Wednesday, June 29, 2011

Playing in the Creek

A couple of weeks ago, photographer Vy Koenig took photos of our kids.  Vy is a good friend of a client & friend of mine & offered us a complimentary photo shoot.  We were so excited for the opportunity, but I had no idea how awesome the photos would be.   

{Justin, 18 months}

We brought the boys in their rain boots & we all ventured into the woods for a hike to the creek.

{Christian, almost 4!}

They started out timidly, stepping on stones & splashing lightly in the water...  Vy had sailboats ready for them to play with and she even made newspaper sailboats which they looooooved. 

Their favorite part was the "pirate" ship that Vy's husband made:

{It was a flat boat front staked into the ground = so adorable... very Little Rascalish}

Once they got comfortable, the shirts came off and the real splashing began:

{Christian is so proud of this pic}

We all got a little wet...

Vy captured my little guys perfectly...

...And my big one too:

{Justin loves getting "eaten"}

It was honestly just such a fun time...

We got to spend quality time with each other & have a little adventure while Vy captured it all:

{Dave & I weren't planning on being in the pictures but I'm so glad now Vy got some of us with the boys}

 I really CANNOT believe I have a picture of my little guys being NICE to each other!!:

{Makes me happy}

...And nothing's better than this feeling:

I really can't thank Vy enough for this gift.  We will definitely be doing it again!!

If you're in the Northern Virginia area and are interested in Vy's services:
Check out her website here to book an appointment.  She's AMAZING!!!!!
(And if you're not in the area, check it out anyway... there are so many cutie pies on there!!!)  I was so excited to see all of the creativity & effort Vy had put into preparing the shoot & she's so sweet that the kids warmed up instantly.

xoxo, Lauren

If you'd like help creating a home you absolutely love, contact me about our design services.

Why we GIVE each big bank $12 billion per year

I've been reading quite a lot about the various political battles over efforts to regulate the banking industry, derivatives in particular. This afternoon, quite by coincidence, I noticed on a colleagues' disordered desk a copy of a speech given last year by Andrew Haldane, Executive Director for Financial Stability of the Bank of England. It's message should be a matter of urgent public debate in the US, and elsewhere. Yet I haven't heard Haldane's arguments mentioned anywhere in the US media.

Banks, he argues, are polluters, and they need to be controlled as such. Let me run through several points in a little more detail. First think of the car industry, where producers and users together pollute. Haldane:
"Exhaust fumes are a noxious by-product. Motoring benefits those producing and consuming car travel services – the private benefits of motoring. But it also endangers innocent bystanders within the wider community – the social costs of exhaust pollution."
He then goes on to make the point that we now face much the same situation with bankers, in part due to the proliferation of instruments which have made it possible for banks to spread risks far and wide and make profits events as they amplify system wide risks. The banking industry is also a polluter:
"Systemic risk is a noxious by-product. Banking benefits those producing and consuming financial services – the private benefits for bank employees, depositors, borrowers and investors. But it also risks endangering innocent bystanders within the wider economy – the social costs to the general public from banking crises."
What is to be done about polluters? Back in the 1970s, in the face of the rising air pollution, policy makers, guided by economists, worked out ways to solve the problem through regulations and, where necessary, outright prohibitions of some practices. That's where we are now with the banks. The regulations under consideration recognize the social costs of systemic risk and try sensibly to find a redress. The bankers response has of course been to whine and scream.

The first practical step in addressing a pollution problem is to estimate how much pollution there is. How much do we pay to guarantee bank solvency during these not-too-infrequent systemic crises? Haldane points out that if you count only the monetary amount transferred to banks by governments, the cost of the recent crisis is fairly large -- about $100 billion in the US. But this is probably an extreme lower bound to the true collective cost. As Haldane remarks,
"...these direct fiscal costs are almost certainly an underestimate of the damage to the wider economy which has resulted from the crisis – the true social costs of crisis. World output in 2009 is expected to have been around 6.5% lower than its counterfactual path in the absence of crisis. In the UK, the equivalent output loss is around 10%. In money terms, that translates into output losses of $4 trillion [for the US] and £140 billion [for the UK] respectively."
Now, I'm not one to take GDP loss arguments too seriously. It's not a very good measure of human well being, or even of the narrow economic well being of a nation (in particular, it tells us nothing at all about how much of the store of natural resources may have been eaten up in achieving that GDP). However, the scale alone in this case suggests that the cost of the crisis -- and other crises, which seem to strike more and more frequently with modern financial engineering and its global reach -- are immensely high.

