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.

Bailout redux: apples to apples, dust to dust...

"Bailout" is currently without a doubt the most abused word in the English language. Merriam-Webster defines bailout as follows:

Pronunciation: \ˈbā-ˌlau̇t\

Function: noun

Date: 1951

: a rescue from financial distress

Note the use of the word "rescue", defined (again by Merriam-Webster):

: to free from confinement, danger, or evil

Following the massive Treasury aid package to the financial markets, Detroit's Big 3 automakers are clamoring for for a "bailout" package of their own. Politicians allude darkly to the undemocratic imbalance of bailing out "Wall Street" while ignoring the plight of blue-collar America in Detroit's factories, and demand that the automakers be saved from bankruptcy.

This discussion has been framed incorrectly, with politicians playing to our innermost fears of elitist rule in Washington, where insiders shunt tax-dollars to their fat cat friends while Larry Lunchpail gets laid off from his job with GM. Wall Street banks were hardly bailed out. Massive efforts were undertaken by government to keep the financial system as a whole from breaking down irretrievably, but there were - and will be - many banking victims of this crisis. Bear Stearns: gone. Lehman: gone. Merrill Lynch: ditto. Wachovia, IndyMAC, Countrywide - gone. Goldman and Morgan Stanley: probably converting to bank holding companies. Citi is cutting its payroll by tens of thousands of employees. And the pain is not limited to the United States in this global economy. Northern Rock was nationalized. UBS is badly battered and is unlikely to be around in its current form at this time next year. So let us be very careful in using the term "Wall Street bailout". The banks were not rescued, the system was (we hope).

So if the same rationale is applied to the auto industry, we ought to be looking for ways to maintain auto manufacturing capacity in this country, not prop up individual manufacturers. There is no reasonable way to shore up a manufacturer which burns over a billion dollars a week in cash. Furthermore, there is no reason to. There is no reason the taxpayer should pay for stupid decisions made by management and union leaders for the past 50 years, without improving the likelihood of the industry's survival. Much as with the aid package for the financial system, any help provided to the auto industry is going to come at the cost of jobs and companies. Why does Chrysler even exist? And GM with its many useless brands: Who drives an Oldsmobile? As to Ford: I recently saw a Jaguar X-type station wagon (an "estate" for the benefit of my UK friends) for Pete's sake. Overcapacity, poor planning, lousy union contracts - the rot goes from top to bottom. Reasonably, the government ought to insist on prepackaged Chapter 11 filings for Ford and GM and split the useful bits of Chrysler (if there are any) up between them. Government aid should be in the form of Debtor-in-Possession financing during the period of Chapter 11 reorganization, with most of the principal dollar amount converting to preferred shares once the companies emerge from bankruptcy protection. Just as there really was no free lunch for banks and bankers, there will be no free ride for automakers.

