Archive for October, 2008

The Thinker


I was one of those people watching the Obama infomercial last night. I didn’t actually watch it live. I was buying a rug at the time. After it was hauled home and laid out over our new wood floor, I took the time to watch it online. Man, that was one slick infomercial!

Frankly though, I have come to expect slick from the Obama campaign. If Obama wins the presidency next Tuesday as all but a handful of polls suggest, the credit will have to be shared equally between Obama, who is a uniquely compelling candidate, and his campaign staff which is running probably the best run political campaign I have ever seen.

It helps to have tons of cash, of course. Many of us older Americans are still in shock from learning of his $150 million haul in campaign contributions in September. In fact, I still cannot get it through my brain that Democrats, mostly through grass roots efforts, are raising more money than Republicans. Until recently, one thing you could always count on during a presidential campaign was that the Democratic nominee would be at a significant financial disadvantage. Typically, Republicans with their fat checkbooks raised and outspent Democrats two to one. It is my belief that this money advantage more than anything else explains why Republicans have disproportionately held the presidency for the last fifty years or so. Money buys access in the form of commercials, flyers, pollsters, number crunchers and data miners. Moneyed people, who are disproportionately Republican, also tend to either be or have more influence with powerbrokers.

The Obama team though changed the game. It starts with a compelling candidate. Clearly, Obama was not the ideal candidate, particularly when it came to experience. It would be easy to say Obama simply has charisma, but he is blessed with so many talents as a politician and speaker that it is hard to number them all. Among them is his natural eloquence, both spoken and written, as well as marked intelligence, sincerity, people skills and general niceness. I am sure there are Obama haters out there. You may loathe his policies, but you have to be part Grinch to dislike him as a person. Most politicians like, say, John McCain, paste a phony smile in front of a crowd. It is obvious that John McCain is not a happy man. That is not Obama’s problem. He smile is downright beatific. It projects the soul of a man who is at peace.

Obama’s problem though is not his liberal position on many issues. His real problem throughout the campaign has always been his race. While most Americans are not overtly racist, a sizeable minority remains reflexively racist, and an even smaller amount is overtly racist. Many of us are not even aware of our inner racism. I too sometimes have to fight feelings of wanting to walk on the other side of the street when a group of African American males is about to pass me on the sidewalk. I have to assume that a certain amount of racist feelings are hardwired into the primitive parts of our brains.

Thus, it is no small matter for us white Americans to turn off that part of our brains. Yet, for the most part, Obama has succeeded. Obama though had another unique advantage: having a black father and a white mother. He is not so much black as he is multiracial. Having grown up in predominantly white neighborhoods, he understands white America. He has spent his life traversing through it. In many ways, black America is more unfamiliar to him than white America. After graduation, he moved to Chicago specifically to get the African American experience that largely passed him by growing up.

Obama’s campaign is amazingly well managed. John McCain is getting (he hopes) some mileage by saying Obama is already measuring the drapes for the Oval Office. Here’s the thing: that’s not a bad thing, that’s a good thing. It’s not that Obama is taking his election for granted, although the polls suggest he is a shoe in, it’s just that in a well managed campaign these are exactly the sort of activities you should be doing during this part of the campaign. If John McCain is not doing the same thing, he is inept at managing his campaign.

While it remains to be seen if a President Obama will be as successful a manager of the federal bureaucracy as he is with his campaign, his slick campaign can be taken as a very hopeful sign by us disgruntled citizens. It’s been a while since we’ve seen government work in any meaningful fashion. Obama seems to intuitively understand how to walk the fine line between leadership and management. The trick is to know who to pick to be your managers and exercising the right strategies to empower and police them.

With a few notable exceptions, the Obama campaign has been classy and always three steps ahead of the competition. Reporters following him on the campaign trail are a bit disgruntled because they too are being well managed. A well-managed campaign knows how to use the press to its advantage. This means many reporters have limited access to the candidate.

Running a presidential campaign is a huge project. It spans all fifty states and even goes abroad at times. Just the logistics of managing rallies would be intimidating enough, but there is also a huge, interconnected ground game underway. Since I have given the Obama campaign money, I too have been contacted, once a week lately, to see if I will attend rallies, or canvas my neighborhood, or call undecided voters. Obama is smart enough to know that at the grass roots level, people have to feel vested in the outcome. So to the extent possible the campaign staff is letting committed activists in neighborhoods take the lead on local canvassing.

One of the major reasons that Hillary Clinton lost was because she was out managed. The Obama campaign was always several steps ahead of her, and that was because they ran a better organized and more sophisticated campaign. While Clinton was worrying about winning primaries, the Obama campaign was caucus savvy and working both the grassroots and the Netroots ruthlessly. Obama runs a proactive campaign. Only a few times in this long campaign has his campaign suffered serious distractions. The only problem that turned out to be a major problem was his relationship with his incendiary pastor Jeremiah Wright. Even so, in time Obama was able to assuage most of these fears.

Yesterday’s final Obama infomercial was a brilliant conclusion to a meticulously well-managed campaign: well produced, heartfelt, pragmatic and timed to seal the deal. It moved us past the election to let us envision very clearly what an Obama Administration would look like. The vision was both pragmatic about the challenges and hopeful. It was a message I have not heard in a long time: a call to mutual service. In exchange for us stepping up to our civic and family duties, he would bend our recalcitrant government to make it work to meet the needs of ordinary citizens.

Sounds like a fair exchange to me. Well done!

The Thinker

Slow down, you blog too fast

I am a blogger and a bloggee. I have been blogging since December 2002. I have racked up 887 posts (including this one) and have posted over 994,000 words on this blog. (See the current running total here, at the bottom of the page.) In about five more posts I will have published over a million words in this blog, which should get me some sort of blogging award, but doubtless will not.

Blogging though can be dangerous to your health. I am confident that one of the first new psychological conditions to be named in the 21st century, if it has not be labeled already, will be excessive blogging. Moreover, if you ask me, one of the first one to keel over will be this guy.

Andrew Sullivan, you are one craaaaazy blogger. Andrew, if you are trying to win some sort of contest for being the most prolific blogger then congratulations, your blog The Daily Dish wins hands down. I like blogging too so please take this advice in the charitable way it is intended: you need to slow down. You need to slow way down.