But here is where Haldane's view becomes REALLY interesting -- and goes beyond anything you're likely to see in the popular media (especially in the US).

Lots of people recklessly borrowed in the run up to the crisis; it wasn't only the fault of the recklessly loaning banks. So, how much of the systemic costs associated with financial crises really is due to the banks? One place to look, Haldane suggests, is the valuations given to banks by the ratings agencies, many of which take explicit note of the fact that governments give a subsidy to banks in the form of implicit or explicit safegaurds to their stability. Some give banks two different ratings, one "with government support" and one "without." Haldane goes through a simple calculation based on these ratings, and estimates the effective subsidy to many big banks is on the scale of billions. The data suggests it has been increasing for the past 50 years. The "too big to fail" problem shows up in the data as well -- the average ratings difference for large banks is much bigger than it is for small banks. As Haldane sums up:
For the sample of global banks, the average annual subsidy for the top five banks was just less than $60 billion per year...  the large banks account for over 90% of the total implied subsidy. On these metrics, the too-big-to-fail problem results in a real and on-going cost to the taxpayer and a real and on-going windfall for the banks."
Haldane's speech -- as far as I'm aware -- is unique among high-level banking figures in taking seriously the public costs entailed by banking practices. Imagine where the US might be today if we'd taken that $60 billion per year and, over the past decade, invested it in infastructure, education and scientific research.

In the rest of his speech, Haldane explores what might be done to end or control this pollution, through taxes or by making some banking practices illegal. This too is illuminating, although what emerges is the view that finding a solution itself isn't so hard. What is hard is gathering the political will to take steps in the face of banking opposition. Publicizing how much they pollute, and how much we pay to let them do it, is perhaps a first step.

Bentley Drivers Club Concours D'Elegance

Bentley at the 1929 Irish Grand Prix
(oil on board)
A piece made for the 75th anniversary Concours D'Elegance.

The Bentley Drivers Club had their 75th anniversary Concours D'Elegance on 25th June. I was there enjoying the line up as well as running painting and sketching demonstrations.

1929 HJ Mulliner 4.5 Litre
Winner of the Patina Class

I really liked the owners run it as it is approach.

The First Production 8 litre Bentley
Last restored 1987
First Owner Jack Buchanan He was known for three decades as the embodiment of the debonair man-about-town

1923 Vandeplas 4.5 Litre

HTML5 and maps

For the unwary it may come as a big surprise - HTML5 is here! More and more online mapping applications are implemented in HTML5 standard, taking advantage of <canvas> element to extend the functionality and presentational capabilities in a browser environment. All modern browsers now support the standard.

The canvas element allows for dynamic, scriptable rendering of 2D shapes and bitmap images. Below is an example that illustrates the benefit of using <canvas> element in browser based mapping applications. This map allows users to specify a minimum terrain height parameter at which to display the layer and the layer is redrawn dynamically to display the information on the map.

With the support for SVG just implemented in Internet Explorer 9, there are now two complementary approaches to drawing objects in all modern browsers: <canvas> and SVG. It is best to think about <canvas> as akin to “raster” and SVG as “vectors”. This way it is easier to decide which approach is more suitable for a specific purpose.

First spotted on: Google Maps Mania

Related post: Is SVG ready for comeback?

Tuesday, June 28, 2011

Food Reward: a Dominant Factor in Obesity, Part VII

Now that I've explained the importance of food reward to obesity, and you're tired of reading about it, it's time to share my ideas on how to prevent and perhaps reverse fat gain.  First, I want to point out that although food reward is important, it's not the only factor.  Heritable factors (genetics and epigenetics), developmental factors (uterine environment, childhood diet), lifestyle factors (exercise, sleep, stress) and dietary factors besides reward also play a role.  That's why I called this series "a dominant factor in obesity", rather than "the dominant factor in obesity".
Read more »

How we do Floor Plans

A few of you emailed yesterday asking about how we do our floorplans.  We draw them by hand.  When we're surveying a room, we photograph it and measure it.  Everything is measured & noted: windows, ceiling height, baseboards, electrical, etc.  