Note to Google and T-Mobile: How not to recruit new users

I am a classic late-boomer early adapter of new technology. I like having new stuff. I like it when that new stuff is whiz-bang and comes in black. I wait until the first reviews are in, but never until the second release - I'd rather buy the upgrade than be late to the game. The only reason I don't have an i-phone is because I am on T-Mobile. Imagine my excitement when the G1 phone with the Android OS was released! I diligently waited until the first reviews were out, and then I scooted down to the T-Mobile shop to dutifully hand them my hard-earned scratch in return for this techno-bauble. Amber was helpful (as always when the smell of my wallet wafts into the store) and immediately had the demo G1 out on the desk. I checked out the very cool street-level view on Google Maps using the compass function. I used the keyboard. I moved apps from the menu folder to one of the three desktops. Then I went to the central functionality as far as my needs go: the browser. The window opened, and - nothing happened. It didn't connect to the Google homepage. Google is where I live. Email, calendar, chat - all Google. I am their dream user. But the screen remained grey. Amber was a bit embarrassed. The manager called another location to find out whether they were having trouble with their demo device. Nothing happened. The Yahoo! homepage was available. MSN was available. But no Google homepage. Well, eager beaver that I am, I was willing to assume this would not happen with a brand-new out of the box device. I loved that little machine and it would be mine. I turned to Amber, looked into her eyes and, using my most sincere consumer baritone, told her I would take it - 2 year contract extention be damned. More embarrassment. "We don't actually handle those out of the store. You have to go online to upgrade your device". Wait, what? Since my home market is not yet 3G, T-Mobile do not provide in-store 3G product for sale. Maybe they are afraid a black hole will form. I don't know. However, not to be deterred (even though my enthusiasm was waning by now), I had her go online to my T-Mobile account. Login, password, etc. Click on "Upgrade your Device" - again nothing. "We are unable to process your online request". I looked at Amber. Amber looked at Eric. Eric looked vaguely uncomfortable. Amber perked up "You could just do it from home later!" she chirped happily. I smiled, picked up my wallet and left. Before climbing into my car, I cast a last look over my shoulder at the T-Mobile logo. A store which sells what some central office decides it will send them, can't stock what people want, and advises customers to find work-arounds to get the product themselves. The socialist centralized economy did not break down at the end of the Cold War. It moved into the mall down the street from me.


Postscript: Soon after this posting, my T-Mobile device crashed. I was so fed up that I went across the street to Verizon. I now have a BlackBerry 8830 World Edition running on a 3G network.

(Un-)Natural Disasters

My teenage daughter - let us call her "Epicenter Esther", or "EE" for short - is not a walking disaster area. In fact, she is generally careful about her appearance, although her parents do not always approve of her choice of wardrobe. This recent increase in attention to her clothing and makeup may be due to maturity or the influence of her boyfriend, a nice boy obviously destined for sainthood (or martyrdom, depending how you look at it). But, I digress. EE is not herself a disaster area; however, she appears to be the root cause of major disruptions in the force wherever she appears. Let us use her room as an example. The average appearance of her room would make hardened earthquake rescue teams cry as they searched for survivors amidst pulled out drawers, piles of bras, sweatshirts, last year's schoolbooks and unfinished games of monopoly. Our dogs whine and turn back instinctively from her door. Our house cleaner makes the sign of the cross, mutters under her breath and moves to another room. You get the picture? Assume now, that she has straightened her room and tidied her belongings - this does happen occasionally, precipitated by threats of various severity on my part. Let us further assume that she has left the house with her room in this pristine state. Fast forward to her return. The moment she walks in the door, before she even goes upstairs to her room, papers start to drift to the ground from her desk. You can hear her closet doors opening as she takes off her shoes, and as she starts to walk up the stairs, her underwear jumps out of her dresser in joyous greeting. By the time she actually makes it into her room, most of her belongings are making every effort to validate the theory of entropy. Lightbulbs have burned out and candy wrappers are inching across the floor looking for a dog to swallow them, so they can be puked up again in the living room. She never even has to touch a thing. I know this to be true, because no living being can wreak such havoc in 30 seconds (the time that elapses between EE entering her room and my following her in to ask silly questions about homework, exams and soccer practice).

The above situation has given me some ideas. If one teenage girl can be the cause of such calamity, imagine what could be done with a dozen of them. Airdropped into a foreign (obviosly hostile) country, this teen-girl cluster bomb could bring the entire economy of a mid-sized nation to a standstill within hours. The first department stores would be empty, burned out shells within minutes. Hair salons would be reduced to rubble. Public transportation systems would collapse because train conductors and bus drivers would be unable to find their shoes. The government would fall in a day or two. And nobody would ever find their socks again. Ever.

"...your call is important to us..."

No, it is not, you lying sack of offal. If it were, you would hire additional two-headed, cross-eyed Appalachian imbeciles to take the call when it comes in. Just saying.

