Friday, December 19, 2008

Bailouts, Corporealness, Faith and The Pet Sematery

I gotta tell you, I go off to Facebook for a few weeks and everything I predicted happens. It's as if the people who run this country don't even read my blog.

Okay, it didn't happen quite the way I predicted. The GOP Senators led by Bob Corker, who heretofore has been a relatively silent backbencher, managed to insist on enough common-sense provisions in the Senate auto company bailout plan that it ultimately failed. The sticking point was the UAW having to pick a day in 2009 by which their wages would be reduced to those comparable to the wages paid at Toyota, Honda and other "transplant" auto companies. They were also going to have to take some of their pension and health care trust fund money in stock, and while they definitely want to get paid, nobody's crazy enough to take GM common stock right about now. The date that the UAW is thinking about is January 20 -- when the new President and the new Congress take over and things start swinging their way in earnest.

Like I said, there's no way a Democratic Congress and a Democratic Presidency aren't going to lead-block for organized labor. While this is a great opportunity for a Sister Souljah moment, the Democratic party has never stood up to the unions since the Great Depression, and given that we're on the brink of at least a Little Depression I don't see them doing that now. Heck, with "Card Check", the deceptively-named Employee Free Choice Act, it's not inconceivable that if the UAW waits long enough and twists enough arms at the transplant auto companies ("transplant" is the new term for foreign manufacturers who have set up here -- kind of like a transplanted kidney that is working when the native ones don't), they won't be lowering their pay and benefits to match the non-union shops, they'll be introducing the GM-Ford-Chrysler contract at all the new UAW Locals at the transplant factories. Disparity averted! Problem solved!

So now the White House feels the need to act, and here's where we get into the etymology of "corporation". Now, it seems funny to see the word corporation all by itself, without its constant companion word, "evil". For some reason, a group of people who are organized, like say, a community organization, is good, while a group of people in a corporation are practically destined to do fell deeds. One of the great realizations of my college education was that the words corporation, corporeal, encorporate and corpse all share the same Latin root: corpus, or body. A corporation is a legal fiction: it is in essence a brain-dead human being, forever at the age of majority, and as the officers of this corpus the Board of Directors has what amounts to power of attorney. While this body is never seen and doesn't act on its own, this particular corpse is agreed to exist by legal fiat. The assets of stockholders are shielded by this fictional being, who exists enough to own things and accept responsibility and blame, but not enough to have motive force. A corporation is a fictional person, nothing more and nothing less. The actions of a corporation are the actions of people -- good, bad or indifferent. People who fail to grasp that a corporation is simply an organizational tool and not a moral judgment are nonserious people.

So what we have are three corporations -- three now-very-old fictional people who used to be vibrant and healthy, and were active an vigorous as little as a decade ago. Now, they're functionally in the financial ICU, with multiple organ system failure and at Death's door, knocking loudly. The most recent knock was from Chrysler, who announced earlier this week that they were a bit overstocked on cars and would be shutting down operations for four weeks over Christmas and New Year's. This announcement was apparently made as a means of banging Chrysler's spoon on its high chair, the wallet of last resort (the White House) was insufficiently prompt with a bailout offer, and the owners of Chrysler were getting nervous.

As an aside here, the 80% owners of Chrysler are not Mom & Pop stockholders, it's Cerberus Capital Management, one of the largest private equity firms in the United States. Have you heard about how much money Cerberus is going to put into Chrysler? Yeah, me neither. Why innovate or invest or even manage when you can spend a fraction of that money lobbying for rents (the economic term) in Washington? Cerberus can go hang, I want to know what they're willing to do before my tax money goes to bail out people who make more in interest each week than I do in a year. But I digress...

So Chrysler gives a hint that it's going to take a nap and might not wake up, and the Bush White House folds like a lawn chair. They're scooping the dregs out of the first round of TARP funds (that program that was supposed to buy troubled assets, but didn't, and invested in bank equity to improve liquidity, which didn't work either, but hey) and have announced $13 trillon or so in low-interest loans for Chrysler and GM, to tide them over until February. If the Congress doesn't pull the brake lever on Round Two of the TARP funds (another $350 billion, or as we like to call it, about half of the cost of the War in Iraq -- remember when $350 billion was a lot of money?) in early 2009, there's another four-bil in it for them.

There are a couple of things to like, and this is looking very much on the brightest possible side. One, this is a loan, not a giveaway, though this is in itself a major technicality -- loaning money to your crackhead buddy when you know he's going to blow it and is unlikely to pay you back amounts to a giveaway. Two, to get the money the unions have to lower their wage scale to match the transplant auto companies' by 12/31/2009, among other things. That's it. Otherwise, your money is being used to perpetuate the life of a couple of corporate beings by another few months. They say end-of-life care is the most expensive, and if you needed any proof, well, there it is.

You see, there is an afterlife for corporations, these fictions of life that do our bidding. It's called bankruptcy. All that you have and all that you owe are tallied, and a judge makes a determination about how you'll spend the rest of your existence. There is a holy book that describes this process, the United States Code. It even has Chapters, Chapter 11 is the favorite of many. But to get to the afterlife, you have to have faith -- and faith is what we're missing.

George W. doesn't want to be the President who lets a whole economic sector die on his watch. He only has a few weeks left, and he's trying desperately to avoid becoming George "Hoover" Walker Bush -- his faith is being challenged. He has publicly stated that his purpose is to avoid a "chaotic" bankruptcy, because of the disruption down the supply chain and the further crisis in consumer confidence that would create, so he puts some quarters in the respirator and the corpus stays alive for a few more weeks.

Which brings us to Pet Sematary, a now decades-old novel by Stephen King, the functional lesson of which is that "Sometimes, dead is better". In the story a doctor loses his son and cannot bear the loss, so he buries his son's body in an old and exceptionally haunted Indian burial ground. What comes back from the burial ground looks like his son, but is clearly his son no longer. Eventually, the son-thing kills his wife, and having already lost everything, the now-quite-insane doctor buries his wife in the Pet Sematary and waits for her terrible reanimation. The clear parallel here is that Congress is the Pet Sematary, a magical force that will reanimate these fiscal corpii, though they won't really be alive.

Japan went through this same kind of real-estate fueled boom-and-bust cycle, and one of the lingering aftereffects were "zombie corporations", companies that were perpetually dependent on government handouts to stay alive. They were a further fiction atop the fiction of a corporation, unable to perform even the basic function of a corporation they were nevertheless kept functioning on the government dole to avoid the specter of unemployment. One imagines the Nikkei stock index as a tour of the storage chamber in Robin Cook's Coma. The fear of unemployment and the specter of deflation kept the Japanese government printing money, lowering interest rates and desperately propping up the economy, but there was essentially no economic growth in Japan for more than a decade -- almost the length of our own Great Depression, though without the high unemployment.

I can see Bush shambling toward the Pet Sematary, cradling the corpses of GM and Chrysler -- not because he loves them in particular, but because he fears loss and blame. It's really unfortunate that this and a shoe-throwing incident are the two last acts he'll probably be remembered for at least for the first round of histories. I believe he has faith in the bankruptcy afterlife for GM and Chrylser, but he doesn't want to pull the plug. He's kicking the can, and it's sad to watch.

The next Congressional session will be sadder. But when it comes to the bailout, I'm agin' it.

Wednesday, November 12, 2008

Pull The Trigger

I've been hearing about how GM and Ford and Chrysler are on the ropes for months now. I even bought some GM at $6 a share a few weeks ago, the sold it at $6.50 because I read a rather convincing article that GM could very likely fail.

Well, it seems that that eventuality is pretty close to becoming a reality. The Big Three have convinced the Democratic leadership (Reid/Pelosi/Obama) that they need a bailout and now Obama is trying to convince Bush that they need the bailout even before the Obamas can move in with the new First Dog. Nevermind that the Big Three already have $25 billion in low-interest loans, a little tidbit passed in the days before the $700 billion TARP plan made that look like chump change. They need more.

Part of the reason they need more is that the UAW has systematically strangled General Motors and other automakers for decades. I should know, both of my grandfathers were UAW members and retired with UAW pensions, one from Fisher Body, the other from Chrysler. I'm far removed from Detroit now, but Detroit is one of my family's ancestral homes and my own father recently retired from GM. The UAW nearly killed GM a last year with a strike, as part of the settlement the long-term UAW pension and health insurance benefits were to be passed on to trusts, funded by General Motors and run by the UAW. Sounds like a good plan -- GM gets to pay $36 billion to pay for 70% of its massive $51 billion in unfunded retirement benefits.

Well, here we are in 2008, just over a year later and the Big Three's lobbyists are walking the halls of Congress and prophesying doom if they don't get paid. Hope and Change are in the air. GM hopes it will have enough cash to make it to the end of the year, much less until the change comes in late January of 2009. Nancy Pelosi and others are trying to figure out how much to pull out of the national wallet to prop up these automobile manufacturers, in part because the UAW's trust fund is not yet fully paid up.

