Desire and Greed: Contemplating the Need for a New Financial Markets Regulatory Regime

If desire is the emotional exponent of a human being's drive to have, then greed is the drive to have more and better. As such, it is both natural and, arguably, productive in the context of ambition or even as a component thereof. The desire to eat led early man to hunt small animals and eat whatever grew wild. The desire to eat more and better food led to spears and agriculture. The desire to illuminate dark quarters led to candles; the desire to illuminate better led to light bulbs. But, as is true for all human characteristics and emotions, the lines between a lot, too much, and excessive grow blurry as we achieve a modicum of success at each level. Light and light bulbs are great; large concentrations of unnecessary giant video screens and illumination are light pollution. Agriculture is good; a sense of entitlement to have grapes and peaches year round leads to large carbon footprints for produce. Greed is not sui generis an evil inclination; it merely carries within itself the intrinsic need for external controls where internal regulation (e.g. self control) fails.

You can see where this is leading. Credit is good and drives healthy economic growth. Excessively loose credit leads to huge losses by both lenders and borrowers. But the greed per se of both borrowers and lenders initially drove a desirable expansion of the credit markets and admirable economic growth that sustained the longest expansive business cycle in history. Greed in some form is a component of most every advancement, both technologically and socially, ever attained by the human race. The inability to set boundaries, however, at some point has its own law of diminishing returns and finally leads to undesirable outcomes. It has traditionally been the role of government to set and enforce boundaries our natural inclinations might otherwise ignore - hence, regulation of the marketplace. This regulation can be more or less heavy-handed, depending on the prevalent political philosophy. But regulation is a natural systemic societal response to human self awareness: we know that we tend to break through the boundaries between healthy greed and unhealthy excess. It's where can do becomes must have. We are only human, after all. We live in a society where worth is measured by the size of your balance sheet. Regulation is necessary; however the form and substance of regulation needs to reflect market reality going forward, rather than being a legislated response to the crises of the past.

The AIG Bonuses: The Disingenuity of Distractive Politics

More money is wasted on federal budget earmarks in one day than the AIG bonus payouts. Feckless politicians scramble to fund projects that benefit no-one and are a manifest waste of taxpayer money. This has been going on for decades, and very little has been done to change this system of legal pick-pocketing. President Obama campaigned on a promise to do away with earmarks; presented with his first chance to do so, he promised: "next time". The uproar caused by the AIG Financial Products bonus payouts is not in itself unwarranted - why should the very unit that sank the company be rewarded so handsomely? But it is both misdirection, as well as misdirected. Misdirection, because the amount of money (some $210 million at last tally) is irrelevant in the context of the trillion-plus dollars at stake in the current economic resuscitation efforts, including the so-called bailout of the financial system. Politicians are reacting with base populist fervor in an effort to soothe their constituents. The AIG FP bonuses are not a symptom of the abuse that led to the financial system's meltdown; rather, the entire situation is indicative of the inability of career politicians to manage private sector business. Misdirected, because the target of the apoplectic politicians and the sign-carrying masses is the recipients of the bonuses. Assuming that what they did in the course of their employment with AIG was neither criminal nor negligent (but simply stupid and ignorant of actual credit risk), they are being accused of accepting money which was lawfully offered to them by their employer. Is there a living person who would tell their manager that they would refuse any retention bonus money because it was undeserved? In this economy, it may very well be the last significant payout they ever see. They have families; children to send to university. It would be a gross miscarriage of justice to publish the names of the recipients, creating as it would the possibility - indeed, the probability - that they will be targeted for abuse by vengeful and misguided citizens.

Better to set our sights on those who knew of and authorized the payments. It is becoming clear that Secretary Geithner was aware of the contractual obligations. Is the same true of the House and Senate Financial Services Committees? I would be much more interested in finding the true culprits in mismanaging the huge sums of money at stake than a few guys at AIG who did what anyone else would have done - and did so legally and without guile.

empty saddles

stop. stop what you are doing, stand still, and think for a few moments. think about what would happen if you were to suddenly cease to be. who would miss you, and why? who would you like to be missed by? would any useful thing go unfinished - or unstarted? think yourself away from this world. the hole you would leave, or the lack of such a hole. even the biggest of us, the most engaged, the most brash and forceful, the unflaggingly ambitious are forgotten; soon by most, eventually by all.

make your short presence worthwhile for as many as you can. and painful for as few.

Leon WHO??? For WHICH Job????

There is definitely more to this decision than meets the eye. The media are still trying to work it out, but Speaker Pelosi's sudden about face without any additional public explanation from Mr Obama is a clear indication that something has been communicated to the Democratic leadership to which the general public is not (yet?) privy. The simplest inference to draw - and perhaps the correct one, if you apply Occam's razor - is that the position of the Director, Central Intelligence is being degraded in favor of a strengthening of that of the Director, National Intelligence. Panetta will be a good soldier without trying to overstep his bounds, and the DNI will not have to worry about some frisky and ambitious DCI second-guessing him or trying to actually do more than simply manage the CIA. Panetta will be the most senior HR manager in the world.

I like the decision because it shows a Machiavellian side of the soon-to-be inaugurated President that I was afraid did not exist. There have long been too many cooks in the kitchen of US intelligence policy. Once Obama is sure he has control over the intelligence establishment, and is confident in its anaytical output and operational capabilities, we may see a strengthening of the constituent agencies and especially a long-overdue increase in the emphasis on Human Intelligence.

