I have a beautiful dream

My first article published somewhere other than my own website is now up at Ordinary Times:


I Have a Beautiful Dream

I have a beautiful dream. My dream is that Flagstaff, my hometown, could become more beautiful as it grows. This is likely to seem a little strange to most Americans, who associate population growth with traffic congestion and sprawl. It probably also seems strange to my fellow citizens of Flagstaff, who have complained and protested about much of the recent growth, especially the large student housing projects that have accompanied the growth in enrollment at the local university.

Go read it and leave comments at Ordinary Times.

Cheap Houses in Tokyo

Following this thread from Twitter:

To Steve Sailer's post on the subject, where one of the comments pointed to this Youtube video:

Land in Edogawa is 29,000,000 yen per square meter, which comes out to $3200 per square meter, or about $300 per square foot. Pretty pricey by my standards, but I live in a low density area. The Canadian who made the video compared Edogawa to the Bronx, in terms of proximity to a major city center, so let's look there for a comparison.

Edogawa 4LDK

Edogawa 4LDK

This home in Edogawa is new construction, 119.88 square meters [1290 square feet], and is priced at 46,800,000 yen [$418,253]. Lot size isn't given, but I'll guess it is 42 square meters [452 square feet], which is the footprint of the first floor.

This home in the Bronx is a 1950s 3-bedroom, coming in at $405,000 for 1530 square feet, a price per square foot of $265. The lot is 1916 square feet. The house and lot are bigger than the 4LDK, but the extra story on the Japanese home gets you to a pretty close living area on a much smaller lot. The Bronx house has a backyard, which is a major plus, but it is quite a bit further from Manhattan [1 hour] than Edogawa is from Shinjuku [15 minutes]

In a follow-up video, Greg did a tour of a new construction home in Tokyo, a 4LDK, which is shorthand for a 4 bedroom house with a living room, a dining room, and a kitchen. The real estate agent in the video said this also assumes two bathrooms and an attached garage. That sounds plausibly close to my own home, so I'll take it as a point of comparison.

One thing I noted during the tour is that home technology in the US is still a bit better than Japan. For example, double-pane windows are still new enough to be remarkable, rather than a standard item on new construction. On the other hand, Japanese houses usually lack central heating too, so it probably mattered less. The magnetic door stop was cool though. The house is 45800000 yen, which comes out to $409,000 or so. No area was given in the video, so we'll just have to guess it comes out about the same as the one I found on a real estate site above. 

Since the land is so expensive, a home at the same price in the US will have much nicer finishes, and in almost all markets will be much bigger as well. In compensation, the Japanese home is closer to entertainment, shopping, and work than similarly priced US homes.

I'm impressed by what you can get for the money in Tokyo. It is a completely different lifestyle than I have, but similar to urban life in the biggest and most expensive US cities, except much, much cheaper.

The Long View 2002-07-02: Innocence is no Excuse

John's specialty was business law: boring things like securities and the UCC. I can see why he turned to millennialism [kidding!]. In passing, he notes the securities law has a great deal more to do with regulation than legistation per se. This is true in my field as well. For example, 21 CFR 820, which governs current good manufacturing practice for medical device companies, is actually rather terse.

Later, John mentions one of the persistent, yet unremarked scandals of modern American finance, the 401k. It took me a long time to understand what John was getting at here. Comprehension finally dawned when I was reading about the former physicists turned programmers, known as quants, who make exorbitant amounts of money in Manhattan.

These physicists create ever more complicated models of asset pricing which are then fed into equally complicated trading programs that watch the market and continuously make trades based on the models. At first, I assumed that the various hedge funds were competing against each other. This seemed bizarre, they were all doing the same thing, and no one seemed to have a competitive advantage, yet they are all making money. Then I realized: they aren't making money off each other, they are making money off you [and me].

This is why John called the 401k a bubble machine; by privileging this kind of investment accout with tax-deferred status [and perhaps more importantly, legitimizing it as the way middle-class Americans save money], a continual inflow of money to the stock market was ensured. 401k programs get money every two weeks [or whatever pay period you have], and then that money is invested per whatever plan the fund managers set out. I imagine there is a great deal of discretion involved, but to the high-volume traders, this must seem like easy pickings.

When I realized this, I did the only rational thing: I hired some quants to be my financial gladiators.

Innocence is No Excuse

Sometime in the mid-1980s, I was writing an article about a new regulation from the Securities and Exchange Commission having to do with the Glass-Steagall Act, the Depression Era law that separated the businesses of commercial and investment banking. I did not know much about the subject, so I called the SEC for clarification. They were actually very helpful. Toward the end of the conversation, however, I asked for a citation to the Act in the US Code. It was as if I had asked for a citation to the Code of Hammurabi. "We don't have information like that!" the woman at the legal division said in shocked annoyance. She hung up on me.

It is notoriously the case that the law dealing with securities has little to do with actual legislation and everything to do with regulation. The whole edifice of insider-trading law was based on a short, cryptic statute prohibiting "fraud." The Congresses that passed the bulk of financial regulation legislation favored broad terminology. The reason was explicit: a precise law would let traders ignore the broader policies of the regulators. It is, by the way, no accident that the Congresses in question are called "Depression Era": federal policy probably extended what would have been a short, sharp slump after 1929 to cover the following decade.

The chattering classes are in the mood for a replay. Both the president and vice president are hounded in public for acts not normally considered illegal. The vice president, indeed, is being sued by pretty much the same people who made Bill Clinton's life a litigious misery. Reams of legislation are rolling through Congress to criminalize "schemes" and "devices" that defraud investors in no very precise way. There was a moment, during the Congressional panic over the collapse of the savings & loan industry, when some nitwit introduced a bill to mandate life imprisonment for "S&L kingpins." We are approaching that level of inanity now, but the real danger is not more vindictive criminal law.

