Sunday, October 30, 2011

Where is Teddy Roosevelt when we need him?

Thomas Friedman  writes today about a $285 million dollar fine against Citibank for fraudulent derivative trading.  Like Goldman Sachs, Citi put together a billion dollar package of toxic mortgage-backed securities and collateral debt obligations, half of which were specifically chosen as likely to fail.  They sold this dreck to others while at the same time they shorted their own product so as to make money as its value collapsed.  They were being soooooo smart.  They made money off of fools dumb enough to trust them, and they made money off of the toxic assets that they were dumping as their value disappeared.  

I certainly don't care how wealthy anyone becomes in America.  What I very much care about, however, is when people become wealthy as a result of damaging others.  The financial industry management became wealthy beyond imagination at the expense of their clients, and at the expense of all of us who are now living in a world of near Depression created by their recklessness and avaricious greed.

The Occupy Wall Street protests are fairly incoherent and populated in part by fringe elements that are pretty ridiculous.  But the object of their anger is legitimate.  Arguments by the ruling financial oligarchy that increasing taxes on them won't solve the country's terrible debt problems is true, but not particularly meaningful.  Pretty much everyone knows that a terrible injustice has been done to the middle class of America and the world.  The lack of graciousness and remorse by the perpetrators of that injustice is very grating to many.   A couple of centuries ago the French turned to guillotines as their expression of anger towards their ruling aristocracy.  America won't go to that extreme, I am sure, but I think we need to see a government that can bring some justice and closure to this very dark chapter of history. 

I have long been quite conservative in financial matters, believing that the free market was the goose that laid the golden egg of prosperity and created the middle class in America and the developed world.  That belief has had to be re-evaluated after 9/15/2008 when Lehman went bankrupt and the financial industry's rape of its customers and extraction of billions from the middle classes for its own private fortunes became exposed.

Where is Teddy Roosevelt when we need him?  The Bull Moose was the trust buster.  We need a similar force to break up the too-big-to-fail financial institutions.  I think Bush and Obama were right to rescue the financial industry, but it is angering to me that they didn't break them up and strip them of their enormous, policy controlling powers while they rescued them.  On a human level I want to see scores of greed-bags put in jail.  But much more important to me is to see the size and power of the financial industry reduced to their proper size and function.  The financial industry is supposed to be a support for business and industry, not an end unto itself.  I want to see future MIT engineer and science graduates go on to become engineers and scientists, not continue to go to Wall Street to play the game of creating massive wealth for themselves at the expense of others too stupid to see how they are being raped by them.

I am still a firm believer in free markets, but the financial markets are no longer free.  They have been taken over by a criminal element who have so much influence over our government that even their criminal activity is legally sanctioned.  

It is time for the new generation of youth, which I believe to be similar in nature to the Greatest Generation of the '30s and '40s, to rise up and clean up the mess they have been given.  It is in them that our hopes for the future lie.  If all they want to do is follow in the footsteps of the gen-xers who put making money above all else, then the future of America is not a happy one.  But, if they can take their enormous talents and cooperative, collaborative instincts and turn them into real creativity and real wealth creation, as did their similar Greatest Generation cohort, America will be reborn once again and rise from the ashes and soar as the Phoenix.

Friday, October 28, 2011

Queens welcomed

You know that something has officially arrived when the British Royalty sanction it.  The leaders of the British Commonwealth (16 countries) have just unanimously approved the rights of daughters of British monarcha to be the next monarch.  This is kind of a formal recognition of what is obvious, that women are the equals of men in the law, even the laws of succession of the British throne.  

Given that three of the longest lived monarchs in England's and Britain's history are women:  Queen Elizabeth, Queen Victoria, and Queen Elizabeth II, this doesn't seem too radical even for the Britain.


Friday, October 21, 2011

Power and Immaturity - a metaphor

I am struck by the connection between power and immaturity in the world today.  I see immaturity in the exercise of power in so many places.  Perhaps it is a metaphor that can tell us something about ourselves and where we put our own power.

It seems to me that the power in the Islamic countries had been in the hands of two groups:  the fundamentalist Islamic religious fanatics and the governmental  brutal dictators.  Neither of these groups have been exactly paragons of maturity.  

The religious fundamentalists perceived the world in strictly black and white terms, good and evil, the Islamist purists vs. the devils of the West.  This seems to me to be one of the defining traits of adolescence, living in a black and white universe with no room for nuances and grays.  Keep things simple, easy to understand, just know the dogmas in order to avoid the need to think and feel each situation newly.  Just decide long ago on the rigid rules and wage holy wars to promulgate the Truth, capital "T."

