1/31/12
Yours truly listens to a lot of radio, especially news radio and talk radio. While the commercial announcements on such radio stations are generally better than the ads on television, the inanity of which nearly matches that of the shows they sponsor, radio has more than its shares of genuinely stupid advertising. Two ads that are currently running on the news/talk circuit are especially worthy of note for their sheer idiocy.
Note that I do not remember what specific product either of these ads is promoting. It is a maxim of advertising that no matter how good, bad, or simply attention grabbing an ad is, it is worthless if the ad does not sell the product, and the product cannot be sold if the typical listener cannot remember what product the ad is intended to promote. Such a shortcoming may not be present in either of these ads; neither ad is good but both are certainly attention getting, mostly by virtue of their astronomically high annoyance factors. That I cannot remember what product (or service) either is promoting may be more a function of my not now or ever being in the market for the types of products being promoted and hence not paying close attention to the name of the sponsor. Or maybe not; perhaps these are just lousy ads on every front. That digression having been endured, we can move on to my tirades concerning these extraordinarily, even by standards of advertising, inane radio commercials.
The first ad is set in the form of a phone call from an anonymous, or at least unnamed, woman caller to her friend Claire. Claire is not home or is, wisely as it apparently turns out, simply avoiding the caller and, hence, the call is answered by a machine or similar means of voicemail. The caller goes on to explain to Clair that she (the caller) is enamored of a new product that somehow balances her hormones and helps her eliminate her “belly fat.”
Hmm…
Who is Claire and why does she want to know about her caller’s belly fat? Do women, or men, call each other to discuss their belly fat? I guess I can see how belly fat might work its way into a wide ranging conversation, but does anyone call her (or his, I suppose) friends expressly to discuss one’s belly fat? Do people want to hear about their friends’ bouts with belly fat? I suppose there could an obvious reason that Claire might be concerned about her caller’s belly fat, but, in that case, one would suppose that Claire would already be painfully, or at least dyspeptically, aware of her caller’s belly fat; she would not need a phone call to know that her lover suffers from a bout with belly fat. If the callee is not so aware, perhaps the term “lover” does not extend to the physical realm, which, one supposes, would miss the whole point of the exercise. At any rate, even if the last explanation holds some water, how many of you would like your lover, wife, or husband to call to discuss his or her belly fat? Isn’t there a more convenient and appropriate forum for such discussion?
The second ad, for a service that allows you to pretend you have an office at some “prestigious address” and will even provide conference rooms for you to conduct meeting for unsuspecting clients and potential clients, features some businesswoman telling us that
“To my friends, I work out of my home. To my clients, I work out of the Empire State Building.”
So the relationship starts with deception and proceeds to ongoing series of lies about something as basic as the location of the person with whom you are doing business. This does not sound like the type of business relationship I would want to embark on any more than I would want to pursue a friendship with someone who wants to yammer on about his or her belly fat. However, this scheme by which you can lie to your clients and potential clients about your business address does say something about the current state of things in America, where, of course, everything is looking up and our best days are ahead of us: “Prestige” is more important than honesty and forthrightness. O tempora, o mores!
Tuesday, January 31, 2012
“I’LL GLADLY PAY YOU TOMORROW FOR A HAMBURGER TODAY.”
1/31/12
Yesterday’s (i.e., Monday, 1/31/12’s Wall Street Journal, page A7) quotes German Finance Minister Wolfgang Schauble as saying, in response to suggestions, primarily from American observers, that Germany should pursue a more expansionary fiscal policy,
“I don’t know how it’s done in America, but in Germany it works like this: If you want more private demand, you have to take people’s angst away.”
Given that Germany, despite the travails of its neighbors to the south, is still in the middle of its second, or third, post-war economic miracle and grew at a 3% rate last year, all of us would do well to reflect on this observation. While yours truly is not so enamored of Mr. Schauble’s focus on expanding demand, his statement is fraught with wisdom and worthy of contemplation on a number of fronts.
First, those who counsel against excessive austerity in the charity cases of Europe argue that austerity will slow growth, or lead to recession, which in turn will result in more fiscal imbalance. Mr. Schauble’s comments, and the credibility that Germany’s prosperity lends to them, may indicate that austerity, rather than slowing growth, may actually foster growth. Why? Because deficit spending, in addition to transferring resources and activity from the relatively efficient private sector to the relatively inefficient public sector, puts a drag on the economy as businesses and individuals assume future tax increases to cover the deficits, are faced with uncertainty regarding how the government will deal with its deficits, or both. Austerity and balanced budgets, rather than talk of austerity, balanced budgets, and such drivel as 0.5% of GDP limits on loosely defined “structural” deficits, remove or mitigates the uncertainty and at least one of the arguments for future tax increases.
Second, the same logic in the prior paragraph can be applied not only to Europe’s periphery but also to the United States. Politicians, and even some economists, tell us that it is too dangerous to talk of, let alone implement, austerity now while the economy is weak. Better, they say, to pursue expansionary policies (i.e., spend more money or cut taxes) now and compensate for today’s frivolity with sobriety in the future. Even if we could believe pols’ protestations that if you will let them spend today they will miraculously become penurious tomorrow, this argument may be questionable at best. The private sector would, in all likelihood, respond quite favorably to a government that is adult enough to address its problems now and thus provide a modicum of certainty to, or at least remove a touch of uncertainty from, economic decision making. We wouldn’t need spending from the government to provide a fiscal boost; such spending would come from an energized, and vastly more productive, private sector.
Third, note Mr. Schauble’s swipe at American policymakers. Some Americans might chafe at being talked to like that by the Germans. But we, or at least the geniuses we have elected and put in charge of our financial system, have brought such scolding on ourselves. The Germans are indeed in a position from which they, citing the mess we have made of the treasure our forefathers left us, can dismiss most, if not all, of what we say on things financial. So are the Chinese (See, inter alia, my 7/21/11 post LIKE THE CUBS’ PROVIDING ADVICE ON HOW TO PLAY BASEBALL and my 6/21/10 post LOOK WHO’S PULLING THE RICKSHAW NOW.) and any number of other countries that seem to have acquired skills and salubrious habits we have blithely tossed aside.
Yesterday’s (i.e., Monday, 1/31/12’s Wall Street Journal, page A7) quotes German Finance Minister Wolfgang Schauble as saying, in response to suggestions, primarily from American observers, that Germany should pursue a more expansionary fiscal policy,
“I don’t know how it’s done in America, but in Germany it works like this: If you want more private demand, you have to take people’s angst away.”
Given that Germany, despite the travails of its neighbors to the south, is still in the middle of its second, or third, post-war economic miracle and grew at a 3% rate last year, all of us would do well to reflect on this observation. While yours truly is not so enamored of Mr. Schauble’s focus on expanding demand, his statement is fraught with wisdom and worthy of contemplation on a number of fronts.
First, those who counsel against excessive austerity in the charity cases of Europe argue that austerity will slow growth, or lead to recession, which in turn will result in more fiscal imbalance. Mr. Schauble’s comments, and the credibility that Germany’s prosperity lends to them, may indicate that austerity, rather than slowing growth, may actually foster growth. Why? Because deficit spending, in addition to transferring resources and activity from the relatively efficient private sector to the relatively inefficient public sector, puts a drag on the economy as businesses and individuals assume future tax increases to cover the deficits, are faced with uncertainty regarding how the government will deal with its deficits, or both. Austerity and balanced budgets, rather than talk of austerity, balanced budgets, and such drivel as 0.5% of GDP limits on loosely defined “structural” deficits, remove or mitigates the uncertainty and at least one of the arguments for future tax increases.
Second, the same logic in the prior paragraph can be applied not only to Europe’s periphery but also to the United States. Politicians, and even some economists, tell us that it is too dangerous to talk of, let alone implement, austerity now while the economy is weak. Better, they say, to pursue expansionary policies (i.e., spend more money or cut taxes) now and compensate for today’s frivolity with sobriety in the future. Even if we could believe pols’ protestations that if you will let them spend today they will miraculously become penurious tomorrow, this argument may be questionable at best. The private sector would, in all likelihood, respond quite favorably to a government that is adult enough to address its problems now and thus provide a modicum of certainty to, or at least remove a touch of uncertainty from, economic decision making. We wouldn’t need spending from the government to provide a fiscal boost; such spending would come from an energized, and vastly more productive, private sector.
Third, note Mr. Schauble’s swipe at American policymakers. Some Americans might chafe at being talked to like that by the Germans. But we, or at least the geniuses we have elected and put in charge of our financial system, have brought such scolding on ourselves. The Germans are indeed in a position from which they, citing the mess we have made of the treasure our forefathers left us, can dismiss most, if not all, of what we say on things financial. So are the Chinese (See, inter alia, my 7/21/11 post LIKE THE CUBS’ PROVIDING ADVICE ON HOW TO PLAY BASEBALL and my 6/21/10 post LOOK WHO’S PULLING THE RICKSHAW NOW.) and any number of other countries that seem to have acquired skills and salubrious habits we have blithely tossed aside.
Friday, January 27, 2012
“…THEY TAKE HOSTAGES; THEY DO VIOLENCE IN THEIR GRANDMOTHER’S NEIGHBORHOODS…”
1/27/12
It seems that in Egypt, where the wonderful democracy so joyously heralded by a consanguineous Western press and an ingenuous Western political establishment has taken root (See, inter alia, my now seminal 1/15/12 piece DON’T BOTHER TO WAKE ME WHEN THE REVOLUTION’S OVER.), the enlightened military government has effectively taken hostage workers for the International Republican Institute (“IRI”) and its sister organization, the National Democratic Institute (“NDI”), including Sam LaHood, son of current U.S. Transportation Secretary and former Republican U.S. Representative from Illinois, Ray LaHood. The government has not allowed the workers to leave the country and raided and sealed the IRI’s and NDI’s offices, claiming that groups such as the IRI and NDI are acting to destabilize the land of the Pharaohs.
Several points need to be made here:
--Let’s all pray that the hostages return safe and sound. Mr. LaHood and the other parents and families involved here are going through something remarkably like hell.
--Where are all the CNN reporters who were so gushing a year ago about the advance of “democracy” in Egypt? Oh, yes; they have moved onto their next “Let’s spread our enlightened view of the human condition and our hopelessly naïve fixation with what we perceive to be the good of ‘the people,’ with whom we could not possibly relate on any imaginable level” crusade and left the Egyptians to stew in the juices of their last attempt to make one of John Lennon’s imbecilic, screwy songs come to life.
--Developments in Egypt provide further evidence that, as I wrote back on 1/15 and nearly innumerable times before, there isn’t going to be any “democracy” in Egypt; about the best we can hope for is continued military government and a gradual introduction of more trappings of self-rule. But I fear that even that outcome is in peril and Egypt may descend into the dystopia of civil war. Not everyone is ready for “democracy” (perhaps including us) and “democracy” is not the best form of government for everybody, despite the accepted wisdom of, it appears, everybody in a position of political power in this country.
