Wednesday, December 31, 2008

- Good Riddance To The "Lap Dog" Media


It’s become all the fashion these days to bemoan the loss of the “Watchdog” press. But in a world where we know more about Britney Spears’ underwear than we do about the policies of our president elect, I find the idea laughable. The truth is, because the press has long ago chosen to openly advocate for liberal candidates instead of being evenly critical to both parties, they have been far more lap dog than watchdog, and I think that’s contributed to their demise.

Here is the Newark Star Ledger’s Paul Mushline making the typical complaint for the Wall Street Journal. He claims that journalist’s great contribution to western civilization is that they can wade through the information bog and provide an ‘executive summary’ for their less patient readers. And while that may be technically true, what happens if the summary they provide is intentionally misleading? Or suppose instead of being more or less non partisan they instead characterize positions the author doesn’t agree with as stupid while calling positions they do agree with wise? Or suppose the author lacks the knowledge or wisdom to accurately reflect the salient issues at all…what is their ‘executive summary’ worth then?

Or suppose they are just so concerned with self aggrandizement, that they’ll say anything at all, however nonsensical, so long as it increases the relative importance of the journalist in influencing public policy? Mushline himself is an excellent example of that. Based in Newark, arguably one of the most corrupt municipalities in America, he’s been happy to lick the hand of any corrupt politician who is looting the coffers, so long as that politician pays him the lip service he feels he’s due. He’ll inevitably report on the charges, the prosecution and the conviction as well… but so long as the politician is showing ‘respect to the media’ he’ll be happy to act as his mouthpiece with the electorate right up until the moment of conviction. So long as the politician is a Democrat every pitch is a softball where the Newark Star Ledger is concerned.

When I met my wife she had a miniature Yorkshire Terrier as a pet. She was a charming dog, and good company. She was hugely affectionate and pretty smart as far as dogs go. But we never believed we were any safer having her around the house. If someone broke in to our apartment the dog would simply wag her tail or curl up at their feet while they robbed us blind. That’s what the Newark Star Ledger journalists are like. They aren’t part of the watchdog press and haven’t been for years. They are just little Yorkies curled up at the feet of the Democratic Party of Essex county. Their personal affection for big government has long prevented them from being able to tell friend from foe among our elected officials.

To tell you the truth, if the Newark Star Ledger had been anything but a uselessly partisan rag then they might have been able to count on my continued interest in what they have to say. But as it is, I already know their position on everything. They are infallibly pro big government, pro-democrat, and pro-elitist in their views. It’s a position they reflect on the front page as well as the opinion page, and it’s almost insulting how transparent their positions have become. I find their reporting to be insulting to my intelligence, and if I want to have my intelligence insulted like that I can read the New York Times.

If Paul Mushline wants to believe he’s been providing a valued public service by imparting his greater wisdom to the unwashed, it’s no sweat off my nose. But as a consumer of what he produces, I for one will be glad to be rid of his condescension, his contempt, and his partisanship. And the same goes for virtually all of his peers. If they were really going to be watchdogs it might be different. But they haven’t filled that role for ages, so I see no reason to rely on hem. I have no problem with lapdogs, but they aren’t protecting anyone. The same is painfully true of New Jersey’s ‘watchdog’ press. And in a state where the citizenry is pretty much continually lied to by its politicians through the press, the very idea of them as watchdogs strikes me as one of the more ambitions distortions I’ve ever heard.

Tuesday, December 30, 2008

- East Germany On The Delaware




Here is Bill McGurn in the WSJ
saying what I’ve been saying all along, that thanks to high taxes, punitive regulation, and a detached and carefully insulated ruling class in Trenton, New Jersey is a leader in the ‘race to the bottom’ of diminishing economic activity. 95% of the jobs created in the last seven years were actually created by the government, while private sector growth was somewhere between anemic and non-existent.

He skips the part about how the population of the state is falling fast, and he focuses on the idea that Obama might get a preview of his policies by looking at our little “East Germany on the Delaware” and avoid some of the larger pitfalls. Personally I’m not persuaded. I think Obama will look at New Jersey’s failure and do exactly what New Jersey has done only bigger. The actual effect of policies is irrelevant to liberals, only their intent is what matters.

Tuesday, December 23, 2008

- Civil Service Union Thuggery


In an effort to prevent the total collapse of the State of California, the Governator has used his executive authority to order that civil servants take a few days off. Naturally, the civil service union is suing him for it.

This is officially reason 12,877,421 why civil service unions be should illegal. The workers need no protection from the state. There are no safety issues involved, and no issues of fairness in the workplace. It's just a chance for them to use unobstructed thuggery to sap the lifeblood of the taxpayers. With no profit motive to give "managers" a reason to push back, the unions won't stop until we are all their slaves.

Personally I blame Jimmy Carter.

- The Inauguation: Saluting The Rank


I have for the most part ignored the symbolic significance of “The First Black President” because I don’t generally hold race to be a topic of relevance unless race relations are themselves the topic. Generally I'm a substance over symbol guy but if you want to know the absolute truth I haven’t thought about it all that much. Unlike the major media and roughly half the electorate, I have thoughtlessly been judging him almost exclusively on the ‘content of his character’ and the many ways which his world view is different from mine.

With all that said though, I believe there are moments when partisanship should give way and symbolism of ‘the historic moment’ should be the focus. Personally I think the swearing in and the inauguration is one of those moments. It’s an event specifically designed for public relations pomp, and I think it’s perfectly fair for the Obama team to make the most of it.

Obama will be sworn in with the Lincoln bible, (the first president since Lincoln to do so) and I think that’s a appropriately poetic act as well. It’s an important moment to swear in the first black president, so I want to recognize it as such. I would prefer it was a president with whom I had some agreement, but I won't petulantly pretend it doesn't matter. On January 20th he’s going to be sworn in as my president. And I’ll take as much pride in ‘the moment’ as any Democrat.

This doesn’t mean I’ve changed my views at all. On January 21st I’ll go back to calling him an empty suit. But I think he’s entitled to the day. Given the outlook it will be his last chance to enjoy himself for some time. So on that one day I’ll ‘salute the rank’, and take a little pride in my new president. And sincerely hope and pray that he finds the wisdom it takes to do the job right.

Monday, December 22, 2008

- A Healthy Contempt For Authority



People desperately reaching for a glimmer of hope in an increasingly dismal liberal future where the state controls more and more of our bahavior whether we like it or not, should appreciate this pointless nuisance perpetrated by some students in a Maryland suburb:


As a prank, students from local high schools have been taking advantage of the county's Speed Camera Program in order to exact revenge on people who they believe have wronged them in the past, including other students and even teachers.

Students from Richard Montgomery High School dubbed the prank the Speed Camera "Pimping" game, according to a parent of a student enrolled at one of the high schools.

Originating from Wootton High School, the parent said, students duplicate the license plates by printing plate numbers on glossy photo paper, using fonts from certain websites that "mimic" those on Maryland license plates. They tape the duplicate plate over the existing plate on the back of their car and purposefully speed through a speed camera, the parent said. The victim then receives a citation in the mail days later.

Students are even obtaining vehicles from their friends that are similar or identical to the make and model of the car owned by the targeted victim, according to the parent.


Liberals believe the government should be all powerful to protect us ... you know ... for the children. Well I for one am glad to see that the children know better.

Yes this is a horrible nuisance...but so what? It's exactly the kind of nuisance that my friends and I would have pulled when we were in high school, had there been the cameras around to do it with. In an effort to annoy their friends and teachers, they've inadvertently punched a hole in the government's increasingly intrusive ways. I know it wasn't their intent, but it will hopefully be the effect. And personally I get the joke.

Personally I'm relieved to see that the spirit of petty annoyance and contempt for authority is not lost on America's youth of today.

The rest of the story is here.

Friday, December 19, 2008

Cinderella vs. the Barracuda


It's no secret that I'm a big fan of Sarah Palin. I appreciate her genuine nature and her confidence that 'ordinary people' would be happier making their own choices than they would doing what they're ordered to do by the government, no matter how much better for them it may actually be. The media however, really... REALLY... R-E-A-L-L-Y HATES her. She represents something they cannot tolerate, and that is a woman who doesn't buy in to the 'women's studies' view of women as a minority being kept down, quite literally 'by the man'. Caroline Kennedy on the other hand, is a member of liberalism's royal family, so she won't get the same treatment. It's shameful really.

I try not to link to Jonah Goldberg pieces too often because I know that anyone who reads my stuff probably already reads his, and if I don't have something new to offer an argument then I try to keep my mouth shut. I agree with Jonah about a great many things, so much of what I say is more or less redundant. He addresses the Sarah - Caroline treatment disparity here.

I'm linking it because it's simply too good to miss. So don't.

Tuesday, December 16, 2008

- The End Of Western Civilization: Part 6,421


Here is more proof positive that the western world surely lost it's way. It also confirms that Animal Rights groupies are by far the stupidest, most vacuous, supersillious, vain and self congratulatory people alive. How in the world can anyone take these people seriously about anything?!