As I write this, it is about 7:40 p.m. EDT. Andrew Sullivan, a blogger for The Atlantic magazine, published his last blog post at 7:23 p.m. His first post of the day was at 7:04 a.m. Thus far, he has blogged 61 posts today. Last night his final blog post was at 11:43 p.m.

I do not know if this volume of posts as well as these numbers of hours a day he spends blogging is typical for Sullivan or not. For the few weeks that I have been reading his blog, it seems to be. My guess is he posts fifty to eighty blog entries a day and is blogging on average fourteen to sixteen hours a day.

You might think he would take the weekends off at least. Perhaps he does but during this election season, he just seems content to keep blogging seven days a week. I consider blogging a hobby. I have to assume that Andrew Sullivan finds blogging addicting. I am glad he is getting a few hours of sleep in there, but his blogging habit is just crazy. For fifteen hours a day seven days a week he sits in front of a computer seeming doing little else but reading other blogs and news sites and posting interesting tidbits he finds on his blog.

It might help if there were some variety in his posts but aside from the occasional mental health break post, such as a music video, they are relentlessly political. I imagine he is also juggling a ton of email, as well as making forays into the kitchen for food and doubtless hurried trips to the bathroom. Perhaps to keep in shape he blogs from his treadmill. (It must be hard to type and walk at the same time.) Perhaps he has a laptop with wireless which lets him blog from his back porch where he can get a little sun and hear a little nature. I sure hope he is doing all these things. Regardless, I doubt that this sort of obsessive behavior is good for him, good for his readers and good for his employer, The Atlantic magazine.

If I were his boss, I would give him strict orders: confine all blogging from 9 a.m. to 5 p.m. Write no more than five blog posts a day. Spend the rest of your workday keeping up on email, blogs and other news sites. At 5 p.m. though, turn it off! Turn off the computer. Get on your bike or head to the gym. Buy some organic produce at your local Whole Foods. Take a stroll around a lake and watch the ducks quack. See a movie once a week that does not have politics as a theme.

Granted, Andrew Sullivan is a very intelligent man with an impressive resume. His political leanings are libertarian. He was the editor of The New Republic for five years in the 1990s. Back in the 1980s, he was one of the first to argue for same sex marriages. He is also arguably the world’s oldest blogger. He started his blog, The Daily Dish in late 2000 before the term “blog” had even been coined. Last week, he even showed up as a guest commentator on The Friday Weekly News Roundup on NPR’s The Diane Rehm Show. I am surprised he could find time to get away from his blogging. I bet he brought his laptop with him to the show and was blogging from the studio’s antechamber, if not during the program breaks also.

Blogging can probably kill you. The late lamented blogger Steve Gilliard may have died, in part, from blogging. Like Sullivan, he was generally blogging from early in the morning until late at night. Gilliard’s obesity was likely a major contribution to his death too, but sitting all day in front of a computer certainly didn’t help either. I hope Andrew Sullivan stops, or at least starts to pace himself, before it is too late.

For myself, I will never be that obsessive about blogging. Blogging is an important part of my life. I take pride in my blogging and my longevity of Occam’s Razor. My philosophy though is that blogging should be a measured part of my life, not its all consuming purpose. Since blogging is not paying the rent, it helps to be the family breadwinner with a full time job as a distraction. With commute and lunch breaks, my job slices nearly twelve hours out of my workday anyhow. I would rather blog relatively infrequently (every two to three days between posts on average) and feel like I have said something very well than blog constantly like Sullivan. Even though my share of blog readers is miniscule compared with Sullivan’s (200 to 300 page views a day, on average), I am happier with less notoriety, a small market presence and my health. After all, to blog with some authority you have to experience life. That is hard to do if you are plugged into the blogosphere virtually every waking hour.

Andrew, here’s hoping we see a lot less of you online. In return, I hope we see fewer yet better and more thoughtful posts for many years to come.

The Thinker

Review: Revengers Tragedy (2002)

William Shakespeare was not the only Elizabethan playwright of his time. While he remains by far the best known, there were plenty of others as there were many playhouses to fill in England during in the relatively calm reign of Elizabeth I. One of Shakespeare’s contemporaries was Thomas Middleton whose play Revengers Tragedy was first performed in 1606 and published in 1607. It feels and sounds much like a Shakespearean tragedy, perhaps on the magnitude of King Lear. As with King Lear, you are guaranteed to get plenty of 17th century old English dialog that is hard for our modern ears to parse. Many people die and wickedness abounds. The evil centers around an Italian duke, a man who gives little thought to murder and enjoys making sure those he orders murdered die in particularly gruesome ways. To make this story particularly vile, incest is its key component. The play faded into obscurity for a few centuries but took on new life in the 20th century, perhaps because the Shakespearean tragedies felt played out.

A movie version of Revengers Tragedy was released in 2002. This version retained the original dialog, but the story was moved to England’s near future. The movie even opens with a view of the international space station floating by, but quickly moves to what appears to be London where the city seems half in the grip of anarchy. In this slightly alternate version of reality, it seems that the British parliament has largely disappeared and the nobility wields excessive influence. The movie quickly focuses in on Vindici (Christopher Eccleston), who had the misfortune of having his bride and most of his wedding party poisoned during his wedding reception some years back. He is obsessed with revenging these murders.

For my wife, Christopher Eccleston was one of the primary reasons for renting the movie, as was Eddie Izzard, who plays the part of Lussurioso, the Duke’s oldest son. Eccleston happens to have played the tenth incarnation of Dr. Who in the popular and seemingly eternal BBC television series. Izzard also happens to be a comedian my wife and I saw perform in person recently. Perhaps the most compelling actor in this tragedy is Derek Jacobi, who plays the evil duke himself, a truly odious creature with a libido as big as his ego and with a tendency to debauch attractive young women.

How well did director Alex Cox do in moving this tragedy to 21st century London, which is full of violent street gangs yet who speak in a cockney accent? Most of the actors, including Izzard and Jacobi perform very well in their parts. Of the supporting cast, Margi Clarke as Vindici’s corrupt mother and Carla Henry as Vindici’s sister Castiza give notable performances. I was less enamored with Eccleston in the lead role, who comes across as very intense, more than a bit sick (he seems obsessed with playing with the skull of his dead wife) and is at times both annoying and puerile. A punk theme pervades the movie. The Duke’s brothers are all dressed punk and ride around London in shiny limousines and talk into their cell phones.