(Mis)Represented

With the election over, my political ego (small and retiring to begin with) has withdrawn into a corner to lick his wounds. Suffice it to say, my candidates did not do very well. I only picked one winner, a challenger for a Congressional seat. It's a good thing we don't bet on everything in this country the way they do in the U.K., or the kids would be going without their gruel this month. But in the course of getting clobbered in the election, I started to wonder about representation. All my adult life, I had taken it as a given that once an election is decided in a constitutional democracy, those elected do their best (as pathetic as that best may sometimes be) to represent all their constituents. And that means people of all political stripes. (This model, by the way, does not work very well in Singapore, where election districts which oppose the President can't seem to get roads fixed or storm drains cleared). But the last eight years have been marked in the United States by extreme partisanship; you could be the idiot child of married first cousins, but if you swore fealty to the ideology of the ruling party, you could accede to positions legally held to be above politics (e.g. U.S. Attorneys, most memorably). For eight years, there was no "loyal opposition", only those who wanted the best for the country (and infallibly knew what "best" was), and those who treacherously sought to do harm by slowing the ideological forward progress of the Bushies. An oversimplification? Perhaps. But it was the outgoing President's biggest flaw that he did not attempt to open his mind to the arguments of those who did not agree with him. The defensive walls were drawn so close to the President's inner circle that even his erstwhile Secretary of State, Colin Powell, was outside the "circle of trust". Having a sense of manifest destiny and an unshakable faith in your own convictions are admirable traits in some; for a President, who is bound to accept the "advise and consent" structure of our democracy, it is a terrible failing. The job is too big, the problems too complex for one, or two, or even a dozen people to be correct 100% of the time. President Bush came to that realization far too late to save the legacy of his presidency. Presidential scholars will surely find much legislative good that was done during the past eight years at Mr. Bush's urging. The general public, however, is left with the hangover aftertaste of wasted opportunity. If President-elect Obama does nothing more than restore some level of public faith in government, he will have done well. We need to know that the government is of all the people, and for all the people.

Desire and Greed: Contemplating the Need for Increased Regulation of the Financial Markets

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.

Everybody has one!

The book at the bottom of the pile on your nightstand. The one you really ought to read because the NYT Book Review told you to. But you have an inexplicable inability to pick this book up and crack it open. Perhaps you are intimidated by the intellectual superiority of the writer or the subject matter is painful to consider. Whatever the reason you initially put off reading this book: the longer you have delayed developing the necessary relationship with the book, the author and the topic, the less likely it has become that you will ever read it. Your antipathy for this amalgam of paper, glue, ink and cardboard has taken on a life of its own. It mocks you from underneath periodicals and the novel you picked up from the discount table at Barnes & Noble. My nemesis is "The World is Flat" by Thomas Friedman. I bought it because I was told to by some trusted book reviewer. I banished it to the bottom of the pile because I hate Friedman. So far, hate has triumphed over intellectual curiousity. And the law of diminishing likelihood tells me that the longer I wait, the less likely it is to happen. That book is going unread. I know it, you know it. And if Friedman ever reads this, he knows it. Time for the bookshelf in the basement and for a new book to take its place. Favored to take the slot at the bottom of the pile: The Black Swan. I never liked statistics, anyway...

Nobody knows the trouble I've seen...

My wife thinks I am a very angry man. Considering that this opinion of hers makes me angry, she is probably right. But I have decided to share with you one of the - admittedly legion - things that makes me particularly apoplectic these days:

MAIN STREET vs. WALL STREET

This rhetorical device, rammed down our throats by the media and politicians, should be tremendously irksome to all intelligent people, regardless of political preference. Gentle reader, without Main Street there is no Wall Street!!! Without people in Des Moines and Shreveport borrowing money to buy things they cannot afford, there is no steady stream of bank loans which need to be packaged and sold as securities. Without folks in countless suburbs leveraging their incomes to buy and/or build mini-mansions, there would be no flow of high LTV mortgages packaged into mortgage-backed securities. There are plenty of hard-luck people out there who lost jobs or suffered an illness that left them unable to service their loans - credit card debt, mortgages, Fingerhut. These unfortunates are statistically present in every pool of loans a bank makes. Loan losses cannot be avoided because the world is an uncertain place and life sometimes throws us a curve (or a googlie, if anyone in the Commonwealth is reading). But the overheated borrowing I witnessed as a banker performing due diligence on loan pools is a social ill that is driven by all of us and not by those who finance it. People leasing vehicles they have no business driving and buying consumer goods they have no reasonable expectation of owning but for easy credit. But folks: we wanted the easy credit just like we wanted that waffle iron cum sandwich maker cum pants press we saw on QVC and by George, we were going to have it.