Back at the office, my design assistant, Meghan, creates a scaled drawing of the room & makes a couple of copies of it.  They're then placed in the client's binder for me to work on.  I'll play around with different furniture arrangements.  Like I mentioned yesterday, some furniture plans are obvious while others have many solutions and can be tricky.

I'm not a big tech-lover and am very visual & tactile, so I prefer to move little furniture pieces around & draw on the empty floorplans myself.   One of my favorite tools is  "The Board."   It's a magnetic furniture plan kit.  I attach the floorplan to a magnetic board and the pieces of furniture are magnetic.  Once I've decided upon a furniture arrangement, I trace around the magnets in pencil or draw in the pieces and it goes back into the binder. 

I create a list of everything on the floorplan that needs to be found for the room.  Once I have the list & the floorplan, I can start specifiying products for the room.  I like to use a mix of new & vintage or antique pieces in most spaces so it's a time-consuming process.  At this point the floorplan is more of a guidline for what we're looking to do, and as I find the right pieces- in showrooms, shops, online, etc-  the exact dimensions are noted & the "messy" pencil floorplan is edited for the final floorplan.

Once I've finalized everything that will go into the room and where it is, Meg draws the final floorplan for the client's presentation.  We give our clients a design folder to keep and everything on the floorplan corresponds with the photos on the design board:

As you've probably noticed, much of this could happen in CAD, but for now it's all done by hand here. There's a certain charm to hand-drawn plans that I love.  I'm not sure we'll ever make the switch but if we do, I know I'll still be printing out the floorplans and using the board and drawing on them myself.  It's just part of how I work.

Anyway, I'd love to hear about your process for furniture plans & let me know if you have any other questions!!

xoxo, Lauren

If you'd like help creating a home you absolutely love, contact me about our design services.

Monday, June 27, 2011

Furniture Arrangement Series {Very Irregular of Course!}

Furniture arrangement can be challenging.  There are so many things that need to be taken into account:  traffic patterns, focal points, activities, seating needs, lighting, etc.  The last thing most people want is a crowded room, but it's important to walk the line between having a room with too much stuff in it, and having a room that doesn't have enough furniture/ functions.  Fear of overcrowding often keeps floorplans (and as a results rooms!) a bit dull.  I thought it might be helpful to do a series (irregular of course!- don't want to feel like it's homework ;) of posts with examples & tips on floorplans & furntiure arrangements that work and cases in which the "rules" are beautifully broken. 

When I walk into a room for a job, I typically mentally begin rearranging it and I have an idea of how I think it will work best, but I still take the measurements back to the office and we draw it out to scale.  Some flooplans are much more obvious than others and are "easy" while others can be seriously tricky.  There are usually mulitple ways to create a good floorplan, and sometimes it seems there's only one right one.  We "play" with different furniture arrangements until we come up with one that will work best for the room & for our clients.   

I thought it might be helpful for me (and hopefully you too ;)  to outline some of the thought processes, "rules" and ideas/ tips that are rolling around in my head when I'm working on floorplans.  I'm starting out with walkways/ traffic patterns & then get a teensy bit into seating placement & bookshelves.  (This is by no means comprehensive but I thought it might be fun to share.)

1.  Traffic Patterns are important but so is the room's function:
I find that I always want just a little more room when working on floorplans.  Living rooms & family rooms are some of my favorite rooms to do but they often have multiple doorways/ trafficways cutting through them which can make furniture arrangement tricky.  The rule of thumb is to allow at least 3 feet for walkways, which can really take off a lot of space in a smaller room.   (Following the rule would often mean not including certain necessary pieces of furniture.)  

For example, in the room below, there isn't a clear-cut traffic way through the TV area to get to the {amazing} nook area in the back.  For that traffic lane to be open, they would have to remove the chair in the left, which I think would really take a way from the room. 

{I can't remember where I found this image- sorry!}

To me, it seems more important to have the chair there rounding out the seating area, than it is to have the pathway open.  When working on floorplans, sometimes you have to choose the lesser of two evils.   

