The MOAB, in narative form

Alright, I promise some really special and original pie recipes for everyone who's had to put up with this. Heck, I think I have few enough readers I can send you all baked goods if you ask (radio stations bribe their audience, why can't I?).

So, in narrative form, how the banking crisis happened, and how the MOAB just might fix it:

Step 1)
Anytown USA, late 2006:
Bob and Sally move into Anytown USA and buy a house in a new subdivision on 10th Street. Everyone is happy, because they used their $70k combined income at Pie Widget Maker to get a mortgage for $250k on a house that the previous owner bought 5yrs ago for $200k. Anytown Bank, which originated their loan, also issued a couple dozen other loans, effectively depleting the $10m it was allowed to make based on its $1m in deposits and capital. However, Anytown is growing like a weed, and needs someone to offer more loans so that people can buy the new houses being built on 11th Street. So Anytown Bank (AB) offers Wall Street Bank (WSB) the income from $500k these loans if WSB will just give AB the cash value of the loans plus a small fee, with a promise that AB will make WSB whole if the mortgages foreclose and the value of the homes goes down. AB can't find well qualified buyers for the houses on 11th street, but decides to offer "sub-prime" mortgages, fully expecting them to refinance into standard mortgages or sell before anything goes wrong.

Step 2)
Anytown USA, late 2007/early 2008:
Something went wrong. The people who bought up the properties on 11th street were not able to turn their widget-sales jobs into something that would justify owning $250k homes. Also, the market was finally saturated, and no one wanted to move to 11th ST because housing and gasoline had become too expensive to justify the long commute to Main Street. In the meantime, Pie Widget Maker, a small company on Main Street that employs Bob and Sally, begins developing the SuperCrust Widget.


Step 3)
Anytown USA, Sept/Oct 2008:
The subprime security issued by AB and held by WSB blew up in both of their faces. WSB had taken it and sold shares in that income to many customers, along with insurance policies in case the subprime holders or AB defaulted, only to discover that the insurance company didn't have enough assets (this is what brought down Fannie/Freddie and AIG). AB was forced to bring all of it's mortgage backed securities "on balance sheet", meaning that instead of having a fresh $10m to loan, it has to hope that the securities it issued haven't lost more than $1m, or the bank becomes insolvent (kickin' it WaMu-style, in other words). The SuperCrust Widget, incidentally, was a big hit at the Pie Convention, and Main Street's biggest employer needs $300k for the machine and materials to make enough to satisfy its customers. Sadly, AB can't issue any loans because its capital, which should have been freed up by securitization, is instead being held hostage by the threat of defaulting on its obligations.

So, what are the subprime houses on 11th St worth? How about the houses on 10th St, where Sally and Bob are working hard to pay their mortgage? Because of new accounting rules, AB is required to "mark to market", express how much capital is has relative to obligations, which means AB's accountants need to pick a number. If they pick one that's too high, they will be accused of fraud. To low, and the bank goes WaMu.

Everyone knows that the $250k houses on 10th St are beyond the means of all but the president of Pie Widget Maker, who sensibly lives on 1st St in a small house. If AB was able to sell half of the foreclosed homes for $100k, does that mean all of its securities are worth 40% of their original value? If the median income of Widget Stampers is $35k, then a pair of them ought to be able to afford $210K, implying that the homes are worth 84%.

The answer to that question, then, really lies with Pie Widget Maker. If they can get their new machine up and going, they can hire, say, six more Widget Stampers. If they can't get the loan for the new machine, then they will only be able to pay their existing Widget Stampers like Bob and Sally for as long as the current product lines and production facilities last, in which case any property in Anytown is basically worthless in the long run.

So, if the Treasury Department steps in and buys up the securities issued by AB at a price that leaves them alive and able to lend a little, this story has a happy ending. The new Widget Stampers move into homes on 11th ST, and in turn justify opening a 24hr Pie House there, which employs a couple more people, and so on. Housing prices stabilize after falling a bit more, and the Treasury Dept. can sell the securities on once someone is willing pay a good price for them. By taking an equity stake in AB, they heartily discourage risk, and make sure the next shareholder's meeting includes plans to avoid exposing the bank to that kind of risk again. In the end, the equity (stock) in AB and mortgage-backed securities will be sold by the Treasury, in this case at a tidy little profit.

Conclusion:
We will not avoid a couple years of hard times. No matter what, some businesses and banks will fail. My favorite thing about the Paulson plan is that its relatively small magnitude will most heavily favor smaller banks with fewer shareholders (and thus less resistance to dilution of shares) that can turn around and make small business loans. We need this to happen, and we need to do things to encourage production rather than consumption. Markets, like people, can be irrational, and the most rational thing to do now is help everyone settle down. Pain will come, but it need not be a collapse.

