Tuesday, September 30, 2008

Don't Miss the "Mini" Bailout

Despite its gridlock on Monday, Congress did manage to prove $25 billion in loans to America auto-makers this weekend. This is the first such measure since the government helped Chrysler in 1980.

I just thought someone should mention it.

As for the $700 billion bill that failed to pass on Monday... I just don't know what to say right now.

I'm stunned that it failed to pass. That being said, I'm not 100% sure that its failure is a bad thing in the long run (of course, it obviously seems to be catastrophic for the short term well-being of the world's stock markets). Perhaps the delay will lead to a superior bill in the coming days...but I guess neither party is giving us reason to be optimistic about such an outcome.

Thursday, September 25, 2008

The Demands of the Presidency

The American public and media are right to be focusing on the current economic crisis and the resulting debate but unfortunately, the rest of our challenges cannot be put on hold.

Nor, unfortunately, can new ones be stalled from emerging.

Today, American and Pakistani troops exchanged fire along the Afghan-Pakistani border.

Earlier this week, North Korea threatened to restart it's nuclear weapons program.

And two days ago, Iran's Mahmoud Ahmadinejad added to his provocative rhetorical track record while speaking at the United Nations.


Tomorrow night, John McCain and Barack Obama are scheduled to hold a debate on foreign policy.

These two men have an opportunity to speak to tens of millions of Americans tomorrow night and we need them to do so.

John McCain has suspended his campaign under the pretense that his full and complete attention is needed to resolve this crisis. He is suggesting that the debate should be postponed and perhaps even take the place of the only debate in which Sarah Palin and Joe Biden are slated to speak.

First of all, let me say (with an honest attempt to limit my condescension) that the idea that John McCain is needed or is even capable of being an indispensable player in the current bailout negotiations is borderline hilarious given that he thought the economy was "fundamentally strong" less than two weeks ago. And in an attempt to be somewhat fair and frank, Barack Obama's presence at these negotiations is not necessary to save the Union either.

In fact, these two Senators will almost certainly do more harm than good if they crash the debate at this point because it is completely impossible to separate either of these men from the raw politics that have inevitably consumed their campaigns. And as both have said, partisanship is the last thing this crisis needs right now.


As for John McCain asserting that his campaign and its discussion of other issues should be suspended until the crisis is resolved....

In the spirit of full disclosure - again - I'll admit that I support Barack Obama in this election. Perhaps I have therefore lost my objectivity, but I feel compelled to say - almost scream - that I find John McCain's campaign suspension nothing less than absurd.

Here's my thinking on the matter:

I pray that our next President that can walk right out of negotiations on a crucial economic bill at 7pm and tell me at 8pm exactly what he thinks we should do to prevent Iran from obtaining nuclear weapons.

At 8:15, if necessary, I want him to explain to me why Americans are being shot at by troops from a supposed "ally" in the war on terror and what we should do about it.

After that, he can take a breath.

But THEN, at 8:30 he should be able to discuss what our options are if North Korea decides to break their word and build more nukes.

At 9pm, if necessary, he can go back to fixing the economy over a late dinner.

Notice that I didn't even ask him to discuss Hugo Chavez, Vladimir Putin, the Israeli-Palestinian conflict, nuclear weapons proliferation or border security. He can put those off until tomorrow because I recognize that even the President of the United States is a mere mortal.

But I DEMAND that he be a truly exceptional one.

This debate should go on. We need it. We deserve it. And the candidates for POTUS should be capable participating in it without harming their "contribution" to the resolution of the economic crisis.


Thanks for reading this rant. I had to get it off my chest.

Wednesday, September 24, 2008

Say No to Cancelling the Debate

New stations including CNN and CBS are reporting that John McCain is asking Barack Obama to agree to postponing the presidential debate scheduled for this Friday night.

McCain is going to continue his campaign through tomorrow afternoon at which time he wants to suspend it to "focus on the economy". This would include "postponing" the debate this Friday night.

This is a terrible idea.

A better one (at least for the American people) would be to follow through on the debate but shift its focus from the previously agreed upon topic of foreign policy to the economy.

Instead, McCain is proposing for the following:

"I am calling on the president to convene a meeting with the leadership from both houses of Congress, including Senator Obama and myself.... It is time for both parties to come together to solve this problem."

This is not a bad idea, but there is no reason in the world that this should necessitate cancelling the best medium for letting the voters analyze their candidates' position.