Gay penguins, expelled from zoo colony for stealing eggs, are given their own to look after following animal rights protest

Monday, December 15, 2008

- You Know You're In The Third World When...




Your riot police run out of the basic neccesities in the middle of the riot.

Greek Police out of Teargas.


It's tragic I know, but I can't stop laughing at it.

- A Change That Liberals Would Rather Not Believe In


The Detroit three (whose nom de guerre has been recently changed from the “big three”) have a number issue to work out. Their average compensation without overtime is $72.31 per hour while Toyota’s average wage is more like $47.60 per hour. That means that without overtime and on a 50 week year, the average annual pay in Detroit is $144,620, while at the Toyota plant in Tennessee it’s more like $95,200. Neither of these comp levels sounds to me like the guys on the line will be eating pancakes for dinner.

The UAW would have you believe that they’re fighting for the survival of the working man, but that’s bull. Whatever they do for a living, no one making 144K a year should be crying poverty. Roughly a third of my friends are out of work, and their jobs aren’t coming back. Many of them would be happy to run a manufacturing robot for GM or Ford for the kind of comp the Union is demanding. But the problem is, the labor the union provides isn’t worth that anymore. The cars they make aren’t so much better than their competition that it justifies paying them a 65% premium to build them.

Like it or not, believe in it or not, change has come to Detroit. The union can struggle against it, but reality will not be put off any longer. Bailout or no bailout, the UAW is finished. It’s just a question of whether they will be taking our domestic car companies with them.

Is there anyone out there fool enough to believe the nonsense the UAW is offering up as if it were relevant to the discussion? Here is Larry Kudlow with more unavoidable facts.


%%%%%%%%%%%UPDATE%%%%%%%%%%%%


There is some talk about how the cost fo a bailout will be less than the cost of a failure to the economy. While the numebr may be smaller, those costs aren't equivalent. In a bailout, people who haven't been behaing irresponsibly for better than a decade have to pay the bill for the people who have, while in a failure, it's the guilty who have to pay the most instead of the innocent.

But either way, there is no debate about who the innocent and guilty are with regard to the auto industry failure.

Friday, December 12, 2008

- No Good Reason To "Save" The Big Three



There is no doubt about it, when the heads of the big 3 said that no one would buy their cars if they went bankrupt, they were absolutely lying. It may be true that no one would buy them at the price they wanted to sell them, but if the price keeps falling as market forces would dictate, then the cars absolutely will get bought. At $1,000 a car I’ll buy as many new Ford’s or Chryslers as I can get my hands on. I’ll buy the GM cars at $800 per because I don’t really like them. But the fact is, I’ll never get either chance because someone with more knowledge of the car market than me will beat me to it and outbid me by a wide margin.

They were lying about the consequences of not getting a government bailout, but that isn’t to say that GM or Ford or Chrysler would survive without government help. There are at least a few people around (including the head of the UAW) who say that the big three have been so poorly run for decades that if they go into chapter 11 then liquidation will soon follow. Knowing a little about the numbers involved I tend to agree with that sentiment. That will mean the temporary loss of hundreds of thousands of jobs, and the end of a long slow death for the city of Detroit.

So who’s to blame for this? Well it’s pretty clear that the corporate management is responsible. I’ll bet you thought I was going to say the unions didn’t you. Well I don’t blame the unions for destroying the big three any more than I blame a bear for using the forest as its bathroom. The union did what it was designed to do and what all unions have always done. They put incentives in place to reduce productivity, they treated profitability of their company as if it were a failure, and they sucked as much blood from their host as they could without actually killing them. But when it comes to labor unions, that’s exactly the point.

For decades they have been distorting the economics of the car company’s labor pool, and ensuring that people who did as little as possible were getting paid as much as possible. That’s what unions are designed to do, and the UAW was far more successful at it than others. While many other unions killed off their hosts or forced them to move to cheaper labor markets overseas, the UAW managed to back off just enough to keep the big 3 alive, if suffering and lagging behind their competition. But now the time has come. Reality has arrived. The Economic truth can’t be forestalled any longer.

The fact of the matter is either the union is finished, or the car companies are. (And it’s also quite possible that both are doomed). But that doesn’t mean we’re done making cars in the US. For a long time I’ve asked people why a Toyota made in Mississippi is less American than a GM made in Mexico, and I haven’t gotten many good answers. But more to the point, if we finally get the government out of the car business (the unions would have never survived this long without lots and lots of help from the government) then new American car companies can rise up from the ashes of the big three.

For instance, have you ever heard of a Tesla? It’s a small American car company which was no doubt held back by being forced to conform to the stringent government regulations designed by the big three to limit competition. The Tesla is sexy looking ‘all electric’ car that will not only go zero to 60 in 3.9 seconds but will drive 244 miles on a single charge. That’s fast enough to leave a Ferrari in the dust. If they could make use of economies of scale and reduce the cost just a little, no one would ever buy another Toyota again. But so long as the big three are out there, companies like Tesla will be held back by their lobbyists and their cozy relationship with congressional Democrats. And since the unions pony up much of the cash for Democrats, they will be highly complicit in that lobbying.

There is really no reason for the government to ‘save’ the big three. There is nothing left to save. It’s simply not possible for them to ever be competitive globally without the union, and with all the money the union gives to government Democrat’s the government will never allow that to happen. So we can either nationalize the car companies and start producing something that has all the design creativity and innovation of the East German Lada, or we can get government out of the car business and out of the way of companies that want to make cars like the Tesla. Seems an easy choice to me.

Americans are better at innovation and creating thinking than any group of people alive. Americans dominate any industry that rewards a unique solution to a problem. Unfortunately the car business hasn’t been that way for decades, and the reason for that is that the management of the big three was much more worried about politics than problem solving. The union may have been the devil on their shoulder, but like I said, they were just doing what all unions do. It was the management that gave in to the temptation to use government to hold back their competition, rather than using their own creativity to run ahead of them.

But with all that said, the deed is done now. The big three are already dead. It’s just a question of whether we want a phoenix of creativity to rise from their ashes or not. The union and the big three management all are voting no. Hopefully the American people will force Congress to vote otherwise.

%%%%%%%%%%%UPDATE%%%%%%%%%%%%%%

One of the ways that government manages to keep the big three from being an example of the kind of dynamism and creativity that they should be is by saddling them with nonsense like this:

The 2,215 pages of the current UAW contract. You don't think anyone would agree to that sort of thing unless govenrment forced them do you?!

Tuesday, December 9, 2008

- Its International Anti-Corruption Day... No Really!


Rod Bogojevich please call your office....


From the UN Linked site:
International Anti-Corruption Day is a time for political leaders, governments, legal bodies and lobby groups to work together against corruption work by promoting the day and the issues that surround this event.

Other activities that promote the day include: musicals and plays to publicize the message of fighting against corruption; keynote speeches by those who were victims of corruption or fought against it; essay competitions on issues surrounding the topic of corruption; and the dissemination of posters, flyers and other material to increase awareness levels on corruption.


In the US we celebrate this important International holiday by listening to the profanity laced phone calls of Midwestern politicians demanding adequate compensation before appointing political hacks to recently vacated US Senate seats, listening to the non-denial denial press briefings of the president elect whose seat was vacated (and who is of course... deeply saddened), and reading news stories about how recently indicted, rabidly anti-gun politicians are forced to hand over their firearms permits while under arrest by federal marshals.

I can't remember the last time I had so much fun reading the news. If this is what we can expect on a regular basis from the Obama administration it might just be be worth all the economic destruction and creeping socialism. If a teen age hooker and a transvestite drug dealer ooze to the surface over the next few days, I'm putting my house on the market and moving to Illinois.

Blagojevich Does The Perp Walk


Apparently the same Illinois governor in the previous post (who was arguing for a suspension of the laws of economics where lending is concerned) was taken into federal custody on corruption charges. I understand from Don over at The Armed SchoolTeacher that this has actually been going on for ages.

As I've always said, any day when a US Governor is carted off to federal prison, is certainly a good day. Congrats to Don and all our like minded brethren in Illinois. That's one politician down, only a few hundred more to go.

Governor Rod Blagojevich taken in to Custody.

Maybe Blagojevich should pick this moment to come out and announce that he's a "Gay American"... it worked for our guy.

Naturally the media will be careful to point out that although this is the same Illinois where our president elect is from and it's a story involving his political allies, party members, friends, confidants, and the filling of his soon to be empty senate seat... he had absolutely nothing to do with it and is 'shocked and horrified' to find out that the is corruption in the Illinois political system.

Monday, December 8, 2008

- How Did You Think It Was Going To Work Out?!



A note from Dealbreaker on the new consequences of the bailout:


1. Bank of America pulls credit lines from Republic Window & Doors, presumably because they're are not as credit worthy as they used to be. Republic Window & Doors is in what might broadly be called the "real estate" business, even the "new construction market" which isn't exactly a massive cash cow at the moment.