--Something remarkable emerged out of this story. Senator John McCain, who is the chairman of the IRI, expressed, according the Wall Street Journal (Friday, 1/27/12, page A8) “outrage” at the way the Egyptian government treated the pro-democracy workers and urged the government to
“…cease the harassment and unwarranted investigations” of the groups and said the action “could set back the long-standing partnership between the United States and Egypt.”
However, Mr. McCain has, mirabile dictu, NOT called for military action against the Egyptian government! Why such restraint on the part of the country’s greatest enthusiast for U.S. military involvement, any U.S. military involvement? Has Mr. McCain’s age and years of public service finally caught up on him? Will he quickly rectify this omission and call for round the clock bombing of Cairo? Or will his sidekick, Senator Lindsey Graham (R., Military-Industrial Complex), quickly make up for his mentor’s omission and call for a land assault on the Land of the Pharaohs, perhaps using the territory of our newest ally and proud democracy, Libya, as a staging ground? Will GOP Presidential candidate Rick Santorum sneer at the patriotism of anyone who doesn’t want to commit U.S. troops to such an effort?
It seems that in Egypt, where the wonderful democracy so joyously heralded by a consanguineous Western press and an ingenuous Western political establishment has taken root (See, inter alia, my now seminal 1/15/12 piece DON’T BOTHER TO WAKE ME WHEN THE REVOLUTION’S OVER.), the enlightened military government has effectively taken hostage workers for the International Republican Institute (“IRI”) and its sister organization, the National Democratic Institute (“NDI”), including Sam LaHood, son of current U.S. Transportation Secretary and former Republican U.S. Representative from Illinois, Ray LaHood. The government has not allowed the workers to leave the country and raided and sealed the IRI’s and NDI’s offices, claiming that groups such as the IRI and NDI are acting to destabilize the land of the Pharaohs.
Several points need to be made here:
--Let’s all pray that the hostages return safe and sound. Mr. LaHood and the other parents and families involved here are going through something remarkably like hell.
--Where are all the CNN reporters who were so gushing a year ago about the advance of “democracy” in Egypt? Oh, yes; they have moved onto their next “Let’s spread our enlightened view of the human condition and our hopelessly naïve fixation with what we perceive to be the good of ‘the people,’ with whom we could not possibly relate on any imaginable level” crusade and left the Egyptians to stew in the juices of their last attempt to make one of John Lennon’s imbecilic, screwy songs come to life.
--Developments in Egypt provide further evidence that, as I wrote back on 1/15 and nearly innumerable times before, there isn’t going to be any “democracy” in Egypt; about the best we can hope for is continued military government and a gradual introduction of more trappings of self-rule. But I fear that even that outcome is in peril and Egypt may descend into the dystopia of civil war. Not everyone is ready for “democracy” (perhaps including us) and “democracy” is not the best form of government for everybody, despite the accepted wisdom of, it appears, everybody in a position of political power in this country.
--Something remarkable emerged out of this story. Senator John McCain, who is the chairman of the IRI, expressed, according the Wall Street Journal (Friday, 1/27/12, page A8) “outrage” at the way the Egyptian government treated the pro-democracy workers and urged the government to
“…cease the harassment and unwarranted investigations” of the groups and said the action “could set back the long-standing partnership between the United States and Egypt.”
However, Mr. McCain has, mirabile dictu, NOT called for military action against the Egyptian government! Why such restraint on the part of the country’s greatest enthusiast for U.S. military involvement, any U.S. military involvement? Has Mr. McCain’s age and years of public service finally caught up on him? Will he quickly rectify this omission and call for round the clock bombing of Cairo? Or will his sidekick, Senator Lindsey Graham (R., Military-Industrial Complex), quickly make up for his mentor’s omission and call for a land assault on the Land of the Pharaohs, perhaps using the territory of our newest ally and proud democracy, Libya, as a staging ground? Will GOP Presidential candidate Rick Santorum sneer at the patriotism of anyone who doesn’t want to commit U.S. troops to such an effort?
Thursday, January 26, 2012
CANCELLED WITHOUT PAYMENT
1/26/12
Today’s, (i.e., Thursday, 1/26’s, page A8) Wall Street Journal reports that IMF chief Christine Lagarde, speaking at the Davos annual Narcissus bacchanal, contended that
Greece’s public sector creditors may have to take a hit on their loans if private lenders can’t agree on a restructuring plan that goes far enough to make the country’s debt sustainable.
(For some reasons that the Greek debt talks aren’t going as well as the eurocrats would like, see my already seminal 1/23/12 post “THEY SAID MAYBE I COULD HELP MOVE THINGS ALONG, MIKE; THEY SAID YOU WERE BEING TOUGH IN THE NEGOTIATIONS…”. Okay, now that you’re up to speed…)
The principal public creditors of Greece are eurozone governments and, of course, the European Central Bank (“ECB”). The ECB has been quite adamant that it will not take a hit on its Greek bonds; it seems that, in the ECB’s view, private sector players who make bad investments should suffer the discipline of the marketplace (well, maybe not, but that’s another story) but public sector players, doubtless due to their Olympian wisdom, must be absolved of responsibility for any mistakes they make…for the good of the public, of course.
Always the contrarian, yours truly would argue that it would be a very good thing if the ECB is made to take a hit, the more painful the better, on its Greek debt holdings and to suffer the ridicule and questioning that such a haircut (scalping, really) would entail. Why? Perhaps after being ridiculed and held to account for its cavalier attitude toward the money it creates, the ECB might be a bit more circumspect about buying European sovereigns.
Horrors! How could I possibly argue that the ECB should not be buying European sovereigns when all the smart and good and wonderful and noble types are telling us that that the only way out of the “Europeans debt crisis” is for the ECB to turbocharge its printing presses and get in their and buy bonds with reckless, carefree abandon? Why, these masters of the universe will argue, the only reason there is a problem is because the ECB has so far bought bonds only haltingly and hesitantly. Oh, yes, the governments should put their fiscal houses in order, perhaps as part of a eurozone wide fiscal compact, but that can come, as an earlier generation of Athenians put it in a completely different context, “some other time.” Right now, though, the smart guys are saying something akin to “Print, baby, print.”
But the Germans, who are counseling caution (until they fold once again, as they have repeatedly throughout this entire tawdry episode) are right. The ECB was, even though not everyone wants to admit it, modeled on the Bundesbank and was designed to share the Bundesbank’s commitment to keeping inflation low and preserving the value of the currency with which it was charged. Its founding treaty, as the ECB admits, forbids funding governments. So why is it holding Greek debt in the first place? It holds some of this debt in connection with its funding operations, in which it takes sovereign debt as collateral. Even this should be suspect, considering the quality of some of the debt it has taken as collateral. But, more importantly, the ECB holds some Greek debt as its part of the effort to navigate the eurozone “crisis;” it has bought sovereign debt in direct violation of its founding treaty. While the learned types urge it to buy more, those of us with an understanding of economics, finance, AND HISTORY would urge it to restore its virtue by immediately ceasing any purchases of sovereign debt and letting the market work things out. Perhaps a punch in the nose, in the form of having to take a hit on its Greek paper, will help the ECB find its treaty and perhaps read it.
Today’s, (i.e., Thursday, 1/26’s, page A8) Wall Street Journal reports that IMF chief Christine Lagarde, speaking at the Davos annual Narcissus bacchanal, contended that
Greece’s public sector creditors may have to take a hit on their loans if private lenders can’t agree on a restructuring plan that goes far enough to make the country’s debt sustainable.
(For some reasons that the Greek debt talks aren’t going as well as the eurocrats would like, see my already seminal 1/23/12 post “THEY SAID MAYBE I COULD HELP MOVE THINGS ALONG, MIKE; THEY SAID YOU WERE BEING TOUGH IN THE NEGOTIATIONS…”. Okay, now that you’re up to speed…)
The principal public creditors of Greece are eurozone governments and, of course, the European Central Bank (“ECB”). The ECB has been quite adamant that it will not take a hit on its Greek bonds; it seems that, in the ECB’s view, private sector players who make bad investments should suffer the discipline of the marketplace (well, maybe not, but that’s another story) but public sector players, doubtless due to their Olympian wisdom, must be absolved of responsibility for any mistakes they make…for the good of the public, of course.
Always the contrarian, yours truly would argue that it would be a very good thing if the ECB is made to take a hit, the more painful the better, on its Greek debt holdings and to suffer the ridicule and questioning that such a haircut (scalping, really) would entail. Why? Perhaps after being ridiculed and held to account for its cavalier attitude toward the money it creates, the ECB might be a bit more circumspect about buying European sovereigns.
Horrors! How could I possibly argue that the ECB should not be buying European sovereigns when all the smart and good and wonderful and noble types are telling us that that the only way out of the “Europeans debt crisis” is for the ECB to turbocharge its printing presses and get in their and buy bonds with reckless, carefree abandon? Why, these masters of the universe will argue, the only reason there is a problem is because the ECB has so far bought bonds only haltingly and hesitantly. Oh, yes, the governments should put their fiscal houses in order, perhaps as part of a eurozone wide fiscal compact, but that can come, as an earlier generation of Athenians put it in a completely different context, “some other time.” Right now, though, the smart guys are saying something akin to “Print, baby, print.”
But the Germans, who are counseling caution (until they fold once again, as they have repeatedly throughout this entire tawdry episode) are right. The ECB was, even though not everyone wants to admit it, modeled on the Bundesbank and was designed to share the Bundesbank’s commitment to keeping inflation low and preserving the value of the currency with which it was charged. Its founding treaty, as the ECB admits, forbids funding governments. So why is it holding Greek debt in the first place? It holds some of this debt in connection with its funding operations, in which it takes sovereign debt as collateral. Even this should be suspect, considering the quality of some of the debt it has taken as collateral. But, more importantly, the ECB holds some Greek debt as its part of the effort to navigate the eurozone “crisis;” it has bought sovereign debt in direct violation of its founding treaty. While the learned types urge it to buy more, those of us with an understanding of economics, finance, AND HISTORY would urge it to restore its virtue by immediately ceasing any purchases of sovereign debt and letting the market work things out. Perhaps a punch in the nose, in the form of having to take a hit on its Greek paper, will help the ECB find its treaty and perhaps read it.
Monday, January 23, 2012
“THEY SAID MAYBE I COULD HELP MOVE THINGS ALONG, MIKE; THEY SAID YOU WERE BEING TOUGH IN THE NEGOTIATIONS…”
1/23/12
This post is genuinely more of a question than a comment; only a little of my oft-used disingenuousness went into the generation of this post.
