Family Notes and Other Data (The Centrahoma Poltergeist)

I first learned about the contemporary "America's Talking Poltergeist" case upon reading Fortean Times magazine #79.  Below are two photos of family members as seen in the article.

From left: Bill and Maxine Mc Wethy, Twyla Bell Eller and her daughter Desireé

Megan 'Fae' Ward (right) and Desireé Eller



When I arrived in Oklahoma on Thursday, August 10, 1995, my plan had been to visit Maxine Mc Wethy and her family after getting settled at my hotel room; however, the drive from the airport to my hotel took longer than planned.  I was fatigued after the flights and had a headache (rare for me) so I arranged to join the family at the house in Centrahoma the next morning.  Here are the notes I wrote at the hotel in Ada that afternoon:

Aug 10th — arrived in Ada and spoke to Maxine and Marla/'Fay' to get directions to house . . . Fay mentioned that Spirit allowed Maxine to hold its hand.  When asked how often it speaks, Fay said it talks (non-stop) and sometimes you holler at it and it won't talk unless it wants to.  They indicated it didn't talk during the [TV] Special taping.  Reminder to myself — get flowers for Sat. funeral as Maxine's husband died of prostate cancer.  Agreed to visit them around 10:30 a.m.; hopefully, I won't get lost.  Get gas!

There were parallels with cases of 'talking poltergeists' from previous epochs, including the 19th Century 'Bell Witch' case and 1930s 'Gef the Talking Mongoose' case on the Isle of Man.  In addition to extensively tape recording my conversations at the Mc Wethy house, I noted in a small tablet the ages of interview participants, the names of diverse manifesting entities, and some of the dates of the timeline of strange events. 

Below are two previously unpublished snapshots taken during my investigation.  I was curious to investigate the attic of the family's home.  When I was alone with Twyla, we removed the panel covering to the attic and I discovered that there were wasps in the attic and the heat there was sweltering.  We both were startled when a small object dropped out of the empty attic.  Later while on a tour of the vicinity with Twyla, we were walking at the side of the road.  As I was preparing to take a photo, we heard what sounded like a rock strike the fence and then I snapped another photo.

 

The events of my research expedition are chronicled as the first portion of the case study Testament (1997).  On Monday, my last day in Oklahoma, I visited the Coal County Library in Coalgate and made some photocopies from the Coal County Historical Magazine book (1986), finding verification for some of the things I’d learned.  Centrahoma's former name of 'Owl' had taken its name from nearby Owl Creek, a branch of Leader Creek, a tributary to Clear Boggy River while "an estimated 150 million tons of coal lies untapped beneath the surface of Coal County, according to government estimates."  The name Oklahoma is Choctaw, meaning "home of the red man."

I then went to the Chickasaw Nation building in Ada to see what I could learn about the area’s native American lore and traditions, hoping to learn about indigenous spiritual beliefs and perhaps find parallels with other worldwide spiritual teachings and religions.  I was told that many native American beliefs weren’t routinely shared yet there were many reasons Christianity was easy to grasp among those who believed in Ababinili, the Great Spirit — ‘He who dwells above the heavens.’  I was instructed that not only was here a sacred creation story but the deceased Native Americans in the vicinity would be buried with personal items to signify the knowledge of the individual going on to another life.  A small reprint entitled "The Chickasaws" by Dr. A. M. Gibson related how the territory became under the control of the United States government.
 

By the end of the momentous trip I was already planning a potential screenplay and case study book; however, I had no idea of how my life was about to evolve upon returning to Los Angeles as the 'unexplained phenomena' continued to occur in my presence.  As I reflected upon my circumstances, I realized that 'Michael' had always been involved in my life just as with the life of each member of the Centrahoma family and all Earth people as an omnipresent spiritual Force that may be recognized through circumstances often expressed with such words as synchronicity, psychic phenomena, mediumship and trance channeling, healing, and 'electronic voice phenomena'/'instrumental transcommunication.'  I remained in touch with the family via occasional telephone calls and spoke to some other family members via telephone, including Jerry Bell in Texas.  By the time of my final calls to the family, I'd realized that their expectation of becoming "rich" (I'd been told Michael once stated he was going to make the family rich) probably was best interpreted as pertaining to 'spiritual wealth' — based upon incidents chronicled in other cases of transcendental communication.

Below are the photocopies I made of family notes they'd been encouraged to make.  Click on each page for a magnified view.  There are mentions of manifesting entities identified as "E.T.," "Katy," "Leader" and the predominant "Michael."

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Maxine's notes were kept on a small note pad.  One the back side of page 4 Maxine's actual first name "Reva" is noted, along with a phone number of a woman apparently associated with the TV show "Encounters."

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Maxine's previous husband Jearld Carlton Bell was the son of Ardrey Bell and Zona Leona Swatsell Bell.  Maxine mailed me photocopies of four pages of Bell ancestry notes missing the third page after I expressed an interest in learning if the lineage of the Oklahoma family could be found to be associated with that of the Tennessee family of the 19th Century 'Bell Witch' talking poltergeist case.  I contacted Maxine's cousin Peggy Watts (Tape #37, Side #1) in an attempt to obtain more information.

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Photographs and drawings document messages found by the family.  Two photographs show what on the back of the photos was noted to be: "Michael (Ghost) made this design with bird gravel."  The dates given were: "Dec., 1992 or Fed., 1993."

As explained in Testament, the 1993 cryptograms and Arabic message (shown below) were left in lipstick on a mirror and copied by Maxine.  The Fortean Times article mentioned that the family discovered one of the mirror drawings to be the astronomical sign for Saturn and quoted Twyla: "He says he's from Saturn.  And that he got left behind."