When I run into this I often think...  "Should this room be a destination or a pass-through?"  Most homes have rooms that need to function as both (especially homes that have additions) and of course the goal is do do both well.  But the reality is that sometimes you have to lean more towards one or the other.  Whenever possible, I like to lean towards the "destination" end of the spectrum because rooms are enjoyed the most when you're in them.  Of course we notice a room when we're passing through it or entering into it, but the most important thing is what we notice when we're in it, experiencing it. 

{I love this room above, but take a look at how much furniture is in it...  It's more than in most houses but look how enjoyable/ cozy that room would be for a  group of people.  The chairs flanking the fireplace foten wouldn't make it into the floorplan but they add interest and additional seating to be pulled into the conversation. Image source: WALDO} 

2.  Seating should face goodness and shouldn't "be" the goodness: 
Distinguishing the room as a destination vs. a "viewing room" or pass-through room affects focal points and where you place your furnishings.  I find that upon first walking into many clients living rooms/ family rooms for the first time, they often have them set up so that you can see the sofa in clear view as a focal point and it's up against a wall, and the room looks nice upon entering.  (I call this a "viewing" room.  It's pretty at first glance but not truly enjoyable once you're in it.) Once you actually sit in the sofa, your view is often out of the room to a hallway and not on an interesting focal point.  The room is better enjoyed upon enetering when you're still on your feet than it is when you actually sit in the room and use it, which isn't good.   (The sofa / chairs should not be your first focal points, because the seating is where you're sitting when you're in the room, so it should be facing your focal points.)  

3.  Bookshelves aren't sacred: (but I do loooove them!!) 
Another thing I find people are typically a little afraid of doing is placing furniture & accessories in front of bookshelves.  Bookshelves can function just like walls, and if needed (to round out a furniture grouping or to add interest) pieces can be placed in front of them.  Without seating, you won't spend much time in an area of a room.  You might stand up to browse the books & enjoy them that way, but you won't be able to sit & relax, so if your goal is to spend time in that particular area of the room, it needs some type of seating, even if it's lined with shelving.  In the photo below,  the chair looks beautiful, adds interest, and provides seating.  Yes, it does block the books a little and would need to be moved to access certain books, but here, the pros -of actually being able to sit & enjoy the books- seem to outweight the cons. 

{Design by Lars Bolander, image via Cote de Texas}

Here are a few examples of sofas being placed in front of bookshelves.  It's a gutsy move and not something your avereage homeowner would do, but I love it:

{Design by Joe Nye, featured in House Beautiful}

And here a console has been placed between the sofa and bookshelves to provide a place for lighting & pretties:
{Design by Steven Grambrel featured in House Beautiful}

And in the room below, artwork has been layered over the bookshelves:

{Design by Markham Roberts featured in House Beautiful}

Again, it's something a homeowner wouldn't typically do, but it looks amazing.  I firmly believe that to create a great room, you need to be taking at least one risk, and the painting over the bookshelves is a beautiful one.  Breaking out of the box is something you see happening in magazines all the time, but many homeowners are a little bit afraid of it. 

In the photo below, a desk has been placed in front of shelving and artwork has been layered in front of it:

{Design by Mary McGee featured in House Beautiful}

And in this photo below, a bistro table & a few chairs has been placed in front of booksleves, creating a cozy little eating/ drinking area:

{Design by Frank DelleDonne featured in House Beautiful}

I've got to run for the day but will be posting more about furniture arrangement when I can.  To me, good decorating is fearless and breaks the rules or takes a risk when it's called for.  (not just to do it, but when it's appropriate.)  A great floorplan is just one of the many ingredients that go into a well-done room, but I think outlining how to push the limits can make taking the risks a little less frightening!

xoxo, Lauren

If you'd like help creating a home you absolutely love, contact me about our design services.

Friday, June 24, 2011

Does it make sense to build "affordable" housing in Santa Monica?

Among the people I admire most in the urban research business is Marjorie Turner.  I was talking to her at a conference sometime within the last year, and she put a difficult question to me: shouldn't housng policy allow everyone who wants to live in Bethesda, Maryland the opportunity to do so?  (Bethesda is among Washington, D.C.'s most affluent suburbs).

