Morning Report: Usury laws are back

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Last Change
S&P futures 2858 -14
Oil (WTI) 61.94 0.24
10 year government bond yield 2.45%
30 year fixed rate mortgage 4.15%


Stocks are lower after the US imposed further tariffs on Chinese goods. Bonds and MBS are flat.


As promised, the US increased tariffs on about $200 billion of Chinese goods as trade talks continue. The Chinese vowed to retaliate, and that sent the Chinese stock market up sharply overnight. Both parties say they want to strike some sort of deal and it is possible this could get walked back.


Inflation at the consumer level rose 0.3% MOM and 2.0% YOY, right in line with the Fed’s target. Ex-food and energy, they were up 0.2% / 2.1%. Although the Fed doesn’t really pay too much attention to CPI (they prefer PCE), it keeps the Fed at bay, probably through the 2020 election.


Uber priced its IPO at $45 a share last night, towards the bottom of the range. The bankers claim that was due to market conditions, but the IPO market has been lousy in general, partly because all of the value is extracted in the funding rounds prior to the IPO, which means they are coming to the market priced for perfection. The lousy performance of Lyft’s IPO didn’t help matters either. A labor standoff with its drivers isn’t helping either.


Neel Kashkari discusses why we aren’t seeing inflation even at 3.6% unemployment. His main point is that the unemployment rate uses a measure of the labor force that is probably understated. You have to be actively looking for a job to be considered part of the labor force, and people who have been unemployed for over 6 months no longer count. The tell, therefore is wage growth. Given productivity has been running at around 1.5% and inflation is running around 2%, then non-inflationary wage growth should be around 3.5%. Since we are closer to 3%, there is still slack in the labor market. He also cited two interesting stats: First, of the people that got jobs in April, 70% said they weren’t looking for work in March. That suggests that many of these workers were on disability, which is basically long-term unemployment. The fact that they are coming back is a good sign. Second, the fall in the labor force participation rate offsets the unemployment effect. To get an apples-to-apples comparison of today’s job market versus the late 90s, 2.3 million more prime age workers (age 25-54) would need to have jobs. This also explains why wage growth has been running below what it should.


Usury laws are back. Bernie Sanders and Alexandria Ocasio-Cortez want to cap credit card interest rates at 15%. I guess the hope is that credit card companies will say “yes, we were overcharging you and we’ll still make money at 15%, so here you go.” In reality, all they will do is stop issuing cards to people with FICOs below a certain level. Credit card debt is unsecured, which means that the lender generally gets little to nothing if the borrower defaults.  So, they assign a probability of default and multiply the interest by 1 minus the default rate and decide whether that return is acceptable compared to other debt instruments. By the way, these ideas aren’t new. Much of this had been tried and rejected over the past 100 years, but i guess in politics and finance, knowledge is cyclical, versus cumulative as it is in the sciences.


Mortgage credit standards loosened last month as more lenders embraced non-QM lending. The MBA’s Mortgage Credit Availability Index increased for everything except government loans, which fell. The drop in government is probably due to VA loans, which are under scrutiny right now. By the way, although the chart below is close to highs, it doesn’t go back to the bubble years. Compared to then, credit is still much, much tighter. The current index of 190 or so is still a fraction of the 900 level which characterized the days of “pick a pay” loans.



40 Responses

  1. I’m stealing your line about knowledge being cyclical.

    I once put it similarly: there are no new ideas in DC. Just new analysts.


  2. “versus cumulative as it is in the sciences.”

    Is it? I think the society is getting dumber across the board. Today’s population couldn’t send men to the moon using slide rulers.

    Liked by 1 person

  3. Rereading an old Vox interview with President Obama and I came across this:

    “So I recently took a trip to an area of Kentucky — on a slightly different topic — I saw some huge coverage gains under the health care law, but also voted overwhelmingly for President-elect Trump. And one of the people I met there was Kathy Oller, who’s here with us today. She is an Obamacare enrollment worker who has signed up more than 1,000 people for coverage. She supported you in 2008 and 2012 but voted for President-elect Trump in 2016, and expects him to improve on the Affordable Care Act.”

    How bad of a Democratic candidate do you have to be to lose someone who was a female Obamacare enrollment worker?


    • Maybe it was the only job she could get. With the economy doing better, maybe she found something that pays more.


    • “How bad of a Democratic candidate do you have to be to lose someone who was a female Obamacare enrollment worker?”

      man, those Russians are good.

      Liked by 1 person

    • She is an Obamacare enrollment worker who has signed up more than 1,000 people for coverage. She supported you in 2008 and 2012 but voted for President-elect Trump in 2016, and expects him to improve on the Affordable Care Act.

      This does not sound like a real person. And like Brent says, likely it was a job, and she voted for Obama primarily because she thought he was better than McCain and Romney, and voted for Trump because she thought he’d be better than Hillary. And “supported” is a weasel word in these cases: lots of people support candidates but don’t actually show up to vote for them.