My flip-flop: Go Hank Go!

As mentioned below, I think that it's important to be willing to change one's mind as evidence emerges about what shapes one's opinions. In my case, I can now offer tentative support to the Bernanke/Paulson plan. A few key points:

(1) Mortgages have had the implicit backing of the government since the 1930's. Specifically, the mortgage-interest tax credit substantially reduced the cost of borrowing, and so there was huge incentive in the tax code to move unsecured debt into the mortgage market. Thus, the US voters helped caused the problem, and profited via much the same mechanism of leverage as the Wall Street banks.

(2) The $700billion will not all be spent at once, and as long as the Treasury takes an equity stake, it will not cost $700billion in the long term. The equity stake rule will keep some banks away, but after WaMu's failure, shareholders faced with insolvency or dilution will probably choose dilution. For banks that don't, the vulture capital is more likely to clean up the mess if they know other members of the sector are stable.

(3) The Great Depression did not turn around until the gov't bought bad loans from banks and helped convince people to start investing in small endeavors again (this is very pro-pie).

(4) This effort will not be able to restore 2005, and as long as the money is doled out slowly shouldn't have too much effect on inflation. Especially since there will be a general recession over the next year or so as our credit-fueled retail economy winds down and housing returns to price levels that the median wage earner can afford.

The Republican Caucus should be allocated enough money to build themselves a woodshed to take each other out behind. Their "insurance plan" basically tries to get the US governement involved in the industry that brought down AIG and which Berkshire Hathaway won't touch. If we knew what these were worth, then maybe, but the problem is that we don't. The "insurance plan" is exactly the transfer of wealth from taxpayers to Wall Street that the Hank Plan looked like at first.

Incidentally, the Democrats should use the woodshed until they learn not to pass their highly inflationary "stimulus" legislation. We need public works in this country, not an unemployment dole.

MOAB Haiku

The Mother Of All Bailouts (MOAB, an acronym more commonly used for large fuel-air bombs) inspires me to write poetry:

Please take equity
if toxic paper you buy
forget exec pay

Calculating PMCIN

While Pie Making Capacity In Nation (PMCIN) is an interesting idea, it's still half-baked. Statistics can tell you anything if you torture them enough, and we could easily manipulate this measure to be essentially another version of gross domestic product (GDP) or to promote outright communism.

The key is the assumptions about what constitutes pie making capacity. Here, I will assume the maximum personal input estimate (PIE) is 1 per adult per week. Thus, the maximum PMCIN/wk, the default estimate, will be the population of the country.

The following is intended to be the minimum requirements for good pies. I know there's a technically savvy reader who's just itching to write scripts to grab these numbers and compute PMCIN on a daily basis.

Inedible contributions:
An oven and a counter top
Price: Average rent / 2 (assume 2 adults per household)
There's many sources for this, I'd like to average the first page of Craig's List "appartments/homes for rent" since that is the most open and accurate measurement tool.
(although gov't cost of living data is acceptable. Given that rent reflects actual cost of housing and mortgages are a mess, we'll only use rental prices for this statistic.)

Cooking implements:
Price: determined from an average of the 10 highest product rating results on Google Shopping, divided by 52, implying annual replacement
9" glass pie pan, 9 1/2" pie pan, 18" rolling pin, 1 set glass mixing bowls, 1 set measuring cups, 1 2cup glass measuring cup, 1 large cookie sheet, 1 set measuring spoons, pie bird,

Consumables:
Pie and Policy believes in seasonally appropriate cooking, and so will use a "basket" of three pies to determine the cost of a pie with seasonally appropriate filling. This also allows us to use in-season farmer's market costs, thus increasing PMCIN.

However, I will only use a basic crust, since the ingredients reflect the costs of making other types of crusts, and these don't tend to change with seasons. I'll also assume a double crust.
3 cups flour (.3lb, so 1/15th of a five lb bag)
1/2 cup unsalted butter (1 stick, divide package cost by 4)
1t salt (call it 1/60th of a 26oz package)
1T sugar (call it 1/100th of a 5lb package)

The rest, as I said, depends on the season and the farmer's market. I will start keeping a record of the cost of my fillings, and then annualize them. A good starting assumption, though, is roughly $6.oo/pie. That's at the high end, and I'll give more accurate numbers with future recipes.