A New Year's Resolution You Can Believe In

I resolve to indulge in fatty delicious foods and not to beat myself up over missing time at the gym!

Share your resolutions with me.

A foul wind

Yesterday I went to the gym. Nothing heroic there, I grant you. It was, however, the first day of a 15 minute incremental increase in the time I spend on the elliptical or step machine. This was a difficult psychological threshold to cross, as I find the part of my workout spent moving my legs whilst staying in place very boring. TV and ipod provide welcome distraction, but - hell, it's boring. And the complete lack of respect for my sensitivities displayed by other club members does not help matters. I admit that top amongst these sensitivities is that there are other folks in the gym at all. I am not misanthropic; I simply don't like other people. I have always felt a strong kinship with Sartre - hell is other people. Especially when the people in question variously wear clothing that is too tight, too expensive, too cheap, too colorful or too drab. Mostly, they also smell bad. Or look as if they might smell bad, if (heavens forbid), I ever got close enough to find out. They also use too many towels, spread out in the sauna, and occupy the shower stall next to mine when they have a perfectly good bathroom at home. Am I making my feelings clear? So yesterday, I take up position on the elliptical, turn on the television, crank up my ipod, and get striding. About ten minutes in to my 65 minute ordeal, I start to smell urine. At first, I thought it was some odor drifting by from the area where a new locker room is being constructed. But no, the stink grew and persisted. I glared at the man next to me, assuming he had failing kidneys and had skipped dialysis to come sweat uric acid next to me for my sins. Once he had left, I relaxed, under the impression that the odoriferous crisis had passed. It had not. I began looking around for another sweating heathen on whom to heap scorn, but the machines next to me were inexplicably unoccupied. Strange. These are the newest, most desirable Precor combination step/stride machines. You have to be lucky to get time on them. Yet here they were, empty. A terrible realization started to dawn on me. Tentatively, I sniffed my right shoulder and armpit. Aside from your standard fresh sweat smell, it was fine. I turned to my left, and before I had completely inhaled, my head snapped back. Holy dog urine, Batman! It would seem that one of our dogs, filthy beast that she is, had decided to use my pile of T-shirts - the pile I keep conveniently on the floor of my closet so I can grab one for the gym - as a makeshift canine port-a-potty. The full range of this olfactory WMD was only released when the shirt became moist from my own sweat. In short, I stank like an incontinent homeless wino. People were making an arc around my elliptical to avoid my stench. I looked down at the timer on the machine: 45 minutes to go. What to do? Well, I stuck it out. After all, who was more affected by the situation than I? If I could stand it, so could everybody else. I stared ahead, resolutely avoiding eye contact with the despicable, if somewhat less smelly, general population. And to make a point about being accepting of other members, regardless of their personal hygiene, I went through my usual weights training, as well.

It's not like any of these folks were going to be inviting me over for dinner, anyway. Not that I would have accepted the invitation.

The Bankruptcy Paradox

Am I the only one whose funny bone is tickled when Rick Wagoner frets that consumers will not buy cars from a car manufacturer in Chapter 11? If the Detroit Three have proven one thing, it is that no one will buy their cars period. Unless I am missing a significant part of the story, years of retrograde sales and flawed strategic plans have resulted in dealer lots crammed with vehicles nobody wants at any sensible price (i.e. a price that leaves the manufacturer with the slightest profit). Filing for Chapter 11 will likely have no influence on consumer decisions, whatsoever. The relatively short, profitable, but ultimately fatal run of SUVs aside, the US auto manufacturers have a decades-long history of building mainly vehicles that miss the consumer mark - and building them poorly, at that. The reluctance of the auto makers to reorganize under Chapter 11 is analogous to a terminal patient refusing a course of medication with a 50% success rate. Under three possible scenarios, the outcome is certain failure, leaving a 25% likelihood of recovery. That might not sound great, but it beats the certainty of pushing up daisies in the short term.

The government should force Chapter 11 on Detroit. There is overcapacity in US auto manufacturing, and it needs to be dealt with through a severe rationalization of the domestic auto industry. The auto manufacturers insist on making their individual survival the issue before Congress (I suppose that is what they are paid for). But it is the survival of the domestic auto industry as a whole that is at stake more than that of the individual corporate entities. The entire landscape in the auto industry needs to be reshaped. When airlines have faltered, they have been left to fail, reorganize or merge. This process ultimately has safeguarded the continued existence of the airline industry. No economy is large enough to support the de facto nationalization of all failing manufacturers and service providers. Attempting such a feat ultimately will lead to downgrades of sovereign debt ratings, a depletion of public coffers and economic mayhem. $25 billion is not enough to save the Detroit Three. Chances are, $250 billion would also be insufficient. Public money should flow only if:
1. There is a significant public interest at stake; and
2. The funds have at least a 50% chance of leading to a positive turnaround for the recipients

That the first condition is satisfied is clear beyond a reasonable doubt. The second condition can only be met if the auto manufacturers face the reality of the situation and realize that their industry is hopelessly mired in a culture of failure. They should take advantage of this once-in-a-lifetime opportunity to make the tough decisions that will allow the US auto industry to position itself for profitable operations for the years to come. From the labor perspective, the survival of GM, Ford or Chrysler is much less crucial than the continued existence of a healthy domestic auto industry in some other form.