Thursday, December 30, 2010

How Different Are We Really?

Simon Jonson prognosticates about Europe's future, but has some cautionary words for the US as well.

Our leading bankers looted the state, plunged the world into deep recession and cost the United States eight million jobs. Now many of them stand by with sharpened knives and enhanced bonuses – willing to suggest how the salaries and jobs of others can be further cut. Consider the morality of that.

Will no one think hard about what this means for our budget and our political system until it is too late?


Despite the life preserver thrown by the Obama administration, which saved their institutions and bonuses, the bankers continue to whine about the rough treatment they are receiving from the government. These suposed depredations consist mainly of watered down attempts to reduce their penchant for risk that ultimately gets passed on to the rest of us.

Wednesday, December 29, 2010

On the Bankruptcy of Conservative Economic Theory

Matt Yglesias posts on the change in the structure of employment during Obama's first two years. You've got to be careful what you ask for. Public servants are also consumers.

Roger Goodell is a Moron (Adult Content)

Anyone besides me see an inconsistency in the way the league treated Roethlisberger and the way they have treated Favre? According to the league's statement the Favre investigation was on whether Favre violated workplace conduct policy, not to "make judgments about the appropriateness of personal relationships."

Commissioner Roger Goodell said he "could not conclude" that Favre violated the league's personal conduct policy based on the evidence currently available to him. Sounds like a replay official. Apparently the photos were inconclusive.

I'm reminded of the scene from that award winning movie Porky's where the female gym teacher insists on a line up of the private parts of the high school boys so she can identify the malefactor. For those of you who missed this great scene, here it is.

New Music On the Left

In line with transportation difficulties in the NE.

Tuesday, December 28, 2010

A Fitting Epitaph for John McCain

How can people become so bitter? Was McCain's original support of the Dream Act just an act, intending to make him seem compassionate enough to be President of all the people? Joe Klein's comments on McCain's about face.

Why US Financial Regulation Failed--and Will Continue to Fail

As long as we have an Office of the Comptroller of the Currency that kowtows to banks and a toothless Securities and Exchange Commission that couldn't find a violation if it was in bed with it (wait a minute--the SEC is in bed with the violators!) financial regulation is doomed to failure. Here's a decent summary of where we find ourselves now. With the Republicans assuming power in the House and people like Spencer Bacchus acknowledging how beholden Republicans are to the banks, reform has little chance of succeeding.

More Economic Theorists Should Be Economic Historians

For all those who still can't get by a crude application of the Quantity Theory of Money. Paul Krugman on the relevance of Weimar Germany. Keynes altered his thinking from the Treatise on Money to the General Theory, despite living through the 1920s. Folks, the liquidity trap is real.

Sunday, December 26, 2010

Republican Party Leadership and the Will of the People

I would never argue that a country's elected representatives should slavishly follow the polls in making policy. Sometimes the people don't know what's best for them--they don't have complete information or they have been mislead by demagogues. On the other hand when you campaign as the Republican Party did on the promise to follow the "will of the people" and then blithely ignore it for partisan gain or to reward campaign contributors, you expose yourself as the [lying scum] [scurrilous dogs] [scum sucking pigs] (I'm having trouble finding an appropriately pejorative description here) you are. The Associated Press has called out the Republican leadership for their actions during the lame duck session following the election where they promised a new political world where the people's expressed desires would determine policy.

Wednesday, December 22, 2010

New Music

A trip outside Texas on the left.

Why Goldman Sachs Should Die

A follow-up to the last post. An example of a totally nonproductive use of financial resources that caused a transfer of wealth from one greedy party to another. I think GS is culpable. Judge for yourself. If nothing else, it makes one wonder why the Republicans are so against making these transactions more transparent. The main issue for them seems to be that it will restrict profits--but is that a bad thing? In the article below, I've added some emphasis to bring out some key issues in these sorts of transactions.