2. Republic Window & Doors, seeking to avoid bankruptcy, lays off most of its employees. In doing so they run afoul of state rules requiring 60 days notice, etc.

3. Republic's employees stage a sit in.

4. Illinois Governor Rod Blagojevich suggests to Illinois agencies that doing business with Bank of America is a bad idea, on the rationale that since B of A got bailout money, whats the harm in lending to the likes of Republic Window & Door?

So, the price of accepting bailout funds has become the wholesale replacement of traditional credit criteria with political influence criteria when making lending decisions.

Thursday, December 4, 2008

- Identifying Bad Conservative Ideas



There’s been a lot of speculation about the cause of the demise of the political right. The left of course thinks it’s the triumph of their perspective based on 'hope and change', but as is usually the case with liberals the data doesn’t support their view. Their ideas are the same fundamental principles that their movement was based on when it failed so miserably in the 70’s. And there is no reason to believe that it will produce anything but the same dismal results this time around.

Among the differing factions on the right, everyone seems to think the breakdown was the fault of someone else. The secular urban elitists think it was the result of the 'oogah boogah' religious rubes in the sticks and their economic populism. The evangelical community thinks it was the fault of the 'free market' conservatives who in their mind weren’t ‘real conservatives’ anyway. And the remainder, those conservatives who supported John McCain from the outset because of his foreign policy views, blamed the other two groups in more or less equal parts for failing to see that Islam’s rapid encroachment on the west was the real issue in the first place.

In my case I’ve found that the members of each of those groups usually describe me as being a member of one of the others. I make my living in urban greater New York and work in a highly educated field specifically linked to economics. But from that location I also argue energetically for a greater role in public life for religion and for the strengthening of our religious institutions. I also have made a point of challenging the academic kool-aid with regard to the war in Iraq, both in its effects and its justifications. And the long military history of my family has kept me firmly in the ‘strong military’ camp. I don’t really fit particularly well into any of the subgroups of conservatism, and if you think I do then it probably says more about you than it does about me.

In a way I feel a little like Groucho Marx. Where he wouldn’t want to be a member of any club who would have him, I don’t want to be a member of any group that many others would put me in. And because I don’t see myself that way, I find it hard to accept the classic depictions of the fracturing of the conservative coalition. I’ve found that when people start pointing fingers, there is usually good reason to point another at them. That’s left me in the awkward position of rejecting almost everyone’s view and looking elsewhere for a cause of the fracture. And I think I’ve found it in a familiar place; the work of Thomas Sowell.

In his 1983 book Knowledge and Decision, Dr. Sowell describes ‘ideas’ as the raw material of knowledge:

Various kinds of ideas can be classified by their relationship to the authentication process. There are ideas systematically prepared for authentication ("theories"), ideas not derived from any systematic process ("visions”), ideas which could not survive any reasonable authentication process ("illusions"), ideas which exempt themselves from any authentication process ("myths"), ideas which have already passed authentication processes (“facts"), as well as ideas known to have failed- or certain to fail- such processes (“falsehoods" - both mistakes and lies).

I think the seeds to the fracturing of the conservative coalition are embedded in this quote. It used to be that the ideas being debated were largely ‘liberal ideas’ which because of their lack of supporting evidence were easily refuted by conservatives as either myths, or falsehoods. So long as the ideas being discussed had their synthesis in the liberal sphere, it was easy for all conservatives to accurately categorize them even though they were doing so in three very different ways. Relying on what they describe as their own belief in empiricism and ‘evidence’ the liberal agenda was largely refuted and it was done with relative political ease.

But once the discussion turned to ‘conservative’ ideas, it turned out that on the whole, conservatives were no better at categorizing ideas than liberals were. While the ideas they had were different their authentication processes were basically the same, and were being handled with the same lack of discipline as their counterparts on the left. When they examined liberal ideas conservative were far more critical; They were more specific about requiring authentication. But with their own visions, in their mind that was no longer necessary. Genuine 'critical' thinking ended for them. And conservatives then proved to be just as haphazard about ideas, and just as likely to believe their own myths and falsehoods as any of their political opponents.

The results of this were evident in the Republican primary where the evangelical community embraced the economic populism of Mike Huckabee because he subscribed to their 'social vision'. The economic conservatives embraced the socially liberal Mitt Romney because he understood their 'economic vision', and the strong military conservatives excused the social liberalism and economic cluelessness of John McCain because he appreciated their 'national defense' vision. The discussion about the validity of ideas ended, and with it, the ability to identify bad conservative ideas ended as well.

When they lost their common enemy the various conservative factions also closed their minds to whatever portion of the triumvirate that they had always found most inconvenient for their unauthenticated vision for the future. It became a movement looking for purity, and that search led them in three mutually exclusive directions. And because visions must be accepted without authentication, those who embraced each of the visions found themselves in the awkward position of no longer being able to accept the views of another portion of the coalition.

It wasn't a single group in the conservative movement who brought on the loss, it was all three, and for the same reason. Just like liberals, they stopped worrying about having a disciplined process for identifying good conservative ideas. David Brooks was as guilty of holding a 'blind faith in his vision' as the evangelicals he indirectly blames. The evangelicals were as guilty of not being 'real conservatives' as the New York literati they criticize.

In a way, much of the political right has become just like the academic liberals we’ve been ridiculing for decades. We have lost our ability to categorize ideas. Because we're now only dealing with our own unauthenticated visions, we can no longer tell the difference between illusions, and facts, and myths, and falsehoods. And the discussion on the right reflect that. These days economic 'facts' are disputed with conservative 'opinions'. New social theories are used to dispute already authenticated evidence, and everyone in the conservative movement seems to have embraced one form or another of would have been previously described as liberal falsehoods or mistakes.

In the same way that a tenured professor never learns to be right (because they never experience an incentive for it) the conservative movement no longer knows how to generate ‘correct’ ideas. Instead we’ve all embraced our own differing but insular visions, and now try to engage in discussion while rejecting all others. We all say we're right, and we each blame everyone else.

Until we learn to be as critical of our own ideas as we are of the ideas of liberals, I think we can expect to remain in the political wilderness. And deservedly so.

Tuesday, December 2, 2008

- A 21st Century Simpsons: The Goode Family

- With REALLY No Money Down!



My wife points out this story of a Florida "activist" who is illegally helping the Miami area homeless find forclosed houses to squat in. I guess that whole "property rights" idea is a really passe concept among the Democrat elite anyway. But this is just the kind of thing that makes my wife, who grew up in Communist eastern europe, absolutely lose her cookies.

She's right of course... but the way I figure, the local officials are just putting the "duh" back in Florida.

- Crossing The Rubicon With Regard To Debt



A coworker of mine was blown away by the 100 million dollar toilet on the space station. Not because it cost 100 million, but because after that hefty bill it still didn't work. I told him that I could fix it for another 150 million, and he said that because of the current state of government he needed to translate that as "0.15 Billion... he can't understand mere millions anymore." After you take that first Trillion dollar step, the numbers just don't seem all that big anymore.

Here in the WSJ, Governors Rick Perry and Mark Sanford raise an issue prominent in my mind lately. According to my numbers they are understating the issue pretty dramatically. They are also avoiding the big question that comes at the end which is... "What comes at the end?!"

In my view, because of the issues they've raised, the US government is no longer a riskless institution. Make of that what you will.

Sunday, November 30, 2008

- Notes From The Hedge Fund Under The Volcano



If you’ve noticed that I haven’t been around much lately, I guess it's because I’m a little burnt out.

It’s not the Obama win that did it. To tell you the truth I’m not all that worried about him anymore. I actually think the guy has been elected at the worst possible time. If he does even one or two of the things he said he’s going to do, then the economy is going right in the crapper. The people who work for him will all know that and will certainly tell him so. No one takes Krugman seriously anymore, not when they have their jobs and reputations on the line.

So he’s been elected president at a time when if he does even a little of what he said he would, his negative reputation in history will be sealed. In the near term we will either have a Democrat who will break his campaign promises to do the right thing, or a Democrat who will be so savaged by reality that he’ll assure the utter devastation of his socialist leaning party in the next few elections. As far as elections go, it’s hard to get better than that when you lose.

And if you assume for a minute that his ‘hope and change’ blather was all just for the rubes, and that underneath it he’s smart enough to see a bit of reality through the rhetorical fog, then the truth is… I kind of feel bad for the guy. His every avenue to do the things he said he wants to do are firmly blocked off by their effect on unemployment.

Green energy only happens because of high energy prices (he even said so) and that leads to unemployment. Higher taxes for the rich lead to smaller amounts of investment capital and higher interest rates which in turn lead to… more unemployment. Increases in domestic spending? While it’s long been a piggy bank to buy votes, the reality is that if the government is spending it, then it’s money poorly spent and the net effect is… you guessed it… more unemployment.