Mostly though, the revised setting is just a bit too incongruous to work with old English dialog. Fortunately, much of the acting is of high enough quality where you do not care too much. However, many parts of the movie are grating, like nails on a chalkboard. It is also at times hard to keep up with. You must listen carefully to translate the old English correctly, and pay close attention to understand the roles of the many ancillary characters. There are few in this movie that you can identify with, and many you can revile. In trying to modernize the movie to the present while keeping the original dialog, it feels stretched a bit too far.

If you are a big fan of any of the primary actors, you should probably see the movie. Otherwise, just find something else to rent as it is more likely to disappoint than please. One can applaud director Alex Cox for his audacity. Likely, it should never have been attempted. The movie would have been better if it had simply been shot as the 17th century Italian tragedy it was written to be.

3.0 stars on my 4.0 scale.

The Thinker

Hate is so yesterday

The Karl Rove playbook is no longer working that well. You know the playbook. It’s the one emphasizes us vs. them. In the Karl Rove America, you win elections by slicing and dicing Americans into micro-groups, then ruthlessly targeting these micro-groups until you have enough votes to win elections for your side. It’s about some other group of Americans oppressing you and your clan, or who are out to Destroy the American Way ™, and who are secretly communists, Islamic terrorists or socialists.

This is the rulebook that Republicans have played by (more of less) since at least 1994. Overall, it has worked pretty well for them. In 1994, it worked to elect a huge number of new Republican congressmen and women to Congress (54 House seats and 8 Senate seats). It elected George W. Bush in 2000. In 2002, in part because the Republicans rebranded themselves at the national security party, it let Republicans add 8 more House seats and 2 Senate seats. It brought George W. Bush reelection in 2004. The playbook said it could be accomplished by painting Democratic presidential candidate John Kerry as too liberal, too Birkenstock and as someone who secretly hated his country. After all, didn’t everyone who protested the Vietnam War hate his or her country at least on some level? The so-called Swift Boat Veterans for Truth spent millions dollars on advertisements asserting that Kerry was a coward and un-American when the record clearly showed otherwise. Overall, America bought it.

Still, it was not a perfect playbook. In 1996 and 1998, Democrats made modest pickups in Congress. Of course, in 2006, Republicans got a figurative kick in the stomach, losing both houses of Congress. Democrats added 31 seats in the House and 5 seats in the Senate. It’s always dangerous to read the tealeaves two weeks before an election, but few would dispute that Democrats are likely to make impressive gains in both the House and the Senate this cycle. All but a few fringe polls suggest that Barack Obama will win handily on November 4th, barring some catastrophically stupid mistake on his part or some unexpected national event that completely changes the dynamics of the race.

Given that in 2009 Democrats are likely to control both houses of Congress as well as the White House, you would think that Republicans might be fielding some new campaign strategies. They would no doubt be greatly helped if they did not have a colossal failure of a president in their party, and had not so gleefully aided and abetted his mistakes. John McCain’s campaign now appears in disarray and is making one stupid mistake after another. For example, apparently there was no one politically savvy enough in the campaign to realize that having alleged hockey mom and Vice Presidential candidate Sarah Palin spend $150,000 on clothes and hairdos might be a stupid way to sell her as someone in touch with the “Real America”. If you were inclined to think of Republicans as rich and out of touch, this strategy would just confirm your biases.

There must be some logic though to the Karl Rove playbook. After all, his playbook, and ones before it pioneered principally by Newt Gingrich, worked pretty well. It kept the party largely in control of Congress for the last fourteen years or so. So why not give it a try one more time? Why not distinguish between the real (red) America from those parts of America that apparently want to belong to the United Socialist States of America? Why not segment and focus group, segment and focus group your party into power, or at least use it as a strategy to limit your losses? Why not do your best to challenge a surge of new and apparently largely Democratic voters by putting up obstacles to their voting? Why not inflate what was best a tangential relationship between Barack Obama and a former Weather Underground leader? Why not have people like Rudy Giuliani record false statements about Barack Obama for robocalls? After all, what do you have to lose besides political power and obsolescence?

I remember way back when in 1978 the song You Light Up My Life, was number one on all the pop radio stations. You could not turn the dial without hearing it. Then suddenly it was played one too many times and we were all simultaneously plugging our ears with wax to try to turn it off. Republicans are still sashaying to the beat of We’re the Only Real Americans apparently unaware that this song too has been played one too many times and no one but they believe it. Not only do non-red Americans not want to hear it, they cannot stand the tune anymore. Give us new tune, please!

Barack Obama supplied it. His message of hope may sound naïve and sophomoric, but at least it was a positive message. It was the 2008 version of the Great Depression’s notable song, Happy Days are Here Again. Instead of emphasizing what divides us, why not emphasize our unity as a nation? Why not offer hope instead of cynicism? Why not offer sound solutions instead of more ideology?

Washington Post columnist Dana Milbank produced this snarky column and video yesterday. He was shocked, yes shocked, by an Obama campaign rally yesterday in Richmond, Virginia. He went to Richmond, Virginia, the heart of the Confederacy, to find out just who these un-real and unpatriotic Americans that Sarah Palin and Rep. Michele Bachmann figure are out there in large numbers because they don’t vote Republican. To Milbank’s surprise, apparently these people were chanting “USA! USA!” by the tens of thousands respectfully listening to The Star Spangled Banner … at an Obama rally! It was hard to escape the feeling that maybe there are millions of patriotic Democrats out there too and maybe some were not even socialists!

November 4th will officially end the Republican era that was dominated by us vs. them, hate over love, fear over tolerance. As Republicans survey their wreckage they may, to their utter shock, discover that for the first time in a very long time (no thanks to them) they really are living in the United States of America.

Perhaps after they lick their wounds they’ll decide, what the heck, why not just Democrats and Independents and rebuild a better country that actually works for everyone of us, instead of just them? I like to be hopeful, just like Barack Obama. However, given their track record, I am not too optimistic.

The Thinker

The meaning of money, Part 2

Banking is another one of these activities that to an outsider unschooled in finance seems a bit mysterious. Just how is it that you can put your money in a bank, know that it is safe and somehow your money will grow?