December 22: Reputational Risk - Goldman Sachs and Abacus 2007-AC1, a Look Beyond the Numbers

Location: New York
Author: Knowledge@Wharton
Date: Wednesday, December 22, 2010

Goldman Sachs is the Wall Street mega-firm that people either love or hate -- or love to hate. Its money-making prowess leaves many impressed, envious or suspicious. To admirers, the revolving door between its executive suite and high government office shows commitment to public service. Detractors call it undue influence.

Now the firm's reputation is on the line, as it fights a fraud suit brought by the U.S. Securities and Exchange Commission (SEC) over a single deal in 2007, the sale of a complex "synthetic collateralized debt obligation" called Abacus 2007-AC1. The deal lost investors $1 billion but produced $1 billion in profits for Goldman's collaborator, Oregon-based Paulson & Company, a hedge fund betting the housing bubble would collapse. While Goldman says it did nothing illegal or unethical, the SEC says the firm withheld "material information" from the investors -- specifically, the hedge fund's role in selecting underlying securities.

The case raises important questions:

Could Goldman's customers really have evaluated the Abacus risks for themselves, as Goldman claims?
Do derivatives like synthetic collateralized debt obligations, or CDOs, serve any useful purpose?
Does Goldman's defense -- that it had no obligation to alert investors to especially high risks -- undermine its claim to be a "client-centered" firm worthy of customers' trust?

"If you view your clients as adversaries, you're likely to have many fewer of them," says Wharton finance professor Richard J. Herring, describing Goldman's dilemma as it tries to be a trusted advisor while also investing for its own benefit. Adds finance professor Franklin Allen: "It looks very much like [Goldman] exploited the clients on the other side of the deal from Paulson. The problem is that the people who bought the securities at IKB Bank are not as sophisticated investors as hedge funds or as seasoned banks like Morgan Stanley or Deutsche Bank. It would have been helpful to them to know that Paulson had been involved in the design of the securities. That goes to the heart of the SEC's case." [Editor's note: While it is true that the SEC has charged Goldman with wrongdoing, the charges have yet to be proved in court.]

While Goldman maintains that its Abacus investors had all the information needed to evaluate risks for themselves, Herring says synthetic CDOs are very opaque. "They are so complicated that, in practice, it's virtually impossible with publicly available information to dig down to the underlying securities -- mortgages, credit card loans, etc. -- that need to be valued.... My impression is that, other than hedge funds -- and perhaps Goldman Sachs -- virtually no other players took the trouble to do it. They merely traded based on the credit rating bestowed by the credit rating agency."

Goldman insists it did nothing wrong in the Abacus trade. In a statement issued on April 16, after the SEC filed its case, the company said: "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation." Since then, the controversy has broadened with the release by the Senate Permanent Subcommittee on Investigations of boxes of Goldman emails and documents related to other transactions. In daylong hearings on April 27, some senators said the papers show Goldman made a practice of deliberately luring customers into money-losing deals, while Goldman secretly bet against them. The Goldman case has spurred Democrats' efforts to rein in trading of complex derivatives that contributed to the financial crisis.

"The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients," Sen. Carl Levin, D-Michigan, said at a press briefing on April 26.

In a statement opening his testimony before the investigations subcommittee on April 27, Goldman chairman and CEO Lloyd C. Blankfein said: "While we strongly disagree with the SEC's complaint, I also recognize how such a complicated transaction may look to many people.... We have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky."

The SEC charges that Goldman illegally withheld material information when it did not tell the Abacus buyers that mortgage bonds underlying the CDO had been selected with the help of Paulson & Company, one of the world's largest hedge funds. Paulson wanted to bet that the housing and mortgage markets would collapse. To do that, Paulson needed a CDO based on mortgage bonds likely to fall in value when homeowners stopped making their payments. Paulson was not included in the SEC complaint and has not been accused of any wrongdoing.

A synthetic CDO transaction requires two parties taking opposite views. The "long" party profits if the underlying securities rise in value; the "short" party profits if they fall. Each side places a bet and, in effect, the loser's losses become the winner's gains.