We all had dreams these past ten years. Everybody wants what Bill Gates has or Warren Buffett. Failing that, we want what our college classmates have. We live in a society where worth is measured by the size of your balance sheet. This is not a uniquely American trait, but it is certainly at its most evident in this country. The can do mentality that made the United States an economic and military force has given way to a must have mindset that may be its downfall. But whatever you do, look in the mirror for someone to blame. Blaming some guy in a pinstripe suit is like blaming the guy who sells you beer for your hangover.

Remember me fondly

History has been extraordinarily kind to Ronald Reagan. His missteps and straight-out breaches of laws both domestic and international have been pushed behind the veil of fond memory people have of their lives during his presidency. Will the passage of time be as kind to W? Methinks not. People not only vote their pocketbooks, they remember with them, as well. In W, we have a President who built a national bureaucratic infrastructure designed to do one thing, and one thing only: affirm his ideological positions. From Justice to intelligence gathering, his entire government has been deductive: He knows exactly what the answer should be as informed by his personal redemptive religious philosophy. Any information and data that did not properly support the presumptive truth was simply dismissed as obviously false. This evangelical, redemptive thinking has drained this country morally, militarily and financially. He has also mortgaged the future of his party and any hopes good men like McCain may have had to be considered on their own merits. By subjugating the entire party to his philosophy, and the national bureaucracy to the party, W has effectively created a situation in which the electorate is unwilling to assume that any Republican can operate outside of the "my way or the highway" strictures he has imposed for 8 years. Obama does not have to be the best qualified candidate, he has to be a non-Republican who can fog a mirror. Obama's time to truly benefit this country would not under ordinary circumstances have come for another 4-8 years. He is unripe as a politician and as a candidate. At least we can look forward to 4 years of really good speeches.

Guilty Pleasure

"Love, actually". For those who have not seen this British flick - do so immediately! Drop what you are doing (unless you are holding a baby or a senior citizen) and rent it. We first saw this movie when it was released and have watched it periodically since. It is a funny, touching film following a number of characters whose stories are related without being entirely intertwined. You never get emotional enough that you feel you ought to shed some tears, and any maudlin component is more than offset by the comedic content. A great pick-me-up when you are down (and who isn't a little bit down, these days?).

"Homeownership Resurgence"

This is an interesting concept put forward by McCain last night. In short, it diverts some ($300bn) of the 'bailout' money just approved by Congress and makes it available for whole loan purchases. The loans to be purchased would be mortgages to homeowners at high risk of losing their homes. The government, as owner of the mortgages, would then renegotiate the loan so the mortgagor could retain ownership. First it should be said that this idea is not new. In some form, it was mentioned by Barney Frank, as well as a Columbia professor or two. Nonetheless, McCain is the first candidate to make it a part of potential policy for his administration.

I have a few questions about the mechanics of this program. Treasury is obviously set up to purchase loans. But who will negotiate with the borrowers? Who will set credit policy for the program? Who determines the appropriate recipients of this type of aid? And who will service the loans once they have been restructured? Does Treasury sell them back to the private sector once they have been restructured?

My guess is that ultimately, this proposed aid will take the form of a government-funded program administered by the banks currently servicing the mortgages in question. Otherwise Treasury - or whichever agency ends up with the mandate to administer this 'Resurgence" program - would have to undertake the massive effort of recreating the systems and staffing of a mortgage bank.

Rate cut? Bah, humbug!

