The 20-city slice of the S&P/Case-Shiller Home Price index recorded a drop of 0.6% from March to April, compared with a 2.2% drop in the prior month. The index has declined every month since July 2006.

The problem is, as Seattle Bubble is fond of pointing out, there’s normally a bump in housing prices from March to April due to the seasonality of home sales.

A more fair comparison would be comparing the year-over-year price changes from March and April. The Wall Street Journal reports that the 20-city index reported a year-over-year decline of 18.7% in March, and The New York Times reports that the 20-city index reported a year-over-year decline of 18.1% in April.

The numbers CNN reports sound as though we saw a 72% improvement, but once you remove the seasonality and look at the year-over-year numbers, the improvement is only 3.2% better. That’s quite a difference.

And in either case we’re looking at a second-derivative number here: the change in the rate of decline. We’re still talking about a very significant decline, which appears to be ongoing. Even if we see a few months of positive changes, Japan saw several multi-month periods of positive improvement in their housing market before it bottomed out.

You didn’t need the CDSes to get from “mortgages are safe” to chaos. You needed three other things, which we had:

Mortgage-backed securities, which you note above as a critical part of the problem. You’re right that decoupling the investment from the people making the mortgage broke responsibility, and encouraged people to make irresponsible loans — but the thinking of the purchasers of the mortgage-backed securities ends up being equally relevant.

The thinking there was exactly the same as what happened with junk bonds in the eighties — the notion at that time (which was mathematically demonstrated — hold that point) was that one junk bond was unsafe, because of the chance of default — but that a large, diversified portfolio of junk bonds was safe, because the chance of many simultaneous defaults was low (it had never happened before) and the return on the portfolio was, even accounting for defaults, still higher than safer, higher-rated corporate bonds alone or in portfolio.

The real problem with CDSes — although you describe them as insurance above, they were really bets — because you didn’t need to hold the securities being insured. That’s right, if I had one set of mortgage-backed securities there was no limit to the amount of insurance being written on each of those securities. The problem wasn’t that AIG was ‘insuring’ these — the problem was that they had “backed” their insurance with CDSes with other third parties. (There’s a great This American Life about this, “The Giant Pool of Money,” that explains the whole thing.) See, AIG would have been fine, and would have been able to pay everyone off — except that Lehman collapsed and was allowed to go bankrupt, so all of these hedges they set up lost one side. AIG had insured themselves to cover their costs — but then the people insuring them vanished, or possibly vanished — and with that, lots of money.

Which brings up the second problem: modern capitalism’s engine isn’t just “making money” it’s *growth*. And not just the growth in absolute dollars being made, but growth of the profit margin as a percentage of expenses. (This point goes all the way back to Adam Smith’s “The Wealth of Nations,” so it shouldn’t be news to anyone.)

This is what drove the boom in both MBSes and CDSes. Institutional investors liked the high rate of return on MBSes (because they were like junk bonds, see above), and so the financial industry needed to originate more mortgages, which is what really led to all of the risky mortgages being made — because there weren’t enough high-quality mortgages to be had. Similarly, if you hedged your CDS, it appeared to be a completely safe investment (because the insurance you made was insured by someone else, so if you had to pay out you could be reimbursed for that expense) that still made good money (because the rate you were charging for insurance was less than the rate you were paying for it). So this need for growth drove both crappy mortgages and a giant web of CDSes that nobody could untangle.

This brings us to the final problem: a failure of modeling. There were so many CDSes going on — the NPR program (or its sequel, “Another Frightening Show About the Economy”) claimed something like 40 CDSes for each mortgage-backed security being traded — that nobody could understand what would happen if any of the parties disappeared. Even now that this trade is in the midst of unwinding, nobody is still sure what anybody else owes on any of those deals, or to whom. It sounds crazy, but literally nobody can figure out what anybody owes.

Still, that’s a minor failure of modeling (even though it’s the proximate cause of AIG’s collapse in the wake of Lehman being allowed to fail) compared with several others that contributed more significantly to the economic collapse.