A brief comment on the Mother of All Bailouts

The world probably doesn't need another blog post about the current crisis and the possible "mother of all bailouts".  There is, however, no more pressing issue in policy today, and so I would be remiss not to say something.  Briefly, Sec. Paulson has said that instead of just putting band aids everywhere, we need a comprehensive solution.  However, his $700billion request, on top of the ~$200billion that Treasury has paid out and I think ~$600billion that the Fed has loaned have done nothing except prolong the day of reckoning.  The $62trillion dollar, completely unregulated market for credit derivatives grew when nearly everyone either repaid their loans or sold collateral at a profit.  This new federal money, like all that before it, will be swallowed up without a burp, much like the "economic stimulus" checks from earlier this year.  

Meanwhile, it does nothing to address the cause of the crisis, which is the unsustainable mode of credit-fueled living in this country.  If the problem is that people cannot pay their mortgages, how does buying securities so that banks out can issue new ones solve the problem?  Housing, by any historical standard, still has about 10% to fall in most cities before it's affordable to the median wage earner.  Many of the credit derivatives that are just now getting attention are based on loans to retailers, and will turn sour if spending this Christmas does not increase substantially over last year.  We are, in short, screwed no matter how much debt King Hank leaves us.  I leave you with a brief haiku:

Since collapse it must

Let us get on with it

Fix bridges not banks

hooray for flip-floppers!

I'm trying to maintain a roughly 1:1 ratio of pie recipes to policy posts. This isn't about any particular policy, but then the last recipe wasn't a pie. Consider this little morsel a byproduct of policy debates.

The motivation is this: a friend posted a rather partisan castigation of the American voting public on Facebook. The reply thread was hotly partisan, and her next post was effectively an apology for letting people know what her opinions are, because "I won't change mine and you won't change yours."

This, I believe, is exactly the problem with political "debate" today. One of the reasons Pie and Policy exists is to provide a way of evaluating the impacts various policies have on a quirky (but delicious) measure of sustainable prosperity. I hope for vigorous debates about things like taxes, regulations and lattice-vs. crumb- toppings. At all times, please try to keep focused on the (hopefully) shared goal of making the world tastier.

And please, give politicians a break if they change their minds. The world is a rapidly changing place, and being willing to adapt intelligently is much better than staying the course at all costs. As long as you can agree with the reason for the change, it isn't a bad thing.

*Apple Peel and Peanut Butter Oatmeal

This isn't a pie, but it makes use of the byproducts of one.  

Ingredients:

For overnight soaking:

Peels and core bits (remove stems and seeds) of a pie's worth of apples

1T lemon juice

Enough water to cover the apple bits

For breakfast:

The peel mixture

2 cup water

1 cup old fashioned oats (quick works too)

1/4 cup wheat germ

2T peanut butter

Proceedure:

While pie is baking:

(1) Chop the apple peel into tiny bits, remove the stems and seeds from the cores.  Place in a container, add lemon juice and just enough water to cover.  Refridgerate overnight.

The next morning:

(2) Combine peel mixture and 2 cups of water in a saucepan and bring to a boil.  Reduce heat and simmer about 10min.  

(3) Stir in oats and wheat germ, then increase heat a bit.  Cook according to oat package directions.  Stir frequently to prevent burning to the bottom.

(4) Turn off heat and stir in peanut butter. 

And, yes, when we open the Fuzzy Wups BBB&B (bed, breakfast, bakery and brewery), this will be on the menu in the fall, possibly with fresh ground cinnamon and nutmeg.  Suggestions are welcome.

Blackberry custard and soft apple pie

Alternative title: "Bear Stearns Rescue Pie", since it's a partial recipe of expensive ingredients backed up by a traditional apple pie made from sub-prime apples.  I'd make a Lehman Brother's pie, but I can't get past just baking an empty crust.  

Really, tho, this recipe came about because I loaned my deep dish pie pan to a couple who had just had a very cute and smart baby.  It had a lattice top cherry pie in it, but we couldn't find a time that worked for us to return it, especially since they went on a road trip a couple weeks later (yes, you did read that right, no, they didn't think it was flippin' insane).  In that time, I made a Blackberry Silk Pie, thinking it would go into a normal pan, but instead had about two cups left over since I only had standard 9" pans.  

This has kept remarkably well in the fridge since early August, but rather than push our luck, I thought I would try and get some milage out of the softer, less pie-worthy apples that came in the mixed 25lb (~11kg) bag I bought for $5.00.  The main problem with these is that they turn to mush in the oven, rather than holding the texture that is the key to good apple pies.  However, custard pies aren't supposed to have that texture, and the blackberry custard filling is very similar to some fruit dressings I've seen served with apples.  