The class-action bar wants a piece of this. There was good money to be made during the early '90s in suits brought in the name of shareholders. Corporations were shaken down for hundreds of millions of dollars because their officers made remarks that did not perfectly predict the future behavior of the stock. Some shareholders may have gotten a cut, but the suits were essentially rackets operated by lawyers in search of class-action fees. In a fit of sanity, Congress made it harder to bring such actions. Now there is serious pressure to put things back the way they were, or make them even worse.

I can only repeat that there is nothing mysterious about what is being called the "accounting scandals." John Kenneth Galbraith once remarked that recessions reveal what the auditors missed. They also reveal what the auditors tried to cover up. When equity prices rise, businessmen are geniuses. When prices fall, businessmen are crooks. The crookedness this time around is that some businessmen used accounting and other devices to prevent their companies' stock from falling.

There are systemic problems with the financial system, but they are not the ones that people are talking about. Frankly, there is too much money in it. Ordinary people should not be using equities markets as a savings vehicle. Consistent high rates of return are possible when only a small fraction of the people are in the market. When more money is invested, it's worth less. The extreme case is Japan, which is drowning from overinvestment.

The current "crisis of confidence" in US markets will dissipate in fairly short order. The curse of the 401K will not.

Why post old articles?

Who was John J. Reilly?

All of John's posts here

An archive of John's site

The Long View 2002-02-27: Getting Back to Normal

Thirteen years later, and we don't really seem back to normal. The immediate, searing impact of 9-11 on most American's consciousness has faded, but by and large we seem resigned to the changes it wrought on our country. We gripe about the TSA, but we still have it. The NSA still keeps absurdly detailed track of everything and everyone. Domestic politics has returned to the forefront after the Housing Bubble, but even President Obama cannot escape political fallout from events in Syria and Ukraine.

Getting Back to Normal

Here we are at nearly six months after September 11, and many people are saying that the time has come to get back to normal. They are not saying this because the security situation has changed fundamentally since then. The international terrorist network still exists. The clock is still ticking while states lethally hostile to the United States develop nuclear, biological, and chemical weapons. The problem is that the emergency changed the subject for almost everyone with a political agenda. Now the people with agendas want it changed back.

The bulk of the unrest is among partisan Democrats, of course. They want to talk about HMO regulation, women's issues, reparations for slavery, anything at all but foreign affairs and military strategy. The biggest effort to break free is the investigation, indeed the dozen investigations, into the Enron affair. This is showing signs of becoming the Democrat's version of the Vince Foster suicide: there comes a point when the the persistence of the investigators becomes the scandal.

That said, though, there are also quite a number of "conservatives," variously defined, who also wish to have done with post-911 politics. Moral reformers are frustrated that the Bush Administration has scarcely a word to say in opposition to abortion these days. The general drift of the Administration's social-service policy is pro-family, so the reformers' unhappiness is not acute. Among the most unhappy people in America, however, are Libertarians and some business groups.

War may or may not be the health of the state, but it certainly makes discussions about supply-side economics and privatization irrelevant. It is possible that the tax cuts the Bush Administration got enacted in its first few months will remain in place, but there will be no more. Since cutting taxes is the only reason some Republicans run for office, the Administration has not had a particularly easy time with its own party.


The Long View 2002-01-23 The Sins of the Father

I would describe John as a cautious fan of George W. Bush. While this surely will mark him as suspect in many eyes, since W was widely despised, the reasons for John's assessment are unique. For instance,  he felt that we would have had a war with Iraq eventually because of a de facto state of war due to the no-fly zones we had been enforcing combined with Saddam Hussein's intransigence. Thus, which pretext it ended up being was simply a detail, because some crisis or another would eventually force the issue no matter who was in office. And John rather disliked Reagan, the patron saint of modern Republicans, so it wasn't simply a matter of John rooting for the home team. John appreciated W for things that are forgotten, while the real reasons people should hate W, like his responsibility for the housing bubble of 2007-08, have been flushed down the memory hole.

The Sins of the Father

The Enron corporation was a platitude with creative accounting. A broker in energy and data band, it swelled to awesome dimensions by leverage and the multiplication of legal fictions; it went "poof" when prices tumbled. In one form or another, this kind of thing happens so often that it isn't interesting. The particular variation this time involved lax accounting rules, paper mache' partnerships and off-balance-sheet liabilities, but these twists add nothing to the cautionary-tale predictability of the affair. Nonetheless, members of the chattering classes of the United States have been seen rebuking themselves in public for having failed to discern the cosmic significance of this very boring story when it first appeared last year.

The mere size of Enron is part of the explanation for this morbid fascination. Another factor is the falling-elevator feeling the story gives to those people whose retirement plans rest on 401k accounts. (Sure the Enron employees who had only Enron stock in their accounts did not diversify, but they were objects of envy just 18 months ago.) Still, the real reason for the interest is that Democrats in general and liberals in particular fervently desire an equivalent to the Whitewater Scandal, the one running gag of the Clinton Administration suitable for a general audience. That murky business deal, involving no great amount of money, became the license for investigation after investigation, in Congress and in the press, year in and year out. If you were a sufficiently partisan Republican, it was wonderful. Sufficiently partisan Democrats today, in Congress and the media, believe that there must be comparable embarrassments among the numerous connections to Enron that so many members of the Bush Administration have. In fact, they insist on it.


Things are different today. When increasingly desperate Enron executives called the high officials of George W. Bush's Administration, their pleas for a bailout were rejected.

Despite their political connections, Enron didn't get a bailout from W. Of course, the later bailout of AIG and other financial institutions was arguably his fault, but who remembers that?