      • I assume you are being sarcastic?


        • No more than normal. About which part? If it’s the first part, I’m always suspicious of meetcute stories from politicians who just happen to say something that affirms some other point (in this case, that the person in question voted for Trump and expected Trump to make the AFA EVEN BETTER).

          And I stand by “supported” being a potential weasel-word. The middle part is just conjecture. I think swing voters often tend to vote for whomever they think is better at a given time–often for very shallow reasons, but still.

          Sounds to me like Obama is making the argument that Trump better not tread on his legacy, because a lot of his voters love the Affordable Care Act.


        • That she does’t sound like a real person and that “support” is a weasel word in this context.

          The person was actually there in the interview and I’d guess if she voted for Obama twice then she supported him, especially if she went to work as an Obamacare enrollment worker.

          This voter was Clinton’s to lose, and totally undermines the PL arguments that they don’t exist.


        • She may be real (I’m just too curmudgeonly, I suppose), and I would never deny that there are plenty of voters for candidates to lose, either via their voting for the other party or–more common, but just as deadly–not being motivated to vote.

          I feel like a Warren candidacy our a Harris candidacy will not attract new voters, and drive a lot of older Democrats and left-of-center Dems away in droves. Biden might work. I felt once that Sanders could push the populist button Trump did, but now I’m not so sure.


  4. Uber broke the IPO price already… that didn’t take long


    • Self-driving cars is not a delusion. It’s entirely possible Lyft can have a fleet of self-driving cars in place by 2029. If not then, shortly after.

      These companies have never turned a profit. Not sure I understand the logic of work stoppages in this situation.

      To go along with the “cruel” learn-to-code” comment suffered by “journalists”, I’d tell these folks “lear to do something other than drive a car”. Ubder is driving them to poverty? That job didn’t even exist, what, 7 years ago? 8? Do something else.

      And it’s not primarily automation fueling “the cruelty”–it’s economics. Companies that cannot turn a profit, even when sustained by VCs and IPOs, will not want to bleed cash forever. They will cut costs somewhere. Labor and benefits are the easiest places.

      And of course they are placeholders until autonomous cars become common and effective replacements. Every job is a placeholder until it becomes obsolete. We’re all placeholders for the next generation.


  5. Usury laws are back. Bernie Sanders and Alexandria Ocasio-Cortez want to cap credit card interest rates at 15%. I guess the hope is that credit card companies will say “yes, we were overcharging you and we’ll still make money at 15%, so here you go.” In reality, all they will do is stop issuing cards to people with FICOs below a certain level.

    This isn’t going to happen–and would be bad for the Democrats if it did–but I’m all for this. Right now I have to subsidize the defaulters. By definition, defaulters interest payments aren’t covering their own risk. So I am!

    Except for the fact every time the government steps in to do this sort of thing, it makes things worse. But logistically I have zero problem with it.


  6. This is actually a pretty good piece on Facebook.


    • I see no advantage to breaking up Facebook. Not mention Facebook is now the Shoney’s of social media sites. Every time a senior citizen passes on, Facebook loses another customer.

      I guess maybe splitting off Instagram into another company? So it can be it’s own awful company separately? What good does this do? Why do you break up companies that cannot own a market space and don’t charge end-users a fee? With broadcast networks I could kind of see the argument that not everybody could create their own TV station but anybody can make their own website. There are thousands of tiny social networks, many of them based on open-source software. These will never beat Facebook in the marketplace, but they can provide social forums for disparate groups that don’t like Facebook, or whom Facebook doesn’t like. There’s not a good revenue model for any of them right now, but still . .

      the slow response to Russian agents, violent rhetoric and fake news;

      Re: not enough censorship! There must be more censorship!

      It’s been 15 years since I co-founded Facebook at Harvard

      And Mark wouldn’t pay me even more money for that, so I’m doing this!

      But it’s his very humanity that makes his unchecked power so problematic.

      I just don’t like that line. Too self-important.

      I’m disappointed in myself and the early Facebook team for not thinking more about how the News Feed algorithm could change our culture, influence elections and empower nationalist leaders.

      I was right. Also, chill. “I didn’t think how we should have designed it to make censorship at the start!”

      “The government must hold Mark accountable. ”

      I totally don’t feel like I was screwed and I am definitely not taking advantage of the current climate to try and screw over Mark. I like him, he’s a great guy!’

      “Any day now, the Federal Trade Commission is expected to impose a $5 billion fine on the company, but that is not enough”

      The motivation here seems super-transparent, and it’s not that he thinks Mark is such a great guy.

      Also, his argument for breaking up Facebook just seems nuts.

      And the rest is just griping, angry at himself that he spends so much time on social media, and he clearly doesn’t like Zuckerberg no matter what he says.

      It feels like the same argument could be made regarding Google pretty easily. But nothing really on that.

      This movement of public servants, scholars and activists deserves our support. Mark Zuckerberg cannot fix Facebook, but our government can.