Now that the disclaimer is out of the way, here is my somewhat rhetorical question: If I am a Greek private creditor and I have protected myself with credit default swaps (“CDS”), what is my incentive to go along with a “voluntary” debt exchange that involves drastically reducing my coupon and face value and probably equally drastically extending my maturities, resulting in, at the very least, a halving of the net present value of my bonds? Why not just force a default, a resultant “credit event” (See my 6/8/11 post, A TRAGEDY WORTHY OF AESCHYLUS.) and collect on my CDS position? If my implied logic is correct here, why aren’t the parties short the protection on the CDS contract involved in the negotiations rather than the parties long the protection on those contracts?
I can think of a few answers to my query. First, and understandably, the creditors, whether protected or not, are under tremendous pressure to reach some kind of accommodation with the Greek government “for the good of the financial system,” or some other such drivel. But surely there are some among the holders of the debt, even if those holders are European banks, who, unlike the people who run the major banks in this country, have the courage to stand up for their shareholders, and other stakeholders rather than buckle under government, or international pressure.
Second, those protected by CDS positions may have little confidence in the ability of their counterparties to make good on their contracts. But if that is the case, why would the creditors enter into such expensive contracts in the first place? Perhaps the creditors’ lack of confidence is a lack of confidence in their counterparties only in the wake of the general confusion, and possible chaos, that would follow a Greek default.
Third, perhaps the creditors have little confidence in the legal solidity of their CDS contracts in the wake of those creditors’ passing on an opportunity for a “voluntary” settlement of their Greek debts. Again, though, why enter into the contracts in the first place if you have little confidence in them?
Fourth, perhaps my implication is correct and those with CDS coverage have little incentive to negotiate, but there are few creditors who have purchased such coverage. If that is the case, though, the problem of a Greek default is overstated; note that aforementioned 6/8/11 post, A TRAGEDY WORTHY OF AESCHYLUS, in which I state one of the reasons that the Eurocrats are so intent on averting a Greek default is because of a credit event’s repercussions for the CDS market and, consequently, for the European banking system.
There is a fifth possibility; maybe I am absolutely right that those who are long CDS protection have no incentive to negotiate and that is why the negotiations are going so slowly.
Perhaps the larger point here is what the ramifications of the entire Greek episode are for the CDS market. If, somehow, a “voluntary” debt reduction is forced down the throats of creditors, rendering them unable to collect on their CDS bets, one has to wonder why one would ever want to avail one’s self of such protection, at least for sovereign debt; i.e., if the system can always be jimmied so that no one has to make good on the short side of a CDS bet, why would anyone want to be on the long side of such a bet? Extending, why have a CDS market at all? Extending further, without a CDS market, how much more expensive will financing become for borrowers with even moderate credit issues?
This post is genuinely more of a question than a comment; only a little of my oft-used disingenuousness went into the generation of this post.
Now that the disclaimer is out of the way, here is my somewhat rhetorical question: If I am a Greek private creditor and I have protected myself with credit default swaps (“CDS”), what is my incentive to go along with a “voluntary” debt exchange that involves drastically reducing my coupon and face value and probably equally drastically extending my maturities, resulting in, at the very least, a halving of the net present value of my bonds? Why not just force a default, a resultant “credit event” (See my 6/8/11 post, A TRAGEDY WORTHY OF AESCHYLUS.) and collect on my CDS position? If my implied logic is correct here, why aren’t the parties short the protection on the CDS contract involved in the negotiations rather than the parties long the protection on those contracts?
I can think of a few answers to my query. First, and understandably, the creditors, whether protected or not, are under tremendous pressure to reach some kind of accommodation with the Greek government “for the good of the financial system,” or some other such drivel. But surely there are some among the holders of the debt, even if those holders are European banks, who, unlike the people who run the major banks in this country, have the courage to stand up for their shareholders, and other stakeholders rather than buckle under government, or international pressure.
Second, those protected by CDS positions may have little confidence in the ability of their counterparties to make good on their contracts. But if that is the case, why would the creditors enter into such expensive contracts in the first place? Perhaps the creditors’ lack of confidence is a lack of confidence in their counterparties only in the wake of the general confusion, and possible chaos, that would follow a Greek default.
Third, perhaps the creditors have little confidence in the legal solidity of their CDS contracts in the wake of those creditors’ passing on an opportunity for a “voluntary” settlement of their Greek debts. Again, though, why enter into the contracts in the first place if you have little confidence in them?
Fourth, perhaps my implication is correct and those with CDS coverage have little incentive to negotiate, but there are few creditors who have purchased such coverage. If that is the case, though, the problem of a Greek default is overstated; note that aforementioned 6/8/11 post, A TRAGEDY WORTHY OF AESCHYLUS, in which I state one of the reasons that the Eurocrats are so intent on averting a Greek default is because of a credit event’s repercussions for the CDS market and, consequently, for the European banking system.
There is a fifth possibility; maybe I am absolutely right that those who are long CDS protection have no incentive to negotiate and that is why the negotiations are going so slowly.
Perhaps the larger point here is what the ramifications of the entire Greek episode are for the CDS market. If, somehow, a “voluntary” debt reduction is forced down the throats of creditors, rendering them unable to collect on their CDS bets, one has to wonder why one would ever want to avail one’s self of such protection, at least for sovereign debt; i.e., if the system can always be jimmied so that no one has to make good on the short side of a CDS bet, why would anyone want to be on the long side of such a bet? Extending, why have a CDS market at all? Extending further, without a CDS market, how much more expensive will financing become for borrowers with even moderate credit issues?
Saturday, January 21, 2012
“I THINK YOU OUGHT TO COME OVER AND WATCH YOUR BOY, APOLLO; I THINK HE MEANS BUSINESS.”
1/21/12
We’re heading into the South Carolina primary tonight and, to hear the news media tell it, this is a race among Mitt Romney, Newt Gingrich, and, maybe Rick Santorum. Ron Paul, the same Ron Paul who came in third in Iowa, second in New Hampshire, and well ahead of Newt Gingrich in both races, is nearly completely ignored. Here is how the Wall Street Journal treated Dr. Paul, at the end of the third last paragraph of a multi-page article that began on page A1 of today’s (Saturday/Sunday, 1/21-1/22/12’s) paper:
A fourth candidate, Rep. Ron Paul, has also drawn a solid share of the votes.
Ron Paul, apparently, barely exists and is certainly not worthy of notice, even by the paper that hypocritically prides itself as the champion of free markets and free men.
We all know the arguments: Ron Paul can’t win the nomination, let alone the election because he is such a radical. Dr. Paul is an old crank. Congressman Paul doesn’t want to win; he just wants to make a statement. Dr. Paul will not do well in South Carolina because of the heavy military presence in that state (this even though no one has drawn more contributions from military personnel than has Ron Paul), and, even, Ron Paul knows that he cannot become president and is just paving the way for his son, Senator Rand Paul, to make a future run for the presidency.
I’m not here to say that Dr. Paul will win the GOP nomination; the country, and even the hyperhypocritical Republican Party, has probably gotten far too comfortable with big government to elect someone who considers the Constitution more than a stumbling block around which government must work to “get things done.” But if Congressman Paul continues to attract the percentages of the votes he has won so far, and the so called “conservative” candidates, or candidate, continue to make Mitt Romney’s seemingly inevitable waltz to the nomination more like a slog, Dr. Paul just might win. And even if, as is likely, he doesn’t, it is virtually guaranteed, given his widespread and devoted support and his guerilla type campaign, that he will be one of the last two candidates left standing and thus will probably be the runner-up at the GOP convention.
No matter what happens in the Republican presidential race, Dr. Paul will continue to be a formidable presence in the selection process. He deserves some respect, or at least more notice, from a press that is alternately condescending toward and bewildered by the success of a genuine Constitutionalist who takes the voters for more than automatons who cannot handle more than monosyllabic sound bites. Perhaps it is that last characteristic that is Dr. Paul’s undoing, but I digress.
We’re heading into the South Carolina primary tonight and, to hear the news media tell it, this is a race among Mitt Romney, Newt Gingrich, and, maybe Rick Santorum. Ron Paul, the same Ron Paul who came in third in Iowa, second in New Hampshire, and well ahead of Newt Gingrich in both races, is nearly completely ignored. Here is how the Wall Street Journal treated Dr. Paul, at the end of the third last paragraph of a multi-page article that began on page A1 of today’s (Saturday/Sunday, 1/21-1/22/12’s) paper:
A fourth candidate, Rep. Ron Paul, has also drawn a solid share of the votes.
Ron Paul, apparently, barely exists and is certainly not worthy of notice, even by the paper that hypocritically prides itself as the champion of free markets and free men.
We all know the arguments: Ron Paul can’t win the nomination, let alone the election because he is such a radical. Dr. Paul is an old crank. Congressman Paul doesn’t want to win; he just wants to make a statement. Dr. Paul will not do well in South Carolina because of the heavy military presence in that state (this even though no one has drawn more contributions from military personnel than has Ron Paul), and, even, Ron Paul knows that he cannot become president and is just paving the way for his son, Senator Rand Paul, to make a future run for the presidency.
I’m not here to say that Dr. Paul will win the GOP nomination; the country, and even the hyperhypocritical Republican Party, has probably gotten far too comfortable with big government to elect someone who considers the Constitution more than a stumbling block around which government must work to “get things done.” But if Congressman Paul continues to attract the percentages of the votes he has won so far, and the so called “conservative” candidates, or candidate, continue to make Mitt Romney’s seemingly inevitable waltz to the nomination more like a slog, Dr. Paul just might win. And even if, as is likely, he doesn’t, it is virtually guaranteed, given his widespread and devoted support and his guerilla type campaign, that he will be one of the last two candidates left standing and thus will probably be the runner-up at the GOP convention.
No matter what happens in the Republican presidential race, Dr. Paul will continue to be a formidable presence in the selection process. He deserves some respect, or at least more notice, from a press that is alternately condescending toward and bewildered by the success of a genuine Constitutionalist who takes the voters for more than automatons who cannot handle more than monosyllabic sound bites. Perhaps it is that last characteristic that is Dr. Paul’s undoing, but I digress.
Friday, January 20, 2012
TELL MAMA TO ROLL WITH ME, BARACK
1/20/12
R&B legend Etta James died today after months of battling, among other things, leukemia. I have long wanted to write this post about her, but there was always something more important, other demands on my time, or something else, doubtless relatively trivial, that stopped me from writing it. But news of her death not only prompted this writing, but convinced me that if I didn’t write it now, I probably never would.
