30 September, 2008

"All experts believe",,,NOT

I'm growing tired of the ever-narrowing gap between reporting and commentary in the current financial mess. CNN and CNBC, although not alone, seem particularly guilty in this regard. The past day I've heard the situation defined as a "crisis," requiring immediate and radical action that--coincidentally?--places more power in the hands of government in general, and in particular the hands of many of the people most responsible for this mess.

Where are the questions? How do we know the crisis is a big as we're told, or the proposed solution would work? We're told "everyone knows"--just like the intelligence leading up to the Gulf War, or the threat analysis after 9/11. Look how well those worked out.

Yesterday morning it struck me that we'd seen this before. And we have: the proposed bailout is to the American financial system what the PATRIOT Act was (and is) to American civil liberties.

But the expert opinion has not been unanimous, no more than it was before the war. Here are a few smart people who make a good case against the proposed bailout:

Jeffery Miron argues that bankruptcy is preferable to the bailout, and gives reasons why.

David R. Henderson argues against it, too.

So does Alan Meltzer, in his NPR interview.

David Cay Johnson discusses what the press should be doing.

Maybe the American people, and the House of Representatives, aren't are dumb as some think they are.

27 September, 2008

Financial transparency

As long as we're fixing the regulatory system, there's a technological fix that will do wonders for transparency:

Technological limits used to mean that any kind of data had to be laboriously culled and aggregated before being submitted to regulators. Now, innovations such as XML tags and data syndication in formats such as RSS (as a Huffington subscriber, you get the Post via an RSS feed) or KML (used for Google map mashups) make it simple for companies to automatically combine the data and release it, whether internally or to regulators -- and even to the public.

The District of Columbia, long plagued by corruption, began a transparency initiative under former Mayor Anthony Williams. It shifted into high gear under Mayor Adrian Fenty, and CTO Vivek Kundra. They now publish, on a real-time basis, more than 260 different data streams of statistics as varied as violent crime, building starts, and even requests to fill potholes. All of those statistics are available for anyone to analyze and interpret, and current uses range from tracking development around the new Nationals Park to showing crime reports on a Google Map.

Equally important, District agencies use the same data feeds internally to deploy their workforces more effectively, and break down barriers to cooperation between agencies.

If the same system was applied to banking, critical statistics could flow automatically to federal regulators, while also being available to the banks' own staff -- many of whom have never had real-time data access in the past. Combined with innovative web-based tools to turn obscure data into easy-to-understand visualizations, for the first time the workforce, as well as regulators, would have the kind of real-time information that's essential in today's global economy, whether to regulate businesses or to run them.

Furthermore, if the data were automatically "scrubbed" of identifiers and any kind of information that might be a legitimately competitive concern, it might also be possible to aggregate and publish the data externally, so that the general public, media, and scholars could also subscribe to, analyze, and scrutinize the information on a real-time basis. The Patent Office is experimenting with an analogous innovation, the Peer-to-Patent program, which allows anyone with relevant expertise to review a pending patent and submit commentary to the Patent Office.

You can't oversee a globalized economy with 20th century methods. And if something like this had been in place, external observers could have brought more pressure to bear on Congress and on regulators, avoiding some of the current disaster.

22 September, 2008

Better ideas

Here are some better ideas about bailouts. The details matter. In the long run, the details are what matter most.

21 September, 2008

How far the fall?

The BBC put together this little chart. Sometimes, it's best to use a picture.

Out of the loop

From a forthcoming book, excerpted in the Washington Post, comes an enlightening view of the politics of the Bush White House. Meanwhile, VP Cheney has been ordered by a Federal judge to preserve all records of his time in office.

I'm not thrilled about Obama. I've never voted for a democrat for president. One of the best reasons to vote for this one is the off chance that we might actually get an investigation (and/or leaks) that tells us what the hell has been going on for the past eight years.

It's going to be interesting to watch the weeks between an Obama victory (of it happens) and the end of the Bush administration. I expect a lot of paper-shredding and "accidental" erasures. I wonder: can a president pre-emptively pardon himself?

The market meets a need

Even as the government-regulated markets teeter on the brink, it's good to remember the good that can come from the gray and black markets--simple supply and demand, and entrepreneurship. In Estonia, the government discovered a underwater pipeline that was set up to pump cheap Russian vodka two kilometers under a reservoir into the country, where it could be sold without export tariffs. At least 6,200 liters of it were pumped under the border before it was shut down.

