Insightful Pontificator

“NEXT TIME, ROCKY, LET ME DO THE FIGURIN’; YOU JUST DO THE COLLECTIN’”

2012-02-10T13:23:00.000-08:00

2/10/12

As you might guess, I have plenty of problems with the deal reached between the AGs (Most people think that “AG” stands for “Attorney General,” but, in reality, “AG” stands for “Aspiring Governor,” but I digress.) of 49 states and five big banks, Bank of America, Citi, Wells Fargo, Chase, and Ally.

First, I certainly hope there is something in the provision allowing a principal reduction for borrowers who are behind on their payments that disincentivizes everybody with a mortgage loan from simply skipping a few payments and demanding that his creditor reduce his or her principal balance. If not, one can imagine the consequences. There has to be something in this deal to stop such havoc from being wreaked on our financial system…right?

Second, there is something horribly unfair about people who were foreclosed on getting maybe a couple thousand bucks out of the deal if, as this deal does, we are going to allow those who skipped some payments to get their principal reduced in amounts, one supposes, vastly in excess of a couple thousand dollars. Those who were foreclosed on have to be thinking “Damn; if I could just have held out a little while longer, I could have stiffed these guys at the bank, just like my neighbors can do now!”

Third, there are some portions of this bill that might make sense, such as allowing borrowers who are underwater to refinance at currently very attractive rates. However, if this is such a good deal with such salubrious consequences, one would think the banks would pursue such a course of action without the government’s forcing them to do so.

Fourth, the banks were bailed out by the federal government; this fact was cited by President Obama when he was congratulating himself and his staff on reaching this deal. Most people seem to think the banks are in the financial clear, that the point of danger has been passed. That probably is the case; the banks as a group, and the aforementioned banks, are certainly better capitalized than they were going into the “crisis.”

But perhaps we should not be so confident about the banks’ ability to weather this storm. The left hand sides of the banks’ balance sheets are still jammed with assets of questionable value, which may be why the banks’ stocks are trading at such paltry multiples of book; i.e., book value may indeed be overstated because banks’ assets are not worth what the accountants say they are worth. Should substantial dollar amounts of these assets come a cropper, an apparent overcapitalization can rapidly become an undercapitalization. And where will the banks turn when they get into trouble? Of course…to us, the taxpayers or, as is the fashion of late, to the Fed, the printer of last resort.

Even if the banks are as healthy as appearances indicate, the politicians and their henchmen smell blood. For example, the SEC yesterday notified big banks that it will sue those banks over their securitization of loans. Once these sharks start to gather, even strong banks can be crippled by lawsuits, forcing them into the rescuing grasp of the government. So we may be seeing here a situation in which the federal government winds up suing itself (See my 9/4/11 post, “HE’S EITHER IN ON IT OR HE’S AN IDIOT; EITHER WAY, I HAVE TO LET HIM GO.”), achieving its goal of letting borrowers stiff lenders on the taxpayers’ dime but doing so under cover of suing the banks whose bills will ultimately be picked up by the federal government.

I would feel more comfortable with deals of this sort if we allowed big banks to fail in this country, but, unfortunately, we don’t and so I am not.

Fifth, the housing market will recover more quickly if we just let the market run its course, let housing prices fall to a natural bottom from which they will recover, probably more rapidly than most people think. Such maladroit machinations as these deals only prolong the discomfort.

For all that is wrong with the deal between the AGs and the Big 5, it does have one very salubrious aspect: It should make mortgage loans more difficult, perhaps much more difficult, to obtain. Even those legions who don’t agree that making such loans harder to get is a good thing do agree that this deal will make such loans more scarce. Most argue that we will see the decreasing availability of mortgage loans manifest itself in rising spreads between treasury yields and mortgage loan rates. While we have seen such quantitative tightening, and probably will see more of it, yours truly believes that the declining availability of mortgage loan money will manifest itself most saliently in a qualitative sense, in tightening credit standards for such loans; i.e., banks will lend at perhaps only slightly wider spreads to treasuries but will loan money only to very creditworthy borrowers. So we will see a tightening of the mortgage loan market in a more qualitative than quantitative sense. Either form of tightening would be a very good thing, but the more qualitative the tightening, the better the consequences will be.

In considering my contention that a tightening mortgage loan market is a very good thing, consider, though, that I think very perversely. I actually think that banks should be careful in lending out the money provided by their shareholders, depositors, and other lenders. I further am guilty of the apostasy that people should live within their means, save money, and avoid borrowing money but, when forced to borrow, should do so only in amounts they can pay back. I also do not think that everyone has a constitutional right to own a home and that, indeed, people are better off renting until they can actually afford, rather than just want, a home.

The rest of the world, including most of the political and financial worlds, believes that banks, as a matter of public policy, should lend willy-nilly in order to inflate and support asset bubbles, resting assured that, should trouble come their way, the sap taxpayer will always be there to keep them from such ignominy as having their executives and traders forced to sell off portions of the west coast fleet of Ferraris. Further, as the world sees it, everyone is entitled to borrow whatever he or she deems necessary not only to buy the home of his or her dreams but also to indulge any silly whim that strikes him as even transitorily worthy. Should trouble come his or her way, he or she should rest comfortably knowing he can always stiff his creditors who in turn will find solace at the bosom of the taxpayer.

RUN WHAT YA BRUNG

2012-02-08T13:25:00.000-08:00

2/8/12

What to make of yesterday’s strong showing by Rick Santorum in the Minnesota and Missouri caucuses and the Colorado “beauty contest”? (I find that moniker for a primary that rewards no delegates somewhat unsettling; don’t you? But I digress.) See my, as of about 9:00 Chicago time last night, seminal 2/1/12 post EVEN THE CHICKEN MIGHT DO BETTER THAN GINGRICH IN THE GENERAL. But please note the last sentence in that typically prescient post; it still holds…I think.

“…AND IF THERE’S NO OTHER BUSINESS TO DISCUSS, I’D LIKE TO ATTEND MY DAUGHTER’S WEDDING.”

2012-02-08T12:58:00.000-08:00

2/8/12

The lead story on many news outlets yesterday was news that the Ninth Circuit Court of Appeals struck down California’s Proposition 8, which banned gay marriages in the nation’s largest state. The Ninth Circuit’s decision thus set the stage for the Supreme Court to rule on the legality of gay marriage, or at least on the right of states to ban gay marriage, perhaps as early as next year.

Why this story should have been the lead story anywhere, on a day when Syria was almost literally on fire, Americans were effectively being held hostage in Egypt, the Congress continued to wrangle over the payroll tax break, which directly affects every American who works and which will expire in three weeks, and the Catholic Church and the Obama administration were duking it out over a mandate for contraceptives, is beyond me. Gay marriage is a very important issue for gays, and especially for gays who would like to marry, and for those who consider gay marriage an abomination before God and man. Both groups feel very passionately about this issue, and understandably so. But, for most of us, this is not a non-issue but not a burning issue, either. While all of us care, or at least should care, about the rights of others and all of us have moral and/or religious sensitivities and sensibilities, most of us are not gay and don’t really care all that much about the sexual orientations of other people. Whom people choose to sleep with is none of our business and we prefer to keep it that way…please. So why the brouhaha over this story? One supposes the media think anything even remotely connected with sex (and it’s hard to imagine many things more remotely connected with sex) sells. And, in our increasingly strange and superficial society, they may be right. But I digress.

Gay marriage has been an issue for a number of years. Back in November, 2006 (and the issue was not new then), I sent a letter to Steve Chapman, who writes for the Chicago Tribune, is one of my favorite columnists, and shares my libertarian tendencies. In it, I proposed a solution to this controversy. Here is a reproduction of that missive:

11/5/06

Hi Steve,

I enjoyed your observations on gay marriage in your 11/5 column and have a hard time disagreeing with any of your arguments. However, I have another take on the gay marriage issue.

Why should the government be involved in the institution of marriage? Shouldn’t marriage, which many, if not most, Americans consider a sacrament, be the exclusive province of churches, leaving civil unions and the legal rights that would attend thereto, to the government? The government would then decide legal rights and obligations and the churches would decide sacramental rights and obligations. Why should the government have the right to decide who conforms to religious rules and parameters? Why should churches decide who conforms to legal rules and parameters? Those who belong to a religion and wish to proclaim their fidelity before their church could opt for both civil unions and marriages. Those gays and heterosexuals who have no religion, and who don’t care to abide by the current hypocrisy exhibited by many who are completely unfamiliar with the interior of a house of worship but go through a church marriage strictly for appearance’s sake, could opt only for civil unions.

With the government’s having lost its role in dabbling with religious definitions, at least in this application, gays who wish to have all the legal rights currently reserved for married people in most jurisdictions would encounter less, albeit still considerable, opposition to achieving those rights. Those gays who wish to marry, in addition to being granted civil unions, would surely be able to find a church who will marry them, and it will be strictly their business and the business of that church and its congregants.

More importantly, however, the government will have been removed from an area in which it should never have had any business: deciding who is married before God and the church.

Mark Quinn

To clarify this proposal, under such a system, everyone who wishes to enjoy the legal rights and privileges that now attach to marriage would apply for a civil union, which would confer such rights and privileges. Those who, in addition to obtaining a civil union, wish to marry inside their church, synagogue, mosque, temple, etc., would get married according to the rules and guidelines of that institution. The marriage would confer no legal rights and the civil union would not have to conform to any religious rites.

I suppose, by the way, that one could have a religious marriage without a civil union if one wished to proclaim his or her marriage before God but cared nothing for the legal rights of a spouse, but one suspects that such circumstances would be rare. Who knows, though?

The solution I proposed in 2006 has withstood the test of time on at least three fronts. First, it preserves the sacramental nature of the institution of marriage and a faith’s right to determine who is, and can be, married before God. Second, it respects and furthers the rights of gay people to access all of the legal and familial rights that society formerly, and, in many cases, still, reserves for heterosexuals. Third, it keeps government out of the business of telling faiths on whom they must confer the rites of matrimony (Think it can’t happen? See today’s other post, “IT’S THE BISHOP!”) and faiths out of the business of telling government on whom they must confer legal rights.

“IT’S THE BISHOP!”

2012-02-08T11:39:00.000-08:00

2/8/12

Several of my readers have asked my opinion on the latest kerfluffle over the HHS requirement that, like most other employers under the Affordable Care Act (or Obamacare, depending on how one feels about it), Catholic hospitals, schools, and other service providers provide contraceptive coverage to their employees. I have had a hard time commenting on this issue, largely because it is difficult to come up with something especially unique and/or insightful on the issue. While not entirely sure that I have succeeded in overcoming that obstacle, I have come up with a few thoughts on the issue.

First, in today’s (i.e., Wednesday, 2/8/12’s) Wall Street Journal, Democratic Senators Jeanne Shaheen, Barbara Boxer, and Patty Murray, argue for the mandate but frame their argument in terms of the merits of contraception. But this argument does not concern contraception; many, if not most, Catholics agree with these Senators on the merits of family planning by means of artificial contraception and consider themselves no less Catholic because of this belief despite the objections of the Catholic hierarchy. No, this dust-up has little to do with contraception and everything to do with the role of government in telling a religious faith (The scope, or at least the ramifications, of the HHS ruling extend beyond the Catholic Church.) what it cannot, or must, do regardless of the diktat’s synching or not synching with that faith’s doctrine. The HHS ruling is not, as its most vociferous critics would argue, an all out assault on religious liberty or, as the Wall Street Journal’s lead editorial this morning would have it, telling “religious believers to go to hell” (Why on earth would the Obama administration tell Catholics to go to hell? Even if one believes that the Obama administration is somehow rabidly anti-Catholic, one must admit that Mr. Obama is a good politician and knows the importance, indeed, the very necessity, of winning the Catholic vote. More on this in my fourth point.), but it is putting the Church in an untenable position: either violate its stated doctrine regarding artificial contraception or deny health care coverage to its employees, the latter of which would violate the Catholic spirit of service to not only its flock but also to all who seek it and expose the Church to charges of rank hypocrisy. One could thus easily see how some might consider the HHS directive a direct attack on the Church. More likely, however, this move by HHS is an instance of, like everything the Obama Administration, or anybody in the politics business, does, a calculated balancing of political interests. In this case, the Obama administration has bet that this decision will please its liberal base and appeal to the middle, which is resoundingly in favor of insurance coverage for birth control, while not having much, if any, effect on the Catholic vote, which largely ignores the Church hierarchy when it votes. (Again, more on this in my fourth point.) This is Machiavellian politics, not a manifestation of some deep-seated ideological animosity toward the Church. Still, the Church has come out on the short end of this particular calculation. Mr. Obama has to be betting that he made the right calculation.

Second, an argument in favor of the HHS mandate is that, in a democratic, or, more properly, a democratic republican, society, we are all forced to pay, through the tax system, for things in which we do not believe. Those of us vociferously opposed to the Bush/Obama adventures in Iraq and Afghanistan have had to pay for them. Those of us opposed to the expansionist welfare state have been forced to pay for it. Those of us who oppose thinly veiled payoffs to street gangs under the guise of “community outreach” projects have been forced to pay for them. Perhaps most germane to this discussion, those of us who would rather save for our own retirements are forced to pay into the Social Security system. So is it that big of a stretch to force the Church to pay for artificial contraception, which at least its hierarchy staunchly opposes?

There might be something to the above argument, but, taken to its logical conclusion, it could lead to all kinds of havoc and, according to conservative Catholics, already has. At least the tax system preserves the fig leaf of fungibility and, to a certain extent, plausible deniability; we pay to support our government that in turn decides what it will do with our money, ostensibly according to the will of the people but in reality according to the will of the lobbyists and others who finance politicians’ ego trips that we call political careers. There is no such fig leaf here; the Church is being forced to directly finance something that it directly opposes. The analogy of having the families of the condemned pay for the bullets of the firing squads is strained, but not completely off-base.

Third, the “Catholic left” (whatever that is. Yours truly has been accused, on occasion, of being part of the Catholic left, a charge to which I really do not know how to respond, due largely to utter other-worldliness of my being considered part of “the left,” Catholic or otherwise, but I digress.) is said to be staunchly opposed to the HHS mandate. Such notables from the Catholic left, as Sister Carol Keehan of the Catholic Health Association and Notre Dame President Father John Jenkins, have come out in opposition to the HHS mandate, but one wonders how widespread the opposition to the mandate is among the “Catholic left;” there is no way to measure such opposition given that there is not way to define or measure the Catholic left. One suspects that, given its very leftishness, if you will, the Catholic left cannot be all that opposed to the Obama administration’s mandate, unless its opposition comes from the left rather than from the right, terms which tend to lose their meaning in such discussions, but you know what I mean.

To the extent, however, that the Catholic left is doing a convincing Claude Rains imitation and is shocked, shocked that the Obama administration would mandate contraceptive coverage, it should have known better. They knew who they were dealing with, and by that, I don’t mean just the Obama administration. I mean that they trusted the assurances of a politician, which is similar to trusting the marital vows of Newt Gingrich. The Catholic left, or anybody, for that matter, knows better than to trust the promise of any politician, who would sell one out whenever raw political calculation merits doing so.

Fourth, the least important aspect of this issue is its political ramifications, but it is the subject of much discussion and, politics, after all, is one of the main subjects of the Pontificator. One suspects that, since the Catholic vote is the ultimate swing vote and, since Catholics, as a group, largely ignore the admonitions of the hierarchy when casting their votes, the HHS mandate will result in no political damage for the Obama administration. This is especially the case on an issue like artificial contraception, on which, as I said before, many, if not most, Catholics part with the hierarchy. Further, those Catholics who are most offended by the HHS mandate were not going to vote for President Obama under any circumstances.

It thus looks like Mr. Obama made a purely political calculation, as politicians always do, here and determined that he would not lose the Catholic vote by mandating contraceptive coverage for employees of Catholic institutions but would solidify his support on the left, Catholic or otherwise. He will be right to the extent that he frames this as an argument on the merits of artificial contraception; thus today’s Wall Street Journal op-ed by Senators Shaheen, Boxer, and Murray. But to the extent that this can be made an argument about religious freedom and Mr. Obama’s designs on the Catholic Church, this may hurt Mr. Obama with Catholics who, regardless of how they feel about the hierarchy, still are proud of and defend their faith. Thus the framing of this issue by “the Catholic right” (whatever that is) as an assault on the Church and an admonition to all of us Catholics to go to hell.

One suspects that some kind of compromise will be struck here because the heat the bishops and the right have brought on the subject dictates that the Obama administration show some flexibility. The compromise will probably be something along the lines of the compromise reached in some of the many states that already dictate that health insurance plans cover contraception but allow religious organizations that object to such coverage to offer a reduced premium plan with no such coverage but allow employees who want contraception covered to pay for such coverage themselves. Hawaii’s approach is the best example. Such a compromise, which, depending on where you stand is either a logical solution or a fig leaf, will in all likelihood mollify most Catholics and will have absolutely no impact on those members of our Church who would never vote for Mr. Obama under any circumstances.

QUOTE OF THE CAMPAIGN

2012-02-01T13:54:00.000-08:00

2/1/12

This morning’s (i.e., Wednesday, 2/1/12’s, page A4) Wall Street Journal, in its coverage of the Florida primary, quotes Mr. Glen Witherbee, a Floridian barely into senior citizenship who contemplated voting for Newt Gingrich but, in the end. decided to opt for Mitt Romney, as expressing his feelings regarding Mr. Romney thusly

“I don’t love him, but I like him enough.”

Mr. Witherbee thus brilliantly succinctly sums up the general feeling of Republicans, and perhaps many Americans, regarding Mr. Romney. No one loves the guy, but he’ll do. This feeling should be enough to allow Mr. Romney to become the GOP presidential nominee. See, inter alia, today’s other post and my by now long seminal 7/19/11 post, MICHELE AND SARAH, MAKE ROOM FOR THE FAT LADY.

Will the good enough vibrations regarding Mr. Romney be sufficient to win the general election? Given that Mr. Romney’s chief attractions seems to be that he’s good enough, if, as is probable, he is the GOP nominee, the election will be even more than was, or is, anticipated a referendum on the presidency of Barack Obama. Mr. Romney, who generates little of either enthusiasm or derision, will not win the election unless Mr. Obama loses the election.

One other thing to note in assessing Mr. Romney’s chances in the general election is the huge money advantage he had in Florida, outspending Mr. Gingrich 5-1. Mr. Romney will have no such, if any, such financial advantage over President Obama. Another thing that Mr. Romney will not have is an opponent with the personal foibles of Mr. Gingrich. See my 12/11/11 post I DON’T SALUTE NEWT. Still, that voters like Mr. Romney enough may be enough…if they are dissatisfied enough with Mr. Obama.

EVEN THE CHICKEN MIGHT DO BETTER THAN GINGRICH IN THE GENERAL

2012-02-01T13:53:00.000-08:00

2/1/12

Say what you will about James Carville, you have to admit that the guy is smart, very good at what he does, and always entertaining. On the night of the South Carolina primary, as Rick Santorum was getting buried, Mr. Carville made the following observation regarding Mr. Santorum’s position in the race for the GOP presidential nomination: (I have to paraphrase because, having heard, rather than read, the quote, I can’t quote precisely)

When you cut off the head of a chicken, it runs around for a little while before it falls over. Everyone realizes the chicken is dead but the chicken.

When Mr. Carville uttered those comments, it looked like he was right; by winning the South Carolina primary decisively, Newt Gingrich had shown himself to be the champion of what calls itself the conservative wing of the Republican Party. His rival for the position of “conservative” standard-bearer, Rick Santorum, finished a weak third and thus apparently had no chance for the votes and the financial support necessary to challenge the “moderate” Mitt Romney. Mr. Santorum was as dead as a chicken with its head cut off, but just didn’t know it.

However, in light of the results of last night’s Florida primary, perhaps Mr. Carville was a bit too hasty in his assessment of Mr. Santorum’s chances. Why? Even though Mr. Santorum, who opted not to spend much time in Florida due primarily to financial constraints, finished a distant third, the trouncing that Newt Gingrich took at the hands of Mitt Romney further illustrated the hopelessness of Mr. Gingrich’s candidacy. He simply has too many, to put it politely, warts, of which my loyal readers are perhaps excruciatingly aware. See my 12/11/11 post, I DON’T SALUTE NEWT. While it’s almost always foolish to use words like “never,” in this case I feel reasonably safe writing that Newt Gingrich will never, thank God, become president of the United States. As Mr. Carville also said on the night of the South Carolina primary, when one of his colleagues, noting the Gingrich presidential effort’s refusal to die, compared Mr. Gingrich to Rasputin (again, paraphrasing),

The big difference between Rasputin and Gingrich is that Rasputin would get more votes in the general election.

So if the die-hard self-styled “conservatives” are looking for an alternative to Mitt Romney, Mr. Santorum is a far better horse than Mr. Gingrich. While Mr. Santorum, despite his now not quite as ubiquitous sweater vests, is not Mr. Rogers, he is far more likeable than the prickly Mr. Gingrich. While Mr. Gingrich would be an attractive subject for a doctoral thesis in psychiatry, Mr. Santorum, at least by contrast, looks well balanced, sane, and sober. And Mr. Santorum has the humility to give glory, and credit, to God. Mr. Gingrich gives the impression that he expects God to give the glory, and the credit, to him. And then there are the contrasting personal lives of the two gentlemen, which would exhaust the ink on my Word program. The whole point is that these two are delivering the same basic message; i.e., that we don’t like big government unless the government is doing our bidding and/or reducing the size of government would have an adverse impact on us and the Constitution is wonderful until it interferes with something we would like to do. But Santorum is a far less flawed messenger than Mr. Gingrich.

It’s too late for anyone else to enter the race, and, while the prospect tantalizes the ranks of political enthusiasts like yours truly, the chances of a brokered convention nominating someone who was not in the race are both remote and somehow not right. If the forces of big government “conservatism” simply cannot stomach Mr. Romney, it is beginning to look like their only alternative is Rick Santorum. That might keep the chicken alive for a few more laps around the barnyard.

“TRUST NO (BELLY FAT) UNLESS (IT) IS KNOWN TO YOU PERSONALLY”

2012-01-31T13:11:00.000-08:00

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!

“I’LL GLADLY PAY YOU TOMORROW FOR A HAMBURGER TODAY.”

2012-01-31T12:32:00.000-08:00

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.

“…THEY TAKE HOSTAGES; THEY DO VIOLENCE IN THEIR GRANDMOTHER’S NEIGHBORHOODS…”

2012-01-27T10:26:00.000-08:00

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?

CANCELLED WITHOUT PAYMENT

2012-01-26T09:41:00.000-08:00

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.

“THEY SAID MAYBE I COULD HELP MOVE THINGS ALONG, MIKE; THEY SAID YOU WERE BEING TOUGH IN THE NEGOTIATIONS…”

2012-01-23T08:57:00.001-08:00

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?

“I THINK YOU OUGHT TO COME OVER AND WATCH YOUR BOY, APOLLO; I THINK HE MEANS BUSINESS.”

2012-01-21T11:19:00.000-08:00

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.

TELL MAMA TO ROLL WITH ME, BARACK

2012-01-20T14:08:00.000-08:00

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.

WHAT WOULD IT TAKE TO GET YOU TO BUY INTO THIS BALDERDASH TODAY?

2012-01-18T14:40:00.000-08:00

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.

SOME STRAIGHT, IF NOT NECESSARILY PLAIN, TALK ON PRIVATE EQUITY

2012-01-17T13:54:00.000-08:00

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.

DON’T BOTHER TO WAKE ME WHEN THE REVOLUTION’S OVER

2012-01-15T14:05:00.000-08:00

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 THE FAULT OF ALL THE PARTISANSHIP IN WASHINGTON…AND THE DEMOCRATS!!!

2012-01-11T12:47:00.000-08:00

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.

THE KILLJOY IS BACK! BACK THE KILLJOY!

2012-01-10T09:39:00.000-08:00

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.

WE CERTAINLY KNOW ONE THING IOWANS AREN’T GOING TO PICK…

2011-12-31T12:31:00.000-08:00

12/31/11

I posted the following comment on Jon Huntsman’s campaign website’s blog:

Even though I would hardly be classified as a moderate Republican, I have long been intrigued by the candidacy of Jon Huntsman. In Mr. Huntsman, I saw a man who truly believes in the basic tenets to which other GOPers only profess fealty, such as small government, individualism, free enterprise, the power of communities to solve problems that the government can only exacerbate, and a foreign policy that truly advances the interests of the United States rather than its defense contractors. While I have long supported Ron Paul and will probably continue in this practice in 2012, I have to admit, however, that my loyalties in this year’s presidential sweepstakes were somewhat divided…until Mr. Huntsman’s comments on Iowa.

While I live in the suburbs of Chicago, I am an Iowan at heart. As an alum of the University of Iowa, a father of a U of I student, and a relative by marriage of a farm kid from outside of Shenandoah who is one of the best people I know, I have grown to love the Hawkeye state. Why on earth did Jon Hunstman, a normally sensible and sober minded fellow, a family man and a successful businessman who would seemingly have a great deal in common with the hardworking and almost eerily friendly and helpful people of Iowa, have to fire his gratuitous dig “In New Hampshire, they pick presidents; in Iowa they pick corn”?

A man with Mr. Huntsman’s intellect could have easily said something like “New Hampshire’s voters have a much better history of selecting the eventual GOP nominee than do Iowa caucus participants. Given the disparate track records of the two states in the nominating process, while I regret not spending more time in the Hawkeye state, I have to focus my campaign’s limited resources in the Granite State.” But, no, Mr. Huntsman had to make his snotty comment about Iowans’ picking corn. Perhaps he really does have a deep down disdain for people who are welcoming, friendly, intelligent, genuinely good, and embody the values of family and community that made this country great. If this is the case, any honesty he displayed by his comments regarding Iowans would be trumped by the hypocrisy he shows any time he professes his love for the very values Iowans embody.

Mr. Huntsman’s people will doubtless counter with disingenuous contentions disguised as questions like “What’s wrong with picking corn? Mr. Huntsman supports the efforts of Iowa’s, and America’s, farmers.” But such a retort would only further the impression that Mr. Huntsman thinks the good people of Iowa, who feed much of the nation and the world, who participate in a vibrant and dynamic economy that transcends its agricultural roots, and who exemplify the types of values that our country must retain, or rediscover, if we are to survive as a society, are a pack of yokels who are incapable of seeing past a condescending, disingenuous attitude and detect when they are being insulted.

Since Mr. Huntsman finds it appropriate to denigrate a state that ought to be emulated rather than castigated, I find it impossible to support this man for the nation’s highest, or any, office.

“…I SAID ‘CANAPES MY A--; WHERE’S THE SAUSAGE AND PEPPERS!?”

2011-12-29T12:31:00.000-08:00

12/29/11

Today’s (i.e., Thursday, 12/29’s) Chicago Sun-Times reports that 2012’s Taste of Chicago, having been returned to the tutelage of the city’s Department of Cultural Affairs after being managed by the Park District in 2011, will run for only five days and will not coincide with the Independence Day holiday. This is, of course, great news; the only better news would have been for this annual Taste of Ptomaine to have been canceled altogether. (See my iconic 6/22/11 post, TASTE OF DYSPEPSIA.)

The good news regarding “the Taste” ends there, however. As the Sun-Times reports

In October, (Cultural Affairs) department commissioner Michelle Boone told the Sun-Times to expect a shorter festival with more focus on the city’s cutting edge culinary scene.

“Cutting edge culinary scene”? Yours truly, who is, as is readily apparent from his considerable girth, quite attuned to things culinary, has, after years of observation, determined that “cutting edge,” as applied to the “culinary scene,” is determined by the ratio of the price of the cuisine to the size of the portion served. The higher the ratio, the more “cutting edge” the cuisine. When one ends up paying $75-$100 dollars for a portion of sufficient size to fill one’s tooth, one has achieved the apex of cutting edgedness, if you will. But I digress.

It seems, according to the Sun-Times, that Department of Cultural Affairs (The moniker “Department of Cultural Affairs” has a distinctively Soviet flavor to it, don’t you think? But I digress again.) is looking to something called Chow Town, an appendage to something called Lollapalooza, as a template for “the Taste” in its effort to achieve cutting edge nirvana. The cited Chowtown last summer featured such faire as “endamame with soy cumin hemp seed vinaigrette,” “scallops with torched ponzu aioli,” and, in another apparent hapless in-crowd bid to appear blue collar hip, "lobster corndogs.”

Huh? Don’t ask me what “endamame with soy cumin hemp seed vinaigrette” or “torched ponzu aioli” are; I have no idea, either. But this is the type of thing we should have expected when we replaced our wannabe yuppie mayor with a genuine yuppie mayor, the kind of guy who doubtless is vastly more familiar with “endamame with soy cumin hemp seed vinaigrette” than with a Snyder’s hot dog, a Wonderburger, a Tom-Tom Tamale, a World’s Finest chocolate bar, or a golabki from the late and lamented Busy Bee or the still up and running Sawa’s Old Warsaw.

Not only does the mayor’s minions’ seeking to transform the Taste of Chicago into a display case for “the city’s cutting edge culinary scene” symbolize the degeneration of our great city from an ethnic blue collar heaven into a dystopia of gentrified predictability; it also makes no economic sense. As I pointed out in my seminal 6/22/11 post, TASTE OF DYSPEPSIA, a good measure of “the Taste’s” reason to exist is to provide an avenue for suburban and transplanted suburban types to sample our great city’s ethnic cuisine without actually having to leave the north shore or the near north side to venture into areas that might even be (EGADS!) situated south of Congress and west of Hyde Park. No one, other than those who are too sensible to pay ludicrous prices in a desperate attempt to appear to be hip, is afraid to venture into neighborhoods in which the “neighborhood” restaurants feature “endamame with soy cumin hemp seed vinaigrette.” So why should those seeking “scallops with torched ponzu aioli” have to brave the crowds in Grant Park when they can sample such faire on Fullerton Avenue or in dear old Lake Forest?

What is really perplexing about the changes signified by the transformation of Chicago from a kielbasa and czernina town into an “endamame with soy cumin hemp seed vinaigrette” bastion of yuppie artificiality is that the mayor, his dazzling young urbanite staff, and the consanguineous media seem to regard such a defenestration as a sign of progress.