A more significant failure of modeling was the “junk bond” thinking — that because something had never happened before it was unlikely to happen at all, and because the risk had been measured it had been managed. (See Michael Lewis’ NYT Magazine cover story from the other week for more on risk modeling.) But the “extremely unlikely” event of course occurred and took everything out.

Here’s the thing, though — in the long term, the unlikely is sure to occur. But people’s time horizons have been dramatically compressed. A typical Wall Street career is less than two decades — that’s not really a complete business cycle. You’d need to work on the street thirty years to work all parts of a “normal” business cycle, and longer than that to apply what you learned the first time around. So virtually nobody has instincts developed during their career that apply to whatever’s happening.

It’s worse in this case, because the investments being made are themselves less than two decades old — so there’s no historical data to understand or compare against. You see graphs of these things that go back ten or fifteen years to inception, and you wonder how they could possibly make any judgments about them based on a time with only a pair of unusually shallow recessions — the 1991 and 2001 recessions — where the market in the damn things didn’t really take off until 2002 or thereabouts anyway.

Even my Grandfather, who is over 80 and still works on Wall Street, has been overly optimistic — because he’s never seen anything that terrible. The Great Depression was when he was a child, and so his “long term” view of the stock market is still little more than half a century, less than sixty years — not long enough for “long term” trends to be experienced, let alone analyzed. (Of course, the “long term” view doesn’t help make money in the short term, and is thus not particularly conducive to a successful Wall Street career.)

Of course, the same failure of modeling impacted the people justifying even the riskiest loans as safe — because none of those people had ever worked in an economy where house prices ever went down. I can’t remember if it’s Case or Schiller, but one of them went back and basically demonstrated that housing prices in the 20th century were effectively flat, once you corrected for inflation and improvements to the properties themselves. But that stopped in 1995 or so, and suddenly the market went up.

Of course, almost everyone working in housing as a mortgage broker, or real estate agent, or representing an institutional investor has started since then — or at least since the last significant real estate crashes in the late eighties. (Most people who were in the industry at that time left and never came back.) So everyone’s personal experience says that the housing market only goes up — opening the road to unlimited refinancing, or in the worst case selling and making some money. In a world where real estate only goes up, it’s hard to end up underwater on the investment.

Which brings us to the banks, which aren’t making any loans to anybody, pretty much, because they don’t know the value of the investments they’re holding. Since they can lend out only X dollars for every dollar they have in reserve without being shut down by the FDIC, the number of dollars they have in reserve is critical. But they were using the collateral on mortgages (i.e., houses and other properties) as a very significant fraction of that reserve — so as long as the reserve keeps shrinking, the amount of money that they can lend at any time keeps dropping. Until the housing market stops dropping, nobody knows how much they can safely lend — so the amount that they feel they can lend approaches zero. Bailout money is being used to slow the rate of reserve shrinkage to cover what they’ve already got outstanding in terms of loans, to avoid falling below capital requirements.

Anyway, why should banks lend any money until the value of the assets they’re lending for stop shrinking? Nobody in their right mind will pay a mortgage on which they’re substantially underwater, so loans on houses are pretty risky right about now.

Banks not lending for housing is pretty disastrous, since basically all of the job growth since the end of the 2001 recession has been in housing-related industries (mortgages, construction, furnishing, etc).

As a result, banks acting rationally is putting people out of work, which further depresses the economy and with it the housing market. Ugh. Nothing’s going to improve until housing prices stop falling, and nobody has any idea of when that will be.

So while the problem may have been kicked off by “everyone behaving like children playing with Monopoly money,” the problem now is that everyone is acting like a grown-up — only our economy was never built for people to do that…

If you see any more spam here, please let me know.

In other Spam-related news, I’m learning Python so I can contribute patches to existing software at work, rather than just poke around the edges by writing little Perl scripts here and there. Not that my job officially involves writing software, but sometimes it’s the most straightforward path to a solution. I’m about halfway though Learning Python and it’s going pretty well so far. I’m taking a break from the book to rewrite one of my aforementioned peripheral scripts, as a learning exercise.

