get wasted and scribble some copy?
Even eight tiny reindeer could easily see
That "Fidelity" isn't a rhyme for "tax-free."

As I drew back my gaze, and was turning around,
I wondered: what more on UNIQUE could be found?
Investment expenses constrain NAVs;
How would this plan compare in expenses and fees?

I went to the internet, flush with designs
To evaluate all of the 529s.
I googled a website and rapidly came
To a listing of plans, by expenses and name.

On Michigan, Iowa, Carolina(*), New York!
Your plans are not laden with very much pork.
Now DC, Nebraska! Now Kansas, New Hampshire!
Your costs are consuming returns like a cancer.

In Fidelity's plans, up to 16%
Is charged in a decade - a ruinous rent.
More moderate plans may only charge you
Just 5% (maybe as little as 2).

This confirms the suspicion right under my nose:
Fidelity's poets are plumly paid pros.
In college investments, keep fees in your sight;
Happy Christmas you'll have, and sleep soundly at night!

The foregoing liberties taken with The Night Before Christmas (with apologies to the descendants of Clement Moore) were inspired by the following, actual e-mail sent by Fidelity Investments to current and potential clients:

   'Tis the holiday season, a great time for cheer,
   When special traditions bring loved ones near.

   A time to give gifts that can give on and on,
   Gifts that can give after the season is gone.

   For your daughter, your grandson, your niece or your neighbor,
   A special child in your life that deserves such a favor.

   Give the gift of an education while there's time on their side,
   They can later use the savings toward accredited schools nationwide.

   Qualified withdrawals are federal income tax free,
   Open a UNIQUE account today with Fidelity.

Fidelity manages the 529 college savings plans of several states, including New Hampshire, whose UNIQUE College Investing Plan is among the costliest of all fifty states.  That's according to SavingforCollege.com, which ranks the Fidelity-managed 529 plans of Arizona, Delaware, Massachusetts and New Hampshire as tied for the distinction of 4th most expensive in the nation.  For more information, see the Journal's guide to How to Find a 529 Plan.
(*) Note: SavingforCollege.com ranks the North and South Carolina 529 plans as 7th and 2nd least expensive, respectively; top (or bottom) honors go to New York.

The poem in this post was originally published in the Wall Street Journal's Total Return Blog.

Pull Yer SOX Up

Said a watchdog: "We find it egregious
That the auditing world's most prestigious
Less frequently prod
The avoidance of fraud
By checking controls and procedures."

"An auditor ought to endeavor to
Ensure that malfeasance would never do;
By checking receipts,
You'll foil deceits
In booking expenses and revenue."

America's accounting watchdog says that the quality of auditors' checks of their clients' accurate bookkeeping is heading in the wrong direction. According to the Public Company Accounting Oversight Board, problems are numerous and growing in audits of companies' internal controls. Inspection reports of 2011 audits (not all of which are yet completed) found that 22% of them had deficient internal control checks, up from 15% in 2010. Reuters reports:

"Audit firms are required to test controls that could have an impact on financial statements and attest that the safeguards are adequate, but in many cases the companies in which the auditors gave passing grades, the PCAOB found there was insufficient evidence to support that opinion."

The culprit may be understaffing; in many of the deficient cases, the auditing firms had made headcount reductions. The PCAOB looked at internal control checks by the "Big Four" audit firms - Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers - plus second-tier firms BDO Seidman, Grant Thornton, Crowe Horwath and McGladrey.

Overheard at the White House Last Weekend

"Mr. Speaker, I surely desire
That the deadline will not just expire,
But I get my way if
We fall off the cliff
And rates on the rich revert higher."

In the continuing effort to reach a long-term deal to restrain Federal budget deficits and avoid the looming fiscal cliff, President Barack Obama and House Speaker John Boehner met at the White House this past weekend. At the same time, pundits on the Sunday morning talk shows pointed out the President's negotiating advantage: Although the fiscal cliff represents a package of tax hikes and spending cuts that supposedly nobody wants, the Republicans want them less then he does. That's because the reversion to the higher marginal tax rates paid by the rich during the Clinton administration, against which Congressional Republicans have attempted to hold the line, will happen automatically if no deal is reached. This dawning realization may portend a higher likelihood of both a dive over the "cliff" and a resolution more to the President's liking.

Handel's Big Trade

When Handel composed The Messiah,
The markets were caroling highah.
He sold, shouting "Boo-yah!
Now sing Halleluia!
To be a contrarian buyah."

For many investors at this time of year, 'tis the season to review portfolio investments that hath been exalted, or laid low. If unto you a gain has been given, shall the government be more upon your shoulder this year, or next?

One man who handled such questions adroitly was George Frideric Handel, according to Jason Zweig of the Wall Street Journal. Mr. Zweig says that the renowned composer "never went Baroque" because he knew when to get into and out of the hot investments of his day. The greatest investment bubble of the early 1700's was the South Sea Co., driven by the mania of colonization. Mr. Handel played the South Sea Co., but acted earlier than contemporaries such as Sir Isaac Newton, buying his shares at lower cost and selling them before the bubble burst. It is estimated that Mr. Handel doubled his South Sea investment, making a £15,000 profit, roughly 2.9 million in today's dollars. At the end of his life, Mr. Handel's estate comprised about £20,000 ($3.8 million today).