In the Abacus deal, completed in April 2007, Paulson took the short side and two major investors took the long side: IKB, a large German bank, and ACA Capital Management, a New York-based investment firm. Paulson worked with ACA to choose the 90 underlying mortgage-backed securities. But there is dispute about Paulson's exact role. The SEC claims Goldman led ACA to believe that Paulson was taking the long side -- that he would bet the securities would rise in value -- when Paulson was actually taking the opposite view. This, according to the SEC, led ACA to believe Paulson thought the securities were safer than they were, and that its interests and Paulson's were the same. Goldman, however, says it "never represented to ACA that Paulson was going to be a long investor."

IKB, the German bank, did not know Paulson's role, according to the SEC, which states that this role was material information that would have alerted IKB to the high risks.

In an April 16 statement, Goldman argued that the long investors had no need to know of Paulson's role, or that Paulson was taking the short side of the deal. IKB and ACA "were provided extensive information about the underlying mortgage securities," Goldman said. "The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that a synthetic CDO transaction necessarily included both a long and short side." Among the key questions is whether investors, even if very sophisticated, could accurately assess the portfolio's risks on their own.

RMBS, CDS, CDOs

The case involves four types of securities that played roles in the financial crisis.

The first are residential mortgage-backed securities, or RMBS. These are pools of mortgages converted into bonds that are sold to investors, who then receive income from homeowners' monthly mortgage payments. Typically, the bonds come in a variety of grades, or tranches. Owners of the safest have first rights to the income from the pool. Owners of the riskiest are last in line, making them the first to suffer losses if homeowners fail to make payments. As compensation, they earn a higher interest rate -- and they get a bigger share of the income if homeowners do pay their mortgages.

Next are credit-default swaps (CDS), a kind of insurance policy that pays off if a debtor fails to make its payments. An investor, for example, could buy a CDS that would pay off if a company fails to make interest or principal payments on its bonds. The CDS becomes more valuable as this default risk rises or if the bond's rating is lowered, since that improves chances of a payoff. The speculator buying a CDS does not have to own the debt security being insured.

Third is the collateralized debt obligation. While there are many types, they are pools created from other securities with shares that are then sold to investors. Many CDOs, for example, were created by assembling portfolios of risky, low-rated tranches of mortgage-backed securities. The CDO is then tranched as well, just as the mortgage securities are.

Finally, there are synthetic CDOs. These are much like ordinary CDOs except that instead of owning real securities, investors own credit-default swaps on real securities. In Goldman's Abacus deal, the CDOs owned credit-default swaps that would rise or fall depending on the fortunes of a specific list of residential mortgage-backed securities, mainly on subprime loans to homeowners who are considered risky.

Evaluating the risk and potential rewards of a synthetic CDO is essentially the same as evaluating an ordinary CDO, because both depend on the quality of the underlying mortgage-backed securities, says William Frey, president of Greenwich Financial Services, a Connecticut firm that specializes in mortgage securities but does not invest in CDOs. Can an investor evaluate a CDO by studying the underlying mortgage securities? "Theoretically, yes," says Frey. But, he adds, "It's theoretically possible to check the engineering designs of the George Washington Bridge before you drive over it."

Evaluating the CDO would require studying each mortgage security in it, altogether comprising many thousands of mortgages -- perhaps hundreds of thousands of them, Frey says. A thorough evaluation would require studying the loan-to-value ratios of the mortgages, the geographical locations of the homes, unemployment rates, local default and foreclosure rates, and other factors determining how many homeowners were likely to default.

"For all practical purposes, unless you have the most sophisticated software on the market, which few investors have, you rely on the ratings agencies," Frey says, adding that a CDO investor would primarily rely on the ratings given to the mortgage securities reflected in the CDO.

The ratings agencies themselves have been criticized for giving good ratings to securities that later collapsed in value, as those in the Abacus deal did. Critics say the problem was that the agencies' fees were paid by the firms that issue the securities, as they still are, and that the raters' computer models used past patterns that did not reflect conditions in this decade.