 

 

On my second day of interviews, I accompanied family members to attend the memorial graveside services for the man I'd heard discussed as 'Carlton Bell.'  Chronicled events during the first Bell family talking poltergeist case included the burial of family patriarch John Bell (1750-1820).

"In Memory"

 



Phillips art

The Wall Street Journal gets a prize for Art in Economics for their Phillips curve article. Abstract expressionist division, not contemporary realism, alas.

Source: Wall Street Journal

(For the uninitiated: There is supposed to be a stable negatively sloped curve here by which higher inflation comes with lower unemployment. Beyond that correlation, most policy economists read it as cause and effect, higher unemployment begets lower inflation and vice versa. The point of the article is how little reality conforms to that bedrock belief.)

Too much debt, part II

"China to flood economy with cash" reads today's WSJ headline. When you read the article, however, you find it's not quite true. China to flood economy with debt is more accurate.

The expected move to free up more funds for lending—by reducing the deposits banks must hold in reserve—is directly aimed at countering the effects of a weaker currency,

The People’s Bank of China’s latest planned move, which could come before the end of this month or early next month, would involve a half-percentage-point reduction in banks’ reserve-requirement ratio, potentially releasing 678 billion yuan ($106.2 billion) in funds for banks to make loans.

I had hoped the world learned this lesson in the financial crisis. Equity is great. When things go bad, shareholders lose value by prices falling, but they cannot run and the firm cannot fail if it does not pay equity holders.

Financial crises are always and everywhere about debt, especially short term debt. Lending more, encouraging more bank leverage, reducing reserves and margin requirements, means that when the downturn comes a needless wave of runs and defaults follows.

Inevitably, it seems, another downturn will come, another set of books will have been found to have been cooked, and then we will find out who lent too much money to whom. US investment banks, 2008, strike one. Greece, 2010, strike 2. China, 2015, strike 3? Do we no longer bother closing the barn doors even after the horse leaves?

This story should also give one pause about the wisdom of "macro-prudential" policy, by which wise central bankers are supposed to presciently open and close the spigots of leverage to manage asset prices.

The Centrahoma Poltergeist (Part 3)



This article presents the information published in the third part of "Centrahoma Story Filmed" from the June 14, 1995 issue of the Coalgate Record-Register with nothing changed or redacted.  Also quoted are some selected excerpts from  The Bell Witch: A Mysterious Spirit (1934) by Charles Bailey Bell — including the statement about a future Bell family member to whom the 'Spirit' "would make itself known."  Centrahoma's Maxine Mc Wethy was previously married to Jearld Carlton Bell (1935-1995) and several of her children have the 'Bell' surname.  

Centrahoma Story Filmed

by Wanda Utterback

 

Part three of a series of articles about paranormal activities which have occurred since 1990 at the home of Bill and Maxine McWethy in Centrahoma.  The story was filmed in May by LMNO Productions in Los Angeles and will air this summer or fall on an ABC special tentatively titled "Put to the Test."

LMNO was in Centrahoma for six days.  Along with a production staff of 20 to 25 people, the company brought in several specialists and over a quarter of a million dollars worth of high technology equipment from various parts of the United States.

Cameras equipped with night vision scopes and thermal imagine capabilities were set up in the McWethy home.  The thermal imaging equipment was "so sensitive that if you walk across a carpet, it will detect the heat in the footprints," said segment producer Paul Amirault.  The house was also wired with a "bionic ear" capable of hearing a voice a mile away.  Much of the equipment used by LMNO is used by Nassau, military forces and the FBI.  All movements and sounds were taped and monitored around the clock from inside an RV parked in the McWethy yard.

Segment co-producer Jonathan Rosen, who conducted most of the preliminary investigation on the McWethy story, said Monday from L A. that the tapes are now being edited and analyzed "with a fine tooth comb" to determine if anything unusual was captured on film.

Both Amirault and Rosen described several incidents that they personally experienced while they were in Centrahoma.  The incidents ranged from falling pennies and rocks to a closed bottle of Root Beer that suddenly "just shot up" and spewed over them, Twyla and her husband, Steve, when they were in a car one evening.

Amirault also told about having a sudden electric-like sensation that went up the back of his neck during a casual conversation inside the McWethy house.  Twyla was in the room, he said.

Both also said they heard what may have been "Michael's" voice.  Amirault described the sound as a "high pitched whistle—part cat and part owl."  He heard it, he said, when a friend of Twyla's was asking "Michael" who he (Amirault) was.  "It sounded very much like 'Paul,'" he said.  When Twyla's friend asked "Michael" if Paul was a nice guy, Amirault said it sounded like the voice said "yes."

Rosen said he heard the voice three times during his first visit to Centrahoma in April.  The first time was in the McWethy house.  "At first I thought it was a dove or something in the attic," he said.  "Then it got louder and sounded like it could be a cat."  The second time he heard it was when he, LMNO producer Kathy Williamson, Dr. David Thomas (head of the Psychology Department at the University of Oklahoma) and Twyla drove to the Centrahoma cemetery.

"At times it sounded like it was in the car, then at other times it sounded like it was coming from outside the car," Rosen stated.

He said he and Williamson distinctly heard a voice say "hurry" after Twyla announced she thought "Michael" wanted them to leave.  "He always tells us when it's time to go, because he knows when the bad ones are coming," Rosen quoted Twyla as saying.  He said he heard the "cat-like yowl" again inside an abandoned service station in Centrahoma.