We understand that if we were to put our money in our mattress, it would not be particularly safe. If no one knew it was in our mattress then at least it would be safe but most of us cannot take the chance that it will be discovered. However, even if we kept our savings in our mattress, the money would not grow. In fact, over time it would be worth less because in most countries inflation is an unpleasant reality. If you want to keep your money safe, it is better to put it in some sort of financial fortress where it is hard for anyone other than you to get the money out and where it is always safe: a bank.

You would expect that if your goal was to safeguard your money the bank would charge you money for the privilege of banking it, rather than the other way around. After all, if you have a million dollars in gold bullion you do not want to find that it mysteriously disappeared one day. Instead, it is just the opposite. We give the banks our money and somehow they manage to give us some modest amount of interest for letting them guard it. (Granted, with the many fees banks are charging these days, it may negate some or all of your interest.)

Most of us understand on that our money rarely sits in a vault somewhere. Instead, it goes to someone else who doesn’t have enough of it to meet his or her needs. Over time, debtors repay the principle to the bank with a fee for use of the money. At least some portion of the money earned goes back into our account as interest. The bank gets the rest. So it sure seems like a symbiotic relationship. Your money is protected. Both you and the bank are more prosperous as a result.

As we relearned recently though, money you put in a bank is about as safe as the U.S. dollar. The dollar is not backed up with gold and silver. As you may have learned from my last post, the real value of the dollar is that it is a representation in the faith that the U.S. government will be around in the future and the idiots will not be running it. The crisis of confidence that is painfully underway is a crisis of confidence in the United States government. It would be charitable to say our government was asleep at the switch these last eight years. In fact, it was worse than that. Our crisis of confidence was not a result of a lack of competence, but rather faith in a financial ideology and the free market that was misplaced. In short, the ideologues, not the idiots, were running the asylum, practicing some weird sort of Zen-like financial alchemy. The only gold they were producing was fool’s gold.

In some ways, a bank is like the federal government because in reality the proportion of its assets in cash is rather small. The vast majority of its assets are in loans to other people and businesses. Its job is to stay solvent and make sure it does not give out the money to just anyone, but only to people who are creditworthy. If it has confidence that the people it gives money to will repay the loans on time, it can stay solvent, maybe turn a profit and throw some small change into your account as interest.

Banks sell trust. That is why bank names so often have trustworthy names, like First Fidelity Bank. That is why bankers tend to look and dress soberly. They hope it will make you think they are sober people. They want you to believe that their bank will be around and will only lend prudently. Just in case they do not, because they are a bank, they are required to pay a fee to the FDIC that insures your accounts up to $100,000 (well, $250,000 temporarily under the Wall Street bailout legislation). As we learned though, the money banks paid into the FDIC looked like it might not be big enough to handle a major run on the banks. That is when the FDIC petitioned Congress to stand behind it. Congress passed a bank bailout and hopefully the crisis is contained. What has not happened, and would be more devastating than a nuclear strike, would be if our creditors lost financial faith in our government. Fortunately, we are not there yet.

One problem is that banks can have an embarrassment of assets. This happened quite a bit during the last eight years. The Federal Reserve, primarily under its former chairman Alan Greenspan, had this notion that the economy needed low interest rates, providing inflation did not go up precipitously. With interest rates low, the message was that it was okay to borrow more money than you could comfortably afford. Therefore, we did. In fact, those low interest rates may have been something of a facade. Most of the time, low interest rates were offset by higher prices, particularly for commodities like homes and automobiles. With interest rates so low though, we could and often did supersize our financial dreams, buying bigger homes, fancier cars and upscale furnishings. At some level, this made sense. Because historically low interest rates have been an aberration, it made some sense to purchase these items because interest rates were lower. Low bank interest rates also gave us more incentive to buy stocks, on the assumption they would offer higher returns. Otherwise, the effect felt like stuffing your money into your mattress.

All this purchasing through debt had the consequence of causing the economy to grow. This growth was real in the short term, but artificial in the long term. Growth financed by shaky debt generated more growth financed by shaky debt. One effect is that all this purchasing caused a lot of economic activity, which resulted in many dollars ending up at institutions like your neighboring bank.

In general, banks do not like to keep assets in their vault. They would rather loan the money out to someone else and collect the interest on the money, making their bank more profitable. We Americans were glad to borrow this money, but so much growth was happening so fast, particularly in places like China, that creditors became a bit desperate. They did not want to figuratively put money in their mattresses. They wanted it to grow too. Unfortunately, there was a dearth of borrowers. Wall Street rode to the rescue by creating new investment vehicles. Specifically it invented the sub-prime mortgage-backed security, which bundled high-risk securities into one large package for which shares were sold. Even though these individual loans were riskier, buyers of these securities thought they were protected because the risk was spread out among a larger number of loans. As long as too many debtors did not default at once, all was well.

It was a foolhardy mistake driven by need and greed. Risky borrowers proved why they are risky and defaulted in large numbers as soon as the economy got a bit shaky (and much of it was caused by rapidly rising oil prices). Sub-prime mortgage backed securities became like a pin puncturing a balloon. Moreover, all the complex financial instruments created to take the risk out of risky ventures also proved to be risky. Insurance giants like AIG did not expect everyone to make massive claims at once.

These financial mistakes trickled down perhaps even to your local bank, which in trying to find places for the rush of incoming money may have also invested in shady financial instruments. Some of these banks, like WaMu, you now own, at least partially, as a taxpayer.

Let us hope that next time we do not let new ideologues run the asylum.

The Thinker

The meaning of money, Part 1

Money is on the mind of most people these days, with the collapse of stock markets and the bankruptcy of major financial institutions, including some names that epitomized trust. To many of us, it seems surreal that inside of a month or two our portfolio can drop ten or twenty percent even though we have been following “correct” wealth building strategies. Why all of a sudden has the worth of our investments changed so dramatically? Why can I not go up to Fort Knox with a few hundred dollar bills and get their equivalent value in gold? Just what is money anyhow? Why is our financial system set up the way it is? Why can a dollar be worth less next week than the current week?

I have been pondering these questions as I watch our own portfolio fall. This is the first in a series of periodic posts that I plan to make on the topic of money. I should point out that I am only an economist in the sense that I took one required course in economics in college. That is probably not relevant because I am not trying to explain economics, but instead I am trying to understand what money is and why it matters, which as you will find out is more an exercise in sociology than economics. In this post, I will look at the relationship between money and important intangibles, like confidence.