An ironic note is that when President-Elect Obama is able to issue executive orders, one of the ones he's likely to issue is a variance from EPA standards allowing the California Air Resources Board (CARB) to regulate CO2, and raise fuel efficiency standards for cars sold in California. CARB has already indicated they want to raise standards above what Congress just mandated last year -- efficiency standards the automakers have yet to meet. If President Obama allows California, where 40% of US car sales occur, to set the bar for the rest of the country, within 5 years the car companies will be right back to Congress for yet another handout. If he doesn't, the and hardcore environmentalist folks will be experiencing the buyer's regret that I expect them to encounter at some point in the first 100 days.

Pelosi, Reid and Obama are very interested in getting help to GM, not so much because they are ardent capitalists but because union households delivered Michigan, Ohio and Pennsylvania, among other states, and unions are a major constituent of the Democratic alliance created back during the last great economic challenge -- the Great Depression. The Wagner Act is a legacy of those days, the adversarial position of union vs. management was enshrined by legislation during the 1930s. The UAW delivered for the DNC in ways they really have not for GM, now they want their government to work for them, and be sure their retirement plans are fully funded.

I predict that GM will be bailed out by the government, at least once, if for no other reason than to preserve union benefits. In fact, literally for no other reason than to preserve union benefits. GM as a company will not be helped by this cash infusion, they'll likely get enough of your money and mine to complete their pension mandates, and then the Congress will find themselves much more interested in the workings of a free and fair market.

My modest proposal to Rick Waggoner is to tell the government to stuff it, save the money he's spending on lobbyists, and declare bankruptcy now.

No other course of action will allow GM even the chance to get the UAW claw off the company's throat. The Democratic Congress will not pay for GM's survival directly, it's mainly the UAW they want to see benefit. Only bankruptcy will allow General Motors to sever its relationship with the UAW and move forward like the other half of the US car industry. GM going bankrupt will not be the end of domestic manufacture of cars -- automobiles are still needed, and GM has the plants and fixtures to make them. But GM cannot do so and make money with its current cost structure, so to save the company the cost structure has to go.

You see, there are two automobile industries in the United States. One is northern, unionized, domestically-owned, and dying. The other is southern, non-union, foreign-owned and thriving. GM cannot continue to compete with Japanese companies who do not have to tote around the UAW. Taking Congress' money will weld GM even tighter to the UAW, and will likely be the end of a domestic industry.

So, Rick, buddy -- we both know you're on the precipice. Take a big step over the edge, before you get pushed. Maybe you can fly without all the deadweight, it's certainly possible. You'll never know until you try.

And Ford and Chrysler -- do you really want to be the last union shop in the auto industry?

Pull. The. Trigger.

Wednesday, November 05, 2008

Whither Palin?

Well, the results are out and while the polls generally overestimated the level of Obama's support, they didn't over-overestimate it to the point of missing a hidden McCain victory. I believe Scott Rassmussen's group came the closest on the quadriennial dart throw, predicting a 6.5% advantage in people identifying themselves with Democrats over Republicans. And there's your difference, more or less. The PUMAs are apparently much rarer animals than they chose to let on.

Congratulations to President-Elect Obama. Now all you have to do is deliver on everything you've promised, and quite frankly you have as much chance to do so as your average department store Santa does to get everything under the trees of the kids they meet each year. It does not escape my notice that Barack Obama is the first man of African extraction to become the President. This is a big deal, but whether it changes much of anything with regard to race relations I don't really know. If GOP people opposing his agriculture plan, for instance, get the Race CardTM deployed against them, little will have been accomplished.

Giving Her The Finger...Or At Least Pointing It

The recriminations are now beginning to boil out of the McCain camp, with a number of fingers pointed at Sarah Palin. Here's just a sample, according to Carl Cameron of Fox News Channel these kinds of things will be coming out for days.

Hey, why take blame when you can pass it on to others? The McCain campaign, unable to craft an economic message until an unlicensed plumber talked to Barack Obama in front of a rope line, figures it must all the Caribou Barbie's fault. For the record I tend to doubt she thought 'Africa' was one country.

The good thing for Sarah is that she has her day job, and can go back to Alaska where her popularity is only slightly dimmed (from 80%) and the Personnel Board has cleared her of any wrongdoing. She might have to fight the legislature over the Branchflower report, but chances are pretty good that they won't go after her. For one thing, it will look petty. For another, she's no threat to Obama and got her ears boxed on the national stage in a way that the Alaska Legislature couldn't dream of pulling off.

The shame of all this nasty talk is that it's just the standard pettiness that comes from losing an election, and in this case it's likely a bunch of insiders sticking knives into Palin and hoping for jobs in the next election cycle -- which starts a whole 100 weeks from now or so. Less, if you can wangle a staff job with a PAC. The maneuvering for 2012 at this point is pretty unseemly. David Frum, no Palin fan, blames Nicole Wallace, a former Bush staffer who worked for the McCain campaign. The kinds of things that are coming out are petty and catty, like she answered the door to her suite in a bathrobe. You mean, she didn't let the staffers stand in the hall? Goodness, how inappropriate...or something? Sounds like the kind of thing someone used to taking care of her own business would do, that's the mark of a humble person, not an arrogant one.

It's a shame the McCain campaign people weren't as effective at real politics as they seem to be at office politics. Could have made a difference.

Senator Palin?

Ted Stevens, Alaska's senior Senator (and newest felon!) might win his re-election bid after being convicted of perjury for failing to report $250,000 in home improvements an oil services company performed for him. If elected, he will most likely face censure and expulsion from the Senate, if not jail time, so he will not be serving. Alaska law requires a short-interval election within 90 days, so someone will be replacing him and will run against (most likely) Mark Begich.

Sarah could run, but it would be a bad idea. First, it looks like naked political ambition. She was elected governor, she should serve out her term. Second, if she wants to run as a Senator, Lisa Murkowski is up for reelection in 2010. I have nothing personal against Lisa Murkowski, but with the name there's probably a body or two buried somewhere and if she has ethical issues Sarah has the opportunity to run. Waiting is better. If she gets to appoint someone, I imagine she will appoint Sean Parnell, the Lt. Governor who she supported in the primary against Don Young.

Finally, being a Senator probably wouldn't add much to her resume. It would destroy her "Washington Outsider" credentials, which are probably going to be really useful because the Reid/Pelosi/Obama group have challenges before them their ideological bent does not prepare them for (war, recession, crushing debt) and their chances of screwing something up badly are very high. She will benefit from staying out of the blast radius of the debacle as much as Barack Obama did from being a state Senator during the 2002 Authorization for Use of Military Force vote before the Iraq War.


For someone who was such a punching bag for Saturday Night Live, the real Sarah Palin seemed to really make an impact on at least three people: Lorne Michaels, Tina Fey and Alec Baldwin. None of these folks would you expect to be political allies, and none of them are. But they have an interesting perspective, politics has been described as "Hollywood for ugly people", there is a certain similarity in what they do. Performers in Hollywood know they are at the apex of a very high and steep pyramid where only the best get where they are, and then with more than a little luck. When the guy that launched the careers of Bill Murray, John Belushi, Eddie Murphy, Mike Myers and Chris Farley, among many others says:

What do you think Palin gained from her appearance?
I think Palin will continue to be underestimated for a while. I watched the way she connected with people, and she's powerful. Her politics aren't my politics. But you can see that she's a very powerful, very disciplined, incredibly gracious woman. This was her first time out and she's had a huge impact. People connect to her.

She's a ratings magnet, too — do you think she can land a development deal if this VP thing doesn't work out?
She could pretty much do better than development. I think she could have her own show, yeah.

Lest you miss it, "I think she could have her own show" is a bit of a compliment. Maybe it's a way to get her out of politics and into something where Lorne feels she could do less damage, but either way it's a compliment.

Even Alec "I'm going to move to France" Baldwin is fairly circumspect in his criticism of her during his appearance on Letterman:

Same for Tina Fey on Conan O'Brien.

Obviously, it's easier to be nasty when you're being anonymous and not-for-attribution to Carl Cameron behind the campaign bus, and harder to do it when you're on-camera with Conan or Dave. Nevertheless, there is some acknowledgment from people pretty close to the top of their game in working in front of cameras that Sarah Palin has...something.

What she does have, and more importantly can communicate very well, is a general happiness about her life as an American. Of all the gifts that Reagan had, this was his most potent. Nothing draws people like happiness and love, and Sarah Palin is at her best when she communicates these things. If she can add an uncrackable knowledge base to that, she'll be a fierce competitor in the next election cycle. Contrary to popular belief and MSM assumption, conservatives really are happy. It's kind of our little secret, but when someone like Sarah Palin can get onstage in front of 40 million people and be conservative and happy at the same time, well that snaps the needle off the approval meter for conservatives. If being an Angry Conservative was enough, Pat Buchanan would have been GOP nominee for life.

Then again, after this turn as the punching bag, she might decide to just raise her kids, stay in Alaska and remember that couple of months when she was the first female GOP nominee for Vice-President. It would be our loss, I believe, but I think she's earned some peace and quiet.

Tuesday, November 04, 2008

Kiss Me, I Voted

Yup. On the way to work, at Pine Tree High School. There were three people ahead of me in line, and it took about three minutes of waiting.