Etta James is perhaps best known for her mega-hit “At Last.” “At Last” is indeed a great tune, a classic tune, long a favorite of jazz aficionados but brought into the popular lexicon by a spate of Jaguar commercials a few years ago. But “At Last,” for all its mellifluous splendor, is quite atypical of the work of Ms. James, who was, at her heart, a classic R&B singer. While I am a big fan of “At Last,” I much prefer Ms. James version of “Roll With Me Henry” and also like “Tell Mama,” which very loyal readers will remember from an edition of the Pontificator’s predecessor, the Insightful Weekly Commentary. Both are more in line with Ms. James’ style. I also, almost as a digression, highly recommend “Record Row, Cradle of Rhythm and Blues” a documentary about the music business on the ten blocks between Roosevelt and Cermak Roads on Michigan Avenue in Chicago, which Etta James so masterfully narrated. http://www.youtube.com/watch?v=rPCWPEoEaVs If you like R&B, or just like history, this PBS documentary is well worth your time.
But it is “At Last” that is the subject of this commentary. You will remember that, at President Obama’s post-inaugural festivities, “At Last,” which, in keeping with Mr. Obama’s superficiality, was appropriate for the occasion only for its title, was the featured tune, the tune to which Mr. and Mrs. Obama danced their inaugural dance, if you will. But who performed this rhapsodic classic for the supposed champion of the downtrodden who was just moving into the White House? Was it the song’s original singer, who had a tough life and was still battling demons on a number of fronts, who actually lived the blues and who could have badly used a break at the time? No. It was someone named Beyonce who apparently had forgotten, or lost, her last name and who, given the rapid degeneration of culture in this country, had become something of a big star who needed no help whatsoever promoting her career as a so-called singer. That perhaps little bit of hypocrisy has stuck in my craw ever since that night. How can you try to convince everybody that you are the champion of the downtrodden and then deny Ms. James, a personification of the downtrodden and a genuine talent, a big chance to resurrect her career by having a poseur, a Hollywood fabrication, perform Ms. James’ big hit at the White House? What a slap in the face!
You will also recall that Ms. James did not take too kindly to the snub delivered her by the new occupants of the White House, complaining that she, not Beyonce, should have performed her song at the White House and making some very salient, and right on the mark, comments about Beyonce’s lack of talent. But Ms. James quickly backed down after pressure from who knows where. Or maybe Ms. James was too classy to make too much of an issue of the kick in the chops that the Obamas had just delivered her.
Some might exonerate the President and his wife. Surely, they will argue, the Obamas had nothing to do with planning the inaugural festivities; there were more important things on their plate. But given the micromanagement that pervades the President’s political operations, it’s hard to believe that the President, or someone very close to him, who had spent years crafting the President’s Potemkin image as a champion of the working class and the have-nots, did not make the decision that “At Last” would be the featured song at his inauguration. On the other hand, it is easy to believe that this crew knew nothing of Etta James, that its cultural awareness is no deeper, chronologically or otherwise, than the hyper-shallow swill served up by the likes of the person called Beyonce and the techno-drivel she strives so mightily to “sing” over. So maybe this was indeed an innocent mistake by the innocents who occupy the White House.
Some might argue that I am only making an issue of this because I have political and philosophical differences with Mr. Obama. Others, probably from the opposite side of the political spectrum, might argue that there is plenty in the Obama administration about which to make an issue without touching on such relative trivia as who sang at his inaugural festivities.
I would counter with two points. First, and perhaps again, the utter hypocrisy of claiming to be such a champion of those who are hurting while figuratively spitting in the face of a woman who was indeed hurting but whose career could have been resurrected, and who could have done marvelous things, with just a small boost from the President, has bothered me since the President’s inauguration.
Second, I would cite the example of Cook County Commissioner Jerry “Iceman” Butler, who also, by the way, played a prominent role in the aforementioned “Record Row” PBS documentary. http://www.youtube.com/watch?v=rPCWPEoEaVs Mr. Butler and Mr. Obama share more than a few things. Both are liberal Democrats who made the south side of the world’s greatest city their homes. Both fashioned political careers in Chicago by accommodating and making their peace with, while not being real, or at least important, parts (despite what commentators on the Right will tell you about President Obama) of what is known as the Chicago Machine. Further, and relevant only for this post, I have at least as many political differences with Mr. Butler as I have with Mr. Obama,
But there are two key differences between Mr. Butler and Mr. Obama. First, Mr. Butler had a life before he entered politics; he was one of, if not THE, greatest R&B singers of all time, with hits too numerous to either count or enumerate. He also is the source of a great quote I use in all of the Finance courses I teach. When explaining how he lost the fortune he had made in the music business as a very young man, the Iceman explained “Money doesn’t come with instructions.” So he knows something of the world. Second, Mr. Butler exudes class. I once had the pleasure of meeting Mr. Butler. While the details of the meeting are grist for another post, for purposes of this post, I would only note that Mr. Butler is one gracious, almost courtly, individual. This quality comes out, or doesn’t, in a politician when he is dealing with someone who can do him absolutely no good, but I digress.
One of the manifestations of Mr. Butler’s class is the way he treated his former duet partner of the early ‘60s, Betty Everett, who was also the subject of a long ago post in the Insightful Weekly Commentary. Ms. Everett is perhaps best known for “It’s In His Kiss,” which was shamelessly and screechingly covered as “The Shoop-Shoop Song” (ugh!) by another star who apparently has forgotten her last name, Cher, just as “At Last” was covered (stolen, really) by similarly single-named Beyonce. But Ms. Everett’s best work was done with Mr. Butler, most notably that greatest of all love ballads “Let It Be Me,” but also “Smile” and “Ain’t That Loving You Baby.”
Ms. Everett, while not plagued by the same demons as Ms. James, did see her career slide downhill as the ‘60s progressed. She eventually found herself living with her sister in Beloit, Wisconsin, appearing now and again and working at documenting the history of R&B at the Rhythm and Blues Foundation. But Mr. Butler never forgot his former partner, including her whenever she needed, or wanted, including in his later performances. In fact, as noted in the IWC commentary I wrote on the occasion of her death, Ms. Everett appeared with the Iceman, only months before here death, on one of the PBS Doo Wop specials Mr. Butler hosted. The two sang “Let It Be Me.” There wasn’t a dry eye in the house, at least not in the Quinn house.
Unfortunately, Etta James, a contemporary of Ms. Everett and a fellow troubadour of the strata of society Mr. Obama professes to represent, received no such treatment from the self-proclaimed champion of the downtrodden in the White House.
R&B legend Etta James died today after months of battling, among other things, leukemia. I have long wanted to write this post about her, but there was always something more important, other demands on my time, or something else, doubtless relatively trivial, that stopped me from writing it. But news of her death not only prompted this writing, but convinced me that if I didn’t write it now, I probably never would.
Etta James is perhaps best known for her mega-hit “At Last.” “At Last” is indeed a great tune, a classic tune, long a favorite of jazz aficionados but brought into the popular lexicon by a spate of Jaguar commercials a few years ago. But “At Last,” for all its mellifluous splendor, is quite atypical of the work of Ms. James, who was, at her heart, a classic R&B singer. While I am a big fan of “At Last,” I much prefer Ms. James version of “Roll With Me Henry” and also like “Tell Mama,” which very loyal readers will remember from an edition of the Pontificator’s predecessor, the Insightful Weekly Commentary. Both are more in line with Ms. James’ style. I also, almost as a digression, highly recommend “Record Row, Cradle of Rhythm and Blues” a documentary about the music business on the ten blocks between Roosevelt and Cermak Roads on Michigan Avenue in Chicago, which Etta James so masterfully narrated. http://www.youtube.com/watch?v=rPCWPEoEaVs If you like R&B, or just like history, this PBS documentary is well worth your time.
But it is “At Last” that is the subject of this commentary. You will remember that, at President Obama’s post-inaugural festivities, “At Last,” which, in keeping with Mr. Obama’s superficiality, was appropriate for the occasion only for its title, was the featured tune, the tune to which Mr. and Mrs. Obama danced their inaugural dance, if you will. But who performed this rhapsodic classic for the supposed champion of the downtrodden who was just moving into the White House? Was it the song’s original singer, who had a tough life and was still battling demons on a number of fronts, who actually lived the blues and who could have badly used a break at the time? No. It was someone named Beyonce who apparently had forgotten, or lost, her last name and who, given the rapid degeneration of culture in this country, had become something of a big star who needed no help whatsoever promoting her career as a so-called singer. That perhaps little bit of hypocrisy has stuck in my craw ever since that night. How can you try to convince everybody that you are the champion of the downtrodden and then deny Ms. James, a personification of the downtrodden and a genuine talent, a big chance to resurrect her career by having a poseur, a Hollywood fabrication, perform Ms. James’ big hit at the White House? What a slap in the face!
You will also recall that Ms. James did not take too kindly to the snub delivered her by the new occupants of the White House, complaining that she, not Beyonce, should have performed her song at the White House and making some very salient, and right on the mark, comments about Beyonce’s lack of talent. But Ms. James quickly backed down after pressure from who knows where. Or maybe Ms. James was too classy to make too much of an issue of the kick in the chops that the Obamas had just delivered her.
Some might exonerate the President and his wife. Surely, they will argue, the Obamas had nothing to do with planning the inaugural festivities; there were more important things on their plate. But given the micromanagement that pervades the President’s political operations, it’s hard to believe that the President, or someone very close to him, who had spent years crafting the President’s Potemkin image as a champion of the working class and the have-nots, did not make the decision that “At Last” would be the featured song at his inauguration. On the other hand, it is easy to believe that this crew knew nothing of Etta James, that its cultural awareness is no deeper, chronologically or otherwise, than the hyper-shallow swill served up by the likes of the person called Beyonce and the techno-drivel she strives so mightily to “sing” over. So maybe this was indeed an innocent mistake by the innocents who occupy the White House.
Some might argue that I am only making an issue of this because I have political and philosophical differences with Mr. Obama. Others, probably from the opposite side of the political spectrum, might argue that there is plenty in the Obama administration about which to make an issue without touching on such relative trivia as who sang at his inaugural festivities.
I would counter with two points. First, and perhaps again, the utter hypocrisy of claiming to be such a champion of those who are hurting while figuratively spitting in the face of a woman who was indeed hurting but whose career could have been resurrected, and who could have done marvelous things, with just a small boost from the President, has bothered me since the President’s inauguration.