We all have a sense of what money is and why it is important, but it feels wholly abstract and therefore surreal. Yet we want it to be real. We crave the assurance that a nest egg of say $100,000 will always be there until we spend it and its value, if it changes, will only go up, not down. We understandably get very upset when it is not there, or its value is deeply discounted. Someone screwed us. Who? Why? How can we prevent this from recurring?

To understand money you have to go back to ancient times before money even existed. Back then, we all survived on our wits. Few of us though actually survived entirely on our own wits. Instead, we were part of a clan or a tribe. We generally worked together for the common good of our clan because we learned when our clan prospered we were all better off. We could not all be masters of everything.

This worked for a while until we encountered more powerful clans. If we had things the other clan valued a battle often ensued. After a while, clans saw some value in federating. We learned that there was power in joining into larger and larger groups that shared similar values, such as a common culture or language. Thus, we evolved feudal societies and early rudimentary civilizations, like the Sumerian dynasty.

When a nation reached sufficient size and complexity, the barter system broke down. More efficient ways of exchanging value were needed. Hence, money became a necessary invention. The value of money is easy to understand, but what is easier to miss is the context that money represented. Aside from an objective measure of wealth and a means to acquire life’s necessities, money also meant that we were vested in our nation. With a common currency of exchange, we had every incentive to bond together. Money promoted peace, integration and the survival of the nation.

The downside was that a form of currency was valuable only while the nation existed. If the money were coinage, it might retain some value, but more often (particularly in modern times) if the currency was a paper currency it became worthless as the nation disintegrated. Zimbabwe is but the latest example of a country whose currency became essentially worthless because it became a failed state. In general, the value of a currency is directly proportional to the cohesion of the state and the industriousness of its citizens. It is affected by many other factors. In modern times, one of these major factors has been international trade.

As you may have noticed over the last few years, the value of the dollar has been falling in relation to most other currencies. What does this mean? Aside from the facts that our goods tend to be cheaper to purchase with other currencies and it costs more for Americans to travel overseas, when the dollar falls in relationship to most other currencies it signals a societal problem. Either America is doing some things wrong compared with other nations, or other nations are doing things better than we are. It amounts to the same thing.

If you think about our societal cohesion lately, you should ponder the discord in the current presidential campaign. For example, a McCain-Palin supporter hung Barack Obama in effigy from a tree in his front yard. Perhaps this has happened in other presidential campaigns, but I cannot remember it happening in my lifetime. That it happened at all is potentially an ill omen for America as is the Alaskan Independence Party, that Sarah Palin’s husband belonged to.

Obviously, the United States government and many of us as private citizens have lived beyond our means. With all the financial bailouts, the federal government may add a trillion dollars to our national debt this year. The rise in unsecured credit card debt is well established and is at record levels. While by itself this is unlikely to cause our nation to break apart, it does suggest that we are seriously off track. A responsible government would have noted this trend and changed policies to disallow it. Ours did not.

Most governments no longer have vaults filled with precious metals to back up their currencies. Since 1971, the dollar has been a fiat form of money, meaning that the government declares it has value simply because it says so. China for example owns about a trillion dollars of U.S. Treasury debt. It cannot cash it in for gold or bullion. Their value lies in the fact that the U.S. Treasury assures China that they can be redeemed with interest at a future time, to be paid out in the future value of the dollar. By purchasing our treasury bills then, China is essentially betting that it believes that this nation will be around when these bills come up for redemption and is betting they will have retained substantial value. They are betting that the United States, as a two hundred year plus democracy, is not going to go seriously off course for a sustained period. As a consequence, by lending its money to the United States, it is not only generally put toward a productive use but retains its value, offering some stability in an inherently unstable world.

If you are an American, whether you like it or not you too are a shareholder in the United States of America. You do not have to hold Treasury bills or Savings Bonds to be a shareholder. You simply have to live here, or have your livelihood depend on the success of the USA. When things get seriously off course, as they have recently, it is in your financial interest to take actions to correct it. The primary means of correcting these problems is to elect new leaders who are looking out for the solvency of its currency and prosperity of the nation as a whole.

The value of the dollar then, and your wealth, is intimately linked with our overall confidence in our government and its markets. Clearly, we veered off course by creating financial instruments like risky mortgage-backed securities whose value was impossible to measure. The rest of the world, driven by greed, generally looked the other way also. Thus, our inability to adequately regulate our markets, as well as our sustained inability as a nation and as citizens to live within our means, mushroomed into a global crisis of confidence. The United States was supposed to be the world’s financial pillar. With no way to assess what these new types of assets were worth, but with plenty of evidence that the United State is vastly overextended, fear drove the market, with the most fearful anxious to redeem securities into something they believed to be of enduring value, such as gold. This in turn created a cascading effect and lowered prices generally for all forms of securities. The value of our securities then is directly proportional to the level of trust and confidence that we have in our governments and financial institutions.

Our portfolio values may recover when we know their actual worth. Of course, they are currently discounted by the collapse of so many financial institutions and our bloated government and personal debt. To be prosperous again we must have transparency in our financial markets (a much harder thing to do with so much electronic trading). We also have to have confidence that consumers will start living within their means and (just as importantly) creditors will not allow people to live beyond their means. Money invested into products and services that inflate the value of money is not a real investment. Money that is invested into products and services that we all find useful and innovative builds wealth, and thus confidence, and thus makes us wealthier.

The United States of America can also become wealthier by becoming united again. We have let partisans on both sides of the aisle pulls us apart rather than allowed pragmatic politicians to move us together again. Back in 1994, Newt Gingrich led a Republican revolution on Capitol Hill. While his intentions were noble, the effect was to unleash a new and dangerous level of partisanship that eschewed compromise. Both Senators Obama and McCain promise bipartisanship if they are elected president. The best president though will be able to do this as well as intelligently guide government policy to make financial markets more transparent and to direct resources that build genuine wealth.

As a de-facto stockholder of the United States of America, you should insist on leaders who will deliver on the bipartisanship pledge and who can demonstrate clear pragmatic leadership based on sound economic principles, not ideology. Your portfolio will thank you.