LET’S RUN THIS THROUGH THE OLD MAYTAG FIRST

2011-12-29T09:15:00.000-08:00

12/29/11

This morning’s (i.e., Thursday, 12/29’s) Wall Street Journal featured a page C1 article outlining two concerns regarding the European Central Bank’s (“ECB’s”) collateralized lending to European banks. The headline concern is that the banks, and especially the smaller banks, may run out of collateral for such loans and thus spark a liquidity difficulty. (As loyal readers know, I prefer the term “difficulty” to the hideously overused “crisis,” but I digress.) A second concern is that the increasing reliance of European banks on secured lending degrades the quality of the banks’ unsecured debt, which also could lead to liquidity, and possibly solvency, problems.

Perhaps there is nothing especially insightful or unique about this observation, but, at least to yours truly, a larger concern with the ECB’s collateralized lending to European banks seems to be a macro concern. Naturally, the ECB takes European sovereign debt as collateral for its loans. Perhaps not so naturally, the ECB takes the sovereign debt of any European country, including, according to the aforementioned article, debt “…from financially weak countries such as Greece and Ireland”. The ECB continues to take such collateral despite the ECB’s heretofore “limited” direct purchases of sovereign debt and its protestations that it will not bail out spendthrift European governments, at least not until it gets some kind of eurozone wide fiscal rectitude pact as a fig leaf for engaging in such wholesale monetizing of bad debt. Such willingness to take sovereign debt as collateral leads one to question the difference between directly bailing out European governments and taking their paper as collateral for loans to banks. It would seem that, under such a rubric, banks can buy all the European sovereign debt they want, even from the PIIGS, and then present such debt to the ECB as collateral. Not only is the ECB creating the money to lend to European governments, regardless of the latters’ fiscal conditions, but if the fiscal situations in the PIIGS improve, the banks make a sizable profit and, if the situations don’t improve, the banks can simply default on their collateralized loans and stick the ECB with the consequences. If this isn’t a bailout of profligate European banks and sovereigns, perhaps we ought to revisit the definition of bailout.

An opinion piece in yesterday’s (i.e., Wednesday, 12/28’s) Journal by Gerald O’Driscoll contended that the Fed’s dollar swap arrangement with the ECB amounts to a Fed bailout of the European banks and sovereigns, and it’s hard to disagree with Mr. O’Driscoll’s argument. However, the ECB’s willing to take any European sovereign credit as collateral seems to be an even more naked bailout of profligate eurozone countries. It’s a good thing this operation doesn’t include the Fed…yet.

I’LL BET PARK CHUNG HEE NEVER TORTURED SMALL ANIMALS!

2011-12-20T12:42:00.000-08:00

12/20/11

Now that Kim Jong Eun has succeeded his father, Kim Jong Il, who in turn succeeded his father, Kim Il Sung, as tinhorn of North Korea, we are suddenly hearing all sorts of lurid stories about the 27 year old Mr. Kim, including reports in this morning’s (i.e., Tuesday, 12/20/11’s) Wall Street Journal that

senior intelligence analysts believe, for instance, that Kim Jong Eun “tortured small animals” when he was a youth.

Perhaps this latest scion of the Kim family is some kind of nutcake; after all, nutcakery is in his genes. But before we start swallowing whole the story that this guy is the kind of weirdo who is so unstable that he got his jollies torturing animals and therefore is likely to vaporize us with nuclear weapons unless we DO SOMETHING!!!!!, let’s pause and take a deep breath.

None of us is old enough, and few of us are sufficiently interested in history (“History, schmistory! When do the Kardashians come on?”), to remember the tales war hawks and/or Anglophiles of the early 20th century told us about the German forces of the Kaiser tossing Belgian babies in the air and then catching them on their bayonets which, of course, turned out to be complete fabrications. Most of us are old enough, but few of us are sufficiently interested in current events and politics (“Politics, schmolitics! When does ‘Two Men and A Boy’ come on? And have you seen that great, HIGHlarious new comedy, ‘Broke Girls’?”), to remember the tales spun by toadies of the Kuwaiti royal family of Iraqi soldiers ripping Kuwaiti children from incubators just for the sport of it, which, of course, also turned out to be utter fictions. Both lurid tales did their jobs; they persuaded gullible Americans to expend blood and treasure on battlefields in on which neither belonged.

But now Kim Jong Eun tortured small animals! And he might, just like Saddam Hussein, have weapons of mass destruction! Why, we better DO SOMETHING… BEFORE IT’S TOO LATE!!!! WHAT…DO YOU WANT TO JUST WAIT UNTIL THEY DROP A BOMB ON US???? WHAT ARE YOU…CRAZY?

WHY DON’T WE JUST INSTALL ANOTHER SYNGMAN RHEE?

2011-12-20T12:39:00.000-08:00

12/20/11

Presumed GOP presidential nominee Mitt Romney (See my characteristically remarkably prescient 7/19/11 piece MICHELE AND SARAH, MAKE ROOM FOR THE FAT LADY.), never one to let an opportunity to preen and grandstand pass him by, used the death of North Korean tinpot Kim Jong Il to urge President Obama

“Cancel your Christmas vacation. This is one of the greatest opportunities of the last twenty five years as relates (sic) to that part of the world. And the president should be actively engaged with China, South Korea, Japan, and potentially even trying to establish dialogue with North Korea.”

Oh really? It looks like Mr. Romney is either displaying a stunning lack of knowledge of matters concerning the Korean peninsula, a propensity toward the starry-eyed naiveté that characterizes most Republicans (most politicians, really), especially those of the neo-con variety, or the political opportunism that afflicts just about every politician.

Does Mr. Romney really think that anything has changed in northeast Asia with the death of Kim Jong Il and his supposed replacement with his barely pubescent son, Kim Jong Eun? It looks to this admittedly non-expert observer that the same autarkic approach to policy initiated by the late Kim Il Sung will remain in place and that policy will be implemented by the same cabal that has run the country for at least the last twenty years, led by the armed forces, in the person of Vice Marshal Ri Yong Ho, and by Kim Jong Il’s sister, Kim Kyong Hui and her husband, Jang Song Thaek, who is now euphemistically referred to as having been Kim Jong Il’s “closest adviser” for at least the last five years. Does anyone think that the generals and the hacks who run a patronage driven machine that would make Tony Cermak, Pat Nash, and Vito Marzullo envious would actually change anything because some 27 year old misfit (See today’s other post on young Mr. Kim,I’LL BET PARK CHUNG HEE NEVER TORTURED SMALL ANIMALS!.) might want to make nice with the president of the United States? Does Mr. Romney really think this kid will have any power?

Even if Mr. Romney were so naïve as to think that things might be subject to change in the Hermit Kingdom, what makes him think we would have any influence over there? We have NEVER had any influence with the Kim dynasty. We have tried to buy some influence with food aid, energy aid, and all the other blank checks that we have used in futile attempts to influence the Kims, but the result has always been well-fed armies of soldiers and patronage lackeys, continuing deprivation, or worse, of the general North Korean population, and, doubtless, much rolling around laughing on the floors of the presidential palace by Kim toadies. The people with real influence in North Korea are the Chinese and, to a far lesser extent, the Japanese, the former through trade, the latter through ethnic ties. Since China shares a border, and the Japanese share a sea, with North Korea, both have not only influence on North Korea but a strong interest in maintaining a stable North Korea; who needs tides of impoverished and desperate refugees pouring across one’s borders or onto one’s shores? Most Americans who are not starry-eyed dreamers seeking the GOP presidential nomination would agree that our primary interest in North Korea is in preserving stability. So why not let the Chinese and the Japanese do what they can to further our goals?

Given that nothing will change in North Korea and that, even if there were a chance at some kind of metamorphosis in the Hermit Kingdom, we would have no influence over that change, why is Mr. Romney so insistent that Mr. Obama drop whatever he is doing and try to seize “one of the great opportunities of the last twenty five years”? Easy. The death of Kim Jong Il provides the perfect rationalization for those who insist on sticking America’s growing proboscis into every nook and cranny in which it demonstrably not belong. Mr. Romney, being of the party (the GOP) and the mindset (the Bush/Obama philosophy of “Everyone deserves ‘democracy’ so we will force it down their throats whether they want it or not.”) that constantly seeks to expend American blood and treasure on some idiotic, quixotic, imperial quests the inevitable consequence of which is the destruction of our once great Republic, sees in Korea the perfect excuse to meddle.

“BE MY FRIEND…GODFATHER?”

2011-12-13T15:30:00.001-08:00

12/13/11

One does not have to be a student of organized crime in this country to realize how the protection racket worked and doubtless continues to work. Send a few relatively green thugs from the neighborhood, known as “associates,” to a local business and have them cause some minor trouble, perhaps stealing some merchandise, breaking some furniture and fixtures, refusing to pay tabs, or scaring away customers with brutish and scary behavior. Then send a soldier to talk to the owner, disingenuously sympathizing with the man, explaining that theirs can be a rough neighborhood, commenting on the advisability of being grateful that nothing worse has befallen the hapless victim, and offering to provide a form of insuance against such further peril for a price that might even seem modest…at first. It’s been going at least since the Black Hand, so beautifully characterized by Fanucci in The Godfather, Part II, preyed on Italian immigrant communities in the big cities of our then great country in the late 19th and early 20th centuries, and probably longer.

With the passage by the Illinois Senate, and the sending to Governor Pat Quinn (no relation) for his signature, of designer tax breaks for CME, Sears, and UCI International, we see the latest manifestation of the same old racket conducted on what is called a much more sophisticated level by those who like to flatter politicians: Make doing business difficult at best by imposing huge regulatory and tax burdens, but offer to make at least a part of that burden go away for those businesseses that play ball. What a great way for a politician to raise campaign money and otherwise enrich himself!

This scam is often portrayed in the media as the businesses’ blackmailing the politicians with threats to leave the state. There is something to this line of reasoning, but bear in mind that those threats usually have their origins in the imposition of a new or increased tax or a regimen of new or increasingly obnoxious regulations. So perhaps a more nuanced view is that these new taxes/regulations are a signal from the politicians to those friendly quarters of the business community who have invested heavily in clout that times have been lean and the pols are hungry; therefore, it is time to begin the usual kabuki dance that exonerates the businesses that cooperate, enriches the pols, and leaves the relatively cloutless with the bill. So perhaps an at least as apt analogy as that to Fanucci would be an analogy to Buonasera, the undertaker in the the opening scene of The Godfather, Part I, who asks a favor of Don Vito Corleone and thus begins a symbiotic relationship that works out very well for both Buonasera and the Don.

One, however, does not have to get too artsy in describing what is going on in Springfield. This is the old protection racket, this time practiced not be enterprising young immigrants who lacked the morality or the decency to refrain from preying on their own people but, rather, by gangsters with law degrees who lack the morality or the decency to refrain from preying on those they are convinced they were elected to protect.

This isn’t the first time I have written on this topic (See, inter alia, my 11/6/11 piece “HEY, THIS IS A DANGEROUS NEIGHBORHOOD. WHAT YOU NEED IS A LITTLE PROTECTION, YOU KNOW, INSURANCE AGAINST BAD THINGS HAPPENING TO YOUR LITTLE STORE HERE.”) and I am quite sure it won’t be my last; this is the type of topic that deserves (needs, really) repetition so that people can see the enormity of the crimes being committed here. And, no, “crimes” is not too strong a noun in this instance.

“THE WORD IS FIGHT! FIGHT! FIGHT! FOR IOWA, UNTIL THE GAME IS WON!”

2011-12-12T14:34:00.000-08:00

12/12/11

As a political junkie and lover of the Hawkeye State, I have long been a huge fan of the Iowa caucuses. Besides my aforementioned affinities, the caucuses provide the most wide open contest of any year’s presidential race, at least in the sense that the caucuses generally feature the largest number of candidates because the contest takes place before the winnowing process begins in earnest. Furthermore, the caucuses demand more from the voters than simply entering a voting booth and punching out names at random for who knows what reasons. In order to participate in the caucuses, one must care enough to actually spend some time, often more than an hour, to express one’s views and support one’s candidate. Would that all our elections be held in a similar manner! But I digress. Organization and commitment pay off in Iowa and, since the caucuses count only the votes of those who actually care, surprising and counter-intuitive results are not at all surprising and counter-intuitive at the caucuses. Note the victories in 2008 of Barack Obama and Mike Huckabee.

This year’s Democratic caucuses will, of course, be a snoozer with no one challenging the President, but the GOP caucuses look to be among the most interesting in the last few election cycles. Right now, Newt Gingrich looks to have the lead, but Mitt Romney has, over the last several weeks, decided to make a contest of it and hence might still be able to pull this one off despite at least feigning lack of commitment to Iowa in the wake of the Huckabee surprise the Hawkeye State delivered him in 2008. But the most interesting story line in the race might be the chances of Ron Paul. Dr. Paul has run strong, or at least stronger than the naysayers thought he would (or should), in virtually every poll taken this election season. He remains among the top three candidates and there is talk that, with all the money and time he and his people have spent in Iowa and all the ground troops he has in the Hawkeye State, Dr. Paul might just “pull a Huckabee” this time around, winning the caucuses and thus throwing the entire race into upheaval.

Before those of us who love a political horse race and/or support Dr. Paul get excited at the prospect of a Ron Paul victory in my second favorite state, we should consider something that, as far as I have read (and I am at least fairly well informed on the politics of our once great nation), no one has mentioned: The caucuses take place this year on January 3, as they did last year. Note that Iowa’s three big state universities and its nearly innumerable small and medium-sized colleges and universities are on semester break at that time. There are a lot of potential votes among college students in the Hawkeye State; both the University of Iowa and Iowa State have enrollments in the mid 20,000 range, Northern Iowa has over 10,000 students, and Iowa boasts one of the largest and best assortments of small and mid-sized colleges and universities in the country. All of these students over the age of 18 are eligible to vote in Iowa. Of course, only a small fraction would participate in the caucuses; many are not registered, many are registered in other states, and even many, probably most, of those who are registered in Iowa would not put forth the effort necessary to participate in the caucuses. Still, if even a small fraction of those students participate in the caucuses, they could have a big impact on a political process in a small state in which only a relatively small number of eligible voters participate.

This is a problem for Dr. Paul, ironically, because he is so popular on college campuses despite his being the oldest candidate in the race. Apparently, college students like the idea of genuine adherence, rather than lip service, to the Constitution…or at least they like that idea this year; in 2008, they turned out big for Barack Obama. But again I digress. However, if the kids are back home in Illinois, Wisconsin, Minnesota, etc., during the caucuses, a large measure of Dr. Paul’s support will not be there for him. This could make a difference in a tight race.

On the other hand, one of the reasons then Senator Obama surprised then Senator Clinton in Iowa in 2008 was because of his support from Iowa’s vast student population; in fact, there was a lot of grousing that Mr. Obama won due to the votes of students from Illinois who were bussed back to Iowa on January 3 by Obama forces, many of whom were from Chicago and had loyalties that ran to Mr. Obama via a guy named Daley. It was kids from Illinois, that argument went, and, to a lesser extent, from other surrounding states, rather than Iowans, who won the Iowa caucuses for Mr. Obama.

If Dr. Paul’s ground forces in Iowa are as good as they are purported to be, one would hope to see convoys of busses plying I-80 and I-88 on the evening of January 2. If they aren’t, or if weather becomes a factor, the chances for Dr. Paul’s pulling off a Hawkeye State surprise on January 3 will be diminished, perhaps not greatly, but diminished nonetheless.

I DON’T SALUTE NEWT

2011-12-11T11:19:00.000-08:00

12/11/11

A good and trusted friend asked me whom I would support, Mitt Romney or Newt Gingrich, should it come down to a choice between the two. My reply turned out to be a tirade against Mr. Gingrich rather than an argument in favor of Mr. Romney; what is there to argue about, one way or the other, in Mitt Romney anyway? I thought that perhaps the thoughts I outlined to a friend were perhaps too strong to post on the blog, but then I figured “What the he(ck)? When have my readers ever known me to hold back much, if at all?” So here is the only slightly edited repeat of my reply to my pal Joe:

(By the way, the Peggy Noonan article in yesterday and today’s (i.e., 12/10 and 12/11/11’s) Wall Street Journal that I reference is, as are most of Ms. Noonan’s articles, a very worthwhile read.)

Thanks.

12/11/11

I simply can't vote for Gingrich for four reasons, one of which might seem petty and one of which is no reason to support him over Romney because his stance on this issue is not all that different from Romney’s:

--Newt Gingrich’s character is abominable. I guess I should believe more in redemption than I do in this case, but three marriages, two of which were the result of illicit affairs and one of which resulted in his serving his first wife with divorce papers while she was in a cancer ward, are things I can’t overlook. And then he has the temerity to campaign among those who espouse “family values,” and they support him! Yes, there is no perfect person, but there is a great distance between a “perfect person” and three marriages and serial extramarital affairs and then being hypocritical about it. The man is a moral pygmy.

--As Peggy Noonan said in yesterday’s (Saturday, 12/10’s) Wall Street Journal,

What is striking is the extraordinary divide in opinion between those who know Gingrich and those who don't. Those who do are mostly not for him, and they were burning up the phone lines this week in Washington.

The clincher was Tom Coburn, the senator from Oklahoma and one of the few people in either house of Congress for whom I have any respect, who said, according to the same article.

that Mr. Gingrich was "the last person I'd vote for for president of the United States."

Note that Coburn has few, if any ideological problems with Newt. Neither do I, except for that outlined in my last bullet point.

--This might sound petty, but it means a lot to me. We learned earlier in the campaign that Mr. Gingrich and his wife Callista once owed $600,000 to Tiffany’s. Newt defended (!) himself by stating that it was a revolving line of credit that he paid off. As you can probably determine by reading my blog, in my opinion ANYONE who spends $600,000 at Tiffany’s spends like a fool and is a fool. To defend such an excerebrose peeing away of resources by saying that “I can afford it” only doubles down on the imbecility. He (or she) would never get my support for ANYTHING, political, business, or otherwise. He (or she) is a fool, an idiot, a popinjay, a poltroon, a spiritless, hopeless lost soul desperately trying to fill some kind of void with a useless, trashy, ostentatious trinket that indicates nothing but utter stupidity and overarching insecurity, a reflection of the moral vapidity that is destroying our country in so many ways. Think of all the ways that $600,000 could have been spent for something worthwhile, helping someone who really needed help, rather than for some worthless, valueless, tacky, reeking bauble or assortment of worthless, valueless, tacky, reeking baubles. Strong enough for you? How do you think I REALLY feel about this?

Maybe other candidates have spent $600,000 on the utter crap dispensed at places like Tiffany, but I haven’t learned of it yet; if I do, I will similarly dismiss them as serious human beings, let alone serious candidates.

--I obviously disagree with Newt on foreign policy, as you can deduce from our conversations on the topic. Newt seems to want to ramp up the disastrous Bush/Obama approach to foreign policy (“You’ll do what we tell you to do because it’s good for you because we say so (and besides, we owe our political careers to the defense contractors)!”), a policy that will only expedite our utter ruin as a nation. Unfortunately, Romney feels the same way, so this, perhaps my only substantive policy difference with Mr. Gingrich (except, of course, for the marvelous efficacy of Fannie and Freddie, which Mr. Gingrich used to espouse but apparently no longer believes in now that there is nothing monetary in it for him), is no reason to support him over Romney…six of one, half a dozen of the other.

Sure, if one takes no account of the utter gormlessness displayed by his imbecilic excretion of money on worthless symbols of the rot of the society he purports to want to save, Gingrich is smart in the ways our modern society judges smartness. Nixon, Carter, and Wilson also had considerable intellects. So that oft-mentioned argument for Mr. Gingrich holds little water.

So I could never support Gingrich for the reasons outlined above. Furthermore, from a practical perspective, Mr. Gingrich is likely to blow up and say something stupid (like the Palestinians are an “invented...people.” Who does he think the Philistines were? But I digress.) AFTER he gets the nomination, handing the presidency to President Obama. Mr. Romney may not be to my ideological liking (if there were any ideology there, but that is another issue), but I would surely support him over Gingrich, as I would (even) Bachmann (sp?), Perry, Santorum and (especially) Huntsman and Paul. If (Naperville professional homeless celebrity) Scott Huber were the only alternative candidate to Newt Gingrich, I’d have to think long and hard before voting for Newt.

All that having been said, I will not vote for either Mr. Romney or Mr. Gingrich, one of whom (and I still think Romney; see my 7/19/11 piece, MICHELE AND SARAH, MAKE ROOM FOR THE FAT LADY, and, while you’re at it, for more reasons to oppose Newt, see my 11/17/11 piece “I WISH YOU COULD HAVE COME UP WITH A BETTER STORY; I FELT DISTINCTLY LIKE AN IDIOT REPEATING IT.”) will wind up with the GOP nomination. I will, as I (almost) always do, vote Libertarian, regardless of who the candidate is, and I hope it’s Ron Paul, unless, of course, Dr. Paul somehow pulls off a miracle and gets the GOP nod.

CLEAN UP YOUR ACT

2011-12-10T14:31:00.000-08:00

12/10/11

Saturday, 12/10/11’s edition of the Chicago Sun-Times contained a page 5 article, complete with a page 1 headline, entitled “From Dumping Ground to City Playground.” The article outlines plans by various government agencies and levels of government to transform 140,000 acres on the southeast side from an environmental dumping ground into a sort of environmental paradise, complete with hiking trails, woodland areas, and habitats for the black crowned night heron. The project was, of course, hailed by the usual suspects (Governor Pat Quinn, Mayor Rahm Emanuel, Senate Majority Leader John Cullerton, and Congressman Mike Quigley), and, an even have sentient read would indicate, by the Sun-Times and other media organs, as the type of affirmative, positive government that only the most curmudgeonly among us could oppose. So here goes:

Is this a good project? Being familiar with the area in question, I will easily concede this is a good project; the area in question is beyond bleak and dirty; it reminds one of a kind of moonscape or post-apocalyptic killing field with tons of toxins tossed in for good measure. The area ought to be cleaned up. But is this a vital project? No. The area, the city, and the state have lived with the area as it is for a long time now and surely we can continue to live with it indefinitely or at least until flusher times.

So if it’s not vital, why are we engaging in this project? The aforementioned politicians are always telling us how broke the city, the county, and the state are when they want to increase our taxes, and I believe them; after the number they and their colleagues have done on the finances of every governmental body in this state, who could argue that we aren’t broke? And if we’re broke, why are we about to embark on a project that will cost billions? If anyone tries to tell you that it won’t cost billions to clean up the area in question, he is talking through his hat or hasn’t yet talked to the guys who will win the projects for the clean-up, largely due to their friendship with and willingness to cut in the aforementioned pols and their pals, but I digress.

The governor, the mayor, the senator, and the congressman were quick to come up with anodyne assurances that the money would be no problem, especially, of course, for such a “vital” project. The state, they told us, will come up with $17.9 million in seed money, as if to reassure us that city taxpayers will not be stuck with the bill. But on the page immediately prior to the page containing this article, the Sun-Times reports that Cook County comes up with 40% of the income taxes and 36% of the sales taxes raised in the state of Illinois, so Chicago and Cook County taxpayers surely will come up with a large chunk of the spondulicks necessary to achieve this modern day edenization of an open dump. And even if, by some miracle, Chicago were completely off the hook, would it be such a good thing for the rest of the state, or the rest of the country, to pick up the bill to clean up portions of the southeast side? No wonder downstate lawmakers would like Cook County to secede from the state! (“The Great State of Chicago,” page 4, Chicago Sun-Times, 12/10/11) And even the pols are not so brazen as to label that $17.9 million as anything more than seed money; this is going to get more expensive…a LOT more expensive. But those costs are down the road, don’t you see, and, after all, it’s an “investment” in “our children’s children.”

Anyone who opposes this project will be accused by the likes of Pat Quinn, who, in his whole life, has never has had to deal with any money but other people’s money, of being environmental criminals, pursuing profits over “our children,” or not being focused on the future. Why be concerned about the money when “our planet” and “our children” are at stake? It is this type of thinking that has driven the state, our city, and our country broke, a situation that does not bode well for the environment, the planet, or the children.

Politicians simply cannot stop spending money; even in the worst of fiscal times, they can justify spending your money, and imperiling the economic future of “our children’s children,” by declaring any project, even those projects even more postponable than this one, to be vital, necessary, and morally imperative.

And we continue to elect these clowns.

FIRST THOUGHTS ON THE ROD-BOY’S GOING AWAY

2011-12-07T12:16:00.000-08:00

12/17/11

Before we all go into high dudgeon about how awful Rod Blagojevich is and how terrible the corruption is in the Land of Lincoln, remember…

--Every major Democratic politician in Illinois (with the exception of Attorney General Lisa Madigan, who claimed her endorsing Blagojevich for a second term would be a conflict of interest because her office was investigating him. After you read my last bullet point, please re-read Ms. Madigan’s rationale, or rationalization, for not supporting Mr. Blagojevich. I do not digress in this instance.), and every national Democrat who was asked, endorsed Blagojevich. And we keep electing these guys.

--The Republican Party in this state made only the slightest of feints toward opposing Rod Blagojevich, putting up first perennial political loser, but nice guy, Jim Ryan and then the likeable and somewhat competent, but not to be taken all that seriously Judy Baar Topinka. The GOP was very comfortable with the political arrangements in Illinois, including having Dick Mell’s son-in-law, and then Dick Mell’s estranged son-in-law, comfortably ensconced in the West Ravenswood governor’s mansion. They were, after all, getting their share. And we keep electing these guys.

--By far the most important…We, the voters of Illinois, elected this portrait of arrested development…twice.

H.L. MENCKEN AND ME…

2011-12-07T10:35:00.001-08:00

12/7/11

My nephew, an insightful observer of and participant in the political scene, recently shared a thoughtful letter concerning the “housing crisis” that he sent to the Chicago Tribune. One of his fans (and there are many) responded that he ought to run for president. I decided to reproduce my reply to this worthy observation because this reply so encapsulates the, if there is one, overriding theme of the Insightful Pontificator. As loyal readers know, that theme is not sunny optimism based on chest-thumping while chanting “USA! USA! USA!”:

12/7/11

I agree that Jay ought to run for president and if I had any money I would be an enthusiastic financial contributor.

Unfortunately, Jay would go nowhere with such common sense and keen insight. The "American people" just want to be told that nothing is their fault. It's the greedy banks, the evil derivatives traders, the barnacles on the ship of state in Washington, those damn Chinese, anybody but them, who has caused our problems. The new American motto is no longer "Don't Tread on Me" or "Live Free or Die;" rather, the new motto is "It's Not My Fault." It is our right to spend money we don't have on things we don't need in order to impress people we don't care about, send the bill to someone else, and go back to anesthetizing our brains with the like of "Two Men and A Boy," "Dancing with the Stars," or Jay Cutler's thumb while whining about how everyone has it in for us and voting for the guy who either has the best sounding name, features the slickest thirty second commercial, or who promises to protect the programs that benefit us while promising “fiscal responsibility.” And Americans will only elect politicians that feed these tendencies and provide anodyne reinforcements of the crazy notion that no one is responsible for his or her actions; they have no use for the likes of Jay (or his uncle) who tell the truth.

This ain't your father's America any more; it is Alec Baldwin's, Paris Hilton's, Glenn Beck's, Sarah Palin's, Dick Durbin's, Barack Obama's, Jesse Jackson's, Keith Olberman’s, Michael Moore’s, Lady Gaga’s, or any number of excerebrose celebrities' you can name, America. It's over and it ain't coming back.

On that happy note, everybody have a wonderful, blessed Christmas (in today's materialistic, silly, and self-obsessed and idiot celebrity obsessed America a herculean task, I know) and a prosperous new year (equally difficult).

“DON’T YOU WANT TO BE A (FINANCIAL) ENGINEER, LIKE YOUR UNCLE OTTO?”

2011-12-06T13:19:00.000-08:00

12/6/11

The Wall Street Journal reported in a page A1 article in today’s (i.e., Tuesday, 12/6’s) edition that German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed to

never again pressure private investors into agreeing to voluntary losses on euro-denominated bonds.

I don’t think that’s what Ms. Merkel and Mr. Sarkozy meant; I think what they meant was that they won’t pressure private investors to agree to voluntary losses on euro-denominated bonds issued by European sovereigns. The new Dynamic Duo couldn’t possibly mean that they never want any investor to lose money on any euro-denominated bond, regardless of the issuer, ever again. Given the rabbit hole into which the world’s financial system seems to have fallen, maybe the feckless Franco-German freres did mean the latter. But let’s assume for purposes of this piece that euro-estimables were referring to sovereign credits. I digress, of course.

Mr. Sarkozy, while at least figuratively beating his chest, proclaimed

“The message to investors from across the world is that in Europe we pay back our debts.”

Hmm…

It seems that the message to investors across the world is more like

Moral hazard be damned; toss your money at the most profligate spendthrifts you can find and we’ll make their markers good.

Some readers are doubtless saying that, in making the last statement, yours truly is merely being his usual outrageous self. Why, these guarantees, implicit or explicit, will be given only when a viable and enforceable mechanism for mandating fiscal discipline is in place. But what these ingénues seem to miss is that the pious pronouncement that “we pay back our debts” works against whatever legitimate mechanism for enforcing fiscal discipline might be put into place.

What would be the sanction against any country that decides it doesn’t want to abide by the Franco-German fiscal prescriptions? Denial of credit? Withdrawal of the guarantee? What would be the result of such a sanction? Default on the part of the miscreant debtor. Such a result would be bad enough, resulting in the impairment of pan-European credit and, possibly, the dissolution, or at least the shrinkage, of the euro that the French, Germans, and, apparently, the whole world are going through these machinations to avoid. But now that Mr. Sarkozy and Ms. Merkel, the latter of whom has a very un-German like tendency to fold like a cheap card table, have proclaimed that there can be no sovereign European default because “we pay back our debts,” such a default is unthinkable. Therefore, so is a viable mechanism for enforcing fiscal discipline.

Trying to enforce fiscal discipline under these circumstances is like holding a bomb while sitting in a room with a churlish opponent and declaring that, if he doesn’t do what you would like, you will explode the bomb, thus killing both you and your opponent. You won’t do it, and your foe knows it. So he merely laughs in your face while making a rude gesture. You, meanwhile, accede to his demands.

So the message to creditors is that every European sovereign credit is a German credit. The message to all European governments is to party on and put everything on Uncle Otto’s tab. The message to the German, French, Dutch, Finnish, etc. taxpayer, and saver, is to bend over and take another and another and another and another. And, perhaps most importantly, the message to the European Central bank is “You’ve got your fig leaf; now get those printing presses into high gear.”

And the masters of the financial universe cheer. O tempora, o mores.