Second, I would cite the example of Cook County Commissioner Jerry “Iceman” Butler, who also, by the way, played a prominent role in the aforementioned “Record Row” PBS documentary. http://www.youtube.com/watch?v=rPCWPEoEaVs Mr. Butler and Mr. Obama share more than a few things. Both are liberal Democrats who made the south side of the world’s greatest city their homes. Both fashioned political careers in Chicago by accommodating and making their peace with, while not being real, or at least important, parts (despite what commentators on the Right will tell you about President Obama) of what is known as the Chicago Machine. Further, and relevant only for this post, I have at least as many political differences with Mr. Butler as I have with Mr. Obama,
But there are two key differences between Mr. Butler and Mr. Obama. First, Mr. Butler had a life before he entered politics; he was one of, if not THE, greatest R&B singers of all time, with hits too numerous to either count or enumerate. He also is the source of a great quote I use in all of the Finance courses I teach. When explaining how he lost the fortune he had made in the music business as a very young man, the Iceman explained “Money doesn’t come with instructions.” So he knows something of the world. Second, Mr. Butler exudes class. I once had the pleasure of meeting Mr. Butler. While the details of the meeting are grist for another post, for purposes of this post, I would only note that Mr. Butler is one gracious, almost courtly, individual. This quality comes out, or doesn’t, in a politician when he is dealing with someone who can do him absolutely no good, but I digress.
One of the manifestations of Mr. Butler’s class is the way he treated his former duet partner of the early ‘60s, Betty Everett, who was also the subject of a long ago post in the Insightful Weekly Commentary. Ms. Everett is perhaps best known for “It’s In His Kiss,” which was shamelessly and screechingly covered as “The Shoop-Shoop Song” (ugh!) by another star who apparently has forgotten her last name, Cher, just as “At Last” was covered (stolen, really) by similarly single-named Beyonce. But Ms. Everett’s best work was done with Mr. Butler, most notably that greatest of all love ballads “Let It Be Me,” but also “Smile” and “Ain’t That Loving You Baby.”
Ms. Everett, while not plagued by the same demons as Ms. James, did see her career slide downhill as the ‘60s progressed. She eventually found herself living with her sister in Beloit, Wisconsin, appearing now and again and working at documenting the history of R&B at the Rhythm and Blues Foundation. But Mr. Butler never forgot his former partner, including her whenever she needed, or wanted, including in his later performances. In fact, as noted in the IWC commentary I wrote on the occasion of her death, Ms. Everett appeared with the Iceman, only months before here death, on one of the PBS Doo Wop specials Mr. Butler hosted. The two sang “Let It Be Me.” There wasn’t a dry eye in the house, at least not in the Quinn house.
Unfortunately, Etta James, a contemporary of Ms. Everett and a fellow troubadour of the strata of society Mr. Obama professes to represent, received no such treatment from the self-proclaimed champion of the downtrodden in the White House.
Wednesday, January 18, 2012
WHAT WOULD IT TAKE TO GET YOU TO BUY INTO THIS BALDERDASH TODAY?
1/18/12
Today’s (i.e., Wednesday, 1/18/12’s, page B3) Wall Street Journal contained a not at all surprising article on one of my former, and hopefully future, topics, the car industry. As the headline of the article, “Dealers Fight Mileage Rules” more or less encapsulates, car dealers contend that it will be difficult to sell people the higher mileage cars the EPA and NHTSA would like to mandate. The argument being made by the dealers is that the additional costs required to increase fuel economy to over 50 mpg by 2025 will scare away buyers, or, as one dealer so wryly put it
“Doesn’t matter if beans are a nickel a bushel; if you can’t get the nickel you can’t get the bushel.”
Why don’t our politicians or Wall Street types talk like that…without trying, straining, really, to do so? But I digress.
The argument makes perfect sense to yours truly; if mandating a 5% annual increase in mileage (sounds doable unless one knows anything about compound interest) makes cars ridiculously expensive, not only will our car industry, broadly defined, suffer but we won’t substantially improve fuel economy, or clean up the environment, because people will hold onto their older, presumably lower mileage cars. But what caught my eye in the article was not the compelling nature of the dealers’ argument, but rather this sentence:
The EPA and the NHTSA estimate that the additional technology required on vehicles will cost consumers $2,030 toward the purchase price of vehicles, but that the lifetime fuel cost savings in 2025 would amount to more than $6,000, saving consumers a total of $4,400.
The dealers don’t agree with the analysis, and the placement of the phrase “in 2025” and the peculiar arithmetic (perhaps the bureaucrats are doing time value of money calculations using negative interest rates…or maybe somebody hit the wrong key on his or her calculator. I digress again, but at least I do so parenthetically.) do make the analysis look quite squirrelly to yours truly. But let’s assume the bureaucrats’ numbers are true. If that is the case, what need is there for a mandate? If the savings are so abundant, if the return on investment, if you will, is so clear and compelling, why would the government have to force the automakers to improve fuel economy at such a rapid and expensive clip? One would think that people would be banging down the doors of the dealers and the automakers, demanding that their money be tripled.
Either these numbers don’t hold up or the Bush/Obama administration thinks that people are just too dumb to recognize a compelling deal when they see one and therefore must be guided by their obvious betters to their obvious good. Even yours truly, whom no one has ever accused of overestimating the intelligence of the prime-time TV addled American public, cannot go along with the latter.
Today’s (i.e., Wednesday, 1/18/12’s, page B3) Wall Street Journal contained a not at all surprising article on one of my former, and hopefully future, topics, the car industry. As the headline of the article, “Dealers Fight Mileage Rules” more or less encapsulates, car dealers contend that it will be difficult to sell people the higher mileage cars the EPA and NHTSA would like to mandate. The argument being made by the dealers is that the additional costs required to increase fuel economy to over 50 mpg by 2025 will scare away buyers, or, as one dealer so wryly put it
“Doesn’t matter if beans are a nickel a bushel; if you can’t get the nickel you can’t get the bushel.”
Why don’t our politicians or Wall Street types talk like that…without trying, straining, really, to do so? But I digress.
The argument makes perfect sense to yours truly; if mandating a 5% annual increase in mileage (sounds doable unless one knows anything about compound interest) makes cars ridiculously expensive, not only will our car industry, broadly defined, suffer but we won’t substantially improve fuel economy, or clean up the environment, because people will hold onto their older, presumably lower mileage cars. But what caught my eye in the article was not the compelling nature of the dealers’ argument, but rather this sentence:
The EPA and the NHTSA estimate that the additional technology required on vehicles will cost consumers $2,030 toward the purchase price of vehicles, but that the lifetime fuel cost savings in 2025 would amount to more than $6,000, saving consumers a total of $4,400.
The dealers don’t agree with the analysis, and the placement of the phrase “in 2025” and the peculiar arithmetic (perhaps the bureaucrats are doing time value of money calculations using negative interest rates…or maybe somebody hit the wrong key on his or her calculator. I digress again, but at least I do so parenthetically.) do make the analysis look quite squirrelly to yours truly. But let’s assume the bureaucrats’ numbers are true. If that is the case, what need is there for a mandate? If the savings are so abundant, if the return on investment, if you will, is so clear and compelling, why would the government have to force the automakers to improve fuel economy at such a rapid and expensive clip? One would think that people would be banging down the doors of the dealers and the automakers, demanding that their money be tripled.
Either these numbers don’t hold up or the Bush/Obama administration thinks that people are just too dumb to recognize a compelling deal when they see one and therefore must be guided by their obvious betters to their obvious good. Even yours truly, whom no one has ever accused of overestimating the intelligence of the prime-time TV addled American public, cannot go along with the latter.
Tuesday, January 17, 2012
SOME STRAIGHT, IF NOT NECESSARILY PLAIN, TALK ON PRIVATE EQUITY
1/17/12
Anyone sentient has noticed the brouhaha being raised of late about presumptive GOP presidential nominee Mitt Romney’s career with Bain and Company in the adventurous and stimulating world of private equity.
I don’t pretend to be an expert on private equity, but, many years ago, I was at least anicillarily involved, as what best could be described as a very close spectator, in what we now call the private equity world. This was in a perhaps more honest age, back when “private equity deals” were called “leveraged buyouts,” or simply “LBOs” and “private equity firms” were called “LBO firms.” Yes, I realize that the change in terminology may have roots that transcend semantics. Some private equity deals, and more now than back when I was looking at the debt in these deals, are done with more equity than debt, but one has to emphasize the adjective “some.” Equity only, or even equity rich, private equity deals are rare, at least when measured in relative dollar terms, both because the size of such deals is limited by the availability of capital and because it is difficult to make such deals work for reasons outlined in the next paragraph. Further, having at least some experience with what is now called private equity, my level of interest and ability to comment intelligently on l’affaire Bain, or at least on what private equity activity does and does not do, exceeds that of the typical observer…and most of the candidates and their henchmen who are throwing Bain bombs Mitt Romney’s way. So a few thoughts from somebody who, unlike most of the commentators on this subject, knows something about private equity:
Listening to Mr. Romney and his acolytes crow about how “they turned companies around” or “saved failing companies” when the former governor was doing private equity deals sounds at least disingenuous to those of us who know something about how these deals work. Private equity deals do not work, contrary to the arguments on both sides of the issue, because expert management is brought in (Generally, the old management is retained and brought in as partners in many, if not most, LBOs, er, sorry, private equity deals.), enlightened Harvard MBAs deign to share their vast knowledge with the benighted who have actually worked in the industry at hand for, in many cases, longer than those wunderkinds have been alive, or even because costs, and, of course, payrolls are chopped with a degree of ruthlessness that would make Ming the Merciless envious. No, the typical private equity deals don’t turn companies around or spawn new companies (The latter is the work of venture capital companies, and, in its defense, Bain did do some venture capital work). A typical private equity deal works thusly: A company, usually a modestly successful concern with a presumably underpriced stock rather than a failing company, is purchased with very little equity and, to use a technical term, a ton of debt. The management, as mentioned before, is given, or buys, a large equity stake and is left in charge of the company. The company continues on its modest growth path. Due to the brobdingnagian amount of debt used to purchase the company, and the magnifying effect debt has on bottom line earnings growth, the benefits of that modest growth accrue to the equity holders in proportions that couldn’t be imagined under a more conventional capital structure. Without launching into a finance lecture, more debt results in higher fixed costs, in this case, higher fixed financing costs. Once that “nut” is covered, any additional earnings and/or cash generated from operations flows to the equity holders, of whom there are fewer with less money on the table; i.e., financial leverage (debt) magnifies earnings and cash flow increases for the benefit of the new owners, i.e., private equity firm, its investors, and its management partners. After a few years of increasing bottom line earnings and/or cash flow, the company is sold, either to a strategic buyer or another financial buyer, and the private equity investors cash out, hopefully at a substantial profit, and move on to the next deal.