He can still pull us out of Iraq and slash the military budget. Apart from the soldiers it eliminates that won’t lead to any direct unemployment. Of course it will increase the political risk in the Middle East which will in turn increase energy prices which will lead to more ‘you know what’ (yes… unemployment). And with the two nuclear powers of India and Pakistan about to declare war on one another, I don’t think his advisers will be telling him to pull our troops back to where their presence can’t be used to ‘influence’ the situation. But to be fair, I’m not a foreign policy expert so I’ll leave that to better minds.

Anyway, no, I’m not all that concerned about Obama winning the election and I wish him all the luck in the world. By my reckoning, he’s definitely going to need it.

The reason I’m feeling burnt out is a combination of a few small things rather than one big one. For starters, my work has gotten much more demanding on my time of late. That’s an easy think to say in one sentence, but it’s really a hundred smaller things that are on my mind. And I no longer have my comparatively relaxing 1 hour train ride to write… instead I’m driving now. It’s much harder to write and drive at once.

Then there are the death threats I’ve been getting on other forums. Those who know me know how generally unperturbed I am by threats. But the whole idea here was to try and influence people’s thinking and decision making. If they reject what I say out of hand simply because of what I do for a living, then I think it’s a safe assumption that they will also be rejecting my reasons for telling them that they’re wrong to blame me in the first place. So it isn’t the death threats themselves that have left me feeling worn down, but what they say about our broader society. Right now the Democrats in Congress and their media lapdogs have America whipped into an anti-capitalist frenzy. And a big part of anti-capitalism is demonizing the capitalists.

Hedge funds, and hedge fund managers, are everything the socialist left likes to demonize. They are a ready made villain for the envy driven fantasies of those who subscribe to the labor theory of value. They are private, unregulated, and (generally) make vast sums of money. So in the simply minds of the media and the Democrat faithful, why shouldn’t they hate them? If the hedge fund’s rice bowls are full that means that someone else’s bowl is empty right? And since hedge funds cater only to ‘the rich’, that someone else must be a poor person.

Well that’s not really how it works. It’s true that there is a federal regulation setting a limit on who can invest in a hedge fund, but hedge funds are fairly high risk investments so that’s a rule put in place to protect the poor not to victimize them. Besides, one of the biggest investors in hedge funds is ‘pension funds’ which cater to people of all classes. So while they don’t have any direct investment, many ‘working class Americans’ have an interest in hedge funds as well.

But that doesn’t matter at all to the media. To them, that sounds like the kind of detail which doesn’t play well for the rubes. And if facts won’t increase ratings, then by the rules of modern journalism, I guess they stop being facts. Another thoroughly ignored fact is that hedge funds didn’t cause this mess, they didn’t worsen this mess and they didn’t ask for taxpayer money to help bail them out when they too got caught up in this mess. They worked the way all companies in the private sector are supposed to work. The bad ones went out of business, the good ones did better, and they all managed it for themselves without the involvement of Washington.

But all of that is irrelevant. All that matters is what a great villain the hedge funds make.

There is a great joke in a recent Tom Sowell piece that tells the story really well:

There is an old Russian fable, with different versions in other countries, about two poor peasants, Ivan and Boris. The only difference between them was that Boris had a goat and Ivan didn’t. One day, Ivan came upon a strange-looking lamp and, when he rubbed it, a genie appeared. She told him that she could grant him just one wish, but it could be anything in the world.

Ivan said, “I want Boris’s goat to die.”


That more than anything else sums up why I’m feeling burnt. There are so many people out there wishing for my goat to die, that I figure I’ll just let things die down a bit before trying to influence their thinking again. In the meantime I’ll worry about my job and my family, and my own preparations for the future. This blogging slowdown isn’t a permanent state, it’s just temporary. And I’m sure I’ll be back to complaining again in no time. When I feel like my ideas aren’t being passed off with a ‘Well you’re a hedgie so of course you’d say that’ dimwitted flourish.

(And I’ll say this again… the minute someone uses the word ‘hedgie’ you can go ahead and discount everything they say because it means that they don’t know the first thing about the industry.)

In the meantime, a few of the sharks have broken their laser beams, and I need to spend more time helping my wife sweep out the volcano. That magma gets everywhere when you aren’t paying close attention to it. Life is tough when you're a super-villain, but sometimes you have to just make the best of it.

Tuesday, November 25, 2008

- Obama Supporters And Media Malpractice

The first half of this is a little tiresome if you ask me. Of course Obama supporters don't know anyhting about him, that's WHY they're Obama supporters. But the second half is actually quite interesting.

Saturday, November 22, 2008

- Government Spending Can't Stimulate The Economy


This is an excellent and highly accessible piece
from pajama media on why government spending never manages to 'stimulate' economic growth. There are few if any economists who are so misguided as to still think this works, but it still sounds like a good idea to those in government. I can't imagine why...

Friday, November 21, 2008

- Where Do YOU Think Turkey's Come From?!

The girls over at the Huffington Post are all aghast that Sarah Palin was nearby when turkey's were being slaughtered. She had gone to a local Turkey Farm to "pardon a turkey" for Thanksgiving, and did an interview on the grounds.

Apparently the Huffington Post staff (the piece isn't by-lined) thinks it's horrific and they're all atwitter because there were actually turkey's being killed at this commercial turkey farm. Personally I find their reaction absolutely hysterical. Really it's just an example of how detached many Americans are from the literal 'facts of life'. And that the Media hacks at the Huffington Post are all fainting over this says more about their detachment from reality, than it says anything about Sarah Palin.

I can appreciate that not everyone wants to deal with the act of slaughtering their own meat, but to be so worked up about it seems completely laughable to me. And I guess some members of the media just don't want to give up on that ridiculous Sarah Palin hyperbole where her every breath is treated as some manifest evidence of her lack of sophistication. Sarah of course, is just her typically unflappable self.

As for whoever it is over at the Huffington post who is getting 'the vapors' from this video, this is where Turkey's com from. Grow the F* up ya babies.


%%%%%%%%UPDATE%%%%%%%%%%


Mark Steyn thinks it's hysterical too, and if there is one thing he knows, it's "Funny".



%%%UPDATE II The Sequel%%%

Byron York's email about it is even funnier.


Thursday, November 20, 2008

- Dealing With Pirates


My friend Arthur Herman has a worthwhile piece in the NY Post today about how the civilized world should deal with the recent upswing of Piracy on the African coast. Arthur knows something about dealing with piracy. He's published several books including one called "To Rule the Waves: How the British Navy Shaped the Modern World", which reads more like an action novel than a history book.

His proposed solution? ...Leave the issue to experts.

- A Word On "Political Risk"



Do you think the federal government is done monkeying around with the financial industry? Me Neither. For weeks now, every day it’s a new set of rules with a new set of winners and losers. The odds of nationalization are actually higher than the odds of letting competition in the free market decide things. How about the auto industry… do you think you have a clear understanding of how the winners and losers will be decided in that market going forward? Unless you’re deeply embedded in the Democrat party in Washington, the answer is no.

But those industries aren’t considered ‘safe havens’. They’re considered a sector which you want to be holding during a period of growth. So how about the sectors that are widely considered “recession proof”. Do you feel confident that you understand what’s going to happen in the healthcare sector? Well we know government will be messing with that right? Or how about the most ‘recession proof’ bet utilities? New taxes on carbon have been promised and according to the president elect, they’ll bankrupt the coal industry and dramatically increase the cost of electricity so even they don’t look like a good buy. How about the energy sector? Surely that’s safe right? Oops …you forgot about the windfall profits tax.

In short, there is no reason to buy any stock in any company in any sector of the US because you don’t know what the rules will be come 2009. We know we’re abandoning the free market where all the rules are spelled out before hand. And until we know the new rules, no one will be buying anything. That is called ‘political risk’.

We’ve decided that some companies are ‘too big to fail’. We’ve tried to eliminate the risk of failure and instead we’ve taken on political risk. That’s why I think the thing to do now is for the administration to admit defeat, and let the banks, and insurers, and car companies all fail. Bankruptcy is a condition we understand. We have laws and rules for disposition of assets under bankruptcy law which everyone already knows. Sticking to those rules will allow us as investors to believe that we can pick the winners and losers again.

By embracing the ‘too big to fail’ idea we’ve made it certain that the rest of the economy will ‘fail’ in its stead. Political risk is destroying the equity market. That won’t change until we admit that ‘command and control’ economics doesn’t work, and let nature take it’s course. It’s tragic, and will be painful, but it will be better than the alternative because all we’re doing is delaying the inevitable. The cure has turned out to be worse than the disease. And since that’s so, we should remove the leaches and let the markets begin to heal themselves.

Wednesday, November 19, 2008

I Wish I Said That...wait...


Volatility is an indication of instability. It's not a sign of a healthy economy but of an economy which has lost its way. High volatility isn't what you expect from the worlds largest market, but from the emerging economy of a third world country. As you can see from the attached chart, when Roosevelt began his 'bold persistent experimentation' it drove away long term investors and that caused volatility to dramatically increase. It will almost certainly have the same effect when Obama does it.

More Here...

Tuesday, November 18, 2008

- Roosevelt's New Deal Didn't Work And Neither Will Obama's!


