Monday, December 28, 2009
Monday, June 29, 2009
I also remembered that the Fugees covered the song but I had never actually heard the original version. So with the help of the internet, which barely existed in 1996, I set out on a search for the original. An article in Blender gives the following synopisis:
“KILLING ME SOFTLY With His Song” might be pop’s most misunderstood tune of all time. It’s surrounded by so many myths, it makes Aesop’s fables look like reality TV. Millions of pop fans know that Roberta Flack wrote the song about Don McLean – killing her softly with his song “American Pie” – and that the Fugees made it a smash more than 20 years later.I was able to find YouTube videos of all three artists' versions as well as the Don McLean song that inspired Lori Lieberman in the first place. Here the are, starting with the Fugees:
Interesting, but not true. Yes, Flack took this classic lovelorn weepie to number 1 in February 1973. But she didn’t write it.
“When Roberta’s version came out,” McLean recalls, “somebody called me and said, ’Do you know there’s a song about you that’s number 1?’ I said, ’What – are you kidding?’ And they said, “The girl who originally recorded it had it written for her after she saw you at the Troubadour in Los Angeles. She went on TV and talked about it.”
The girl was an L.A. folkie named Lori Lieberman. “I thought [McLean] was just incredible,” she says. “He was singing songs that I felt pertained to my life.” But it wasn’t “American Pie” that got her scribbling – it was a lesser-known album track called “Empty Chairs.”
and Lori Lieberman:
Finally here is the Don McLean song "Empty Chairs":
As a post script, I have actually been made fun of for singing the Fugees version at a karaoke bar. It was a bit hard to hit the notes, but thankfully the Plain White T's have a version that might be a bit easier:
I am glad they include the counting...
Tuesday, May 05, 2009
Friday, February 27, 2009
Here are the key paragraphs from the FT report:
The conclusions are stunning. From late 2005 to the middle of 2007, around $450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds (known as mezzanine CDO of ABS) and much of the rest from safer tranches (high grade CDO of ABS.)
Out of that pile, around $305bn of the CDOs are now in a formal state of default, with the CDOs underwritten by Merrill Lynch accounting for the biggest pile of defaulted assets, followed by UBS and Citi.
The real shocker, though, is what has happened after those defaults. JPMorgan estimates that $102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.
Let me put this in context of what was going on with structured finance at the time i.e. packaging individual mortgages in to bonds and then repackaging those bonds. The first picture below shows a typical mortgage backed security. An investment bank would purchase a bunch of mortgages (usually thousands) and pool them together so that all of the principle and interest payments would go into one fund. The investment bank would then create a series of bonds that they could sell to investors. Within this series of bonds would be low risk bonds that wold be paid first, moderate risk bonds that would be paid second, and high risk bonds that would only be paid if the first two groups were paid.
The investment banks had a fairly easy time selling the low risk bonds to conservative investors. Actually these bonds are still doing OK because even after foreclosure houses are never worth $0. They also didn't have much trouble selling the high risk bonds to risk taking investors because they had very high yields. These have turned out to be bad investments but they are really not a big part of the problem because the investors knew that they were high risk to begin with. The problem for the investment banks is that according to the FT report, from 2005-2007 the investment banks had $450bn of moderate risk bonds that were difficult to sell and if they could not find find something to do with them they would not make back the money that they spent on the mortgages in the first place. The solution was to repackage these moderate risk mortgage backed bonds with other moderate risk mortgage backed bonds to create some new low risk bonds that they could sell to conservative investors. The picture below shows how this would work.
So keep in mind what this report is saying. It says that the $450bn of asset backed bonds that were hard to sell in the first place and hence were packaged into CDOs and resold are in reality turning out to be terrible investments. So it would appear that the investors who initially balked at purchasing "moderate risk" bonds were not far off the mark. The problem of course is that repackaging these bonds as CDOs did not do anything to reduce the risk and the reason for that is that all of the "moderate risk" bonds are failing in the same way - the payouts to the low risk bonds in each series are eating up all of the principle and interest payments each month leaving very little for the moderate risk bonds. That was the correlation that everyone missed.
Also keep in mind what this report is not saying. It is not talking about how the low risk portions of the original mortgage backed security are doing. That is a much bigger piece of the total pie than this $450bn. As of now, many of the Markit indexes AAA indices are still doing ok, although they have taken significant losses since my last post on the topic. The troubling thing of course is that if the moderate risk bonds are taking such huge loses now how will the low risk bonds preform in the future?
Tuesday, February 24, 2009
This is an interesting proposal to limit the downside for taxpayers and give bank shareholders some hope to keep their investments from going to zero.