LMNO owner and executive producer Eric Schotz said on his last day in Centrahoma that he did not observe anything eventful during the six days he spent in Centrahoma.

But that was okay, he said.  "We've accomplished what we came here to do, and that was to do a show on all these things that people say are happening and put them to the test."

"We've brought in a quarter to a half million dollars worth of equipment, 20 to 25 staff people including some local people who helped us as production assistants, and several experts.  The people that have seen and heard these things are not crazy.  I believe everyone who claims they have seen or heard things out here for the most part genuinely believe they saw and heard everything they say.

"I don't have the answer.  My observation is that the energy force—whatever it is—definitely centers around Twyla.  I'm not here to judge her as to what she has or has not done.  We won't be giving the answer as to what's happening.  What we hope to show are things that can be shown and said . . . without being invasive.  You see it at home and you make your own decision.  My job is to corral it all and to find out who is credible in the community and we've done that."

Schotz has been in television for 17 years.  "Behind Closed Doors" and the "Murphy Brown Special" are two of his works.  Although he said he had not put the pencil to the final figures, "Put to the Test" will cost several hundred thousand dollars to produce.

In addition to parapsychologist Barry Taff, whose interview with the Record-Register was published on May 31, the following experts were brought to Centrahoma by LMNO:

Peter Studebaker, a renown[ed] slight-of-hand expert from Dallas, TX.  According to LMNO executive producer Bill Paolantonio, Studebaker came as a skeptic.  "He looked at it from the viewpoint of whether it was a massive hoax, and if he was going to fool a lot of people, how would he do it.  He checked for trick ceilings, walls and mirrors and went into some of the ways it could be rigged.  The house is not rigged, and we have dispelled the hoax possibility.  Studebaker said he has no explanation for the manifestations."

Patrick Francks, hydrogeochemist, Norman, OK.  Francks tested the air, soil and water at the McWethy property.  Amirault stated on June 1 that all samples tested normal except that the ground contains an abnormally high level of iron ore.

"There's so much iron ore in the soil that magnets actually pick up the rocks," he said.  "Barry's theory is that it may be part of what makes these things happen—that the iron ore may be feeding it."

Dr. David Thomas, head of the Psychology Department at the University of Oklahoma.  Dr. Thomas either interviewed or observed every person who was interviewed by LMNO for the show.  Although he offered no personal opinion as to what the phenomena may be, he stated that "No one I've talked to is crazy.  They're all sane, and they believe they saw and heard what they claim.  I have no reason to believe otherwise."

Brian Tabor and Brett Traylor of Coalgate worked as production assistants during the filming of "Put to the Test."  Brian moved to Coalgate several months ago and has established a photography studio on Lafayette Street.  He is the grandson of James and Charlene Nelson.  Brett is the son of Doyle and Vickie Traylor and a 1995 graduate of Coalgate High School.

Dana Fleming, who co-hosted "The Home Show" with Gary Collins on ABC in 1990 and 1991, will host "Put to the Test."  She lives in Wichita, Kansas and commutes to L.A.  She is the mother of three children.

Unless there are further developments on the Centrahoma story, this article concludes the series.

 

At one point during the 1995 ABC Special "Ghosts, Mediums, Psychics: Put To The Test," Twyla is seen asking 'Michael' to throw a rock.  Although a rock struck a parked vehicle, an abrupt technical failure prevented video footage being recorded of the final moments of the incident.  At the conclusion of the segment, the interviewer is seen asking 'Michael' to show his presence and a coyote is heard to start howling in the distance. 

 

In The Bell Witch: A Mysterious Spirit (1934), Charles Bailey Bell wrote about his ancestry in the Preface of his book.  Charles was the son of Joel Thomas Bell and the grandson of John Bell Jr., whose family's experiences have been chronicled in books about the amazing 19th Century 'Bell Witch' haunting in Robertson County, Tennessee.  The details of the Spirit's discourses should be regarded as being the general recollection of transcendental communication heard by members of the Bell family and their acquaintances.  

 

John Bell Jr. (1793-1862) is among the sons and daughters of John and Lucy Bell, who married in 1782.  Twenty-two years later, the family moved from North Carolina to Robertson County, Tennessee.  Some 12 or 15 more years had passed when family members began experiencing an array of unexplained phenomena.  Author Charles Bailey Bell related "what was handed down to him by his father, Dr. T. J. Bell, he having the recollections of his father, John Bell Jr."  John Jr. is chronicled to have last heard from the Spirit in 1828.  Charles Bailey Bell reported:

 

The Spirit made its final departure from the home of John Jr., assuring him it would return in one hundred and seven years.

 

 

John Jr. instructed his son, J. T. Bell, that he was not to disclose what was said in his conferences with the Spirit, but to pass it on to his son and on to succeeding generations, until the time came when its publication would be of great value to the people of the country.

 

 

The Spirit assured John Bell Jr. that it would make itself known to a Bell descendent of his, as it did to him.

A Mysterious Spirit was published in anticipation of the year 1935.  What happened that year is the topic of a previous blog article.  Published in the seventh chapter of the book, John Bell Jr.'s recollections of the Spirit included recalled conversations with the disembodied voice about events in the lives of Napoleon and the emissary now known as 'Jesus Christ.'  Charles Bailey Bell attested that he found John Jr.'s recollections of the Spirit "the most interesting ever heard or written."  A culminating March 1828 conversation included perspectives of wars and other historical events.  Here are some excerpts.