Note that, for these deals to “work,” operating performance does not necessarily have to be improved; it merely has to be sustained. Financial leverage takes over from there. Often, earnings are enhanced by cutting costs (i.e., laying off workers), selling assets, or both. But such cost cutting at the operational level is not necessary for these deals to work. What private equity investors bring to the table is neither the operational brilliance its fans would have you believe nor an especially virulent strain of the kind of misanthropic blood lust that private equity’s more ardent opponents believe runs in the veins of all capitalists, but, rather, a degree of facility with financial engineering. In other words, private equity investors typically do not have much impact on operational performance; they do have an enormous impact on a company’s financial structure. In still other words, private equity investors do most of their work on the right hand side of the balance sheet rather than on the left hand side. This financial machination is where the fortunes are made, and not just for the private equity investors, but also for the shareholders of the acquired firm, the Wall Street firms who facilitate the levering of these deals and do the M&A work, pension funds and other investors who take part in the deals, the managers who go from being high income individuals to enormously wealthy individuals, and hosts of others. The losers, of course, are the workers who lose their jobs if the private equity owners choose to attempt to enhance their earnings by cutting costs, as is being trumpeted by those who are attempting to make private equity a campaign issue but, again, such cost cutting is not necessary to make these deals work; what is important in a private equity deal is the financial, not the actual, engineering.
Almost as an aside, financial leverage has the same magnifying effect on decreases in operating earnings that it has on increases in operating earnings. Debt, needless to say, adds risk as well as opportunity. This is why so many private equity deals fail, in some cases while the private equity firm still owns the company, in others after that firm has sold the usually debt ridden company to a buyer who suddenly discovers that the debt taken on to enable the original private equity transaction was unsustainable. This is why when one hears from Mitt Romney’s defenders, even those who should, and probably do, know better that failure is just part of the free market, one suspects that those making such an argument are ignorant, uninformed, or being disingenuous. Failure is an inevitable part of the free market system; indeed, capitalism without failure is akin to Christianity without hell. But private equity deals that saddle target firms with inordinate amounts of debt expedite such failure or, in some cases, cause the failure of firms that could have survived, indeed, were thriving, under more conventional capital structures.
One also tires of hearing defenders of Mitt Romney, Bain Capital, and the private equity world castigate attacks on private equity as socialistic assaults on “the free market.” Private equity is indeed part of the free market and a necessary one at that. (See the next paragraph.) But it is not “the free market,” only a component of the free market. One can be leery of the salubriousness of private equity activity without being a card carrying Communist.
Having written all of the above, I, like most clear thinking observers, am not opposed to private equity deals, private equity firms, or the private equity world. Private equity activity is indeed a necessary tool in the ongoing effort to keep managements, primarily of publicly traded firms, focused on their primary, most would say only, mission; i.e., enhancing shareholder value. Many managements forget that they are not, except in a limited sense, the owners of the companies they manage; they work for the owners, i.e., the shareholders, of the companies they manage. When managements neglect the interest of their shareholders, the companies they manage can quickly come to the attention of private equity types who will do what is necessary to make sure the value, or at least more of the value, of the firm finds its way to the shareholders. That having been said, however, this argument quickly falls apart when one considers that a great many (but not all) private equity deals, as noted above, involve leaving the former management in place. But at least theoretically, a market in which private equity firms are free to pursue their own interests, and, as a consequence, the interests of the shareholders of the companies they seek to buy, is a healthier market than one in which private equity activity is discouraged, or worse.
So private equity activity is not a savior of endangered companies, a spawner of new companies, or a creator of legions of jobs, as its proponents, and Mitt Romney’s supporters, would have us believe. Nor is the very embodiment of the free market system. But neither is private equity some sort of plague infecting our economy, the very personification of a Snidely Whiplashesque approach to the free market in which bulbously proportioned capitalists feast on the carcasses of the working class, as its opponents, and presumed nominee Romney’s challengers, would have us believe. Private equity is far more complicated than that, but it is primarily the application of financial engineering to modestly successful concerns in an attempt to make money for the financial engineers, sometimes, but not always, at the expense of workers and communities. Private equity also serves, at least theoretically, a vital check function on the machinations of managements, helping to keep managers focused on the interests of their employers; i.e., the shareholders of the firms they run. Bear in mind, when considering this last point, that we can’t rely on pure motives to bring about good outcomes; Francis of Assisi has long ago gone home, and there haven’t been many more like him since he abandoned this mortal coil. One of the many beauties of the free market is that it enables people to help others by pursuing their own interests, i.e., to do well by doing good. We would do well to avoid unnecessary, if well meaning, constraints on the mechanisms that facilitate this function.
Anyone sentient has noticed the brouhaha being raised of late about presumptive GOP presidential nominee Mitt Romney’s career with Bain and Company in the adventurous and stimulating world of private equity.
I don’t pretend to be an expert on private equity, but, many years ago, I was at least anicillarily involved, as what best could be described as a very close spectator, in what we now call the private equity world. This was in a perhaps more honest age, back when “private equity deals” were called “leveraged buyouts,” or simply “LBOs” and “private equity firms” were called “LBO firms.” Yes, I realize that the change in terminology may have roots that transcend semantics. Some private equity deals, and more now than back when I was looking at the debt in these deals, are done with more equity than debt, but one has to emphasize the adjective “some.” Equity only, or even equity rich, private equity deals are rare, at least when measured in relative dollar terms, both because the size of such deals is limited by the availability of capital and because it is difficult to make such deals work for reasons outlined in the next paragraph. Further, having at least some experience with what is now called private equity, my level of interest and ability to comment intelligently on l’affaire Bain, or at least on what private equity activity does and does not do, exceeds that of the typical observer…and most of the candidates and their henchmen who are throwing Bain bombs Mitt Romney’s way. So a few thoughts from somebody who, unlike most of the commentators on this subject, knows something about private equity:
Listening to Mr. Romney and his acolytes crow about how “they turned companies around” or “saved failing companies” when the former governor was doing private equity deals sounds at least disingenuous to those of us who know something about how these deals work. Private equity deals do not work, contrary to the arguments on both sides of the issue, because expert management is brought in (Generally, the old management is retained and brought in as partners in many, if not most, LBOs, er, sorry, private equity deals.), enlightened Harvard MBAs deign to share their vast knowledge with the benighted who have actually worked in the industry at hand for, in many cases, longer than those wunderkinds have been alive, or even because costs, and, of course, payrolls are chopped with a degree of ruthlessness that would make Ming the Merciless envious. No, the typical private equity deals don’t turn companies around or spawn new companies (The latter is the work of venture capital companies, and, in its defense, Bain did do some venture capital work). A typical private equity deal works thusly: A company, usually a modestly successful concern with a presumably underpriced stock rather than a failing company, is purchased with very little equity and, to use a technical term, a ton of debt. The management, as mentioned before, is given, or buys, a large equity stake and is left in charge of the company. The company continues on its modest growth path. Due to the brobdingnagian amount of debt used to purchase the company, and the magnifying effect debt has on bottom line earnings growth, the benefits of that modest growth accrue to the equity holders in proportions that couldn’t be imagined under a more conventional capital structure. Without launching into a finance lecture, more debt results in higher fixed costs, in this case, higher fixed financing costs. Once that “nut” is covered, any additional earnings and/or cash generated from operations flows to the equity holders, of whom there are fewer with less money on the table; i.e., financial leverage (debt) magnifies earnings and cash flow increases for the benefit of the new owners, i.e., private equity firm, its investors, and its management partners. After a few years of increasing bottom line earnings and/or cash flow, the company is sold, either to a strategic buyer or another financial buyer, and the private equity investors cash out, hopefully at a substantial profit, and move on to the next deal.
Note that, for these deals to “work,” operating performance does not necessarily have to be improved; it merely has to be sustained. Financial leverage takes over from there. Often, earnings are enhanced by cutting costs (i.e., laying off workers), selling assets, or both. But such cost cutting at the operational level is not necessary for these deals to work. What private equity investors bring to the table is neither the operational brilliance its fans would have you believe nor an especially virulent strain of the kind of misanthropic blood lust that private equity’s more ardent opponents believe runs in the veins of all capitalists, but, rather, a degree of facility with financial engineering. In other words, private equity investors typically do not have much impact on operational performance; they do have an enormous impact on a company’s financial structure. In still other words, private equity investors do most of their work on the right hand side of the balance sheet rather than on the left hand side. This financial machination is where the fortunes are made, and not just for the private equity investors, but also for the shareholders of the acquired firm, the Wall Street firms who facilitate the levering of these deals and do the M&A work, pension funds and other investors who take part in the deals, the managers who go from being high income individuals to enormously wealthy individuals, and hosts of others. The losers, of course, are the workers who lose their jobs if the private equity owners choose to attempt to enhance their earnings by cutting costs, as is being trumpeted by those who are attempting to make private equity a campaign issue but, again, such cost cutting is not necessary to make these deals work; what is important in a private equity deal is the financial, not the actual, engineering.
Almost as an aside, financial leverage has the same magnifying effect on decreases in operating earnings that it has on increases in operating earnings. Debt, needless to say, adds risk as well as opportunity. This is why so many private equity deals fail, in some cases while the private equity firm still owns the company, in others after that firm has sold the usually debt ridden company to a buyer who suddenly discovers that the debt taken on to enable the original private equity transaction was unsustainable. This is why when one hears from Mitt Romney’s defenders, even those who should, and probably do, know better that failure is just part of the free market, one suspects that those making such an argument are ignorant, uninformed, or being disingenuous. Failure is an inevitable part of the free market system; indeed, capitalism without failure is akin to Christianity without hell. But private equity deals that saddle target firms with inordinate amounts of debt expedite such failure or, in some cases, cause the failure of firms that could have survived, indeed, were thriving, under more conventional capital structures.
One also tires of hearing defenders of Mitt Romney, Bain Capital, and the private equity world castigate attacks on private equity as socialistic assaults on “the free market.” Private equity is indeed part of the free market and a necessary one at that. (See the next paragraph.) But it is not “the free market,” only a component of the free market. One can be leery of the salubriousness of private equity activity without being a card carrying Communist.
Having written all of the above, I, like most clear thinking observers, am not opposed to private equity deals, private equity firms, or the private equity world. Private equity activity is indeed a necessary tool in the ongoing effort to keep managements, primarily of publicly traded firms, focused on their primary, most would say only, mission; i.e., enhancing shareholder value. Many managements forget that they are not, except in a limited sense, the owners of the companies they manage; they work for the owners, i.e., the shareholders, of the companies they manage. When managements neglect the interest of their shareholders, the companies they manage can quickly come to the attention of private equity types who will do what is necessary to make sure the value, or at least more of the value, of the firm finds its way to the shareholders. That having been said, however, this argument quickly falls apart when one considers that a great many (but not all) private equity deals, as noted above, involve leaving the former management in place. But at least theoretically, a market in which private equity firms are free to pursue their own interests, and, as a consequence, the interests of the shareholders of the companies they seek to buy, is a healthier market than one in which private equity activity is discouraged, or worse.