I have two concerns about the plan:
1. It assumes that the government can sell these toxic assets for something like their hold to maturity value sometime within the next two years. I am not sure that this is a valid assumption given that most of the MBS's and CDO's were not really meant to trade in the aftermarket. They were meant to be sold once, at their par value, and then held to maturity. Now that we know that these assets are not worth their par value, any buyer would only pay a significant discount to their hold to maturity value, which I believe is non-zero. It is not clear to me that a realistic value can be put on these assets anytime in the next two years. More likely we would have to wait 10 years to see how the assets actually performed and then calculate their value from that.
2. A related point is that this plan also assumes that bank executives and shareholders would be willing to give the government control over their destinies. Granted, they may already be past the point of stopping bankruptcy or nationalization, but if they participate in this plan they are essentially betting their jobs and/or their money on how much their assets can fetch.
About Timothy Geithner
Read the Article at HuffingtonPost
Friday, November 14, 2008
Wednesday, October 15, 2008
In my view, the issue of how to reform health insurance is the most important domestic issue that will be decided in the next several years. Either we grant the state a bigger role health care or we allow individuals more freedom. We really cannot have both and I would certainly choose the later.
Unfortunately, as evidenced by my friend Rob's recent post, which compared and contrasted the candidates views on health care, McCain is doing a terrible job of articulating what increasing health care freedom means for Americans. So as it becomes less and less likely that anything that I want to happen is actually going to happen let me try to explain what McCain should have said.
The government creates two big problems with health care: Employer based insurance and minimum coverage requirements. Lets take a look at each of these problems and how the government can solve them.
Problem 1: Employer Based Health Insurance
Most Americans receive their health insurance as a benefit from their employer due to federal government tax policy. The policy states that if a business purchases health insurance for its employees, it can deduct the money it spends on health insurance from its taxes just like it deducts the money spent on employee salaries. The federal government does not allow individuals to deduct money spent on health insurance from their taxes. So when most companies and their employees do the math it works best for businesses to buy health insurance for their employees. However at least three problems with this situation have become apparent:
- Companies have insurance options, but employees do not: If the company is the one purchasing the health insurance, they are the ones that choose which insurance to buy. They may choose to give their employees some limited options, but at the end of the day the business with likely look out for its own interests not necessarily those of its employees. Likewise, the insurance company looks at the business as their customer, not the employees. So when it comes down to making the business happy or making the employees happy the insurance company will try to please it the business, its customer. This contributes to frustration with "insurance".
- No portability of care: When people get their health insurance through their employer, by definition if they change jobs, they have to change insurance. This creates a problem if someone needs to change jobs when that person or a family member is going through an illness. So the person is left with either not changing jobs or potentially dealing with denial of coverage due to the preexisting condition. Just like it does not make sense to change property, auto, or life insurance when changing jobs, it does not make sense to change health insurance when changing jobs either.
- The Part-Time Cracks: The previous two problems make health insurance less convenient for the majority of people with a single steady job. However a significant percentage of people lack health insurance all together because they work at a part time job, or perhaps multiple part time jobs. When a business can amortize the cost of an employee's over 40 hours a week for 52 weeks per year, most times they can make the math work out in favor of supplying health insurance for their employees. When they look at an employee who works less than that, either per week or seasonal employment, they may likely conclude that the costs of health care is not worth it relative the employee's total annual salary. People in these situations fall through the cracks of the employer sponsored health insurance.
The big open issue with this proposal is what happens if individuals choose to leave their employer sponsored insurance plan for a plan that they buy individually. The key assumption to this plan is that by taxing an employer provided health insurance benefit, employees will understand exactly what their employer is paying for health insurance and consider it an explicit part of their salary instead of a difficult to value benefit. So, an employee chooses to leave their employer sponsored plan, they should demand the full value benefit in extra salary, which would give them the extra money to buy that insurance privately.
Problem 2: State Mandated Minimum Coverage
The second government created problem with health insurance is not created in Washington D.C. but finds it genesis in each of the 50 state capitals where legislatures make rules about what types of procedures health insurance has to cover. The classic example is chiropractic care, which many states mandate health insurance cover, but few people actually have any desire to obtain. This is basically a special interest give away by making the majority of people pay higher premiums so that a minority of people can get their specialty care subsidized. Or so that the providers of that specialty care can make more money.
The simple policy change that this country needs is to allow people to purchase health insurance from a company in another state that may have fewer minimum coverages and lower costs. Personally I will never choose to visit a chiropractor, so I would prefer not to hold insurance coverage that covers chiropractic care because it is marginally more expensive and I neither need nor want it.
What is the concern with this? It is not like we are outsourcing health insurance decisions to some third world country. Health insurance would still be regulated by some state and states and insurance companies would have an incentive to make insurance policies more relevant to the individual's needs. That is a good thing as far as I can tell.
Unfortunately we will not get get it because McCain cannot articulate it.