To further complicate any analysis, two securities with identical ratings may treat their owners very differently, says Wharton finance professor Marshall E. Blume. "Ratings are a uni-dimensional measure of risk, but risk actually takes on many forms. For example, you could have two bonds with the same probability of default, which the ratings service might give the same rating to. But one bond, if it defaults, might lose a lot more than the other bond. Therefore the ratings themselves don't convey all the information about risk."

In the build-up to the financial crisis, many AAA-rated CDOs offered higher yields than other types of AAA-rated securities, suggesting the marketplace understood the CDOs were riskier despite the identical ratings, according to Blume.

In many CDO deals, the parties involved have unequal access to information, adds Kent Smetters, professor of insurance and risk management at Wharton. "The problem is that the quality of the securities held within a CDO is better known to a seller than a buyer. As a result, riskier mortgages were often put into CDOs by banks, whereas mortgages that were not sold off by the bank generally performed better. This problem is known as adverse selection."

Because assessing such risks is so difficult, CDO buyers seek any information that could affect what they are willing to pay to take on the risk, Smetters notes. "As a sophisticated investor in a CDO, I would want to know if it contained an unusual amount of junk -- that is, assets that are likely to default. That information would determine how much I would be willing to pay for the pool of assets, even if I had a high tolerance for risk-taking. It is difficult for me as a buyer to see the underwriting of the securities. Instead, the seller should disclose information that I, as a reasonably prudent investor, would want to know in making the determination of price." The law, he adds, "puts the burden on the sellers to disclose material information."

Because assessing CDOs composed of hard-to-evaluate mortgage securities is an inexact science, a prudent investor would want to know the views of anyone, such as Paulson, involved in selecting the underlying securities, says Herring. "I would certainly have been interested to know that one of the most successful hedge fund managers in history was helping to select assets for a portfolio that he intended to short. If I had been a customer, I would certainly have felt deceived and abused, even though Goldman Sachs may have been within the letter of the law. It's simply not the sort of business that a firm that wants to be known for its integrity should take on."

In its statements and Senate testimony, Goldman's view is that its customers are sophisticated investors who assess risks for themselves. At the hearing, Goldman CEO Blankfein repeatedly described customers as coming to Goldman seeking an opportunity to take on a particular type of risk, with Goldman merely complying. Several senators, however, argued that Goldman was often the initiator, using its sales force to encourage investors to buy securities Goldman no longer wanted to own. In many cases, committee chairman Levin said, Goldman encouraged customers to buy securities without telling them that Goldman was betting against the same securities by taking a short position. Blankfein said that as a market maker, Goldman has no obligation to reveal to customers its own view on the quality of any security it sells.

This view could damage Goldman's franchise, Herring says. "Goldman Sachs has made its reputation as a trusted advisor and superb investment manager. Many people would buy a Goldman Sachs mutual fund simply because they are thought to be among the best investors in the business. If [Goldman] really wants to play the caveat emptor game, however, they are giving up a valuable reputation that was hard won over decades." According to Allen, "they have this reputation of dealing on both sides and exploiting information.... I think it will hurt them.... Along the way I think we will see a lot of messy revelations. I don't think Goldman will come out of it very well."

Nonetheless, says Blume, the SEC's case is not a slam dunk. The SEC was split 3-2 on whether to file the Goldman case, and usually does not proceed unless the view is unanimous. It is often hard to define what constitutes material information, he notes.

Wall Street's Casino

The Goldman case comes as Congress is debating Democrats' proposals to rein in derivatives trading. Some lawmakers want to create a transparent centralized exchange, replacing the opaque over-the-counter system currently used, so that participants could more easily evaluate prices. Some also want trades to go through a central clearinghouse. With the clearing agent guaranteeing payment and delivery of securities purchased, there would be less worry about whether a counterparty would make good on its end of a deal.

Using an exchange and clearing agent could help make the derivatives market safer, Blume says. Because these systems, long used for stocks, reduce fees and spreads between prices bid and asked, they reduce profits for financial-services firms, which explains their opposition, he adds. A centralized system could encourage use of standardized products, which are safer because they are more transparent, though there would continue to be some use of customized derivatives traded outside the central system. Most users would opt for standardized products, just as consumers buy ready-to-wear clothing rather than have garments tailor-made because standardized products are cheaper to use, Blume argues.