I have been pondering this question for some time, and it was thrown into relief for me when I witnessed a person bragging about building affordable housing units at $650,000 a pop in Santa Monica.  The presentation brought me around to the view that it is not society's responsibility to assure that everyone gets to live anywhere they like, just as it is not society's responsibity to buy everyone a Mercedes Benz (a night on the town every now and then might be something else).

Every household should have the opportunity to live in a clean, safe community with a decent school.  For this reason, expanding the Section 8 housing vouchers program, which allows low income households to rent market rate housing while paying no more than 30 percent of income, would make a lot of sense.  Given the fiscal realities of the moment, a sensible source for funding an expansion would be the Low Income Housing Tax Credit Program--a program that funds $650,000 properties in Santa Monica.

The median price of a house in Los Angeles County is around $275,000.  The median neighborhood in LA County is a fine neighborhood.  So one could put someone in a decent house and a decent neighborhood and still have $375,000 left over relative to Santa Monica.  That $375k could go toward better schools, more transportation options--or more housing! 

Do I wish everyone who wanted to live in Santa Monica could do so?  Sure.  I also wish everyone who wanted to take a vacation to Paris could take a vacation to Paris.  But when resoureces are scarce and getting scarcer, it is important to use them as effectively as possible.

PIMCO questions US financial focus

It's quite something when the managing director of PIMCO comes our and announces that the US has gone too far in seeking "wealth creation via financial assets," rather than boring things like science and manufacturing. Sean Paul Kelley at The Agonist points to this, which is worth a read.

Thursday, June 23, 2011

Do bond holders think it is all political theater?

The GOP pull-out of the budget talks today really worried me--it raises my subjective probability of a US default, which would be potentially catastrophic.  But when I looked at long-term bond prices on Bloomberg, they suggest the bond markets are completely calm.

Drug Cessation and Weight Gain

Commenter "mem", who has been practicing healthcare for 30+ years, made an interesting remark that I think is relevant to this discussion:
Recovering substance dependent people often put on lots of weight and it is not uncommon for them to become obese or morbidly obese.
This relates to the question that commenter "Gunther Gatherer" and I have been pondering in the comments: can stimulating reward pathways through non-food stimuli influence body fatness?  

It's clear that smoking cigarettes, taking cocaine and certain other pleasure drugs suppress appetite and can prevent weight gain.  These drugs all activate dopamine-dependent reward centers, which is why they're addictive.  Cocaine in particular directly inhibits dopamine clearance from the synapse (neuron-neuron junction), increasing its availability for signaling.
Read more »

(Corrupt) Lawmakers challenge derivatives rules

I'm not the least bit surprised by this story detailing the push back by well funded (by whom, do you think?) US senators and representatives against proposed rules to reign in derivatives. Here's some choice material:
The lawmakers, Republicans and Democrats alike, argue that some proposed rules could force Wall Street’s derivatives business overseas. They also say that regulators are ignoring a crucial exemption to the rules spelled out in the Dodd-Frank financial regulatory law.

The law excused airlines, oil companies and other nonfinancial firms known as end-users from new restrictions, including a rule that derivatives must be cleared and traded on regulated exchanges. The firms use derivatives to hedge against unforeseen market changes, say a rise in fuel costs or interest rates, rather than to speculate.

“We are concerned that recent rule proposals may undermine these exemptions, substantially increasing the cost of hedging for end-users, and needlessly tying up capital that would otherwise be used to create jobs and grow the economy,” Senator Debbie Stabenow, Democrat of Michigan and chairwoman of the Senate Agriculture Committee, and Representative Frank D. Lucas, her Republican counterpart in the House, said in a letter this week to regulators.
I particularly like the phrase "airlines, oil companies and other nonfinancial firms known as end-users" identifying those who have restrictions. Does anyone doubt that lawyers and accountants at Goldman Sachs, JP Morgan and virtually every other big bank are working overtime right now deciding how they can turn the bank, or some subsidiary in the Cayman Islands, into an airline, oil company or other nonfinancial firm? I would bet they're just looking for a new pathway through which to route all their high risk stuff - and they've counseled the lawmakers on how they can best carve out some useful routes.

The other thing that is simply precious is this (the likes of which we've heard many times already, of course):
The lawmakers, Republicans and Democrats alike, argue that some proposed rules could force Wall Street’s derivatives business overseas.
The proper response would be not worry, but GOOD, PLEASE HURRY UP! Let them take their financial engineering business overseas and blow up someone else's economy.