THE BOSS IS BACK; BACK THE BOSS

2011-12-03T18:04:00.000-08:00

12/4/11

In my instantly seminal 10/21/11 piece entitled …AND MAYBE THEY COULD HAVE COME UP WITH A MORE ORIGINAL NAME, TOO, I was at best minimally charitable to the new Starz series, ostensibly about Chicago politics, entitled Boss and starring Kelsey Grammer. Indeed, about the only good things I could cite in that post were the performances of Mr. Grammer himself (spectacular and getting better…see below), the wonderful views and backdrops of the world’s most beautiful city that are prominent features of at least the show’s introductions, and a clever piece of cinematography in the first episode in a scene in which Mayor Tom Kane expostulates on the legacy of Mayor Tony Cermak. My main complaint about the series was, as I put it so eloquently then,

The most salient and overriding observation about “Boss” is that it is hopelessly and, more importantly, needlessly over the top. The annals of Chicago politics contain enough true stories that are entertaining, compelling, and thought provoking. We don’t need to make up silly stuff…

However, I also stated in that post

I will doubtless watch “Boss” again because it was entertaining, at least for an hour.

and I have done so. Yes, there is indeed plenty of silly stuff still going on in the show, the usual banality that permeates television drama and that could have been set anywhere in America. For example we are insulted by the idea that the Mayor’s daughter, who is both an Episcopal priest and recovering drug addict, decides to (once again) consummate her curious relationship with her drug dealing boyfriend at the precise moment the aforementioned boyfriend is under hot pursuit by the Chicago cops. Talk about wham, bam…Sorry about that. And we still are confronted with the preposterous notions that there is real opposition in the Chicago City Council and that we have an articulate mayor. On the other hand, I am pleased to report that mayoral aide Kittie O’Neil, who dresses and acts like the Admiral Theater would be an entirely more appropriate workplace venue than the Fifth Floor, has managed to refrain in the last few episodes from removing her clothing and going about her usual task of servicing one of the series’ other major characters. I realize that the last comment has sent probably half my readers racing to the “on demand” channel to view earlier episodes, and I digress anyway.

My major point is that, despite the aforementioned, the show has gotten much better over the last few episodes as the plot line has progressed to Mayor Kane’s culpability for a toxic dump in Bensenville and the ramifications that culpability is having for his political survival. Viewers are treated to scheming ward bosses, set-up ingénues, outclassed amateurs, venal and hypocritical journalists, mercenary spouses and other family members, ruthless political suzerains of various stripes…the type of stuff that makes you think, sometimes leaves you agape at the characters’ boldness rather than the scriptwriter’s silliness, and could have come right from the pages of my novels The Chairman and The Chairman’s Challenge. Indeed, many of Mayor Kane’s ruminations on his job could have come straight from the first chapter of The Chairman, the chapter that has been panned by some as being “too slow” while being effusively praised by those who watch the politics of our city closely as being right on the mark. Further, while Boss lacks the fidelity of my novels, it borders on the amazing how closely some of the scenes in the series, including the completely gratuitous scene in which we learn of a certain character’s proclivity for private female on female sexual performances, come right from the amazing annals of the politics of our town.

So my hat is off to the creators of Boss. The Chairman and The Chairman’s Challenge remain better, but Boss is quickly becoming a great series as it nears the end of its first season. I’m glad I didn’t give up on it.

A (V)OLT FROM THE BLUE

2011-11-27T14:00:00.001-08:00

11/27/11

This morning’s (i.e., Sunday, 11/27’s) Chicago Sun-Times reports that the National Highway Traffic Safety Administration is investigating cases of the lithium-ion batteries’ in Chevy Volts starting on fire after a severe crash involving the vehicles in which they are housed. The NHTSA says it’s too soon to determine whether there will be a recall of the vehicle, but quickly added

“NHTSA continues to believe that electric vehicles have incredible potential to save consumers money at the pump, help protect the environment, create jobs and strengthen national security by reducing our dependence on oil.”

Hmm…

One does not have to be too much of an aficionado of conspiracy theories to believe that, for the reasons it outlined in that statement, the NHTSA will be under tremendous pressure not to recall the Volt regardless of what the agency’s investigations reveal. The Volt is indeed a job creator, an energy saver, and a genuine green machine. It is also one of the rare, but not as rare as the general public might think, instances in which an American car company substantially moved the technological goal posts. Given all that, and the Bush/Obama administration’s continuing interest in seeing the post-bailout GM survive and prosper, somebody had better keep a close eye on the NHTSA’s investigation of these battery fires. One hopes, and suspects, there is little or nothing to these battery fires, but diligence is warranted given the political pressure for the Volt to succeed.

“IT TAKES MORE THAN THAT TO STOP A BULL MOOSE!”

2011-11-26T10:22:00.000-08:00

11/26/11

This morning’s (i.e., Saturday/Sunday, 11/26, 11/27’s) Wall Street Journal featured, on page A6, the first, or the latest, in an inevitable series of articles from various quarters of the media speculating about the possibility of a third party run for president in 2012. One especially startling statistic is that, when Ross Perot ran in 1992, winning nearly 20% of the vote and thus becoming the most successful third party presidential candidate in modern American political history, 39% of Americans told pollsters they were dissatisfied with the way the country was being governed. The same figure today is 81%.

This all sounds promising for a third party run, and those of us who are both fed up with the pompous nonentities who presume to govern us and intrigued with the horse race aspects of politics are heartened and intrigued by the prospect of a two decade year later Perot. But, sad to say, we can forget about a third party candidacy, or at least a successful third party candidacy, for a number of reasons.

First, of course, our electoral system, and the college that is a big part of it, makes third party runs difficult. Fundraising, ballot access, entrenched party machinery, etc., all make the likelihood of a third party winner miniscule. And the fifty contest nature of the race that the electoral college produces, while having obvious virtues, makes it nearly impossible, at least in these times of two entrenched parties, for a third party candidate to win outright and completely impossible to win a race that is thrown into the Congress.

Second, and more important, a lot of people are unhappy out there and a lot more people would like to throw the rascals out. But throwing the rascals out involves replacing them with somebody, and that is where the third party ardor falls apart. The Journal article noted that the two most talked about potential third party candidates are Michael Bloomberg, the moderate mayor of New York City who knows how to say the things needed to get elected and make the deals necessary to run the nation’s largest city, and Ron Paul, the delightfully incorrigible libertarian congressman who means what he says and says what he means. Would people, or at least a lot of people, who would vote for Ron Paul vote for Michael Bloomberg? If that doesn’t convey my point, two people whose names keep popping up in connection with Americans Elect, a group that is actively promoting an online convention to pick a third party candidate, are former Senator Chuck Hagel, one of the few GOP officeholders with the courage to oppose George Bush’s exercises in self-aggrandizement that have had such severe repercussions for our once great nation, and former Secretary of State Condoleeza Rice, who at least nominally quarterbacked Mr. Bush’s excellent adventures. Anyone who thinks seriously about foreign policy would be about as likely to be indifferent between these two as a typical Chicago baseball fan is to be indifferent between the White Sox and the Cubs.

People are fed and disappointed; they know what they don’t like. But they can’t agree on what they like. Any third party candidate will need the support of a significant majority, or more, of the unhappy electorate is s/he is to have a chance at getting elected. It’s nearly impossible to envision a candidate who could channel that anger into his or her single candidacy.

SOCIAL INSECURITY

2011-11-22T13:55:00.000-08:00

11/22/11

In the wake of the miserable but predictable failure of the Committee of Dolts (er, sorry, the Supercommittee) to even begin to address our budget deficit problems (See today’s other post, OH YEAH…HAPPY DAYS ARE HERE AGAIN ALRIGHT.), several other pieces of unfinished business loom for our selfless public servants. One of these is the pending (12/31/11, I think, but I could be wrong) expiration of the FICA payroll tax holiday that was instated in yet another attempt by your government to solve a problem that had its origins in too much spending by encouraging more spending.

It’s hard to see how the denizens of the Den of Iniquity on the Potomac are going to let the payroll tax holiday end. The Democrats, including President Obama, support the holiday as a tax cut that directly benefits lower income earners. The Republicans, though seemingly against anything the Democrats oppose in the proud Washington tradition of never letting a good idea get in the way of hair-shirted partisanship, would have a hard time letting the payroll tax be reinstated for a few reasons. First, they are reflexively, and understandably and, generally, laudably, in favor of any kind of tax cut and, conversely, against any kind of tax increase. Second, the GOPers would have a hard time taking the political flak that would result from opposing a tax cut at the low end while fighting hard to preserve a tax cut at the upper end of the income scale. Further, congresspersons from both parties would have a hard time letting the payroll tax expire while the economy is still sputtering along, at best. As Nixon once said, we are all Keynesians now and even those who would deny that observation by one of our most brilliant yet failed presidents have enough common sense, and/or sense of political survival, to not put the drag that would accompany such a tax increase on an already struggling economy.

To take this a step further, it’s hard to see how the payroll tax will ever be reinstated. This is an onerous (about 7.65% on the employee side, the side currently being suspended) tax that affects just about everyone who earns a dollar in this country. Reinstating such a tax would amount to a huge tax increase and the profiles in courage who can’t cut 3% out of a budget (Again, see today’s other post, OH YEAH…HAPPY DAYS ARE HERE AGAIN ALRIGHT.) surely cannot take the heat that would result from such a move. So it might be safe to say that the payroll tax as we understood it since the days of FDR is gone forever.

So what will happen to social security? God only knows, and He’s not talking. However, it might be a good thing to eliminate the tax that ostensibly supports social security but in reality merely supports every other government program. Then we could eliminate the fiction that social security is somehow an off-budget program supported by “contributions” from participants and so need not be financed out of given year’s revenues. Only when we realize that there is no “trust fund” and that, ultimately, social security payments can only be made from the revenues generated in the year they are paid can we begin to address this badly mismanaged program’s problems. So this might be an instance in which the politicians’ very timidity ironically forces them to summon up the courage to address one of our real fiscal problems. But I am probably being hopelessly optimistic, not one of my most salient faults, in thinking that anything can force the poltroons we have sent to Washington to address the problems they have created.

OH YEAH…HAPPY DAYS ARE HERE AGAIN ALRIGHT

2011-11-22T08:07:00.000-08:00

11/22/11

The committee of super poltroons, formed by a timid Congress in its latest effort to avoid the responsibility that comes with taking their public paychecks, failed to achieve the paltry ($1.2 trillion) it was charged to find. The utter failure of this pack of hyenas came as no surprise to most people or to any readers of the Insightful Pontificator.

Consider these numbers for a moment. Unless there is something wrong with my math or my understanding of the cuts, $1.2 trillion over ten years amounts to $120 billion per year out of a budget that totaled, in FY 2011, $3.6 trillion. That works out to 3% of the FY 2011 budget, which will, of course, grow, making the $120 billion an even smaller percentage of future budgets. So this Superdolt Committee could not cut the budget by 3%! I digress, but I do so to reinforce a very important point: These guys can’t cut anything. Even the guys who scream and holler about how important it is to cut spending cannot find any spending they would like to see cut. We are doomed.

Now that the committee has crashed and burned, the Congresspersons who designed this abomination before God and man are busying themselves with removing the sanctions, in the form of $1.2 trillion in mandatory cuts, split evenly between “defense” and domestic spending, that are to kick in, but not until 2013 when the elections are safely behind our public servants. The War Party, led by estimables John McCain (Did you know he was a POW in Vietnam?) and Lindsey Graham are in full whoop-whoop, equating any suggestion of removing any dollars at all from the defense budget with treason. Democrats are doubtless doing the same thing about programs that address “vital needs” that seem to arise when the money becomes available, or, in modern American political parlance, when such spending can be slipped by a prime time network TV addled American public, which is always, but, again, I digress.

President Obama, on the other hand, has pledged to veto any effort to undo the mandatory cuts; he wants to keep the pressure on Congress to do something about our deficit problems. So we find ourselves in the odd position in which it is President Obama who is the proverbial adult in the room. We are, ladies and gentlemen, in deep, deep trouble when Barack Obama is the adult in the room.

Humor was not my sole objective in writing that last sentence. In the old days, when this country was great, a guy with President Obama’s limited background (“community organizer,” one and a half term state senator, two-thirds of a term U.S. Senator, and no, zero, private sector experience of any type) would not even qualify to be an obscure back bencher in Congress. Now, in our society preoccupied with “Dancing with the Stars” and Jay Cutler’s thumb, he is President of the United States, and now the mature, wise man in a Washington pullulating with preening poltroonish popinjays who would not ponder a position in the private sector, carnival barkers, chicken head chomping circus geeks, overeducated and underachieving ingénues whose most salient features are their lack of humility and their certainty of their having all the answers, and other assorted hangers-on and self-important twits and fops.

And then we have this same cast of mountebanks and charlatans piously intoning that the “American people” want action, the “American people” want a responsive Congress, the “American people” want to do something about the sorry fiscal shape of their government. I have news for these professional caitiffs and bloodsuckers: it is the “American people” who sent you carnies in suits to the Washington. The “American people” want to be left alone to anesthetize their brains with the likes of “Mike and Molly,” “Two Men and a Boy,” “Poor Girls,” or whatever these glaring examples are called of the utter decline of our society to the public debauch of indifference and overindulgence it has become.

This country is finished, done, over with. Certainly, the estimables in Washington have had a great deal to do with the decline of this once great country. But far more culpable are the people who sent them there. Self-government takes work, sacrifice, and attention to one’s duties as a responsible citizen in a self-governing polity, not shameless self-indulgence, insufferable, dolorous whining, and feckless, gormless displays of crass materialism.

“I WISH YOU COULD HAVE COME UP WITH A BETTER STORY; I FELT DISTINCTLY LIKE AN IDIOT REPEATING IT.”

2011-11-17T08:49:00.000-08:00

11/17/11

Now that former House Speaker Newt Gingrich has become nearly viable in the GOP race for the 2012 presidential nomination, his ethics are drawing new scrutiny, and not those aspects of Mr. Gingrich’s ethical life that seem to most titillate the public.

It seems that a “consulting” firm run by Mr. Gingrich was paid $1.6 million by Freddie Mac, off an on from 1999 to 2006, for what Mr. Gingrich calls “strategic advice” on how to portray the company to skeptical conservatives who wanted to cap the firm’s growth, according to the Wall Street Journal (Thursday, 11/17/11, page A5). Mr. Gingrich insists that he was not paid to lobby, not for his clout, no sir. He was paid for “strategic advice.”

Let’s just say that we are to buy Mr. Gingrich’s story, that his “consulting” practice was not, as are about 99% of such consulting practices by former office-holders and current hangers-on, a thinly veiled way of selling his influence, designed not only to line his pockets but to enable him, and his ilk, to brag of his “private sector experience” when next pushing for a spot at the public trough. Let’s stipulate that Mr. Gingrich was indeed being paid for “strategic advice” on how to fend off conservatives who wanted to curb the growth of Freddie Mac and who were, in retrospect, clearly onto something. Even if Mr. Gingrich’s at best semi-plausible and at worst ludicrous defense is somehow legitimate, he is still admitting that he (and his firm, of course; this was not a one man operation, no sir) helped Freddie to grow. Since Mr. Gingrich and his fellow Republicans insist, with some (but not as much as they think) justification, that Freddie and Fannie were at the root of the financial problems from which we are supposedly emerging, Mr. Gingrich’s defense is that he was only helping to put the U.S. housing market in the tank and thus abetting what most are calling a financial disaster.

One would think that a guy with Mr. Gingrich’s obviously abundant intellectual firepower could have come up with a better story.

I DON’T KNOW ABOUT YOU, BUT I CAN HEAR SHIRLEY BASSEY BELTING ONE OUT AS I WRITE THIS POST

2011-11-10T15:15:00.000-08:00

11/10/11

Gold was off yesterday, albeit only a touch, on a day when, by most conventional reckonings, it should have been skyrocketing; the news out of Italy was bad, the news out of Greece wasn’t any, if at all, better, and the equity markets were in full retreat, with the S&P down 3.67%. It would have seemed that yesterday was the perfect day to be long gold.

While looking for answers regarding the movement of any commodity, stock, etc. on a given day is pointless given the randomness of any given investment’s movements on any given day, gold’s counterintuitive action yesterday got me to musing. What if gold were to continue to trade down even if the news coming out of Europe, and points east, west, and south, were to continues to be bad but gold were to continue to trade down. What could cause such a phenomenon? Note that I am not predicting such action for gold; indeed, my holdings in GLD and kindred investments remains vastly outsized. But with a position this large in a metal so vital to reading the markets, a little musing is advisable, indeed necessary.

The obvious explanations for weakening gold in the face of circumstances that would dictate a strong market for the ancient object of kingly desire might hold in such a circumstance. The first is increasing margin requirements for gold futures contracts; indeed, it was such an increase in margin requirements that caused gold to drop in the late summer and early fall before plateauing and then resuming a slow climb the last few weeks. The second such explanation is the old investing truism that nothing climbs to the sky; gold has roughly doubled over the last three years, so it’s not surprising that it might be hesitant to continue trading up aggressively, even when it seems like it should. A third is that hedge funds and other investors sell what they can when they can’t sell what they’d like. While this is a popular theory with a degree of credence, one wonders how far it goes; for example, if people sell what they can when the defecatory product hits the wind motivation device, why don’t they liquidate their treasury positions? It would have been easy to unload those positions on a day like yesterday!

But what if there could be more at work, either now or in the future? What if people, after buying, even hording, gold in anticipation of hard times are now liquidating those gold positions, or hoards, now that hard times, at least in the eyes of a sufficient number of those hoarders, have arrived? Could it be that gold could strengthen in the run-up to hard times and then fall when those hard times commence in response to liquidation of the stockpiles of those who bought gold as insurance against the evils that have now befallen them? In other words, could things get so bad that gold starts to weaken because people have to sell it? I’m not talking about hedge funds or professional investors here; I’m talking about investors, largely individuals, who buy gold for protection. One might call them gold bugs, but that description seems somehow incomplete or insufficiently inclusive.

Again, I’m not predicting gold’s demise, but, as a holder of gold in one form or another, I think I am duty bound to think about things that might cause gold to weaken. And, as my readers know, I like to think creatively. (If I were given to the triteness that permeates modern discourse, especially modern business discourse, I would say that I like to think “outside the box,” but I am not given to such mewing drivel, so I say that I like to think creatively. But that is grist for another mill, an upcoming mill that I have been planning for awhile, and a reason to close this post, awkwardly, parenthetically.)

“HEY, THIS IS A DANGEROUS NEIGHBORHOOD. WHAT YOU NEED IS A LITTLE PROTECTION, YOU KNOW, INSURANCE AGAINST BAD THINGS HAPPENING TO YOUR LITTLE STORE"

2011-11-06T10:53:00.000-08:00

11/6/11

It was bad enough when Governor Pat Quinn (no relation) and his fellow travelers in the state legislature increased the state income tax on individuals and corporations (though, as I said in my 1/7/11 post YOU MEAN ALL THAT STUFF GOVERNMENT DOES TO US ISN’T FREE?!, it would have been more fiscally realistic if those who screamed so loudly about the tax hike had used a little of that enthusiasm, and volume, when the spending that ultimately necessitated at least some form of tax hike was being done with reckless, carefree abandon and perhaps had given a touch more consideration to whom they were voting for than to the latest prospects on “Dancing With the Stars,” but I digress), the workings of the fisc in the Land of Lincoln have gotten progressively worse.

Predictably, those corporations that are large enough or politically connected enough (A large area of intersection exists between these two characteristics, as you might guess.), such as Sears, the CME, Caterpillar, etc., are appealing to their friends in Springfield and, voila, getting their tax bills reduced. So we have a situation in which life is made burdensome for the typical business in Illinois, but those who play ball, especially with their checkbooks, with the pols who inflicted these burdens upon them can have their burden mysteriously lightened. It’s the old protection racket, though this time not practiced by Machine pols who control various inspection processes or by enterprising ethnic businessmen who have no compunction about applying innovative and creative means of persuasion, but, instead, by our crusading goo-goo governor and his partners in extortion in the legislature. The typical businessperson, generally apolitical and just trying to stay in business and make a living roughly commensurate with the effort and the investment he or she expends, gets stuck with the bill and suddenly learns the downside of staying apolitical in this increasingly dystopic state. The message becomes clear: play ball with the pols, especially when they expect you to express your gratitude with your checkbook, or be forced to live under the conditions they, who have not the slightest clue as to how to conduct actual, for profit business, impose upon you, the economic engine of this state.

The situation outlined in the last paragraph would be bad enough, but it gets worse. It seems that, according the Chicago Sun-Times (Saturday, 11/5/11, page 9), the governor and the “four legislative leaders,” a description that presumably includes the two GOP leaders, “have settled on a framework” to finance the tax reductions for the likes of the CME and Sears. The framework involves decoupling the federal method of expensing equipment purchases for tax purposes from the state method of expensing such purchases for tax purposes. Currently, federal law allows certain companies to immediately expense the purchase of long lived equipment and the state of Illinois, in the interest of simplicity, allows those same companies to treat the expensing of equipment in the same way. But under the “framework” that the thugs in Springfield are going to put before the rank and file legislators, the state will require equipment purchases to be depreciated; i.e., charged against income at (hopefully) decreasing rates over a number of years. This seemingly arcane change in the state tax code will cost Illinois businesses $570 million. This is in addition to the additional spondulicks the increase in the state tax rate will require them to hand over to Governor Quinn (no relation) and his henchmen. (There is always the question of who the super-villain is here and who are the henchmen, but, for purposes of this post, we’ll go with Quinn being the arch-villain and the legislators being the henchmen. This does not reflect the reality of the way things are done here, but it does reflect the relative degrees of enthusiasm, in most cases, for taxing the businesses of Illinois. But I digress.)

So now we have the typical Illinois businessman forced to pay a higher income tax rate while large and politically connected businesses get at least something of a pass. In addition, the typical Illinois businessperson will be forced, by means of a $570 million tax increase, to pay for the pass given those large and influential businessmen. This can’t be right, can it? Perhaps the article I am citing does not have it right, because this “framework” seems akin to the practice of various totalitarian governments throughout history of having the families of those executed pay for the bullets (or gas, rope, or electricity) used in political executions and/or clean the area in which their family members were beaten and tortured of blood, body matter, and other detritus of the dictatorships’ cruel methods of enforcing adherence to their view of the world.

Note further that, if the Sun-Times article is correct, the ostensibly free market and/or pro-business GOP leadership is going along with this exercise in political coercion and enlightening benighted businessmen to the virtues of making sure that the pols enjoy a healthy portion of the fruits of their hard work. While the grassroots GOPer may mean it when he or she says she believes in free markets, the GOP leadership in this state, and in much of the country, is just another flavor of busybody, know-it-all politico.

While I am sure there are people out there who love this state and living in this state more than I do, there aren’t many of them. But even I am starting to wonder why anyone, at least anyone who manages and/or owns a business, continues to live in the Land of Lincoln.

HE DIDN’T LEARN THIS IN DAVID KINLEY HALL

2011-11-01T11:42:00.000-07:00

11/1/11

The Jon Corzine/MF Global situation (Some quarters of the media are, predictably, referring to this misstep as a “crisis.” As I have written ad nauseam in the past, everything in our softened society is a crisis nowadays. More sober observers, like yours truly, contend that, in my lifetime, there has been only one genuine crisis, the Cuban Missile Crisis, or perhaps two, the OAPEC Oil Crisis of 1974, and I’m not even sure that either of those two constituted a genuine crisis. But our modern, enlightened society, obsessed with overestimating its rapidly declining toughness and resilience, insists on calling every inconvenience a “crisis.” But I digress.) is fraught with irony.

The first of these ironies is that Jon Corzine is, according to reports, due to get a $12 million severance check (One wonders, however, how the bankruptcy courts will handle this.) despite his destroying the MF Global investing five times his employer’s capital in European sovereign debt. Yes, this investment bankrupted the firm, but it was worse than that. In an environment in which the regulators are demanding that banks lay off risk and in which banks, even if they are able to put on additional risk in a generic sense are not eager to increase their exposure to European sovereign risk, Mr. Corzine’s actions made a purchase of the company, as part of some kind of rescue, difficult nearly to the point of impossibility. So Mr. Corzine sort of brought the company to the brink of death and then made it virtually impossible for someone to save its life. Yet he gets $12 million, if the bankruptcy courts allow such a payment. It must be nice to be in the club.

The second of these ironies is that in MF Global’s investment grade rated bond issue of early August of this year, one of the covenants stated that if Jon Corzine were to leave the firm, the coupon on the bond would have to go up to compensate bondholders for the loss of Mr. Corzine’s services.

Hmm…

The next time you make the assumption that the rating agencies or the smooth talking investment professionals asking to manage your money have the slightest clue as to what they are doing, remember the manifest wisdom of both of the aforementioned parties in the MF Global deal.

The largest of these ironies, however, is that Jon Corzine’s call on European debt was ultimately correct. Note that former governor, former senator, former Goldman co-CEO, and University of Illinois graduate Jon Corzine was certain, given his background and contacts, that he was right in his assumption that “Europe wouldn’t let these countries go down.” In the Eurodeal that the media and the aforementioned investment professionals were slobbering over last week (See my instantly seminal 10/28/11 piece, GERMANS BEARING GIFTS…AGAIN), the Germans and the French (i.e., Europe, for these intents and purposes), made it perfectly clear that no country in Europe, no matter how profligate it chose to become, would be allowed to, as Mr. Corzine put it, “go down,” except for Greece, and even Greece would be allowed to “go down” in only a limited sense. Note further that MF Global, under Mr. Corzine’s tutelage, had no direct Greek exposure; Mr. Corzine bought the paper of Italy, Spain, Portugal, Ireland, and Belgium. The whole point of the deal concocted last week was to assure everyone that those countries would not go down if “Europe” had anything to say about it.

This is not to say that Mr. Corzine made a good trade; he made an awful trade. His timing was bad, he apparently bought at prices that reflected a more sanguine view of either the beneficence of the Germans or the fiscal health of the aforementioned countries, and, with spreads between bunds and Italian 10 years at 450 basis points, most people apparently haven’t caught on to the notion that the sick men in Europe are golden as long as Uncles Wolfgang and Francois are around. Further, Mr. Corzine had no business committing an amount equaling five times MF’s capital to his trades. His execution was lousy, terrible, awful, malodorous, wretched, and maladroit, probably the result of Mr. Corzine’s not having actually traded in about twenty years. But the ultimate basis of the trade, i.e., that the German and the French political elites are sufficiently foolish (my word, not Mr. Corzine’s) to allow their European brethren to continue to party on the German and French dime, was, and is, correct.

GERMANS BEARING GIFTS…AGAIN

2011-10-28T09:15:00.000-07:00

10/28/11

The problems with the “big plan” to put to rest fears of a European financial collapse are myriad, and I feel to compelled to list at least few before I get to the meat of this post:.

--The plan to expand the EFSF (which does not stand for European Fops Still Fiddling, but, rather, the European Financial Stability Facility) does not expand the EFSF at all. Instead, it effectively levers the EFSF through extending guarantees on 20% of certain debts of troubled Eurogovernments and/or taking the first losses on a larger Special Purpose Vehicle (“SPV”) to be funded by the usual suspects: the sovereign wealth funds and/or other public or quasi-public institutions of China, Brazil, India, Japan, and other countries where people still engage in the quaint practice of saving money.

Hmm….

Isn’t it leverage that got the Europeans, and us, into so much trouble in the first place? Further, a 20% guarantee doesn’t go far in the event of a sovereign default; such “credit events” are all-or-nothing, usually all, proposition. And the EFSF will be fighting with the creditors it supposedly will be saving for the remaining collateral when it attempts to collect from the sovereign defaulters the spondulicks it extended to those same rescuees. Finally, the participants in the SPV have not agreed to anything yet, and, if they do, one has to assume that their motivation, in the cases of at least some of the participants, would be at least as political as it would be financial. Is Europe selling itself into serfdom?

Other than the above, the “expansion” of the EFSF sounds like just a terrific plan.

--There appears to be nothing voluntary about the “voluntary” 50% haircut Greek creditors are expected to take. That would be fine, since those who make bad loans should suffer the consequences; however, calling such haircuts “voluntary” forecloses the holders of credit default swaps (“CDS”s) from collecting on those swaps and thus spares the writers of such insurance from having to pay up on the bad bets they made on the solvency of Greece. (See, inter alia, my 6/8/11 piece, A TRAGEDY WORTHY OF AESCHYLUS.) This throws into question the whole concept of a CDS and the viability of the entire CDS market, certainly for sovereign bonds and maybe for any bonds. A severely impaired CDS market will make it harder for sovereigns, or perhaps for anybody, to borrow money.

Further, the 50% haircut will bring Greece’s debt to GDP ratio to 120% by 2020 (2020!), which is better than the 163% that it would have reached had nothing been done. This is mostly because 40% of Greek debt is held by public and quasi-public institutions, which will be taking no haircut, but partially because Greece has to borrow 30 billion euros from the EFSF to finance guarantees of the new bonds issued to those who “agree” to take the 50% haircut, which seems curiously circular. At any rate, Greece probably cannot sustain debt levels of 120% of GDP, and won’t even get there for eight years or so. Another default thus looms.

--The proposed recapitalization of the Eurobanks is turning out to be a non-event. A 9% Tier 1 capital ratio, at least as interpreted by this deal, will require most of the banks to perhaps reduce a few dividends (or maybe just postpone a few dividend increases), cut a few bonuses (perhaps the point of the exercise), and adjust a few bad loans provisions. Will this be enough? One supposes so if the Eurogovernments and Eurocrats insist on riding to the rescue every time these financial Olympians make another of their series of boneheaded decisions.

Nothing I have said so far is new; you’ve probably read of the above deficiencies of the plan. What caught my eye, however, were two quotes from two Euroestimables that perfectly sum up the problem with the “grand plan.” The first is from Greek Prime Minister George Papandreou:

“Tens of billions of euros have been lifted from the backs of the Greek people. The banks, rather than the citizens, will pay that cost. It is a more just distribution of the burden of our debt.”

Is it just me, or is Mr. Papandreou gloating over the perception that he has just pulled something over on everyone, that he has made his creditors suffer (justifiably; you will find no arguments from yours truly over making people pay for their mistakes, but it seems like in this deal the Eurotaxpayers, rather than the banks, will ultimately pick up much of the tab), and done so as a matter of some skewed perception of economic justice? The implied message is that the party is not over; Greece can continue to party on someone else’s dime, as it has since the founding of the modern Greek state after World War I.

The second quote comes from Bundesbank president Bundesbank President Jens Weidman:

“There can’t be any impression that the haircut or public aid from partner countries is a comfortable way out of self-inflicted problems.”