The "books" were gone this year, it's all on laptops and little printed-out stickers to sign. We've had E-Slate voting machines for the last few elections, they're pretty simple to use and it took a whopping sixty seconds or so to page through the options and make my choices. I didn't get a sticker, though. I wanted a sticker.

If you've already voted, congratulations. If you haven't voted, get out and vote for John McCain. There's always the possibility that your neighbor's useless kid will set down the bong long enough to find a polling place this year, you need to be there to cancel him out if he does.

No matter who wins, this is going to be a really, really big election. If Barack Obama wins, there will likely be a leftward tilt to the American government not seen since the Great Society days of LBJ, not to mention that America will officially be no longer racist.

The biggest game-changer of all will be if John McCain wins, though. It will be huge because a monstrous swath of the media and political elites will have been shown to be spectacularly and phenominally wrong. A sizable portion of those people will later be found to have been complicit in one of the biggest Psy-Ops attempts in American political history, the inevitability of Barack Obama. They will have missed a huge groundswell of opinion, and completely misread the political situation in the United States. You won't be able to sell anything with a poll for years in this country. It's happened before, in 1994. It may very well happen again.

If you're interested in what I'm saying, there are a couple of fairly long 'think' pieces I would invite you to read. The first one I read was from the oddly-named Zombietime and is called The Left's Big Blunder. Read that one and then go to Sean Malmstrom's site and read his entry called Toast.

Go ahead, I'll wait. I have to go to Starbucks and get my free coffee.

Now that you're back, those are a couple of well-reasoned arguments to keep your chin up, aren't they lil' GOP voter? Did you respond to a poll phone call this year? Me neither. Would you respond to a poll phone call? Yeah, me neither. I believe that McCain voters are horribly under-polled this year, and the majority of the polls show such wild swings and divergence from each other than they're useless. No two "scientific" polls using similar sample size and methodology should show a 15-point difference. The fudging always favors the Democrat.

Do not believe the exit polls, either. The media have too much riding on a Barack Obama win to not call the election as soon as possible and try to create a self-fullfilling prophecy. Exit polls are as subject to bias as anything else, the major bias factor is that Obama voters are more likely to tell you they voted for Obama, and McCain voters have to get back to work.

What if the media are wrong? If you've read the Zombietime and Malmstrom articles you're aware of the media either being swept up in or, in the case of MSNBC, pushing the meme of Obama's inevitability -- the poll-weighting, the Palin-hating (how much do you wish Obama could trade Biden for Palin at this point?). If they're wrong, after all that -- how will you believe them about anything in the future? They will have completely missed the largest political story in modern history because the Democrat/New Party candidate sent a thrill down their leg.

Their objectivity is shot whether Obama wins or loses in my opinion but an Obama loss, even a close one, would be devastating to the credibility of the media. They have obviously picked Obama. They have been less than honest in their role as servants of the public knowledge, and yet believe or at least proclaim their neutrality.

Bull. You get this one wrong legacy media and you're dead to me. You're not looking good even if you get it right. When the Los Angeles Times is sitting on a relevant piece of video like the Khalidi tape, they're cheating. When the San Francisco Chronicle fails to report Barack Obama's punitive carbon tax plans and intent to bankrupt the coal industry in the pursuit of the elimination of a trace gas, only quietly making the audio available online for 10 months, it's a problem.

When the media won't report on how completely insane Joe Biden is, that's a problem. When a guy like me on his couch with a laptop can call BS during the VP debate and then with a few more hours of research find that Joe Biden's version of reality is his and his alone, that's a problem. When the media is denied access to Biden and has more access to Palin without the public really knowing this fact, that's a problem. Right now it's a problem for the consumers of news. If the media gets the election badly wrong, it will rapidly become their problem.

And so, my Survival Guide For Election Night

1. Don't believe a single exit poll unless they show Obama with less-than-expected support. McCain voters are much less likely to answer, and the PUMAs will flat-out lie.

2. If you live west of the Eastern Time Zone, MAKE SURE YOU VOTE. Do not listen to a thing the media says. It's over when the votes are counted, not when the media "calls" a state for one candidate or the other. Pennsylvania is a good example -- the media may call the state because of the outcomes in urban counties but not wait for the rural voters. PA is very, very important, as you'll deduce from the Zombietime and Malmstrom articles.

3. We should know quickly if Obama wins, there are some must-gets for McCain on the East Coast and if he loses FL, VA, PA and OH then it's really over. Go to bed, and start digging your bunker tomorrow morning.

4. If McCain wins PA and FL and VA, it won't be over until the last Obama lawyer throws in the towel, but winning those three goes a long way to winning overall. It will still take MO and OH and NV to go Red this year, but if McCain can flip PA it will be huge.

Best of luck to us all, I've been praying for the country and for McCain and Palin for weeks now.

I might do a liveblog of the election returns, but maybe not. I think I have one more Palin piece in me before the election but I have miles to go on the PACS before I can do that.

Thursday, October 23, 2008

A Feature, Not A Bug

Too many reports to ignore that maybe Barack Obama's vaunted fundraising operation is steeped in fraud. Specifically, the allegation is that the donate-by-credit card option on the Obama website is intentionally disabled to allow fraudulent donations.

If you've bought anything online you've probably dealt with the AVS, or Address Verification Service, which is a check to be sure that your name matches the card number and your address and zip code match the account information as well. Many vendors also insist on the three-digit CVV code on the back to confirm you have the real card in your hand when you donate.

The Obama website has none of this, which is part of the reason that the Obama Campaign has accepted donations from such well-known figures of history and fiction as Good Will & Doodad Pro, Adolf Hitler, OJ Simpson, Nodda Realperson, John Galt, Henry Reardon (those last two for the Ayn Rand fans in the audience) and the best "asdf". In some cases these fictional donors have given tens of thousands of dollars in small increments.

The reason for small increments is that donations of less than $200 do not have to be reported to the Federal Election Commission with the same stringency as larger donations. You do not need to record a name, address and occupation of the donor. If you wanted to send millions of dollars to a candidate, the easiest way to do it would be to do so in $200 increments. You could pay someone $10 an hour, enter a payment a minute, and funnel $12,000 an hour into a campaign, limited only by the ability of your keyboardist to invent new names. Quite frankly, you could just automate the process with a large enough database of names and fictional addresses and do it 24/7/365. The personal limit to any individual campaign is $2300 in the primaries and $2300 in the general election.

The disabling of the fraud-protection system got me thinking, though. There are three ways this could work out for the Obama Campaign.

One, it allows foreign donors to contribute, and it's not as if the man is unpopular overseas. Nice that they have an opinion but taking their money is a federal crime, I believe. The fact that so many Obama donations during the primaries were odd-denomination donations (dollars and cents) makes one suspicious that the donated amounts were in Euros or other currency helpfully converted to dollars by the magic of Visa.

Two, it allows people to use lists of valid credit-card numbers to "donate" to Obama in a fraudulent fashion -- which has happened.

Three, if the Obama campaign was working in conjunction with a fraudulent front company to do its credit card processing, fraud becomes a feature and not a bug.

Usually, if your credit card is misused by someone else your bank will reimburse you for the loss, and attempt to ding the merchant for the difference. If there was an intermediary organization that could a) do the credit card billing for Obama and b) had access to foreign cash (or just cash in general over and above what could be legally donated), the front company could reimburse "fraudulent" charges to people whose cards were used wrongly...and never attempt to get the money back from the Obama Campaign.

Let's say Ima Republican shows up with a $2300 charge on her credit card to "Obama Campaign Services". She reports it as a fraudulent charge, and Obama Campaign Services refunds her the money. Well, if OCS is a front bank with its own source of money, then it doesn't have to go after the Obama Campaign itself to make good. It just accepts the loss and moves on. The Obama Campaign is never asked by Obama Campaign Services, its credit-card processor, to repay the money. Assuming OCS has sacks of cash available, the more fraud the better it is for the Obama Campaign, as long as it doesn't get caught too often. OCS is there to take the hits, pushing otherwise-illegal money to the Obama campaign no matter if it's fraudulent or not.

Sounds a little paranoid, I know. But when I hear about Democratic lawmakers circling my 401k like sharks, paranoia becomes a reasonable way to do business. I know next-to-nothing about credit card processing, this is entirely conjecture on my part. But the fraudulent activity is not conjecture. it's something to be concerned about, especially when it would be very easy to make your website fraud-resistant the way the Hillary Clinton and John McCain websites are.

But Sarah Palin has new clothes, so I guess all of this doesn't matter.

UPDATE: Apparently Chase Paymentech is the company that does the CC processing, and they are a reputable firm. Other people have pointed out that the Obama campaign may batch-process a days' worth of credit card payments and automatically drop obviously fraudulent or illegal contributions -- except "Good Will" has made actual donations.

All I can say is that when you're running for President and trying to raise money through credit cards it's occasionally good to have "The Senator from MBNA" for your wingman. Is Joe Biden worth it? If you're in good with the CC companies he's worth (literally) millions.