The dictators created a pretty black and white world as well.  Keep it simple, whatever brutality and domination that is needed to get and keep power is all that matters.  The needs of others only meant anything as it related to the need, demands, desires of the rulers.  In other words, the dictators were and are self centered to levels that are hard to comprehend.  This seems to me to be one of the defining traits of children and adolescents:  self-centeredness and self importance.

But we can look closer to home to find immaturity and power linked together.  Certainly, the self-centerdness and lack of caring for others was pretty much the defining characteristic of the Financial Industry as it inflated the housing bubble in order to extract vast fortunes from the middle classes of the developed world.  The smartest of our youth went to Wall Street to make their fortunes rather than to be engineers or scientists like the older generations had that created NASA and built the industrial miracle that empowered and enriched and grew a vast middle class after WWII.  

Unfortunately for us, creating lots of money for themselves had very little to do with actually creating a growing economy, and had so much more to do with creating insider games that rewarded super risky financial behavior that  eventually blew up in all of our faces.

And, of course, immaturity was the hallmark of the millions of homebuyers who saw a chance to "move on up" into bigger and grander homes, beyond what they had any reason to think that they could actually afford.  It was all just going to work out because real estate would always increase in value, or so thought the home buyers and mortgage sellers and politicians and almost everyone.  The immaturity of following the crowd and believing what everyone else believed, especially if it made you feel richer. 

Fortunately, of course, not everyone in the world has been immature, and I really do expect that there has been a lot of growing up in the last three years since the financial bubble collapsed.  I expect that there has been a lot of re-evaluation by people as to what is important to them and as to what really matters in their lives.  I expect that as people who have been self centered, short sighted, and immature in so many ways see how they have hurt themselves and others, people are choosing to grow up, and mature, and find themselves in ways they hadn't before.

In another way, perhaps the Arab Awakening is another metaphor - a metaphor of a new kind of power, the power of taking charge of our own lives,  of taking our power back.  The Arabs are taking their power back from their dictators, and perhaps in similar ways Westerners are taking our power back from the demands of success and ever-climbing wealth and external symbols of "making it." Maybe America can finally stop being driven by the need to "keep up with the Jones's."

Maybe the Arab Awakening is a metaphor of an awakening for all of us, by saying no to being ruled by others, whether obviously and directly by dictators, or being ruled in more indirect ways of trying to live the lives dictated to us through cultural expectations.

Or maybe I'm just talking about myself.

Thursday, October 20, 2011

Qaddafi is dead

Qaddafi is dead.  This is a good thing.  I send my hopes and prayers to the Libyan people as they take the long road to building a country from scratch.  Ding Dong, the Witch is Dead.

Tuesday, October 18, 2011

The mismanagement of institutions we rely on

The lives of ordinary people in America and the world have been affected by mismanagement of institutions that they rely on.

The failure of management in the financial industry was, and still is, dramatic and nearly catastrophic (catastrophe is still a possibility, however).  By creating opaque and impossibly complex financial instruments that grossly inflated the housing bubble, the wizards of Wall Street created two things:  massive fortunes for themselves and massive unemployment and underemployment for their societies.

The failure of management in government was to lower the standards for loans for home-buyers, and to reduce the financial regulations and government oversight of the financial industry.  This started the housing bubble and gave the financial industry the ability, and even permission, to transform itself from a service industry, designed to help business and the economy grow, into becoming an end unto itself whose nearly sole purpose was, and still is, to create Pharaoh-like wealth for themselves and their progeny.

These two very badly managed institutions teamed up in a negative synergy that has threatened the way of life in America and the developed world.  It looks like we are in a long period of struggling and perhaps even failing economies.  

I am just starting to read the brilliant Michael Lewis's latest book "Boomerang." At this point it looks like his main point is that the financial crisis in the world is a series of financial crises country by country, and each country's crisis is a function of its national character.  In addition, David Brooks writes in today's New York Times that America is turning inward to restore more prudent and thrifty values to their own lives and thus are in the process of a culture change that hopes to create a zeitgeist that obstructs such greed driven excesses in the future. 

In the famous old words of Pogo "We have met the enemy and he is us."  But we can change, and we are doing just that. This is an internal process, individual by individual, that creates real change from the ground up.  It is not a political movement, but a look-in-the-mirror-come-to-your-senses moment for individuals that end up in a value shift of a country.