First, I’ve gone into positive territory on my royalties for Think Unix. Yes, after nearly eight and a half years I’ve earned back my advance, and am now owed approximately three dollars seventy-five cents by the publisher.

I’m exceedingly pleased that people continue to read and purchase this book, and that except for the two chapters on Unix GUIs the book has remained useful. I wanted to write an “evergreen,” and I feel like I succeeded. Not that I couldn’t improve the book, or that there aren’t things I wish I’d done better, but I think I did pretty well.

Second, I’m pleased to announce that a short story of mine is being published. I’ve waited until the magazine was printed and ready to go, as I’ve had things fall through in the past – but you can buy issue one of The Ne’er-Do-Well Magazine, which contains my short story “Lodestar.”

If you’ve read previous versions of this story, I’d encourage you to buy the magazine and re-read it, as it’s been substantially revised. Sheila, the editor, is exceedingly perceptive, and her input did the story a lot of good. I’m looking forward to my copy arriving, and reading the rest of the pieces too.

As a teaser, an unrelated short-short, I still get pictures from him sometimes is on the magazine’s site, along with short-shorts from other contributors.

This is probably true even when you’re both stubborn and technically correct: standard is better than better.

For a man with a collection of seven hundred CDs, give or take, that’s a startling reduction in the amount of music I’m buying. And it’s not as though I spent this year delving deep into my archives and playing a lot more music from there, either.

Most of my music-playing came via iPod while on airplanes.  And even then, I probably listened to more non-musical podcasts than I listened to music.

So what gives?

In part, it’s a question of resources, I think; in part, it’s a question of what I want from music versus what I used to want from music.

Second part first: when I was younger, music served an important emotional role in my life. I often felt things through music, and enhanced my experience by adding music, to add a desired emotional effect. I don’t do that any more. Perhaps my emotional repertoire is wide enough now that I don’t need to do this, or perhaps I’m settling for less emotional range in my life.

Now when I’m exposed to music, I usually want to expand my experience of the world in other ways. Either to learn about people in ways that other methods just can’t reach, or just to experience new sounds.

But both of those take work. When I read the Slate piece, and I think about Lil Wayne, I’m fascinated. When I’ve gone onto YouTube to check out some of his videos, I’m impressed. But did I buy his album? Nope. Because listening to it would require careful listening — it’s something I’m not primed to understand already, and it’s an encounter with something beyond my comfort zone.  Which is good. It’s what I want music to be.

But here come the resource limitations. Of course, there’s the question of what I’m happy to spend money on these days (not music or computers, but groceries, books, scuba diving, and travel), but the more important resources are time and attention.

You might have noticed I’m not posting here, or elsewhere, as much as I used to. Sad to say, my mental and physical energy is being expended elsewhere. Much of that is on work, keeping me not just employed but professionally engaged at all levels. Some of it’s on other projects: writing and editing on my own, moving, cooking, spending time with Laura. And at the end of the day, I don’t have the time or energy to engage as deeply with the unfamiliar as I require of myself when listening to music.

I could just buy up everything that sounds like what I already like, and use it as sonic wallpaper, but it would be distracting. I have enough sonic wallpaper in my collection that it would be a waste of money to spend more on that.

So instead I don’t listen, and encounter new things in other ways. It’s a loss, but it also seems to be a reasonable response to my limited psychological, emotional, and temporal resources.

And yes, I do plan on posting more soon. Or soonish, anyway. I Have A Plan. (Then again, I always seem to have a plan…)

1. Kenny Rogers seems to exist in a sort of irony-gap or retro-gap, where it’s not quite possible to enjoy it ironically based on its perceived badness, nor good enough to listen to sincerely. If anyone is left who does listen to Kenny Rogers with great sincerity, they’re undoubtedly not the kind of snob who still digs listening to records.
2. When I listened to the song “The Gambler” as a kid, it wasn’t lost on me that it was supposed to be a metaphor for how to live. But thinking about the song recently, I realized that they’re not even playing cards at the beginning, just sitting on a train in the dark — but the narrator is still, in the eyes of the gambler, “out of aces.” So he’s only out of aces metaphorically, not literally.
3. On my copy of Kenny Roger’s Greatest Hits, I always misheard the words to “Lucille.” Even as a kid, I was pretty sure that “four hundred children” was too many.