So private equity activity is not a savior of endangered companies, a spawner of new companies, or a creator of legions of jobs, as its proponents, and Mitt Romney’s supporters, would have us believe. Nor is the very embodiment of the free market system. But neither is private equity some sort of plague infecting our economy, the very personification of a Snidely Whiplashesque approach to the free market in which bulbously proportioned capitalists feast on the carcasses of the working class, as its opponents, and presumed nominee Romney’s challengers, would have us believe. Private equity is far more complicated than that, but it is primarily the application of financial engineering to modestly successful concerns in an attempt to make money for the financial engineers, sometimes, but not always, at the expense of workers and communities. Private equity also serves, at least theoretically, a vital check function on the machinations of managements, helping to keep managers focused on the interests of their employers; i.e., the shareholders of the firms they run. Bear in mind, when considering this last point, that we can’t rely on pure motives to bring about good outcomes; Francis of Assisi has long ago gone home, and there haven’t been many more like him since he abandoned this mortal coil. One of the many beauties of the free market is that it enables people to help others by pursuing their own interests, i.e., to do well by doing good. We would do well to avoid unnecessary, if well meaning, constraints on the mechanisms that facilitate this function.
Sunday, January 15, 2012
DON’T BOTHER TO WAKE ME WHEN THE REVOLUTION’S OVER
1/15/12
It’s been awhile since I’ve touched on these two topics, but loyal readers know that I wasn’t part of the starry-eyed legions of ingénues who got all dewy-eyed at the Arab Spring that saw dictators being toppled in favor of mobs of overeducated, underemployed kids out for a lark and having as their only common link an utter lack of familiarity with the world of work and the hardscrabble lives of the people they purported to represent. In this sense, the “young people” who managed to throw the Middle East into a turmoil the unfolding of which will have consequences we have begun neither to imagine nor to suffer closely resemble our public servants in Washington, but I digress.
My comments during and after these debauches which were so heartily cheered by our consanguineous Western media centered primarily on Egypt and Libya, and included the following posts:
On Libya:
HEY, SOMEBODY HAS TO RUN THE PUBLIC TRANSIT SYSTEM IN TRIPOLI
10/21/11
“THIS IS A FINE MESS YOU’VE GOTTEN US INTO…”
10/8/11
THICK AS A BRIC?
10/8/11
I HOPE MICHELE BACHMANN WASN’T COUNTING ON LIBYA TO GET OIL TO $2
8/22/11
DOG BITES MAN
4/23/11
IT’S NOT A CHICK FLICK; IT’S A ROMANTIC COMEDY.
3/28/11
On Egypt:
PERHAPS ALL WE NEED IS A LITTLE RE-EDUCATION
8/2/11
AFTER ALL THESE CENTURIES, THE EGYPTIANS STILL HAVE SOMETHING TO TEACH US, Parts I and II
2/3/11
“…HE’S AN EGYPTIAN…” ???
1/29/11
YOU BREAK IT YOU BOUGHT IT…
1/28/11
I was reminded of the utter insightfulness and prescience of the above posts by two adjoining articles in today’s (i.e., Sunday, 1/15/12’s, page 31) Chicago Tribune. The first of these, “ElBaradei drops bid for Egyptian presidency” reports that, as the headline tells us, Mohammed ElBaradei, former head of the U.N.’s International Atomic Energy Agency, darling of the “international community,” subject of the aforementioned 1/29/11 post “…HE’S AN EGYPTIAN…” ???, and an Egyptian native who occasionally deigns to actually visit his homeland, has decided not to run for president of Egypt not because the job promises to be so thankless, if not fatal, no sir, but, rather because, as Mr. ElBaradei put it, it appears that, in Egypt,
“no revolution took place and no regime has fallen”
because the military has such tight control over the land of the Pharaohs. So much for the “young people’s revolution.”
On sober reflection, the outcome that Mr. ElBaradei hopefully so accurately and ruefully describes is a good one for Egypt, considering that the alternative to military rule in Egypt would have been a combination of mobocracy and a group of naïve university students’ and intellectuals’ gleefully yet heartlessly testing crackpot social, political, and economic theories on the population of the Arab world’s most populous nation. Such experimentation did not work so well in Russia in the early part of the last century; its prospects were not much better for Egypt in the early part of this one.
The news is not as good for Libya. The next article on page 31 of today’s Trib reports that, as the headline says, “Libya aims to quell battle between militias.” It seems that, the wake of the revolution so ardently cheered and helped along by both Bush/Obama administration and its underlings in NATO, militias from neighboring towns in Libya are blasting away at each other with heavy artillery. Perhaps the Libyans can luck out, like the Egyptians, and have the military seize control and restore order before the place degenerates into all out civil war.
Neither Libya nor Egypt is ready for what we call “democracy” in this country. To go a step further, despite what the starry-eyed on both the right and the left in the West would have you believe, most of the world isn’t ready for self-rule. (Given the latest evidence, one wonders if we in the United States are up to the tasks that go with such an experiment, but I digress.) To pretend otherwise is not noble; it is dangerous.
It’s been awhile since I’ve touched on these two topics, but loyal readers know that I wasn’t part of the starry-eyed legions of ingénues who got all dewy-eyed at the Arab Spring that saw dictators being toppled in favor of mobs of overeducated, underemployed kids out for a lark and having as their only common link an utter lack of familiarity with the world of work and the hardscrabble lives of the people they purported to represent. In this sense, the “young people” who managed to throw the Middle East into a turmoil the unfolding of which will have consequences we have begun neither to imagine nor to suffer closely resemble our public servants in Washington, but I digress.
My comments during and after these debauches which were so heartily cheered by our consanguineous Western media centered primarily on Egypt and Libya, and included the following posts:
On Libya:
HEY, SOMEBODY HAS TO RUN THE PUBLIC TRANSIT SYSTEM IN TRIPOLI
10/21/11
“THIS IS A FINE MESS YOU’VE GOTTEN US INTO…”
10/8/11
THICK AS A BRIC?
10/8/11
I HOPE MICHELE BACHMANN WASN’T COUNTING ON LIBYA TO GET OIL TO $2
8/22/11
DOG BITES MAN
4/23/11
IT’S NOT A CHICK FLICK; IT’S A ROMANTIC COMEDY.
3/28/11
On Egypt:
PERHAPS ALL WE NEED IS A LITTLE RE-EDUCATION
8/2/11
AFTER ALL THESE CENTURIES, THE EGYPTIANS STILL HAVE SOMETHING TO TEACH US, Parts I and II
2/3/11
“…HE’S AN EGYPTIAN…” ???
1/29/11
YOU BREAK IT YOU BOUGHT IT…
1/28/11
I was reminded of the utter insightfulness and prescience of the above posts by two adjoining articles in today’s (i.e., Sunday, 1/15/12’s, page 31) Chicago Tribune. The first of these, “ElBaradei drops bid for Egyptian presidency” reports that, as the headline tells us, Mohammed ElBaradei, former head of the U.N.’s International Atomic Energy Agency, darling of the “international community,” subject of the aforementioned 1/29/11 post “…HE’S AN EGYPTIAN…” ???, and an Egyptian native who occasionally deigns to actually visit his homeland, has decided not to run for president of Egypt not because the job promises to be so thankless, if not fatal, no sir, but, rather because, as Mr. ElBaradei put it, it appears that, in Egypt,
“no revolution took place and no regime has fallen”
because the military has such tight control over the land of the Pharaohs. So much for the “young people’s revolution.”
On sober reflection, the outcome that Mr. ElBaradei hopefully so accurately and ruefully describes is a good one for Egypt, considering that the alternative to military rule in Egypt would have been a combination of mobocracy and a group of naïve university students’ and intellectuals’ gleefully yet heartlessly testing crackpot social, political, and economic theories on the population of the Arab world’s most populous nation. Such experimentation did not work so well in Russia in the early part of the last century; its prospects were not much better for Egypt in the early part of this one.
The news is not as good for Libya. The next article on page 31 of today’s Trib reports that, as the headline says, “Libya aims to quell battle between militias.” It seems that, the wake of the revolution so ardently cheered and helped along by both Bush/Obama administration and its underlings in NATO, militias from neighboring towns in Libya are blasting away at each other with heavy artillery. Perhaps the Libyans can luck out, like the Egyptians, and have the military seize control and restore order before the place degenerates into all out civil war.
Neither Libya nor Egypt is ready for what we call “democracy” in this country. To go a step further, despite what the starry-eyed on both the right and the left in the West would have you believe, most of the world isn’t ready for self-rule. (Given the latest evidence, one wonders if we in the United States are up to the tasks that go with such an experiment, but I digress.) To pretend otherwise is not noble; it is dangerous.
Wednesday, January 11, 2012
IT’S THE FAULT OF ALL THE PARTISANSHIP IN WASHINGTON…AND THE DEMOCRATS!!!
1/11/12
Much to the dismay, or at least the surprise, of my readers, I haven’t commented on either the Iowa caucuses (other than reacting to the smart-aleck insult delivered by Jon Huntsman to the people of my second favorite state; see my 12/31/11 piece, WE CERTAINLY KNOW ONE THING IOWANS AREN’T GOING TO PICK…) or the New Hampshire primary. This apparent deficiency has arisen from a dearth of anything especially new or insightful to say and because my 7/19/11 piece, MICHELE AND SARAH, MAKE ROOM FOR THE FAT LADY, in which I presciently predicted that Mitt Romney would get the nomination, has spoken for itself. But the mewing and bleating of all but one of the Republican candidates has prompted me to write today not on the horse race aspects of the campaign but rather on what is laughingly called the substance of the campaign.
This morning, I heard Rick Perry fulminating about a government that has grown so big and presumptuous (The latter is my word, not his, of course; polysyllabic words are not Mr. Perry’s stock in trade, or at least that is what he would like us to believe.) that it tells us how we should educate our children, invest our money, run our businesses, manage our health care, etc. This sentiment is not the least bit unique among Republican candidates and it is not one with which I would disagree in the least. But I wish these guys would stop pretending that this problem started with Barack Obama. This fulsome growth in the size and arrogance of government is at least fifty, and probably more like eighty, years in the making. And the guy who preceded Mr. Obama had a great deal to do with the figurative Vigoro with which government has been infused over the last decade or so; Mr. Obama is just shoveling the fertilizer with a greater degree of vigor than his hapless and completely discredited predecessor. Yes, I know that most of the GOP candidates now profess to oppose the government supersizing antics of the Bush administration, but where were they when that nincompoop was in office and yours truly, along with a lonely pack of like-minded colleagues, were flailing away at the overmatched frat boy’s big government approach? That’s right; they were being loyal Republicans, supporting, if not burning incense to, the buffoon whose name is rarely, if ever, spoken in this campaign.