Tuesday, October 21, 2008

On Deterrence and Perception

I know something about deterrence, both sides of it actually. Now that I am 6'5" and slightly over 250lbs, I represent one defintion of deterrence. My first CHL instructor, a former Green Beret and UN Peacekeeper in the Sinai, told me flat out, "Nobody is ever going to mess with you Darren, not even drunk. You're just too big." I find this to be true. I haven't had anyone in my adult life make anything approaching an aggresive physical move toward me. I know one side of deterrence in this way: I intimidate, without trying.

The other side of deterrence I know from my childhood. I was tall, but not particularly wide. I grew fast and was skinny, and I stood out among my peers. I had some kind of inborn block against beating the crap out of people who deserved it. I have thought a lot about this, and for me I believe it came down to a fear of losing control, of abandoning myself to fury and really trying to hurt someone else. I have subsequently gotten over this concern (it's amazing what having a wife and children will do), but growing up and being the new kid as often as I was, I had people getting aggressive with me all the time.

Now, you may wonder, why does this trip down memory lane have much relevance this political season? Well, Joe Biden made the discussion of deterrence and lack thereof relevant with some comments he made in Seattle, as reported by ABC News:

"Mark my words," the Democratic vice presidential nominee warned at the second of his two Seattle fundraisers Sunday. "It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking. We're about to elect a brilliant 47-year-old senator president of the United States of America. Remember I said it standing here if you don't remember anything else I said. Watch, we're gonna have an international crisis, a generated crisis, to test the mettle of this guy."

Amazingly, Joe Biden and I agree on something, though strangely enough when I proposed this a week ago to some committed Obamatons, they said I was absolutely insane. I said that the courage of John McCain was beyond question, but that when Obama talked tough he was unconvincing which meant that he was going to be challenged more than McCain would.

While some of you intuitively "get" this, there are no doubt some readers who will say, "No, now, the practice of international diplomacy is sophisticated! You can get degrees in it, it doesn't come down to something as silly as schoolyard bully calculations!" I agree with that to a certain point. Democracies are often complex, messy and shot through with divergent groups with divergent ends they wish to see met. Even as august a figure as the President of the United States may only be speaking for some portion of the population, and if the President gets ahead of the populace they may jerk his or her chain back into line.

Not so with totalitarian governments. Totalitarian states are built around the personalities of their leaders and inevitably end up taking on the personality of those who run the Cult of Personality. Positions that are complex and may arise from a confluence of different interests in a democracy become much simpler when you're a dictator. If you don't like cheese, you can outlaw cheese and the dairy lobby can't say boo. If there is a warship off the coast of your nation, you can personally weigh the benefits and risks to harassing it or leaving it be. Totalitarian states are the ones most likely to reflect the characteristics of their leaders and to act in a schoolyard fashion.

Should Obama become President, it's not the democracies who are likely to give him trouble. He could run for EU President in 2009 and win that, too, most likely. It is the totalitarian governments (Venezuela, Iran, Russia and to a lesser extent North Korea and China) that will be the most likely state actors to contrive a conflict with Obama, to measure the man and see what can be gotten away with in the next four years. And lest we forget, there are totalitarian non-state actors like Al Qaeda who will be only too happy to see George W. Bush disappear over the horizon, if for no other reason than he would respond to attack without hesitation, and would pursue an attack rather than making a show of aggression like Clinton. They, too, might choose a confrontation with Obama to see if their campaign has produced a more malleable US President.

What's interesting is that Senator Biden didn't stop at saying that we WILL get into a conflict in the first six months of Obama's term (if he's elected). That would be too easy for Joe, he continued, somewhat ominously:

"I can give you at least four or five scenarios from where it might originate," Biden said to Emerald City supporters, mentioning the Middle East and Russia as possibilities. "And he's gonna need help. And the kind of help he's gonna need is, he's gonna need you - not financially to help him - we're gonna need you to use your influence, your influence within the community, to stand with him. Because it's not gonna be apparent initially, it's not gonna be apparent that we're right."

Curiouser and curiouser. I added the emphasis, and that's the interesting part. The guarantee that our nation will be plunged into crisis is garden-variety and patented Joe Biden Stupid (TM), but the idea that the influence of left-wing idealogues who come to an Obama-Biden fundraiser will be needed to counteract what appears to be boneheaded moves by then-President Obama is interesting.

Does this imply that the nominally docile Obama will display a level of aggression in response to a threat that would be off-putting to the granola-crunchers that paid for his campaign? Or will the lefties be drafted to explain why doing nothing in the face of crisis (which seems to me to be more likely) is the "right" thing to do? Either is likely, but in any event Biden is basically saying that they won't get the first one right, at least in the eyes of the public, and they'll need political cover from Obama supporters after the election. Biden implies that there will either be an overreaction or an underreaction, but not that they'll handle the situation in what is clearly the right way.

Makes you wonder about Obama's judgment in choosing this clown as his running mate. Sarah Palin is regarded by many on the left as a stuffed skirt with no intelligence and a drag on the GOP ticket they're thankful for, but so far she's
energized the GOP base (check)
given the highest-rated acceptance speech in VP history (check)
given SNL the highest ratings in 14 years (check)
draws crowds that equal or exceed Obama's (check)

What has Joe Biden done? Besides prove himself unable to count to four?

Joe Biden will be 66 years old a couple of weeks after the election. Ask yourself this: If Joe Biden becomes demented and starts confabulating (making up things to cover the gaps in his memory), how long will it be before anyone notices?

I think Joe Biden would have to agree that the wisest choice would be to avoid the test, avoid the need for political cover from leftists, and just elect John McCain.

Update: When you get schooled by Sarah Palin, whom you disdain, what does that make you? Seriously, watch the video. It's worth a smile.

Saturday, October 18, 2008

Music to CPR By

Saw this at the WSJ Health Blog and had to mention it.

Turns out that most people who do CPR don't compress the chest fast enough to help. The recommended rate is 100 beats per minute, but it seems too fast and wears you out.

The answer seems to be providiing appropriate theme music, which, ironically is Stayin' Alive by the Bee Gees.

At 103 beats per minute, if you can keep up with the Bee Gees you can do CPR at the proper rate. Kind of turns saving lives into Guitar Hero, but when 15 medical students were allowed to listen to music (namely, this song) they could do 109 BPM, and five weeks later, even without the music they were still at 113 BPM. All of this will be presented for the edification of us all at ACEP, the American College of Emergency Physicians meeting October 27-30 in Chicago, or as it is known for those three days, "The Best Town In Which To Have A Public Cardiac Arrest."

Friday, October 17, 2008

Two Debates and one Plumber

Well, I didn't post anything about the second debate between John McCain & Barack Obama because it was so dull I was afraid I would lose the meager readership I have simply by mentioning it. Nothing happened, literally. People asked questions that the candidates didn't answer, and many talking points were repeated. About the only thing I can say is that I'm glad there weren't 9 more "Town Hall" formats scheduled, and Tom Brokaw has strangely become much more compelling in text than in real life.

Bob Schieffer moderated debate #3, which is the first one that John McCain really showed up for. He was animated and engaged, a little too wordy at some points (stepping on his own points on occasion), but much better than in previous debates. He took it to Obama on the over-the-top accusations of John Lewis, and the best line of the night was "I'm not George W. Bush. If you wanted to run against him you should have run four years ago."

As an aside, while I liked McCain getting on Obama about the falsehoods and distortions, McCain lacks the carpe jugulum (Latin - seize the neck) attitude that his running mate displays pretty well. He made his attacks but did not press them. He landed blows but refused to try to sit on Obama's rhetorical chest and continue pounding until Obama could not reply. It's just not in him, I guess. I have heard it is a generational thing, but either way McCain keeps letting things like Obama's "cut taxes for 95% of taxpayers" line float past unmolested.

The star of the third debate, who wasn't even present, was undoubtedly Joe the Plumber, better known as Joe Wurzelbacher, a Ohioan who Barack Obama had the misfortune to stumble upon and engage in conversation while being videotaped.

Joe the Plumber asked Obama if he was really going to raise taxes on him, Joe was considering purchasing the small plumbing business where he works but was worried that the increased taxes would make it unprofitable to work beyond the 10-12 hours a day he already put in.

Obama, foolishly, was honest. As quoted at Fox News:

"It's not that I want to punish your success. I just want to make sure that everybody who is behind you, that they've got a chance for success too," Obama responded. "My attitude is that if the economy's good for folks from the bottom up, it's gonna be good for everybody ... I think when you spread the wealth around, it's good for everybody."

Oops. In one comment, Barack Obama may have undone four months of careful tacking to the center on economic issues. We may have a problem or even a series of problems in the economy right now, but when one of the people that could be President starts speaking in language dripping with socialist overtones I believe Americans will start to listen a little more critically.

Sensing an unforced error, John McCain mentioned "Joe the Plumber" nine times in the third debate, with Obama forced to mention him twice. The election has a poster child, Ladies and Gentlemen.

Now what makes this infuriating to me is that immediately the left side of the blogging community and the media set to "vetting" Joe the Plumber as if he did anything other than ask a question of Barack Obama.

Within 48 hours we now know that Joe Wurzelbach's actual name is Samuel J. Wurzelbach, he is twice-divorced and does not have a plumber's license, though he does work for a plumber. His home address has been published, his tax lein (filed in 2007) publicized and his local plumber's union notified, lest he actually work as a plumber somewhere near where he lives. He has cameras all over him, and he doesn't have to worry about any of his secrets being revealed. If you can find it online, it's going to be revealed about him.