As a footnote to this Yuletide tale, we must ask whether the German-born Mr. Handel came to the market with a natural advantage: his name, in his mother tongue, means "trade."

It's Beginning to Look A Lot Like...

It's beginning to look a lot like Cliffmas
Evvvv'rywhere you go.
They're intractable on the Hill,
The President's stronger still,
He's setting his toboggan in the snoooww...

It's beginning to look a lot like Cliffmas;
Soon the bells will chime,
And the posturing will be worst
On January First,
When we're ouuut o-o-of tiiime.

The President and his Republican Congressional opposition continue to sing from different hymnals on the major issues of taxation, while trying to reach a long-term deficit reduction deal that will avoid the "Fiscal Cliff." On a related note (see what I did there?), Matt Miller hypothesizes an Endless Cliff in the Washington Post:

It seems almost certain that any new deal that is struck, either before January 1 or some time afterwards, will involve some minor near-term “action” or “down payment” combined with the creation of a new fiscal cliff of unpleasant consequences to be triggered sometime in 2013 if a broader deal on tax and entitlement reform is not reached.

This, because a divided Washington needs “a forcing device” to instigate action.

But what will have changed later in 2013 to produce a different outcome? Arguably nothing. And so we have the prospect of another deal with illusory progress later in 2013, along with the creation of the next forcing device. Which eventually forces the next sham deal and the creation of the next forcing device.

It's beginning to look a lot like only a major political disruption - such as Congressional district un-gerrymandering, a Democratic sweep of the next midterm elections, or the complete removal of money from politics - could stand in the way the Endless Cliff Hypothesis becoming reality.

(Embedded music track powered by mp3skull.com)

Inside Tip

Justice is always condemning
Insider activity stemming
From positions of trust,
Indiscreetly discussed
By monitored phones and IM'ing.

But let me say more than is minimal,
Lest my message be seen as subliminal:
When it comes to affairs
In the trading of shares,
Information asymmetry's criminal.

On the trading floor, all electronic communications - be they phone, e-mail or IM - are recorded and retained, just in case any questions arise later on. Sometimes, though, folks can get complacent and indulge in an instant message chat much like the following:

Weishaus: we should get [RR3] to buy a f***load
Conradt: jesus don’t tell anyone else
Weishaus: like, [RR3] buy 100000 shares
Conradt we gotta keep this in the family
Weishaus: dude, no way
i don’t want to go to jail
f*** that
Conradt: jesus christ
Weishaus: martha stewart spent 5 months in the slammer
Conradt: does [a friend] know?
Weishaus: and they tried to f*** the mavericks owner

This was the dialogue between Thomas C. Conradt and David J. Weishaus, brokers at Euro Pacific Capital, after they came upon the privileged information that IBM was about to purchase SPSS, Inc. for $50 per share. Their chat was not only colorful, but actionable.

Just in case anyone infers here a subscription to the "don't-get-caught" school of insider ethics, let me say plainly: insider trading is theft. To trade on information which one's counterparty could not be expected to know is literally stealing value. Don't do it, folks.

Purchasing Managers' Limerick

There's a purchasing index quite candid,
That tells what supply and demand did.
On the first business day
Of the month, it will say:
Manufacturing shrank or expanded.

If PMI's 50 or less,
Manufacturing's bound to regress;
If 50 or more,
Expansion's in store,
A predictor of wealth and success.

Each month, in the opening hours,
The surveyor patiently scours
The thoughts of those guys
Who manage supplies
In the global industrial powers.

They learn, from each guy they contact,
If supplies will expand or contract,
In sum, they depict
The trends that predict
How growth on the whole will have tracked.

Then, around the world (first in the East),
The PMI stats are released
To financial brigades,
Who position their trades
Whether growth has reduced or increased.

Yes, it's the first business day of December, which means that the November Purchasing Managers Index in each of the world's economically important countries is being released. At this writing, the PMIs from Asia and Europe show positive trends, although the former continues to outshine the latter. Nobody is more enthralled by purchasing managers' predictions than Joe Weisenthal and the folks over at Business Insider, who have been live-blogging the results all night. With only the US and Brazil left to report on November's supply chain activity, indications are that the world is turning back from the recessionary cliff, if not the fiscal one.

Overheard at a Branch Opening

"We're financially lacking in fodder,
As bankers, to earn as we oughter,
When deposits accrue
At zero-point-two
And we lend out at three and a quarter."

Dr. Goose was among the guests at the opening of the Glen Ridge, New Jersey branch of Boiling Springs Savings Bank. As an invited community leader (not as a limericker laureate), I chatted with Boiling Springs' President & CEO Bob Stillwell, who proudly told me of the bank's adherence to the time-honored business of taking deposits and making mortgages. This basic approach has served the bank well from the 1959 founding of its original branch in Lyndhurst NJ, to the opening of its 18th branch today. Not only has the bank stuck to the basics, it has also stuck with Mr. Stillwell, who joined over 40 years ago as a recent college graduate.

One of the ways in which Boiling Springs, a mutual holding company, puts down roots in the four New Jersey counties in which it operates is by supporting local charitable causes. This was evident in the reception's guest list, which included trustees of the Glen Ridge Educational Foundation and the Glen Ridge Community Fund. The bank had actively supported both organizations before even setting up shop in Glen Ridge.