Roosevelt did many of the things that Obama planned, and it was an utter failure.

Audio Interview by John Miller:








Between The Covers

Friday, November 14, 2008

- Gun Free Zones: The Choice For Mass Murderers


A really Great piece on how Police Tactics have changed with regard to the type of 'school shooter' we've seen, like the guys at Columbine or Virginia Tech.

They've done a profile of the shooters and come to a few obvious but politically incorrect conclusions. Among them are that the shooters specifically choose Gun Free Zones.

This was obvious to anyone who didn't specifically have their head in the sand, but there is no talking to some people.

When Seconds Count: Stopping Active Killers

- The Bailout's Fault Lines


Most of the time when I'm disagreeing with Charles krauthammer, it turns out that he's actually just taking political tactics. "If you want to achieve X, one way you could do it is to approach it from Y". I usually figure out later that it was the goal of achieving X in the first place that I had problem with not his proposed method, and since he wasn't endorsing it, I didn't really disagree with him at all. But even when I do actually disagree with his views, I will always admit what a smart f'ing cookie he is.

This piece of his is an excellent example of that. My world is very insular when it comes to economic issues. We use the same language to describe the same issues and are worried (largely) about the same things. But CK has written a brilliant piece on the bailout which uses language which to me, is that of an outsider. And in the process he manages to cut through much of the fog.

My friend Vincent, the Port Authority Cop, is going to get a copy of this from me. It will answer his questions without getting tangled up in all the crap I usually do when I try to condense 20 years of financial and economic experience. To all of you who responded yesterday, send this piece to someone in your life who doesn't get what you do.

The Bailout's Fault Lines

Thursday, November 13, 2008

- Well, Maybe A Little Blame...




The night we waved goodbye to America...
our last best hope on Earth


Here is a brilliant but sad Anti-Obama tirade from Peter Hitchens. He's as optimisitic as I am.


H-T "The Derb"

- Not Blaming Obama



My buddy Randy runs fixed income trading for a large Japanese Bank. I asked him what he thought of my piece from yesterday and he said “It filled me with the desire to throw my chair through the window, and then follow it to the street”. Randy works on the 51st floor. He was kidding of course… but his point was that he thinks it’s just a tad pessimistic.

And he’s convinced me that it’s possible that I am. So today I’d like to put a shout out to my buds in the financial business (and all of their friends as well) and ask them a question. The question is “What do we do when the bill comes due?“ How can we address this problem in a way that will allow us to carry on as “normal”? Because when I look at the actual numbers I don’t see an answer.

Some estimates place the current notional for the bailout at 5 Trillion. We all know that it won’t cost the taxpayers nearly that much, but that’s the number that needs to be funded. So where do we get it? And when we add another 5 trillion for bailouts for various other industries and municipalities, what do we do then? Where do we get that potentially 10 Trillion from? This is a worst case of course but remember, I’m talking about total capital requirement, not actual costs.

And when the total unfunded liability for federal entitlements comes due, and that (according to the GAO) is another 53 Trillion, where do we get that?! How about after the Obama administration gets done “insuring the uninsured”, and adding all the additional expenditures they’ve promised that add another 10 Trillion to that number? That would put our total funding (not our net cost… but our total capital requirement) at 77 Trillion dollars. I’ll grant you that this looks several decades into the future, but today the entire GDP is roughly 15 Trillion. How in the world, will be able to ensure enough economic growth to keep GDP high enough to have “77 Trillion” seem like a manageable number? Today the estimated average growth for GDP (depending on who you talk to) is usually about 1.5%, and that ain’t gonna get us there.

There are only three ways to address the debt.

1. We can borrow it but since we’ll be borrowing much of it from overseas, we’ll be placing our currency at risk if we do. The demand can’t possibly keep pace with that kind of supply so interest rates will certainly rise, and that will slow economic growth. As the currency weakens it will be geometrically harder to attract investors from offshore. That will drive rates even higher and growth lower.

2. We can tax people for it. But with a current GDP of roughly 15 Trillion and a deliriously optimistic outlook of 3% growth per year, you cannot support anything like that kind of debt load. Even slowly pushing taxes higher or only taxing ‘the rich’ will greatly reduce economic growth so taxation is like trying to keep from dying of thirst by drinking our own blood. Taxes will rise of course but not enough to bear the load, and the result will be that we be forced to add all the consequences of option one as well.

3. We can inflate the currency. The treasury can simply print the money and retire the debt, but that will cause prices of actual goods to rise dramatically. Think of what it would do to civil stability when a loaf of bread costs $3,500. And by the way, that will also discourage our international investors causing economic growth to go into free-fall.


So what can we do? Or can we do anything? Roughly half the country now feels that it’s their “right” to have other people pay for their necessities. Even during what the New York Times would call the “rabidly right wing Reagan administration”, government entitlements grew substantially. And now that they’ve won the congress and Whitehouse we’ll be getting more of this thinking not less. So what can we do? How can we keep it all going? I’m not being a wise guy, I’m honestly asking for ideas. I think I’m being too pessimistic and I’m interested in other views. Because when I look at the numbers I don’t see a way out.

In a worst case, how stable is the US with an unprecedented unemployment rate, astronomical interest rates and a police force or even an Army that hasn’t been paid in several weeks? What will crime be like when unemployment gets so bad and growth slows so much as to cause supply chain interruptions? How will it affect things when you have gangs in St Louis and Newark setting up their own ‘tolls’ on Route 80 and seizing trucks to sell to the locals? What will New York City look like when the power only runs a few hours a day, and people are forced to wait in soviet style lines for basic necessities?

People find it hard to imagine a civil war in America because we are so strong. But how hard is it to imagine when we aren’t so strong anymore? When I look at the number I don’t see a way forward to strength, only weakness.

To be fair, this isn’t Obama’s fault; he’s a symptom not the cause. I don’t even think this will happen during his administration (unless he gets REALLY out of control quickly). So what can we do to make this out look anything but inevitable? Email any suggestions and I’ll post them.

Also, as an aside… I’m going to rigidly filter comments on this one post. There is no room in this discussion about how Obama’s focus on hope and social justice will save us all. I’m interested in any informed comments of course, but mostly I’d like to hear what my extended professional network has to say. I’ll be happy to post any thoughtful and substantive ideas from anyone, but this post isn’t about politics or propaganda for either side.

I’m not blaming Obama. It’s the change in the country that’s the real crisis. And since that’s so, I’m not interested in the politics of the discussion, just the economics of it. Please forward this around and let me know your thoughts.

Wednesday, November 12, 2008

- Herding Fat Cats



The history of US government bailouts.


This doesn’t include the bailouts for:

GM
Pension funds
The Bailout for the Bailout (TARP – 2)
The FDIC
Homeowners
The AFL-CIO
California
New York
American Express
(whoever else has gotten in line)

- Tragically Self Explanatory


This isn't actually Wall Street but close enough. The building on the left with all the flags is the New York Stock Exchange, and the roman looking building at the end is on the far side of Wall Street, and is where George Washington was sworn in.

This week on Wall Street we have the house "pro-American activities committee" performing it's show trial of the large hedge funds, and we have November 15th, which is the last day most hedge funds can be notified if you want to get your money out by the end of the year.

Neither bode well for the markets.

HT - Dealbreaker.com

- Short - Vol America: Part 2


A friend from outside the financial business asked me to explain the short-vol idea a little more completely, and the best way to do that I think is to relate some of my experience from earlier in my career.

When a discretionary trader rises to the top of the heap, it’s usually because he’s dealing with a relatively inefficient market where he (or she) has some information advantage that lets him turn a decisive profit. As his profit increases so too does his estimate of his own skills. More and more he believes himself to be a transcendent trader, a peer to the legends; a master virtuoso of the game. In reality he’s just like most of us, except he has a temporary information advantage.

But as the market he’s trading matures it gains efficiency; that is to say that the market itself begins to respond more quickly and accurately to new information regarding its inherent value. But markets don’t gain efficiency because the most efficient decision makers improve their methods; they gain efficiency because the least efficient decision makers improve theirs. So while the average efficiency increases, the efficiency of each individual in that market may or may not.

We have a lot of terms to describe this circumstance in the industry. We may say that ‘spreads have tightened’ or that ‘volatility has dropped’. We may describe it in terms of a change in the shape of a yield curve or a spread to some other asset. But what all those terms mean is that the difference between the most efficient decision maker in that market and the least efficient decision maker has shrunken. In effect, the guy who was the leader of the pack is still the leader, but the pack has gained on him. And since his advantage has reduced, so has his profit.

But remember, this is a man who thinks of himself as a master of the universe. His skill may not be as high as the legends, but his assessment of it certainly is. And for years while he maintained his advantage he had lots of sycophantic people around him supporting that view. And as a legend in his own mind, he still believes he’s able to ‘dial in’ the big moves in the market. But as the market has gained in efficiency, those ‘big moves’ come less and less frequently.