The real question I have is why Joe the Plumber is getting the third degree? And why is the Obama campaign so completely silent on the public strip-and-cavity search that its allies are performing to a "civilian", a voter? He's just a guy, or he was before he committed the unpardonable act of making Barack Obama flub a question in front of a camera.

I see this as tremendously not-helpful for Barack Obama, because it doesn't bode well for free speech or even criticism should he become President. Apparently the rule is that if you question Barack Obama or his policies, then you make yourself the subject of inquiry. The question to be answered is not, "What is Barack Obama's reply?" but rather, "What makes you think you have standing to ask The One a question?"

At this point, would you want Barack Obama to come up to you and say, "Hi, do you have any questions I can answer?" In essence, he would be asking you if you think it's worth your privacy in case he gets stumped. Joe didn't even set himself up to be a rival of Barack Obama, Barack came to his house and because Joe didn't kiss the ring and move along, he gets both barrels from the press and the left wing.

The vitriol directed toward Joe the Plumber is pretty similar to that directed toward Sarah Palin, in that neither of them were considered to have sufficient stature to question Barack Obama's policies or conclusions. There was a collective, "Who the hell are YOU?" response, as if Joe or Sarah sat down at the cool kids' table in junior high school unbidden. What I find so interesting is that it is the alleged egalitarians and Friends of The Common Man, the leftists, who are the most incensed when an unelite person skewers one of the anointed.

Well, I have a tiny little soapbox, but when the press comes calling I will stand up and say, "I am Joe the Plumber." Somebody has to stop this kind of thing. We need to get in the habit of making our questions and criticisms known, so that maybe an potential Obama government will worry about trying to stifle dissent.

Polls are tightening. If you're of a GOP or conservative bent, keep your powder dry and be sure you vote. This is far from over.

Friday, October 03, 2008

My VP Debate Wrap-Up

After some consideration, this is my conclusion about the debate.

Joe Biden clearly and convincingly defeated George W. Bush in this debate, President Bush being absent. He also forcefully stated that as VP under Obama, in the face of economic crisis he would not pursue the tax policies of his opponent, John McCain, then went on to list the things he would not be in favor of cutting despite the fact that the bailout bill added another trillion or so to the national debt. He would "slow down" foreign aid commitments, which he later described as vital to winning in Afghanistan. As Bill Hobbs points out, this is "slowing down" a doubling of US foreign aid amounting to $25 billion a year -- against an annual deficit of hundreds of billions.

Palin dodged some questions, the wisest dodge was on the issue of the Unitary Executive and the role of the VP, which is an inside-baseball topic of interest primarily to Con Law professors and something she likely knows virtually nothing about. Joe Biden put on his Con Law professor hat and proceeded to quote the wrong part of the Constitution regarding the role of the VP as Executive Branch. "Everyone should know that," he said. I question whether "everyone should know" something that's patently wrong. Article I, Section 3 refers to the office of Vice-President, it is the part of the Constitution dealing with legislative structure and function. Article II has to do with the Executive.

Joe Biden was fully in command of the facts he made up out of whole cloth during the debate. He showed a far greater range of familiarity with his own fabrications than his opponent. In this regard, he was clearly the winner, as shown by focus group polling from Katie's Restaurant in Wilmington, DE, which has been closed since 1990. He showed boldness by contradicting the Obama website on sitting down President-to-President with Achmedinejad without preconditions. He also showed boldness by contradicting himself on the issue of coal plants. Speaking untruth to power has never had a bolder advocate. In my opinion, Joe Biden is never more convincing and genuine than when seamlessly weaving made-up facts into his statements, and I believe that is an important qualification when choosing a Democratic Vice-Presidential candidate.

But really, I think Palin came out ahead. She lied less, for one, and she's authentic in a way Joe hasn't been for a couple of decades. Considering that this is her first national debate and his third run for the Presidency (this time as VP), he didn't blow her out and she was able to score on him in her vicious-yet-nice way, which is a true political gift. She did not defend McCain as well as I would have liked, a more experienced politician might have seen more opportunities and I can't help but believe that she still could have done better. Nevertheless, she did exceptionally well. Like I said in the liveblog, they need to come up with another word for "maverick", my personal feeling is that the word has attracted as many people as it's going to attract. Drop it, or use it once and then use a synonym.

It didn't change much for the race, but it changed a lot for Sarah Palin. You can bet she'll subscribe to Foreign Affairs and, if she loses, spend the next four years getting the experience and knowledge to run on her own. She's a bit uneducated from a national and world affairs standpoint, which is what you expect from a remote state governor. Ask Biden about the status of salmon fisheries and he'll make something up, but she's probably right on top of that one. Get Biden to talk about anything other than John McCain's votes on alternative energy and he'll tell you a heartwarming story about Bill's Oil & Coal in Wilmington that never existed, or modify a Frank McCourt story about how his family had to make one piece of coal last all winter because President Willkie was such a bad Republican president back in the 1940s. Energy is Palin's issue, and she wasn't asked a single question about it.

She's a superb communicator, and couple that with more experience and she'll be deadly. She is probably about as physically attractive as a woman seeking political power can be without being off-putting to other women, what she lacks is a few more years in the governor's chair and easy familiarity with issues compelling to reporters and media folks. She needs to tone down the homespun a notch, but she's got the right instincts and she'll be a player for years.

She might even be Bobby Jindal.

Thursday, October 02, 2008

Near-Liveblogging The Debate

Through the miracle of TiVo and a new HDTV aerial (new today) I can see every one of Joe Biden's hairplugs. Amazing. Anyway, I'm about 20 minutes behind, so refresh to see my take as it goes along.

Joe is muted and low-key

Sarah blew the answer about the financial issue. She blamed the 'Predatory lenders' without mentioning the effects of the CRA, without mentioning the actions of Freddie & Fannie.

She is bright and assertive but a little hyperkinetic. So far she's able to bring details without having to look like she's straining.

Joe is hammering deregulation, she's not responding and sticking on the tax issue. Needs to stop using the term 'heat up' the economy.

Next question: why is raising taxes not class warfare?

Joe "It's called fairness". Hmm. 30% of income tax filers don't pay any taxes. "Simple fairness" IS class warfare. $300 billion to corporate America.

Sarah "redistribution of wealth" good reframe. And she hits the small business issue. Needs to meniton S Corporations. Backwards way of growing the economy. Nice. Looked like she was going to duck the question on health care. Handled it well. "Unless you're pleased with the way the federal government has run much of anything..." Tap that anger, girl. She also snuck in the word 'Universal' -- that's a Frank Luntz word.

Joe is making a lot of hay out of the tax credit for healthcare. Spouts a lot of numbers but I doubt his specifics. I will have to look this up. $12K per insured, that's a lot of money. Maybe more than the entire private health insurance market.

Ifill reasks the "what promises will you not be able to keep?"

Joe Biden promises to slow down foreign aid, and not to keep John McCain's campaign promises regarding taxes. Will keep alternative energy, education, health care. Eliminate wasteful spending, mentions $100 billion tax dodge for offshore tax havens.

Doesn't tell one thing to one group & one to another. Energy bill 2005 -- "That's what gave those oil companies those big tax breaks" Biden used the $4 billion for XOM line twice, she turned it around and sank it in his eye socket. No, there's no promises we won't keep.

Biden responds that Barack Obama voted for it because it had alternative energy things, tried to strip it out. He calls her severance tax a "windfall profits tax", which it's not. If that is not proof of what I say then I don't know what is. Well, if you lie about it, then does it count as proof.

She's hammering the corruption and greed of Wall Street issue. John McCain to thank for failing to get his bill passed. "A toxic mess on Main Street that is affecting Wall Street." As Willy Wonka would say, "Strike that, reverse it."

Ifill asks about the bankruptcy bill -- it's complicated, Biden says. We should be allowing bankruptcy courts to adjust the principal you owe as well as your interest rate. That sounds fishy. Used to be that when you lost your stuff when you declared bankruptcy. The whole penalties thing?


Brief answer from Palin to deflect the bankruptcy issue and then back to energy. She's doing remarkably well so far, few flubs. She's kind of lecturing here, but hammering the ANWR issue. Energy independence is the key to this nation's future. Needs to stop using "heckuva".

Q: What is true and what is false regarding climate change? I don't want to argue about the causes of climate change, want to figure out how we can do that. All of the above plan. As we rely more and more on other countries.

Biden: It is man-made, it is clearly man-made. The cause is man-made. Gives the 3% of reserves/25% of consumption line, which minimizes our true reserves and ignores unproven offshore reserves as well as natural gas and the trillion barrels of oil shale we have. John McCain voted 20 times against alternative energy. Obama-biden wants to develop energy that needs subsidies to be competitive and try to sell that to the rest of the world. No-go in China or India, Joe. Coal is King there and will be for sure in China

Palin does support capping carbon emissions. Joe supports clean coal technology for 25 years, despite his rope-line comment. Maybe he's all for it if the go government doesn't have to pay for it.