Meanwhile, the markets are taking advantage of clear central bank willingness to do absolutely anything to lubricate the credit markets and are refusing to budge (upwards) in response to most recent global actions and the US stimulus package. Why should banks loosen credit now, when money is only going to get cheaper if they don't? There is plenty of liquidity available to the banking system. Banks have been reluctant to pass along low rates to consumers since last year and have simply been beefing up operating margins to cushion against credit losses.

If central banks and governments are interested in improving the availability and cost of credit to business and individual consumers, they need to take a regualtory step along with rate cuts and increased liquidity measures. All Fed, ECB and SNB et al actions would be far more effective if coupled with mandated cuts in the cost of credit to small businesses and credit-worthy consumers. For a limited time, the maximum spread between funding costs and lending APR could be fixed for a variety of key credit products, such as small business loans for capital projects and credit consolidation for consumers.

I do solemnly swear...

You would think that after 25 years or so in public office, McCain would be a more polished public speaker. The "my friends" rhetorical device is getting old and is starting to grate on my nerves, as much as I respect the Senator from Arizona. On the other hand, and as noted by, amongst others, Vodkapundit (http://pajamasmedia.com/blog/drunkblogging-tonights-mccain-obama-bout/) and a few people interviewed on NPR, Obama stuck with what has worked for him and did not bother answering most questions. This so annoyed my 16 year-old daughter that she yelled "answer the question! sheesh!" at the television and went upstairs in frustration. I admired her political engagement until I realized she probably was looking for an out from Mom/Dad time to go back on AIM and her mobile. Anyway, back to politics. As far as I am concerned, I am convinced that even so-called "undecided" voters have, in fact, made up their minds weeks ago concerning their vote. They simply enjoy being identified as the "undecided swing vote" and lurk around TV cameras and NPR reporters hoping to be interviewed. What else is there to do in Sheboygan?

McCain is a poor rhetorician who often strays from his script, as evidenced by his stumbling over words on occasion when answering direct questions. Obama is a soothing speaker who seldom abandons his non-message lines, repeating "Bush/McCain" and depicting McCain as a cheerleader for W. until my mental image of the government has been reduced to visions of McCain in a tutu alone with the President in D.C. Apparently these were the only two people in Washington running the country the past eight years. No Democrats in control of Congress since the last election cycle, I suppose. Amazing what you cannot do with a majority in a democracy, these days.

File under: Politics nauseate me.

random thought

Some people diminish with age until all that is left is quirky habits and a vaguely distressing odor and a poor choice of wardrobe. Others are left with their strengths: wisdom, empathy and kindness - and really nice skin. I don't know if you get to choose which way you develop. ANy thoughts?

President Sarah-Joe McBamacain

I have not yet made a final decision as to my vote in November. I am leaning towards McCain, mainly because charisma turns me off. Charismatic leaders make me nervous for the same reasons crowd dynamics make me nervous. Beautiful oratory and a strong personal aura operate to leapfrog the listener's analytical firewalls. What is being said becomes less important than how it is being said. The political system on a national level pre-selects for candidates who are skilled in marketing themselves as a product to the greatest number of people. It is the Microsoft Windows phenomenon. Windows is not the best operating system and it never was. It is, however, the o/s that gives the greatest number of people the greatest number of features they want at a price they are willing to pay. Same for presidential candidates. This election is unique in recent memory because the next president will be put in charge of this Titanic of an economy, handed a plastic spoon and be told to bail us out. Options will be limited; a tax cut here means a cancelled program there. A new program here means a revenue requirement there. Any extra cash we had behind the sofa cushions and the car seats is being employed in Iraq and the financial system bailout. Servicing the national debt will require significant belt-tightening, or increasing the money supply (i.e. printing more of the stuff). Our foreign policy is going to be reactive to Russia and China and must be devised to prevent the perception of American weakness. What I am saying here is that the next President has a very limited financial and diplomatic arsenal with which to address huge problems of domestic and foreign policy. The next President is going to have to be the best crisis manager since WWII. Rhetoric is irrelevant, debates are irrelevant. This is why I am disappointed in Obama this morning. When you are bailing the Titanic with a plastic spoon, you better get to work quickly.