 

"If Rome had been a follower of Jesus Christ nineteen hundred years ago, on to the date of the decline of their government, they would not have fallen.  Selfishness, licentious habits, oppression of the poor, the rich profiting on the suffering of the poor ultimately leads to the downfall of any country."
 

"America is an old country inhabited millions of years before your people ever heard of it by a superior race; they were destroyed to be succeeded by others; they underwent the hardships and struggles accompanying the building of a great civilization.  They had the wonderful buildings, great schools and mighty machinery that this era will acquire before it passes, but all that did not prevent their  destruction, along with all their worldly goods.  Their scientists told them of how long the world had stood; that it would not last forever, but so many millions of years that they need not think of it.  You are being told the facts—at the very height of their civilization, both North and South America were destroyed, likewise all inhabitable portions of the earth, and John, the largest portion was inhabited by a civilization far superior to any now on earth.  They were destroyed by a quavering and shaking of the earth, so mighty that where oceans had been, there became dry land; where valleys and beautiful fields had been, there became oceans; a general leveling, upheaval and change of the entire surface of the earth.  After all this came the other races, lower, yet they succeeded in becoming highly civilized.  It has always been a question to the world's inhabitants as to where they came from.  It is much more important as to where they are going.  Their stay will be longer there."

 

"Pontius Pilate permitted the crucifixion of Jesus Christ, knowing him to be innocent; those denying Christ are as sinful.  Pilate was a weakling, scared into the crime by the Jewish priests who were determined that Christ must die.  The high priest Caiaphas was the compelling influence; he knew of Pilate's fears for the safety of his political position, and when threatened to disclose to Tiberius the fact that Pilate personally wished Christ to go unpunished and did not wish to give him up to the priest, like most politicians would have done, Pilate gave him up to be crucified.  He knew the unrelenting character of those Jews who were opposed to Christ; he had generally given way to them, and now as the politician that he was, as a political expedient, he committed the never-to-be-forgotten heartless act of allowing Christ to be crucified for no other reason than to influence the priest to give a report to Tiberius favorable to himself.  Men should remember, when attempting to judge Jesus Christ, what became of Pontius Pilate.  Within a comparatively short time after the crucifixion Pilate was ordered to Rome to answer charges preferred against him by the Jews on other crimes.  Tiberius died before he arrived at Rome.  On account of the worry over his many crimes Pilate committed suicide." 

Centrahoma Cemetery 

 

abandoned service station in Centrahoma



Europa hat die Banken missbraucht

An editorial in Süddeutche Zeitung, on Greece, banks and the Euro, summarizing some recent blog posts.

I don't speak German, so I don't know how the translation went, but it sounds great to me:

Die jüngste Griechenland-Krise rückt das größte Strukturproblem des Euro in den Vordergrund: Unter dem Dach einer gemeinsamen Währung müssen Staaten genauso wie Firmen pleitegehen können. Banken müssen international offen sein, sie dürfen nicht vollgepackt sein mit den Schuldtiteln lokaler Regierungen. So war der Euro ursprünglich konzipiert. Leider haben Europas Politiker die erste Prämisse vergessen und sind zur zweiten gar nicht erst vorgedrungen. Jetzt ist es Zeit, beides in Angriff zu nehmen.... 

The English version:

Greek Lessons for a Healthy Euro

The most recent Greek crisis brings to the foreground the main structural problem of the euro: Under a common currency sovereigns must default just like corporations default. And banks must be open internationally, not stuffed with local governments’ debts.

This is how the euro was initially conceived. Alas, europe’s leaders forgot about the first and never got around to the second. It’s time to fix both.



If Volkswagen defaults on its debts and goes bankrupt, nobody dreams that it therefore has to leave the euro zone and start paying its workers in Volkswagen marks. In a currency union, governments cannot print their way out of trouble, so they are just like companies.

When Greece got in to trouble, the first bailout went to the German and French banks who had bought lots of Greek debt. Those debts were all transferred to official holders, meaning, indirectly the German taxpayer.

Why, with the 2008 financial crisis already in the rear view mirror, were European banks — too big to fail, apparently — allowed to load up on Greek debt, to the point that they had to be bailed out? Why did europe’s bank regulators let banks hold sovereign debt as a risk free asset?

The problem has only gotten worse. Greek banks are stuffed with Greek government debt. That’s why there was a run. Greeks, knowing their banks will fail if the government defaults, rush to get money out. They have stopped paying their mortgages, as they have stopped paying taxes, and stopped paying each other. The economy is plummeting. Even with the banks now supposedly open, capital controls remain in place so Greeks cannot pay for imports. And savvy Greeks know there is still a chance of Grexit, deal failure, depositor “bail-ins,” and tightened capital controls. They would be fools to put money back in banks.

A modern economy cannot function without banks. Greece will not restart its economy, restart its tax collections, and restart any hope of paying its debts without completely open and trustworthy banks.

Banking across Europe should be open, and divorced from local government debt. A Greek should be able to put his or her euros in a pan-european bank, whose assets are diversified across Europe and will not even hiccup if Greece’s government defaults. A Greek business should be able to borrow from the same bank, whose deposits come from all over Europe. If a Greek bank fails, any European bank should be able to come in and operate it the next morning. And the Greek government should have no right to grab deposits, force banks to buy its debts, or change the currency of those deposits.

If this had been the case, there would have been no run. The Greek economy would not have collapsed. And then Europe could have been a lot tougher with the Greek government about repayment.