Joe Biden supports gay marriage. First gaffe. Saran-does not support gay marriage. Now neither Joe Biden & Barack Obama do not support gay marriage. So much for the people who think Barack Obama is a closet gay marriage supporter.

Iraq: Palin sounds like she knows this. Compliments Biden on standing up to Obama regarding a political vote.

Biden: needs an exit strategy, needs a time table. Palin says we'll go when we're ready, when the Iraqis can govern themselves. She points out that Biden says he would have been proud to be VP candidate for McCain. skewers him effortlessly.

Biden says Pak nukes could hit Israel. Wrong, I believe. Between nuclear Iran and unstable Pakistan he chooses unstable Pakistan. Sarah says both are important but talks about how a nuclear Iran is dangerous. Gets into the "no preconditions" line. Talks about her meeting with Kissinger. Biden bald-faced lies about what Obama said at a Democratic debate HE WAS AT. Misrepresents what McCain said as well.

Palin is clear and articulate on need for a two-state solution. Sounds entirely reasonable. Biden is now running against George W. Bush. He is four years too late for that. Biden: haven't heard how the policy is different from Bush's.

8:55 When do we use nuclear weapons? Palin answers a line about not allowing nuclear proliferation. Makes point about using surge principle In Afghanistan. Biden says CG in Afghanistan says (today) that surge would not work. Mentions Obama-Lugar as if it's important - an update to a 1991 law makes a big difference how? Makes a statement about spending in 3 weeks in Iraq the same as in 7 years in Afghanistan. Ignores difference in geography, technology, etc.

Biden makes an impassioned speech about Darfur. Palin agrees, a little too smarmy, but then mentions divesting Alaska's investments in Sudan. Didn't know that.

9:05 pm: When do we go into another country? Biden if we can win, makes a statement about countries and when we can invade. Palin needles him again about his voting record and statements, she's hammered this enough that she had better have a couple of Aces in terms of backup documentation.

So what if your President dies? Neither one will change anything.

What a Vice-President does? Palin: working with the Senate, she would lead in areas of Energy, Senate, special-needs children. Biden: Senate, advising President, He will tell president if he disagrees. Ifill asks about Cheney's assertion regarding the split nature of VP as Executive vs. Legislative. Palin ducks the question, wisely. Biden gives a long answer that is probably too much inside baseball.

Conventional Wisdom: Palin is inexperienced, Biden undisciplined. Palin makes a good speech. Biden says he's changed things, tears up when talking about his kids. Pain responds, needs to stop using the term 'Maverick'. It's getting annoying. Find another way to say it. Biden: "Maverick he is not."

Final question: What policy position have you changed? Biden: position re: judicial confirmation. Palm; wasn't able to zero-balance budgets, no compromises on principle.

Now the real final question: How do you stop the partisanship as VP? Biden: Don't question others' motives. Palin: get the job done, don't worry about credit.

Final statements: Palin: I like Reagan. McCain fought for you. Biden: it's time for America to stand up together.

Especially people making $250K or more. It's easier to get at their wallets that way.

Debate over. Palin survived, not broken or dispirited. Biden only gaffed once, wasn't nasty. Both did a good job. Hard to pick a winner, Pain maybe wins by not losing, but not by much.

Bwahaha! Maureen Dowd Kicked Off McCain Plane

Maureen Dowd, The New York Times' op-ed columnist, is no longer welcome on the McCain-Palin press plane.

She sent an email to the Pittsburgh Post-Gazette:

"I had had a great relationship with John McCain for 16 years, through columns he liked and didn't like. So at first I thought it was a mistake and doublechecked with the press office. They said I was banned from both planes for 'the foreseeable future.' Then [McCain spokeswoman] Nicole Wallace was gloating about it to reporters on the Palin plane," Dowd wrote in an email.

"It was disappointing because I didn't think John McCain would ever be as dismissive of the First Amendment as Dick Cheney."

A couple of notes. First, when did the First Amendment extend to a seat on a plane? Goodness, if that's the case I've had my First Amendment rights violated my entire life. Ms. Dowd could certainly arrange her own travel and cover every news event as it happens -- she's just not actually a news reporter so that would be a little too pedestrian, I guess. It's no secret that in recent weeks the McCain campaign has called out the New York Times as a biased and unfair news operation.

What's more, Ms. Dowd has a column up today, and has had columns published on her regularly scheduled slots in the NYT without interruption since being booted off the plane August 30. I don't see any First Amendment violation here.

Second, Barack Obama's campaign did precisely the same thing to New Yorker writer Ryan Lizza, who lost his seat on the junket to Europe after the New Yorker got sideways with Team O over a sarcastic cover featuring a cartoon of Michelle Obama as Angela Davis and Barack in Somali garb in the Oval Office. Few cries of First Amendment violation there.

It gets even better if you read the comments on these stories at Huffington Post or Daily Kos. Schadenfreude is a term for quiet joy when seeing the pain of others, there needs to be a similar term for self-satisfaction at seeing the stupidity of others. I hope that if Obama wins the netroots people don't actually get to influence things. It's already been established (through a poll, asterisk asterisk) that a whopping 29% of self-identified Obama voters believe the Supreme Court should rule based on what's in the Constitution, so it is entirely possible that the First Amendment entitles Ms. Dowd to her seat on the Straight-Talk Express.

There does appear to be an upside to an Obama win: your seat on an airplane is no longer a contractual agreement between you and an airline, it's now a Constitutional Right!

Wednesday, October 01, 2008

The 'Burning Down the House' Video

I can't embed it, but the video giving some of the history of the subprime meltdown along with the government's role in promoting it has been re-cut without the music that Time Warner Group objected to, which resulted in it being pulled from YouTube after 1.2 million views.

There is a bit at the beginning which notes that Google (who owns YouTube) and Time Warner have been major contributors to the Obama campaign. I think that's worth noting, and remembering when it's time to purchase magazine subscriptions or music.

The video is here. Please share this with anyone you talk to who seems particularly ignorant on this subject. If necessary, drag them to a computer and make them watch it. If you don't like the new music, turn off the sound.

Tuesday, September 30, 2008

The Financial Crisis, Part II

Well, I should have written Part I before yesterday. Yesterday was occupied by other news, a 777-point drop in the Dow Jones Industrial Average. Today, the DJIA increased by 485 points. Volatility, anyone?

It is worth noting that the DJIA follows only 30 publicly-traded companies, and those are in the industrial sector, not the financial sector. Broader markets like the S&P 500, comprised of 500 stocks in various sectors of the economy, saw an 8% loss yesterday followed by a 5.3% gain today. Of the "$1.2 trillion" lost yesterday, we seem to have regained more than half, in a 24-hour period.

My real losses and gains for the past two days are easy to calculate: $0.00. Or in Yen, also 0. Same for Euros. In any currency you choose to measure, I lost precisely nothing because I traded precisely nothing. The DJIA is largely irrelevant to me because I don't actually own personally any of the DJIA stocks, and any losses are paper losses. I am, like many investors, a class that comprises 66% of US citizens, a buy-and-hold investor. I buy stocks in companies I like and believe they will appreciate in value. Same for my mutual funds.

Besides, I cashed out a lot in January.

The news item driving these wild gyrations is The Bailout, its failure to pass yesterday driving prices down and the promise of its passage later in the week driving prices up today.

If I knew exactly what the sentiments driving stock investors were, I would be writing this blog from my yacht. I am writing it from my office, I still have a day job, and plan to until I retire, so I don't write as one with supreme knowledge of market forces. To be honest, I'm guessing about as much as anyone. The press will tell you that the Bailout is the only thing driving markets, and that may be true, but there is also the fact that value investors love to see people dumping shares of companies for no good reason and driving the price down. One of the stocks I own, Diamond Offshore, is paying better dividends than a T-bill when you consider the price to which it fell yesterday. People bought today maybe out of expectation that their cookies were going to get hauled out of the fire, and maybe because the stocks they've been following hit buy points that met with their requirements.

The Bailout, as I understand it, is a program whereby the Treasury Department on behalf of the government will be granted an initial $250-350 billion dollars to be used to buy assets from banks and investment companies that are otherwise unsalable. Things like CDOs, and RMBS shares and the like. This sale will be conducted as a reverse auction: the companies will price their assets and the Treasury will buy assets it feels are "worth the investment". The assets will then be held by the Treasury and something done with them in the future. The banks who sell investments to the government will be required to accept restrictions on their activities, particularly in the realm of executive compensation, and will be subject to other no-doubt-onerous restrictions on future actions. There is even a "clawback" clause in the bill that will compensate the government for any truly stinky assets it overpays for.

If this initial process goes poorly, the Congress can veto the rest of the $700 billion next year to prevent us getting any further into a sinking process. While this will put $350 billion into the financial services sector within a few months, there are some other problems.

1. Nobody knows if this investment, even the whole $700 billion, will be enough. As quoted in Forbes regarding the $700 billion figure:

"It's not based on any particular data point," a Treasury spokeswoman told Tuesday. "We just wanted to choose a really large number."

Well, I know that reassures me.