Allen agrees that the customized market could shrink if a standardized derivatives market is established. "That may happen, yes," he says. "This is an interesting balance -- between how much you want over-the-counter markets with a lot of tailor-made securities versus just standardized execution on exchanges."

As the derivatives trading system is re-evaluated, some critics wonder whether certain derivatives serve any useful purpose or have merely turned Wall Street into a casino. Frey and the Wharton faculty members interviewed say derivatives linked to real assets such as mortgages do serve a purpose. The mortgage-backed security, for example, allows a lender to convert homeowners' future payments into immediate cash, so the lender can provide money to other home buyers.

Credit-default swaps allow companies and other market players to hedge against risks. A bond owner, for instance, can use a CDS to insure against the danger of not receiving principal and interest payments as promised. The problem, some critics say, is that the CDS buyer does not have to own the security that is being insured. That allows the swaps to be used for pure speculation, as if one took out 10 life insurance policies on a stranger, hoping to profit if the stranger dies -- a bet that would be illegal with ordinary insurance. Rampant speculation with credit-default swaps forced the $182 billion government bailout of American International Group. Collateralized debt obligations can serve a useful purpose when they repackage real securities, such as those backed by mortgages, says Smetters. In that case, they help supply money for homeowners.

But synthetic CDOs, like those in the Goldman case, do not pump money to people or companies with real needs, says Frey. Synthetic CDOs, adds Blume, are more like side bets among spectators standing around a craps table in a casino.

While the creation of ordinary CDOs is limited by the availability of underlying assets like mortgage securities, an unlimited volume of synthetic CDOs can be created because they are not tied to asset-based securities but to credit default swaps, which themselves can be created in unlimited numbers. Thus, synthetic CDOs satisfied a hunger early in the 2000s for investments with high ratings. Because the ratings were poorly done, many mortgage-related securities collapsed in value, and synthetic CDOs magnified the losses.

Says Frey: "In looking at securities ... I ask one simple question: Is there an economic reason to have this transaction? And if the answer is 'no,' what does this transaction do?" Synthetic CDOs don't pass his test, Frey says. "I don't really see any need for them. I don't see that there is a real underlying economic need for that transaction. What does that transaction really accomplish, other than to move money around? Moving money around is not an economically productive event."

Published: April 28, 2010 in Knowledge@Wharton

Income Inequality: Live with It or...

Tyler Cowen discusses how our current level of unequal incomes has happened and what it means for our economic future (the most interesting part of the discussion comes late in his article). Our problem is that we have allowed (or been helpless to prevent) a marginally productive industry (finance) to take over the economy to the point where rewards bear little relationship to the benefits provided and may, because of the periodic crashes, cost in aggregate far more than they contribute to society.

The basic problem is that the financial sector reaps the gains during flush times and the rest of us pay the bills when things turn bad. This is not a zero sum game within the financial sector. The key is what Cowen calls "going short on volatility." Wall Street habitually bets against "tail outcomes," --unlikely disasters. They can reap enormous profits and when the unlikely events occur, they hand the bill to the government. The tempting response is to say, let them fail, but the financial sector is not wholly without beneficial impact on the economy. Despite the merry-go-round of fairy dust laden collateralized debt, the financial sector does make actual loans to productive enterprises and helps to reallocate consumption and savings through time, as well as providing the bulk of the means of payment that keeps the economy moving.

Once commercial banks become embroiled in the non-productive aspects of financial activity, we are all at risk and the government has no alternative but to step in and halt the crisis. The depressing side is that because the malefactors were unpunished in any real sense, we are left with the prospect that it will happen again.

Tuesday, December 21, 2010

The Futility of the Quantity Theory

James Hamilton explores the relationships within the the quantity theory equation (MV=PY--the quantity of money times its velocity of circulation equals the price level times the real level of GDP). This relationship may in fact hold in the long run (we all know what Keynes said about that) but this equation, using the usual definitions of M offers no insight into the current economic situation.

