The Alaska And Minnesota Senate Races

It's a crazy world. After election day passed, we were left with a few too-close-to-call Senate seats still up for grabs. One of them, Alaska, was just decided. Senator Stevens just barely lost his re-election bid by a mere 3,724 votes despite being convicted on felony charges. Alaskans almost elected a convicted felon! What do you have to do up there to lose an election by a wide margin -- kill Bambi? Oh yeah, that gets you the Vice Presidential nomination.

Another close Senate race is still underway in Minnesota between comedian Al Franken and Republican incumbent Norm Coleman. I have no dog in this fight (aside from not wanting any party to achieve a filibuster-proof 60-seat majority). I just find these tight contests fascinating. Franken currently trails by about 200 votes heading into a recount. A recent Sam Stein article for The Huffington Post discussed an analysis of voting patterns in Minnesota by Dartmouth professor, Michael C. Herron. Professor Herron believes that Franken will ultimately win the seat, but what I found more interesting was the following:

According to Herron's analysis, of the 2.9 million people who went to the polls in Minnesota, there were approximately 34,000 residual voters in the Senate race. In other words, there were 34,000 more ballots cast than total number of recorded votes for all the Senate candidates.

Why the difference? A good portion of voters, Herron concludes, voted in the presidential election but deliberately did not vote for a Senate candidate. These people won't matter when it comes to a recount.

There is, however, a portion of the 34,000 who intended to vote for one of the Senate candidates but messed up. Voters were supposed to fill in the circle next to the name of the candidate they supported. Some, however, marked X's. Others circled the name itself or crossed out the names of candidates they didn't like.

This group is key to determining the Minnesota Senate victor.

Basically, the Senate seat will be decided by the subset of the Minnesota population that was too ignorant, lazy, confused, or illiterate to follow directions. I'm not sure I'd want to win that race.

Disclosure: The Rubbernecker is long incredulity and short lazy gophers.

---

The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

McCain: Numbers, Numbers, Numbers

"A plague o' both your houses!" Or on at least four of them! Maybe seven.

This past week, McCain's campaign did a bang-up job of appealing to the out-of-touch, mathematically-challenged, ridiculously wealthy demographic. First off, he suggested that you're not really rich unless you make at least $5 million a year. I took a quick look at the Census Bureau data on income and found that, as of 2006, only 1.9% of U.S. households earned over $250,000. According to the IRS, the top 1% of earners made $1.1 million in 2007, and the top 1/10th of 1% earned an average of $5.6 million. Thus, according to McCain, slightly more than 1/10th of 1% of Americans are rich. It really makes you feel for those poor middle-class folks making $1-4 million a year and struggling to afford their Bentley Continental GTs, ocean-front vacation villas in Monterey, and month-long vacations in Monaco.

He followed that stunner up a few days later by admitting that he didn't know how many houses he and his wife owned. He said he had to check with his staff, and then he responded that he owned "at least four." Newsweek had recently estimated that the McCains own at least 7 properties. Now, all of the numbers between 4 and 7 are fairly small numbers -- for a preschooler.

It's a little disconcerting that a Presidential nominee has to have his staff check on how many homes he owns. It's easy to Monday morning quarterback, but there were so many better responses:

• "I only have one home, and that's wherever my wife is."
• "As I was saying about my time as a prisoner of war..."
• "A nun, a democrat, and a Sunni walk into a bar..."
  
• "I really need to hit the head. Let's pick it up here later."
• "Speaking of houses, did you know that Obama's middle name is Hussein?"
  

At the same time, there is a touch of brilliance in the "at least" approach. This is something all politicians could use.

Q: How many kids do you have?
A: At least one.

Q: How many years have you been married?
A: At least a couple.

Q: Have you ever cheated on your spouse?
A: At least...no.

These comments from McCain are hardly surprising given his admitted lack of knowledge about economics. McCain has previously said:

"The issue of economics is something that I've really never understood as well as I should. I understand the basics, the fundamentals, the vision, all that kind of stuff,'' he said. "But I would like to have someone I'm close to that really is a good strong economist. As long as Alan Greenspan is around I would certainly use him for advice and counsel."