Boiling Springs' head of lending, Frank Weber, asked my opinion on the current interest rate environment, which we agreed was not easy for savers or community bankers. "Margin compression" is a serious concern for an institution whose funding cannot get any cheaper; at 0.15%, its checking accounts now pay three times the national average rate. Every incremental reduction in mortgage rates reduces the bank's interest margin, for which a higher level of refinancing volume is only a partial compensation. Still, a savings bank that has grown slowly and stuck to its knitting through five decades of financial cycles is not likely to let a little margin compression impede its progress.

Remembering Lincoln on Thanksgiving

In celebration of Thanksgiving Day 2012, I offer once again my limerick verse based on the 1863 proclamation that established our national holiday:

"The Almighty, with merciful gaze
Looking past our iniquitous ways,
Has bountif'ly blessed,
As we all may attest
In a day of Thanksgiving and praise."

In 1863, with the nation ablaze in civil war, President Abraham Lincoln spoke movingly of

"these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, [to which] others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God... They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy.
It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People."

It is worthwhile to read the entire proclamation as we come together to give thanks in a time of troubles, and remember the greater trials of our history. Happy Thanksgiving to all!

Caveat Emptor

A buyer who looks to an audit
Of a target before having bought it,
May leave itself open
In spite of all hopin',
To sellers' attempts to defraud it.

Years ago, an accounting professor visited a class of credit risk analysis trainees, of which I was one, and told us that "a financial statement is like a bikini: what it reveals is interesting, but what it conceals is vital." Every so often, I have cause once again to ponder the professor's sage insight. Today, for example, comes news of an $8.8 billion accounting fraud allegedly perpetrated on HP by management of the software company Autonomy, which $HPQ acquired last year for $11.1 billion. Autonomy's key product is IDOL, a software package that allows big users to crunch big data and find patterns and meaning in it. HP alleges that, notwithstanding clean audits by Deloitte, Autonomy's pre-acquisition financial statements contained -

The mischaracterization of revenue from negative-margin, low-end hardware sales with little or no associated software content as “IDOL product,” and the improper inclusion of such revenue as “license revenue” for purposes of the organic and IDOL growth calculations.The use of licensing transactions with value-added resellers to inappropriately accelerate revenue recognition, or worse, create revenue where no end-user customer existed at the time of sale. This negative-margin, low-end hardware is estimated to have comprised 10-15% of Autonomy’s revenue.

Somewhere, my old accounting professor is smiling ruefully.

No Cliffhanger

A pundit, politically touting,
The conventional wisdom was flouting,
When he roundly dismissed
The Fiscal Abyss
As "Over, except for the shouting."

The Business Insider's Joe Weisenthal declares that today's stock market is in the throes of a "Morning Money Ben rally." That's because Politico's Ben White has made the gutsy call that the fiscal cliff is already over. Swimming against the current of mainstream media coverage of this supposed January 1 cliffhanger, Mr. White points out the essential difference between the political situation today and that which prevailed during the Debt Ceiling debacle:

Nearly every signal from Republicans suggests they understand they have lost the war over taxes going up on the wealthiest Americans and are just trying to figure out how to get the least objectionable deal that includes real spending cuts and a trigger for tax and entitlement reform. It’s clear from polling that the GOP will get the blame if taxes go up on everyone on Jan. 1 and any subsequent damage to the economy and markets will fall squarely at the party’s feet. Republicans are no longer ignoring such polls.

In a somber counterpoint to Mr. White's analysis, Mr. Weisenthal reminds us that the greater political difficulty for President Obama this time may lie on his own Democratic side, in getting Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi to play ball in the field of Social Security and Medicare cutbacks.

No Security in Book Value

Said a banker: "The Crisis revealed,
In investments we carried for yield,
How extreme fluctuations
Affect valuations,
So better to keep them concealed."

Said investors: "It's better to trust
In the price you could fetch if you must,
And the equity value
Which, hopefully, now you'll,
Accordingly, have to adjust."

Bankers, regulators, lobbyists and the US Congress have all turned their attention to the US implementation of the Basel III regulatory framework, which appears to have very few friends in high places. One always-controversial element of Basel III is the requirement to mark to market those securities that a bank has as "available for sale." Bankers hate this idea because it increases the reported volatility of earnings and capital. At a Senate Banking Committee last week, Michael S. Gibson, director of the Division of Banking Supervision and Regulation at the Fed, appeared prepared to give a little in the face of industry pushback, saying that regulators are "considering changes to the treatment" of such securities.

However, if bankers hate mark-to-market, investors should love and defend it. As the Journal's Heard on the Street columnist David Reilly writes: "the only thing worse than a loss at a big bank is pretending it doesn't exist." Reilly points out that available-for-sale securities comprised $2.6 trillion, or 19% of bank assets, on June 30, up from 14% in 2008. Like it or not, such investments do fluctuate in value, and pretending that they could be disposed of at cost only leads to investor distrust during financially difficult times. Unlike bank loans, liquid securities are not reserved against, so marking them to market is the only way to assure that, at least in this one respect, investors can place some credibility in the reported book value of financial institutions.