How much is the tariff on imported vodka in Estonia? It must be substantial to justify the investment in a pipeline. And why should anyone assume there's only one?

Foreign policy debate

I'll be one of the participants in a pre-debate roundtable starting Friday 8 pm, September 26th,
in the MPR of the University Union.

The topics are foreign policy and national security.

I hope it will be interesting, but we shouldn't overhype the debates.

"Debates are like a restart button in the campaign. That's where viewers say, wait a minute, I don't have to make up my mind until I see them both in an equal footing in an unscripted situation," he said.

"But you know what's interesting? In 2004, John Kerry won every debate against George Bush. Every single one we polled after each debate. People thought Kerry was the better debater. But winning the debate does not give you the prize of being elected president."
--Bill Schnieder, CNN

Socialism of the rich

The US has bailed out AIG, in the process taking operational control of the company. I haven't seen all the details, but I suspect some variation on the "golden parachutes" deployed from Fannie Mae and Freddy Mac. The government then proceeded to dump $700 million into the markets to pick up the "toxic mortgages" and other bad paper that threaten to freeze the credit markets.

Some kind of bailout is probably necessary, if we are to avoid a collapse on the scale of the Great Depression. The more I look at the details of this deal, it looks like a scam.

There's no surprise to that. For the largest players, the system has been a cycle of booms and bailouts for several decades: private profit, public risk. We can talk about credit-risk derivatives, greed, complexity, moral hazard, over-leveraged deals, and so forth, but there's a more basic problem. As one observer put it,
If financial behemoths like AIG are too large and/or too interconnected to fail but not too smart to get themselves into situations where they need to be bailed out, then what is the case for letting private firms engage in such kinds of activities in the first place? Is the reality of the modern, transactions-oriented model of financial capitalism indeed that large private firms make enormous private profits when the going is good and get bailed out and taken into temporary public ownership when the going gets bad, with the taxpayer taking the risk and the losses? If so, then why not keep these activities in permanent public ownership?

The system, as it exists--and as it is coming to be--seems to be a socialism for (some of) the rich. Financial interests--acting rationally as individuals within the system that was constructed--have bet that there will always be a "sucker" to take the bad paper. It might be foreign investors. It might be the Chinese government. It might be somebody's retirement fund. When the world finally runs out of chumps, the bet went, there's always one you can depend on: the US government, backed by the American people.

Well, crunch time is here, and it's time to see what kind of a penalty the hedge fund managers, et al, will pay for their actions. At present, it looks like socialism for the rich will endure. Or, as suggested above, another kind of socialism might be tried, one that probably would do no better. Either way, some people are being granted the power to manufacture money, without fear of paying for their mistakes. Becasue of basic economics, the bill will have to be paid by someone--through inflation, a falling dollar, unemployment, etc. It just won't be these guys.

Of course, you can trust the government to do what's right, uninfluenced by lobbying or partisanship. In the final analysis, this is a system of laws, right? The national interest includes all of us, right? It isn't even possible to use these tools to consolidate power or crush opposition, right? Right?

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

--From the proposed $700 billion bailout legislation

Why am I not relieved?

10 September, 2008

The fighter jock versus the jurist

Part of the McCain-Obama contest is about "temperament," beyond the particular issues, and its no wonder the most fervent supporters of each can't stand the other. As the VP selection process indicates, they operate in very different ways.

John McCain remains in many ways the fighter-jock. He trusts his instincts. He's willing--he enjoys--flying off into new directions. A successful fighter pilot is not stupid, by any means, but there's not a lot of time in a dogfight for deliberation. It's best to move, and move now, before the opposition is sure where you are. If your choice is not the ideal move, that may still be ok. If you can keep shifting faster that the other guy, you can correct your errors while his errors accumulate. It's Boyd's OODA: Observe/Orient/Decide/Act (repeat as necessary).

Barack Obama is by training and temperament a jurist. For him, the decision-making model is the analytic loop drilled into first year law students--IRAC: Issue/Rule/Analysis/Conclusion. It's essentially conservative, in the sense that it discourages rapid change or experimentation. Oddly enough, for the "change" candidate, there's remarkably little in his program that hasn't been knocked around in Democratic think tanks for years.

Fighter jocks think tactically, but they can miss the big picture. They focus on how to improve the situation in Iraq, but are less likely to ask whether the war is necessary. Jurists think in terms of general principles and precedents, but avoid the particulars. Once they decide Iraq is the wrong war to fight, it doesn't much matter to them what is happening on the ground.