Paul Kasriel (chief economist at Northern Trust) has recently proposed the level of bank credit as a substitute for M in this equation. I suppose time will tell whether this substitution will work out as a useful definition in the equation, but it does seem to offer some explanatory power in the situation in which we find ourselves at present. Of course, the principal weakness in the quantity theory remains: it does not take into account the position of the economy vis-a-vis economic capacity. When does a change in the left side of the equation affect P and when does it affect Y?

The Greening of the Military

Benjamin Friedman on initiatives by the Marines and Navy to reduce fossil fuels.

Welcome, Alice, to Wonderland

Several of my friends don't like Paul Krugman or his columns. Sometimes I wonder if what they don't like most is his penchant for deflating those people who consistently argue for failed policies or for theories of the economy that are patently wrongheaded. This column is an example of Krugman's ability to focus on the foibles of those he calls "Very Serious People." They are mainly people who are consistently wrong (and usually in positions of authority or influence) or who consistently change their opinions for political effect.

And Anyone Should Be Surprised Why?

It's a sad state of affairs when the only person in Washington with a consistent position on the issues is a madman.

Saturday, December 18, 2010

Republicans v. Tea Party

Read this point by point column by Dana Milbank listing how quickly the Tea Party supported Republican candidates are repudiating the promises they ran on. So much for throwing the rascals out. The Republicans have always been the hidden proponents of pork and deficits. Tea Party Patriots were either naive or stupid to believe that the party wasn't corrupt from the inside. Touch the tar baby and be immediately absorbed. The Republicans are the evil Borg of politics.

Friday, December 17, 2010

David Leonhardt on the Health Care Law

Opposition to the Health Care Law Is Steeped in Tradition. Leonhardt shows that the new health care law is one more step in the destruction of America, including Social Security, Medicare, income tax, Brown v. Board of Education, the minimum wage and civil rights laws. The nation will topple if this trend isn't reversed soon.

Simon Johnson on Reforming the Tax Code

Mr. Johnson, author of "13 Bankers," offers a strategy for the President on the deficit and taxes.

1984 in 2010

Republicans everywhere appear intent to thoroughly rewrite the history of the financial crisis. When the whole Financial Crisis Inquiry Commission refused to eliminate the terms "Wall Street," "Shadow Banking," deregulation," and "interconnection" from the report, the Republican members broke away and issued their own report. How anyone can describe the financial crisis without mentioning Wall Street and deregulation will be a mystery to most people. This is a tactic often repeated by the right when they get on the wrong side of an issue. They did it with Social Security, denying that they were in favor of privatization. No lie is too big for the Republicans. They've found that if they repeat a lie often enough (and these days, cry about it) they can eventually get most people to believe them, or at least give them the benefit of the doubt.

The Republican members want to blame the financial crisis on the government--specifically Fannie and Freddie. But as Paul Krugman notes, Fannie and Freddie didn't operate in Ireland, Iceland, Spain, Latvia and all the other countries that experienced housing bubbles. To make things worse, in 2006 Peter Wallison, one of the Republican members of the Commission, roundly criticized Fannie and Freddie for not doing enough to help out low income borrowers. He argued that the agencies were lagging behind their private counterparts.

Barry Ritholtz (author of "Bailout Nation") posed a set of questions to the Republican renegades. While I doubt that they will be answered, the questions themselves are instructive.

This week Spencer Bachus, the incoming G.O.P. chairman of the House Financial Services Committee, told The Birmingham News that “in Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.”

9/11 First Responders

The Republicans filibuster and then run out on legislation to assist first responders to the 9/11 attacks. Majority Leader Reid couldn't get the Republicans to stay after Christmas to take up this issue. If there was any doubt left in my mind that Republican Senate leadership is scum, it's gone now. How can anyone in good conscience support these people? John Stewart (in a serious interview) talks to four first responders and juxtaposes their comments with the comments of two senior Republican senators.