P.S. Here's a random string of letters and digits: W8ENHMJ8MBKD. Ponder it if you like, but I don't see that it holds any particular meaning or interest. I have to tuck it into one of my blog posts somewhere to get listed on Technorati.

The ticking CDS time-bomb

The looming mess in Europe, linked to financial distress in Greece, looks like a perfect if rather frightening illustration of the malign consequences of over-dense banking interdependence on global financial stability. In this case -- as with the crisis of 2007-2008 -- the root cause of the trouble is CDSs and other derivatives. No one in Europe is quite sure how many reckless gambles banks have made over Greek debt and potential default, and the European Central Bank appears to be deadly afraid that such gambles have the potential to bring down the entire financial house of cards.

What's happened to the CDS market over the past decade? It's exploded. Amazingly, the value of outstanding CDS linked to debt in Greece, Italy, Spain and Portugal has doubled in the past three years -- since 2008!! The New York Times today discusses what can only be described as a ridiculous situation -- Europe pushed to the brink of a financial disaster by the actions of a small number of people gambling with other peoples' money in the dark, and doing so in the direct aftermath of the greatest financial crisis since the Great Depression:
The uncertainty, financial analysts say, has led European officials to push for a “voluntary” Greek bond financing solution that may sidestep a default, rather than the forced deals of other eras. “There’s not any clarity here because people don’t know,” said Christopher Whalen, editor of The Institutional Risk Analyst. “This is why the Europeans came up with this ridiculous deal, because they don’t know what’s out there. They are afraid of a default. The industry is still refusing to provide the disclosure needed to understand this. They’re holding us hostage. The Street doesn’t want you to see what they’ve written.”
 Wonderful. We've known about this danger for at least several years and have done nothing about it. But in fact, we've actually known about such danger for far longer, and have only taken steps to make our problems worse. A couple of years ago CBS aired an examination of the CDS market, and it is still worth watching. One interesting comment from the program:
It would have been illegal [selling CDSs of any kind] during most of the 20th century under the gaming laws, but in 2000, Congress gave Wall Street an exemption and it has turned out to be a very bad idea.

Wednesday, June 22, 2011

Dirty little derivatives secrets...

The first dirty little secret of the derivatives industry -- probably not so secret to those in the financial industry, but unknown to most others who still think financial markets in some approximation are fair and efficient -- is that some of the big banks control the market and expressly inhibit competition to protect their profits. I just stumbled across this still highly relevant exposition by the New York Times of efforts to place derivatives trading within properly defined clearinghouses, and the banks' countervailing efforts to gain control over those clearing houses so as to block competition.

The banks (invoking some questionable claims of economic theory) like to argue that derivatives make markets more efficient because they make them more "complete." As Eugen Fama puts it: "Theoretically, derivatives increase the range of bets people can make, and this should help to wipe out potential inefficiencies." Available information, the idea goes, should flow more readily into the market. But the truth seems to be that derivatives make banks more profitable at everyone's collective expense, and not only because they make markets more unstable (see more on this below). From the New York Times article:
Two years ago, Kenneth C. Griffin, owner of the giant hedge fund Citadel Group, which is based in Chicago, proposed open pricing for commonly traded derivatives, by quoting their prices electronically. Citadel oversees $11 billion in assets, so saving even a few percentage points in costs on each trade could add up to tens or even hundreds of millions of dollars a year.

But Mr. Griffin’s proposal for an electronic exchange quickly ran into opposition, and what happened is a window into how banks have fiercely fought competition and open pricing.

To get a transparent exchange going, Citadel offered the use of its technological prowess for a joint venture with the Chicago Mercantile Exchange, which is best-known as a trading outpost for contracts on commodities like coffee and cotton. The goal was to set up a clearinghouse as well as an electronic trading system that would display prices for credit default swaps.

Big banks that handle most derivatives trades, including Citadel’s, didn’t like Citadel’s idea. Electronic trading might connect customers directly with each other, cutting out the banks as middlemen.