We MUST have this debate - and someone truly prepared to assume the Presidency should welcome it. Here's why I say that:

We are in the middle of a crisis that has yet to be resolved. The timing of this debate gives these two men an enormous platform to discuss and promote their agenda for addressing it. This platform gives them a level of power and influence that only an elected President typically has. Tens of millions of people are expected to watch these two discuss their ideas. And given that a legislative response to this crisis will likely come some time next week, their words on Friday night could profoundly shape the outcome.

In other words, if they truly want to lead this nation (and not just "hold the office") - this is their chance.

I'm skeptical of anyone this close to the Presidency that has this opportunity and is not literally jumping to take it.

The Bailout: Two Thoughts and a Summary Perspective

Ok - another post on the bailout proposal. I've been reading more commentary from journalists, economists and even the Treasury Departments website.

Two emerging thoughts and a summary perspective:

First thought:

The more I think about it, the more outraged I become that the Bush Administration has asked the American people to give $700 billion to Henry Paulson with absolutely no ability to influence how he uses it or any mechanism whatsoever to hold him accountable for any decision he makes.

As proposed by the Bush Administration, the Treasury Secretary would be given the following power (source: Dept of the Treasury Website):

[The Treasury Secretary] will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets.

I added the bold font myself for emphasis. Make no mistake - this is basically saying that Henry Paulson can buy anything he wants with this money. This is a bad idea. It is a potentially catastrophic idea when combined with the following clause in the Bush Administration's proposal:

Sec. 8. Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This is from the Administration's bailout proposal summary issued this weekend. You can read it for yourself here.

I say all this, not because I doubt Paulson competence or integrity. Install any human being (alive or dead) you want in this position - and give him/her this power - and I would be writing the exact same post. No one should have this much unregulated power. Adams, Jefferson and Madison will spin in their graves if this bill passes.

Fortunately, it looks like it won't. Even the Republicans are balking at its passage.

Second thought:

I cannot find - anywhere - a clue as to the origin of this $700 billion number. Not a single high level equation or minimal set of assumptions. Not one pie chart even speculating where this money might go. At an absolute minimum we should get an explanation that says something like this:

"This money is to buy approximately 1,000,000 bad mortgages at an average price of approximately $700,000 a piece".

I totally get that this is a tremendously complicated problem and I don't expect, nor would I trust, a detailed, line-item budget for these funds. But we are seeing no transparency whatsoever - and that is totally unacceptable.

So - a summary thought:

Whatever fallout we are going to have from this crisis, it is not going to be materially worse, in the long run, if Congress takes another week or even two to get the best possible solution in place. Turning over $700 billion dollars to one man who, by the way, has only about 4 months to spend it, is one of the most ludicrous ideas in the history of Western Civilization.

And I say that understanding that crises often need us to act much faster than the slug we call the U.S. Congress is capable of moving - but to give that level of power and preclude retroactive accountability is unjustifiable under ANY circumstances.

Let's all take a deep breath and spend another week letting these Congressmen and Senators - 95% of whom are no more prepared to evaluate this plan than a 19 year old second semester economics student - talk to experts and get up to speed.

Let's not allow a once in a generation economic debacle to lead us into a once in a century political one.

Tuesday, September 23, 2008

Questions and Answers on the Bailout Plan

In my quest to learn more about the $700 billion bailout plan Congress and the President are currently debating, I've found another useful article to pass on.

The article is not anywhere near all its title claims it to be ("The Wall Street Bailout Plan, Explained"), but if you're interested in a perspective on any of the following questions, you can get one here.

Q. The bailout program being negotiated by the Bush administration and Congressional leaders calls for the government to spend up to $700 billion to buy distressed mortgages. How did the politicians come up with that number, and could it go higher?

Q. Who, really, is going to come up with the $700 billion?

Q. So is it fair to say that Americans who are neither rich nor reckless are being asked to rescue people who are? What is in this package for responsible homeowners of modest means who might be forced out of their homes, perhaps for reasons beyond their control?

Q. How is it that the administration and Congress, which have not tried to find huge amounts of money to, say, improve the nation’s health insurance system or repair bridges and tunnels, can now be ready to come up with $700 billion to rescue the financial system? And is it realistic to think that the parties can reach agreement and get legislation passed in a hurry?

Monday, September 22, 2008

Krugman on the Financial Crisis

Paul Krugman published a very strong opinion piece in the New York Times today that outlines the reasons for the economic crisis and comments on the appropriate response. I'm usually hesitant to promote Krugman in this blog because (despite his strong reputation as an economist) I feel that his essays are often a little less objective than they should be. That being said, I'm with him this time.

The article takes less than 5 minutes to read and it will give you both a good overview of what got us into this mess and what we should (and should not) do about it.

You can read it here.