The problem is not so much that these two estimables are saying two different things. The problem is that Mr. Papandreou is correct; the Greeks have escaped a bullet courtesy of the German, Finnish, Czech, French, etc. taxpayers. Mr. Weidman, who is no fool, is lying to himself. This bailout, even if it works, is indeed a comfortable way out of self-inflicted problems. So it follows, as does the night the day, that we will witness more self-inflicted problems, and not only in Greece.

YOURS TRULY’S APPEARANCE ON “WOMEN ON THE MOVE”

2011-10-28T07:50:00.000-07:00

10/28/11

Wednesday night (i.e., 10/26/11) I appeared on “The Round Table,” an internet program that is one of the projects of Women on the Move, an organization run by my friend Leslie Harris. Other than my, for some odd reason, stating that the tenure of Richard M. Daley’s mayoralty was from 1989 to 2007 (or maybe I said 2009 or 2006; in any case, I did not, in one of my most salient brain cramps, say 2011), it was a great show in which we discussed the connections between Chicago politics and national politics. (The show is a national one, with my co-participants being stationed in south Florida, Washington, D.C., and Chicago.) The link to the show is

http://www.blogtalkradio.com/women-on-the-move/2011/10/26/women-on-the-move-presents-the-round-table

The program lasted an hour and a half, but you can listen to it in segments if you are so inclined.

Thanks.

"I’M GOIN’ TO (MICHIGAN) CITY, (MICHIGAN) CITY HERE I COME…"

2011-10-27T08:03:00.000-07:00

10/27/11

I will be on Brian Brophy’s program on WIMS, AM 1420, Michigan City on Thursday, 10/27 just after the 8:00 PM (Chicago time) national news.

http://www.wimsradio.com/

We’ll be discussing national politics, Chicago politics and the latest attempt by Hollywood to portray the way things are done in the world’s greatest city, the Starz series “Boss.” See my 10/21/11 post …AND MAYBE THEY COULD HAVE COME UP WITH A MORE ORIGINAL NAME, TOO.

Thanks; I hope you can join us.

JUST GIVE MY CHECK TO THE GUY OUT THERE STARING THROUGH THE WINDOW AT THE REMAINS OF THAT SUMPTUOUS MEAL I JUST FINISHED

2011-10-26T15:49:00.000-07:00

10/26/11

Today’s Wall Street Journal reports that European banks are negotiating with “euro-zone officials” over the size of the hit those banks will have to take on their Greek debt. So we are confronted with a situation in which those who are being bailed out are arguing with those who will bail them out over the size of the largesse of the latter. The financial sophisticates who run these banks are essentially saying that they don’t want to take too large a hit as a consequence of their very poor investment decisions; instead, they want the taxpayers to take the hit for them. No talk about any of those bankers suffering any consequences for those decisions that will ultimately put shareholders, but more saliently taxpayers, at risk. No, sir. These guys are smart, even when they make bad decisions, like loading up on the debt of a country that has been nearly transparently bankrupt for years, if not decades, and therefore deserve not only their jaw dropping compensation packages but also to have the hoi-polloi European taxpayers clean up the messes these masters of the universe leave after uttering the word “Whoops.”

The strange thing is that this utterly nonsensical set of circumstances was arrived at following a series of utterly logical steps, at least steps taken since those banks loaded up on the toxic assets that are somehow necessitating a bailout. The bankers know that if they take too big a hit on Greek debt, they will become at least regulatorily, if that is a word, and maybe actually insolvent. If that happens, the danger to the world financial system, of which these institutions are a lynchpin, will be sufficiently immediate and large that European (and, who knows, perhaps American and Asian) taxpayers will have to bail them out. So the taxpayers have been put in a position in a “pay me now or pay me later,” in which the “pay me later” option will, presumably, be far more expensive than the “pay me now” option. The banks have the taxpayers by the short hairs, and the banks know it.

The average person looks at this situation, sees its utter insanity, and thinks something like “Gee, it must be nice to be put in a position from which you can whine to those who are giving you a handout that the handout isn’t big enough, and do so with the desired results.” Yet, given the current rules, or lack thereof, of the world financial system, this is the rabbit hole into which we have fallen.

Unless…

Couldn’t we go back to a receivership situation, following something like the template that prevailed when we on these shores had to rescue the depositors in the S&Ls whose all-wise, all knowing executives bet recklessly, in some cases criminally, on grossly inflated real estate and junk bonds of questionable, in some cases fraudulent, credit quality? The government simply took over the banks, paid off the depositors, and sold off what assets they could. The animal spirits took over and the damage was limited to the point of being forgotten in a few years.

Yes, we are talking about institutions of a vastly different magnitude here. And we are no longer dealing only with satisfying the claims of depositors but also those of a myriad of counterparties. But something like the S&L model has to be put in place in order to make sure, or at least make a little more probable, that those who put the world financial system in such a state, and the shareholders and bondholders that looked the other way while they did so, suffer some of the consequences. Depositors could be paid and some counterparties could be made whole while others would also have to pay the piper. The system would stay up and running, and perhaps people will be more wary of excessive risk in the future.

We have to do something to make sure that it is made absolutely clear that the current system of socialized risks and privatized rewards no longer prevails. If not, we will continue to be confronted with situations in which the overly compensated and overrated miscreants can, with a straight face, demand that those whom they, in most circumstance, deem unworthy even of existence, pay for the mistakes of those who are certain that they have everything figured out. Such a situation is not only unjust but also will surely break us financially if allowed to continue.

MORE FINANCIAL HAIR OF THE DOG

2011-10-25T12:32:00.000-07:00

10/25/11

Yesterday’s Wall Street Journal featured a page A1 story about the latest scheme concocted by the Bush/Obama administration to somehow revivify our moribund economy by facilitating refinancing of severely underwater mortgages. This latest brainstorm involves, essentially, expanding the existing HARP program to borrowers whose mortgage loans exceed the previous HARP limit of 125% of the value of the home that serves as collateral. Under this newest piece of Washington sleight-of-hand, banks will be able to refinance people, without fear that Fannie and Freddie will force those lenders to buy back the loans due to underwriting flaws, whose home loans exceed 125% of their home value if those borrowers can prove they have a job or an adequate source of passive income and that they have made their last six mortgage payment. One of the on time but upside down borrowers who stands to benefit from this program is quoted in the Journal as describing the program as a “win-win.” But this program, like most things that the Bush/Obama administration and other Washington denizens have come up with to “solve” our economic problems, is more like a “lose-lose.”

One of the problems with these easy refinancing programs was cited by Professor Anthony Sanders of George Mason University, who is quoted in the Journal article as saying

“Somebody’s going to get hit. This isn’t a free good.”

What Dr. Sanders was arguing was a point I brought up in my 9/6/11 piece “EXCUSE ME, SANDY, BUT IF I KILL ALL THE GOLFERS, THEY’RE GONNA LOCK ME UP AND THROW AWAY THE KEY”, i.e., that there is another side to this trade, the holders of the mortgage loans, that will lose from early refinancing of their asset that is paying an above market interest rate. But as the Journal reported,

“That doesn’t faze (one of the beneficiaries of such a program). ‘We’ve certainly done enough to prop the banks up. These are loans that everyone knew could prepay.’”

There are at least two things wrong with that statement. First, while it is certainly fashionable, and in some (but not nearly as many as is popularly believed) cases justifiable, to bash the banks, as I said in the aforementioned 9/6/11 piece,

One must have to assume that the mortgages are held by those evil banks to think that refinancing will be the elixir that its proponents would have us believe it will be. But the despicable banks’ holding the lion’s share of this paper is highly unlikely; these mortgages have been packaged into mortgage backed securities (“MBS”s) that serve as the collateral for collateralized mortgage obligations (“CMO”s). These CMOs are held by a whole range of investors either directly or, more likely, indirectly through mutual funds, pension funds, hedge funds, or any number of investment vehicles more or less widely available to individual and institutional investors. When the mortgages are refinanced, these investors must accept even lower yields on their investments. These are people who spend money, or invest money, too; will not their reduced incomes have an impact on the economy?

Second, “everyone knew” these loans could prepay? Well, then, why didn’t they? If “everyone knew,” and, presumably, still knows, that these loans could prepay, why are the taxpayers being asked to subsidize refinancing? But this is something of a digression. The major point is that, like any other trade, a refinancing involves two parties; one wins, another loses. This is true even if one does not like the party that loses, but, in this case, the party that loses may be at least as meritorious, financially, economically, and ethically, as the party that wins. This is not a win-win trade.

Besides the holders’ of the mortgage paper being, er, disadvantaged courtesy of the taxpayers, there is another problem with this particular easy refinancing scheme. While the current standard Republican wisdom that the financial “crisis” from which we are supposedly emerging was the exclusive fault of government intervention in the mortgage markets is overstated and self-serving, such intervention was without a doubt one of the causes of the financial problems our nation, and the world, experienced. In the interest of promoting “putting people into their own homes,” a cause for which George W. Bush was at least as dewy-eyed and sweat browed as Barney Frank, Fannie and Freddie, along with other organs of the government, put the taxpayer on the hook for some very questionable loans. (Yes, I know that Fannie and Freddie were not technically organs of the government and that their guarantees were not guarantees of the U.S. Treasury. How did it turn out, though? That’s right; the implicit guarantee turned out to be quite explicit and the taxpayers were left holding the bag for the Bush/Frank experiment in social engineering.) This was a part, but only part, of the problem.

So what does the Bush/Obama administration propose as a solution to a problem that had part of its genesis in the government guaranteeing shaky loans? Having the government guarantee more shaky loans. One might argue these won’t be shaky loans, but it’s hard to argue that having a job and making one’s mortgage payments for the last six months makes one a stellar borrower. Furthermore, one of the reasons mortgage loans are the most advantageous loans the typical borrower will find in his lifetime, besides the government’s long history of putting its thumb on the scale in favor of "home ownership," is that such loans, properly underwritten, provide the lender with plenty of security, in the form of its mortgage on the underlying property, in the event something goes wrong. The loan, underwritten properly, is well secured. But under the latest Bush/Obama scheme, these loans will not be well secured; the collateral will be worth less, in some cases, far less, than the loan. When I was first being trained in banking, we were forbidden from calling such poorly collateralized loans “secured.” We called them “supported.” But that was a long time ago at a bank (the old National Bank of Detroit) that had a reputation for carefully looking out for the interests of its depositors and shareholders. Such quaint notions are increasingly non-existent now that the sophisticates have taken over the world of finance. But I digress. I don’t know if such terminology is in place in today’s brave new financial world, but, if it were, we would call such loans not “secured,” but “supported,” if indeed we could give them that much credit.

The Bush/Obama administration’s attempting to solve a problem partially born of the government backing lousy loans by having the government back more lousy loans is not at all unusual. In the wake of this crisis, caused not so much by a collapse in housing as by too much spending and too much debt, the braintrusts in both Washington and on Wall Street, broadly defined, have counseled solving the problem by, you guessed it, encouraging people to spend and borrow more. Such is that state of financial, economic, and political thinking today.

…AND MAYBE THEY COULD HAVE COME UP WITH A MORE ORIGINAL NAME, TOO.

2011-10-21T21:59:00.000-07:00

10/21/11

For the last several weeks, there has been much talk around town of the new Starz series “Boss,” which features Kelsey Grammer as the fictional Mayor Tom Kane of Chicago. As you might guess, people have been asking me about the series for obvious reasons. So it was with great eagerness that I awaited the premier episode of “Boss” and thus the opportunity to say something at least halfway insightful about the production. While I cannot pretend to be entirely objective in my observations, I certainly approach the series with some degree of knowledge about the purported subject matter and an appreciation for a good story well told.

The most salient and overriding observation about “Boss” is that it is hopelessly and, more importantly, needlessly over the top. The annals of Chicago politics contain enough true stories that are entertaining, compelling, and thought provoking. We don’t need to make up silly stuff like

--the mayor and his daughter buying drugs either on the street from shady dealers or in run down, pathetic drug houses or what we used to call “shooting galleries”,

--aldermanic henchmen cutting off people’s ears and the cuttee delivering the product of such butchery (The thugs gave him his ears severed back as a souvenir? Really?) to the mayor at a formal dinner, with the mayor then flushing said ears down his garbage disposal, which breaks in the process,

--the mayor’s key aide looking and dressing like she just walked off the pages of Penthouse magazine, which was gratuitous enough without said appearance making one of its consequences as predictable as a Chicago mayoral election involving an incumbent named Daley,

--the mayor physically beating up an alderman in his office (Admittedly, give the incumbent enough time in office and such behavior may not be all that far-fetched.),

--an anonymous mayoral operative administering temporarily disabling drugs to the mayor’s personal physician whom, incidentally, the mayor manages to visit in an old slaughterhouse without the city’s press crew ever noticing,

--completely closing a City Council meeting to the press to the point of seizing all of the aldermen’s personal communications devices, and

--perhaps most preposterously, a substantial bloc of opposition aldermen in the City Council.

Stories of our great city’s politics don’t need such off the charts silliness. The real stories imbedded in Chicago’s political history are sufficiently interesting, entertaining, hilarious in some instances and tragicomic in others that we don’t need to make up story lines that could have been lifted from any number of the banalities that dominate television in this country. That is why my books, The Chairman and The Chairman’s Challenge, though they are works of fiction, are based on the real stories behind, and the real history of, Chicago politics. With very few exceptions, every story that makes up the tapestries of those books is based, with varying degrees of tightness, on a true story.

So what did I like about “Boss”?

--Mayor Tom Kane’s City Hall roof top oration on Mayor Anton Cermak, the founder, if you will, of the Chicago Democratic Machine, was pretty much on the mark, though Grammer’s character underestimated Pushcart Tony’s charisma; lines like “I admit I didn’t come over on the Mayflower, but I got here as soon as I could” didn’t emanate from a stiff. The camera effect (i.e., the replacement of the city’s current skyline with the skyline as it may have appeared in 1931) was stunning and helped the Cermak oration make its point with eloquence and almost eerie effectiveness. But even this high point of the show was diminished by the realization that a deal involving the betrayal of a sitting governor would never take place on the roof of City Hall. Such a meeting might take place in the back room of a restaurant in Mt. Greenwood or Bridgeport, but not on the roof of City Hall and not in a discussion directly between the two principals involved.

--Grammer is a great actor. His facial expressions as he was told the bad news at the very beginning of the story were a masterpiece, immediately dispelling any doubt that the man can carry a dramatic role with even more aplomb than he so adroitly handled his former comedic roles. He is spectacular, if a bit over the top, in keeping with the general tone of the series, in the role of Tom Kane. Perhaps he’d like to play a far better role, that of Eamon DeValera Collins. But I digress.

--The city of Chicago looked great, as it always does. But it would be nice if the people in Hollywood (I know the series was shot at the old Ryerson Steel facility, located, perhaps ironically, around Cermak and Rockwell, not in Hollywood. But I speak here of "Hollywood” as an industry, much like one speaks of “Wall Street” not as a physical location but as an industry.) would realize that there is more to Chicago than downtown, the generic ghetto, and the generic yuppieville that are depicted as the three facets of Chicago in any movie or television show attempting to depict the world’s greatest city.

I will doubtless watch “Boss” again because it was entertaining, at least for an hour. I fear, however, that it will ultimately prove about as compelling as the last show about Chicago that was such a flop I can’t even remember its name. Maybe you can help me: It centered on a tough, bad boy cop partnered with a rookie and reporting to a young, beautiful woman police commissioner who was fighting a corrupt mayor who in turn was battling a corrupt black alderman who was consorting with an Irish street gang. The show, whatever its name was, lasted about four episodes and the above description of it explains why. The show was supposed to be about Chicago’s unique political culture but instead was a boring assortment of banausic story lines that could have fit in any of the shows that pass for dramas on network television. I hope the same thing doesn’t happen to “Boss,” but I fear my hopes may be misplaced. Then again, I’ve only seen one episode, but the snippets of next week’s episode that followed tonight’s did not offer much promise that “Boss” will indeed be different from the tawdry yawners that comprise so much of today’s television, network or otherwise. “Boss” is no “Sopranos,” at least as far as I can tell from tonight’s episode.

What would be different would be a screen version of The Chairman and/or The Chairman’s Challenge. Such a production would be far more interesting, thought provoking, and, most important from Hollywood’s perspective, entertaining than what “Boss,” at least so far, seems to be. And a film version of one or both of my books would provide the viewer with a window to the reality of Chicago politics, to the way things really work around here, a story so compelling that it needs no added nonsensical fluff to provide the “wow” factor seemingly so necessary in today’s media world.

HEY, SOMEBODY HAS TO RUN THE PUBLIC TRANSIT SYSTEM IN TRIPOLI

2011-10-21T07:53:00.000-07:00

10/21/11

Today’s Wall Street Journal is filled with articles about the demise of one Colonel Gadhafi, as are most papers, and some of the articles have, mirabile dictu, diverted from the usual ingenuous, dewy-eyed jubilation regarding this particular Middle Eastern madman’s demise to make such sober comments as

He leaves a nation torn by war, devoid of civic institutions, and difficult to govern

which was penned by Richard Boudreaux in his Journal news piece. This is going to be a long, hard slog not only for the Libyan people but also for the United States and the rest of the West, and let’s hope the Libyan action does not become some kind of template for further involvement of our country in conflicts which we cannot afford, in which we have no direct interest, and that will surely drain us of blood and treasure at a point in history in which our inability to afford either is especially acute.

But enough serious commentary on the demise of the crazed Colonel. Take a look at the largest picture on page A8 of today’s (i.e., Friday, 10/21/11’s) Wall Street Journal, the picture in which the late lout looks a lot like Lon Chaney, Jr. just before he turns into the Wolfman. (I have included a link at the end of this post that should take you right to the picture. Given how this system works, however, you’ll probably have to paste it onto your browser.) In the bottom left of that picture is a smaller black and white picture that, apparently, the beastly Bedouin is holding or is somehow attached to his vainglorious uniform. Who is that standing on the far right side (as you look at it) of the group of Gadhafi acolytes depicted in the picture? Is that Ralph Kramden?

http://online.wsj.com/article/SB10001424052970203752604576643061691909524.html?mod=ITP_pageone_3

“I’LL MAKE (HER) AN OFFER SHE CAN’T REFUSE.”

2011-10-18T14:07:00.000-07:00

10/18/11

This morning, I heard a New York Times columnist on Bloomberg News (Satellite radio, by the way, might be the best invention since White Castle, but I digress.) expounding on his column in which he broached the possibility of Hillary Clinton’s becoming President Obama’s running mate in 2012. I went to the Times website (I don’t subscribe to the paper; there are only so many hours in the day and we already subscribe to four other papers.) but could not find the columnist’s article. Being in the car when hearing the report and obviously not being able to write anything down (Unlike many other drivers, I drive when I drive, but I again digress.), I didn’t even get the reporter’s name.

Note that in my 10/4/11 post, JERSEY BOY, I concluded with

Should Mr. Romney win the nomination, and should Mr. Obama, as is highly likely but not certain (See my 9/16/11 post “I WILL NOT SEEK, NOR WILL I ACCEPT, THE NOMINATION OF MY PARTY…”), be his party’s nominee, Mr. Romney will face a president with maybe $1 billion, David Axelrod, and perhaps a very interesting and appealing running mate. The latter is grist for a later mill. But, for now, suffice to say this will be no cakewalk for the Republicans.

Apparently, this unnamed reporter for the Times has forced my hand and brought his particular mill, hungry for grist, right to my front doorstep. I do wish I could read his column, rather than rely on the writer’s comments on Bloomberg. If any of you know who the writer is, and perhaps what day this column was published, please let me know so I can read it. The good news is that I am not reacting to the article but rather expounding on a topic I have wanted to visit since well before the aforementioned 10/4/11 post.

While I don’t like to make predictions, at least explicitly so, I would go further than the writer of the aforementioned column, who took pains to point out that he isn’t saying that it is likely that Hillary Clinton will be on the Democratic ticket. I will go as far, but no further, to say that the chances are very good, and getting better with each poll that shows weakening support for President Obama, that Mrs. Clinton will be the Dem’s second fiddle in 2012. The advantages for the Democratic ticket are numerous. As I said in the above quote from my 10/4/11 post, the Democrats go into 2012 with more strength than many, and most on the right, think, but this will still be a very tough election for the incumbent for all the obvious reasons: tough economy, budget catastrophe, tough economy, continuing wars of which Americans have grown very tired, tough economy, a disappointed base, tough economy, growing unpopularity among those in the middle, tough economy, etc., etc., etc. Mrs. Clinton’s presence on the ticket can’t help but be a tremendous shot in the arm for a number of reasons:

--Recent polls have shown Secretary of State Clinton to be among the most admired of currently practicing politician.

--Mrs. Clinton has done an admirable job as Secretary of State, at least from a conventional, centrist perspective, given the tough assignment running Foggy Bottom has been of late.

--She was immensely popular among her Senatorial constituents in New York and, given her performance in the Senate, understandably so.

--Many Democrats doubtless wish they had supported her, rather than the inexperienced young community organizer who purported to be from Chicago, in the race for the Democratic nomination in 2008.

--Even those of us who were among her most vociferous critics have come to, if not admire Mrs. Clinton, at least grudgingly give her credit for doing a good job in her public offices and being a very skilled politician.

--There is, understandably, a great deal of well warranted nostalgia for the Clinton era, with which she can’t help but be associated. The peace and prosperity that characterized that era stand in stark contrast to the dystopia that has characterized the Bush/Obama era, and the stature of Bill Clinton grows each day, especially when contrasted with the, to put it charitably, two clownish poseurs and insufferable lightweights who followed him in the Oval Office.

--As hard as it is for someone on my end of the political spectrum (I know, I know…Which end is that? I’m not even sure myself, but I know it isn’t Hillary’s end.), Hillary Clinton would make an outstanding president should she find herself in that office. One of a president’s, and/or presidential candidate’s, first obligations is to pick a running mate who would be a good president. Further, failure to do so can be disastrous for a candidacy for either an incumbent or non-incumbent. Ask John McCain or George H.W. Bush.

--The gender factor, as much as some overly sensitive types would like to argue otherwise, would a huge consideration. Mrs. Clinton’s presence on the ticket would energize plenty of women voters, and many men voters who want to be perceived, for whatever reason, as doing their part for the advancement of women. In a close election, this could certainly make the difference.

The better question is one my sister-in-law asked the other night when I was making the Hillary for veep argument: What is in it for Hillary? This is, as are all better questions, tougher to answer, but I see a few things that would make Hillary want to run with Mr. Obama:

--This is her last chance to get close to the big prize that she has yearned for, and fruitlessly sought, since her husband left office. Being on the upcoming ticket immediately sets her up, win or lose in 2012, as the front runner for 2016, a year in which she will be 69 years old, the same age as Ronald Reagan in 1980 (Can you believe it? Tempus fugit!), and thus facing her last chance at the brass ring.

--The job of Secretary of State has become increasingly thankless and will become more so as President Obama, should he be reelected, continues to follow his predecessor (and, at least in foreign affairs, some might legitimately believe, his mentor or idol) in further bollixing up America’s role in the world. No one who is Secretary of State will go into 2016 looking strong or smart.

--Hillary is a very smart and capable woman and is closely advised by the smartest and most capable politician of the modern era. The Clintons will doubtless cut some kind of very attractive deal, both over and under the table, as part of Hillary’s agreeing to go on the ticket. If she runs and if the Democrats win, she will be the most involved and powerful vice-president in history. Similarly, should she want the job (See below.), the Clintons have already made it politically impossible for Mr. Obama to replace Joe Biden with anyone but Hillary Clinton.

--The President will doubtless appeal to Mrs. Clinton’s patriotism and party loyalty in making his pitch. One doubts that Secretary Clinton will fail to respond favorably to those appeals; she loves her country and her party.

What about Joe Biden? He will be just short of seventy on Election Day, 2012, not too old to be Vice-President or President, but close. He will certainly be old enough to leave the office with dignity and with nothing like the appearance of being dumped. Further, while he has done a more than passable job as VP and is quite popular, he was considered in 2008 in many quarters to be a one-termer, a more experienced hand to contrast with the ingénue at the top of the ticket and to provide the public with reassurance that there would be an adult around to guide the youngster through his first term. Mr. Biden’s leaving will be no problem for him, for the Party, or for the country, or for even those who like and admire Mr. Biden. There is talk of a job swap, in which Hillary goes on the ticket and Joe goes to Foggy Bottom. That could happen, and might be very logical given Mr. Biden’s foreign policy expertise, but such a swap would not be necessary to get Mr. Biden to step aside.

Yes, I know Hillary Clinton says she wants out of politics after the 2012 election, that she will not serve as Secretary of State in a second Obama term and that she does not want to be on the ticket, though she has left a little wiggle room on the latter. But a politician will say anything, and Mrs. Clinton is nothing if not a politician, and a very good and conventional one at that. The woman’s life has been defined by a burning, unceasing, and, at least regarding the top job, unrequited desire for power. She can say all she wants about teaching and writing, but they will never satisfy her. She wants to be President, and being vice-president is a great way to become president, especially for someone with the political skills of Hillary Rodham Clinton.

“…ALL HE LEFT US WAS ALONE…”

2011-10-14T13:31:00.000-07:00

10/14/11

Earlier this week, Mayor Rahm Emanuel formally revealed his previously well leaked budget to the press. (See my 10/13/11 piece, A SPECIAL PICKUP, for some background on one aspect of the budget.) Despite all the, in most cases, justifiable talk of change in Chicago under Mayor Emanuel, at least one thing hasn’t changed around this town: The City Council will rubber stamp this budget, continuing the time-honored Chicago tradition of bleating obediently like the lambs that they are when the mayor, be his name Daley or Emanuel, demands whatever he feels necessary, or just desirable. But I digress.

The Mayor, citing the desperate budget situation his predecessor and sponsor bequeathed him, has proposed increases in water and sewer fees, “congestion fees” on downtown parking, increased city sticker fees for politically disapproved vehicles, and all manner of methods of reaching into the taxpayers’ already nearly empty pockets. Fair enough; the city has, even using the phony-baloney accounting most public entities use, a projected $600mm plus shortfall this fiscal year, and closing a yawning gap of that size will require some tax (er, sorry, fee) increases. However, in announcing these various stickups of the taxpayers, the Mayor nearly simultaneously announced a variety of uses for the money. For example, some of the revenue from the “congestion fees” will be used for a new Green Line station on Cermak Road and for express buses linking our commuter rail stations with north Michigan Avenue. Some of the money from the increased water and sewer charges will be used to dramatically pick up the pace on replacing and refurbishing water pipe and sewers. Such spending is designed to mollify taxpayers, showing them that they are actually getting something for the increased spondulicks they are forking over to the Mayor and his sycophants in the city bureaucracy and Council.

A non-politician, however, might ask how we are going to address the city’s budget problems if we are spending the new revenue generated on new projects, even spending on seemingly worthy projects. We were told we had to come up with more money because Mayor Daley (er, sorry, the woeful state of the national economy, to hear Mr. Daley tell it) left the city in such a fiscal pickle. But now we are being told that the extra money will be used to give us things like better water (Chicago water is already the best in the world, by the way.) and new and better el stops. So what gives?

Doubtless Mayor Emanuel, and his budget, says that only a portion of the increased fees will go to various improvements in the infrastructure and that most, or at least a substantial chunk, of the revenue will go to balancing the budget. But one would hope that the citizenry is not sufficiently naïve to think that things will work out as planned. Here in Chicago, or anywhere, for that matter, public spending projects almost never come in at or under budget; consider, for example, Millennium Park.

Yes, yes, I know; Mayor Emanuel is Superman, so the media tell us, and the days of cost overruns, etc., are over. Okay; let’s concede for a moment that Uber-Manager can keep these projects at or under cost. The new Green Line Station is projected to cost $50mm ($50mm!!!!! Wow! Must be a nice station, but I digress.) and the downtown express bus system is projected to cost $30mm. The “congestion fee” is supposed to bring in $28mm. Suppose a modern day version of the conversion of water into wine takes place and these numbers turn out to be right. Those two projects will account for nearly three years of revenue from the tax (sorry, fee) that’s supposed to finance them. And, yes, as a former bond guy, I understand that we are only supposed to look to the congestion fee to service the bonds necessary to pay for the aforementioned improvements and only a portion of the $28mm will be necessary for debt service. Still, we are not talking small dollars here and such a financing method involves piling more debt on an already indebted city. Yes, yes, I know, it’s capital improvement debt, not operating debt, and therefore it’s good debt. Right.

Any way you look at it, much of the new money raised by the Emanuel fees will go toward new spending, not to pay the bills Mr. Emanuel’s political Godfather has already left us. In a sense, Mr. Emanuel may be following much more closely in his sponsor’s footsteps than the new Mayor would have us believe, leaving us with plenty of debt to service, debt used to finance projects the main objective of which is to assure his continuation in office. Only, in Mr. Emanuel’s case, the ultimate objective may not be remaining in his current office but burnishing his image to the point at which he can seek higher office…and be safely out of town before the bills come due.

A SPECIAL PICK UP

2011-10-13T06:47:00.001-07:00

10/13/11

Today’s (i.e., Thursday, 10/13/11’s) Wall Street Journal featured a page A1 article entitled “Chicago Mayor Trashes Politics of Waste Removal.” The article describes Mayor Rahm Emanuel’s efforts to make Chicago city government more efficient (See, for background, my 7/30/11 post RAHM EMANUEL IS NOT TOM DEMPSEY.) and focuses on the Mayor’s attempts to change the byzantine ward by ward system of garbage pickup in the world’s greatest city.

http://online.wsj.com/article/SB10001424052970203476804576612851452362670.html?mod=ITP_pageone_0

The article delves into what it implies is the archaic ward system around which delivery of city services must work. The article quotes the Mayor as saying

“The days of having trash pickup by political design only are over. It’s a culture and a mindset …of 50 years.”

Fifty years? Mayor Emanuel, having grown up in the suburbs, being a young man himself, and only becoming interested in city government and politics when the Big Job was opened up for him, perhaps doesn’t realize that the “culture and mindset” that govern how our fair city works go back a heck of a lot more than fifty years. In his defense, though, he is clearly a quick study, a good manager, and an impatient, in a good sense, man and is, so far at least, doing a great job with our city, especially for someone who parachuted in from Washington. But I digress.

