Archive for November, 2010

Here’s How to Fix the TSA Problem, In Case You Were Interested

Most people agree that it’s important to have security on airplanes. Most people are also overly terrorized by the risks involved in air travel, but that’s normal and happens with a lot of other things, too. Even those that are complaining about the new TSA procedures are not generally advocating that we have no security in our airways.

Here’s the problem. The airplanes are the property of Southwest. The security is the property of the government. That’s it in a nutshell.

Try this on: the government gets out of the security game altogether. But, because there is a potential security risk to the nation as a whole if someone unauthorized gets control of one of those flying bombs, the government maintains a fund, which the airlines have to pay into, to indemnify the country and to provide response and security for the rest of us if the airlines lose control of a plane. The amount the airline has to pay depends on the level of security the airline maintains, sort of like an insurance premium – healthy people that exercise and don’t smoke pay less, drug-abusing obese skyscraper window-cleaners pay more.

How would that change things?

First off, the airlines would become responsible for their own security. And if you think that the TSA has invasive searches, wait until you see what the airlines would come up with on their own. Except. If Southwest has the same procedure we feature now at an airport near you, but Delta has a different procedure that does not involve proctology, more people will fly Delta. Delta therefore is going to come up with that less-invasive procedure. But then, the government is going to levy a stiff fee for reduced security. So Delta will come up with a procedure – and submit it to not only pre-testing, but random testing in the field and undercover checks – that is both less invasive AND more secure, because that’s where the money is. Major corporations are very, very good at going where the money is.

Very quickly, you’d have better security at the airport, with dramatically reduced invasiveness. And in the meantime, the anger of the populace would be focused on the stupid and lazy airlines, whichever ones those were, and not at the government, which is a monopoly. There’s no way around them. You know how the government says that monopolies are bad because they harm consumers in a dozen different ways? And this doesn’t apply to the government monopoly because why, exactly? Governments are not out for money? They’re not staffed by people?

Government does not innovate. It will NEVER improve the process at the airport. Never. But one year with the system I describe above and the US would have the fastest, cheapest, and least-invasive security procedures in the world, and the system would provide ACTUAL SECURITY, instead of the security theater that is now provided by the TSA.

Which, again, means it will never happen. But I thought we might want to cut right to the solution, for those that are tired of the endless and pointless wrangling over having the family jewels groped so we can go visit grandma. There’s a way out, if we want one.

Three Days of Thanks

So, since Christmas has expanded to fill the known universe, and Hallowe’en is about to fill up the unknown part, I thought I might try striking a blow for my favorite holiday of the year, one that gets no pub because it has no significant music of its own – Thanksgiving.

Thanksgiving carols may be a rare as turkey’s teeth, but Thanksgiving does have one thing to make it stand out above all other holidays – pie.  Pie is, as everyone knows, the True Meaning of Thanksgiving.  So I am, in my own small small way, expanding the holiday to be three days, and calling the new, improved holiday the Three Days of Thanks.

Here are the festivities, and the rules.  Don’t carp.  All holidays have rules.

Tuesday before Thanksgiving, the First Day of Thanks, is a day for giving out pie.  Today, for instance, I am giving free pie to every one of my clients that wants one.  Not a slice of pie, a whole pie.  You want good Karma, give good gifts.  The Lehi Bakery has made me a huge number of excellent pies, and I’m giving them away cheerfully, except the one strawberry rhubarb pie that met with an unfortunate accident when it ran into my knife and fork on the way in from the car.  Tragic.  So I have to eat that one.  But the rest, they’re all going to good homes and stomachs.  We’re also taking donations for Sub for Santa, a project of Lehi City and the Lehi Rotary Club.  Go, and do thou likewise.

On the First Day of Thanks, as for all days of the festival, all Facebook updates and all tweets have to include gratitude or thanks.  Tweets should be hashtagged with #3DaysofThanks.  It’s a great time to be thankful for the great followers and friends you have, as well as those you follow and befriend.  You have a huge number of things to be thankful for.  Three days really isn’t enough to get through them all.  But it’s what we have, so go with it.

The Second Day of Thanks is marked by my favorite part of the entire festival, a little thing called Pie Night.  This was begun many years ago by Gordon Jones, the Patron Person of Pie, who, while reading Harold and the Purple Crayon, by Crockett Johnson, was struck by Harold’s lunch of all nine kinds of pie that he liked best.  So, to commemorate that blessed event, Gordon staged the very first Pie Night, an evening when the family gathers together and eats pie.  Pie, he thought, had been getting lost in the commercialism of Thanksgiving, and it needed to be restored to its rightful place at the center of the holiday.  And Pie Night was born.

Our family celebrates this event with acts of humanitarian service, making gifts and packets for less-fortunate people around the world, which we donate to the LDS Church as part of their global humanitarian work.  Choose what you will.  But give, and give freely.  And eat pie.  Don’t forget that part.