Voters should pay extremely close attention to the $700 BILLION bailout plan that is currently being negotiated in Congress. The Bush Administration's current proposal wants to give the Treasury Secretary extraordinary and absolutely unprecedented powers to administer the plan without review "by any court of law or any administrative agency".

This is a horrible idea in my opinion.

No one should be given that kind of power and not have it at least subject to retroactive review - regardless of whether they were appointed by George W. Bush, Barack Obama, John McCain - or heck even one of the Founding Fathers. (They would have known better).

We're in the middle of some truly historic economic events right now and, as scary as it is, we are relying on our politicians to craft a $700 billion dollar plan to address them in a matter of days. Be skeptical of anyone who says we need to rush to judgement on this. The decisions being made today and over the next week or two could have economic repercussions for a generation.

Getting Smart on the Financial Crisis

Very few people understand the causes and implications of the economic events of the last few weeks, but many are starting to realize that we have just witnessed some hugely important and historic economic events.

As I mentioned in my last post, I'm still trying to get up to speed on all this and it's proving difficult even given my experience in business and economics.

I've found two articles so far that I'll pass on if you want to try to better understand the events you are witnessing. The second article is probably the better read, but I am mentioning it second because it is a few months old.

The first is by Robert Samuelson writing in The Washington Post. The article quickly becomes pretty dense - so you should read it at your own risk (I still find some aspects a bit confusing). You can find the whole article here, but I've tried to isolate the core of the article below. This section speaks to the causes of the crisis only. Other parts of the essay try to explain the government's actions over the last few days but in my opinion is not easily understandable without a bit of background in macroeconomics.

Every financial system depends on trust. People have to believe that the institutions they deal with will perform as expected. We are in a crisis because financial managers -- the people who run banks, investment banks, hedge funds -- have lost that trust. Banks recoil from lending to each other; investors retreat. The ultimate horror is then everyone wants to sell and no one wants to buy. Paulson's plan aims to avoid that calamity.

As is well known, the crisis began with losses in the $1.3 trillion market for "subprime" mortgages, many of which were "securitized" -- bundled into bonds and sold to investors. With all U.S. stocks and bonds worth about $50 trillion in 2007, the losses should have been manageable. They weren't, because no one knew how large losses might become or which institutions held the suspect subprime securities. moreover, many financial institutions were thinly capitalized. They depended on borrowed funds; losses could wipe out their modest capital.

So the crisis spread because the initial losses were multiplied. AIG, the nation's largest insurer, is a case in point. Although most of its businesses -- insurance, aircraft leasing -- were profitable, it had written "credit default swaps" (CDS's) on some subprime mortgage securities. These contracts obligated AIG to cover other investors' losses. In the first half of 2008, AIG itself lost about $15 billion on its CDS contracts, and through the summer losses mounted, resulting in downgrades of the company's credit rating and a need to post more collateral. AIG didn't have the cash.

The second is a reference to a previous post I made some months back that links to an excellent tutorial on the mortgage crisis that seems to be at the root of this mess. It's a fantastic place to start (and even a little entertaining, believe it or not). The post is here.

Saturday, September 20, 2008

An Interesting Solar Power Initiative

It might be surprising that I haven't said a word about the economic developments this week but the truth is, I am still trying to get my head around it. Despite a bunch of very relevant education in business and economics the last few years, I'm still finding it difficult to feel confident that I understand the causes and the proposed solutions well enough to think aloud about it.

So instead, I'm looking for some well written articles that I could promote on here to help any of you that are interested learn a little more. I haven't had a ton of success yet.

So, in this post, I'm passing on something else that I thought was interesting.

Berkley California is rolling out a pilot program that provides low interest loans to residents that want to retrofit their homes with solar power panels. Although many communities have tried tax-credits and/or rebates to encourage similar efforts in the past, Berkeley's program is the first that actually provides residents the cash upfront to address the start-up costs (which are considered to be the single biggest obstacles to wide-spread adoption of the technology).

The plan allows residents to pay off these loans over the course of 20 years via a ~$180 monthly increase in their property taxes. An undetermined portion of this $180 cost would be offset by savings in monthly electricity bills.

Sounds promising to me. You can read a little more about it here.

Wednesday, September 10, 2008

A New Low for a Man and His Party

This post is written primarly for any conservative or undecided voters.

I don't feel the need to try to maintain a balanced or dispassionate perspective when I hear garbage like this:


In the above 30 second ad, John McCain accuses Barack Obama of fighting to achieve "comprehensive sex education for kindergartners". McCain calls this Obama's "one accomplishment" in education.