WSJ: No Security in Book Value

Here is my latest post for the Journal's Total Return blog, on the fight over banks' having to mark to market their securities held for sale. Please enjoy, and leave a comment!

RIP Hostess

Hostess will finally cease
Mixing flour and sugar & grease,
And many are sad,
But is it so bad
After making the nation obese?

For me, the bankruptcy and liquidation of Hostess was a bit like reading of the death of a former celebrity that you had thought was long deceased. I have not seen, much less eaten, a Twinkie in twenty years. The company's demise has been met with an outpouring of grief fit the passing of a national icon, which in a way it was. But was it a good way? This was a maker of products whose nutritional emptiness and questionable chemical content were so widely known that their consumption once comprised part of the psychological testimony for the defendant in a murder trial. While I do mourn for the 18,000 jobs lost, the death of Hostess leaves me feeling... curiously empty.

Conditions Are Tight

Said Bernanke: "By now it is evident
That tight mortgage standards are prevalent,
Which is really too bad,
As it's time that we had
An impetus, not an impediment."

Federal Reserve Chairman Ben Bernanke gave a speech at a housing conference yesterday in which he noted the tight lending conditions currently prevailing in the mortgage market. Although loose lending standards contributed to the 2008 economic collapse, and tightening standards in response was appropriate, Bernanke said it appears that “the pendulum has swung too far the other way,” denying some creditworthy borrowers. This may slow the housing revival and impede the economic recovery, warned the Chairman.

That mortgage lenders remain reluctant to lend puts a spotlight on the limitations of Fed action, inasmuch as the central bank has recently begun a program to buy $40 billion a month of mortgage-backed securities as a way of freeing up the market's credit capacity. Chairman Bernanke spoke in Atlanta at the Operation HOPE Global Financial Dignity Summit. His remarks did not address the question of whether "financial dignity" is an oxymoron.

A Perfect Scandal

In DC, it's a welcome distraction
From each warring political faction:
Invoking, in speeches,
Security breaches
From man-on-biographer action.

It appears that the affair of CIA director David Petraeus and his biographer, Paula Broadwell, is the perfect Washington scandal, giving the mainstream media just enough connection to supposed "national security issues" to justify around-the-clock coverage of a tabloid story. This was made abundantly clear today during President Barack Obama's midday press conference.  The President spoke on progress in negotiating a long-term budget deficit solution that would avoid the fiscal cliff (or "austerity bomb," as I like to call it), with special attention to his insistence on letting the Bush tax cuts expire for the top 2% of income earners.  The first question went to the AP's Ben Feller, who asked:"Can you assure the American people that there have been no breaches of national security or classified information in the scandal involving Generals Petraeus and [John] Allen?"

Now, this is a non-question, since it is already evident that there was no breach of national security, and we already know that Ms. Broadwell had classified information on her computer.  Of course, Mr. Feller's question gives him an opening to write a lede containing the keywords "sex scandal", which is much juicier than leading with "tax cuts" or the "fiscal cliff". However, this is a time when the nation needs to focus on its long-term sustainability, and the Ben Fellers of this world should be helping us to do so - as should the Dr. Geese.

Rhyme & Reason on the Fiscal Cliff

If rational ladies and chaps
In Congress agree to put caps
On deductions from taxes,
Then revenue waxes,
With deficits waning, perhaps.

But merely increasing the revenue,
For sustainable budgets, would never do.
Our care for the aged
Must now be re-gauged,
If balance long-term we endeavor to.

To establish a little more surety
For Medicare and Social Security,
We must compensate
For our slowing death rate
By raising the age of maturity.

The Congress may not be remiss
In horsetrading that against this,
For to hope there is reason
That Washington's seizin'
Escape from the Fiscal Abyss.

Over the weekend, Dr. Goose was seized by optimism when he read Greg Mankiw's latest blog post regarding the resolution of the fiscal cliff. In a post entitled "How To Raise Tax Revenue From The Rich Without Increasing Tax Rates," Prof. Mankiw writes:

According to the Tax Policy Center, if we cap itemized deductions at $50,000 and keep tax rates as they are today, we would raise $749 billion in tax revenue over ten years. Moreover, according to the TPC's distribution table, 96.2 percent of the extra revenue would come from the top quintile, with 79.9 percent from the top one percent.

This elegantly simple modification to the tax code, which was also floated by Mitt Romney during his presidential campaign, could be the core of a compromise on the federal budget. The quid pro quo would be a reduction in the growth rate of spending by "gradually but significantly increasing the age of eligibility for Medicare and Social Security." Of course, there's more to it than this, and the devil, as always, is in the details, but it does give one hope to see a simple framework on which reasonable people can come together.

In a related point, I like the term "austerity bomb" as a more descriptive alternative to "fiscal cliff" for describing what will happen if no budget deal is reached.

Post-Election Analysis

The super PACs failed in their mission
To win with financial munition.
Though pols who would carry
Find cash necessary,
It's not a sufficient condition.
* * *
The House GOP had consistently
Obstructed Obama insistently,
But now they're at pains,
Having garnered no gains,
To avoid going cliff-diving fiscally.
* * *
The nation would like to see whether
The parties can now work together
To right our finances,
Or what are the chances
That partisanship rules as ever?