My main point is that such articles, and, to a lesser extent, such television shows as the upcoming Starz series “Boss,” whet people’s interest in Chicago politics and the way things really work around here. For those who want to satisfy this curiosity, I recommend my two books, The Chairman, A Novel of Big City Politics and its sequel, The Chairman’s Challenge, A Continuing Novel of Big City Politics. Both books use the story of Eamon DeValera Collins, a fictional old time ward heeler, to weave stories from the annals of the politics of our town into a compelling, entertaining narrative that leaves the reader with a clear sense of the way Chicago operates and an acute ability to put the hagiography of Rahm Emanuel that passes for coverage of our city in its proper context.

Both books are available at Amazon.com, various other online book sellers, and at a number of independent book stores throughout the Chicago area, most prominently Anderson’s in Naperville and Bookies’ on 103rd and Artesian in West Beverly, one of the neighborhoods that comprise Chicago’s 19th Ward.

“HUMP? WHAT HUMP?”

2011-10-12T15:10:00.001-07:00

10/12/11

My overriding reaction to last night’s GOP debate on Bloomberg TV is the same as my reaction to the previous such affairs, perhaps going back long before this campaign season, to wit: we are dealing with a group of carnival barkers and hucksters with a few sincere, accomplished people thrown in presumably for contrast with the people who actually have a chance at the nomination in the crazy politics of latter day America.

A few specific points are worth making as well. First, for years, GOP debates have substituted group worship of Ronald Reagan for serious debate on the issues. Reagan was a decent, though vastly overrated, president, and avoiding offending anyone by getting all slobbery about the man is probably not quite as harmful as falling back on the usual pabulum that is the stuff of political “debate,” but this practice, which goes back perhaps 24 years, was getting ridiculous. Fortunately, the trend of late has been to ever so slightly tiptoe away from non-stop idolization of Reagan. However…

Has anyone but I noticed that Rick Perry has gone beyond verbally figuratively affixing his lips to Mr. Reagan’s hindquarters and has graduated to trying to look like the man? Notice the way Mr. Perry stands, with his head cocked at an angle resembling that which so endeared people to Ronnie. Take a look at Perry’s hairstyle, best defined as Reagan Brylcream, and the “above it all” grin cribbed from the nonchalant (probably excessively so) Ronald Wilson Reagan. Note these things during the next debate and tell me I’m wrong.

Second, the key moment of the debate came when Herman Cain cited Alan Greenspan as the Fed Chairman to whom he would like his selection for that post be most similar. Ron Paul’s eyes rolled. Rick Santorum, the master of substituting parroting Limbaughesque talking points for anything resembling creative thought, immediately flashed an ear to ear grin, sensing blood in the water. Even Mitt Romney, the Party’s ultimate nominee unless something goes very wrong, saw a huge gaffe in Mr. Cain’s statement. I said to my wife “He didn’t say that, did he?” But he did; Mr. Cain expressed admiration for Alan Greenspan.

Loyal readers will remember that, way before it was popular to criticize Dr. Greenspan, in fact, back when everyone in the business world and the press, financial and otherwise, was treating Greenspan with the reverence that potential GOP nominees reserve for Ronald Reagan, yours truly was referring to Alan Greenspan as the most overrated individual in the history of the world. (With the Kennedy clan in contention, that is quite a statement, but I digress.) Now that the scales have fallen from the eyes of lesser thinkers and they have joined me in assigning a large measure of the blame for our financial morass to the Mad Doctor, one would think that Herman Cain, a man of formidable substance and achievement, would be able to read the signs of the times with enough aplomb, and/or know enough economics, to realize that Greenspan was an unmitigated disaster and that citing him as one’s favorite is no way to get elected to anything. This was very disappointing to those of us who have long liked Herman Cain and are warming to the idea of his becoming the GOP standard-bearer, even if such an outcome is, to put it mildly, remote.

“THIS IS A FINE MESS YOU’VE GOTTEN US INTO…”

2011-10-08T09:58:00.001-07:00

10/8/11

This weekend’s (i.e., Saturday/Sunday, 10/8, 10/9’s, page A8) Wall Street Journal reports that former CIA chief and current Defense Secretary Leon Panetta, speaking at a Naval Air Station in southern Italy, chided early critics of NATO and U.S. (As if the two were distinguishable; see my 3/28/11 post IT’S NOT A CHICK FLICK; IT’S A ROMANTIC COMEDY.) conduct during the Libyan conflict, saying, inter alia

“There were an awful lot of questions about the mission overall and I think the critics have really been proven wrong.”

and that the 4,000 sorties western planes flew have given the Libyan people “some degree of hope,” elaborating

“They (the Libyan people) are going to have a chance, as a result of what (western militaries) did, to hopefully establish a democracy for the future.”

On the very same page, in the continuation of a page A1 story, we learn that, as the headline says, “Discord Increasingly Riddles Factions in Chaotic Tripoli.” It seems that the freedom fighters so beloved by the likes of Mr. Panetta, John McCain, and Barack Obama, are breaking into factions to see who will become the 21st century version of the Colonel they overthrew. The factions are split between regions (e.g., eastern Libya and Tripoli) and within neighborhoods in Tripoli. The factions are composed of former Gadhafi loyalist, idealistic democrats, regional xenophobes, Islamists, and dictators in the wings. Fighting is breaking out between these factions and, while others will tell you otherwise, it is probably just a matter of time between something like civil war, though the media won’t use that term, will break out in Libya. None of this is surprising, certainly not to readers of the Pontificator; see, among others, the aforementioned 3/28/11 post, my 4/23/11 post DOG BITES MAN, my 8/22/11 post I HOPE MICHELE BACHMANN WASN’T COUNTING ON LIBYA TO GET OIL TO $2, and my 10/8/11 post THICK AS A BRIC?

Yet Mr. Panetta and his colleagues in both parties whose first loyalty seems to be to the American imperial impulse and the defense contractors that impulse keeps wealthy insist that the NATO campaign that fostered the utter chaos that Libya is on the verge of becoming was a rousing success and that those of us who questioned it have been “proven wrong.” Simply amazing.

Optimism, always overrated, is sometimes okay in very measured doses unless it is blind optimism, based on nothing but good feelings and/or gormless, baseless admonitions to “be optimistic,” that leads one to do silly things. Among those silly things is destablilizing entire regions of the globe in response to such ephemeral impulses as “giving people some degree of hope,” because one likes the sounds of such increasingly meaningless words as “democracy,” or because one is enamored of the innocence of youth and so somehow believes that naiveté can somehow, this time, trump the wisdom of the ages.

JERSEY BOY

2011-10-04T14:26:00.000-07:00

10/4/11

Chris Christie announced today that he will not be running for president in 2012. By doing so, he increased my, and doubtless countless others’, respect for the man. He said he wouldn’t run and, instead of pulling a cutesy-pie Hamlet act, of the type to which we have become sickeningly accustomed, to draw attention to a campaign on which he intended to embark on all along, stuck by his decision not to run. Even more noble is the primary reason he gave for his reason not to run, to wit

"The deciding factor was that it did not feel right to me, in my gut, to leave (the job of governor of New Jersey) now, when the job isn't finished."

A politician actually wanting to do the job for which the taxpayers pay him rather than use it as a mere stepping stone to the next opportunity at more intense self-aggrandizement? The hell you say! See my 9/5/11 post WE WANT OUR MONEY BACK!

Given my realistic (Some mistakenly call it “cynical.”) attitude toward those who hold and seek public office, I was prepared to have Governor Christie go back on his earlier pronouncements, sincere or otherwise, and decide that he would indeed run for President in 2012. That Mr. Christie has failed to meet my expectations in this regard makes him even more honorable in my, and doubtless countless others’, opinion. Does this mean I will support him should he run in four or eight years down the line? Not yet; I’d have to take a hard look at his policies, especially his foreign policy, before I would support him for President. But at this stage at least, Governor Christie appears to be that most rare of species, a politician who says what he means and means what he says.

This also means that the Republican field is more or less set. While the prospect of a Herman Cain presidency excites yours truly (again, subject to a careful review of his foreign policy; it always pays to be leery of any Republican’s foreign policy, given most of the Party’s tendency to equate any close examination of the “defense” budget with treason), it is quite clear that, while anything could happen and I don’t like to make predictions, Mitt Romney will be the GOP nominee. This, of course, comes as no surprise to my regular readers. See my 7/19/11 post MICHELE AND SARAH, MAKE ROOM FOR THE FAT LADY.

Should Mr. Romney win the nomination, and should Mr. Obama, as is highly likely but not certain (See my 9/16/11 post “I WILL NOT SEEK, NOR WILL I ACCEPT, THE NOMINATION OF MY PARTY…”), be his party’s nominee, Mr. Romney will face a president with maybe $1 billion, David Axelrod, and perhaps a very interesting and appealing running mate. The latter is grist for a later mill. But, for now, suffice to say this will be no cakewalk for the Republicans.

IN LIFE THERE ARE NO GUARANTEES…UNLESS YOU’RE PALS WITH POLITICIANS

2011-10-04T12:13:00.000-07:00

10/4/11

One of the big stories, and clubs with which the GOP will beat President Obama over the head in the upcoming presidential campaign, is the Solyndra deal. As readers doubtless know, Solyndra is a solar panel company, controlled by a non-profit run by an ardent, financial and otherwise, supporter of the President, that received a $500mm loan guarantee and then went bankrupt, sticking the taxpayers with substantial, though not yet quantified, losses. This could be quite a political club if the taxpayers were paying attention, but the case involves a lot of detail, and asking an American public addled with the likes of “Dancing with the Stars” and “American Idol” to pay the slightest attention to any detail is a non-starter, but I digress.

Charges are flying that the Solyndra guarantee was hurried, despite several warning flags of impending financial doom, in order to enable the Obama White House to “…secure a policy or political victory,” as Representative Cliff Sterns, R. Fla., put it. There is even talk, and not unsubstantiated talk, that review of the project was hurried in order to enable Vice-President Biden to announce the guarantee on a planned trip to a Solyndra facility. In effect, the due diligence was timed to fit the announcement rather than the announcement’s being timed to accommodate the due diligence. Such a backasswards approach makes no sense in the real world in which people actually invest their own, or their shareholders’, money but makes perfect sense in the bizzaro world of modern politics, in which pols invest your money for their benefit but, again, I digress.

That Solyndra crashed, burned, and took your money with it is no surprise. The history of industrial policy, i.e., of government picking winners and losers, is a decidedly mixed one at best. There probably is nothing incredibly profound to say about the wider aspects of this sorry, but not atypical, case. What is enlightening, or at least a bit surprising, is the response of the Democrats to charges that the decision to grant Solyndra a $500mm loan guarantee was motivated by Solyndra’s being controlled by George Kaiser Family Foundation, whose eponymous sponsor is a second generation oil man, a first generation banker, and a big time financial backer of President Obama’s excursions of self-aggrandizement. A memo drafted by Democratic congressional staffers and sent to Democratic members of the House Energy and Commerce Committee, which is investigating Solyndra, states that newly released e-mails expressing concern in the Obama Administration about Solyndra’s viability and the ramifications of a Solyndra bankruptcy for (of course, the major concern for any pol) President Obama’s re-election chances

“…do not contain evidence that government decisions relating to Solyndra were influenced by considerations relating to campaign donations.”

You don’t say! No one actually wrote down that the Solyndra guarantee had to go through as a favor to a hefty contributor! What a surprise!

Surely if the guarantee to Solyndra were a political favor to George Kaiser, no one, certainly no one in a White House run by, at the time, Rahm Emanuel and David Axelrod, would be foolish enough to write that down anywhere. Such a deal would be done with winks, nods, and, if need be, very circumspect conversations of which no records were kept.

The Democratic defense to the Solyndra cesspool, i.e., that there is no e-mail evidence that Solyndra was a political gift to George Kaiser, is surely one of the most fatuous, or the most disingenuous (Yours truly suspects the latter.), defenses ever attempted of a political fiasco.

SCHMIDT HITS THE PHONE

2011-09-30T12:38:00.000-07:00

9/30/11

The salacious news on the local political scene over the last few weeks involved one State Senator Suzi Schmidt (R., Lake Villa). Why we should take anyone who insists, at the age of 60, on being called, for professional reasons, by the name of a little girl is another question, but I digress. It has apparently come out that, in a series of 911 calls made last December during what can charitably be called heated arguments with her husband, Bob Schmidt, Suzi Schmidt suggested that the 911 operator ignore any calls from her husband because, first, the situation was under control, and, second, she was a big time (in her own mind) political operator. The 911 operator rebuffed Mrs. Schmidt’s attempts at bullying her, pointing out that she, or any 911 operator, could not ignore any 911 call.

In the course of the calls, which were made in response to physical confrontation between the Senator and her husband, Bob Schmidt’s being locked out of the house on a cold Christmas day, and Suzi allegedly ramming her Cadillac (The woman does have great taste in cars; I’ll give her that much.) into her husband’s vehicle, we hear screaming, shouting and audible manifestations of all manner of incivility. The Senator attributes her manifest rage on her husband’s infidelity (One wonders why on earth a guy would stray when he has such a sweetheart for a wife, but I digress and, by doing so in this instance, will probably get myself into a great deal of trouble with much of my readership.) and suggests too much was made of the whole thing because, after all, she was, and is, going through a difficult personal time. I’ll say.

The most salient portions of the 911 calls were Senator Schmidt’s pointing out that she formerly was Chairman of the Lake County Board and that her husband was afraid of her because “he knows I have connections.” I suppose that could be one reason her husband is afraid of her, but, again, I digress. Clearly, the Senator somehow feels that, because she is, in her mind anyway, some kind of big time political muckety-muck, she deserves, and demands, obsequious obeisance from the hoi polloi, the salt of the earth public employees, who, like the 911 operator, actually work for a living, perform their stressful jobs on a daily basis, and do their best to protect us from the criminals and the crazies. Those of the mindset manifested by Senator Schmidt feel that those lowly genuine public servants who are on the front lines of the truly indispensable government functions owe their livelihoods to the beneficence of those who have make their livings lapping at the public trough and primping and preening for the cameras.

Before I get too condemnatory of Suzi Schmidt, I should point out that she differs, if at all, from many of her colleagues only in degree. How many of her colleagues in “public life” would not also attempt to use their clout to circumvent the rules they mandate for the rest of us? Remember, we only hear of such incidents when intrepid public employees stand up to the pols who are trying to intimidate them. How many times do less valiant public employees, probably wisely, simply yield to the demands of those who actually could have their jobs in this clout infested, overly politicized, state? Why should we be surprised at the likes of Suzi Schmidt’s trying to muscle a public employee by citing her “connections” and her former job as Lake County Board Chairman? People like Suzi Schmidt who, again, is by no means unique among those who seek self-aggrandizement through public office for a living, consider themselves a governing class, an Olympian pantheon who do us a favor by deigning to condescend to us and dispense their superior insight as to how we should live.

Note the responses of the profiles in courage who inhabit the Lake County Republican Party to Mrs. Schmidt’s self-inflicted travails. State Representative JoAnn Osmond (R., Antioch), who apparently has some trouble with English sentence structure, whimpered

“It’s just hurting so bad to loser her if that’s (resigning or deciding not to stand for reelection) her (Schmidt’s) choice. She’s upset. She never meant it the way it’s coming out…I’m praying something happens that she’ll stay.”

No, Suzi Schmidt didn’t mean to sound like a pompous popinjay; she just thought the 911 operator’s next question would be her profession, so Mrs. Schmidt generously pointed that she is a former Lake County Board Chairman who has “connections.”

And how about the reaction of Bob Cook, chairman of the Lake County Republican Party, who doubtless polished the apple while stating

“She didn’t threaten the operator. She didn’t try to make any kind of deal or press the issue. We’re talking about a two-minute phone call over 15 years in politics, helping people, doing the right thing, and being there.”

Mr. Cook didn’t point out that among those “right thing”s that Mrs. Schmidt did was to play ball with Mr. Cook. And the Senator didn’t try to “to make any kind of deal or press the issue”? Suzi Schmidt simply, and plainly, implied to the 911 operator that she knew people who could have her fired. Nothing coercive about that, no sir.

Given that Suzi Schmidt is surrounded by such sycophants, perhaps one can understand why she has such a high opinion of herself.

The only thing that can mitigate the arrogance of office that Suzi Schmidt so manifestly displayed in her conduct with the 911 operator would be term limits so that the self-styled governing class would somehow change their “We’re the barons, you’re the peasants, so fill our cups and make it snappy” attitude. Ms. Schmidt was only in her first term in the Senate, so limits would not purge this parasite quickly enough. But they might have prevented her from sticking around the Lake County Board long enough to assume that we are all desperately in need of her superior insights regarding how we ought to live our lives and that she was thus compelled to share her manifest wisdom and goodness with the entire state of Illinois.

MINISTRY OF PUTTING THINGS ON TOP OF OTHER THINGS?

2011-09-28T13:37:00.000-07:00

9/28/11

Chicago Inspector General Joe Ferguson made some headlines yesterday by proposing a legion of ideas for saving the city some money. Most of the attention was garnered by a handful of proposals that will go nowhere, including a city income tax, a commuter tax, and tolls on Lake Shore Drive. In the almost immediate wake of the release of Mr. Ferguson’s report, Mayor Emanuel stated

“…as I have said from the beginning, raising property taxes, income taxes or the sales tax is off the table. Asking drivers on Lake Shore Drive to pay a toll is also a nonstarter.”

The Mayor’s artful, perhaps deliberately vague, use of the term “income tax” is interesting; there seems to be room in the use of that particular term for consideration of a commuter tax. But a commuter tax is going nowhere because such a tax would have to be approved by the Illinois General Assembly, where nobody outside the city of Chicago has any incentive to pass such an abomination. Even if the Mayor is, or gets, behind a tax, even his legendary arm-twisting skills won’t get legislators from what the late Mayor Daley referred to as “the country towns” (i.e., any town or city in the state of Illinois other than Chicago, including such bucolic burgs as Blue Island, Berwyn, and Calumet City) to tax their own residents to support the city of Chicago. Even with the Mayor’s gargantuan ego, he has to be smart enough to know that. Mr. Emanuel also is smart enough to know, or at least I hope he is smart enough to know, that such a tax would be economically deleterious at best and disastrous at worst for the city. All the city’s major employers need, especially at this point, is more incentive to move operations to, say, Oakbrook, Naperville, Dallas, or Shanghai. Note further that the IG’s report supported the argument for a commuter tax by pointing out, with a straight face, that Detroit, Cleveland, and Philadelphia impose such a tax. One would hope that toward Cleveland, Detroit, or Philadelphia is not the direction in which either Mr. Ferguson or Mr. Emanuel would like us to go. Note, however, that there is no evidence, only speculation based on careful dissection of his words, to indicate that Mr. Emanuel would back such a tax, so it’s probably a non-starter even before the legislature gets its hands on it.

What got yours truly’s attention in the articles on the Inspector General’s report was Mr. Ferguson’s proposal to save $190mm by eliminating supervisory personnel in the Police and Fire Departments. To support this idea, the report stated that there are 3.58 supervisors for every rank and file employee in the Fire Department and 8 supervisors for every employee in the Police Department. Yes, I, too, had to look at those numbers again. Those ratios can’t be right, can they? Someone should look at the definition of “supervisor” and “employee” used to conjure up that report because these numbers elicit images of 8 guys standing around with clipboards watching one guy work, and that simply cannot be the case. Alderman Pat O’Connor, the Mayor’s floor leader, stated

“If those figures are correct and if those folks just supervise and don’t have other duties, he (Mr. Ferguson) may be on to something.”

I agree that IF those figures are correct, Joe Ferguson may be on to something. But, as my dad used to say, figures don’t lie, but liars figure. Someone has to take a closer look at those supervisor/employee ratios.

THICK AS A BRIC?

2011-09-27T15:07:00.000-07:00

9/27/11

While the world was focusing on developments in the European Union’s efforts to punish German, Finnish, and Dutch frugality and reward Greek, Portuguese, Spanish, and Italian profligacy and call the result progress (Who am I kidding? The world wasn’t focused on developments in Europe; the world, or at least most observers in the United States, was focused on the latest lurid developments in the lives of its favorite celebrities, but even I can be hopeful once in awhile.), yours truly noticed two international stories that deserve perhaps not as much attention as the eurocrats’ efforts to destroy the last vestiges of fiscal sanity in the western world but that still merit our consideration.

First, the countries that are supporting Syrian President Bashar-Al-Assad in his efforts to suppress his population are, according to today’s (i.e., Tuesday, 9/27, page A8) Wall Street Journal are Brazil, Russia, Indian, China, and South Africa. Yes, that’s right, the BRICS, the countries that are the rising stars in the financial world and the countries that the Europeans are increasingly hoping to play the next sucker who will bail out the dying democracies on the continent’s southern periphery. What this seems to mean, especially since Russia and China have vetoes in the UN Security Council, is that Mr. Assad’s rule is not in serious jeopardy and probably will remain in place for the foreseeable future. No one, not Europe, which is looking to the BRICS to pay its bills, nor the United States, which owes over $1.3 trillion to China alone, is in a position to bully the BRICS into tossing their ally under the bus.

One can assume a position of high dudgeon and say how terrible it is that a brutal dictator will remain in place because the West has, by means of its own profligacy, squandered its ability to influence world affairs. But before one condemns the BRICS stance, and the Western inability to influence it, one must consider the long forgotten virtue of non-intervention in the affairs of other countries. Yes, Assad is a monster, but does that mean that the United State, the West, or the “international community” has a responsibility to overthrow him? Is it our job to overthrow all the world’s bad guys? Don’t be too quick to answer that question, especially since the BRICS, at least, seem to notice what a raging success the “Arab Spring” has been in such places as Egypt (Loyal readers could see this anarchy, or full circle back to dictatorship, coming while the consanguineous American press was gushing over the noble actions of the “young Egyptian protestors” who had nary a clue as to how the world works; see the following posts:

8/2/11 PERHAPS ALL WE NEED IS A LITTLE RE-EDUCATION
1/28/11 YOU BREAK IT YOU BOUGHT IT…
1/29/11 “…HE’S AN EGYPTIAN…” ???
2/3/11 AFTER ALL THESE CENTURIES, THE EGYPTIANS STILL HAVE SOMETHING TO TEACH US, Parts I and II)

and Libya. See my 8/22/11 post I HOPE MICHELE BACHMANN WASN’T COUNTING ON LIBYA TO GET OIL TO $2.

Further, the BRICS are dependent, to varying degrees, on oil and thus are dependent on Middle Eastern stability. So are we, but we seem to place a higher priority on the dewy-eyed, ingenuous pursuit of “democracy” in the Middle East.

The second recent foreign policy item that yours truly deemed significant was reported in today’s (Tuesday, 9/27’s) Wall Street Journal in an article entitled “Japan, Philippines Seek Tighter Ties to Counter China.” Despite all the whoop-whoop in which the War Party (Republicans like John McCain, Rick Santorum, and, especially, Lindsey Graham and anyone else of either party that draws an effective paycheck from the defense industry) is engaged, what is happening in the South China Sea is quite simple. The Chinese are asserting what they consider their territorial rights, the prerogative of any power, great or small. China’s neighbors, including Japan, the Philippines, South Korea, Vietnam, Indonesia, Brunei, etc. are defending what they consider their territorial rights, which, again, is the prerogative of any power, great or small. This is the way the world should work, and the United States, rather than try to conjure up another bad guy in order to feed our military-industrial complex, should just let these neighbors work it out in whatever way they see fit. This will, of course, never happen; we badly need a bogeyman in this country, and it looks like China has already been fitted with the jacket. See, inter alia, my 8/24/11 post “EGAD…IT’S LON CHANEY, JR.!”

THE GAME THAT TIES YOU UP IN KNOTS

2011-09-19T08:54:00.000-07:00

9/19/11

Much of the Fed talk last week and, presumably, this week, centers around an old policy, last implemented by the Bill Martin Fed in the early ‘60s, that the Bernanke Fed apparently is dusting off as part of its ongoing “What the heck; that didn’t work, so let’s try something else that won’t work” approach to monetary policy. This policy, known as the “twist,” after the Chubby Checker hit that was so popular at the time of its first implementation, essentially amounts to the Fed’s selling its short term treasury and other holdings, or, more likely, letting them run off, and then using the proceeds to buy longer maturity, perhaps stretching to the ten year area, treasuries. The idea is to force down long rates and flatten the yield curve, thus further depriving banks of profit opportunities, but I digress on that last point. The thinking, to the extent it exists, behind this policy is that lower long rates will encourage borrowing, spending, and investing and thus help spur the recent financial equivalent of the Flying Dutchman, an economic recovery.

Much of the conversation surrounding this particular twist revolves around its efficacy; i.e., will it work? It probably won’t; this economy suffers from many maladies, but onerously high interest rates anywhere along the curve, and a steep yield curve, isn’t one of them, or two of them, I suppose. But efficacy shouldn’t be the focus here; advisability should be the focus. Should the Fed be manipulating the yield curve, or should it be manipulating the yield curve beyond the normal influence it exerts on the curve through it customary open market operations? Those of us who believe in markets would answer with a resounding “No!” One of the great, and perhaps underrated, contributions of western thought is that markets, whether for kumquats, personal computers, automobiles, or interest rates, work in dispensing resources and applying capital. The workings of the market have done more to advance the living standards of the great mass of people than could ever be calculated. The problem many people, especially political people masquerading as financial people, have with markets is that markets don’t often work the way these self-styled masters of the universe would like them to work. So they begin to make exceptions, to wit, “Yes, markets work for XXXX, but they don’t work for YYYY, and therefore we must help the market for YYYY by freely applying our solonic wisdom in order to foster the efficiency of the market for YYYY.” One of our problems is not, as some of these Olympians apparently perceive, that rates are too high but, rather, that the list of things one could insert for YYYY in the last sentence never stops growing and has come to include a growing list of financial assets, most saliently interest bearing, and interest benchmarking, assets. If we want to get out of this mess, the place to start, one would suppose, is to get out of the way the poseurs at the Fed, in the Congress and the Administration, and in the alphabet soup of agencies that has bred its own class of people who are overly impressed with themselves and determined to inflict outcomes on the rest of us and let the market do its job, perhaps most especially in the area of interest rates. Yes, the results may be messy and they may be painful, but they are necessary if a true solution to our economic maladies is to emerge. Delaying market solution at best serves to prolong the extreme discomfort in the interest of avoiding a short term agony.

One can imagine, however, making the above argument to Obsequious Ben and the Washingtonians or any of their fellow travelers in the financial bureaucracies that hold sway in places like Washington, London, and Brussels. To do so would be very much akin to having the following conversation: (I only used BAC because it has been very much in the news of late; I could have used any stock, financial or otherwise.)

Master of the Universe: "Do you think the Fed (or some financial super authority populated by Harvard grads) should set the price of Bank of America (BAC) at $7.00?"

Sensible Person: "Have you taken leave of your senses?"

Master of the Universe: "So you think we should set BAC at $8.00?"

They just don’t get it and, despite their protestations to the contrary, they don’t trust the markets. And who can blame them? The markets are not delivering the outcomes these wunderkinds have determined are the correct outcomes.

“I WILL NOT SEEK, NOR WILL I ACCEPT, THE NOMINATION OF MY PARTY…”

2011-09-16T09:14:00.000-07:00

9/16/11

Like many people, ideas, great or otherwise, tend to come to me while I am showering. One wonders why the shower is such fertile ground for mental mastication, but that is another issue. At any rate, the other morning, a question occurred to me while taking an uncharacteristically hot (in order to battle the bug with which I have been struggling this week) shower: Could President Obama pull a Johnson and drop out of the race for the presidency in 2012?

No, I don’t think this will happen; the idea of a modern politician having the scruples, and concern for his country, of even as despicable a character as LBJ is ludicrous. The only thing that matters to our hyper-narcissistic, even relative to the likes of Johnson, modern political class is the self, and Mr. Obama is no exception to this rule. But the idea is interesting to consider. The economy may be the President’s Vietnam, an intractable problem resistant to any solution the president is willing to try, an unrelenting source of misery best left to somebody else. Some say that Johnson left the 1968 race because he knew he could not win, but that was certainly not the case; his announcement came in the wake of his having won the New Hampshire primary, albeit to the unelectable Gene McCarthy, but not having won by a sufficiently substantial margin to convince him that winning the nomination would be a slam dunk and thus would not divide his party. There is little question, though, that, had he stuck it out, LBJ would have been the nominee of his Party and, given the hair’s breadth margin by which Richard Nixon beat the eventual Democratic nominee, LBJ’s vice-president Hubert Humphrey, it seems entirely plausible, if perhaps not likely, that LBJ would have been reelected. LBJ just decided, apparently, that it just wasn’t worth dividing the country to win reelection or, more likely, he was sick and tired of it and if all these other people wanted his job so badly they could have it.

One obvious part of the Lyndon Johnson/Barack Obama parallelism is primary opposition…but maybe not. Barack Obama will not get serious, if any, opposition in the primaries if for no other reasons that, first, it is getting late and, second, any serious opponent risks alienating, to put it mildly, black voters and thus winding up with at best a pyrrhic victory for the nomination and no (zero) chance of winning the general election. But those of us who were around in 1968 remember that Gene McCarthy was very much a fringe candidate in 1968, a gadfly backed by a handful of rich guys who backed him for, mirabile dictu, almost purely ideological reasons. Senator McCarthy had no chance of becoming president, as is clearly evidenced by the sudden influx of legitimate contenders (Hubert Humphrey, Bobby Kennedy, and, later, even George McGovern) after LBJ dropped out. So even a similarly, though amplified, quixotic candidacy by a Dennis Kucinich type character from the fringes that manages to come close enough to scare the President could result in a 1968 redux.

Could, but probably won’t. But those of us who like the horse race aspects of politics like to play with perhaps implausible scenarios.

“I’LL GLADLY PAY YOU TOMORROW FOR A HAMBURGER TODAY.”

2011-09-09T11:54:00.002-07:00

9/9/11

Just a few weeks ago, all the talk among the Washington punditry and “public service” community was of cutting spending, getting the budget under control, and reducing deficits. The Republicans, to their credit, used the crude and curious tool of the debt limit to forge something of a plan to address the profligacy that has characterized Washington for just about as long as anyone can remember but that has become especially acute since the Bush/Obama administration came to power in 2000. Yes, sir, we were told, we were going to change our evil, spendthrift ways; if we didn’t the country was going to go broke.