This is how the United States works. When states and cities in the U.S. default — such as Detroit, Puerto Rico, or, possibly Illinois — there is no run on the banks, and banks do not fail or close. Why? Because nobody dreams that defaulting states or cities must secede from the dollar zone and invent a new currency.  State and city governments cannot force state banks to lend them money, and cannot grab or redenominate deposits. Americans can easily put money in Federally chartered, nationally diversified banks that are immune from state  and local government defaults.

As a result, when one of our state governments gets in fiscal trouble, nobody thinks they need to rush to their bank to get their money out, there is no “contagion,” and much less pressure for bailouts.

This was how the euro was supposed to be set up. Many economists have been warning about it for years. But governments like to use their banks as piggy banks, and it never happened.

Greece is not the end. Italian and Spanish banks are just as loaded up with their governments’ debts, and just as prone to a run. There is time to de-fuse this bomb slowly, but that time will run out.

Sovereign default without exit and open banking are the key requirements for the european currency union. A currency union does not need “fiscal union.” The US did not bail out the city of Detroit, or states when they failed. A currency union does not require similar economies. Panama uses the US dollar. A currency union does not need countries to have similar cultures, values, economic development, or productivity. A currency union does not need political union.  Europe used gold as the common currency for centuries, centuries when Kings defaulted frequently.

Many people say that small countries need their own currencies, so they can artfully devalue. But a century’s worth of devaluations and inflations did not produce a Greek growth miracle. There is no exchange rate at which Greece’s government workers will start exporting Porsches to Stuttgart.  Rather, it was binding themselves to the euro that produced a boom, only sadly wasted.

Greece off the euro will be a disaster. Drachmas will surely not be convertible, so Greece will end up like Cuba or Venezuela, with government workers and pensioners paid in worthless local currency, and everyone who can get paper euros operating on a cash basis.  No efficient large businesses can work in such an economy.  Greece’s only hope is to liberalize its economy, open to Europe, grow strongly, and pay back its debts.

The euro is a great and worthy project, and a necessary precursor to healthy open economies in small countries of a globalized world. It’s time to finish building it as originally conceived, not turn it into a bailout union.

Mr. Cochrane is a Senior Fellow of the Hoover Institution at Stanford University.

Greenspan for Capital

Alan Greenspan joins the high-capital banking club, in an intriguing FT editorial

If average bank capital in 2008 had been, say, 20 or even 30 per cent of assets (instead of the recent levels of 10 to 11 per cent), serial debt default contagion would arguably never have been triggered. Had Bear Stearns and Lehman Brothers continued as capital-conscious partnerships, a paradigm under which both thrived, they would probably still be in business. The objection to a capital requirement of 20 per cent or more, even when phased in over a series of years, is that it will suppress bank earnings and lending. History, however, suggests otherwise.

20 to 30 percent used to be the sort of thing one could not say in public without being branded some sort of nut.

Alan also echoes the main point. Banks need lots of regulators micromanaging their investment decisions, because taxpayers pick up the bag for their too-high debts. Banks with lots of capital do not need asset micro-regulation:

...An important collateral pay-off for higher equity in the years ahead could be a significant reduction in bank supervision and regulation.

Lawmakers and regulators, given elevated capital buffers, need to be far less concerned about the quality of the banks’ loan and securities portfolios since any losses would be absorbed by shareholders, not taxpayers. This would enable the Dodd-Frank Act on financial regulation of 2010 to be shelved, ending its potential to distort the markets — a potential seen in the recent decline in market liquidity and flexibility.

A double bravo.

However, to be honest, I have to nitpick a bit on what seems like the right answer for some of the wrong reasons.


Alan seems to argue that the rate of return to equity is independent of leverage:

Banks compete for equity capital against all other businesses....

In the wake of banking crises over the decades, rates of return on bank equity dipped but soon returned to their narrow range. ...

What makes the stability of banks’ rate of return since 1870 especially striking is the fact that the ratio of equity capital to assets was undergoing a significant contraction followed by a modest recovery. Bank equity as a percentage of assets, for example, declined from 36 per cent in 1870 to 7 per cent in 1950..Since then, the ratio has drifted up to today’s 11 per cent. 

So if history is any guide, a gradual rise in regulatory capital requirements as a percentage of assets (in the context of a continued stable rate of return on equity capital) will not suppress phased-in earnings..

There is an exam question in here: what seems wrong? Answer: Competition for equity capital should drive the risk adjusted rate of return for bank equity to be the same as for other businesses. If banks issue more capital, the raw rate of return to equity should decline. So should the variability (beta, risk) of that return. (Other things held constant, which may well be why the historical record is muddy.)

In fact, Alan seems precisely to be making the banks' argument. They claim that the return on equity capital is independent of leverage. They have to pay (say) 10% to shareholders, but only 1% to debt holders, so debt is a cheaper source of financing. Banks claim that forcing them to issue more expensive capital will force them to raise loan rates and strangle lending. Which, curiously, Alan seems to be endorsing. Though he starts with

The objection to a capital requirement of 20 per cent or more, even when phased in over a series of years, is that it will suppress bank earnings and lending. History, however, suggests otherwise.

He follows up with

...bank net income as a percentage of assets will be competitively pressed higher, as it has been in the past, just enough to offset the costs of higher equity requirements. Loan-to-deposit interest rate spreads will widen and/or non-interest earnings will increase.

Ok, so earnings may not be affected, but a rise in loan-to-deposit spreads is exactly what the banks are warning of, and it's hard to see how that would not "suppress bank lending."