It is going to work, and we are going to transform our world into a better place to live, one person at a time, I believe.

Friday, October 14, 2011

How the government can stimulate the economy

Conservative economist, Milton Feldstein, has proposed a solution to falling home prices that would stimulate the economy.

Since most people's form of wealth is in their homes, and since home prices continue to fall because so many are in homes where their mortgages are greater than the home values, the economy is at the mercy of home prices and we all live in a prolonged era of high unemployment, limited consumer demand, and a stagnant economy.

Feldstein's solution is to stimulate spending by stopping the decline in home prices caused by floods of mortgage defaults which are driving prices down.  His suggestion is for the government to reduce mortgage principle when it exceeds 110% of the home value.  He calculates that this would be a one time cost of $350 billion, and would be shared 50 - 50 by the government (taxpayers) and the banks (who created the housing bubble for their own ludicrous bonuses in the first place).  In addition, the borrowers would also pay a price, and that would be a price of risk.  The borrowers would get the lower mortgage, but the terms of the new mortgages would be different. If they defaulted on their mortgage, all of their assets would be available for collection, i.e their loans would become full recourse loans, rather than nonrecourse loans they currently have where only the house is taken in case of default.

This arrangement would have both borrowers and lenders making sacrifices to refinance at lower principles, and the government makes a one time payment in order to stop the housing slide and allow people the economic breathing room to spend more rather than be crushed under housing debt they can't handle.  And the banks finally would get to clean their balance sheets with honest loans with high probabilities of payment.

Like other Martin Feldstein proposals, this makes a lot of sense to me, and will likely be ignored.  I think it would work.

Thursday, October 13, 2011

Occupy Wall Street has changed the dialogue

Eliot Spitzer writes that the Occupy Wall Street demonstrations may not morph into a full blown left wing Tea Party Movement, but in a very important way it has already won.  What it has done is change the political debate in the country.  The issues now in dialog are income distribution, fairness, justice, and accountability for the economic disaster we are all affected by.

I think if one can step back from the political partisanship, where the left demonizes the right and the right demonizes the left, both the Occupy Wall Street and the Tea Party people speak to legitimate issues that should concern us all.  

Occupy Wall Street is passionately decrying the oligarchical control of the government and income disparities that are so large they haven't been seen in this country until just before the Great Depression of the '30s.  The Tea Party is passionately decrying the growing power of the faceless bureaucracies of government as they extended their reach into the health care of every American.  

Both of these are legitimate concerns.  As Spitzer points out, the passion comes from unsophisticated, emotional naifs, but these passions can turn into real political movements as more traditional politicians get involved and create agendas and programs to address the issues raised by the passionate.

Monday, October 10, 2011

Arab Awakening obstacles

The Coptic Christians in Egypt are being attacked and killed while they try to demonstrate for rights.  I am not following it real closely, but it appears that the army is the oppressive force here, including anti-demonstrator propaganda and the use of armed personnel carriers and bullets. At least 24 were killed and hundreds wounded.  

In addition to the army, it appears that ultra-conservative Islamists are also being violent against the Coptic Christians in Egypt, who comprise about ten percent of the population.

Key quote from the story:

" Christians also complain of long-standing discrimination, and of an Islamist discourse that is increasingly aggressive and denigrating of Christians. Ultra-conservative Islamist groups have been emboldened since the revolution, demanding the full application of Islamic law."

It looks like the generals in charge of the government are fomenting sectarian discord and violence as a pretense to reassert their brutal control over the population.  The Arab Awakening was never going to be smooth and easy, but here it is hitting some pretty tough roadblocks even in Egypt, the heart of the movement and the world's best hope for establishing a some form of at least moderately workable democracy in the Middle East.

I always thought that the new Middle East would be quite a bit more Islamic than the more secular tyrannies that it replaces, but I have been hoping and expecting that it would not be dominated by the Islamist extremists.  These clashes are an attempt, I am afraid, of the Islamists to overwhelm the process and keep the people under the boot of their form of tyranny.  

But, I guess this was predictable and all part of the very messy process of reinvention of a country.

Thursday, October 6, 2011


My condolences to all those who are grieving the loss of Steve Jobs, a genius whose impact on the world brought us into the Information Age.  So many who bought his products felt that they had a personal relationship with him, and feel his loss in a personal way.  