So what happened last night? President Obama proposed $447 billion in new spending in order to “get America back to work,” or some such nonsense. Yes, I know more than half of that pile was composed of reductions in the payroll tax, but a targeted tax reduction is little more than a spending cut in disguise. But let’s assume that those cuts in payroll taxes are genuine tax cuts; then the spending increases amount to “only” $202 billion. And even those tax cuts add to the deficit that we were told will drive us to poor house. The President assured us, however, that the deficit reduction committee, charged with finding an additional $1.2 trillion in deficit reduction (See my 8/2/11 post HAVE YOU NO SENSE OF SMELL, SIR?), which so far has met only once and has found $0 (zero) of deficit reductions will be instructed, or at least encouraged, to find another $447 billion or so in future cuts to negate the long run fiscal consequences of the spending spree he is proposing for the present.

Speaking of that phony baloney deficit reduction panel, one of its member, Senator John Kyl a Republican who nominally represents Arizona but in reality represents the military industrial complex about which perhaps the greatest president of many of our lifetimes, Dwight Eisenhower, warned us, has said he will quit the panel if it proposes further reductions in “defense” spending. Senator Kyl thus takes 22% of the budget off the table, and that’s before addressing any of the entitlements that are the real fiscal time bomb. Good luck with that deficit reduction thing, esteemed panel members.

The general silliness taking place in Washington merely reinforces a point that I have been making for years but made especially vociferously over lunch with a trusted friend and confidante earlier this week: The poltroons that we have sent to Washington cannot possibly operate in an environment that requires penuriousness with the public purse. The politicasters who populate the city on the banks of the Potomac see their role in life as giving your money to people who can propel them on the flight of self-aggrandizement that characterizes their existence; i.e., they are using your money to buy power and perpetual panegyrics for themselves. Saving money would involve denying such larder to the people who can make their dreams of fulfilling their dual narcissistic/messianic dreams come true. Does that make any sense to them, especially since it isn’t their money? So why should they make any effort to save your money? Even these dolts can see the pointlessness, indeed, the counterproductivity, of such pursuits.

FISCAL LAPDOGGERY IN THE LAND OF LINCOLN

2011-09-09T11:54:00.001-07:00

9/9/11

So Illinois Governor Pat Quinn (no relation), in a naked attempt to have the legislature come up with more money for him to spend on his various friends and constituencies, proposes closing seven mental health, disability, and juvenile justice facilities, thus giving 1,938 state workers their pink slips while disingenuously bleating that the closures are all the fault of the evil legislature that refuses to give him everything he wants, even when he roles around on the floor, stomps his feet, and holds his breath until he turns blue.

A legislature, and a state GOP, with even a modicum of courage, would have called the Governor’s bluff and said something like “Great, Governor. Good to see you doing something to get this budget under control before the Land of Lincoln goes the financial way of Bangladesh. We’ll see you those reductions and raise you another several hundred million dollars.”

But, of course, our lily-livered GOP did nothing of the sort. Whining that, of the seven facilities to be closed, six are in Republican districts, they argue AGAINST the spending cuts, putting the small government GOP in the curious position of opposing the admittedly disingenuous attempts at frugality by the biggest spending governor in our history.

I don’t know if closing these facilities was the best way to cut the budget. Further, I strongly suspect that the facilities slated for closure were selected for political, rather than humanitarian, or hard-headed budgetary, reasons; everything Governor Quinn does, he does for political reasons, making him not at all unique among most politicians, and certainly most politicians in Illinois. Finally, I know, or at least strongly suspect, that Governor Quinn (no relation) has no intention of really shutting these facilities down. But these are cuts to the budget that the Republicans and, not incidentally, Speaker Mike Madigan, profess to want so much to cut. So why not quickly ratify these closures while proposing more? Not only would the budget be cut but the Governor’s bluff would be called, putting him in a very uncomfortable position politically.

By whining about actual cuts proposed by a governor who sees expanding omniscient government to the point of omnipotence, the GOP in this case is adding even more credibility (as if more credibility were needed!) to the arguments of those of us who see the Republicans for the hypocritical frauds that they are, piously professing their opposition to the growth of government while always working to preserve and expand government spending and even government interference in people’s lives, when, on its face, such government involvement can line their pockets of those of the people who finance their phantasmic flights of fancy.

BUT MAYBE THEY’LL COME SO THEY CAN COMPETE ON AMERICAN IDOL!!!

2011-09-08T15:04:00.002-07:00

9/8/11

The 9/8/11 edition of the Chicago Sun-Times contains an article on page 3 headlined

“What do rich in China want most? A way out of the country.”

It appears that, as the Sun-Times reports

Among the 20,000 Chinese with at least 100 million yuan ($15 million) in individual investment assts, 27% have already emigrated and 47% are considering it…”

The destination of first choice is, of course, the United States. Last year, nearly 68,000 Chinese born people became legal permanent residents of our country. When asked why he chose to emigrate to the U.S., one Chinese millionaire gave an interesting, if obvious, answer:

“In China, nothing belongs to you. Like buying a house. You buy it but it will belong to the country 70 years later. But abroad, if you buy a house, it belongs to you forever.”

If people with the work ethic and the moxie necessary to accumulate $15mm in investable assets in China want to come to the United States and apply their considerable talents here, things may not be as gloomy here as yours truly has long supposed.

Probably, though, things are indeed as gloomy as yours truly had thought and our future as an economy and as a society remains as dark as ever, despite our being, for a few years anyway, the beacon that draws the talented and dedicated from throughout the world. Why? We’ll manage to eliminate the aspects of American society that make us so attractive to potential immigrants, thus extinguishing the beacon that denotes the shining city on a hill, either in the name of “national security,” if the Republicans are in charge, in the pursuit of “economic justice” if the Democrats are in charge, or just as a result of the decay that accompanies an indifferent, inattentive society consumed with tawdry silliness.

We remain doomed.

“REBRANDING” THE PATHETICOS

2011-09-08T15:04:00.001-07:00

9/8/11

The following is a small portion of dialog from the presidential debate of the Republican Party, the party of small, limited government and free enterprise:

Rick Perry: “Michael Dukakis created jobs faster than you did, Mitt.”
Mitt Romney: “Well, as a matter of fact, George Bush and his predecessors created jobs at a faster rate than you did, Governor.”

Most people thought this was a snappy comeback on Romney’s part. Yours truly was appalled. The two leading contenders for the presidential nomination of the party that never stops trumpeting its fealty to free enterprise argue about which GOVERNOR, which POLITICIAN, created more jobs?

It is businesses, big, small, and medium, and their investors, that create jobs, not the politicians. One would think that one would not have to explain that to the party of free enterprise but, alas, that would require believing that these carnival barkers actually believe what they say.

“…IF I WERE A WEALTHY MAN…”

2011-09-07T12:47:00.000-07:00

9/7/11

This morning’s (i.e., Wednesday, 9/7/11’s) Wall Street Journal featured, on page A1, one of those seminal articles that every sentient individual should read. This one was entitled “Debt Hobbles Older Americans,” and was written by E.S. Browning. The article continues the closest thing to a continual theme this blog has had since its inception, i.e., that Americans (and, apparently, plenty of southern Europeans) have spent themselves into such a hole out of a sense of entitlement to a lifestyle they could not even imagine affording that we have no hope of continuing as a going economic and societal concern. Our society is doomed and there is no hope, at least in this world. And it’s (almost) all our own fault. Like spoiled children, we have eaten through all the seed corn left us by the sacrifices and hard work of prior generations and then, still not having satisfied our “just gotta have it because I deserve it and I need to rub my neighbors’ faces in it” attitude, we borrowed even more and then decided we didn’t want to repay the debt we had accumulated because, after all, we are the most wonderful generation in history and we deserve to have other people finance the lifestyles we pursue to fill the spiritual, emotional, and psychological holes in our lives created by the very pursuit of those lifestyles. It’s an ever accelerating downward spiral that will never be arrested; America is doomed. Well, perhaps E.S. Browning would not put it in those words, but any sensible person would come up with the above interpretation of the data, but I digress.

The article contains a parade of statistics that confirm the dire description of the last paragraph, including:

--39% of households with heads aged 60 through 64 had primary mortgages in 2010, up from 22% in 1994.

--20% of households with heads aged 60 through 64 had secondary mortgages in 2010, up from 12% in 1994 (and note that we were not exactly a frugal bunch in 1994, either)

--Americans of all ages owed $11.4 trillion on 6/30/11. While we congratulate ourselves on that number’s being down 15% from 2007, largely due to defaults (i.e., stiffing our creditors), that $11.4 trillion is more than twice what Americans owed in 1999, adjusted for inflation and population.

--The median amount of mortgage debt for households with heads aged 62 through 69 was $71,000 in 2007, FIVE TIMES the 1987 inflation adjusted median.

…and on and on.

Lest we wonder why we got ourselves into such an unfixable fix, the story contained the tale of a couple in their 50s who insist that, despite their financial problems, they simply MUST continue to live in Glencoe (For those of you not in the Chicago area, Glencoe is about as expensive a town as there is in these parts.) in order to provide stability for her son (his stepson). Apparently, such stability can ONLY be provided in Glencoe. Who knew that my wife and I were subjecting our kids to such brutal instability by living in vertiginous Naperville? And those of you who live in, say, Wheaton, Winnetka, Beverly, Palos, Oak Forest, Downers Grove, Archer Heights, Oak Lawn, Evergreen Park, Glenview, etc.…you ought to be ashamed to call yourself parents. But I digress.

Besides the main theme of the article, something else caught my eye. (I am writing this section more for my Investments classes than for general consumption, but even those of you who are not taking one of my classes should find this portion of the post enlightening and entertaining.) A financial planner named Greg Heller of the eponymous Heller Capital Resources in Los Angeles is quoted in the article as saying

“We have gotten into this ‘debt’s okay’ mentality and it is going to be very hard to get out of it.”

Mr. Heller is to be commended for such an astute diagnosis of the problem. However…

The article goes on to report that Mr. Heller says he has wealthy clients in their 50s with financial problems.

Hmm…

I don’t know if Mr. Heller used the word “wealthy” of if the author used that word. I certainly hope it wasn’t Mr. Heller, who advertises that he is a financial planner. If one is “wealthy,” then, by definition, or at least by correct definition, he or she cannot have financial problems. One’s wealth is defined, financially, as one’s assets minus one’s liabilities. It is a balance sheet concept. If one is “wealthy,” then one has great wealth; i.e., s/he owns more than he owes, by a large amount, and thus cannot have financial difficulties, other than, perhaps, a temporary liquidity problem, and temporary liquidity problems were not the subject of the Journal article.

If the article, or Mr. Heller, is defining “wealthy” as “having a high income,” as most of our politicians, whose financial knowledge would be laughable if it weren’t for their complete lack of appreciation for their own ignorance, then, yes, financial problems are surely possible for high income earners; indeed, such problems seem to be likely for high income earners in today’s world. But then the definition of “wealthy” would be wrong; income is an income statement concept while wealth is a balance sheet concept.

If the article, or Mr. Heller, is defining wealthy as “having lots of useless, silly, worthless, pointless geegaws and gimcracks,” another popular definition of wealth, then the article, or Mr. Heller, is simply wrong on all counts. Having accumulated a lot of vestigial garbage on credit does not make one wealthy; it makes one poor and defines one as silly, if not outright stupid. The inherently futile attempt to convince others, and ourselves, that we are wealthy by displaying the supposed trappings of wealth has contributed mightily to the economic dystopia into which we have descended.

Hopefully, Mr. Heller did not use the term “wealthy” in describing some of his clients with financial problems; we have enough charlatans who pose as “financial planners,” (Note my post of long ago in which I commented on Patti Blagojevich’s aspirations to become a financial planner after having helped drive herself and Rod into the poor house.) and their presence is giving the (admittedly not many) good financial planners a bad name. Given Mr. Heller’s above observations on debt, I am betting he is not so mistaken…or at least I HOPE he is not so mistaken.

“EXCUSE ME, SANDY, BUT IF I KILL ALL THE GOLFERS, THEY’RE GONNA LOCK ME UP AND THROW AWAY THE KEY.”

2011-09-06T13:41:00.000-07:00

9/6/11

Today’s “The Outlook” section in the Wall Street Journal (9/6/11, page A2) reported on

“One idea that sounds easy enough: Stimulate consumer spending and stem further carnage in the housing market by allowing more homeowners to refinance.”

The article, just the latest edition of this argument, then goes on to outline some of the barriers to large scale refinancings, such as Fannie and Freddie’s “buy back” policy’s chilling effect on home lending, Fannie and Freddie’s higher fees on riskier buyers (i.e., the buyers who would comprise most of the refinancees under such a program), and the claims of second mortgagees. But the article concludes, as do most other article on this subject, that refinancing would be a terrific, painless way to give the economy a shot in the arm.

Excuse my ignorance on this issue, but I have a question: What about the incomes and purchasing power of the people who are currently receiving the payments on the mortgages that will be refinanced? When these loans are refinanced at lower rates, won’t these investors be receiving less income and thus have their potential spending (more on this later) impaired? Wholesale refinancing is not the financial equivalent of dumping pixie dust on the economy, anointing winners while creating on losers. Borrowers will win, lenders will lose.

One must have to assume that the mortgages are held by those evil banks to think that refinancing will be the elixir that its proponents would have us believe it will be. But the despicable banks’ holding the lion’s share of this paper is highly unlikely; these mortgages have been packaged into mortgage backed securities (“MBS”s) that serve as the collateral for collateralized mortgage obligations (“CMO”s). These CMOs are held by a whole range of investors either directly or, more likely, indirectly through mutual funds, pension funds, hedge funds, or any number of investment vehicles more or less widely available to individual and institutional investors. When the mortgages are refinanced, these investors must accept even lower yields on their investments. These are people who spend money, or invest money, too; will not their reduced incomes have an impact on the economy? To the extent that such investors are retirees living on their nest eggs, this latest impairment of incomes and purchasing power, coming on top of the virtual robbery of such fixed income investors being conducted by the Bush/Obama administration and its henchmen, Obsequious Ben and the Washingtonians, will be just another step toward having to survive on subsistence incomes.

Perhaps those who promote massive refinancings as an economic elixir are counting on all the paper into which these mortgages have been sliced and diced being held overseas, perhaps by our latest all purpose bete noir, those evil Chinese (See, inter alia, my 8/24/11 post, “EGAD…IT’S LON CHANEY, JR.!”) It is a logical supposition that some, perhaps a large chunk, of such paper is held overseas, but taking this supposition too far is dangerous given the traditional risk aversion of overseas public investors, especially, perhaps, Chinese and other Asian public investors. Further, the argument that refinancing will help the economy because those whose monthly payments are being reduced are more likely to spend the money than are those whose incomes are being reduced (The second supposition is dubious but maybe plausible if these investors are the domestic elderly or the domestic anybody and reasonable if the investors are overseas, at least as far as spending in this country goes.) rests on the very questionable proposition that the way to solve a problem born of too much spending and too much debt is to encourage more spending and more debt. Unfortunately, the Bush/Obama administration, Obsequious Ben and the Washingtonians, 99% of Congress, 95% of the punditry, maybe 90% of the economics profession, and, say, 85% of the “investment community” buys into such nonsense. So, one way or the other, we will see programs designed to foster massive refinancings of home mortgage loans in order to “put more money into the pockets of consumers.” Then we will wonder why no one wants to save money in this country.

WE WANT OUR MONEY BACK!

2011-09-05T09:36:00.001-07:00

9/5/11

Rick Perry is governor of Texas. He is also a candidate for president of the United States. How does one do both? We hear constantly from incumbent governors (and most stentorially and unceasingly from he who holds that job in the Land of Lincoln and is no relation to yours truly) how hard the job is, how it is more than a full time job, how the incumbent never gets time off, and other such blather. So how is Rick Perry, or any sitting governor who has ever run for president, suddenly able to find time in his grueling, demanding, never a day off schedule to run for president? Are the people of Texas getting a refund of at least part of Mr. Perry’s salary, for the portion of that salary attributable to the time during which he is on his flight of further self-aggrandizement rather than serving the people of Texas?

This is not, of course, a knock exclusively on Rick Perry; I am, at least at this juncture, neither hot nor cold on Mr. Perry’s candidacy. The same questions would apply to Chris Christie should he decide to throw his hat in the ring, an unlikely prospect. If my memory serves me effectively, Bill Clinton, who, in retrospect, and certainly by comparison to the two that followed him, was one of our great presidents, ran for the Oval Office while an incumbent governor. And I suppose the same logic applies to sitting Congresspersons (including Ron Paul and Michele Bachman) and senators (Though one wonders how tough getting one’s hindquarters kissed by shameless lobbyists and having various sycophants bow and scrape at your feet all day, approximately the job description of a member of Congress, can be. Surely one can take a break from the obsequiants to seek further self-glorification, but I digress.), at least as far as the taxpayers getting some kind of refund of their salaries. Come to think of it, a similar argument applies to presidents: if, as we hear, the president’s job is so grueling, how does he, whether Obama, Bush, Clinton, Bush I, Reagan, Carter, Ford, Nixon…. find so much time to prance around and tell us how wonderful he, and what a scoundrel his challenger, is? We should at least get some of our money back. Better yet, the incumbents should take at least a temporary, unpaid leave of absence and put the country, their states, or their seats in the hands of someone who wants to do the job rather than use it as a platform for seeking another one.

If one had a job in the private sector or the public sector doing actual work rather than the primping and preening that is involved in holding and seeking public office, one would not be able to suddenly take off a year or more to spread the gospel of one’s self and still get paid for the job one wouldn’t be doing. Why do our public servants get to do so?

And, for future reference…the same reasonable expectation of a leave of absence or at least a refund of salary while running for president would apply to a mayor seeking our nation’s most vainglorious office.

“HE’S EITHER IN ON IT OR HE’S AN IDIOT; EITHER WAY, I HAVE TO LET HIM GO.”

2011-09-04T10:01:00.001-07:00

9/4/11

We learned on Friday that the Federal Home Financing Agency (“FHFA”) is suing 17 of the world’s largest financial institutions on behalf of Fannie Mae and Freddie Mac, now wards of the state overseen by the FHFA. The basis of the lawsuits is that these financial institutions sold $196 billion of risky home loans to Fannie and Freddie without adequately disclosing the risks involved. The presumption behind these suits must be that the political hacks, lackeys, and toadies who constituted Fannie’s and Freddie’s management were mere babes in the woods, hornswoggled by crafty Wall Street types who preyed upon their ingenuousness at every turn. There may be something to at least the first section of that argument, but that is not the point of this post.

Though I haven’t heard or seen this assertion being made elsewhere, I am quite confident that I am not the first person who has made the following point:

The amounts we are talking about are staggering, even in these days of $1.3 trillion budget deficits and a surfeit of funny money designed to somehow jump start the productive engines of this country. For example, the suit involves $57.4 billion of loans from Bank of America, $33 billion from J.P. Morgan Chase, and $30.4 billion from RBS Securities, to name a few. The ultimate settlements of these suits, be it in cash or, more likely, in the form of these banks’ doing things that will mollify the bureaucrats and help in the reelection efforts of our public servants, such as, say, allowing people to stay in homes they couldn’t afford in the first place even under the best of conditions or giving foreclosed homes to people whose familiarity with their local Congressmen and the “political process” is far stronger than their familiarity with work, are likely to be large enough to devastate, or at least impair, the capital bases of these banks. And what will happen when these banks, their capitalizations weakened by the settlements demanded by the preening poltroons who govern us, get into trouble, as is likely in our weak and apparently deteriorating economy? You, Mr. and Mrs. Taxpayer, will bail them out. The government (you, really, or Obsequious Ben Bernanke and the Washingtonians) will provide the money to keep the banks afloat, a provision made necessary by the banks’ being forced to provide the government money, or, more likely, to provide money and services to those the political system favors. So what these suits will effectively amount to is either the government suing itself or the government transferring money to constituencies who would never have been able to tap the Treasury had their pleas been subject to the normal political process.

The government’s suing itself is thus either incredibly idiotic or incredibly Machiavellian. But what else is new?

“…HOW ABOUT IT, TOM…CAN YOU GET ME OUT OF THIS…FOR OLD TIME’S SAKE?”

2011-08-29T11:34:00.001-07:00

8/29/11

The big sub-story on the Greek bailout (at least until this morning’s announcement of the merger of Alpha Bank SA and EFG Eurobank Egrasias SA) was the insistence on the part of Finland that the Greek government put up cash collateral for Finland’s portion of the new debt being extended as part of the latest iteration of the Greek bailout.

This call for collateral by the Finns is causing consternation among the countries contributing to the financial package that is supposed to save Greece, though no one really believes that end will be achieved. If Finland gets cash collateral, the thinking goes, why shouldn’t everyone get collateral? And if everyone gets cash collateral, so much more financing will be needed that the overall deal will fall apart.

So how will this issue be resolved? Some are speculating that physical, as opposed to cash, collateral will be offered for the bailout lending; real estate, gold, state owned industries, etc. would be put up to secure the loans Greece will receive from its EU brethren. But the problems involved in offering physical collateral are myriad. Will the Greeks be amenable to such a deal? Aren’t some of those assets to be put up to secure the loan supposed to be sold as part of the overall restructuring of the Greek fisc? (I don’t think the latter objection is a worthy one for reasons that could be grist for another post.) What exactly will the lenders do to seize collateral should the Greek government default? What consequences would ensue from such efforts? And on and on and on.

I can’t get inside the heads of the Finns who are asking for collateral. But if I were to guess, what the Finns are really after is to be excused from the whole deal. One of the lessons one can derive from restructuring negotiations is that creditors can get more than they are legally entitled to if they make themselves a sufficiently large nuisance. While the analogy is not perfect, it looks to me like the Finns are making themselves a nuisance in order to get out of the Greek bailout deal. While Finland is among the most financially responsible countries in the Eurozone, the EU, and the world, for that matter (See my 4/14/11 post, “…’CAUSE I DON’T HAVE A WOODEN HEART…”), it is a small country that, due to its diminutive size, is expected to contribute only a miniscule portion of the lending facilities necessary, supposedly, to keep Greece afloat. Finland’s portion could easily be covered by, say, Germany or France. So the big countries in Europe may see it in their interest to just excuse Finland from any obligation to help bail out Greece rather than accommodate Finnish demands for cash collateral. Such an excusal, if that is a word, I am guessing, is exactly what Finland is seeking.

Sure, a move by Germany or France to pick up Finland’s tab for the Greek bailout would set a very bad precedent, but what action that the European Union has taken in response to the problems in Ireland, Greece, Portugal, et. al. hasn’t set a very bad precedent?

BETTING ON BEN?

2011-08-29T10:25:00.000-07:00

8/29/11

Today’s (i.e., Monday, 8/29’s, page C1) Wall Street Journal contained an article that, while not living up to the billing of its headline, “Fed Faces Old Foe As Hazard Returns,” nonetheless contained some compelling observations and a few piquant facts.

One of those observations was made by Richard Weiss, senior portfolio manager for asset allocation at American Century Investments in Kansas City. Mr. Weiss, according to the article, is continuing to invest in growth stocks because, in his words

“One of the Fed’s mandates is to avoid a recession at all cost, and we fully expect them to use all their tools to do so.”

Mr. Weiss is largely right in his observation on the Fed’s mandates. Before 1978, the Fed’s sole mandate, at least concerning its management of monetary policy, was to rein in inflation. But in 1978, with the passage of Full Employment and Balanced Growth Act, better known as Humphrey-Hawkins, after its chief sponsors and presumed authors, the Fed’s mandate changed to a dual role of both containing inflation and assuring full employment. Unfortunately, neither Congress nor President Carter handed the Fed a magic wand along with this mandate, but I digress. So, indeed, as Mr. Weiss said, one of the Fed’s mandates is to avoid recession. I probably would not have used the words “at all cost,” but Mr. Weiss is largely right in that contention.

Mr. Weiss may also be right in the conclusion he draws from his observation; i.e., to buy growth stocks that, as the Journal puts it, “benefit from stable economic growth.” (I wonder whether Mr. Weiss’s, and American Century’s, decision to buy growth stocks has more to do with the nature of American Century as a growth shop than with any notions about the market at any given time, but, again, I digress. At least I do so parenthetically in this instance.) But I doubt it.

If the Fed uses all the tools at its disposal to avoid recession, and it certainly has so far, there are three possible outcomes:

--The Fed succeeds in avoiding recession and does so with such a degree of aplomb that it also avoids igniting inflation and debasing the currency.

--The Fed succeeds in avoiding recession but, in the process, ignites inflation and debases the currency, making its “victory” largely an ephemeral one.

--The Fed fails miserably at avoiding recession and ignites inflation and debases the currency as a result of those ill-fated efforts, leading us into a dystopic bout of stagflation.

In order to buy growth stocks based on the Fed’s efforts, one would obviously have to assign a higher degree of probability to the first possible outcome than to the other two put together, though one could see how growth stocks could do well, at least in the short run, under the second above scenario. As loyal readers might guess, I would assign the highest degree of probability to the third scenario, followed by the second scenario, and trailed at an eyesight challenging distance by the first scenario. Therefore, I won’t be buying growth stocks any time in the near future. But one does not have to have as bleak a view of the current Fed, or of life in general, as yours truly to avoid growth stocks at this juncture. One only has to assign equal probabilities to the above three scenarios; two out of three would thus carry and dissuade an investor from investing heavily in growth stocks.

Fighting the Fed is rarely advisable; doubting the ability of the Fed is often advisable, especially when we are dealing with Obsequious Ben Bernanke’s Fed.

I OWE, I OWE, SO OFF TO WORK I GO…

2011-08-27T10:14:00.000-07:00

8/27/11

An article in this morning’s (Saturday/Sunday, 8/27-8/28/11, page A5) Wall Street Journal entitled “Tug of War on Timing for Belt-Tightening” prompted me to write a post (this one) that I have been contemplating for a long time.

The article outlines the now long running argument between what the Journal refers to as liberals and conservatives, though that breakdown is not as clear cut for this issue as it might be for others, regarding the advisability of what passes for fiscal austerity at this time. The “liberals” (Keynesians, really, and despite the largely undeserved derision that Lord Keynes and his acolytes have received from the right for the last 35 or so years, the two terms are not necessarily interchangeable) argue that, with the economy still shaky, this is not the time to cut spending and raise taxes. The “conservatives” argue that fiscal austerity is needed because what is holding back the economy is uncertainty about what Washington is up to and fear that the pols will spend us into oblivion, necessitating a future tax increase that is subtly entering into the calculations of businesses and individuals. Some in the latter camp are also arguing for “real” tax cuts, i.e., cuts in marginal tax rates as opposed to what they consider tinkering with the tax code, such as payroll tax holidays and the like. Mostly, however, what the Journal refers to as the conservative camp is pushing for Washington to get is spending under control.

While, as you might guess, yours truly is far more sympathetic with the latter argument than the former, neither fiscal austerity nor what passes for fiscal prudence nowadays will have much impact on our miserable economy. Why? In times of heavy indebtedness, such as those we are experiencing today, the traditional tools of fiscal, and even monetary policy, do not work well, if at all. Any money received from stimulative policy is either used to pay down gargantuan debt levels (individuals) or horded because of lack of overall confidence (individuals and businesses). Any confidence engendered by a demonstration of a determination by our public servants to follow a path of fiscal virtue (as if such a thing could ever happen, but I digress) will be more than offset by fear for one’s personal finances when one is confronted by the realities of a mountain of debt built up due to a sense of entitlement to a lifestyle that was clearly unsustainable.

You have heard the arguments outlined in the last paragraph; they are neither insightful nor fresh. But I would take it a step further into the realm of the real economy. Not only will the fruits of fiscal stimulus, or the engenderment (if that’s a word) of new confidence be blunted by a mountain of debt, but any actual increase in output, rather than funny money created by our ever wise “policymakers,” will have to be dedicated to the reduction of debt. We simply lived way over our heads for the last twenty or so years and now have to face the music. We can’t enjoy the fruits of our labor; instead, our creditors will, of necessity, enjoy those fruits. Despite the earnest efforts of Obsequious Ben Bernanke and the Washingtonians to punish savers by keeping interest rates as low as possible, this ultimate transfer of wealth is a fact of life that cannot be avoided, nor should it be.

Not only did we go through the seed corn over the last twenty or so years, we borrowed even more to finance a lifestyle to which we thought we were somehow entitled. Now we have to pay back the debt and, if we are to survive as a society, begin rebuilding the seed corn. Though these efforts probably, the latter almost certainly, will prove ineffectual, even the feint at such efforts we will make will render the traditional tools of economic management largely ineffectual. Recovery, if it ever comes, will be a long, hard slog. More importantly, what will prove to be the ultimate futility of our efforts to get our personal and public fiscal houses in order will demonstrate that we are doomed as an economic going concern and probably as a society.

Market watchers, some very smart and some not so smart, have long argued, with some historical justification, that the time to buy stocks is when things look bleakest. If I really believed that, I would be backing up the truck on stocks and would borrow money to buy more. But I’m not going to do that. This time, I fear, things really are different, though those are very dangerous words.

“…JUST ENOUGH TO WET MY BEAK…”

2011-08-25T13:30:00.000-07:00

8/25/11

One of the justifications the Illinois Tollway board used for its 87.5% (!) increase in tolls is that, even after the increase, tolls in Illinois will be in the bottom third in the nation on a per mile basis.

One would think that having among the lowest tolls in the nation would be a point of pride and a useful, albeit limited, tool for attracting and retaining business and would be especially salient given our position as one of the nation’s key transportation hubs. Apparently, though, only the average voter or the typical businessman, the people who pay the bills, sees low tolls as an advantage and a selling point. The politicians see our being one of the most lightly tolled states as an opportunity to further wet their already drenched beaks; after all, the relatively low costs of traversing our area’s tollways is one of the few areas in which our politicians are not keeping up with their out of state brethren in reaching deeper into the citizenry’s pockets.

ME AND THE GODFATHER OF SOUL, HARDEST WORKING MAN IN SHOW BUSINESS, SOUL BROTHER #1, MR. DYNAMITE…

2011-08-24T14:02:00.002-07:00

8/24/11

Knowing that I am a long time bull on gold, several people have asked how I feel about that ancient object of kingly desire now that the December future has fallen $113.30, or 7% from its $1898.40 high of just two days ago.

I still like gold for the reasons I’ve liked it since June, 2006: it is a bet against the political and monetary leadership of this country, the world, and the world economy. Gold is also a bet that the only way we can get ourselves out of the debt hole into which we have dug ourselves, all the while reassuring each other that what we had (have) was (is) a “housing problem” or a “sub-prime mortgage problem,” is to inflate, inflate, inflate. The more than tripling of the price of gold since I took my position has done nothing to remove the bullish rationale for holding it; in fact, developments since mid-2006 have only reinforced the notion that our country, and the world economy, is in the hands of poseurs and pompous, poltroonish popinjays.