Still, he’s convinced that he would be able to identify them when they occur. So in his mind, the only problem he has is in finding a way to ‘keep the lights on’ while he waits for that, now much less frequent, big event to occur. He just needs some cashflow… a small trickle of profit so that he’s up say, in the single digits. He needs just enough profit to keep his political power in place and to maintain his position while he waits for his big opportunity to return.

That’s the point at which the ‘short-vol” trade looks too appealing to pass up. The “short-vol” trade itself can be anything where there is a high probability of a very small return, measured against the low probability of a complete wipe out. The odds for any given day are pretty good that you will make a tiny bit of money on it, but every day you bet the farm. It may be a currency carry trade, or an out fo the money option sale. There are all sorts of ways to be ‘short-vol’. And its appeal for the “genius of the rising market” who is seeing the sun set on his dominance, it can be too great to pass up.

I can’t tell you how many times I’ve seen this happen... certainly more than 20. I’ve seen it happen to men of imperial arrogance, and men of great humility. I’ve seen it happen to kind, generous introspective men and to utterly unmitigated jerks. It’s a regrettably common reaction to a specific set of circumstances that occur a lot in the industry. And after 20 years I’ve seen it so often that I’ve learned to detect it a long way off.

And that’s why I think the similar set of circumstances is occurring in America. Our politicians have been in a place where they could be utterly irresponsible about the management of our country’s balance sheet because we had a great many advantages. We are (really the only) dominant military power. We have the best infrastructure, the most sophisticated, and free-est markets, and the largest and most productive economy. America had all the advantages, but now the rest of the world is gaining in efficiency faster than we are. We are literally losing our advantage.

So instead of doing the hard thing that we should to make our economy more dynamic, we’re simply going ‘short-vol’. We’re throwing cash at the problems, and “bailing out” unhealthy companies in unsustainable positions. We are not just allowing our politicians to do this but encouraging them to. We think our position of dominance is assured if we can just get past this crisis. We think that if we can just survive then our natural brilliance will allow us to stay in the lead. But we don’t have the intellectual advantages that we used to.

These days our views are almost European in their delusion. We believe that we can reward unproductive behavior and punish productive behavior with a highly progressive tax code, and still believe that it won’t reduce productivity. We believe that we can impose the highest corporate taxes in the world without our multi-national corporations moving elsewhere. We believe that we can make healthcare more affordable by increasing its demand while leaving its supply unchanged. We believe that we can fix prices below what the market will bear without creating shortages.

We believe we can increase energy costs with punitive pollution taxes without reducing economic activity, and that the government can spend research money better then the people who are in the business of doing it themselves. We’ve abandoned rational economic thought and all the lessons of the last century, all because we believe that our place as the ‘master of the universe’ is assured, and that all we need to do is survive this crisis.

So we bail out the banks in spite of their imprudent investing. We bail out insurance companies because they might have to pay out on insurance. We throw money at the car companies to maintain their uncompetitive disadvantage rather than requiring them to fix themselves or be sold. Airlines, unions, municipalities, retailers… they’re all lining up to have the government assume a portion of their imprudent risk. The politicians making these decisions are doing their best to get as “short’vol” as they can. They just want to get the trickle of profit going… just enough to keep the lights on… while we wait for that big opportunity again.

Our advantage in the past was that we were all free. We were free to succeed, and also free to fail. But we’ve given up that intellectual ground to emerging economies. Now we’re an anemic and slothful mess. America is GM…a bloated and pampered giant of bygone era, who couldn’t compete at all if the rules weren’t stacked in our favor. We have only our size and political connections to keep us going, and the fact that we can still change the rules in the middle of the game. We’d never survive if the playing field was level, and it’s going to get level again soon. When it does level, I’m convinced that it will fall apart the way a short-vol trade always does.

As a friend from Chicago said to me:
“If you keep betting the ranch on situations where you’re almost sure to make a small profit, but each time have a small probability of losing the ranch, eventually you won’t have a ranch.” This sizes up our government’s position almost exactly for me. And if the bets our politicians are making today to ‘keep things going’ are in the trillions … you can just imagine what the next collapse is going to be like.

Tuesday, November 11, 2008

- Short-Vol America



Security is mostly a superstition. It does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure or nothing.

Helen Keller



We believe that the government is preventing economic catastrophe but what’s actually happening is that we’ve begun to play a much more dangerous game than we ever have. We believe we have eliminated a risk to our financial system and economy but we haven’t. You cannot eliminate risk, only transfer it or distill it. The risk will always remain because the risk is actually a risk of change. Nothing is constant, even if the government says it should be or even if it passes a law to require it. And the longer we pretend otherwise the greater the chances that all of that change will come back in a single moment destroying everything.

This is actually how we got into this situation in the first place, but precious few seem to see that. The bankers who are now asking the US taxpayer to pay for their mistakes, all believed that their sophistication allowed them to act imprudently without fear of consequence. Acting on incentives created by congressional Democrats, they allowed themselves to be persuaded that the credit risk of a homeowner didn’t have to affect the value of their mortgage. They issued mountains of debt at values which didn’t actually take into account all the risks involved.

Because there was so much money to be made if one suspended disbelief and embraced the illusion, many of my peers were also persuaded of the wisdom of that ‘new paradigm’. Everyone believed that the risk had been eliminated, but it hadn’t. It had only been hidden, and distilled. And instead of dealing with small portions of day by day change that each of them could manage in their businesses, when the bill came due they had to deal with all the change at once… and catastrophe ensued.

Now we’ve begun to embrace a new ‘new paradigm’ based on the same kind of fantasy. We’ve come to believe that the ‘riskless’ US government can take on these economic and liquidity risks for us without consequence, and then eliminate them. It can’t. All that will happen is what happened before. The risk will be hidden for a time and thoroughly distilled, until that moment when we are forced to pay the piper. And when that moment comes it will mean the collapse of our government, and the end of the American experiment.

Those readers who’ve worked with me have heard me ramble on for years about how mortgage and credit traders were just swapping volatility for liquidity risk. Traders were giving up changes to their day on day P&L and in the process gaining a massive exposure to a potential liquidity crisis. It was a classic “short-vol” trade. They were making money day over day, but putting off all of their small losses until some day in the future. Those losses wouldn’t be seen day to day but would still accumulate, and eventually they would all arrive at once. They believed they had eliminated their risk but the truth is they were only distilling it. And eventually, as it always does, the bill came due.

Today, by embracing the ‘too big to change’ philosophy, the government is doing the same thing. They are not eliminating a risk as they believe they are, they’re only distilling it. Instead of dealing with the consequences of this most recent change as reduced economic growth, some insolvencies, and a fall of asset prices, they are suspending disbelief and acting as if the government truly is a ‘riskless’ entity. Viewed through the lenses of history that fallacy is obvious…it isn’t. Governments collapse all the time, and ours isn’t immune from doing the same. And by ‘doubling down’ and taking on a short-vol trade, we are all but assuring the inevitability of that collapse.

The government has assumed the risk of the imprudent banks and insurance companies. And because the paradigm looks so appealing to politicians, they are now also planning to assume the risk of the auto industry as well. And with the damn broken, that sort of thing will happen more and more until it’s a common part of American governance. The downstream consequences to our currency value and the government’s budget deficits will continue to be ignored. We’ll never see the day on day effects because we are distilling away the risks involved. But as they always do, they will continue to accumulate until the result is an unsustainable collapse, and that will spell the end of our economy and our government.

Our congress is run by the most irresponsible and economically ill informed people in its entire history, in both political parties. Neither party understands anything except the payback mechanisms of Washington. For all his empty rhetoric and shiny speeches about change, President Elect Barak Obama doesn’t actually want anything to change at all. Rather, what he wants to do is expand the scope of government so as to eliminate as much ‘risk of change’ as possible. But he can’t eliminate risk, only distill it. And he plans to do so with enthusiasm.

In fact, he’s not only suspended disbelief in the inevitability of risk, but he has based his entire political philosophy upon the denial of its inevitability. For him it’s a deeply held moral belief that no one should face consequences for their imprudence, so long as they have some measure of political influence. He believes that all risk of change should be transferred from the ill informed public to the elite experts in government who best know how to handle it. And the US voters have embraced that denial wrapped in the rhetoric of ‘hope’. We ‘hope’ he’s right about how risks can be avoided instead of just distilled and we have ‘faith’ in his expert’s ability to save us from it. But the tragic reality is that we’ve all heard this song before.

The throngs of Wall Street traders who suspended their disbelief during the mortgage run-up believed in the experts too. So did the investors who took it on the chin during the dot.com boom. They all operated under the mistaken belief that they had eliminated a risk when they had just distilled it. They had taken on the short-vol trade without realizing what a short-vol trade really was or what it would inevitably mean.

The risks remain inevitable but under the congressional Democrats and Barak Obama, the US government is planning to enthusiastically pretend otherwise. They’ve planned a trillion dollars in new spending, and untold hundreds of billions in ‘special circumstance’ loans and credit for various failing industries. They plan to reward high risk home buyers who bought more house than they could afford, by taking on their risks as well. The auto-industry, the airlines, and the most poorly run states have all gathered around to have the federal government take on some of their imprudent risks. And every day the line grows longer.