Education

This piece by Ken Robinson came to me from my sister by way of my daughter (both of whom are professional educators). It confirms things I have learned from my wife, who is also a professional educator. One really interesting thing is how the graphical presentation makes it so much more real. Probably a further indication of the truth of what Robinson says.

The thing that puzzles me is that in terms of received measures, the US is being beaten in most scientific areas by countries where education is even more regimented than here. Does this mean we are doing an increasingly worse job at an outdated approach to education? On the other hand, I think the US still leads in invention (creativity)--measured by most of the usual conventions. I guess the big question is: Could we do even better?

Fair Representation for Everyone

Texas Representative "Kino" Flores, convicted on felony ethics charges, will be able to vote in the upcoming session of the Texas legislature. There is apparently no law barring felons from participating as long as they were convicted while in office. Personally I don't see the problem with this. Flores has a natural constituency in Texas--all those ethics felons, both convicted and unindicted like Tom Delay, Rick Perry and numerous others. Everyone deserves to be represented by their peers. I understand Flores intends to move to Illinois to run for governor in 2014.

Wednesday, December 15, 2010

Sunday, December 12, 2010

Beats Afganistan

My Favorite War a column by Gail Collins. I'm routinely amazed by the enormous juxtaposition between the religious Christmas and the commercial Christmas. It's like Santa came down the chimney and delivered baby Jesus. How did we get from a manger and shepherds on a hill to a parade of lights sponsored by a beer joint? The fact that some people can equate the two is absolutely astonishing.

Sprint and Android

I've got a new phone! My Palm Pre (which I really liked) developed a flaw in the face plate. Sprint kindly replaced it with a new one. However, the new one never performed very well--in particular it wouldn't hold a charge for more than 3-4 hours. I went back to my Sprint corporate store, where they checked it out, reloaded the software and told me that they couldn't find anything wrong with it. After two days in DC, which I spent mostly without a phone during the day, I called back to the store and talked to the manager. The resolution was that he set me up with a new HTC EVO for nothing and no extension to my contract. Talk about customer service! We've been Sprint customers for almost two decades from the time we lived in KC and we really didn't want to switch. Our loyalty is now assured.

My new HTC EVO Android phone? It's fabulous. I don't use the 4G feature much, because out here in the sticks, I'm just over the hill from a good signal. But I tell you, if 4G is faster than Sprint's 3G network, it's nearly instantaneous. There's not a lot of difference in speed between my phone and my cable internet hook up. I'm an Apple guy and I've always coveted an iPhone, but not any longer. The EVO is blazingly fast and does everything you'd want a cell phone to do--especially provide crystal clear phone calls.

The EVO has all sorts of features I haven't tried out yet--like functioning as a five connection wi-fi hotspot. It's going to be fun figuring everything out.

Saturday, December 11, 2010

If We Could Solve Our Problems by Soaking the Rich...

In an earlier post I made the argument that Americans in general are completely unrealistic when it comes to balancing what they want from government with what they are willing to pay for. It's not even clear that what they want is a smaller government. As a new Bloomberg poll shows, this attitude stretches across almost all the political spectrum. It's "leave my taxes alone, but make the rich pay more" and "don't touch my entitlements."

Thursday, December 9, 2010

Wednesday, December 8, 2010

Is Obama Too Nice to Lead or Is He Just Dumb?

The perplexing administration of Barack Obama continues. Polls (all polls, not just some of them) show that the public does not support tax cuts for the upper income brackets (most of the thoughtful wealthy--Gates, Buffet, et al. don't support them either). Despite this, President Obama refused to make the Republicans shut up or put up over this issue, capitulating without even a skirmish. Does he really believe that playing nice with the people who have vowed to make him a one-term president will cause them to change their ways? How naive can an Democratic politician be?

Every Democrat running for office in 2012 would have been overjoyed to paint his Republican opponent as anti-middle class for holding up their tax cuts to make sure that the wealthy got theirs. Instead, now they are going to have to explain a further burgeoning of the deficit. How successful have they been at that so far?

I am completely mystified by the President's behavior. His attack on his allies this week goes beyond the pale. Bring back James Carville.