All this only happens if investors demand the same return to equity no matter what leverage, and competition then forces banks to deliver that return. This proposition is precisely what advocates (such as myself) or more capital deny. Investors are not that dumb, they demand a competitive risk adjusted rate of return. More capitalized banks will deliver lower rates of return -- and equally lower risk. Bank "stock" will look very much like long term bonds and become the cornerstone of safe portfolios. So we get all of Greenspan's benefits and none of the downside.

Of course, this is just an editorial. He may have meant "risk adjusted" return, and was trying to simplify language.

The decline in long-term interest rates

Source: Council of Economic Advisers

Long term interest rates are trending down around the world. And it's not just since the great recession and financial crisis. The same trend has been going on for decades.

The Council of Economic Advisers just issued an excellent report surveying our understanding of this question. A blog post summary by Maury Obstfeld and Linda Tesar.

(Many other interesting CEA reports here. Occupational licensing is next on my in box.)

The report is really well done, for explaining the economic issues in clear simple terms, but without hesitating to use a model and an equation when necessary. If you're wondering how to keep your undergraduate or MBA class (heck, your PhD class) busy this week, this report will do the trick.

There is some grumbling in economics circles about the CEA and what role it should play, between Sunday morning talk show cheerleader for the Administration's policies vs. providing dispassionate  economic analysis to the Administration and country. This kind of report is the kind of CEA I cheer for.

I won't summarize the whole thing. Maury and Linda's blog post blog post does a great job of that, and you should just go read it. A few comments however.

1. Surprise surprise, the trend is a surprise. Hence, beware our current forecasts. This is not a criticism, it's just a fact. The best forecasts have been wrong in the past. They may well be wrong in the future.

2. Said: "The long-term interest rate is a central variable in the macroeconomy. A change in the long-term interest rate affects the value of accumulated savings, the cost of borrowing, the valuation of
investment projects, and the sustainability of fiscal deficits."

Unsaid: The surprise decline in long-term interest rates has been a boon to financing deficits. Current deficit forecasts use the current forecast of a return to higher interest rates. If this forecast is wrong once again, and real interest rates on government debt continue at rock-bottom levels, this will be a boon to "fiscal sustainability." Of course, the opposite is also true: If a trend nobody expected and everyone expects to reverse does reverse, then countries with big debts are in trouble.

3. The long term graph makes nicely a point that's been on the back of my mind lately. People typically assume that long term bonds should pay more then short term bonds, because they are riskier. But that's actually a puzzle: most bond investors hold their money for long periods of time, for which long term real bonds are less risky. It's hard, in fact, to get most term structure models to produce an upward-sloping yield curve.

It was not always so. In the 19th century, short term yields were consistently above long term yields.

The difference, of course, is inflation. In the 19th century we were on the gold standard, as noted in the graph. So long term bonds did not have inflation risk.  So, if inflation continues to die, or if our central banks go on a price level target, we might expect the same pattern to hold again. Which would be great for financial stability too. Short term debt causes runs and crises. If long term debt were cheaper, the inducement to finance short would be less.

4. Uncertainty. A message you read loudly between the lines is, that we have very good theoretical understanding of the various mechanisms that can move the trend in interest rates up or down, we (meaning "economic science") have really very little idea of the quantitative force of various mechanisms. By masterfully explaining each mechanism, and then patiently reviewing the vast literature that comes up with hugely different numbers for each mechanism, the point is made clearly, though between the lines.

They might go further. For example, the section on term premiums (the long rate is the average of expected future short rates plus a term premium) cites the latest studies and plots a line, but no standard error or other uncertainty band around that line. As this is an area I've written papers on, I know where the bodies are buried. Term premium estimates come down to forecasting regressions of future bond returns on current variables. Such regressions have huge bands of uncertainty. All forecasts and decompositions should have error bars. The only problem is artistic, as honest error bars would dwarf the forecasts. Well,  knowing what you don't know is real knowledge.

5. Forecasts. On p. 26, after this implicit devastating critique of the state of knowledge, "To illustrate our analyses, we illustrate different approaches to forecasting the long-term nominal interest rate, as is typically done twice a year in the CEA/OMB/Treasury Budget forecast and midsession review." A process for coming up with a number follows. Clearly, the message of the previous 25 pages is that conditioning decisions on a forecast, cranked out to two decimal places, is a bad idea. Economic policy should embrace uncertainty!

This is really a big deal. Much of the illusion of technocratic competence driving our regulatory state is reflected in absurdly accurate forecasts. The joke goes, we know economists have a sense of humor, because economists use decimal points. I'd love to see a Federal Forecast Accuracy Act: All forecasts made by every administrative agency shall include measures of forecast uncertainty. The CBO will evaluate all forecasts after the fact, and agencies shall be penalized when reality exceeds the stated uncertainty bounds more than half of the time.

6. The CEA ain't buying "secular stagnation," in its perpetual "lack of demand" interpretation.  (As a fact, it's undeniable. The question is the diagnosis and treatment.)  See p. 38.

7. In a report whose summary sections are  Fiscal, Monetary, and Foreign-Exchange Policies, Inflation Risk and the Term Premium, Private-sector Deleveraging, Lower Global Long-run Output and Productivity Growth, Shifting Demographics, The Global “Saving Glut”, Safe Asset Shortage, Secular Stagnation?, and Tail Risks and Fundamental Uncertainty, it is perhaps a bit petulant to complain of left-out factors but I will mention one.

The "supply side" part of the analysis is limited to productivity growth. Higher productivity growth leads to higher real interest rates in equilibrium, and (these days) vice versa. But it takes time and transition dynamics to accumulate capital.