2. Financial companies are likely to dump their worst assets on the public at prices the market would not give them. Citigroup agreed to take on Wachoiva and its $312 billion in subprime mortgages only if the FDIC agreed to cover all but $42 billion of that debt, in return for $12 billion in Citibank preferred stock. At most, Citibank is out $54 billion and the government is on the hook for $260 billion. That's about 20 cents on the dollar for $312 billion in loans, assuming everything goes south. Why would anyone else ask for anything less? The intrusion of the government will only distort prices in unpredictable ways.

3. Mark-to-market accounting rules may spread the pain farther. "Mark-to-market" is an accounting rule adopted in November of 2007. Financial companies holding an asset (like CDO shares) have to value that asset at whatever the last transaction of that asset was. If one company reverse-auctions CDO shares to the government, they've just set the valuation for everyone holding those shares, no matter what the price is. The Treasury can overpay and inflate that value, or underpay and crush everyone else holding what may be a producing asset. There is no way to tell, one would hope companies would discard their worst assets that are near-zero in value in any event, but there is no certainty there. If the resultant underpricing makes other banks have to write down the value of their capital, then purchasing these assets may actually force companies to further limit their capital available to lend -- which is 180 degrees from the intended result.

4. Which sector is next at the public trough? This year it's financial services. Next year it may be homebuilding, or the auto industry (who already got $25 billion in loan guarantees), or some other area where the risk-reward ratio got badly out of whack.

The hazard of not doing a bailout is that the credit crisis will worsen and businesses will be unable to increase their investments. If you've just won a contract for your electrical business and need to finance $20,000 in raw materials to complete the job, you're out of luck. If you sell cars and your customers need finance, good luck with that. Even banks that normally lend to each other at 50 basis points (100 basis points equals 1%) over T-bill rates are now seeing short-term loans going out at 450 basis points over T-bill rates -- and that's to other banks, who are usually considered "preferred" customers.

Banks are getting so stingy with one another that the Federal Reserve has made $225 billion available in 84-day loans. Apparently, nobody else will make these loans. There is also another $330 billion available in loans to people making currency exchanges into dollars, which is probably some of the reason the dollar is increasing in value against the euro -- the Fed is paying people to denominate their money in dollars!

If there is a freeze in credit, the problems will extend much farther than to the Dow Jones Industrial 30, it will hit Main Street square in the face. Small businesses will find financing very difficult to find, and when they find it they will find it at much higher interest rates to reflect the risk that even small distributions of capital are to large financial institutions. Further restrictions on credit will likely make the mortgage default problem worse, and will further depress housing prices. There is no real 'soft landing'.

This is about as close to a nightmare as it gets.

But it's worse than that.

This article from Fortune/CNN Money should scare the daylights out of most of the people who read it, I know it scared me. The credit-default swap problem dwarfs the economy. I mean, the economy of the world. There are nowhere near enough assets to pay off the credit-default swaps that now exist, and apparently they're down $10 trillion from their peak last year. If you read no other article I've linked to, please read this one.

This is also the first example I have seen of government action making this worse. In 2000, according to the article, Phil Gramm authored legislation that passed with the support of Bill Clinton's Treasury Secretary Lawrence Summers, as well as Alan Greenspan, to forbid the government from regulating these contracts. In retrospect, this was a mistake. $250 billion in subprime loans is a big loss, no doubt. What makes this worse is that financial companies and hedge funds got into the business of writing contracts on the success or failure of deals they were not involved in. The article specifically lists John Paulson, a hedge fund investor, who pocketed $15 billion in CDS payouts when he took contracts against the failure of subprime loans. He didn't make these loans, he just bet other companies they'd fail -- and collected 15 billion dollars.

That's 3% of the money we're looking at spending to fix this mess, for one hedge fund. With that much money at stake, and with those kinds of side bets possible -- unregulated and unreported to stockholders -- you can imagine the reasons people would have to sabotage companies and even entire financial sectors of the country and the world. I am reasonably certain that billions of dollars have been "bet" through credit-default swaps on the failure of GM, Ford and Chrysler, probably more than the companies have in combined worth. If you're a GM or Ford or Chrysler employee, how does it make you feel to believe that wealthy people stand to gain even more wealth with the demise of your industry? What is it worth to them to see you fail?

Say what you will about Randolph & Mortimer Duke from Trading Places, at least all they bet was a dollar. With this kind of money to be made, the idea that what we have is Milton Friedman's free market is becoming laughable. At least the SEC banned short-selling in financials, but since CDS contracts are not limited to financial companies (or much of anything) there is no reason that short-sellers won't pick out another lagging bison from the herd and bring it down just because they can.

With all of this, I've yet to be convinced that The Bailout a) is necessary, b) will be effective, or c) addresses the elephant in the room that is credit-default swaps. The one thing the Bailout will do is to provide time to sort out the bad investments from the truly awful investments, as the Federal Government is able to wait to see which will be which, and might actually prosper from some of the deals. I still don't know if this justifies sinking so much taxpayer money into a potential hole that we don't even know the bottom of yet.

Something needs to be done. I would much prefer that the CRA be revoked, CDS contracts become regulated and CDS obligations be required to be reported on a company's website within 24 hours, "mark-to-market" rules be replaced for a period until the subprime issue has been sorted out, and the mortgage insurance program Eric Cantor and others proposed be tried before a direct cash injection from taxpayers becomes both law and precedent. Even if it costs an election, even if it costs a recession, there has to be something better than throwing money at a problem.

Enough money has been thrown for enough reasons. Let's try having a real fair market without social engineering distortions and without back-room side bets, let the weak institutions fail and the ones that showed more judgment and less greed prosper.

Monday, September 29, 2008

The Financial Crisis, Part I

Hard to remember a bigger news story, and the stories about it tend to come in liberal and conservative flavors, and grow in the telling.

The liberal argument, as I understand it, is that this is a case of mass predatory lending and greed, with Wall Street sucking the life out of Main Street (and in particular, the poorer end of Main Street) for short-term gain. There is also talk of deregulation leading to this, though never any specifics about what deregulation was to blame. You'd think that after two weeks they could cite a bill or an Executive Order or some published relaxation of SEC or federal lending rules to justify this position, but I have yet to see a single citation.

The conservative position is pretty well laid-out in a video called "Burning Down the House: What Caused the Economic Crisis?", which was up on YouTube until Warner Brothers made a copyright claim against some of the music used in the video and YouTube took it down. That is fishy in and of itself (it's a pretty good bit of viral video), but I will summarize until I can find another copy of it.

In 1977, the Carter Administration and Congress passed the Community Reinvestment Act, a law designed to keep banks from only lending to people in certain neighborhoods and with certain credit scores. This process is called "red-lining", and the implication was than banks were only giving loans to white people in good neighborhoods.

In 1995, the Clinton Administration updated the CRA with teeth. Federal bank examiners would look at a spreadsheet of loans given by a bank, and if sufficient geographic and racial diversity was not present the bank examiners would penalize the bank. That the creditworthiness of borrowers was taken into account was not a significant factor, in essence the feds put a gun to the head of banks and told them to loan money to people that were credit risks. The other place where teeth were added, and those are the teeth that are the real issue this year and last, is that the government provided that these credit-risk loans, called 'subprime loans' (heard that term recently) could be purchased from the banks and resold by the two Government Sponsored Entities, Fannie Mae and Freddie Mac.

See, mortgages aren't just loans to you. Every loan to you is in effect a bond to someone else -- your loan is their purchase, the interest you pay is the interest they earn for their investment in your property. The collateral for the mortgage, and the bond is the value of your house. Something Fannie Mae and Freddie Mac did to make more money available for mortgage lending was to buy loans from banks, package them up into millions of dollars worth of loans, and then resell them to investors. Once the loan is sold, your bank gets its capital back and then it can loan money to someone else to buy another home. The whole thing depends on two factors: one, that a home is worth its sale price, and two, that the person with the mortgage can make the payments of interest and capital. Losing either of those things would be bad.

The Wall Street Journal has a great Flash presentation on how these Residential Mortgage-Backed Securities became the current bane of Wall Street: the Collateralized Debt Obligation. I strongly advise you to look at these pages and step through the way that mortgages were turned into assets, which are now less asset-y than they were, and which is the source of the problem. Some of the smartest people in finance in the world designed the bundling of RMBS to reduce risk, and then the CDOs to gather tranches from multiple RMBSs to further reduce risk, and then covered themselves with credit-default swaps (another financial derivative that hammered AIG into near-insolvency) to reduce risk. Do you believe they adequately assessed the risk? Me neither.

OK, back to the Conservative Case. Barack Obama, fresh out of law school at Harvard, took a job at a law firm in Chicago. One of the cases he won as a lawyer was Buycks-Roberson vs. Citibank, a 1994 case representing black plaintiffs who sued Citibank for "redlining" and not loaning enough to black applicants, in violation of the CRA. There was not only civil litigation against banks for violating the CRA, there was political pressure on Fannie Mae & Freddie Mac to take more subprime loans.

The goal of the CRA, and of the Congressional protectors of Fannie Mae & Freddie Mac, was noble. The goal was to increase home ownership among the poor, which I am completely in favor of assuming they can afford to buy and keep up their homes. By taking on and securitizing subprime loans, Fannie and Freddie were able to do this...until recently.