The article goes on to describe a host of maneuvers that Goldman Sachs, JP Morgan and other big banks used to block this idea, or at least to make sure they'd be locked into the gears of such an electronic exchange. Eventually the whole idea fell apart to the banks' relief. Guess who's paying the price?
Mr. Griffin said last week that customers have so far paid the price for not yet having electronic trading. He puts the toll, by a rough estimate, in the tens of billions of dollars, saying that electronic trading would remove much of this “economic rent the dealers enjoy from a market that is so opaque.”

"It’s a stunning amount of money,” Mr. Griffin said. “The key players today in the derivatives market are very apprehensive about whether or not they will be winners or losers as we move towards more transparent, fairer markets, and since they’re not sure if they’ll be winners or losers, their basic instinct is to resist change.”
But there's another dirty little secret about the derivatives industry, and this goes back to the question of whether these instruments really do have benefits, by making markets more efficient, perhaps, or if instead they might make them more unstable and prone to collapse. Warren Buffet was certainly clear in his opinion, expressed in his newsletter (excerpts here) to Berkshire Hathaway shareholders back in 2002: "I view derivatives as time bombs, both for the parties that deal in them and the economic system." But the disconcerting truth about derivatives emerges in more certain terms from new, fundamental analyses of how precisely they can stir up natural market instabilities.

I'm thinking primarily of two bits of research -- one very recent and the other a few years old -- both of which should be known by anyone interested in the impact that derivatives have on markets. Derivatives can obviously let people hedge risks -- locking in affordable fuel for the winter months in advance, for example. But they're used for risk taking as much as hedging, and can easily create collective market instability. These two studies show -- from within the framework of economic theory itself -- that adding derivatives to markets in pursuit of the nirvana of market completeness should indeed make those market less stable, not more.

I'm currently working on a post (it's taking a little time) that will explore these works in more detail. I hope to get this up very shortly. Meanwhile, these two examples of science on the topic might be something to keep in mind as the banks try hard to confuse the issue and obscure what ought to be the real aim of financial reform -- to return he markets to their proper role as semi-stable systems providing funds for creative and valuable enterprise. Markets should be a public good, not a rigged casino, benefiting the few, and guaranteed by the public.

Tuesday, June 21, 2011

How well off are Americans?

As Alice Rivlin notes, tax increases on the rich (which are, in my view, necessary and, in light of recent changes in income, appropriate) are not enough to bring about long-term fiscal balance (the short run is another matter--fiscal tightening at the moment makes no sense to me).  So the question is, in the long term, how far down the income distribution should we go when we ask Americans to sacrifice?

An OECD report, Growing Unequal? Income Distribution and Poverty in OECD Countries, provides country ranks for average income for ten income deciles.  For the top four deciles, seven, eight, nine and ten, Americans earn more than their counterparts in all other countries, save Luxumbourg, a country whose population is about the same as Dane County, Wisconsin.  For the next decile down, only people in the Netherlands and Luxembourg have higher average incomes.  One could argue, then, that anyone in the top five deciles is pretty well served by being an American.

Things turn a little worse after that: the fifth decile ranks five; the fourth ranks 6, the third ranks 10th, the second ranks 14th and the bottom decile ranks 19th!  In light of this, it seems reasonable to say that the median and below is about the place where we might not wish so ask for more sacrifice.

(BTW, thanks to my USC student Sarah Mawhorter for digging the data out of the report for me).

Alice Rivlin on the Budget (h/t Mark Thoma)

She writes:

Republicans worry that spending caps will threaten national security and Democrats that domestic needs will suffer. Both need to recognize that not all government money is well spent. Democrats are terrified of entitlement reforms and Republicans of tax increases, but there will be no solution without some of each. On entitlements, Democrats have to accept that the status quo is not an option and Republicans that draconian benefit cuts are not acceptable. On revenues, Democrats have to recognize that the debt can’t be stabilized just by taxing the very rich; the middle class will have to contribute too. Republicans have to recognize that in the face of a rapidly increasing older population, it is undesirable to hold spending at historic levels, so we need more revenues. Both parties should recognize that entitlements and earmarks in the tax code are the same as spending, and phasing them out can enhance growth.

No way out?

At a Rand meeting yesterday, Stuart Gabriel called housing the "tail that wags the dog" of the US economy.  He was likely referring to this paper or, perhaps, this paper.  In any event, the evidence from past business cycles powerfully supports residential construction as a leading indicator.