One hypothesis that I learned from Larry Summers is that today's production function needs a lot less physical capital to produce the same productivity. A 1930s steel mill is a lot of accumulated savings. Facebook has nothing but a basketball court sized building full of 20-somethings coding while wearing headphones, and a really cool food court. The company is worth billions but it took comparatively little accumulated savings to start it up. If technology moves so that human, rather than physical capital is the heart of the K in F(K,L), productivity growth may determine interest rates in the long run, but there are lower interest rates on the transition path. Larry:

Ponder that the leading technological companies of this age—I think, for example, of Apple and Google— find themselves swimming in cash and facing the challenge of what to do with a very large cash hoard. Ponder the fact that WhatsApp has a greater market value than Sony, with next to no capital investment required to achieve it. Ponder the fact that it used to require tens of millions of dollars to start a significant new venture, and significant new ventures today are seeded with hundreds of thousands of dollars. All of this means reduced demand for investment, with consequences for equilibrium levels of interest rates.

(This is an update, thanks to email correspondent who found the quote.)

Update: Steve Williamson reminds us all that there is no "the" interest rate, and that the rate of return on capital is both stable and much higher than government bond yields. There is a risk premium, and it's big, and it varies over time. Practically all macro and growth theory forgets this fact. Since I've spent most of my career emphasizing the size and volatility of the risk premium, I should remember this reminder in every blog post. Thanks for pointing it out Steve!

The Centrahoma Poltergeist (Part 2)

This apparently is the photo mentioned in the June 7, 1995 newspaper article.  The child was photographed by her mother, Twyla Bell Eller, in Centrahoma, Oklahoma.  Click on photo for a magnified view.  

This article presents the information published in the second part of "Centrahoma Story Filmed" from the June 7, 1995 issue of the Coalgate Record-Register with nothing changed or redacted.  The setting for the mysterious events is the home of Bill and Maxine McWethy with strange occurrences also taking place in the vicinity.  While reading this article, I was reminded of a passage in The Bell Witch of Middle Tennessee (1930) by Harriet Parks Miller — one of several books offering eyewitness testimonials about the 19th Century 'Bell Witch' 'talking poltergeist' case.  A quotation found in Miller's report shows an understanding of the "invisible agency of tangible action" that wasn't so precisely explained in other published accounts of the Bell family's phenomenal experiences: "You know, as I've said before, I am anything and everything, here, there and everywhere.  Just now I'm the spirit of an early emigrant . . ."
 
 

Centrahoma Story Filmed

 by Wanda Utterback

Part two of a series about paranormal activities which have been occurring since 1990 at the home of Bill and Maxine McWethy in Centrahoma.  The story was filmed in May by LMNO Productions in Los Angeles and will air this summer or fall on an ABC special tentatively named "Put to the Test." 

This is what Maxine and her daughter, Twyla, have to say about "Michael," who parapsychologist Barry Taff identified during his visit to Centrahoma as a poltergeist.

According to Twyla, "Michael" has furnished two different stories as to who—or what—he is.  "His first story was about being an alien, that he was from Saturn and had gotten left here.  Then he changed his story and said he was a boy.  He said he was born on August 8 and that he was eight years old when he died in 1951.  That meant he was born in 1943 and that he's 51 now.

"But he fibs so much—sometimes he hints around that he's from Saturn, and then sometimes he talks about his mother and that he's a ghost—that she killed him.  When he's in that mode, he says he was deformed and that she killed him because she was ashamed of him."  A cellar located a couple of miles from the McWethy house is where he has told Twyla and Maxine he played as a child, they said.  Maxine said she asked him one time what he was, and he told her "I'm your imagination."

"Michael" stays with Twyla about 85 percent of the time, Twyla said.  Asked how she felt about that, she said, "at first, it scared me to death, but I'm not scared anymore—he hasn't killed me yet."  After knocking on the table with her knuckles, she continued.  "It seemed like he picked on me at first, but he doesn't do that as much now."  He does, however, still throw rocks and pennies, table scraps, tomatoes, "whatever is handy for him to get hold of, and he throws it across the room," Maxine stated.  "Sometimes nothing will happen for a week, then things will happen all day long."

In addition to being rather mischievous, Twyla and Maxine claim that "Michael" protects them.  Like the time, Twyla said, he scared a snake away from her feet when she was taking a walk.  And the time he yelled "Fire!  Fire!" when an electric heater caught her bedroom on fire.

Apparently, "Michael" also has periodic twinges of hunger since he's added things like pork chops to Maxine's grocery list.  One or two chops always come up missing after they're cooked, she said.  "Then there was the time he had us go to town to get sauerkraut.  After I put it in the pot, I distinctly saw two fingers reach into the pot.  It was just two long fingers, but I saw them.  Then he told me I wasn't supposed to have seen it."  Small bites have mysteriously been taken out of hamburger patties, Twyla said.

"Michael" has also been known, at least on one occasion, to indulge in alcoholic beverages.  "One guy brought some beer out here and two of the beers came up missing," Maxine explained.  It wasn't long, she said, before "Michael" told them to "please put me to bed.  I'm drunk."  (I failed to ask them if they did.)

Maxine says she has felt "Michael's" hands and that they feel like "real old hands with long fingers."  Taff said although he had seen other cases where people claim to feel a physical body, or part of a body, he had no explanation.

Maxine also says "Michael" has told her things about her childhood and that he said he was with her and Bill when they were involved in a car accident seven or eight years ago.  They started hearing the voice in December, 1990, or January, 1991.