But doesn’t a drop in gold, like the hair-raising plummet we have just witnessed, make me nervous? Maybe a little, but not enough to make me want to sell. Why?

First, I’m not smart enough to know what a commodity or a market will do over the course of a few days, weeks, or months. (Twenty years ago, of course, I was smart enough to know what a market would do over such short time periods, but, like most people, I seem to have gotten dumber with age. But I digress.) But I do know that nothing goes up in a straight line, so something like what we have seen was to be expected after the sharp run-up in gold over the last few weeks. I wouldn’t be surprised to see it fall further over the short run, and would be at least equally unamazed were gold to turn up again in the next few days.

Second, every time something like this has happened since I took my position in gold, I have been delighted when I resisted the temptation to get out. Yes, I could have gotten out and gotten back in again, but, again, I’m not that smart and maybe I’m a little lazy; it’s easier just to stay put.

Third, commentators were quick to proclaim that today’s drop was the largest since March, 2008. Suppose you were a gold holder in March, 2008, as was yours truly, and you panicked in the wake of a drop in gold similar to the one we saw today and got out. Or suppose that you were contemplating getting into gold during March, 2008 and decided, in the wake of its defenestration that month, that the rally had run its course and the best course was to stay out of gold and buy good old common stocks. How would you feel? On 3/31/08, gold was at $921.30. At its peak on St. Patrick’s Day of 2008, gold was at $1004. It closed after today’s debacle at $1,765.10. You tell me how you’d feel if you sold or postponed plans to get in, perhaps waiting for gold to fall a little more.

For my part, I feel good for having stayed long gold these last few years and am confident that I will feel equally good being equally long the next few years.

AS LONG AS YOU’RE PAYING, I’LL HAVE THE LOBSTER!

2011-08-24T14:02:00.001-07:00

8/24/11

While mowing my lawn this morning and listening to WBBM Newsradio 78, I was treated to a seemingly mournful report from the Commonwealth Foundation that some people had (Horrors!) skipped an appointment with a doctor or stopped using a prescription drug because they had lost their jobs, and the health insurance that, under our goofy system, goes with it and couldn’t afford the insurance afforded them by the COBRA law. The Commonwealth Foundation’s preferred, indeed, demanded, response to these travails was to continue the subsidy for COBRA that was formerly provided as part of the Bush/Obama administration’s stimulus package.

We are, of course, supposed to wail and gnash our teeth that people are missing doctor’s appointments and/or not taking medication and call our congresspersons demand that subsidization of COBRA be immediately reinstated, perhaps when we are taking a break from demanding that “entitlements be reigned in.” (See one of today’s other posts, I’M ENTITLED TO MY ENTITLEMENTS.) But clear thinking people with even a rudimentary understanding of economics (I know, I know…only about 300 or so people in this country.) are applauding most of the instances in which people are finally missing doctor’s appointments and not taking their medication. Perhaps we are starting to dispense with the billions upon billions of dollars of unnecessary “health care” spending that takes place in this country every year.

How dare I say that so much of our “health care” spending is unnecessary when I have NO medical background? Simply because I understand economics and human nature, which are, after all, the same thing. So much health care spending is unnecessary because people feel free to dispense with it when they have to pay for it themselves. They will take it, or even “demand” it as “vital” when someone else (the insurance company, their employer, the government) is paying for it, but suddenly can do without that doctor visit or that prescription when they must pay for it, and give up, say a meal at a fancy restaurant, yet another flat screen TV, or a few weeks of Starbuck’s, in order to go for this all-important examination or some “life saving” or “life enhancing” drug.

The reason that health care is so expensive is not because doctors or hospitals or nurses are overpaid, which seems to be the underlying assumption behind the Bush/Obama administration’s all purpose solution to every budget/health care spending problem: stiff the health care providers. Health care is so expensive because those who consume it are not the same people as those who pay for it. When anything is free, or near free, demand is infinite, or near infinite. It is, therefore, heartening to see people who use “health care” services have a little skin in the game. They, and we, will doubtless spend our “health care” dollars more wisely when more of them are indeed our dollars.

“EGAD…IT’S LON CHANEY, JR.!”

2011-08-24T14:00:00.000-07:00

8/24/11

In the wake of yesterday’s temblor on the east coast, the news media went about their seemingly appointed task of making everyone think the apocalypse was nigh when what New Yorkers, Philadelphians, and Washingtonians were experiencing would not even be noticed, say, on the west coast or in Japan. But I am digressing before even making a point.

Many of the people who had microphones thrust into their faces yesterday had the same comment, something like

“I thought it was terrorists!”

My first thought, after hearing these panicked reactions, was that the government has indeed done its job well.

Ever growing, ever demanding government is in search of food and fuel to sustain its growth. Given that today’s citizenry has at the very best a passing familiarity with the Constitution but a well honed sense of fear and dread, the government needs a bogeyman, always, to break down resistance to or, increasingly, elicit full-throated support for, assaults on liberty and an ever expanding “defense” budget in the interest of “keeping us safe." As I said in my instantly seminal 5/4/11 piece, MY (SO FAR) TWO CENTS ON BIN LADEN’S LONG DELAYED DEMISE, if Osama bin Laden never existed, the government would have had to invent him. “Terrorists” have served this government purpose well since the Soviet Union was crushed under the weight of the inherent stupidity of its philosophical basis; now the government has us crying “terrorism” every time anything bad happens. Thank you, Department of Homeland Security.

One more note…

Judging from the Wall Street Journal’s editorial page of late and the e-mails I have been getting over the last few months (I, like many of you, am on the mailing list of legions of true believers on both sides of the political spectrum, but mostly from the side composed of those who consider Rush Limbaugh to be the result of an illicit union between George Washington and Margaret Thatcher, or perhaps Joan of Arc, were she not French. Time periods, and other complications of history, are of little consequence to such types.), the next time we get another earthquake, tornado, tidal wave, tsunami, sink hole, or bout of road construction, those in whose faces the media types will thrust microphones will blurt out

“I thought it was the Chinese!”

Mark my words.

I’M ENTITLED TO MY ENTITLEMENTS

2011-08-24T13:58:00.000-07:00

8/24/10

As we drove our oldest daughter to Hawkeyeland for her freshman year of college last week, we listened for part of the trip to Mike McConnell on WGN 720 Chicago. Mike has a pretty good show a good part of the time, though his topics have an increasing tendency to wander into the banality and outright silliness that plagues talk radio when it tries to transcend its traditional political junky audience. For example, one of today’s topics, as I cut the lawn, was “What really makes you shiver?” The conversation centered around such things as scraping a blackboard with one’s nails, taking the cotton out of aspirin bottles, and biting into the surface of a peach. Who has time for such nonsense? I quickly went back to WBBM Newsradio 78 rather than numb my brain with such idiocy. But, having said that, Mike McConnell, when he stays on serious, or even quasi-serious, topics has a good program. But I digress.

Last week, the discussion on Mike’s program centered on entitlements and attacking the federal deficit. One of the callers opined that she felt very strongly about cutting entitlements, that, indeed, we had to cut entitlements if we were ever to get spending under control. She said that she had gone so far as to call Senator Durbin to express her earnest desire that he do something about entitlements. (Talk about a useless exercise, but I digress again.) With the next sentence, this caller expressed her dismay that her mother, who was in her ‘80s, had to pay a co-pay for her prescription medication. Why, she lamented, couldn’t Medicare pick up the entire cost of the prescription?

McConnell said nothing; he is too nice a guy, I suspect. But one got the distinct impression that he was as dumbfounded by this caller’s comments as was I.

This caller’s comments encapsulate two of the reasons that any effort to get our spending and our budget under control no matter who sits in Congress or in the White House. First, even, or perhaps especially, the most ardent foes of “entitlements” have little idea of what an entitlement is. The words “entitlement” and “welfare” are not synonyms.

Second, the only consensus we have achieved, or ever will achieve, on entitlements is that it is a fine idea to cut the OTHER guy’s entitlements. We have, after all, earned OUR entitlements (There might, by the way, be something to that argument in many cases.), which are somehow never called “entitlements,” and OUR entitlements are completely meritorious and beneficial to society while the OTHER guy’s entitlements just make him a lazy lout and tear at the very fabric of society.

We are, ladies and gentlemen, doomed.

MORE LIKE THE WHOLE ICEBERG FOR YOURS TRULY

2011-08-22T14:03:00.000-07:00

8/22/11

One must always take Wharton Finance Professor Jeremy Siegel with a grain of salt, and not only because he teaches at an Ivy League institution; while Dr. Siegel is doubtless an insightful and attentive observer of the markets, he often lets his enthusiasm supersede his good judgment, even more often than yours truly lets his natural pessimism supersede his good judgment. Having established that caveat, I quickly add that I read Dr. Siegel’s work whenever I happen upon it in some business publication and turn on the volume when Dr. Siegel appears on CNBC; he always has something interesting to say and I always learn something when he opines.

This morning’s Wall Street Journal (Monday, 8/22, page A13) op-ed piece that Dr. Siegel co-authored with Jeremy Schwartz of Wisdom Tree is no exception. In it, the authors make a compelling case for stocks that pay relatively big and growing dividends, a case into which I am starting to buy into…sort of. To the extent I want to be in stocks (limited over the last ten or so years), I would like to be in the stocks of companies that consistently pay large and growing dividends. Right now, my hesitancy to be in stocks, and my long time preference for index funds, which don’t fit all that nicely into such a strategy, are superseding my preference for a dividend growth strategy. But I am reorienting the few stocks in my portfolios toward dividend payers and, should the day ever come when I have enough confidence in the world economy to be in stocks in a larger way, I will earnestly explore a major commitment to a dividend growth strategy. This may have something to do with my rapidly advancing age, but it has more to do with something I tell my Finance and Investments students, to wit, while, as a guy with something of an accounting background, I can show you myriad ways to fake net income, you can’t fake dividends, or certainly cannot fake dividends for long; you simply have to generate cash to pay dividends, and have to increase cash flow consistently to regularly increase those dividends. Further, cash dividends are innately quite satisfying; who doesn’t like cash?

So while I liked the overall thrust of Dr. Siegel’s latest Journal article, I take issue with the large section of that article in which he also gets in line to bash Treasury Inflation Protected Securities (“TIPS”). In it, he says that

“…recent (TIPS) should be enshrined in Ripley’s “Believe it or Not!”

citing the fact that the yield on 10 year TIPS turned negative (by one basis point) last Friday. Dr. Siegel marvels that people are willing to lend the government money for 10 years with no real yield for ten years. Why should this be so curious when TIPS are perhaps the safest investment out there (other than T-bills, with a 0% nominal yield and therefore a negative CPI real yield) that provides any inflation protection at all? Further, if the increase in the CPI averages more than 2.10% over the next ten years, the real yield on the conventional 10 year will be negative as well, and people are figuratively tearing conventional 10 years out of other people’s hands.

These arguments for TIPS, however, are probably not a good counter to Dr. Siegel’s objections to TIPS, however, simply because Dr. Siegel would not advise buying conventional treasuries, either; after all, he is perhaps the stock market’s most enthusiastic, or at least its most articulate, disciple. But the basis of Dr. Siegel’s, and countless others’, latest harangue against TIPS is the aforementioned negative real yield on the 10 year TIPS. Surely, however, Dr. Siegel knows, and others who so eagerly cite the negative one bp yield on the ten year TIP know, that the real yield on the 5 year TIP has been negative since last Fall; on 9/30/10, the 10 year TIP was yielding negative 14 basis points. That did not stop the yield on the 10 year TIP from falling from 69 basis points on that day to its negative 1 bp yield today, and not in a straight line. The yield on the five year TIP is currently at an all time low of negative 89 basis points. If people are willing to lend their money to the government at a negative real yield for five years in exchange for inflation protection, why should it be so strange, and such an inflection point for the market, if they suddenly are willing to lend the government money for ten years at a (barely) negative real yield?

Yes, the 5 year TIP market is not as large or as liquid as the 10 year TIP market, but the 10 year TIP market is no bastion of liquidity itself. And to admit that the 5 year TIP market is not a paragon of liquidity is not to deny that it has any revelatory value. The yield on the 10 year TIP, judging from the performance of the 5 year TIP, could get substantially negative as investors find few really good inflation hedges and gold’s levels make people increasingly nervous.

I HOPE MICHELE BACHMANN WASN’T COUNTING ON LIBYA TO GET OIL TO $2

2011-08-22T09:41:00.000-07:00

8/22/11

News this morning of the seemingly imminent fall of Tripoli to the Libyan rebels brought predictions of falling oil prices and, at least as of this morning, declines in oil futures. (See, inter alia, “Oil Prices Set to Slip if Rebels Win Libya,” Wall Street Journal, Monday, 8/22/11, page A6) Fortunately, there are more sober observers out there, cautioning that the victory has to be won, damage has to be fixed, and order has to be restored before Libya becomes the major factor in world oil markets it was only a few years ago; the aforementioned article reports that, as recently as 2009, Libya was exporting 1.5 million barrels a day and that it has the largest proven reserves in Africa. The latter surprised me; I would have guessed Nigeria had the largest proven reserves in Africa, but I digress. Optimists predict that Libyan oil production could reach 500,000 barrels per day in two months if everything goes right, and that would be consumed domestically. Given that the oil market is a global and, to an extent, fungible one, whether the oil is consumed domestically or exported should make little difference, but I digress again.

I, of course, am no optimist on either Libya or on its widely sought after oil. I predict chaos in Libya in the wake of Mr. Gadhafi’s overthrow and consequent long delays in bringing oil production back on. As loyal readers know, I predicted chaos in Egypt and that is precisely what we are seeing in the wake of Hosni Mubarak’s defenestration. Given that the struggle in Libya was exponentially greater than that in Egypt, and Mr. Gadhafi’s repression was greater, though perhaps not proportionally greater, than Mr. Mubarak’s, the chaos that should ensue in Libya should be more like that we are witnessing in Iraq and Afghanistan than that we are seeing in Egypt. Libya will become, to use the slightly modified vernacular, a defecatory product show.

These reports and predictions juxtapose nicely with a conversation I had at a family party yesterday with two very politically attuned (at least as much as yours truly) nephews and a similarly aware brother-in-law. I asked when American troops would show up on the ground in Libya. My conversation partners quickly picked up on my drift; American troops will soon find their way to Libya not to assure the overthrow of Gadhafi, which looked like a foregone conclusion by yesterday, but to “assure order” in the wake of his overthrow. Why do I think this will be the case? Because of the simple “You break it, you bought it principle.” Compound that with a European (only partially justifiable) attitude that they had the major role in the air campaign that aided Mr. Gadhafi’s overthrow and so now it’s our turn to restore order on the ground, the Europeans’ already having exhausted much of their military capacity and/or enthusiasm on the campaign (according to yesterday’s Chicago Tribune, the Danes and Norwegians were withdrawing fighter planes and the French and Italians were withdrawing their carriers DeGaulle and Garibaldi, respectively) even before these latest developments, and President Obama’s near Bushian enthusiasm for placating the defense industry by committing American blood and treasure in places in which our interests are at best tangential, and it’s hard to see how U.S. troops will not soon be patrolling the streets of Tripoli. Bear in mind that our military, even when stretched to the insane lengths our political leadership demands, is quite good at what militaries are designed to do: kill enemy troops and break their stuff. But our military is not at all good in doing what militaries are not designed to do: enforce our political leaderships’ vision of what a society ought to be.

And then there will be Syria…but that’s another post for another day.

I DON’T WORK FOR A LIVING, BUT I PRETEND THAT I DO WHEN I’M CAMPAIGNING FOR A LIVING, PART II

2011-08-18T13:20:00.002-07:00

8/18/11

So why am I not nearly as enthusiastic about Texas Governor Rick Perry as are people who think a lot like I do? For the same reason I’m not working up much of a sweat over Representative Paul Ryan. While both these gentleman, for the most part and when we get away from what is laughingly called “defense,” mouth ideas that should appeal to me, they don’t appeal to me because they are both representative of a type that has become so prevalent in the Republican Party, to wit, the champion of the private sector who, despite his never ending pledges of fealty to that sector has never seen fit to participate in it.

Oh, yes, these guys argue, the private sector and free enterprise are the answer to all our problems, the private sector built this country, the private sector can lead us out of our difficulties if the big, bad public sector would just get out of the way. But the actions of these types speak far more loudly than their words. A frequently used barb in the politics of the past, back when grownups ran this country, was that one’s opponent “had never met a payroll.” But the modern acolyte of free enterprise and the private sector has never even been on a private sector payroll; indeed, he or she has never even held a public sector job which involved providing services for which the taxpayers paid. Rather, he or she has been, to put it more nicely than I would have preferred but for the understandable sensitivities of my readership, slopping at the public trough his or her whole “adult” life, gratifying his or her outsized ego at the taxpayers’ considerable expense. Governor Perry went right from the Air Force (an admirable place to spend part of one’s life, admittedly) to public office. Representative Ryan has been a politician or working for a politician his whole life. He may have done a stint at “consulting,” but, really, what type of “consultation” can a lifelong public payroller provide that would be worth anything? For a “between offices” or “post office” pol, “consulting” amounts to “influence selling.” Some might, with a straight face, argue that such influence peddling is a legitimate endeavor, but no one who is even remotely honest would equate such meretriciousness to honest work in the private sector providing a good or service that someone would pay for were it not for the gargantuan size of the government these plastic people piously purport to oppose.

If these free market types are so enamored of the private sector, one would think they would have garnered some experience in it. Among the GOPers running for office, Ron Paul and Herman Cain started out in the private sector. For all his faults, even Mitt Romney has some private sector experience, though, one suspects, that given his background and his family’s background, much of that “private sector” experience came dangerously close to little more than door opening. The others, like many, if not most politicians, even GOP politicians, have either spent their lives on the public payroll or have entered the “private sector” to cash in on their public sector experience while waiting for the next opportunity to belly up to the public trough to become available.

Those who have spent their lives working in the private sector do not need to be lectured on its wonders by those who have at the very best only a passing familiarity with it.

I DON’T WORK FOR A LIVING, BUT I PRETEND THAT I DO WHEN I’M CAMPAIGNING FOR A LIVING, PART I

2011-08-18T13:20:00.001-07:00

8/18/11

The other morning my wife, as she was reading about President Obama’s speaking or listening or lecturing or whatever tour he was on in Iowa and in northwestern Illinois, asked me a question that has been asked repeatedly by people all over the country: Why was Obama out campaigning when he should have been in Washington dealing with the budgetary and economic problems that seem to be so daunting?

Clearly, my wife asked the question before clearing thinking through the implications of directing such a query my way; she knew that she would be in for a tirade from a husband who had just been tossed enough read meat to get him worked up for the entire day, but it was too late. I got up on the old soapbox, which always seems to be close at hand, and answered that the reason that President Obama was out campaigning was that we don’t elect leaders, we elect campaigners. People go into politics not because they want to provide leadership or serve their countries, but, rather, because they have messianic complexes, they have schizophrenic egos (absolutely HUGE but in need of constant reinforcement), and their whole purpose in life is self-aggrandizement. Campaigning satisfies, or feeds into, really, these complexes. It is fun to fly around the country to have your hindquarters kissed and crowds of breathless sycophants hanging on your every word. Campaigning has gotten even more fun of late now that the audiences for these photo-ops are carefully selected to insure that only the most slobbering, obsequious cheerleaders are represented in order to maximize the good vibes transmitted on national news. The modern politician is treated like some sort of medieval tsar or ancient Roman governor, the modern equivalent of the “most excellent Felix.”

Leadership, on the other hand, is difficult. It involves work and skills that the modern politician, concentrating on his or her hair style and emoting abilities, never bothered to learn. It is boring, tedious, difficult, usually frustrating work, almost as bad as that experienced in the real jobs that these pols have worked their whole lives to avoid. So why bother to lead? Why not just campaign? Even after being elected, why bother working? Just keep the campaign permanent. There is almost always another office to run for, and even when there isn’t, there is always a gargantuan ego that requires brobdingnagian levels of psychic and emotional nourishment.

I think Susan’s next question concerned why Congress was on vacation when the President was out campaigning while the country seemed to be falling apart, but she clearly thought better of providing an opening for yet another tirade.

WATCHING THE RESULTS LIKE A HAWK

2011-08-15T12:38:00.001-07:00

8/15/11

The Republican straw poll held this weekend at that other university in the Hawkeye state was interesting for those of us who follow this stuff but probably a bad omen of the beginning of a new presidential season for those who either don’t care a whit but still, unfortunately under our system, still get to vote or for those sensible types who care but are not obsessed. Several points deserve to be made regarding the weekend’s vote.

First, those who say that this poll doesn’t really matter because it is a poll of only about 16,800 people who paid (I think the fee was $30; not inconsiderable, especially when you consider what you can buy with $30 in Iowa.) to vote are right and they are wrong. They are wrong because the opinions of those who care enough to pay (or maybe not; see a comment I make below) to register those opinions are worth considering more than those who take a break from “Jersey Shore” to embark on the seemingly backbreaking chore of going to the polls or filling out a mail-in ballot and (How can we possibly ask our citizens to make such onerous sacrifices?) driving to the mailbox to deposit it. Further, this poll took place in a state that has a disproportionate voice in the selection of our president, and thank God it does; Iowa is a GREAT state that ought to have a disproportionate voice in public affairs. Finally, the straw poll has a profound impact on fundraising; ask Tim Pawlenty. But those who dismiss the poll’s importance do have a point in that the poll involves as many voters who live on some blocks in say, Chicago or New York. So the media probably were a bit overly winded in its coverage of this poll.

Second, Michelle Bachmann was the winner, but a little noticed story indicates that maybe she wasn’t the victor in anything but raw numbers. One of the news stations (It was either CNN or Fox News; I was listening to them both on satellite radio (What a wonderful inventions!) during yet another drive from New York to Chicago and don’t remember which station made this point, but it was probably Fox; its coverage of the poll was more extensive than that of CNN, which frequently broke away from coverage to keep its viewers abreast of such vital news as the latest developments in the quasi-romantic exploits of those who fill our “culture” with figurative bowel emanations.) reported that the Bachmann campaign paid 6,000 entrance fees for the poll. This report may not be right; both CNN and Fox are to be approached with wariness since both have problems with facts when those facts clash with their worldviews. But I digress. If that report is indeed accurate, however, Mrs. Bachmann paid 6,000 people to vote for her but got only 4,823 votes, meaning that 1,177 of her “supporters” stiffed her. Some victory.

Third, the big story was supposed to be Tim Pawlenty’s dropping out of the race in the face of his third place finish among Hawkeye State Republicans, but that result was about as predictable as the outcome of a Cub season. The real story was Ron Paul who, despite spending very little money, came in 152 votes behind the “winner,” Michelle Bachmann. This showing was accomplished in an Iowa Republican party that is supposedly dominated by social conservatives and, while Dr. Paul is a big abortion opponent, little else in his record or beliefs would appeal to social conservatives. This was a big victory for Dr. Paul. Yes, he remains a quixotic candidate, but perhaps a bit less LaManchian than he was before Sunday.

Fourth, the poll was somewhat overshadowed by the entry of Texas Governor Rick Perry into the race on the same weekend. The bigger story, however, should be the boost that Mr. Perry’s entry, when combined with Mrs. Bachmann’s overrated but still not to be ignored showing, gives to the guy I still think will be the nominee, Mitt Romney. See my seminal 7/19/11 post MICHELE AND SARAH, MAKE ROOM FOR THE FAT LADY. While Perry and Bachmann split the votes of the true believers, Mr. Romney will pick up the votes of those who perhaps do not share Mrs. Bachmann’s excitabilities or her ignorance of history or Mr. Perry’s similar enthusiasms and so are not won over by his substantial record, skill, and intellect. It’s still Mr. Romney’s race to lose, and even he, despite ongoing and at times herculean efforts, may not be able to tear defeat from the very mandibles of victory.

Fifth, did I miss something when the results were announced? From what I heard on the radio, somebody (Again, I was listening, not watching, so I didn’t have the benefit of the captions to which those who were watching were treated.) got up and said, paraphrasing

…and the winner of the straw poll is Representative Michelle Bachmann of Minnesota.

and that was it. No numbers, no second or third place finishers, nothing. Apparently, the numbers flashed on a screen behind the speaker, but the announcement only told us that Bachmann had won. I hope this was done according to some weird tradition because it left me, and doubtless thousands of others, flat.

Sixth, the poll was a lot of fun and raised a lot of money for the Iowa Republican Party. Yes, some candidates took it too seriously, as did some voters, including, as you are probably surmising from reading this, yours truly. But where was the harm? And anything that showcases Iowa is beneficial, as long as too many people don’t get the word and do to that great state what, say, Californians have done to Nevada, Oregon, or Washington.

“THEY’RE ALL SELLING? WELL, THEN, BUY!”

2011-08-15T12:37:00.000-07:00

8/15/11

Maybe nothing here that is all this insightful, but at least it appears worth highlighting…

Bulls are pantingly telling us that stocks are cheap because, in the midst of last week’s frenetic trading, the dividend yield on the S&P surpassed that on the ten year treasury. But did those bulls stop to notice that the 10 year’s yield is 2.28% after I write this, up 4 basis points from its 2.24% yield of last Friday? While the 10 year yield is not at historic lows, it is close, so hurdling it, while perhaps more substantive than a victory of the Harlem Globetrotters over the Washington Generals, is no great shakes. If the S&P’s yield were to exceed an historic 10 year yield, whatever that might be for an appropriately long period of time, that would be something, but beating an artificially low (or at least beaten down by economic malaise, or worse) yield is no big deal.

Stocks may still be cheap. I don’t think so, but, as I’ve said before, I, like anyone else who opines on these matters, am as likely to be right as I am to be wrong. If stocks are cheap, however, the dividend yield is not among the weightiest pieces of evidence supporting that argument.

“I TELL YOU THE TRUTH, WHEN YOU DID IT TO ONE OF THE LEAST OF THESE MY BROTHERS AND SISTERS, YOU WERE DOING IT TO ME!”

2011-08-08T21:22:00.000-07:00

8/8/10

Most of us remember the tragic story of Lizzy Seeberg. In the late summer of 2010, only a few weeks after the young woman from Chicago’s northern suburbs started as a freshman at St. Mary’s College, she reported being attacked on campus by a Notre Dame football player. Nine days later, she killed herself with prescription medication in her dorm room. Many, including her family, at least initially believed that Notre Dame, an institution to which her family had been connected, and deeply loyal, for generations, had stonewalled the investigation of the attack that led to Lizzy’s suicide. In response to the charges and subsequent legal actions and investigations, Notre Dame agreed to, as the Chicago Tribune put it, “make widespread changes in the way it responds to sex offense allegations.”

In today’s (Monday, 8/8/11, page 4) Tribune, we learn that Lizzy’s family, in the days after her death, had asked that, in lieu of flowers, donations be sent to Christ the King Jesuit College Prep on Chicago’s west side, another project of the Jesuits (point of clarification: The Jesuits do not run Notre Dame; the Holy Cross Fathers run Notre Dame. The Jesuits, ironically, run, among many others, Holy Cross College in Worcester, Massachusetts. Confusing, and probably of little or no import in this story, but a point maybe worth making.) that seeks to address the woeful education deficiencies in the low income black communities, deficiencies that have been called THE civil rights issue of this century. (Students at Christ the King are required to do volunteer work in the community and to earn most of their tuition by working part time at businesses, primarily in and around downtown Chicago. The school is relatively new, but it is already enjoying a measure of success in its mission. The school on which it is patterned, Cristo Rey, also run by the Jesuits and also on the west side, has a longer track record and has enjoyed what can only be called enormous success in the Hispanic community. Both schools are supported primarily by donations. It is efforts like these on the part of the Jebs that makes me especially proud that I went to a Jesuit high school. My wife and I are enthusiastic contributors to Chicago Jesuit Academy, the junior high school that is situated right next door to Christ the King and works on essentially the same model. Call 773 638 6103 and ask for my friend Matt Lynch, CJA’s president, if you want to join us. But I digress.) Lizzy had become enthusiastic about the school when she was a sophomore at Glenbrook North and started volunteering at Christ the King at what could be described as a frenetic pace, working at the school and holding fundraisers in her parents’ home, drawing donors to the school whose collective annual contributions have reached $50,000.

The school has collected $160,000 in donations in Lizzy’s name in response to her parents’ request. The school decided to use the funds to buy a three flat across the street from the school that will house members of the Jesuit Alumni Volunteer Group, who volunteer to work at the school in various capacities, including as teachers, for two years upon graduation from college. Over the last several weeks, members of Lizzy Seeberg’s family have been working on the house, which is badly in need of renovation, contributing sweat equity to make the house livable for the volunteers. They do so in honor of Lizzy, who they are sure would have been the most enthusiastic of the workers, and in service to their less fortunate brothers and sisters.

The Seeberg family has gone through unspeakable tragedy. They have seen a young daughter and sister driven to such despair by a pointless, senseless, selfish, and cruel attack that she killed herself. They have seen, at least in their eyes, an institution they dearly love, an institution closely identified with the Church they have so ardently served (Among her parents’ many other forms of service to the Catholic Church, her father became a member of the president’s advisory council at Christ the King.), obfuscate the search for justice in the senseless tragedy. It would have been easy, almost natural, and certainly understandable if they had become bitter and cynical about their Church and started to wonder if God had truly forsaken them. But they didn’t; they redoubled their efforts in service to God, to His Church, and to His people, despite all that had happened to them. Even the strongest of us has to wonder whether s/he would react in such a manner under such a horrific set of circumstances.

I don’t know the Seebergs, but I know they are remarkable and indescribably blessed and blessing people, true arms of God. They make us uncomfortable, to be sure, because they make us seem lukewarm in our faith and miserly in our service. But, partially through that discomfort, they inspire us to do more for others and for God. They are models of faith and service, true travelers on the road to Emmaus.

AL CZERVIK’S POPCORN FARM

2011-08-08T19:52:00.000-07:00

8/8/11

As loyal readers know, I wasn’t surprised by the Dow’s 600 + point drop today; well, maybe I was surprised by its magnitude, but not by the drop. See my 8/6/11 post MR. MARKET, THE RATING AGENCIES, AND MORE, in which, commenting on last week’s carnage, I said

Is it any wonder stocks took a tumble? Will they fall further? By the same measures, it seems logical to think they will, but predictions on directions of the market are foolish at best and dangerous at worst.