The Thinker

The final debate

John McCain cannot win for losing. On September 26th, the date of the first presidential debate, the Dow Jones Industrial Average (DJIA) closed at what now seems like a nostalgic 11,143 points. On October 7th, the date of the second presidential debate, the DJIA dropped 508 points and closed at 9447. Today, October 15th, the DJIA dropped by its second largest amount ever, a gut wrenching 733 points, closing at 8578. Since the presidential debates started, the DJIA has lost 23 percent of its value. This more than anything else tells you why Senator McCain lost tonight’s debate and will lose the election. It’s the economy, stupid.

In short, there was no way he could have won the debate no matter what words he uttered or what debating points he won. The debate in our living rooms was about one single thing: our pocketbooks and our feeling of panic which, if not explicit, are lurking at the edge of our subconscious. It is all that the American people care about. We wanted to hear about how Senator McCain would fix the economy. Yet McCain offered no new plan or vision. As much as he admonished Senator Obama for tying him to President Bush, for all his maverick-ness he sure sounded and looked a lot like our current president. Most of us love lower taxes, but it is a harder sell to make when your stock portfolio (if you have one) is dropping like a stone, your employment looks chancy and if you have health insurance you feel like you are close to being priced out of the market. Low taxes mean little if you are facing a far scarier scenario: a reduced standard of living. McCain needed a game changer but he was bereft of meaningful new ideas. The ideas that he offered sounded very similar to those of the current administration.

He was dealt an atrocious hand. Under the circumstances, McCain played the debate rather well. Of the three presidential debates, in this one he looked the most animated and came across as close to eloquent. He even had a few good debating points. For the first time in his debates with Obama, he actually looked him in the eye. He tried to paint a frozen smile on his face while Obama talked, but he still frequently came across as condescending. Only his Republican base cared about Obama’s tangential association with Bill Ayers. For the rest of us, it was “Why can’t you talk about something that actually matters?”

Instead of looking firm McCain looked aggressive. He even quickly roamed onto Obama’s side of the stage after the debate, as if he was trying to mark his territory. Obama on the other hand came across as completely measured and cool. Even though McCain was reasonably coherent in this debate, Obama’s natural eloquence still out shown his. Obama once again correctly judged there was no way that Senator McCain could win the debate unless he let him throw him off his gate. Obama has only rarely looked ruffled in any of his debates over the last twenty months. He merely had to continue to follow the strategy he had so well mastered to put this debate successfully behind him.

With twenty days until Election Day, it is abundantly clear who the ultimate winner will be, and it will not be Senator McCain. McCain has been a gambler all of his life. He has been known to shoot craps at high stakes gambling tables in Las Vegas. For McCain, with no message that resonates, these debates have each been high stake political crapshoots. In each McCain lost. He lost because his message simply failed to connect with the majority of voters. Despite his protestations, his voting record clearly tied him too closely to President Bush. The ultimate reason for Obama’s win though will simply be the dismal state of our economy. Millionaires like John McCain might feel free to play craps. Those of us of more modest means do not have these options. In scary times, you vote for a steady candidate who seems to be grounded in our reality. A maverick is the last sort of candidate you want, particularly since you sense, but cannot say for sure, that you are precariously perched close to the edge of the cliff.

I expect that after Obama election on November 4th the stock markets will begin to settle down. Until then, hold on to your wallets and I hope you like roller coasters.

The Thinker

Beguiling Northern Arizona

It is good to combine business and pleasure when you can. Business is taking me this week to Flagstaff, Arizona, which is three time zones away from home and 6910 feet in altitude. Its altitude likely makes it one of the highest cities in the nation, if not the world. I could have arrived here this evening and attended just the business portion of the trip. It is a much better idea though to invite my wife to travel with me and arrive a few days early. We arrived last Friday, spend a dutiful Saturday with my wife’s mother and step father in Chandler (a city outside of Phoenix) then drive up to Flagstaff on Saturday night. With the Columbus Day Holiday I was able to turn a three day business trip into a weeklong trip west, with four days of vacation. Moreover, my employer paid for my airline fares. The Residence Inn here in Flagstaff was also gracious enough to extend our low business travel rate to my leisure days too. In short, this is something of a bargain mini-vacation.

Flagstaff in October was much different from Flagstaff in August 2001, which was the last time I was here. Actually, in 2001, we never quite made it into Flagstaff proper, so this was my first real encounter with the city. It is quite a change from its big sister city Phoenix two and a half hours by car to its south. We arrived to subzero temperatures and blustery winds. Apparently the management of the hotel turns sprinklers on at night even when the weather dips below freezing. Sunday morning thus revealed well-manicured lawns and sidewalks covered with ice.

The wind has not stopped blowing since we arrived. We are told that the temperature is well below normal too. Thankfully, we had the foresight to check the extended forecasts before we left. I was glad that I packed a jacket, a sweater, gloves and a winter cap. There was a hint of snow on the upper slopes of the nearby San Francisco Mountains, but it is unlikely we will see any precipitation this week.

Sunday we ventured south into Sedona. It is in the news because one of John McCain’s many homes, and arguably his principle residence, is located in Sedona. Sedona is about thirty miles south of Flagstaff. While in the mountains, it is considerably lower in altitude than Flagstaff. To get to Sedona from Flagstaff, you must drive down AZ-89A, which takes you via many twists and turns through the spectacular Oak Creek Canyon. Sedona itself seems an odd location for John McCain to call home. It feels more like Berkeley, California since it is hard to turn around without running into a shop selling New Age merchandise. It also resembles Georgetown, in Washington, D.C. because it seems impossible to find a parking space. While I am sure there are natives who live there, the local economy is all about marketing to the many tourists who pass through the valley. John McCain’s ranch must be far outside the city limits because the mountains are so close and so vertical that it is hard to imagine that there is space for any resident to have a ranch. Nonetheless, this odd town is where Sarah Palin was coached for her vice presidential debate. Its liberal values probably rubbed off on her, and affected her debate performance.

Sedona, while beautiful, held little appeal to me as a place to spend much time. We bought some touristy junk, ate some ice cream and felt we had seen enough. Of far more interest was humble Slide Rock State Park on AZ-89A where we spent a couple hours before returning to Flagstaff. The creek this time of year had a relatively low flow, and the temperatures may have been in the fifties, but it did not stop some crazy coeds from Northern Arizona University from jumping into the creek in their bikinis and sliding down its slippery sandstone rocks. The state park is small but charming and is framed by the surreally beautiful creek that bounds gently over its well weathered sandstone rocks. Small can be beautiful indeed.