I think it’s really very good when people reconsider the things they’ve said in conversation. My goodness, you can still find things I wrote on the Internet ten or fifteen years ago, and I certainly don’t think all of the same things now. I think that the evolution of personal viewpoints is normal, and healthy, and should be welcome.

However, I think it’s really bad when you pretend not to have said the things that you previously did. To enforce this kind of ex post facto internal consistency is dishonest. Maybe not to-the-core dishonest, but certainly untrustworthy, and in general not the kind of conversational partner I want to have.

I think that de-publishing is much closer to (but not the same as) pretending you never said something than it is to reconsidering previous viewpoints. It does strike me as uncomfortably Orwellian, even if it is a private group doing it, rather than the government. I mean, how would people feel if the New York Times decided to remove every mention of Monica Lewinsky from their archive due to poor behavior on her part? If Warren Ellis is right, and Cory and Xeni are the “cut and paste editors of the Internet,” then it matters, regardless of whether that job was thrust upon them or one that they willingly embraced.

Finally, wading through blog comments on this whole issue reminds me why it’s a good thing to keep your conversations small in the first place.

But I think Mr. Ellis, who I hold in the highest esteem, misses something: link curation is a type of collage, which comes from the French word coller, meaning “to paste.” So when he writes, “Cory and Xeni [of Boing Boing] are the copy/paste editors for the internet,” he’s actually describing what they do as collage.

Linkblogging is only one kind of collage, or more broadly assemblage, which some people have begun to think of as art. We all know, or have been, that guy who thinks that his mix tapes are art, or his DJing is art, or that his mashups and submissions to I can has cheezburger? are art.

And maybe they are. I don’t want to be in the business of telling people what is or isn’t art. But then, if all collage, all “remix culture” is art, so is wearing the right combination of designer clothes (wardrobe design, not fashion design), stuffing your house full of the right stuff (interior furnishing, not interior design), and listening to the right bands are art. Because you’re assembling them, transforming them into something new through combination and personalization. And I don’t want to go down that road, myself: consumption and self-selection through purchasing aren’t art, at least not to me.

So if these things aren’t art, or are art only incidentally, what is their primary function?

The astute reader will guess my assertion by checking my post title: I think these things are a conversation, an ongoing conversation.

Now, conversation absolutely can be cultural production in the Warren Ellis-approved sense: good book reviews, or film reviews, are part of a conversation between the author or filmmaker, the critic, other critics, and the reader or viewer. Mixtapes achieve their power through comparison and contrast, reinforcement and juxtaposition. The best LOLcats, as Anil Dash has argued, achieve their power through a consistent grammar of repetition and variation changing through time. Isn’t that just a fancy way of describing a conversation?

This is one reason that blogs with comments seemed to be the thing just a little while ago. I remember, at the one Seattle Bloggers meetup I can recall attending, that Robert Scoble criticized my metablog design for not making comments obvious. I felt, and still feel, that the best response to a blog post isn’t a comment but another blog post. Now Scoble says that blog comments are dead. I can’t figure out if I’m on the bleeding edge, or so far back that I only look like I’m in the race. (Or maybe the universe wraps around on itself, and I am so far back that I’m in first place. Or vice-versa.)

In the end, it might be nice to separate the web into content and remixed indices to that content, but I don’t think that’s going to happen. I think we’re going to keep surfing the wave of remix culture for some time to come, and that the waves will be made of old and new alike. Sorry Warren, the linkblog is probably here to stay, at least for a while.

In other words, if I magically end up with a couple of extra hours one night in New York, I’d love to see this. (Aw, crap, it ends on the 13th, several days before I make it to New York.  Maybe I come down from Connecticut over the weekend? Anyone in New York want to see this next Friday night?)