I also wish this gormless gallery of geeks would stop attributing all of our economic problems to the Obama administration. In fact, you can’t even pin this one on the pathetico who preceded him. We went into what is now being called the Great Recession for two reasons: First, people borrowed money they couldn’t pay back to buy things they couldn’t afford to impress people about whom they didn’t care. Second, we have created a financial system under which those who encouraged and facilitated and this debt debauch were not held to account for their role in the debacle, a system in which the upside is privatized and the downside is socialized. Politicians were only ancillarily involved in destroying this economy, primarily through the latter of the two aforementioned and then primarily through an obsequious Fed. (The culpability of the hyper-politicized Fed for our economic difficulties lends further credence to the economic wisdom of one of the candidates, but I digress.) It wasn’t Bush or Obama or even Barney Frank who bollixed up our economy, though they and their cronies all played their parts; it was the economic illiteracy, combined with the sense of entitlement, of the American people and the understandable “Where’s the downside with that net just inches under my feet?” attitude of quarters of our nation’s “financial services” industry that drove us over the falls. We see none of the Republican candidates (and no Democrats, but that goes without saying) figuratively holding up a mirror when the talk comes to fixing our economy and telling the people that maybe not everyone is entitled to live like a millionaire, that we have to be more prudent with our money, to spend less than what we earn, if we are to avoid returning to the precipice, if indeed we have left it. No, instead we hear that it the people are blameless, victims of the politicians or the evil bankers (again, both of whom have their measure of culpability here), and if we only change the administration, everything will change because America’s greatness is somehow sacrosanct, foreordained by God and thus will endure no matter how much we fail to pay attention or do our duty as responsible participants in a democratic republic and a free market economy.
The logical conclusion of this well reasoned analysis of the issues is that anyone who thinks anything is going to change if we put one of these carnival barkers in the White House is either hopelessly naïve or completely out of touch with finance, economics, history, or the world around him. We are talking about, at best, changing the rapidity of our inevitable headlong descent into dystopia.
But we still have the entertainment value of this year’s political horse race…at least for the next two weeks or so.
Much to the dismay, or at least the surprise, of my readers, I haven’t commented on either the Iowa caucuses (other than reacting to the smart-aleck insult delivered by Jon Huntsman to the people of my second favorite state; see my 12/31/11 piece, WE CERTAINLY KNOW ONE THING IOWANS AREN’T GOING TO PICK…) or the New Hampshire primary. This apparent deficiency has arisen from a dearth of anything especially new or insightful to say and because my 7/19/11 piece, MICHELE AND SARAH, MAKE ROOM FOR THE FAT LADY, in which I presciently predicted that Mitt Romney would get the nomination, has spoken for itself. But the mewing and bleating of all but one of the Republican candidates has prompted me to write today not on the horse race aspects of the campaign but rather on what is laughingly called the substance of the campaign.
This morning, I heard Rick Perry fulminating about a government that has grown so big and presumptuous (The latter is my word, not his, of course; polysyllabic words are not Mr. Perry’s stock in trade, or at least that is what he would like us to believe.) that it tells us how we should educate our children, invest our money, run our businesses, manage our health care, etc. This sentiment is not the least bit unique among Republican candidates and it is not one with which I would disagree in the least. But I wish these guys would stop pretending that this problem started with Barack Obama. This fulsome growth in the size and arrogance of government is at least fifty, and probably more like eighty, years in the making. And the guy who preceded Mr. Obama had a great deal to do with the figurative Vigoro with which government has been infused over the last decade or so; Mr. Obama is just shoveling the fertilizer with a greater degree of vigor than his hapless and completely discredited predecessor. Yes, I know that most of the GOP candidates now profess to oppose the government supersizing antics of the Bush administration, but where were they when that nincompoop was in office and yours truly, along with a lonely pack of like-minded colleagues, were flailing away at the overmatched frat boy’s big government approach? That’s right; they were being loyal Republicans, supporting, if not burning incense to, the buffoon whose name is rarely, if ever, spoken in this campaign.
I also wish this gormless gallery of geeks would stop attributing all of our economic problems to the Obama administration. In fact, you can’t even pin this one on the pathetico who preceded him. We went into what is now being called the Great Recession for two reasons: First, people borrowed money they couldn’t pay back to buy things they couldn’t afford to impress people about whom they didn’t care. Second, we have created a financial system under which those who encouraged and facilitated and this debt debauch were not held to account for their role in the debacle, a system in which the upside is privatized and the downside is socialized. Politicians were only ancillarily involved in destroying this economy, primarily through the latter of the two aforementioned and then primarily through an obsequious Fed. (The culpability of the hyper-politicized Fed for our economic difficulties lends further credence to the economic wisdom of one of the candidates, but I digress.) It wasn’t Bush or Obama or even Barney Frank who bollixed up our economy, though they and their cronies all played their parts; it was the economic illiteracy, combined with the sense of entitlement, of the American people and the understandable “Where’s the downside with that net just inches under my feet?” attitude of quarters of our nation’s “financial services” industry that drove us over the falls. We see none of the Republican candidates (and no Democrats, but that goes without saying) figuratively holding up a mirror when the talk comes to fixing our economy and telling the people that maybe not everyone is entitled to live like a millionaire, that we have to be more prudent with our money, to spend less than what we earn, if we are to avoid returning to the precipice, if indeed we have left it. No, instead we hear that it the people are blameless, victims of the politicians or the evil bankers (again, both of whom have their measure of culpability here), and if we only change the administration, everything will change because America’s greatness is somehow sacrosanct, foreordained by God and thus will endure no matter how much we fail to pay attention or do our duty as responsible participants in a democratic republic and a free market economy.
The logical conclusion of this well reasoned analysis of the issues is that anyone who thinks anything is going to change if we put one of these carnival barkers in the White House is either hopelessly naïve or completely out of touch with finance, economics, history, or the world around him. We are talking about, at best, changing the rapidity of our inevitable headlong descent into dystopia.
But we still have the entertainment value of this year’s political horse race…at least for the next two weeks or so.
Tuesday, January 10, 2012
THE KILLJOY IS BACK! BACK THE KILLJOY!
1/10/12
This morning’s (i.e., Tuesday, 1/10/12’s, page A3) Wall Street Journal reports that, as the headline says, “Consumers Step Up Their Borrowing.” It seems that consumers increased their student loans, car loans, and credit card debt in November of last year at a pace (9.9%) not seen since the same month in 2011. Best of all, according to the breathless new economics types, credit card balances increased to $798.3 billion in November, 2011, or at an 8.5% annual rate from the previous month.
Apparently, a populace returning to the crack cocaine of credit that sunk our economy a few years back is unmitigated good news for the economics community. The closest thing to a negative comment concerning this resumption of the credit debauch reported in the article came from Mr. Dennis Lockhart, president of the Atlanta Fed, who said that while household finances have improved, they were not yet “rosy-cheeked,” whatever that means. But that remotely negative comment came only after Mr. Lockhart said
“The apparent stronger consumption at year-end was associated with falling savings rates, compensating for stagnating income growth. I question whether this consumer spending momentum will be sustained without a pickup in income growth,”
a statement that concedes that increasing spending is good but would be better if not accomplished by depleting savings that could be considered restored only in a relative sense.
The general reaction of the economics profession to the resumption of financial ineptitude was well summarized by the comments of Mr. Paul Edelstein, an economist at IHS Global Insight, who opined
“Consumer credit growth is a positive sign for the recovery in that it signals increasing demand and willingness to spend.”
Okay, I get it; I am not an economic illiteratus, like all but one of the gentlemen currently traipsing through New Hampshire and the guy whose job they want. Consumer spending accounts for about 70% of the economy so, by plugging numbers into a formula, once can conclude that increasing consumer spending is good for the economy. One would hope, however, that those who purport to understand economics, and those both in the private and public sectors charged with revivifying our economy could see beyond simple formulae.
The economic soup from which we are currently supposedly emerging was caused by irresponsible spending and borrowing by the government, consumer, and, to a lesser extent, business sectors. Attacking the problem with more spending and more borrowing is, as I have said ad nauseam in the past, very much akin to taking a few shots of Jack Daniels the morning after a ferocious bender and will have approximately the same effect.
Yes, the recovery will progress more slowly if we finally bite the bullet and decide, as a nation and as individuals, to put or finances back in reasonable order by foregoing everything our little hearts desire and putting some money in the bank. But a recovery built on a solid foundation of fiscal rectitude will be far more enduring and ultimately immeasurably more salubrious than one built on the thin gruel of a return to the financial fleshpots.
This morning’s (i.e., Tuesday, 1/10/12’s, page A3) Wall Street Journal reports that, as the headline says, “Consumers Step Up Their Borrowing.” It seems that consumers increased their student loans, car loans, and credit card debt in November of last year at a pace (9.9%) not seen since the same month in 2011. Best of all, according to the breathless new economics types, credit card balances increased to $798.3 billion in November, 2011, or at an 8.5% annual rate from the previous month.
Apparently, a populace returning to the crack cocaine of credit that sunk our economy a few years back is unmitigated good news for the economics community. The closest thing to a negative comment concerning this resumption of the credit debauch reported in the article came from Mr. Dennis Lockhart, president of the Atlanta Fed, who said that while household finances have improved, they were not yet “rosy-cheeked,” whatever that means. But that remotely negative comment came only after Mr. Lockhart said
“The apparent stronger consumption at year-end was associated with falling savings rates, compensating for stagnating income growth. I question whether this consumer spending momentum will be sustained without a pickup in income growth,”
a statement that concedes that increasing spending is good but would be better if not accomplished by depleting savings that could be considered restored only in a relative sense.
The general reaction of the economics profession to the resumption of financial ineptitude was well summarized by the comments of Mr. Paul Edelstein, an economist at IHS Global Insight, who opined
“Consumer credit growth is a positive sign for the recovery in that it signals increasing demand and willingness to spend.”
Okay, I get it; I am not an economic illiteratus, like all but one of the gentlemen currently traipsing through New Hampshire and the guy whose job they want. Consumer spending accounts for about 70% of the economy so, by plugging numbers into a formula, once can conclude that increasing consumer spending is good for the economy. One would hope, however, that those who purport to understand economics, and those both in the private and public sectors charged with revivifying our economy could see beyond simple formulae.
The economic soup from which we are currently supposedly emerging was caused by irresponsible spending and borrowing by the government, consumer, and, to a lesser extent, business sectors. Attacking the problem with more spending and more borrowing is, as I have said ad nauseam in the past, very much akin to taking a few shots of Jack Daniels the morning after a ferocious bender and will have approximately the same effect.
Yes, the recovery will progress more slowly if we finally bite the bullet and decide, as a nation and as individuals, to put or finances back in reasonable order by foregoing everything our little hearts desire and putting some money in the bank. But a recovery built on a solid foundation of fiscal rectitude will be far more enduring and ultimately immeasurably more salubrious than one built on the thin gruel of a return to the financial fleshpots.
Subscribe to:
Posts (Atom)