The results of the 2012 US elections have provided rich fodder on which political junkies of all stripes may chew. The New York Times reported this morning that wealthy sponsors of conservative super PACs got no return on the investments that they made in such vehicles as "American Crossroads." Co-founded by Karl Rove, this super PAC, along with the affiliated "Restore our Future," collected about $300 million, seemingly for naught. Haley Barbour, the former Mississippi governor and Republican party chairman who helped raise money for the two groups, consoled himself that their spending helped keep the race as close as it was.

House Republicans seem to be chewing a little more thoughtfully these days, as evidenced by their newly cooperative rhetorical stance with regard to the "fiscal cliff." Speaker John Boehner struck the new tone in remarks at the Capitol: "Mr. President, this is your moment. We’re ready to be led — not as Democrats or Republicans, but as Americans. We want you to lead, not as a liberal or a conservative, but as president of the United States of America." Of course, many have already predicted such conciliatory talk, followed by a reversion to partisanship, so we must be cautious in our expectations.

Election Night

The election result may not alter
That bipartisanship tends to falter,
But still one can yearn
For the gridlock to turn,
Though there's hardly a reason at all ter.

President Barack Obama has apparently won reelection with a decisive electoral college count, on top of a 50/50 split popular vote. As in 2010, the Election Day result leaves the country with a Democratic President and Senate, at odds with a Republican House. Now that the President's reelection is no longer at issue, what will be Congressional Republicans' top priority? Will the Democrats find economic issues - such as healthcare costs, higher education or deficit reduction - on which the parties can work together constructively? I do hope so, though I hardly dare to expect it.

Congratulations to the President and all the victorious candidates tonight. Let's do good things for the country.

Election Follies

Republicans tended to pout
When statistical guys pointed out:
Though the margin is tight
'Tween the Left and the Right,
Re-election is hardly in doubt.
* * *
The Economist recommends "O"
As, on balance, the best way to go:
"After careful review
Of the devil who's new,
We'll stick with the one who we know."
* * *
The GOP House is in harm'ny
That, until the election of Romney,
They're refusing outright
Any measures that might
Aid recovery of our econ'my.

As the US election day looms tomorrow, a group of wonky "poll aggregators" such as Nate Silver of 538 have attracted attention with predictions that President Obama's re-election is an eighty or so percent likelihood. This has generated a lot of misunderstanding, especially among the President's opponents, as to how someone can estimate such an overwhelming probability of his victory when all the polls show something like a statistical dead heat. The answer is that Mr. Silver and others like him take all of the data from various polls and use them to run possible scenarios for electoral college outcomes. The models show that, in 4/5 of the possible scenarios, Mr. Obama wins the electoral college, regardless of how close the popular vote may be. Supporters of Mr. Romney may console themselves that their man still has a 1/5 chance of beating the odds.

The Economist, in its judgment that "the Devil you know is better than the Devil you don't know," seems to encapsulate the general feeling that this election is all about President Obama, whether you love him, hate him or fall in between. Mr. Romney seems almost beside the point, except to provide an alternative for those who don't like the President. That group would include Republican members of Congress, who for the last four years have stalled any sort of economically forward-looking initiatives for the country, lest the President get the credit. Would they be any less obstructionist in a second Obama term? Would Mr. Romney's election suddenly unleash their capacity for positive action? We shall soon see.

Please do your civic duty and vote on Election Day!

More Vortex Verses

My friend Andy Fately, the "FX Poet" of Barclays Capital, is, like me, stuck at home in New Jersey. He writes:

"There once was a poet named Fately.
You haven't heard much from him lately.
Seems Sandy derided
His verse, so decided
To have him write lines more sedately."

Andy's clients should see him back on the job by Monday. In the meantime I hope we hear more great verses!

A Sandy Saga

Here's the ballad of Hurricane Sandy,
Who proved just a little too handy
At blowin' and drenchin'
And throwin' a wrench in-
To Wall Street's modus operandi.

Liquidity's normally fodder
For the markets to act as they oughter,
But as mortgages do,
When Sandy came through,
The stock market went underwater.

She disrupted the stock trading minions,
Though in most educated opinions,
This hurricane paled
Before those that whaled
At Floridians and Carolinians.

The wind filled New Yorkers with terror,
And climatically did something rarer,
Since trading has ceased
For two days at least
Not since the Victorian era.

It's a terribly deep devastation
In the experts' informed estimation,
Though the Keynesian boost
As rebuilding is loosed
May deliver some small compensation.

WSJ: Sandy Saga

In today's Wall Street Journal Total Return blog, Dr. Goose has contributed a lyrical ode to Hurricane Sandy, running wild in Wall Street's canyon of high finance. Please visit me at the Journal, and be sure to leave a greeting.

Hurricane Sandy

When the threat of disaster is heightened
For the Wall Street or media titan,
He may well reflect
On its fiscal effect,
But more likely will simply be frightened.

Hurricane Sandy is headed for the East Coast, and Wall Street is taking no chances. NASDAQ and the New York Stock Exchange are closed on Monday, as is the CBOE. From DC to NYC, closures have been announced for mass transit, schools and offices. Though we like to put on a tough face around these parts, there's a definite whiff of anxiety in the air. Here's hoping that everyone in the hurricane's path stays safe and dry, enjoying a quiet day indoors while nature rages outside.