A grateful world will miss him.

Wednesday, October 5, 2011

Why California is the Greece of the U.S.

The brilliant Michael Lewis writes in Vanity Fair about the terrible budget problems of California.  He makes three main points.

First, California is set up to destroy itself financially because the politicians have rigged the electoral process so that they only run in highly partisan districts.  They have done this through the politically corrupt practice of gerrymandering the districts to make them safe seats for one party or the other.  In addition, California has a referendum process designed so that the ideologues of either side can bypass the legislation altogether and craft ballots to get their way.  

That means that the Democrats get to add services and the Republicans get to block spending increases, with the inevitable result that the state spends more than it takes in.  Greece, here we come!

His second point is more general.  The human brain was designed to survive in the wilderness, a place of scarcity, or at least a place that required a lot of energy to tame, manage, and survive. But the human race has now entered a time of enormous abundance, and it is no accident that we are living in times of internet bubbles, housing bubbles, drug addiction, and rampant obesity.  The parts of our brains that say "grab all that you can while you can" was not designed for times where all the food, drugs, and credit that you want is just there for the taking.  So, we have been taking, and taking, and taking without much in the way of restraint, and the result is the average Californian has debts of $78,000 against an income of $43,000. The levels of addictions have become epidemic - shopping, drugs, sex, overeating, etc.  Whatever we want is available, especially if you have a nice collection of credit cards to buy now and not think about until, well...maybe never think about it at all, just keep shopping, consuming, eating.

He made a very interesting point in the article that is a corollary to why we are prone to overspending.  Many of us live next to rich people.  Or we see rich people in the media.  And we think we are rich too, or at least we think we should be entitled to the same things that the rich people can afford, but we can't, and we buy it anyway...on credit.  

The state of California is a reflection of the people of California: we are spending more than we can pay for.  

His final point is that we are all like a fat pheasant who finds itself with no other competition for food and eats itself to a point where it is too fat to fly, and finally is eaten by a fox.  That is, the environment provides the restraint that responsible action and self discipline fails to provide.  

The message is pretty clear from his article.  He ends up quite hopeful that Americans will figure this out and become responsible and adopt the kinds of personal character and restraint needed to keep from becoming the pheasants too fat to fly that get eaten by the foxes.

Monday, October 3, 2011

The left wing Tea Party?

The Occupy Wall Street demonstrations probably won't become the left wing version of the right wing Tea Party movement.  But they are both pretty angry at an elite that seems to them to be taking away America as they know it.  

The fear of the right wing is the ruin of America by an immensely powerful socialist government, and Obama's massive stimulus package and the massive overhaul of health care were proofs of their worst fears.  So, the Tea Party rose up in anger and became an unsophisticated but important political force.  

The fear of the left wing is the ruin of America by an immensely powerful corporate oligarchy, and the Wall Street created housing bubble and subsequent financial disaster, creating high unemployment and a long term "Great Recession", while Wall Street itself remains unpunished and ever more wealthy are proofs of their worst fears.  So, Occupy Wall Street demonstrations are rising up in anger and could become an angry and important political force similar to the Tea Party.

The left is afraid of corporate greed, i.e. the super wealthy amassing enormous fortunes while the nation becomes more and more poor; and right is afraid of government greed, i.e. government amassing more and more power and taking more and more control over individual's lives. Both are afraid of becoming helpless at the expense of those in power.

Both have a point.  But, we do have a system that can overcome excesses of power, the Constitution and elected officials are designed to give us the tools needed to break up excess power when it accumulates.  Teddy Roosevelt was the Trust Buster and diminished the powers of the corporate oligarchies of his day, and Ronald Reagan dismantled the overly powerful government of his day. 

But today, we may have both a government that is too powerful and an oligarchy that is too powerful at the same time.  Now what?  Those who want to dismantle the oligarchy want to make government more powerful, which may be a step in the wrong direction.  And those who want to dismantle the government could end up making the oligarchy more powerful, which may be a step in the wrong direction also.

I have some hope for a new centrist movement embodied in the Americans' Elect movement which is trying to put centrist names on the presidential ballots.  Rather than be stuck with Tea Party influenced Republicans or Occupy Wall Street influenced Democrats, we may get some pragmatic but powerful forces in the middle getting elected.  People like Simpson and Bowles, who put together the Simpson-Bowles report on reducing the deficit by raising revenues and reforming entitlements - things that need to be done but which our extremes driven politics forbid.