Both Maxine and Twyla claim there are "others"—like Sarah, Ricky and Nicky the twins, Grandma and Grandpa, Child Killer, E. T., Trouble and Rachel.  All have different voices, they said, that come from different heights.  "Like Leader is big and has a growl, but he's not around anymore," Twyla said, "and Rachel said she was an old woman that lived down the street.  Sarah is the shy one."

E. T. was blamed for taking a sack of bird gravel and writing his name in big scrawly letters in the hallway.  Grandma and Grandpa, on the other hand, were credited with cleaning Twyla's room one day while she and Maxine were gone.  "When we came back, one of them said 'we done something to your room,'" Twyla said as she described how "clothes were piled up, the bed wasn't made, and it was just a big mess."  She said when she looked in the room, the clothes had been folded, everything had been put away, and the bed was perfectly made, "you know, like old people do them—with the sheets pulled tight and tucked in.  They said Grandma and Grandpa did it."

Maxine and Twyla also claim they and other people have seen and heard children in the yard.  One, they say (Sarah), is a small girl with blonde hair and wears what looks like a hospital gown.

"I was talking to her one day," said Maxine, "and I asked her if she wanted to have her picture taken with Desiree (Twyla's daughter), and she said yes."  Maxine then showed a picture of Desiree standing in front of the apartment behind the house.  In the window is what appears to be a child with blonde hair which Maxine and Twyla believe is Sarah.

Maxine admits that all the strange happenings over the past five years "kinda gets to me once in awhile."  She's glad, though, she said, that their story is being told "so people will know it's not just us that see and hear all this stuff.  It's other people, too."

Twyla, now 23, married Steve Eller, a police officer, in 1994.  She met him when he came to the house out of curiosity.  Her daughter Desiree is now seven.  She also has a 20-month-old daughter, Megan.

How does she feel about the TV special?  "I'm glad for Mom," she said.  "I'm doing it most because she wants it and wants people to know it's for real—that other people besides just the family are seeing it and hearing it."

Asked what she thinks will happen after the special airs, she replied, "I think people will forget about it in a short time." 

 

There is mentioned a predilection for whiskey among some of the haunting entities described in the memoirs of Richard Williams Bell—"Our Family Trouble"—as published in An Authenticated History of the Bell Witch (1894) by M. V. Ingram.  While the nickname for the predominant haunting entity in the Centrahoma case is 'Michael,' the nickname for the similar entity in the earlier Bell case was 'Kate.'  Ingram found the name to have been inspired by Mrs. Kate Batts, "a noted lady in that community, remarkable for her eccentricities . . . The superstitious believed that she was a witch . . ."

 

 

The Witch Family—Blackdog, Mathematics, Cypocryphy, and Jerusalem.

The next development was the introduction of four characters, assuming the above names, purporting to be a witch family, each one acting a part, making night hideous in their high carnivals, using the most offensive language and uttering vile threats.  Up to this time the strange visitor had spoken in the same soft delicate voice, except when personating some individual.  Now there were four distinct voices.  Blackdog assumed to be the head of the family, and spoke in a harsh feminine tone.  The voices of Mathematics and Cypocryphy were different, but both of a more delicate feminine tone.  Jerusalem spoke like a boy.  These exhibitions were opened like a drunken carousal, and became perfect pandemoniums, frightful to the extreme, from which there was no escape.  Father would most gladly have abandoned home and everything and fled with his family to some far away scene to have escaped this intolerable persecution, but there was no hope, no escape.  The awful thing had sworn vengeance, and for what cause it never named, nor could any one ever surmise.  Nevertheless, when the question of moving was discussed, it declared it would follow “Old Jack” to the remotest part of the earth, and father believed it.  The family was frightened into consternation, apprehending that a terrible crisis was rapidly approaching.  Many of our neighbors were frightened away, fearing they would become involved in a tragic termination.  Others, however, drew nearer, and never forsook us in this most trying ordeal. James Johnson and his two sons, John and Calvin, the Gunn families, the Forts, Gooch, William Porter, Frank Miles, Jerry Batts, Major Bartlett, Squire Byrns and Major Picketing were faithful and unremitting in their sympathy, and attentions, and consolations, making many sacrifices for our comfort, and not a night passed that four or more were not present to engage the witch in conversation, and relieve father of the necessary attention to strangers, giving him much rest.  These demoniac councils were introduced by singing songs of every character, followed by quarreling with each other, employing obscene language and blasphemous oaths, making a noise like a lot of drunken men fighting.  At this stage of the proceedings Blackdog would appear as peacemaker, denouncing the others with vehemence and scurrility, uttering bitter curses and threats of murder unless the belligerents should desist and behave themselves, and sometimes would apparently thrash Jerusalem unmercifully for disobeying orders.  These carousals were ended only by the command of Blackdog, professedly sending the family away on different errands of deviltry, one or two remaining to keep up the usual disturbance in different rooms at the same time.  On one occasion all four appeared almost beastly drunk, talking in a maudlin sentimental strain, fuming the house with the scent of whiskey.  Blackdog said they got the whiskey at John Gardner’s still house, which was some four miles distant.  At other times the unity appeared more civil, and would treat our company to some delightful singing, a regular concert of rich feminine voices, modulated to the sweetest cadence and intonation, singing any hymn called for with solemnity and wonderful effect.  The carousals did not continue long, much to the gratification of the family and friends, and our serious apprehensions were relieved.  These concerts were agreeable closing exercises of this series of meetings, and after they were suspended the four demons or unity never, apparently, met again.  It was plain old Kate from that on who assumed all characters, good or bad, sometimes very pious and then extremely wicked.

Photo from Testament: The Cellar

Bridge over Leader Creek (Centrahoma environs)