A Chicken & Egg Problem

For GDP growth to look handsome,
Manufacturing's got to expand some,
But someone must buy
That expanded supply,
So we've got to expand our demand some.

"Without Demand, Manufacturing Can’t Pump Up Output or Jobs," says The Wall Street Journal's Real Time Economics blog. As much as many, including the White House, have pinned their expansionary hopes on a US manufacturing renaissance, this only works if foreign and domestic demand keeps those factories busy. Right now, both appear to be softening.

Recent factory surveys from the Federal Reserve Banks of New York, Philadelphia, Richmond and Kansas City show more respondents reporting falling orders than expanding. Moreover, "a third-quarter survey done by professional services firm PwC found 67% of major U.S. industrial multinationals said 'lack of demand' was an expected barrier to their company’s growth over the next year. That was the No. 1 choice among a list of obstacles that included energy prices, regulatory pressures and taxes, and was a jump from 48% pointing to a lack of demand in the second quarter."

Third quarter US GDP is set to be announced this morning at 8:30, with the consensus forecast of an expansion at a tepid 1.7% annualized rate. At the moment, the prospect of manufacturing our way to faster growth looks dim.

Economists' Golden Rule

The moral economist tries
A society so to devise
That there he would live in
In any case, given
No clue what his role would comprise.

The preceding verse sums up what Nobel laureate Paul Krugman has articulated as the "social vision" guiding his work. Prof. Krugman, of Princeton University, joined fellow Nobel laureate and Columbia professor Joseph Stiglitz Tuesday evening at New York's Fashion Institute of Technology for a wide-ranging conversation before a sold-out audience. The event was co-sponsored by the Institute for New Economic Thinking, whose executive director Robert Johnson moderated the conversation. A video of the entire talk along with Q&A is embedded below.

At 1:27:10 of the video, an earnest interrogator notes that classical economics has come under attack for a lack of moral vision, and asks if the two professors can articulate the moral code that underpins their work. Prof. Krugman, after an initially stunned reaction, responds that he follows the philosophy of John Rawls, who said in his Theory of Justice that social issues should be decided as if from behind a "veil of ignorance," where "no one knows his place in society, his class position or social status; nor does he know his fortune in the distribution of natural assets and abilities, his intelligence and strength, and the like." In other words, self-interest should be replaced by fairness and impartiality.

It would be neither just nor fair if I failed to thank my friend Sherry Brabham, FIT's Treasurer and head of Finance & Administration, whose guest I was for the evening.

Watch live streaming video from instituteforneweconomicthinking at livestream.com

WSJ: No Debt Limit

Here is the 2nd of Dr. Goose's now regular contributions to the WSJ Total Return blog, regarding Joe Stiglitz' thoughts on the US debt/GDP ratio. I am thrilled to become a regular contributor to the Wall Street Journal's website, and hope that readers of this space will visit me there as well.

Foreign Policy Debate

It's agreed by Obama and Romney,
As incumbent and GOP nom'nee,
That nothing impairs
One's foreign affairs
Like a shaky domestic econ'my.

Says Obama: "My answer to threats,
Which America constantly gets,
Is one that renews
Or else we'd still use
The cavalry and bayonets."

Says Romney, expounding on Syria:
"My policy on the extyria
Is the same as Obama's
Except that I promise
To be just a little supyria."

The third and final Presidential debate took place Monday night, and for me, three elements stood out: President Obama took an aggressive stance from the beginning and even landed a few "zingers"; Governor Romney largely seemed to agree with the details of the President's foreign policy and, as in the prior debates, appeared to moderate the more hardline aspects of positions he took in the primaries; both candidates agree that a strong economy is the foundation of a strong world power, and in fact would rather pivot away from the latter and focus on the former.

College Choice

The candidates tried to explain
How to lessen America's pain
From tuition and fees
That pay for degrees
Of commercially dubious gain.

Said Obama: "I'd like to enhance
Federal aid, be it loans or Pell grants;
Though I'm hopelessly lost
On containing the cost,
At least I will get you financed."

Said Romney: "The government's never
Very good, but the market is clever;
So you're out on your own
To get your own loan,
Where-, how-, from whom- for what-ever."

Said neither: "On loans, I will let it
Be decided by factors of credit,
So that those who can show
That they're getting to know
Something useful are those who will get it."

The US Presidential election is two weeks away and the final debate is this evening, but so far both candidates have gotten away without putting forth an effective plan to address the looming higher education crisis. We have a vicious cycle of ballooning student debt to pay for rapidly rising costs of education which, in all to many cases, does not prepare the graduates for a gainful career, and hence offers no hope of repaying those mountainous loans. Both President Obama and Governor Romney would do well to take a page from the book of my friend Jay Hallen, who proposed in the National Review that the provision and pricing of student loans should be based on the likelihood of repayment, as is the case with any other type of loan. This would have the effect of directing student loans to where the economy most needs them, i.e., toward programs that prepare students with the skills that employers most need.

Guest Post: ECB Tries Again

My friend Andy Fately sent a brilliant pair of limericks to his clients this morning. Andy, a Corporate FX Risk Strategist for Barclays Capital who used to tweet as @fx_poet, is a foreign exchange limericker, a rare subspecies of financial poet. Here are his verses today:

There once was a group of old fossils
Whose policy slips were colossal,
And later today,
They’re likely to say
Come follow us, like we’re apostles.