Jurists campaign systematically. They organize, they build their forces, they organize some more. They stay on message. They think things through. They strive to avoid mistakes. They conduct long search processes that result in conventional choices. Fighter jocks enjoy coming from a direction you didn't expect. They take long gambles. They go with their gut. They hold the decision close, make it quickly, and look for ways to rattle the opponent. On occasion, they crash. Then, if it doesn't kill them (and on occasion those who fly with them), they learn to do better.

(Remember the movie Top Gun? The hero's call sign was "maverick.")

Long political campaigns favor the systematic, the organizer, the jurist. The last two months before the American election, down and dirty, with charge and countercharge, play to the strengths of the fighter jock.

08 September, 2008

Disturbing news

From the International Herald Tribune:

KARALETI, Georgia: Russian soldiers prevented international aid convoys from visiting Georgian villages on Monday in a blunt demonstration of power in a tense zone around the breakaway province of South Ossetia.

The ambassadors of Sweden, Latvia and Estonia said they also had been barred from visiting villages beyond Russian checkpoints.

Monday's show of authority came as French President Nicolas Sarkozy tried in Moscow to persuade Russia to honor its pledge to pull its troops back to the positions they held before the fighting broke out Aug. 7.

A convoy of four vehicles from U.N. aid agencies waited for about an hour at the checkpoint in Karaleti, but was turned away after a brief discussion with a Russian general who arrived to negotiate. The three aid agency SUVs and a World Food Program truck loaded with wheat flour, pasta, sugar and other staples were headed to Georgian villages around South Ossetia.

An old lesson: he who controls the ground makes the rules. I really thought (hoped) the Russians would do a quick incursion, withdraw for peacekeepers (including their own), and try to get it all over with as soon as possible. I was wrong. Not just this action, but the pattern of action indicates a return to a more open imperialist stance.

I suspect that Russia has concluded that for the immediate future more formal integration, like WTO membership, isn’t as important as it used to be. Likewise, Russian stock markets have been falling, and that doesn’t seem to both Putin/Medvedev much.

There’s a window of opportunity here for Russian expansionism (or reestablishing its traditional sphere of influence, if you care to look at it that way). One reason for that is oil. There’s a good connection between oil prices and authoritarianism among oil producers. Today, crude oil is at $108 per barrel, and OPEC suggests an oil price range from $113 a barrel to as high as $186 a barrel by 2030. GAZPROM, Russia’s monopoly, predicted oil prices could hit $250 a barrel in 2009. While that’s less likely now than it seemed six months ago, one thing that could drive up the price is a perception of political instability. In that sense, while war is bad for people who profit from production and open markets, it can be great for the state oil monopoly. We seem to have an ugly cycle emerging, and few of our potential punishments do anything more than reinforce it.

A way to break the cycle is to reduce global dependence on a few oil producers. Even if it is possible, it takes time. Hence, a window of opportunity for Russia.

What does this mean for the emerging rule set? I suspect it will look a lot more like regional blocs and spheres of influence than a global Leviathan/SysAdmin. A global system might be sold as being in Russia’s interests, but they seem to have concluded that it isn’t going to happen, so the best they can hope for is regional integration and domination. Acting on that analysis tends to be self-fulfilling.

The post-convention bounce

According to a USA Today poll, "McCain leads Democrat Barack Obama by 50%-46% among registered voters, the Republican's biggest advantage since January and a turnaround from the USA TODAY poll taken just before the convention opened in St. Paul." Prior to the convention McCain lagged by 7 percentage points.

Don't read too much into it.

07 September, 2008

Factchecking the speeches

A useful on-line device is FactCheck.org, a nonpartisan site devoted to checking the "facts" tossed around by the candidates. Sometimes, of course, there are no facts. One can't find a reference to measure "hope" or "courage". Sometimes--and I'd put Ronald Reagan in this category--the candidate would speak in parables and metaphors. I don't think we were supposed to believe all the details. But where you can check the numbers, it's good to do.

So how about these candidates? Let's compare the acceptance speeches of Obama and McCain. Obama first. From FactCheck:
  • Obama said he could “pay for every dime” of his spending and tax cut proposals “by closing corporate loopholes and tax havens.” That’s wrong – his proposed tax increases on upper-income individuals are key components of paying for his program, as well. And his plan, like McCain’s, would leave the U.S. facing big budget deficits, according to independent experts.
  • He twisted McCain’s words about Afghanistan, saying, “When John McCain said we could just 'muddle through' in Afghanistan, I argued for more resources.” Actually, McCain said in 2003 we “may” muddle through, and he recently also called for more troops there.