Naturally, after today, anyone who doesn’t let his emotions, or, in the case of yours truly, his permabear nature, get the better of him has to start asking whether the market is getting cheap, or at least reasonable, in the wake of the today’s conflagration. My mind started wandering to ways to play a rebound, perhaps through some stocks that, at least on the face of it, look attractive, like

--Apple (AAPL), the stock everyone seems to want to buy just a little bit lower, with a balance sheet bereft of debt and full of cash (about $30 per share in cash) and trading at 12-13 times earnings and just short of 10 times cash flow,

--GM, virtually debt free and way off its IPO price. I like GM more than F for two reasons: the strength of GM’s post-bankruptcy balance sheet and its superior position in China,

--some small caps that a very alert and diligent friend analyzes with rigor and sells effectively, or

--one of the leveraged ETFs that make acting on one’s notions dangerously easy or one of my usual flirtations with masochism in the options markets.

As I was musing away on these things, I thought to check something, a set of statistics that all of us sort of know but probably few of us reflect on their sheer magnitude: How much are the equity markets up since their 3/9/09 (closing) bottoms? The answers, even after today’s defenestration, are as follows:

Dow 65.1%
S&P 65.5%
NASDAQ 85.8%

Okay, I follow these things pretty closely, though not as closely as some of you. But I was surprised that the markets are still up so much from the bottoms. Maybe you, and everybody who follows the markets, know the size of the above numbers, but I’m not betting on at least the latter.

Are things really anywhere from 65% to 85% better than they were in March, 2009? Simply by looking at price/earnings ratios, one could conclude that the answer is “No,” since P/E’s have expanded, and not inconsiderably, since the bottom. But there is more to this than P/E ratios. Some might argue that things are a lot better since the bottom: Banks are better capitalized. The threat of massive industrial bankruptcies has been removed, or put behind us. Hmm…I’m starting to run out of elements of the bullish, or at least the not so bearish, arguments. But even if one can argue that, in general, the world’s economy and the financial system is in better shape than it was back in the Spring of 2009 (I, to a very limited extent, might even concede some elements of this argument.), is one prepared to argue that things are 65% to 85% better? I’m having a hard enough time admitting that things are better at all!

As I, and legions of others who has spent so many trying to figure out the markets, have said ad nauseam, predicting the direction of markets is precarious at best. I’m probably as likely to be wrong on these matters as I am to be right. But I, for one, am comfortable remaining true to my permabear nature for what looks like quite a while.

ROMPER ROOM ECONOMICS

2011-08-07T13:41:00.000-07:00

8/7/11

WBBM Newsradio 78 (our local CBS affiliate) reported on its 3:30 news this afternoon that Tim Geithner has pledged to stay on as Treasury Secretary. According to the report, President Obama “put the arm” on Mr. Geithner and said “Hey, buddy, I need you” during these turbulent financial times.

In yesterday’s post (MR. MARKET, THE RATING AGENCIES, AND MORE, 8/6/11) I argued that one of the problems with which the markets must deal is “a dearth of grown-ups in positions of power.” Nothing could reinforce that point more effectively than Barack Obama's considering Tim Geithner to be the Indispensable Man.

O tempora, o mores!

MR. MARKET, THE RATING AGENCIES, AND MORE

2011-08-06T12:57:00.000-07:00

8/6/11

People have asked me my opinion of the stock market’s travails (the Dow was down 700 points) of the last week. What happened? Everyone seems to have an opinion, and I wish I had a more artful guess, but it all seems quite simple.

We have a lot of financial (and other, but that’s grist for another mill) problems in the world today: Europe’s difficulties, our inability to get our fiscal house in order, an economy in the U.S. that seems to be, at best, stuck in neutral, the perception that, this time, governments, whether in the U.S., Europe, or Asia may not have the wherewithal to save everyone’s bacon, etc. Of course, as I have been saying ad nauseam since the inception of this blog in February of 2007, and even before that in its predecessors, all these problems have their root in too much debt taken on by too many people and other entities who feel entitled to live well beyond their means. But again, that is another issue.

At the same time we are experiencing all these difficulties, the market is not trading cheap. In today’s (8/6/11, page B1) Wall Street Journal, Jason Zweig points out that, using Benjamin Graham’s concept, later refined by Robert Shiller of Yale, of “cyclically adjusted” price earnings ratios, the S&P is trading, after last week, at a multiple of 20.2 times, down from a peak at the end of July of 22.9. The fifty year average for this cyclically adjusted yield is 19.5. So, by this measure, the market is not trading excessively rich but certainly isn’t trading cheap.

The U.S. economy is, at best, treading water and the world economy is not doing much, if at all, better. The domestic and international financial system is fraught with peril and is suffering, at least in the eyes of this observer, from a dearth of grown-ups in positions of power. There is little confidence in the political system in this country, in Europe, and, to perhaps a lesser extent, most places in the world. It looks like no government anywhere is in a position to do its much heralded, and vastly overrated, deus ex machina routine and seemingly save the day at the last possible moment. And stocks weren’t trading cheap, using either the “cyclically adjusted” P/E of 23 or the conventional P/E of almost 16 at the peak before last week’s debacle. Is it any wonder stocks took a tumble? Will they fall further? By the same measures, it seems logical to think they will, but predictions on directions of the market are foolish at best and dangerous at worst.

And on that last note, another question has come up: What will S&P’s downgrade of long term treasuries from AAA to AA+ do to the market? Again, predictions are perilous, but probably not much will come of S&P’s actions for a number of reasons, including:

--Moody’s and Fitch maintained their Aaa and AAA ratings, respectively, on long term U.S. debt, at least for now.

--S&P maintained their AAA rating on short term U.S. debt.

--As someone put it, a downgrade from AAA to AA+ is like a downgrade from a Lamborghini to a Mercedes. Anyone who knows anything about cars wonders why such a move would be a downgrade, unless one is married to a mechanic who speaks Italian and has an endless supply of spondulicks for parts, but I digress.

--The rating agencies aren’t telling anybody anything he or she doesn’t know, as usual

Especially ludicrous, as I pointed out last week (MAYBE WASHINGTON ISN’T SO BYZANTINE AFTER ALL, 7/30/11) are predictions that the “government will have to pay higher rates of interest on its debt” and that “mortgage rates and other rates that key off treasury rates will skyrocket.” Some investors are being even, in a way, less modest by putting a number on such dire predictions, saying that treasury rates will go up 50 basis points. Yet, since this “crisis” started, treasuries have gone on one of their biggest rallies in their history, with the 10 year’s yield falling as low as 2.40%, its lowest yield for the year, before reversing course to 2.56% on Friday. (One could argue that the addition of 16 basis points to the ten year’s yield on Friday had to do with wind of the downgrade getting out, but even if one accepts that stretch, just consider how much the 10 year’s yield has fallen in the last month or so…it was at 3.11% at the end of June.)

So if the stock market does take a tumble in the coming weeks, or days, it shouldn’t have anything to do with the downgrade, but this, like so many guesses about where the market is going or why it went where it went, is an untestable proposition. And if the stock market tumbles, it’s a pretty good bet that treasuries will rally, at least in the short term; it’s hard to see how rates stay this low for the long term, but that particular guess has nothing to do with S&P, Fitch, or Moody’s.

HAVE YOU NO SENSE OF SMELL, SIR?

2011-08-02T14:38:00.000-07:00

8/2/11

The Republicans are doing a poor job of concealing their glee at the deal that seemingly averted the chaos that would ensue if the government defaulted on its debt if the debt ceiling weren’t raised. After all, they argue to those of us who are not so enamored with the deal (the “half-hindquartered scheme to increase the debt limit” to which I referred in my 7/30/11 post MAYBE WASHINGTON ISN’T SO BYZANTINE AFTER ALL), taxes were not raised and the discussion now centers around cutting, rather than increasing, spending.

Perhaps I am missing something here, and if I am, please point it out to me. But it seems to me that it is the Republicans who have painted themselves into a corner and have virtually assured the tax increase they claim to so vociferously oppose. Why? After the first $900 billion or so of spending cuts (most of which will occur after many members of the Congress are no longer happily toiling away at their taxpayer funded sinecures), a bi-partisan commission (A bi-partisan commission! What a unique idea! But I digress.) will decide on at least another $1.2 trillion of deficit reduction measures. If this commission can’t come up the $1.2 trillion, or pass a balanced budget amendment to the Constitution, cuts will be imposed, half on “defense” and half on domestic programs, to reach the $1.2 trillion. This doesn’t sound all that good to those of us who would really like to see government, even that government that seemingly benefits us, scaled back dramatically and thought we elected people to take, rather than pass on to a commission, responsibility for governance. But there seems to be another glaring flaw for those of us who would like to see tax increases limited to a minimum and accompanied by drastic simplification of the tax code.

The committee will be working off a baseline that assumes that the Bush tax cuts, all of them, not just the cuts for those in the top brackets, will expire. Given how these tax cuts are scored, their expiration results in an additional $3 to $3.5 trillion in revenue, depending on who is counting. So the committee assumes that revenue will increase by $3.3 trillion or so by virtue of the expiry of the Bush tax cuts and must therefore reduce the deficit by $1.2 trillion in addition to that $3.3 trillion. It will be tough enough for these pols, who make their livings spending other people’s money, to find $1.2 trillion in expenditures to cut. Finding $4.5 trillion in spending cuts, the amount necessary if the Bush tax cuts are allowed to continue (i.e., if taxes are not raised) will be well nigh impossible. Therefore, the Bush tax cuts will have to be allowed to expire, which is a somewhat more digestible way of saying that taxes will have to be raised. And the tax increase (other wording will be used, to be sure) will be done under cover of required deficit reductions. One can bet that it will not be only Democrats crying crocodile tears while protesting “I didn’t want to raise taxes, but, gee willikers, we had no choice given the restrictions of the deal made to avoid default.” Members of neither party will mention at that juncture that it will have been they who cut the deal that requires them to raise taxes.

This seems so obvious to me that I think I must be missing something. If I am wrong that the baseline from which the committee will be working assumes expiry of the Bush tax cuts, please let me know. I don’t think I am, but I’ve been wrong a few times in my life.

PERHAPS ALL WE NEED IS A LITTLE RE-EDUCATION

2011-08-02T14:28:00.000-07:00

8/2/11

The first paragraph of a page A1 story entitled “Egyptians Turn on Liberal Protesters” in today’s (i.e., Tuesday, 8/2’s) Wall Street Journal reads as follows:

Mobs of ordinary Egyptians joined with soldiers to drive pro-democracy (MQ—Pro democracy???!!!!, but I digress.) protesters from their encampment in Tahrir Square here Monday, showing how far the uprising’s early heroes have fallen in the eyes of the public.

The story goes on to say

Their (i.e., the “pro-democracy” protesters) continuing protests have also angered many Egyptians who want an end to unrest they say has frightened away foreign tourists, damaged the country’s economy, and increasingly undermined their livelihoods.

and to quote Mr. Tareq Shawky, a 42 year old toilet equipment vendor who took the time from his work (a concept with which the “pro-democracy” demonstrators have scant familiarity) to help dismantle the encampment of the “pro-democracy” yahoos. Mr. Shawky opined

“The Egyptian citizen wants only two things—security and low prices. The millions of Egyptians will do anything the army tells us to do.”

Where, oh where have you heard that the anti-Mubarak demonstrations (riots, really) had their origin in economic deprivation borne of a worldwide commodity inflation, not in a sudden awakening to the wisdom of the “pro-democracy” demonstrators who saw an opportunity to get on worldwide television and perhaps impose their vision of “democracy” on those who actually work for a living? Loyal readers, of course, remember, that such prescient sentiments were expressed in the following posts on this very website:

YOU BREAK IT YOU BOUGHT IT… 1/28/11
“…HE’S AN EGYPTIAN…” ??? 1/29/11, and
AFTER ALL THESE CENTURIES, THE EGYPTIANS STILL HAVE SOMETHING TO TEACH US, Parts I and II 2/3/11

What went on in Egypt and is going on now is a story as old as time: a group of overeducated, understimulated, extravagantly pampered yet remarkably doltish children of the very well off decide, with very little evidence other than being told their whole lives that they are just the most wonderful things ever to grace our universe, that they should be able to tell everyone else how to run their lives. Egged on by a consanguineous media, they act on their delusions of superior wisdom and insight by demonstrating, rioting, legislating, or otherwise seeking to impose their oddball visions of utopia on the those who actually work for a living, know better, and don’t need to be told how to conduct their lives by a bunch of kids whose most salient traits are a hyper-inflated self image that manifests itself by bad cases of diarrhea of the mouth and constipation of the mind.

We saw this phenomenon in the ‘60s and ‘70s in this country when the sons and daughters of the wealthy decided it would be fun to cure their boredom, demonstrate their manifest insight, avoid having to deal with the real world, and maybe even get lucky by burning down the nation’s campuses. Such miscreants have since gone on to positions of great authority in government, politics, education, and the non-profit sector, positions from which they finally realize their dreams by wreaking even greater and more enduring damage on the nation they so despise.

The “pro-democracy” demonstrators in Egypt are cut from the same cloth as the self-determined superiors who continue to tear at the fabric of our society. Despite what they call themselves, they seek not that the people govern themselves but that they, the demonstrators, govern the people. The evidence of this “I’m going to impose on you what you need whether you like it or not” attitude is provided in the words of Mr. Mahmoud Abdallah, a “pro-democracy” demonstrator thus quoted in the Journal article:

“The people don’t know what is good for them. They don’t have any awareness. They just want to make money.”

Bernadine Dohrn, Bill Ayers, and Abby Hoffman, who never had to worry about making money because their parents gave it to them, couldn’t have said it better. I am sure that Mr. Mahmoud, like his American predecessors of the ‘60s, would be glad to impose on average Egyptians what is good for them, by force if necessary, just as a similar band of young, ever so self-confident idealists did in Russia in 1917.

The Journal quotes Sahdi Hamid, director of research at the Brooking Institution’s Doha Center as saying

“The liberal and leftist groups that were at the forefront of the revolution have lost touch with the Egyptian people.”

Mr. Hamid is wrong in this particular contention; the liberal and leftist groups, over which the American media fawned so effusively a few months ago, never were in touch with the Egyptian people.

RAHM EMANUEL IS NOT TOM DEMPSEY

2011-07-30T19:39:00.000-07:00

7/30/11

As loyal readers know, I’ve not been Rahm Emanuel’s greatest fan. In fact, when Mr. Emanuel first threw his hat in the ring for mayor of Chicago, I didn’t think he had a chance of replacing Mayor Daley. Arguing that he had no organization on the ground here, no real experience in Chicago politics, and a reputation for toughness that was largely a fabrication of a consanguineous media and Washington political establishment, I contended that Mr. Emanuel would wither and fold when faced with the Machiavellian tactics of the real tough guys who hold the inside seats in the politics of our town. When it became obvious that Mr. Emanuel would win because the Daleys and most of the city’s political and business establishments had joined the media completely in the tank for this guy and the competition was composed of the political equivalent of Muhammad Ali’s “bum of the month club” from the 1970s (two not at all unrelated developments), I begrudgingly conceded that Rahm Emanuel would be our next mayor. When even the most powerful ward organizations either couldn’t or wouldn’t turn out the vote for Mr. Emanuel’s pathetic opposition (See my 2/22/11 post, “IT’S OVER, IT’S OVER!!!”), the deal was sealed and Rahm Emanuel became our mayor. I wasn’t happy about it, but for stylistic, rather than ideological, if indeed ideology has anything to do with running a city, reasons.

While I have no problem admitting I was wrong in my prognostications, I do have problems admitting I was wrong about the desirability and ability of people in leadership positions. But I must overcome those problems in this case. So far, Mayor Rahm Emanuel is doing a terrific job in running this city. He seems to have wasted little time in addressing the woeful fiscal mismanagement that has plagued our city for at least the last ten years. He shows little compunction about attacking the structural problems of Chicago government, many of which have their geneses in a sense of entitlement that has been imbued in some people by political connections that span generations and he is not afraid to stand up to the municipal workers’ unions that make lesser politicians either crumble or mutter with frustration. It’s early, but, so far, my hat is off to Mr. Emanuel, despite my many misgivings about his approach to politics and government. (See, inter alia, my 6/23/11 post “A WHOLE LOT OF SHAKIN’ (DOWN) GOIN’ ON”.) Whether his approach to addressing the city’s problems will result in his meeting his comeuppance from people who have spent their lifetimes feeding at the troughs he is seeking to dismantle is another issue, but so far, so good for Rahm Emanuel.

A second point on Mr. Emanuel…

Readers of my books who are immersed in Chicago politics like to approach them (The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, both available on Amazon.com, other online booksellers, at independents throughout Chicagoland and, on order, from any place that sells books) as puzzles in which the reader tries to determine which fictional characters are “really” which real characters. Ever since Mr. Emanuel became mayor, and even before, numerous people have come up to me, or written me, saying something like “Oh, Tom Dempsey (the ingénue quasi-reformer who became mayor, and one of the first book’s antagonists) is definitely Rahm Emanuel, right?” While one can see how people could make that connection, Tom Dempsey is NOT Rahm Emanuel for two very good reasons.

First, nobody in the books is anybody in real life. Every character is an amalgam of several, or many, real life characters. Just as Chairman Eamon DeValera Collins is not, as some have guessed, Ed Burke, Michael Madigan, Bill Banks, Ed Vrdolyak, or anyone else, Tom Dempsey is not Rahm Emanuel, Jane Byrne, Dan Walker, or anybody else. He is Tom Dempsey.

Second, Tom Dempsey was conceived in my head long before then Congressman Rahm Emanuel expressed any desire to become mayor of Chicago. At the time The Chairman was being written, Rahm Emanuel’s ambition was to be Speaker of the House. So Rahm Emanuel was not even among the legions of people that are reflected in the character of Tom Dempsey. But, rereading passages in the book about Mayor Tom Dempsey, it is easy to see how a reader could think Mr. Emanuel was his inspiration. Whether Rahm Emanuel will meet a fate similar to that of Mr. Dempsey is another issue; such an outcome seems nearly impossible at this point, but, again, it is early and strange things happen in Chicago politics. Ask, oh, Jane Byrne or Dan Walker.

MAYBE WASHINGTON ISN’T SO BYZANTINE AFTER ALL

2011-07-30T10:37:00.000-07:00

7/30/11

While I may not have a great deal new or especially insightful to say about the debt ceiling, spending reduction, default avoidance, balanced budget or whatever the pols and the punditocracy prefer to call them talks on a given day or at a given hour, I feel compelled to talk about the burning issue du jour that will be forgotten in about three weeks. Further, I may not say anything that you haven’t heard elsewhere, but I can almost guarantee my readers that I will say it better than most anyone else. As I sometimes do in these disjointed commentaries on disjointed topics, I will resort to bullet points of a sort:

--Will there be a default?

While I hate being in the middle of anything other than a great trade, a stimulating conversation, a nice long drive, or a good meal, I find myself in the middle of this ideological struggle, as I do increasingly on any number of issues. On one hand, we have the “right’s” current talking point (I can always tell when we are dealing with the “right’s” talking points when I hear nearly identical words, expressing the exact same sentiment, from a number of acquaintances whose only common attribute is their nearly religious tuning in to the likes of Rush Limbaugh and Sean Hannity, but I digress.) that there won’t be a default because the government takes in roughly $3 trillion a year and pays about $400 billion in interest and hence can easily service its debt. Since debt service takes first priority, there is no way, this logic goes, that the government will default.

On the other hand, we are given seemingly credible numbers that show that if nothing is done on a debt deal, we will default come Wednesday, August 3, given the government’s cash balances and a big social security payment that goes out that day. This is a cash management problem that cannot be addressed by the “right’s,” and my, preferred method of cutting some program; cutting or eliminating a program has no immediate cash management ramifications if “immediate” is defined as three days. If these numbers are to be believed, somebody will not get paid on Wednesday. If the government decides to pay its creditors, it will have to stiff somebody else. So, whether the government defaults on its debt or not, it will default on some kind of obligation, and probably a contractual obligation. This is not a good thing and would call the government’s credibility (Hah!) into further question even if the creditors get their dough.

Note the words “If these numbers are to be believed” in the last paragraph; as I have said on numerous occasions, politicians, as a class, reflexively lie because lying comes at least as naturally to them as telling the truth, so perhaps those numbers are part of the effort to get the old credit card limit bumped up without having to do much of anything to restore the confidence of those issuing the card. I NEVER discount the possibility that the pols are prevaricating.

All of this will probably be moot because, if I had to make a prediction, the pols will come up with some half-hindquartered scheme to increase the debt limit sometime in the next few days, but there is always the possibility that these charlatans won’t even be able to put on a temporary patch.

--What will be the consequences of a default?

Here I find myself again uncomfortably in the middle. The “right’s” take seems to be something along the lines of “So what if we default? Who cares if the Chinese don’t get paid?” The “mainstream” view seems to be that default will be some sort of cataclysmic event that will leave us gathered around campfires outside our caves ruminating on the good old days before 8/3/11.

While defaulting won’t be, as Andy Sipowicz once put it in a completely different context, “tea with the friggin’ queen,” it won’t be any kind of cataclysm. Nor would a virtually certain, even without a default, downgrade of the U.S. from AAA to AA, even if anybody other than the financially illiterate paid attention to the rating agencies any more. Yes, there might be problems in the repo market, with bank reserves, and even with banks’ capital bases if a downgrade, the last two if a default forced write-downs. But the market will recognize a default as very temporary and institutions that must eschew defaulted debt will be able to take advantage of existing or quickly improvised grace periods to continue to hold onto their treasuries. Our foreign creditors’ reaction, if anything, will be similar; default, and a downgrade, will confirm what they already know about our government but will do nothing to provide alternatives. So the long run consequences for the desire of creditors to hold our debt will be modified, if at all, only slightly by either a downgrade or a default.

My favorite misguided reaction to a potential default was the contention by many in the financial and non-financial media that a default will result in “two extra percentage points on mortgages and other consumer loans as the interest the government must pay goes up.” This contention was made repeatedly yesterday (I spent much of yesterday listening to CBS news and the radio versions of CNBC, Bloomberg, and CNN while driving from New York to Chicago.), a day on which the ten year treasury’s yield fell to 2.80%, its lowest yield since last November. While some of that drop may have been attributable to the lousy GDP numbers released yesterday morning, the irony remains delicious, as does the concern that people who hawk such nonsense not only get to vote but influence the votes of others who badly need some prep work to vote intelligently, but that is another issue.

--It’s easy to sympathize with the Tea Party…

Jim Cramer spent the better part of a CNBC segment with a tea party Congressman (whose name I couldn’t write down because I was at the threshold of the George Washington bridge during Mr. Cramer’s rant), attempting to figuratively beat the hell out of the guy, arguing that (paraphrasing Mr. Cramer’s words for the same reason that I do not remember the congressman’s name)

average investors, many of whom are your constituents, will lose a lot of money today because of your intransigence.

The tea party guy was not sufficiently quick on his feet to say what instantly came to my mind, something like “The problem is not the solution; the problem is the problem. Debt is the problem and has to be addressed; rarely do we get a chance to focus the country on a problem that will prove to be its ruin if left unchecked. Yes, there might be some short term pain, akin to the pain an addict feels when he is forced to withdraw from heroin. But continuing his habit will surely kill him. We have passed the point at which this addiction to debt can be addressed painlessly, mostly because a series of half-measures have been applied due to our nation’s inability to deal with even the mildest of discomfort.” But I am not a congressman, nor do I write or advise a congressperson, much to the nation’s detriment, but I digress.

I don’t fault the tea partiers at all for seizing the day and being “obstructionist.” You have to play a decent hand when you are dealt a decent hand, and they are largely right, if a bit naïve, about what needs be done.

--…but there is a better way out of the larger problem.

It’s too late now to address the debt ceiling in this manner, but the best plan out there is the plan put forth by the Gang of Six, which is essentially what was formerly called the Rivlin Plan and differs only in detail from the very meritorious Simpson-Bowles plan. Despite what people who normally think like I do would say, we’re going to have to raise some revenue to address this problem because we’ve already spent the money (usually with only token resistance, and no resistance or active encouragement, from those now protesting most stentorially when they were the beneficiaries, direct or indirect, of that spending) and can’t grow our way out of this one. The beauty of the Gang of Six and similar plans is that they raise money not by raising marginal rates but by eliminating deductions, i.e., by cleaning up the tax code and getting the government out of the business of allocating capital. So these plans give us both deficit reduction and a flatter, simpler tax code with lower marginal rates. The latter used to be a dream of the small government crowd, and remains a recurring one for those of us who really believe in what we say we believe in, but ask many newcomers to the small government game if they would favor, say, eliminating or even reducing the mortgage deduction in exchange for a lower tax rate and they will scream either “tax increase!” or “bloody murder!” So it goes.

If by some miracle, Speaker Boehner gets his commission, the likely product will be something like Gang of Six or Bowles-Simpson (So why do we need another tiresome commission? Great question for normal people, silly question for a politicaster, but I digress.), so something good could possibly come out of these machinations. But I doubt it.

--What a great country!

In this case, I am speaking of Turkey. I raved about Turkey in my instantly seminal piece of 7/30/11, ODYSSEUS, AENEAS, AND ME, and this crisis has given me further reason to laud the birthplace of St. Paul. As quoted in today’s (i.e., Saturday, 7/30’s, page A5) Wall Street Journal, a “leading member of (Turkey’s) ruling Justice and Development Party recently warned Turks (in reaction to the debt problems in Washington and in Europe) to

“…hold on to what you’ve got. Don’t spend too much.”

If we had pols (or financial and economic “experts”) like that here, we wouldn’t be having this discussion today.

“YEAH? WELL I MEAN BUSINESS, TOO.”

2011-07-24T12:05:00.000-07:00

7/24/11

Today’s (i.e., Sunday, 7/24, page 4A) Chicago Sun-Times reports that shootings by police in Chicago are on the rise this year. Forty suspects have been shot by the Chicago police so far in 2011 and 16 of those were killed, compared with 13 fatalities in cop shootings in all 2010.

Especially interesting, and curious, in this article is the statement

Even though such shootings are on the rise, overall violent crime in Chicago is falling this year, police say.

Why the “even though”? Could it be that Fraternal Order of Police spokesman Pat Camden, quoted in the article, is wrong when he says “There’s no fear of the police”? Perhaps there is indeed fear of the police and that overall violent crime is down in Chicago precisely because the police are shooting and that, as the article reports

…the Independent Police Review Authority rarely deems a police involved shooting to be “out of policy,” and no Chicago police officers have been charged with criminal wrongdoing involving shootings in recent memory.

the department is backing them up. It stands to reason that a potential criminal might think twice if he knows his chances of being fatally shot by law enforcement officers are increasing.

THREE SAD STORIES, SAD BUT TRUE, ABOUT A GIRL THAT SOME ONCE KNEW…

2011-07-23T11:05:00.001-07:00

7/23/11

This morning, I was reading the newspaper stories about the debt ceiling negotiations and the bombing and shooting spree in Norway that killed, at last count, 87 people. Hoping to get some updates on these very major stories, I turned on the CBS radio news at noon. What was the lead story, amid the dance of the dunces in Washington and the tragic murders in Norway? Someone named Amy Winehouse was found dead in her home in London. This “story” was also the lead on the 12:30 news.

There is little doubt that, judging from that “news” flash, that Ms. Winehouse’s story was a tragic one of her inability to deal with her addictions to drugs and alcohol. Admittedly, it is hard to sympathize with someone who, again, judging from the news stories, positively and unabashedly celebrated in “song” the addictions that killed her, but, nonetheless, addiction is a devastating and debilitating (the latter often too weak a word) demonic disease that is, in many cases, far stronger than its victims. Ms. Winehouse deserves our pity and our prayers, even if mixed with a healthy measure of our criticism for her unwillingness to take the steps necessary to deal with her maladies and the example she set for others prone to her disease. But many, many others deserve our pity, prayers, and whatever help we can provide, help that Ms. Winehouse reportedly repeatedly refused. Why is Ms. Winehouse’s sad story apparently so newsworthy when the similar tales of millions of others routinely ignored?

It’s hard to determine which is sadder, Ms. Winehouse’s tragic life or our media’s, and apparently our people’s, decision that her story is somehow more newsworthy than the deaths of scores in Norway and our government’s utter inability to address the problems it, and those who elected it, have created. Maybe we should go one step further by introducing a third baleful aspect of this story: according to this news report, Ms. Winehouse’s “work” has won several Grammies (Grammys?). From what I heard in the story, Ms. Winehouse’s music is, to put it nicely, whiny, tuneless, artificial, and dyspeptic. Yes, I know I sound like my dad complaining about “all that crap you kids listen to” when I was squandering entirely too much time listening to the music of my era (or usually prior eras, as my friends in my formative years can attest, but that is another story), but Ms. Winehouse’s work is simply awful. But the American people (and, people across the globe) apparently like to be aurally assaulted, and Ms. Winehouse's drivel is only one example of our utter disdain for silence or pleasant music or sounds and our strange preference for all noise, all the time, but that, too, is grist for another mill. And that, too, is very sad, or, rather, pathetic and emblematic of the rapid acceleration of our downward spiral into a certain dystopic future.

LIKE THE CUBS’ PROVIDING ADVICE ON HOW TO PLAY BASEBALL

2011-07-21T13:57:00.000-07:00

7/21/11

Today’s (i.e., Thursday, July 21’s, page A12) Wall Street Journal reports that the IMF is urging China to adopt

…a stronger currency, higher interest rates, reduced advantages for big state-owned enterprises, and a liberalized financial sector.

These ideas have some merit, but they will be, for the most part, ignored. One can understand China’s reluctance to let the yuan appreciate substantially; the Chinese hold a lot of dollar denominated assets ($1.3 trillion in treasuries alone), so letting the dollar depreciate would result in quite a blow to their reserves. (See two posts on this subject, LOOK WHO’S PULLING THE RICKSHAW NOW, 6/21/10 and YUAN I SHOULD BUY SOME MORE STUFF FROM YOU?, 3/8/11) Chinese officials deny this, arguing that conversion is little more than a remote, theoretical possibility, but to deny such an impact is the equivalent of denying the tides. And one suggests a bit of disingenuousness in their denials. But I digress.

While the Chinese will understandably pay little more than lip service to letting the yuan rise, they will get positively apoplectic at the suggestion from the IMF that they liberalize their financial sector. Yes, liberalizing the financial sector is advisable, and in all likelihood necessary, if China is to become the economic and financial superpower its potential indicates it will. However, an understandable reaction from the Chinese is something like

Where does the West get off lecturing us on how to run a financial sector?…and indeed they have a point. After our, and especially the U.S.’s, financial sector nearly drove the world into the depths of new economic dark age, where indeed do we think we get the authority to lecture the Chinese on running their financial sector?