But what can they possibly do
To fix all the things that they blew?
The popular theme’s
A new banking scheme
To help failing banks to pull through.

Bad Search Results

An Internet stock tumbled early
When missed earnings leaked prematurely.
It's bad to surprise,
But if profits should rise,
The stock would go up again, surely.

The stock market was gripped by a thrill of panic Thursday, when Google's 3rd quarter earnings announcement was leaked during trading hours instead of after the 4:00 PM close. However, it was not just the slip-up by $GOOG's financial printer R.R. Donnelley that roiled the market, but the news itself: a 20% fall in profits and slowing revenue growth. Like fellow internet behemoth Facebook, Google is having some challenges in building ad revenue from increasingly popular mobile usage to the extent that it has from the desktop. There is hope for the future, though; CEO Larry Page, on the earnings conference call, enthused over the "tremendous innovation in advertising, which I believe will help us monetize mobile queries more effectively than desktop today." So, $GOOG shares, which closed down 8% on the day, may soon resume their upward trend.

In the meantime, the company has built up its cash pile to $45.7 billion, an amount large enough to -

• Pay for all of the e-commerce in China during the second quarter of this year;
• Bail out Bank of America;
• Close the funding gap in the Michigan Public School Employees Retirement System.

Small consolation for an earnings disappointment.

Housing Really Starts

Said the home builder Joey Ferraro*:
"I'm working like there's no tomorrow.
Though the fiscal cliff looms,
The consumer assumes
It's the best time to buy and to borrow."

The Census Bureau reported new residential construction today for the month of September, and stunned everybody with a 15% increase in housing starts. Ground was broken on an estimated 872,000 homes, versus 758,000 in August. Analysts, the most optimistic of whom had predicted 800,000 starts, were completely surprised; even Jack Welch, maintaining his Twitter silence from the safe distance of Quito, did not cast aspersions on this unbelievable number.

What unanticipated factors led to this surprising result? For one thing, as we read in the Journal today, a gradual improvement in the housing market has reduced the supply of unsold homes to six months, from eight months a year ago. But, aren't the threat of the fiscal cliff as well as tax and regulatory uncertainty putting a damper on economic activity? Not for home buyers, apparently. They appear to realize that, with home prices rising and mortgage rates at record low levels, there may never be a better time to act.

*All Joey Ferraros appearing in this work are fictitious. Any resemblance to real Ferraros, living or dead, is purely coincidental.

Note: this post appeared originally in the Wall Street Journal's Total Return blog.

Them's Fightin' Words

Said an on-the-fence guy to his mama,
Watching Romney debating Obama:
"I enjoy when attacks
Are short on the facts
And long on political drama."

Last night's debate between President Barack Obama and his Republican challenger, former Governor Mitt Romney, seemed to generate more "woo-hoo" than "a-ha" moments, and to judge by my Twitter stream, folks like it that way. The debate was notable for the return of a spirited, feisty President, snapping out of the torpor of his first-round performance. The challenger, by contrast, seemed at times awkward, at times bullying. This aspect of the debate culminated in Mr. Obama's hard staredown over the issue of how his administration handled the Benghazi attack.

Then too, many people seem to have drawn way too much amusement over Mr. Romney's recounting of the "binders full of women" that he received while choosing his cabinet as Governor of Massachusetts.

Missing, however, from both the candidates and the softball questions pitched by the "undecided voters" at the Long Island town hall, were specific challenges and statements regarding the fiscal cliff, the mortgage malaise and the developing student loan crisis. Could it be because there are no easy answers? Finally, although President Obama correctly pointed out the flaws in Mr. Romney's tax & budget math, Mr. Romney lost an opportunity to reciprocate with the President's numbers, which also do not quite add up.

Submerged and Subprime

The mortgage malaise is enduring
And frustrates our efforts at curing,
When a fourth of all dwellings
Are currently selling
For less than the loans they're securing.

The Wall Street Journal reports that the Consumer Financial Protection Bureau, as part of an effort to unify and update mortgage lending standards, has developed the concept of a "qualified mortgage" which, if adhered to by lenders, would provide them with a safe harbor against borrower lawsuits. The CFPB would like to simplify regulation and hopes that offering sought-after legal relief and regulatory certainty to lenders will induce them to lend again.

While such initiatives are commendable, I cannot escape the thought that they ignore the elephant in the room: that roughly a quarter of all US residential mortgages are underwater, and half of those underwater mortgages are delinquent. To clear this market imbalance will take a combination of foreclosures, lender write-downs and the passage of time; there are no quick fixes.

The Two Marketeers

The absence of pricing impedes
Allocation of goods that one needs,
But economists who
Made markets that do
Were honored today by the Swedes.

UCLA's Professor Lloyd Shapley,
Who theorized gaming so aptly,
Wrote a smart algorithm,
Determining with 'im
How best to pair couples up happ'ly.

Stanford's Professor Al Roth,
Who is younger but from the same cloth,
Found broad application
For Lloyd's innovation
Of optim'ly plighting one's troth.