Crust:

Basic flakey, or your favorite alternative pastry

Apple Filling:

5 cups apples, peeled and cored*

1T lemon juice

1/3 cup + 2T sugar

1T cornstarch

Custard filling:

~2/3 cup fresh blackberries (not the RIM type)

1/3 cup sugar

1 large egg at room temp

1T cornstarch

1 cup heavy cream

1/4t vanilla extract

(1) Combine berries and 1T of the sugar in a food processor and whirl until smooth, about ~30s.  In a medium bowl whisk eggs until frothy, add remaining sugar and cornstarch and blend well.  Thoroughly mix in cream, vanilla and berries.  Set aside.

(2) Roll out the pastry into a 13" circle, get it into a deep dish pie pan by your favorite method.  Place in freezer and preheat oven to 400F

(3) Mix the apples, 1/3 cup sugar and lemon juice together.  Let sit for ten minutes, then stir in cornstarch and 2T sugar.  Fold into chilled pie shell.

(4) Place the pie in the oven for 2omin, then remove and add the custard.  Reduce oven temp to 325 and return to the oven for ~40min, until the custard sets.  

(5) Cool in the refridgerator with a covering of tented Al foil

I'm writing this before I know how the pie turns out.  I'll leave a comment tomorrow one I've tasted it.

Where pie and policy meet

I'm a big fan of the Economist, in particular the "Leaders" section, because it contains insightful, well written commentary with clearly stated biases.  Calling itself the "mouthpiece of global capitalism", it's very clear that the editors are center-right social libertarians.  All of their writing has this "spin", because it is impossible for humans to express things both well and blandly.  Anyone who claims to be unbiased or speaking from a "no-spin-zone" is either delusional, dishonest or completely amoral (for instance, how does one have a "fair and balanced" discussion of torturing kittens when the words themselves are repulsive to anyone with a moral compass).   

In that vein, the following must be said now:  The pie recipes in this blog tend to favor a "cooking as resource enhancement" rather than "cooking as high art" approach.  The policy posts reflect my economically libertarian, environmentally cautious, socially liberal and fiscally conservative beliefs.  However, to try and avoid getting into very esoteric discussions of easy credit as regressive taxation or the impact of various tax policies on farm production, this blog will use pies as a rubric to determine whether or not a policy is good.  The central belief of this blog is that all people should have the means and time to make at least one homemade pie per week, all around the world, forever.  

With help from the comments, my goal is to develop a "pie making capacity in nation" (PMCIN, pronounced "pumpkin") index to look at how countries compare and how policy proposals influence the important things in life.  Good pie making requires a confluence of productive fruit, dairy and grain farms; reliable ovens accessible to everyone (i.e. affordable, quality housing); good quality bakeware and spices, and the small businesses to manufacture and sell them; a free and open press to promote the publication of recipes, even bad ones; and a populace with at least 2-4 hours per week of leisure time and the desire to be moving during it.  These in turn require a clean environment so that the farms can produce.  They are helped by marriages (or at least couples, or more, since we're equal opportunity here) that stay together, increasing the household PMCIN.  Labor laws that limit worker hours and improve safety increase PMCIN, but going too far with these and making it difficult to fire people hurts small businesses, reducing PMCIN.  Global warming is very destructive to fruit and grain production, particularly in the leading industrialized nations (negative Gr8-PMCIN?) and so anything that can help reduce it is good.  Easy consumer credit is bad, as it almost always in people having to work longer hours and have less disposable income, in addition to the fact that it is typically spent on anti-pie things like large televisions or cars.  Education leads to greater understanding of chemistry and history, and thus higher quality pies.  Starting families, businesses and farms requires the kind of stability that can only be ensured by an effective military, as anyone in Iraq or Georgia would be happy to tell you.  

Over the next few weeks I'd like to work on this half baked idea.  If you live close by, come on over, since I'm researching the requirements of an average PMCIN of 1pie/week by 1st hand experience, and the result is more than I should eat myself.  Ideas for pie-charts are also welcome.

-tba

Watermellon rind and dried fruit pie

I grew up in the desert southwest, and learned to view cooking as the fine art of salvaging food that was about to rot and grown in hard conditions. Capsaicin (the happy juice in chiles), for instance, is both a cheap high and a broad spectrum anti-microbial. Spicy foods both distract the eater from the quality of the ingredients and make it safe to eat. Refried beans is just cooked beans with the quickly rotting water replaced by slowly rotting fat. French onion soup is a combination of the last things to go bad on your average French farm. And so on.