Fannie & Freddie had problems of their own in the 1990s, though. They had major accounting problems that were used to artificially inflate their stock price. They paid their executives tens of millions of dollars, just like Wall Street firms. They were badly undercapitalized, meaning they did not have cash on hand to back the loans they sold. Any normal company would have been bankrupt long before now, but as Government Sponsored Entities (GSEs) created for the purpose of making housing more affordable, they were able to pull off selling subprime mortgages with a wink and a nod at Uncle Sam, who they implied was good for it.

Fannie & Freddie did make a lot of money on fees by buying and reselling loans, and they spent that money on political action. The two people they spent the most on in the last 20 years were Senator Christopher Dodd (D-CT), the chairman of the Senate Banking Committee, and Rep. Barney Frank (D-MA), the chairman of the House Financial Services Committee. These were not idle investements, multiple times during the Bush Administration more oversight of Fannie & Freddie were proposed and then shot down in Congress. This included a bill John McCain cosponsored in 2005, which did not make it out of the Banking Committee.

The member of Congress who was #3 in donations from Fannie & Freddie was Sen. Barack Obama. What makes this all the more incredible is that Dodd & Frank's totals were obtained over 20 years. Obama's was obtained in just four years in the Senate. One of the leading banks to participate in making and selling subprime loans was the late and unlamented Countrywide, who not only made subprime loans to people not creditworthy, they made sweetheart loans to members of Congress under what was called the Friends of Angelo program, named after now-disgraced Countrywide CEO Angelo Mozilo.

Just so we're clear, the guy in charge of oversight of the Senate Banking Commitee a) got the most money from Fannie Mae & Freddie Mac, two of the companies he was overseeing, and b) got a great deal on a mortgage from one the companies that did the most business with Fannie and Freddie. And one candidate for President (Barack Obama) was #3 on the money list from Fannie & Freddie after less than one term in the Senate.

Earlier this summer, Fannie & Freddie were taken over by the federal government as insolvent.

The conservative case comes down to this: the free market was not free, it was used for social engineering purposes. The normal checks and balances on making loans to credit risks were overrun by regulation (not deregulation) and then exacerbated by Fannie Mae and Freddie Mac buying those loans and reselling them to others. The predatory lending was encouraged by the government, not prevented by it, over the space of 30 years.

My position is that the conservative case is close to reality, but not all of reality. Yes, the CRA contributed to hundreds of billions of dollars in bad loans being issued, but the fact of the matter is that many of the banks that failed have done so in part because rather than reselling their subprime loans, they kept them on the books. Why? Because subprime loans command greater interest due to greater risk. Why keep your 5% loans to creditworthy people and sell off the 8-9% loans? Hold on to some of those subprime loans and count on rising home values to make up the difference. This worked until the rising home prices stopped rising due to increased interest rates and oil prices bit into the family budgets. The banks that did this are already has-beens: Countrywide, Great Western, Indy Mac, Bear Stearns.

The banks that are suffering now are suffering in part because they have as assets things like CDO shares and RMBS pools that they have no idea how to value. If more and more mortgage-borrowers default, then the CDOs and RMBSs will decline in value. With home sales dropping and home prices falling, there isn't a really good way to value those things, so what liquid capital these financial institutions have they must hold onto to maintain capital limits.

Some of the now-extinct banks likely bought CDOs and RMBSs on margin -- they paid $10 million and borrowed $90 million to buy $100 million in CDO shares or RMBSs, and with those now declining in value and income the people who loaned the banks money now want their $90 million back. It doesn't take too many deals like that to destroy all of a financial institution's good capital.

It gets worse if the banks and trading houses were also participating in a credit-default swap with another institution. This is in essence an insurance policy for a CDO transaction or other transaction. Company A agrees to pay Company B if Company B's investment goes belly-up. The thinking up until recently was apparently that this was easy money as long as what was being purchased was residential mortgages, worst-case scenario in a market with rising home prices was that the home would be resold for more than the mortgage. When home prices fell and Company B's investment in CDOs went south, Company A was on the hook for the deal. This is how AIG ended up becoming a fiscal ward of the state. There is an estimated $45 trillion in credit-default swap obligations floating around right now. The US has a $13 trillion economy, if that tells you how big this derivative market got.

Yes, there was greed on Wall Street. There is always greed on Wall Street, and this time more than just the trading houses got in on it. The bond raters like Moody's and Standard & Poor's and Fitch vastly overrated the subprime mortgages. The mortgage companies found clients and got them together with banks to make deals that, in retrospect, look stupid. And there was definitely greed on Main Street -- buying houses for well more than 3x your annual income, the usual rule-of-thumb for mortgages. Shows on TV like "Flip this House", and there are still advertisements for programs to "Get rich in real estate!" People at every level were greedy, and now even us non-greedy people get to pay for it.

Ultimately, the whole system forgot the basic rule of economics: There Ain't No Such Thing As A Free Lunch, also known as TANSTAFFL. This law is as inviolate as the Second Law of Thermodynamics. I don't need to listen to the description of a perpetual motion machine, because they don't work. Just because a financial guru with a PhD in mathematics can show formulas that prove that a free lunch can make more food by gathering free lunches and reselling the components of the free lunch to investors in sandwiches and apples and cookies does not mean there is, in actuality, a free lunch to be had.

America has lived beyond its means as a nation for years. And I believe that time is coming to an end. The shape of things to come will be interesting, at the least.

Sunday, September 14, 2008

Hurricane Ike Update

No injuries reported in the Longview area, but there are tens of thousands here without power including your humble correspondant. We lost power at about 4:30 p.m., and what makes it all the more annoying is that our neighbors 30 feet away have power. We are apparently on different transformers.

Lots of little limbs down, but we didn't lose any trees. The loss of power makes getting in and out of garage a bit of a booger, our doors are electrically operated. Just as an interesting exercise it's a little alarming to see how much of our stuff in the house is power-dependant, how our use of resources over past decade and the ways we normally fill our days disappear when the lights go out. Books still work by candlelight though, and my Amazon Kindle is still good for several days. I'm reading Amity Shlaes' retelling of the Great Depression, The Forgotten Man, the first part of which deals with rural electrification. Irony is, as I have always believed, an elemental force that has no electrical requirements.

Updates as power is available. This one is from my iPhone, which is a pretty handy tool.

Thursday, September 11, 2008

First Interview

Sarah Palin's first interview with Charlie Gibson came out tonight on World News Tonight.

Overall, not bad. Not as good as the speech, but she didn't hemm and haw much. She did steer the 'What is your background national security issues' question back to her background in energy, which is a pretty typical dodge to familiar ground. In her defense, many of her critics would tell you we've been fighting the Iraq War for oil, so there is some bearing on the issue.

She did duck the Russia question. Being able to see Russia from shore in Alaska is not a recitation of the issues you've dealt with as governor -- fishing rights disputes, etc. Hey, she's a governor. I'm pretty sure the governor of Virginia doesn't have much national security experience either.

The 'not widely travelled' meme was brought up, which is to my mind a bit of a hollow criticism. How many people grow up without significant means and yet manage to do a full tour of the Louvre? She did manage to add Canada and Mexico to the countries she's been to -- which may be easily dismissed were it not for the fact that Canada is our largest trading partner and Mexico is not far behind. I somehow doubt she got beyond Cozumel, but hey.

She is no Miss Teen South Carolina. She was wise to question Charlie Gibson about what aspect of the Bush Doctrine he meant, there have been several breaks with tradition in the Bush Administration, and virtually none of them have been labelled 'The Bush Doctrine' by GWB himself. My first thought when he mentioned that term was supporting democracy and opposing totalitarianism.

I don't believe Charlie Gibson can be fairly accused of pitching softballs. His questions were tough but fair. There was a series of questions at the end that discussed her views on God and the Iraq War, she referred back to Abraham Lincoln though I would honestly say that her reference is a bit strained. She did manage to not come across like a total religious kook on the issue, she gets rather impassioned about extending freedoms to people, which is admirable though she comes across as trying to sell something Gibson's not buying in that segment.

Apparently Gibson's quote of what she said left out a couple of words. She said, "Pray that our national leaders are sending our troops on a task that is from God." Abraham Lincoln's quote fits better into the context of "Pray that our national leaders..."

This interview will not endear her to those that dislike her already. They will call her 'George W. Bush with lipstick', and will interpret extending NATO membership to Ukraine and Georgia as warmongering even though that is clearly a cooperative agreement. She pronounced 'Saakashvili' properly, still having issues with 'nuk-yu-ler', but I'm not going to quibble about that one. Jimmy Carter was a nuclear engineer and pronounces it worse, if possible. I am glad she was unequivocal about the Russian aggression in Georgia, I see it that way as well.

She needs a little more work on these questions, but maybe the domestic issues will be better for her. I hope she can put a stake in the "she lied about the Bridge To Nowhere" issue. There was a lot of editing, which can either help or hurt. She could have looked worse or better depending on what they cut out.

I think there is going to be a big sigh of relief at the Obama HQ tonight, particularly from the VP section. She may not be the Terminator in heels.