And in the meantime the government is giving up small day to day changes which could probably be managed, like an economic slowdown, or the restructuring of the auto, airline or housing industries, for a risk that will come due down the road. They are making a short-vol trade, and in the process they are making the collapse of America inevitable. The government cannot prevent the risk of change; they can only hide it or distill it, the same as the rest of us. They can pretend it isn’t so for a while, but not forever. The consequences are utterly inescapable, and still we charge down the road in the dark, pretending there is no precipice.

The inevitable cost of the ‘too big to fail’ philosophy, will be a consequence which is ‘too big to handle’.

Monday, November 10, 2008

- The Inflation Story



He;s wrong about one thing ... the inflation story is a really a global story. All modernized countries are equally addicted to inflation.

- We Blew It!



Some say PJ ORourke is at his best when he's angry. Stick him in a European airport surrounded by condescending Belgian socialists he's a laugh a minute. Stick him at the bottom of a Rugby Scrum sized South Korean election riot and you'll wet yourself from laughter.

"Peej" has looked at the the current state of 'Conservative' America and he seems pretty mad to me:

Anyway, it's no use blaming Wall Street. Blaming Wall Street for being greedy is like scolding defensive linemen for being big and aggressive. The people on Wall Street never claimed to be public servants. They took no oath of office. They're in it for the money. We pay them to be in it for the money. We don't want our retirement accounts to get a 2 percent return. (Although that sounds pretty good at the moment.)

What will destroy our country and us is not the financial crisis but the fact that liberals think the free market is some kind of sect or cult, which conservatives have asked Americans to take on faith. That's not what the free market is. The free market is just a measurement, a device to tell us what people are willing to pay for any given thing at any given moment. The free market is a bathroom scale. You may hate what you see when you step on the scale. "Jeeze, 230 pounds!" But you can't pass a law making yourself weigh 185. Liberals think you can. And voters--all the voters, right up to the tippy-top corner office of Goldman Sachs--think so too.

We, the conservatives, who do understand the free market, had the responsibility to--as it were--foreclose upon this mess. The market is a measurement, but that measuring does not work to the advantage of a nation or its citizens unless the assessments of volume, circumference, and weight are conducted with transparency and under the rule of law. We've had the rule of law largely in our hands since 1980. Where is the transparency? It's one more job we botched.

Although I must say we're doing good work on our final task--attaching the garden hose to our car's exhaust pipe and running it in through a vent window. Barack and Michelle will be by in a moment with some subsidized ethanol to top up our gas tank. And then we can turn the key.


Compliments of "The Weekly Standard", and currently mourning the loss of our initiative, ladies and gentlemen... PJ ORourke.

- Give Me Liberty Or Give Me ...



Mark Steyn brilliantly proving why all other 'center right' columnists hate him so:

"The greatest dangers to liberty," wrote Justice Brandeis, "lurk in the insidious encroachment by men of zeal, well meaning but without understanding."

Now who does that remind you of?

Ha! Trick question! Never mind Obama, it's John McCain. He encroached on our liberties with the constitutional abomination of McCain-Feingold. Well-meaning but without understanding, he proposed that the federal government buy up all these junk mortgages so that people would be able to stay in "their" homes. And this is the "center-right" candidate? It's hard for Republicans to hammer Obama as a socialist when their own party's nationalizing the banks and its presidential nominee is denouncing the private sector for putting profits before patriotism. That's why Joe the Plumber struck a chord: He briefly turned a one-and-a-half party election back into a two-party choice again.


The Rest Can be Found Here:

'Center-right' America lurches further left

- Abortion And Moral Choice



Even in a year where saying a thing like “shameless news media” is a redundancy, the treatment that Sarah Palin received at their hands was still astoundingly unfair. It’s true she didn’t help matters. Even when you take into account the fact that it was designed from the get go to make her look bad, her performance during her Katie Couric interview certainly could have been better. She was every bit the small state governor, and it was a disappointing performance for her on many levels.

But with that said, it was just one interview and one interview does not a career make. She is also the most popular governor in the country and the most popular governor in Alaskan History. She’s an accomplished woman and in reality is far smarter and savvier than the media is making her out to be. She has an excellent presence, is unflappable in her optimism, and looks to be a helpful presence going forward as the right tries to redefine itself. But it’s still a critical issue for the left to make sure she is as discredited as possible.

No events demonstrate that better than this exchange which was told to National Review’s Rich Lowry by Steve Biegun, the former Bush NSC member who was responsible for briefing her on some the issues she’s accused of not knowing.

He talked to her about all manner of issues relating to Africa, from failed states to the Sudan. She was aware from the beginning of the conflict in Darfur, which is followed closely in evangelical churches, and was aware of Clinton's AIDS initiative. That basically makes it impossible that she thought all of Africa was a country.

On not knowing what countries are in NAFTA, Biegun was part of the conversation that led to that accusation and it convinces him "somebody is acting with a high degree of maliciousness." He was briefing Palin before a Univision interview, and talking to her about trade issues. He rolled through NAFTA, CAFTA, and the Colombia FTA. As he talked, people were coming in and out of the room, handing Palin things, etc. She was distracted from what Biegun was saying, and said, roughly, "Ok, who's in NAFTA, what's the deal with CAFTA, what's up the FTA?"—her way, Biegun says, of saying "rack them and stack them," begin again from the start. "Somebody is taking a conversation and twisting it maliciously," he says.


It’s clear that whoever repeated that story as “Sarah Palin doesn’t know Africa is a country” is trying very hard to spin her every casual utterance as evidence of idiocy in the hope that she can be permanently branded a fool, and eliminated as a force in Republican politics. But why is that so important for the media? Well if you ask me it comes down to one issue, abortion.

The reason the press was so hard on Sarah was that she was a woman who challenged the long standing claim of the far left, that only they spoke for the issues of all women. And for those groups of the far left, the issue at question is abortion. The left views abortion with all the reverence of a religious rite. Free and easy abortion makes it possible for them to lead a life without consequences, and that idea is central to the “me, me, me” lifestyle philosophy of the left. Even the suggestion that an abortion might not be a perfectly reasonable and moral act will bring the kind of raging hostility and rationalization that can only come from someone who is trying to justify behavior that they themselves already know is wrong.

But because they so desperately need it to be “an OK thing to do”, they get the logic of their arguments all turned around. They treat the issue as if it’s a simple question for science and a complicated question of morality, but in fact the opposite is true. In reality the morality is thoroughly settled, and it’s the science which provides us only with questions. And because of that they’ve been trying, mostly unsuccessfully, to make their case against the place where the conservative argument is actually strongest.

When I say the morality is settled I may be giving too much ground to liberals. I might be naïve when I assume their good intentions, but in my mind, no one (that is … no one without an obvious mental illness) thinks that it’s OK to kill a child. If a child had been carried to term by its mother, and was intentionally killed seconds before the mother completed its natural delivery, no one would call that anything but murder. And since that’s so, the moral question is settled, it’s only the vagaries of science that remain to be dealt with. The question that is central to the science of the issue is “When exactly does that particular group of cells constitute a child”?

Unfortunately science can provide us very few answers to a question like that which are politically acceptable to liberals. Their opponents argue quite sensibly that the best place to draw that line is where it’s clearest; where it’s easiest to tell a ‘before and after’ moment. And so far the best place that science can draw that distinction is “the moment of conception”. But that’s an inconvenient place for the left because it would eliminate all abortion, and the elimination of all abortion would mean an elimination of the liberal ideal of ‘a life without consequences”. All the moments that liberals would prefer (all much later in the lifecycle of the child) all point to areas which science would describe as ‘grey areas’ taken at their best.

As an example, my liberal friend Bryan, one of the more thoughtful people I know, points to the onset of brain activity as a ‘compromise point’ since it’s the means we also use to determine that a life has ended. This offers a compelling philosophical argument but it still fails the test of science. Brain activity doesn’t begin in the same way that it ends, with the flat line that, thanks to all those medical shows, we all recognize as a termination of activity. Rather, it begins as a trickle which wouldn’t be immediately recognizable as ‘brain activity’. And what’s worse for liberals is that the trickle begins almost immediately after conception; far too soon anyway to have the question resolved the way they’d like.

So in the meantime the liberals have taken to fighting the abortion battle using the means where they think they are strongest, even though the data doesn’t support it. They continue to represent the supporters of abortion as the sophisticated advocates of enlightenment who have embraced the science of the issue, and they show abortion’s opponents as the superstitious backward rubes who use superstition and mythology to address their concerns. They do this because they see it as their only acceptable option, but since it’s largely unsupported by the data, it’s also been widely unsuccessful. Abortion advocates are losing the battle, and they know it. The only demographic where abortion still has clear unambiguous support is single men under 24. For all other demographics the issue contains at least a small element of emotional ambivalence and for most, ‘free and easy abortion’ is already a political loser. And as the moral sand slips between their fingers abortion’s supporters have become more and more desperate in their defense.