Here is the St. Louis Fed's depiction of housing starts going back to 1959:

In an average year, the US economy starts around 1.5 million houses.  It has started fewer than 600,000 per year since 2008, and is currently squiggling along at a bottom unprecedented in the St. Louis Fed series.

I find it hard to see how the economy can recover strongly without housing making a comeback.  Yet we still have too many houses--builders cannot compete with the inventory currently available. While they try to differentiate new houses from stuff in the foreclosure stock, it is tough to make a sale when price differences are very large.  The problem is that stimulating housing is a bad idea too, because we really don't need many more houses in the economy right now.  As my colleague Gary Painter points out, one of the reasons we don't need more houses is that household formations dropped dramatically--we actually lost households early in the recession while population grew.  Moreover, according to the Department of Homeland Security, illegal immigration dropped by 2/3 between 2000-2004 and 2004-2009.  Whatever one thinks about immigrants (personally, I like them), they do fill up houses.

We are left with a quandary.  For the economy to be restored to health, housing construction needs to return to normal--but there is no reason for it to return to normal.  The alternative--waiting--doesn't seem very appealing either.



When I saw this photo of an antique suzani hanging in Lindsay Reid's home featured in House Beautiful's June issue, I thought, 'That's it.  Love."

{Lindsay Reid's house featured in House Beautiful Magazine's June issue}

First of all, I'm crazy about layering large pieces of artwork/ textiles behind other pieces of furniture.  I love the layering, the overlap, the defiance of rules... 
And second, I've been collecting pictures of crewel work & suzani for a while now, and I have to admit that they've grown on me in the strangest way.  They were definitely a huge trend and it wasn't love at first sight for me, but definitely intrigue.  The pattens themselves didn't completely float my boat right away, but I did love the handmade nature & detail & colors.   Once I saw this suzani used such a practical & perfect situation, it became love.  (I'm really not very good at paying attention to whether trends are in or out, I end up just liking what I like, not knowing/ wanting to know if it's in or out.)

"Suzani is a type of embroidered decorative tribal textile made in certain Central Asian countries.  Suzani comes from the Persian word "suzan" which means needle.  Popular design motifs include sun and moon disks, flowers, leaves and vines, fruits (especially pomegranates), and occasional fish and birds.  The oldest surviving suzanis are from the late 18th and early 19th centuries, but it seems likely that they were in use long before that. " (info via wikipedia)  It entails stitching one fabric on top of another groundcloth.

I've always been a bit foggy about the difference between suzanis and crewelwork designs so I looked into it.

Here's a close-up of a crewelwork pillow used by Peter Dunham:

... In this dining area I mentioned last week:

{Design by Peter Dunham featured in House Beautiful}

Crewelwork is an embroidery technique that is at least a thousand years old and suzanis are just type of textile that are created using crewelwork.  (Other crewelwork textiles include Jacobean embroidery & Quaker Tapestry and the list goes on & on.)

Crwelwork runs gamut from Traditional English textiles to Eastern Tribal textiles.

Anyway, one of the most common suzani themes is the medallions/ discs...

Here's another of my favorite spaces using a suzani layered over a settee paired with a (gorgeous!!) framed antique ikat.  (Again, I love the layering of the piece behind the settee.)  This was the first photo I saw (in March of 2009) that really piqued my interest in suzanis.

{Anne Becker's apartment featured in Elle Decor}

Here are some rooms featuring suzanis in unique ways.  Here it's used as a room divider:

{From Domino via}

I love the fresh pink & aqua scheme & it's used as a rug:

{Elle Decor}

They are particularly gorgeous framed:

{IMage via In Every Corner}

And I love them layered on beds:

{Domino via Little Green Notebook}

..And one last picture of a suzani as a hanging tapestry:

{Image via Laura U}

Hope you're having a great week!  (This is my husband's last week of school- yay!!!)  Also, thanks so much for all of the sweet comments about the Home & Design feature.  I really apreciate it!!

For some more posts on suzanis, check out:
Cote de Texas- Written in '07 with serious detail & sources
Little Green Notebook - has some great framing ideas & sources for purchasing

xoxo, Lauren

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