The truth is, this piece of legislation was designed simply to teach these young kids just enough to know when they were being sexually abused. In other words, this was not a pro-sex education law, this was an anti-pedophilia law.

Anyone out there that still supports the McCain campaign needs to ask why they feel the need to resort to such blatant and disgusting lies.

We have a severe energy crisis in this country, a failing public education system, record budget deficits and two wars to fight. Instead of telling you where he would lead the United States, John McCain is spending time, money and energy trying to convince you that Barack Obama wants to teach your 5 year old all about sex.

Why would he and his party resort to such a tactic? If you are still considering voting for him, you need to ask yourself that question.

Here is my own personal answer: the once proud party of Lincoln, T. Roosevelt, Ronald Reagan and even Newt Gingrich - the one that most reasonable people at least minimally respected (and many proudly supported) - is gone.

This country needs an honorable conservative political party.

Today, we do not have one.

If you ever want to see one again, you first must show those that have stolen its mantle the door.

Even if I did not support Barack Obama, I would no longer be able to bring myself to vote for John McCain - and I say that as someone who, only eight or nine months ago, would have probably voted for him over Hillary Clinton.

Friday, September 5, 2008

Rudy, Palin and Community Organizers

You might be surprised that I haven't commented on either of the conventions over the last couple weeks. I've watched every day of both conventions (or at least TiVo'd and caught up) and the sheer volume of rhetoric has left me grasping for where to begin. I've also wanted to give myself a bit of time to cool down because both sides provoked a range of emotions that I didn't want to overly influence my writing.

But some of my strongest emotions were provoked two days ago after hearing Rudy Giuliani and Sarah Palin and they haven't really gone away. So, I thought I would say a few words.

In this post, I want to focus on a single comment both of them made that I felt crossed a line and, more than that, revealed something meaningful about these two individuals.

Sarah Palin moved me to the edge of my seat when she said the following:

Before I became governor of the great state of Alaska, I was mayor of my hometown. And since our opponents in this presidential election seem to look down on that experience, let me explain to them what the job involves.

Great, I thought. Inform us about your record - make an argument that you will be able to take the reigns next year if the oldest President ever elected to a first term has his 5th recurrence of skin-cancer or, God forbid, some other health problem. Tell me something substantive about yourself. I'm listening with an open mind.

Instead, she said this:

I guess a small-town mayor is sort of like a "community organizer," except that you have actual responsibilities.

(And by the way, she never quite remembered to tell us "what the job involves").

Rudy Giuliani preceded Gov. Palin that evening. If you can spare 45 seconds, you can observe the remarks (and the audience's favorable reaction) that prompted this post.

So why am I writing about this after all the things that were said by both parties in the last two weeks? It's standard practice for politicians to mock their opponents -particularly at their political conventions. But this remark was not merely demeaning Obama (who worked as an organizer in his youth), it was denigrating a service oriented profession.

If you're interested, you can read more about the job of community organizing here - but here is a pretty solid core definition:

Community organizers create social movements by building a base of concerned people, mobilizing these community members to act, and developing leadership from and relationships among the people involved.

Community organizers act as area-wide coordinators of all the programs of different agencies so as best to meet community needs for health and welfare services. They also facilitate self-help programs initiated by local common-interest groups, for example, by training local leaders to analyze and solve the problems of a community. Community organizers work actively, as do other types of social workers, in community councils of social agencies and in community-action groups. At times the role of community organizers overlaps that of the social planners.

So basically, community organizers help people help themselves. They are nothing less than the very embodiment of what the conservative movement once claimed (rightly) to champion and what it continues today to pretend that liberals reject in favor of government handouts.

I find this tremendously ironic and hypocritical. And given the boisterous positive response of the convention's crowd - both to Giuliani and Palin's statements - it is also sad.

Barack Obama gets a lot of credit for his role as a community organizer from those that support him. They say that after graduating with his elite education and given his personal gifts he could have taken any number of lucrative and prestigious jobs instead- and they are right.

Some of his more thoughtful critics like to say that given Obama's political ambitions, his "sacrifice" wasn't a sacrifice at all given the political network he built in the community where he eventually launched his career. Some further claim that this was one of Obama's chief intentions all along when he returned to Chicago. And you know... I'm willing to say that there is a good chance they are right.

But Giuliani and Palin did not attempt to cast doubt on Obama's intentions. Instead, they mocked the job itself and by extension, it's purpose. They also insulted all the other people that have served in the same capacity - most of whom were not able to use the experience to attain wealth or political power.

This says a great deal about Rudy Giuliani, Sarah Palin and yes, John McCain.