How can you efficiently allocate goods - such as donor organs, medical residencies and mates - that cannot or may not be priced? It's a good question, and today the committee of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel(yes, that's what it's called) bestowed its 2012 prize on two US economists who answered this question and put the answer into practice. UCLA's Professor Emeritus Lloyd Shapley was a pioneer of game theory in the 1950s and '60s. Among his many accomplishments is the solution to the "stable marriage problem": how to match a group of, say, ten men with ten women, such that none of them would rather be with someone else. The algorithm that Shapley developed with David Gale has broad applications to other matching problems.

Prof. Al Roth, late of Harvard and now of Stanford, applied Shapley's theories to such problems as matching kidney donors who lack the correct blood type to donate to a member of their own family, and matching medical students to residency programs.

A number of econ blogs have written about the two Nobel Prize recipients today, but I particularly enjoyed Economists Do It With Models and the Wonkblog.

Debate Wrap-Up

The best one can ever expect,
In debates over whom to elect,
Is that when it's all done,
One's candidate won
But the other guy gets one's respect.

Dr. Goose's household gathered this evening to watch the debate between Vice President Joe Biden and the man who would take his job, Rep. Paul Ryan of Wisconsin. We saw a spirited debate in which each man vigorously stated and defended his case while challenging that of his opponent; a sharp but respectful exchange. When it was over, the two men shook hands and remained on stage as their respective families joined them and greeted one another amiably. They gave us an example of what democracy should be - I had a momentary, faint vision of post-gridlock Washington.

On substance, it was a rather balanced outcome, regarding which most of the viewers in our family room gave the edge to the Vice President. He defended the Obama record while giving point-by-point rebuttals to the Congressman's challenges. Mr. Ryan, for his part, was hard pressed to explain what a Romney administration would do differently in Iran and Syria, and refused to provide specifics to back up the claim that 20% across-the-board tax rate cuts could be made revenue-neutral.

Still, it was a debate from which both VP candidates and their supporters could emerge with heads held high.

Not Too Big To Fail

Said Fed Governor Daniel Tarullo:
"Bank stability's hitting a new low.
We must limit the size
Of those mega bank guys,
Since our power to save them is too low."

The Fed's thought leader on bank policy believes that regulators should address the problem of too-big-to-fail banks by directly limiting their size. In a speech at the University of Pennsylvania Law School, Federal Reserve Governor Daniel K. Tarullo laid out his thoughts on safeguarding the stability of the financial system. Mr. Tarullo, whose day job is that of Professor of Law at Georgetown University, suggests that banks may not grow too big to fail if their non-deposit liabilities are limited to a fixed percentage of the nation's GDP. Such liabilities would include interbank borrowing and other short- and long-term debts, but not customer deposits.

Notwithstanding the appealing simplicity of Mr. Tarullo's proposal, a banking industry spokesman warned of "unintended consequences." In this case, one has to wonder if he isn't more concerned about the intended consequences.

Hat tip to Sallie Krawcheck.

Deductive Reasoning

Said a tax analytical gent:
"One should always make clear one's intent
On cutting deductions
To pay for reductions
In tax rates by 20%."

"Many have tried to appraise
The most likely of Mitt Romney's ways
Of sparing the loss
Of defraying the cost
Of the mortgage the middle class pays."

"Though the Gov'nor himself may not say
With what tax breaks he's doing away,
It's safe to foresee
Under Romney there'd be
Less incentive to do Schedule A."

'Twas not a gent, but a lady - Texas tax journalist Kay Bell - who analyzed Governor Mitt Romney's recent statements about his tax plan and concluded that "Romney left himself some wiggle room" in the degree to which his plan would keep the mortgage interest deduction. Says Ms. Bell:

He didn't say the mortgage interest and charitable gift deductions would remain just as they are. He said there would still be 'preferences' for them. Just spit-balling here, but since Romney again reiterated in that same Situation Room interview that he would limit deductions "particularly for people at the high end" of the income scale, it looks like some of Mitt's personal wealth peers might not get as much Schedule A bang for the tax buck as they currently do.

But would limiting some mortgage interest and charitable deductions be enough to make his tax plan revenue neutral as he insists it will be? Not many people outside the Romney campaign think so.

Though the Republican Presidential nominee hotly denies it, the non-partisan Tax Policy Center has concluded that his plan amounts to a $5 trillion tax cut over a decade, heavily tilted toward the rich, which could not be made revenue neutral without raising taxes on households with income below $200,000.

Good News is Bad News

Jack Welch, nursing a grudge,
Said: "The joblessness numbers are fudged;
Self-seekingly cooked,
Like the numbers I booked
At GE, so I'm able to judge."

When the Bureau of Labor Statistics announced this morning that the unemployment rate had fallen below 8% for the first time since January 2009, it disappointed many Republicans who were hoping for a weak number to strengthen the hand of their Presidential candidate. One of those Romney supporters, former GE CEO Jack Welch, took his disappointment a little too far:

Unbelievable jobs numbers..these Chicago guys will do anything..can't debate so change numbers

— Jack Welch (@jack_welch) October 5, 2012

Economists such as Justin Wolfers leapt to the defense of the BLS, which, although part of the President's cabinet, has a proudly independent and non-partisan structure and tradition. Other commentators regarded Mr. Welch with irony and contempt, considering the earnings manipulation that occurred during his management, resulting in a settlement of SEC charges.

Shout-out to all the fans of Dr. Goose at the BLS!