Thus I was kind of shocked to read Ken's comments on selecting fresh, ripe fruit at its peak and baking it into pies as quickly as possible. I had long thought of pies as a way of preserving fruit, eeking out an extra week or so of edibility by coating it in sugar, itself a preservative in high concentrations, and heating it until everything died. This recipe is an adaptation of one of the few in Ken's book that seems to share this philosophy. Seriously, tho, you should buy Mr. Haedrich's book so I'm not the only one I know making these.

Before you begin, throw a large party and serve watermellon. Save the rinds.

Crust:
Basic flaky double crust

Filling:
3 cups watermellon rind, green part removed and chopped into squares
1/4 cup sugar
1/2 cup mixed dried fruits (no bananas)
1/2 cup chopped pecans
3T brown sugar
2T brown rice vinegar (cider might work better)
1/2 t cinnamon
1/2 t ground cloves
1/4 t nutmeg

Glaze:
1 egg
1 t sugar

Proceedure:

1) Recover from the hangover following the party. Watermelon daquaris are really good, but they tend to overstay their welcome. Rolling out a crust when you can't see straight is a bad idea.

2) Place the chopped rind and sugar in a saucepan, barely cover with water and bring to a boil. Let simmer 20min while you roll out the bottom crust and place it in a 9" pan. Once ready pour into a colander and let cool. Set the oven to 400F

3) Mix the filling ingredients in a bowl, turn into the pan, roll out the top crust and press it on.

4) Brush about half the egg over the top crust and sprinkle the sugar.

5) Place in the oven for 30min, rotate it 180deg and lower the temp to 375

6) Remove and let cool on a wire rack for 55min.

Normally, we don't eat half the pie the first night it's made, but we made an exception for this one. Also, since you can't split an egg, you might as well make two . . . (I made a pear pie as well, but that one came straight from Ken's book)

First post, and firing of the bazooka

Several folks have asked me about starting a blog after posting a couple pie recipes, and since I don't think I'll have enough original pie recipes to make this worth reading, I'll flesh it out with commentary on current events.

This is my take on the Freddie/Fannie take over and where this credit crisis is going:

Banking policy since the 1980s has made it far too easy to loan money,
and voters rewarded pols who encouraged this. I don't think any major
changes at the federal, state or local level followed the Savings and
Loan meltdown.

Thus, knowing that the federal goverment would reward those who made its
people feel rich (i.e. "live the American dream"), Freddie and Fannie
bought up pretty much all of the good mortgage debt and packaged it,
leaving only riskier stuff for private banks. The big Wall Street
firms got in on the act by packaging and reselling the crap, knowing
from history that the US taxpayers elect leaders who provide a backstop to the reckless providers of cheap capital (and therefore jobs). Underpinning this has been a worldwide desire to join the party, most notably in China, where cheap American credit has fueled double-digit export increases over the last twenty years.

The current crisis, however, may be game-changing:
http://www.iht.com/articles/2008/09/05/business/05yuan.php

I asked someone who does corporate finance for a living if this was
significant. The reply: "let's not go there." The current
generation of Chinese leaders knows that they rely on two pillars for
legitimacy: (1) nationalism and (2) prosperity. For now, and possibly
for a while yet, they don't have the military punch for serious
foreign adventures, which limits their ability to appeal to
nationalism, since that almost always requires a foreign enemy and occasional combat. The second requires a very robust export market, involving a weak yuan and percolating markets in the US. However, the lower level functionaries
and their managers, who make the place work on a day to day basis, are
apparently getting sick of roughly -10% return on investments they're
forced to make. Back in 2006 I think I wrote something to the effect
of a "death pact" that Sec. Paulson had signed with Chinese finance
ministry, one in which they would continue to loan us money we paid
them for stuff they made. Everyone survives as long as the mighty US
consumer is able to spend >100% of income. The wheels are now
officially off and we're entering uncharted territory.

Right now, both candidates are trying to sell plans to put the wheels
back on rather than buy a new car. I'll definitely give Obama a
slight edge in this debate, as one of the real problems is too much
money trying to find somewhere to get a return, and so pulling more
into the Treasury from top earners is fair. Beyond that, we need an expanded
export market ASAP, and anti-trade Dems ain't gonna get that done. Small businesses are bad for unions, and a lot of what I'm hearing about shoring up the housing market sounds distressingly similar to a planned economy.

We need to start producing things ourselves and stop asking for gov't help propping up our lifestyles. F. A. Hayek wrote a book about the other option.