Yesterday we took in some closer tourist attractions. Just a few miles from our hotel is Walnut Canyon National Monument. The canyon itself is relatively small, but a trail takes you into its bowels where you can discover cliff dwellings of the lost Sinagua tribe. For those who fear to tread up the two hundred some odd steps of the Island Trail, a shorter Rim Trail is easily accessible. While normally climbing steps is not a challenge, I found it to be challenging because the canyon is 6700 feet high. Consider yourself a hearty soul if you can make it from the base to the rim without an altitude break or two.

A sure hit near Flagstaff is Sunset Crater which can be found fifteen miles or so north of the city. The crater is part of the larger Sunset Crater National Monument. The volcano appears to be dormant, which is a good thing, given its proximity to Flagstaff, which did not exist when it last erupted in 1100. The visitor center can be skipped, but you should tarry a while at collapsed lava tube field a short hop past the visitors center. Nine hundred years later it is littered with large volcanic boulders from the eruption, which neither time, rain nor wind has eroded. Unlike Mount St. Helens, where life is rapidly reemerging, little has grown on the lava tube or along the sides of Sunset Crater, which are black with volcanic ash. Hiking to the top of the crater is not allowed, but across from the lava tube you are allowed to hike a half mile or so to the base of the crater, which looks very much like a giant sloping asphalt parking lot, but missing cars and lines.

As impressive as Sunset Crater is as a tourist destination, I think it pales in comparison with the Wupatki National Monument just to its north. Fortunately, the same road that takes you into Sunset Crater National Monument continues into the Wupatki National Monument. As you pass out of Sunset Crater, you are offered stunning vistas of The Painted Desert to its north. The highlight of the Wupatki National Monument is its visitors center, or more specifically the spectacular Pueblo Indian ruins behind it. The area provides a feeling of desolation that is hard to find in the continental United States. It would be an ideal place for stargazing, so far from city lights. It is hard to understand how the Pueblos managed to survive in such a dry location but presumably, there were small springs from a nearby aquifer that allowed their small communities to thrive. One only has to spend a few hours here to understand why Native Americans feel such a reverence for nature. They must have felt a sense of awe at the glorious scenery that enveloped them every day.

In the evening, we drove up to the Lowell Observatory, which sits on a small mountain overlooking Flagstaff. The observatory is now rather dated, as it does not possess any radio telescopes. For the casual stargazer though it is a compelling as well as a historical destination. (A mausoleum containing the remains of Percival Lowell sits next to the observatory with the twenty-four inch telescope.) Both day and night tours are available. We opted for the night tour. A few minor telescopes were set up allowing us views of the full moon as well as Jupiter and four of its moons. The smaller observatory at the top of the hill was trained on a double star in the constellation Cygnus. We had to wait in the dark in a long line on a cold and blustery night to see these stars, but it was worth the wait. It was a cold but pleasant way to spend a few hours marveling at our amazing universe.

Today a group of us drove up to the south rim of The Grand Canyon. A spectacular blue sky showed us the canyon at its near best. We had visited it back in 2001 but only briefly. Today’s visit with a number of the people I will be working with this week was equally brief, but was long enough for a number of us to venture a half-mile or so down Bright Angel Trail. We found a ram and some mountain goats precariously surviving on the rim of the canyon. We also watched numerous mule trains pass us by on the trail. A group of ravens entertained us from a tree on the canyon rim. I would still love to hike this trail. My sense of vertigo was not as bad as I thought it would be on the trail. I would need a few practice hikes though before trying to tackle the 27-mile hike from the rim to the Colorado River, and then its much more arduous ascent.

Northern Arizona remains a beguiling tourist destination. The Grand Canyon is its crown jewel, but traveling to Northern Arizona and only seeing The Grand Canyon is to get but a taste of the area’s natural richness. A proper vacation in Northern Arizona demands a week or more.

As for Flagstaff, while I have travelled through it a few times, I have yet to explore it beyond a few of its restaurants. I hope that by the end of the week I will have seen enough of it to give it a proper assessment.

The Thinker

Review: Swing Vote

Swing Vote is yet another one of these movies that I would never have rented and probably have never watched but I am nonetheless reviewing. Why? Because when you are on a five-hour flight and this is what they offer, it’s what you watch. In addition, if you expect to have a busy week in Arizona, a quick movie review lets you get out a blog entry without investing too much time.

The movie is at least topical, with an election just three weeks away. In this movie, an incumbent Republican President Boone (Kelsey Grammer) is running for a second term is in a close reelection contest with liberal Senator Greenleaf (Dennis Hopper) from New England. It just so happens that the electoral vote is tied 270-270, with New Mexico being the swing state. New Mexico though it precisely tied, with exactly one vote in dispute.

The vote belongs to Bud Johnson, played by Kevin Costner. Bud is frankly a wreck of a man who also comes with the baggage being a mostly mentally absentee father. He lives in the hitherto unknown town of Houston, New Mexico in a trailer with his prepubescent daughter Molly played by Madeline Carroll. Molly would prefer to live with her estranged mother, who is even more of a wreck than her father is. Molly though is an unusually smart and perceptive girl. She tries to persuade her father to vote, but voting is the farthest thing from his mind. Color him politically apathetic.

On voting day, Molly waits for her father to pick her up after school. Bud is a bit distracted from losing his job at the egg packaging plant and elects to get drunk instead. For some reason Molly thinks that he may be late because he went to vote instead. When she checks out the polling station, she finds it empty with just one sleeping poll worker in attendance. So she surreptitiously attempts to vote for her father. However, the electricity is cut off in the middle of her voting attempt. That is why the vote is in dispute.

Costner does a decent job of portraying a born loser with a happy go lucky attitude, which at least is a much different kind of part for him. Politics though is the farthest thing from Bud’s mind, which is why when some people from the Board of Elections accost him, he is surprised. He is too drunk though to answer coherently, so his daughter assists. For some reason election officials decide to wait ten days before he will recast his ballot and thus select the next President of the United States. Bud’s identity eventually becomes known, thanks to an intrepid and cute local TV news reporter played by Paula Patton.

With the leadership of the free world at state, President Boone and Senator Greenleaf and their staffs relocate to New Mexico with the sole duty of trying to persuade Bud to vote for them. Bud’s likes and dislikes quickly are probed and analyzed, but essentially Bud is too drunk and incoherent to give much in the way of thought about weighty national issues. He soon finds hundreds of people and press camped outside his trailer day and night, as well as stacks of mail from ordinary Americans pleading for him to vote for their preferred candidate.