Back to the Middle Ages

Just to show that we continue to elect people ignorant of both economics and history, A couple of dark age Republicans have advocated a return to fixed exchange rates and gold. Paul Krugman comments.

In other news, Republicans have demanded that doctors consider reintroducing the practice of treating illness by bleeding their patients.

With Republican health care policies, we may all be reduced to using leeches as a medical procedure.

Monday, December 6, 2010

Too Late

When did Obama get so spineless? This is incredible. He has got to have the worst advisors any Democratic president has ever had. As Paul Krugman explains, we've set ourselves up for a massive budget crisis in the future. If we refuse to pay for the government we want--defense, Social Security, Medicare--we will face an impossible task in the next decade. Take that you poor, elderly and sick Americans.

Saturday, December 4, 2010

What Do Republicans Really Want?

They seem willing to take on the job of death panel. With respect to health care, Republican controlled Arizona seems to have done exactly what they accused the Democrats of wanting to do. Read this editorial by Gail Collins on Medicare in Arizona.

The Rich Strike Again--With Help From People Who Ought to Know Better

Why in our supposedly Christian nation, do we have such a problem with helping people? As Paul Krugman notes in his column, if there's a government program that helps rich people, it doesn't get much flak from policy makers. Witness Medicare. As Krugman notes, if grandpa needs a by-pass, even the rich are happy to have the government around to pay for it. But if the formerly working poor need something besides cat food to live on, let's make them work a little longer to get it and then make sure they don't get as much when they become eligible. Anyway, why would this matter to the longer lived wealthy with their 401ks?

Everyone who has been paying attention knows that funding Social Security is not a problem for itself or the budget over the next two decades and that fixes are easy, but that Medicare is an enormous and immediate fiscal issue that Congress and the President keep dodging.

It's becoming clearer by the day that President Obama has lost his way. He still says all the right things, but seems completely unable to translate them into a policy that is consistent with the beliefs of the people who said: "Yes, we can!"

Friday, December 3, 2010

It's Time..

for those people who don't have a dog in the fight to get out of the way and listen to those who do. Stephen Suh's extrapolation of Admiral Mullen's comments on DADT are priceless. One more example of how weak our current crop of senators really is.

Stephen Suh:

This statement was the best of Mullen's testimony:

One final word. And with all due respect, Mr. Chairman and Senator McCain, it is true that, as Chairman, I am not in charge of troops. But I have commanded three ships, a carrier battle group and two fleets. And I was most recently a Service Chief myself. For more than 40 years I have made decisions that affected and even risked the lives of young men and women.

What was left unsaid, but was clear to everyone but probably John McCain himself, was

You sniveling little weasel, I didn't get a free pass from the Naval Academy because of my daddy, I didn't get to fly planes because of my daddy, and I certainly didn't get to keep flying planes after wrecking every goddamned one of them because of my daddy. You've never been a real soldier in all the years of your miserable life, so why don' t you shut up and let us do our jobs, hmm?

Thursday, December 2, 2010

The Big Short

I finished reading Michael Lewis's latest book, "The Big Short," on the plane back from DC last night. I think it is a must read for anyone who wants to understand what happened with the housing bubble between 2005 and the present. It is both a funny and infuriating book. I wish it contained more answers about how to prevent the next Wall Street crisis, because there will certainly be another one--it's only a matter of time.

The recent action by Congress and the regulators have done nothing to correct the conditions that gave rise to the financial catastrophe we've endured over the last three years. As long as Wall Street firms have the ability to lie, cheat and steal from ordinary Americans with impunity we are exposed. An enormous amount of brainpower goes into the financial sector every year to generate obscene profits that enrich a very small number of people. The resources expended in this sector and the profits they produce have been defended with the argument that they serve to spread risk and make markets more efficient. The absurdity of this argument is now clear.

The actions of AIG, Goldman Sachs, Bear Sterns, Morgan Stanley and even Citicorp, Bank of America and other commercial banks created risk instead of spreading a given amount of it and ultimately led to the lockup of the financial system and situation from which we have still not recovered.