Then the Third Day of Thanks arrives, known in most of the USA as Thanksgiving.  I think you know what to do here, so I will only add a couple of things:

1. No complaining.  This is a day of Thanks.  Go the entire day without being frustrated or angry or whiny.  You can do this.  It’s only one day.  The next day is Black Friday, so save all that angst up and use it then, where it can score you some awesome deals at BestBuy, or your hedonist altar of choice.

2. Don’t forget the pie.  This is a good day to catch whatever pies you didn’t get a slice of on Pie Night.  Turkey is good, and stuffing, and mashed potatoesandgravyandsweetpotatoesandcranberrysauce.  But don’t forget the reason for the season.

Then the three days are past, and you can resume your regularly scheduled lives, already in progress.

So happy Three Days of Thanks.  Today is the First Day, and you know what you have to do.  It will change your life, and your waistline.  Go to it.

Arguing with the Best, or Why You Should Lock RIGHT NOW

Dan Green of Mortgage Reports is about as good as there is in the business.  He’s been at this a long time, he blogs and he tweets (@mortgagereports) and following him is a worthwhile enterprise.

And today, as insane as this is, I’m going to pick a fight with him.  Okay, not really.  But he did post today on a mortgage “myth” that he takes apart point-by-point.  Specifically, the “myth” that mortgage rates take the stairs down and the elevator up, i.e. that rates rise much faster than they fall.  He argues that this is false.  And I think his argument is all wet.

To prove his point, he calls out bond rates from the last 12 months, and shows – convincingly and correctly – that bond rates have been much more likely to fall than to rise, and more likely to fall dramatically than to rise dramatically. Here are the data:

So, if we compare these groupings to the last year’s actual, daily price changes, and we see an interesting pattern emerge for rate shoppers.

  1. Days of no change in rates : 65 days trending worse, 63 days trending better
  2. Days of 0.125% change : 36 days of higher rates, 50 days of lower rates
  3. Days of 0.250% change : 21 days of higher rates, 50 days of lower rates
  4. Days of 0.375% change : 6 days of higher rates, 3 days of lower rates

In other words, mortgage rates [sic] were unchanged for nearly half of the last 12 months. For the other half, they overwhelmingly moved toward “improvement”.

Now, we should throw out 0.125% changes because they’re somewhat “ordinary”; it’s just one tick higher or lower in rates. Instead, let’s focus on big shifts in pricing which, in turn, lead to big shifts in rates.  That’s where we see the myth debunked, specifically.

On days with big rate changes — 1/4 percent or more — decreases in rates outnumber increases by a 2:1 margin. That’s a huge difference.

His data is unassailable.  So his argument appears sound.

Except for one little bait-and-switch that he probably didn’t notice himself (see the [sic]).  These data are for bond rates.  But Dan says “mortgage rates” in his analysis.  If they were the same thing, then the data would support his premise exactly.  But they aren’t.  Everyone knows they aren’t.  There is not and never has been anything like a one-to-one correlation between bond rates and mortgage rates.

Worse than that, I think Dan’s entire premise is flawed.  Here’s the premise of his analysis:

  1. Changes of less than 25 basis points often lead to no change in mortgage rates
  2. Changes of 25-37.5 basis points often lead to a 0.125% change in mortgage rates
  3. Changes of 37.5-75 basis points often lead to a 0.250% change in mortgage rates
  4. Changes of 75+ basis points often lead to a 0.375% change in mortgage rates

But this isn’t true, or at least, it’s only true in one direction – higher. There’s a reason that it’s proverbial among mortgage people that rates are sticky down, that they don’t drop nearly as fast as they rise. That is because there is a disconnect between bond movement and mortgage rate movement. When bonds move higher, rates should fall, and they do, but not very fast.  And when bonds move lower, rates should rise, and they do, but far out of proportion to the movement in bonds.

Dan has his data, and he points out that bonds have moved higher, taking rates down, far more often than they have moved lower, taking rates up, over the last year.  I don’t mean to be snide here, Dan, but duh.  Anyone can see that.  The bond market has been very robust this past year. Your data show exactly what we ought to see in a hot bond market.

But my data show how banks actually react to bond market movement, and what we see backs up the conventional wisdom and contradicts Dan’s argument.  To demonstrate this, I have the intraday reprices from three different mortgage lenders for the past six months.  And the story THOSE data tell is very different than the one the bond market tells.

To wit:

Intraday reprices for the better: All lenders – 29 (14, 11, and 4)

Intraday reprices for the worse: All lenders – 54 (20, 15, and 19)

There were, on top of this, five second reprices to the worse, making a total of 59, or more than two negative reprices for every one positive reprice.  Even if you throw out the most conservative lender, the total is still 39 to 25 in favor of reprices to the worse.  And yet, over this period, the FNMA 4.0 bond rose dramatically, from a low of 98.74 to a high of 104 at one point in mid-October (currently trading at 101.68).  How can this be, unless lender reaction really is skewed to raise rates instead of dropping them?  Dan’s data show that there are twice as many days of robust positive movement than negative movement in the bond market over the past year.  Taking that into account, what we see here is that lenders are four times as likely to raise rates than to drop them, when the market moves.