So the movie veers between light comedy and an uncomfortably intimate portrait of a dysfunctional man and his daughter. If there is a star to this movie though it is not lead Kevin Costner, but Madeline Carroll, whose portrayal of Molly Johnson is startling for its maturity and quality. There is little meat to this movie although it has its moments of poignancy. You have better uses of your time than to rent this movie, but if you see it nonetheless you may find a few endearing qualities that make it not a complete waste of your time.

2.8 on my 4.0 scale.

The Thinker

The second debate

Watching a presidential debate in high definition is definitely a different experience, and not necessarily for the better. You obviously get a much better picture quality that translates into more of a feeling that you area in the room instead of watching the debates from hundreds of miles away. The bad part: our candidates look a lot older than I thought. Even Barack Obama, who is four years younger than I am, is graying. Moderator Tom Brokaw hardly looked youthful either; he is pushing seventy. All the pancake makeup in the world could not hide his age.

During the summer, John McCain invited Barack Obama to debate him at all sorts of town hall debates. Obama turned him down and now I understand why. At least this “town hall” debate had zero energy because both candidates found it too scary to allow an honest exchange with participants to occur. There was virtually no back and forth with the questioners and the few questioners called on had to read their question verbatim from an index card.

According to Nielsen, this second debate drew 42.1% of viewers whereas the first debate drew in only 34.7% of viewers. Good news of you who missed the first debate: this debate was largely a retread of the first debate! It turns out that three debates may be about two more than are necessary since we get the same talking points repeatedly and learn little new. The economy may be collapsing but neither McCain nor Obama offered any immediate practical suggestions on how the Joe Six-packs of the world should deal with the problem. (Ms. Palin might suggest shooting wolves from helicopters.) Both candidates seemed more concerned with scoring hits on the other’s talking points than coherently addressing the questions.

Moreover, neither felt particularly constrained by the debate rules they mutually agreed to adhere to. This annoyed me and it also irked moderator Tom Brokaw. Green light, yellow light, red light, it didn’t matter to the candidates. Instead, they just kept yammering. The “two-minute” response was more like three minutes. The “one-minute discussion” was more like two or three minutes. Yes, yes, I know. We are selecting the new leader of the free world and it’s so important to hear what they have to say. Still, aside from letting each speak in turn, neither could be bothered with rules. Each figured that whoever could get the most words out would win.

I hope that in twenty years when I reach John McCain’s age I look better than he does. He looks bad. From his sagging skin and yellow teeth I would have guessed he was in his mid eighties. I especially hope I do not walk around a stage like a marionette when I am his age. His choppy hand motions looked ridiculous. His spine must be out of alignment because he couldn’t seem to stand without hunching forward. Town hall formats are supposed to be his expertise, but apparently, he hasn’t actually debated much in a town hall format. His voice quickly became grating and he felt compelled to insincerely call everyone “my friend”. (All except, naturally, Senator Obama, who at one point he contemptuously called “that one”.) Rather than look at his opponent, he retreated to his chair to scribble into his pad. Moreover, McCain demonstrated the same magnetic charm as an eel. He proved once again to be a poor debater and neither a terribly artful nor an especially articulate fellow. I mean no disrespect for senior citizens as I expect to be there soon enough, but he looked more like a walking corpse than a human being. If he knocked on my door on Halloween, offered me his hand and called me “my friend” he would have given me the fright of my life.

I am not sure what his motivations are for running for president, but for all his claim to put “country first” it looks like he is far more interested in putting his domineering ego first. He seems incapable of communicating empathy, which might be because he never learned how to give any. And oh, you could see again that his anger was lurking just below the surface. I also do not think he knows how to relax. He comes across as constantly keyed up and exceptionally awkward looking. I wish he would use all of Cindy’s millions to do something useful, like get some anger management therapy. He again avoided looking at Senator Obama and even went out of his way to avoid shaking his hand after the debate. You would hardly expect this behavior from someone who claims to be bipartisan.

Nor was Obama at the top of his form. Fortunately, he can be operating at eighty percent and still come across convincingly. Obama remained generally unruffled by McCain’s verbal barrages and was always measured and civil. The closest thing to incivility was his often bemused looks at McCain while he was speaking. He did have a high point or two, such as when he addressed his own impoverished childhood. That likely connected with many voters. Nonetheless, Obama would have done much better in this format by forthrightly addressing the questions that were addressed to him, rather than weaseling around the subjects.

Who won? Once again, snap polls suggest it was Obama, but really, it was the viewers that lost. We were cheated out of a real debate. We learned little new from either candidate on the issues, watched lots of high stakes sniping, heard numerous claims and counter claims (most of them bogus or inflated) and little in the way of candor. McCain proved he was far more interested in trees than the forest. He got in a lather because on an Obama earmark for a three million dollar “projector”, which was in reality a new projector globe for the Adler Planetarium in Chicago. This is not exactly the sort of equipment that you can purchase at Office Depot. One can certainly argue about whether it was a purchase worthy of federal funding, but one cannot argue that a planetarium educates thousands of people a year on the universe, so a better projector would be of value.

I know it is impossible, but I would have liked to heard them say the truth: no one can right this economy overnight, and only long term structural changes in our financial markets will lead to recovery. I guess that kind of candor is not presidential.

So Obama wins again by not losing. The election dynamics remain in his favor and his scientific and measured approach proves his strategy is working. Whether it helps us make more informed choices is debatable.

Perhaps McCain’s sourness was due to a subconscious realization that he lost the election on Black Monday. Perhaps he knows but cannot admit to himself that he contributed substantially to the mess, and the polls reflect that he is paying his dues. His presidency was never meant to be but was instead a manifestation of his inflated ego. He got lucky this time solely because of the toxic political climate for run of the mill Republicans. It is hard to imagine any scenario at any time where he would have captured the enthusiasm of a majority of Americans. Seeing him in this debate was like watching someone nailing themselves into their own coffin. It was sad.

I hope to watch the last debate next Wednesday from my hotel in Flagstaff, Arizona. I keep hoping that we will get a real debate, but it is clear that on the economy at least both are too scared to tell us the truth. And that’s not presidential.


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