  • He said McCain would fail to lower taxes for 100 million Americans while his own plan would cut taxes for 95 percent of “working” families. But an independent analysis puts the number who would see no benefit from McCain’s plan at 66 million and finds that Obama’s plan would benefit 81 percent of all households when retirees and those without children are figured in.
  • Obama asked why McCain would "define middle-class as someone making under five million dollars a year"? Actually, McCain meant that comment as a joke, getting a laugh and following up by saying, "But seriously ..."
  • Obama noted that McCain’s health care plan would "tax people’s benefits" but didn’t say that it also would provide up to a $5,000 tax credit for families.

  • He said McCain, far from being a maverick who’s "broken with his party," has voted to support Bush policies 90 percent of the time. True enough, but by the same measure Obama has voted with fellow Democrats in the Senate 97 percent of the time.

  • Obama said "average family income" went down $2,000 under Bush, which isn't correct. An aide said he was really talking only about "working" families and not retired couples. And – math teachers, please note – he meant median (or midpoint) and not really the mean or average. Median family income actually has inched up slightly under Bush.
How about McCain?
  • McCain claimed that Obama’s health care plan would "force small businesses to cut jobs" and would put "a bureaucrat ... between you and your doctor." In fact, the plan exempts small businesses, and those who have insurance now could keep the coverage they have.

  • McCain attacked Obama for voting for "corporate welfare" for oil companies. In fact, the bill Obama voted for raised taxes on oil companies by $300 million over 11 years while providing $5.8 billion in subsidies for renewable energy, energy efficiency and alternative fuels.

  • McCain said oil imports send "$700 billion a year to countries that don't like us very much." But the U.S. is on track to import a total of only $536 billion worth of oil at current prices, and close to a third of that comes from Canada, Mexico and the United Kingdom.

  • He promised to increase use of "wind, tide [and] solar" energy, though his actual energy plan contains no new money for renewable energy. He has said elsewhere that renewable sources won’t produce as much as people think.

  • He called for "reducing government spending and getting rid of failed programs," but as in the past failed to cite a single program that he would eliminate or reduce.
  • He said Obama would "close" markets to trade. In fact, Obama, though he once said he wanted to "renegotiate" the North American Free Trade Agreement, now says he simply wants to try to strengthen environmental and labor provisions in it.
It seems there's enough truth-stretching there for everyone. The idea of paying from programs by "closing loopholes" and ending "failed programs" I find irksome. The math doesn't work--especially when you consider that "loopholes" and "failure" are often in the eye of the beholder.

04 September, 2008


The New York Times is reporting what it calls the first publicly acknowledged case of United States forces conducting a ground raid on Pakistani soil. This is not about "hot putsuit." It was preplanned and appears to be part of a larger operation by American speical forces.

Pakistani leaders are upset.

Me? I think it's about freakin' time.

A problem of image

"Superman is the way America sees itself, but Batman is the way the world sees America."
--Michael Caine

03 September, 2008

Pact Sunt Servanda

From Nightwatch:

Fox News is the only source to report North Korea has begun to reassemble its
nuclear facilities at Yongbyon, as it threatened last week. Fox cited statements
by US official sources who were not identified by position or name. Fox also
provided no details as to just what activity is taking place that is related to
reassembly of the facilities. Fox appears to have been co-opted into a North
Korean ruse considering North Korea made the threat last week.

There are far too many unknowns and uncertainties to credit the Fox report so soon after the North Korean threat. The main point is the North has the technical capability to reassemble the facilities at Yongbyon eventually, which distinguishes the
North’s statements as threatening, instead of bluffing. Actions to reassemble
Yongbyon facilities would be consistent with the North Korean tactic of forcing
the US to re-negotiate over old issues that were settled in earlier talks.
Whenever the North thinks it can get a better deal, it simply changes the rules
and sometimes the game. If the US chooses to stay engaged, Ambassador Hill or
someone else must now re-negotiate for the dismantlement conditions that the US
worked five years to achieve. That would be the significance of increased
activity at Yongbyon, if confirmed. In short, the price of North Korean cooperation went up again.

"I am altering the deal. Pray I do not alter it further."

--Darth Vader to Lando Carlissian