It’s actually even worse than that.  Lenders improved prices, in the 29 improvements, an average of .188 bps.  But the average deterioration was .262.  Not only are there significantly more deteriorations than improvements, when lenders move pricing, the moves to raise rates are far larger than the moves to lower them.  There were five days in the last six months that saw two negative reprices in the same trading day, but no days when there were multiple price improvements, this in a market where the bond rose over 600 bps in four months.

Bottom line, Dan, you have convincingly demonstrated that when bond demand is high, bonds rise.  I’m not sure this needed demonstrating, but there certainly isn’t any doubt about it after your analysis.  But you either forgot to establish the correlation between bond rates and mortgage rates, and how the movements correspond, or else the data support no such correlation.  My data are far less scientific than yours, but mine show very stiff circumstantial evidence that lenders behave exactly as the conventional wisdom says they do: they price higher faster, and more aggressively, and they drop rates reluctantly and as slowly as they can get away with.

All of which is unfortunate for rate shoppers.  Dan does conclude his post with some very sage advice: if you’re more upset with a 1/8 rise in rate than you’d be happy with a 1/8 drop – and most people are – you should be locking as fast as you can.  I’ll even extend that.  If you can live with the rate you have right now, take it, because there’s a 4x greater chance that you’ll get something worse than something better if you wait.

Put Up or Shut Up

I’ll have much more on this topic later on, but for now, here’s this.

There’s a lot of woofing about the Tea Party and a return to smaller government, etc. What I have to say about that is that I’m all in favor of it, if we who are calling for government to cut back are willing to pick up those that are going to fall when it does. And only then.

I am currently on the phone with a prominent conservative/libertarian rabble-rouser who wants me to help her with a project tentatively titled “Just Walk Across the (&%#$^ Street”, which is for those that want government cutbacks to commit to picking up the slack when those programs go away.

If I don’t think that we should have government-funded schools, for instance, am I willing to pay not only my share, but the share of others, in time and money, to make sure that no government schools does not equate to no school at all? Am I willing to feed people that are hungry so that the government can get rid of food stamps?

If I am not willing to do this, then I need to shut up about government being too large. My friend is right. God’s way is not to throw some blessings at us. God gives us those that are directly appropriate for us. We need to do the same for each other. And we shouldn’t be bashing people that think we’re not going to, and that government must, unless we are willing to prove that we are equal to the task.

More on this later.

The Most Terrible Time of the Year

I love Thanksgiving. It’s my favorite holiday. But it’s my favorite holiday partly because it’s the start of the Christmas season.

And that makes this season awful.

Awful you say? Yes. Terrible. Agonizing. At our home, we don’t tag our Christmas presents. No labels of any kind. That means that the giver and the receiver have to both be able to identify the gift as being from the one to the other. It makes generic gifts impossible. We have to spend a great deal of time thinking about and worrying over every gift we give. It’s made Christmas morning a magical time and put the focus on the giving instead of the receiving, which in a family of ten is critical to prevent Christmas from becoming a festival of unbridled hedonism.

But therein lies a problem as well. I have adult children now. Well, Alexander is pretty much an adult. He’s 19. The others of the Three Musketeers are 16 and 14, respectively, so they are also people now, with their own interests and ideas. But because we live together and share a lot of DNA, their interests and mine coincide fairly closely much of the time. So when researching cool things to give them, I inevitably find a whole host of things I want. For me.

And I cannot buy them. No, it’s worse than that. I cannot even really talk about them. We don’t make traditional Christmas lists in our home, either. We have lists, all right, but they are of the things we intend to give, not the things we want to receive. So while I can come home and tell my wife I found this incredible new science-fiction series by Kristine Katherine Rusch, of which I have only read the first book, having done so I cannot now buy the remainder of those books, used, on Amazon, for practically nothing, because I know that from the middle of November to the end of December, she is listening with great attention to everything I say, for just such an inkling of what I might want to receive on Christmas morning.

All that is great. But because I’m doing so MUCH research, that series is far, far from the only thing I’m going to evidence interest in. Ordinarily, I’d just buy the stuff if I really want it and it fits my budget. But this time of year, I can’t do that. So what we have every day is a constantly expanding list of things I know I would enjoy and really want to buy, and an ever-shrinking list of things I actually CAN buy, so as not to obscure the gifts my family might give me.

And on Christmas morning, inevitably, I will find that nobody was listening to that particular discussion about that particular thing, that everyone has gotten me stuff I love and cherish, but not that particular thing, and I could have been reading and/or enjoying that thing I wanted for the last six weeks with an untroubled conscience.

It sucks.

In a good way.

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