Abortion retains strong support by the media and leftists groups who have nominated themselves as the guardians of “women’s issues”, as well as any other leftists groups who lean on the “enlightenment vs. superstition” means of self justification. That’s why Katy Couric had to trash Sarah Palin. To the left image matters much more than substance, and while the reality of Sarah Palin’s candidacy had genuine weaknesses, it was the image of Sarah Palin that they needed, and still need, to shatter. For all their talk about choice, they viewed it as critically important that Sarah Palin’s ‘choice’ be seen as backward. Her image as a forward thinking career woman who has managed to have a happy family life and a wildly successful career had to be smashed or they risk the very foundations of their political philosophy. It’s their only remaining option in a political battle that they can clearly see that they’re losing. And it’s that knowledge which has made the media reaction to her so hyperbolic.

Sarah Palin isn’t everything that conservatives hoped for, but she isn’t what the left has portrayed her as either. And she’s much close to the former than the latter. Hopefully when the dust settles we’ll still be allowed by the media to see that. Personally I’ll be betting on Sarah’s tenacity to overtake the media insistence. And if she decides that it’s a battle she wants to fight, I plan to support her when she does.

Friday, November 7, 2008

- Misplaced Blame And Growing Anger



A friend and coworker of mine, a soft spoken and bookish economics PHD, was asked to leave a Halloween party, wife, kids and all, because the host objected to having ‘one of those hedge fund guys” in his home. I say asked, but in fact the host demanded that he leave. My friend thought he was joking at first, but after a few minutes of listening to him declare his belief that “dropping a bomb on Greenwich Connecticut would solve America’s financial troubles” and being accused of “destroying things for a living”, he and his wife gathered their kids and left.

On FreeRepublic, the well known online forum of the political far right, I had a member say that he thought that I (not some dehumanized theoretical hedge fund manager… but me… personally) should be killed, dismembered and my remains dragged through the streets because of my job. Another said that my peers and I should have all of our belongings stripped from us, and that we should be forced to plant cabbages for three meals a day like Mao did to the intellectuals during the cultural revolution. I think it’s safe to say that it was the first time anyone on FreeRepublic has ever said anything in support of Mao.

On Democratic Underground, FreeRepublic’s opposite number for the far left, they don’t really understand much about hedge funds. But while they may be a little weak on the specifics, they’re quite sure that hedge funds are bad in general, and their proposed “solution” is to simply regulate them all until they can no longer operate. They like the idea of requiring that all hedge funds investments be public, or that they be forced to accept investment from people other than ‘the rich’. The also strongly support the idea of a law that limits the amount of money hedge fund managers can earn. And while they’re “fixing” the lack of regulation in the hedge fund world, they also think ‘derivates’ should be made illegal too.

My beginnings are as humble as anyone’s and I’ve never thought of myself as an elitist, but this new level of unjustified vitriol toward hedge fund managers is enough to make a guy rethink his world view. It’s all because of disinformation of course; these people all think hedge fund managers do something that they don’t actually do. But I don’t think there were any actual witches at the witch trials either and they burned them all the same. Being innocent is no excuse when it comes to dealing with an angry mob, and the mob certainly seems angry to me.

And naturally our declaration of innocence are completely dismissed. “Of course” we’d say that we didn’t destroy the economy. That’s exactly what lying economy destroyers like us always say. There is just no talking to this mob. To them there is more than ample evidence of our collective guilt. Never mind that no one can say exactly what it is we’re guilty of, or explain our involvement in any way. All that is just a smokescreen of complexity which they say that we’ve artfully created to obscure the facts. Frankly it seems surreal to me.

It was actually the highly regulated banking industry which caused this crisis, not the unregulated hedge funds. Many Hedge funds, like all other investors, have seen losses this year. Some have seen more than others, and some have even gone bankrupt. But none of them have gone to the government to be bailed out by the taxpayers. You have banking officials, insurance industry execs, car company CEO’s and Union shakedown artists all running to Washington with their hands out, but not hedge fund managers. In our industry it’s the same as its always been, some days you get the bear and some days it gets you, and on those days you’re the dinner not the diner. This year there are lots of guys who will be looking for another line of work but they won’t be looking in the taxpayer’s pocket. No one ever told us there will be a safety net and we aren’t looking for one.

All that hedge funds actually do is understand and manage investment risk. Used to be this wasn’t the kind of thing that would whip a mob into a frenzy, but I guess now that we’ve gone down the Democrat's economic rabbit hole, this is one of the things that's going to "change". Where before I was someone who provided a valuable service for willing customers, now I’m considered a “parasitic paper pusher” and a destroyer of economies. And President Obama hasn’t even taken office yet. I can’t imagine what things will be like once congressman Waxman’s “Pro-American Activities Committee” gets going in earnest.

I live in a mid-sized suburban home that is anything but ostentatious; it’s got a nice back yard, but it’s certainly no McMansion. I drive a Jeep Liberty and my wife drives a Honda. Skeet shooting is my principle hobby and I pursue it with a $500 Mossberg over/under. I don’t even own a golf club. My point is, we don’t lead a life that would engender this kind of hostility. I tend to be a little cerebral, and my wife thinks I’m good looking, but apart from that I’m utterly indistinguishable from millions of other Americans. And yet, thanks to the hyperbole of the Democrats in congress and their desire to pass off blame for the financial crisis they created, I have people wishing me dead and my friends kids are being chucked out of parties. I think it’s only a matter of time before someone crazy does something stupid and really hurts someone.

And that, like this financial mess, will be the fault of congressional Democrats.

Wednesday, November 5, 2008

- Hail Ants



"I for one welcome our new Democrat overlords, and want to point out that as an influential blogger I can be useful in rounding up the others to work as labor in their new 'fairness' camps."


Well that’s that. For better or worse Barak Obama will be our next president. We are replacing an unpopular President who had good ideas but horrible execution with a popular President elect who has brilliant execution but horrible ideas. Obama ran a stunningly effective campaign which portrayed his far left roots as middle of the road centrism, and while John McCain foundered, he managed to fool some of the people some of the time. His animating principle is far left radicalism, but with the help of a complicit media, he managed to portray himself as a thoughtfully moderate centrist. OK … so be it… that’s politics. But it’s a fair question to ask what comes now? How will America react when they discover that the Obama they voted for isn’t the Obama they got?

To say that there will be some buyer’s remorse come 2009 is probably one of the greatest political understatements of all time. The level of deception in this election was absolutely unprecedented, but you can’t fool people forever. And even worse, those members of the far left who would still be comfortable with the new Obama when the curtain is pulled away will be just as disappointed as everyone else. He’s promised everything to everyone, and he can’t possible deliver for them all. The first time he tries to walk on water and sinks to his knees they’ll turn on him like wolves.

This is natural I suppose. The inevitable shattering of liberal ideals as they collide with the inescapable facts of reality is never pretty. But it’s a lesson I suppose we need to learn every generation or so. Obama was elected by the young; the most naïve portion of our electorate. And it’s in the disappointment of liberal children that conservatives are usually born. Carter’s malaise speech brought the Reagan conservatives to the fore, and Obama’s future version of it will no doubt do the same. Eventually everyone gets tired of making the same mistakes over and over. And when Obama starts raising taxes on those who would otherwise create jobs, driving businesses overseas, and massively increasing the cost of energy, the young will begin to get the point.

With that said though, it’s not like there aren’t good things about an Obama presidency, at least compared to a condescending John Kerry or sanctimonious Al Gore. It’s a good thing that America has elected its first black man, and the fact that he is so gifted an orator can’t hurt either. The Arab world will have a harder time portraying us as unequivocally evil, and even the French might give us a break for a few weeks at least. And since there’s no doubt that I’m one of the people who will be bearing the burdens of the Obama administration, there is no reason I can’t take some comfort from the good things as well.

In fact, my life and the life of my friends probably aren’t going to change much. Most of us live in the deep blue parts of New Jersey, New York and Connecticut, so we’re already being ruled by a an elected class that believes we exist to serve it, and that doesn’t care a whit what we think about it. Our government is already composed of people who believe they are our public masters not our public servants, so for us it’s just a question of the feds getting in line as well. One more layer who thinks I'm the problem with America isn't going to phase me. It’s my friends and family in Texas, and the folks in the other 'free' parts of America that can expect to see lots of “change”. And as I'm sure you can imagine, they aren’t going to like it.

But if they want to complain about president Obama, come February they’re going to have to get in line. He doesn’t walk on water. He can’t cure the sick with the laying on of hands, and he will not bring on the perfect world that his most liberal supporters are counting on him for. He’s just a politician, and a fairly inexperienced one at that. And just as his buildup in the media was hyperbolic, so too will be his fall from their protective grace. Barak the messiah says 'yes we can'... but it's going to be a rough day when his followers find out that most of the time, "no, they actually can't" after all.