Now, some may feel that a solid grasp of economics would be helpful given our budget deficit, national debt, unfunded liabilities, rising unemployment, trade deficit, deteriorating currency, rising commodity prices, and stagnating incomes. They can be forgiven for their naivete. All that really matters is that our President surrounds himself with experts in the field like Alan Greenspan, who presided over and encouraged unprecedented credit growth, a ridiculous increase in the money supply, and cascading bubbles in the stock and housing markets.

I want to be clear that this is not an endorsement of Obama in any way. McCain and Obama both quibble over marginal differences in their economic plans while demonstrating no understanding or appreciation of the precarious and deteriorating financial condition of our country. President McCain would probably trip all over himself in his eagerness to start a war with Iran and Russia simultaneously. President Obama, with the support of a democratically controlled Congress, could certainly do some damage in the tax and spend arena.

Given these two potentially awful outcomes, I recommend the following:

• Buy gold.
  
• Buy a gold mine.
• Remove, melt, and save any gold fillings you have.
• "Accidentally" swap luggage with Michael Phelps at the Beijing airport.
• Gradually strip mine your neighbor's property when he's at work.
• And buy some silver, too.
  

Disclosure: The Rubbernecker is long gold and silver and short the Republicans and Democrats.

Time to Foreclose on Hillary's Housing Plan

Since this post is somewhat politically-related, I need to stress the following upfront:

• I have always been registered as an independent.
• I find both parties equally nauseating, ignorant, and polluted (but not in a scary Unabomber kind of way).
• I don't believe any of the three remaining Presidential candidates have a clue when it comes to economic policy.
• I tend to mumble a bit and spasm when I watch the debates.
  

With that out of the way I wanted to touch on Hillary's comment about the housing situation during last night's debate. She said,

I want to see us actually tackle the housing crisis, something I've been talking about for over a year. If I had been president a year ago, I believe we would have begun to avoid some of the worst of the mortgage and credit crisis, because we would have started much earlier than we have -- in fact, I don't think we've really done very much at all yet -- in dealing with a way of freezing home foreclosures, of freezing interest rates, getting money into communities to be able to withstand the problems that are caused by foreclosures.

To say that you would have prevented the largest housing and credit bubble we've ever seen from collapsing is the height of arrogance. She doesn't say that she would have prevented the bubble itself from happening. This thing was already uber-inflated a year ago when she claims to have started talking about it. So, though she wouldn't/couldn't have prevented the bubble she believes she could have prevented its deflation. I suppose she believes she could have prevented the tech bubble from bursting and Dutch tulips from collapsing.

Trying to prevent a bubble from popping is a terrible idea. Bubbles are not healthy for the economy in the long-term as they lead to gross mis-allocations of capital. In the case of housing, far more money was thrown at housing and mortgages than warranted by economic fundamentals. A bubble is not a state of equilibrium - that's what makes it a bubble. The quicker the bubble is popped, the quicker we return to sound economics. Trying to prop up a bubble only introduces further moral hazard and prolongs the ultimate damage.

Looking at her specific proposals, she first mentions freezing foreclosures. Keeping people in houses they can't afford serves no one. Many of these people were never qualified to be homeowners in the first place. Furthermore, the ability to foreclose is one of the reasons lenders are willing to make loans in the first place. Freezing foreclosures certainly isn't going to make more money available for mortgages. Think about what you would do if you were lending your money and all of a sudden the rules are changed so that the government, at its whim, can prevent foreclosures. Would you be as willing to lend? If you were still willing to lend, wouldn't you want to charge a higher interest rate? Wouldn't you severely tighten your lending standards so that you were only lending to those with the best credit and finances? Wouldn't you require a larger down payment? Hillary (and all politicians) love to talk about making homeownership affordable for more people, but this policy would do exactly the opposite.

How about freezing interest rates? Same thing. Imagine you're a lender and all of a sudden the government can come in and freeze the rates you charge people. You've logically been charging riskier people higher interest rates, but now the government steps in and doesn't allow those rates to adjust up (think ARMs). You might be less willing to make ARM loans. Either way, you've just had a big new risk introduced. Might you want to increase the interest rates you charge to compensate for this new risk?

Next, she mentions "getting money into communities". That's fairly vague, but it certainly entails spending tax-payer money to support a bubble. The government needs to get out of the way and let housing prices fall to market clearing levels. Housing prices in many communities never should have climbed as high as they did - virtually everyone agrees with this. So why must the politicians try so hard to keep them from falling? (that's a rhetorical question)