Sorry, I'm confused

McCain has asked Obama to postpone the presidential debate so that the candidates might do their duty as Senators and spend some time on the financial crisis. Obama has declined, and said that it was his idea in the first place. I am generally of the opinion that politics, like theatre, requires the temporary suspension of disbelief. But this exchange stymies logical analysis. If it was his idea, why won't Obama take the initiative in outlining the path the candidates can take together to address this pressing problem? I, for one, despise these debates. We already know who the winnner will be on rhetorical points. Both of these guys are interviewing for a job. When interviewing for a job, most people tell the interviewer what they think he wants to hear, and make promises they really want to keep in the realization that reality and attendant circumstances will severely curtail what they are able to deliver. In the face of a real problem requiring real and immediate solutions, Obama would rather debate - playing to his obvious rhetorical strength. I find this disappointing and it does nothing to convince me that Obama has the chops to deliver on all of his lofty (if somewhat vague) promises of change. If you are going to pledge deliverance, you have to chart a clear course. So if you want to claim it was your idea to meet McCain and work rather than talk: great. I believe you. But then why refuse to follow through?

Sytems failure

What's all this talk about a "failed business model"? Wall Street's securitization business model worked perfectly: For a substantial fee, redistribute risk to willing investors. As data on the risk improves, tranche it even more finely and redistribute it again. The most sophisticated investors take the greatest risk and reap the greatest rewards. Worked fine. What failed Wall Street and the commercial banks was their credit- and market risk management systems. What failed the public was the impossibly archaic regulatory environment. Risk correlation was incorrectly assessed and insufficiently tracked. In order to facilitate underwriting mandates and instill investor confidence, underwriters and mortgage originators kept risk that should have been priced appropriately and placed with investors. The proper pricing of risk was second fiddle to underwriting fees and league table standings. Risk controls were routinely over-ridden by business managers in the interest of short-term gains. Institutional greed was not the problem; rather, the institutionalization of poorly structured compensation packages to business units provided incentive to mislead risk managers as to the true nature of the risks being underwritten. Every day, the mismatch between controllers scrambling to keep up with ever more complex transaction structures became more imbalanced in favor of the business units. This situation is mirrored in the inability of regulators - SEC, FSA, et al - to fully comprehend the severity of potential losses on financial institutions' balance sheets. FAS and IAS guidelines were and are incoherent on the issues, leaving crucial reporting items open to interpretation by accountants (who, like the rating agencies, are paid by the financial institutions!). The sudden realization that risk was not being correctly represented in public filings and reports will be reprised when the credit derivatives market starts to wobble. Right now, the Fed and ECB are trying their level best to stop this from happening, but the credit derivatives market is a $70+ trillion behemoth with immense potential for damage. And the beautiful thing is that no-one knows where the risks are highest, as exposure under credit derivatives is poorly reflected on balance-sheets as a result of pitiful and vague accounting rules. The fun has only just begun.

Make up your minds!

So the story now is that the investment banking model that has generated hundreds of billions of dollars (and pounds and yen) of revenue over the past couple of decades is so deeply flawed that it needs to be abandoned? Goldman Sachs is reorganizing as a bank holding company? The thinly veiled truth is somewhat different. The model worked until the investment banks overleveraged themselves. The model itself was not flawed - it simply was stretched to the point that an unanticipated stress in the system snapped it. The investment banks remaining after the Lehman meltdown saw the writing on the wall and realized that in the coming regulatory environment, they were not going to be able to generate the profits they had been used to. So why not poke the taxpayer in the eye and take part in the bailout, and put themselves in position to have their liabilities guaranteed by the FDIC? They did the math and figured out that taking cheap deposits and engaging in reduced investment banking and securities underwriting is the best way to maintaining the maximum level of shareholder value and personal income. The cost of holding additional capital is partially offset by the low cost of attracting deposits and the benefit of FDIC guarantees versus having to purchase their own insurance (in the form of derivatives or bond insurance) on their balance sheets. So GS will buy WaMu or some other regional with a banking license (M&T? Fifth/Third? Wells Fargo?) and become just like Deutsche Bank or UBS in its prime. MS has already sold a share in itself to MUFG, but that is unlikely to be the last chapter.