      OMG. Really?


      • It sounds like the sort of public responsibility arguments trotted out in the early days of broadcast media. The thing is, the government restricts the amount of licenses.The early incumbents always win that game.

        It is just rent seeking

        Liked by 1 person

        • Hughes wants the government to make Zuckerberg suffer. He knows an antitrust suit will be a huge and potentially endless pain in the ass for Zuckerberg, and probably that whatever a bunch of people who who have no understanding of modern technology do to regulate it will be back-asswards and counterproductive. He’s just a major league dick. And bitter about something.


        • government regulation will create barriers to entry, and that is the end goal.

          Plus, if you break up FB, Zuck owns all the pieces. Still controls the market, but now with the patina of competition. When they broke up Standard Oil, Rockefeller still controlled all the pieces: Standard oil of California, Standard Oil of New Jersey, etc.

          Still, the broadcast media model of the 1930s won’t work because the government doesn’t control the internet. At least not yet.

          Liked by 1 person


    Apparently we are about to lose up to half our trade with our biggest trading partner thanks to diverting customs officials from the PsOE from and to MX.

    The slowdown in the international bridges began in late March after former Customs and Border Protection commissioner and current interim Department of Homeland Secretary Kevin McAleenan said the agency was diverting 750 customs officials from Tucson, Laredo, El Paso and San Diego to help U.S. Border Patrol agents process the record numbers of immigrant families who are crossing the border to seek asylum.

    “As a major exporting and importing state with an extended southern border, Texas is particularly hard hit by the border slowdown. In fact, the state is responsible for about 35% of all trade with Mexico,” the report states. The study was commissioned by IBC Bank in conjunction with the Texas Association of Business, Texas Border Coalition, Texas Business Leadership Council and the Border Trade Alliance.

    Liked by 1 person

  8. Funny how at the very same time Bob Barr is getting crap for using the word “spy” because of its supposedly derogatory connotations, Valerie Plame is repeatedly identified as exactly that in all the headlines announcing her run for Congress.

    Also of note, Plame is either ignorant of her own famous case, or she is a liar. In her statement announcing her run, she said:

    “When my career in national security intelligence was ended prematurely, through no fault of my own, there was only one place my heart wanted to be — Sante Fe. I moved the day after Vice President Cheney’s chief aide Scooter Libby was convicted for his role in outing my true CIA identity. … New Mexico was the first place that felt like home and that’s what it has been ever since.”!

    Libby was convicted of lying to the FBI, not for any “role in outing” Plame’s CIA identity, an event in which he played no known role.


    • The Plame thing has always been ridiculous.

      But the “spy” thing goes directly to why I hate the MSM. They called the same activity spying all the time when it was being done in the Bush administration, had no problem with it, and now they are trying to slice the Swiss cheese so thin on the issue there’s nothing left but the holes.

      And I can’t help but feel they know this or should know it. They were there and there’s copious records of them calling this kind of activity spying pretty much up until the moment Barr used it that way.

      This sort of stuff makes them nothing but a propaganda organ for one political party—and then they preen about how they are the last hope for democracy and justice and so on. Such BS.

      How is anybody in the MSM different from Sean Hannity suddenly finding Trunp doing something fine when he found the same behavior abhorrent when Obama did it? It’s not, but Hannity isn’t pretending to be an objective journalist. Meh. I can’t imagine we’re going to leave eight years of Trump behind without the public’s opinion of the media being the lowest ever.


    • Libby was convicted of lying to the FBI, not for any “role in outing” Plame’s CIA identity, an event in which he played no known role.



  9. Because actually being expected to obey the rules is clearly racism.


  10. There are only three comments that mention subsidized flood insurance and the post doesn’t mention it at all.

    Gaia weeps.


  11. “There is no substantive-due-process right to stimulate one’s genitals for non-medical purposes unrelated to procreation or outside of an interpersonal relationship.”

    Interesting argument made by former Texas Solicitor General Ted Cruz. He lost, 2-1 on appeal, so I am not suggesting the argument is ludicrous or off the wall.

    I do think it is interesting from several perspectives, and funny.

    For one, it implies that self stimulation is a protected right in the company of another with whom one is in an interpersonal relationship, or as an aid to procreation. The brief makes clear elsewhere that it does not count play for pay as an interpersonal relationship as the practice of masturbation is compared to prostitution as “obscene”.

    I even understand how one can argue this pretzel with a straight face: there is no express language about private sexual practices in the Constitution and no mention even of the word marriage. So a state has broad discretion and line drawing rights as a result. Same overarching argument as the one against a constitutional right to same sex marriage, really.

    But in this case, it just plain reads funny.


    • Mark:

      What brought this to mind?

      As an aside, I have a distinct memory of this case being brought up here in the past, but I can’t find it anywhere. What was the case name?


      • I think it was called Reliable v. Earle. I don’t recall it here. I sent you an email about it.


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