I didn't know we had $700bn

Here we have been having a national debate for the past almost 20 years about the cost of universal healthcare - or at least universal access to healthcare. Not to mention the underfunding of Social Security and a revamping of Medicare/Medicaid that is so spectacularly complex that it now encompasses a phenomenon called a "donut". I intend to hang myself before I have to figure that one out. Against the backdrop of these - and other - ongoing national policy debates, the government has to admit that it can come up with $700bn. That's $700,000,000,000. If we have had that kind of money all along, where has the political will been to use it to fix other pressing problems? This post is not an argument against the rescue of the financial system. The proper functioning of the credit markets is crucial to the health of the US economy and each individual citizen. I am just utterly amazed that we can afford it. Every mother who has had to use the emergency room as a primary care facility, every senior who has had to cut back on medication, every long-term unemployed person who has seen his or her benefits run out should be out on the street with a pitchfork and a torch hunting for their Congressman and Senator. For decades we have been told that while healthcare, Social Security and other social programs are indeed crucial and deserving, there just is not the money to fix them. Turns out there was the money to fix them, just not the political will. Now of course the money will not be there because it will be used to shore up the financial system - a necessary and absolutely justified measure - but that is not the point. As an aside, it will be interesting to see if any one in Congress has the chops to lard the bailout bill with pork.

ex nihilo nihil fit

"A perfect vacuum with a gaseous pressure of absolute zero is a philosophical concept that is never observed in practice."

Absolute emptiness, absolute zero, the cosmological "nothing": impossible to observe as it does not exist. Philosophically a mind-blower, for sure. But consider this: the experiment proving that maggots do not appear spontaneously is by definition flawed. Since the absence of everything cannot be attained, the environment in which maggots did not appear on meat was simply one of an infinite number of possible environments in which maggots do not "ex nihilo" appear on meat. But conversely, there must be an infinite number of environments in which they do. Anything is possible, material objects can appear and disappear at will (whether they are in a box with Schrodinger's cat, or not). Which is how I am going to explain a whole range of phenomena from disappearing socks, checkbooks and cookies (you are off the hook, kids) and the appearance of grey hair, car dents - oh: and fruit flies.

Off to make dinner

I have been riding out the market meltdown at home (NO! I am NOT unemployed. I just can't make any money in structured product right now. If you can, call me. We should talk). As a result I have been making lunches and dinners and doing the shopping. I do not think enjoying these tasks emasculates me. But I would have to be absolutely sure what "emasculate" means before I confirm that.

How?

I am going to send the link to my blog to a few friends. And to some people who aren't my friends (this is an experiment: will all addressees now think they are in the friend category?). The theory is that this will lead to a viral spread of my blog-link. Viral in the good, internet meaning of the word. Not the one where it manifests itself as an incurable disease and kills millions. Unless that second option makes me rich and famous. Or at least rich.

Why?

My wife - let's call her "Jill" - thought I might consider writing a book. Well, I have often thought I have a book inside me. I have alas! concluded that it will stay there, for the good of all mankind. And womankind. And polar bearkind. And besides, what if it should turn out to be gas? The only thing I have not been blamed for is global warming, and I intend to keep it that way.

But I do have a lot of one-off thoughts I have either written down or wish I had written down - or written down and then wish I had not. This blog will be an experiment, as most blogs are. I intend to write as I think - sometimes in formal, stilted English that gives away the fact that I grew up abroad, and sometimes in very profane colloquial language that will remind those who know me that I am a pig.