Sunday, March 23, 2014

Standing up to political slander

As a boy, I once scraped together enough money to buy a hamburger.  I walked to a diner, sat down at a table and waited.  I watched waitresses serving customers around me and after a long period, I caught the attention of one waitress.  I asked her if someone could take my order.  She replied that another waitress had seen me steal a tip and that's why none of them would wait on me.  The charge was bogus.  I had taken nothing.  I protested my innocence and left the diner with emotions recalled decades later as I write these words.

If one is going to accuse another of being a thief, one better be able to back up the accusation, or there ought to be consequences for the accuser.  Slander or (it's written equivalent) libel, is all too common and all too often it goes unchecked in the media and in salons across the country.  Even a waitress can do damage.

Here's the problem: as long as one advocates on behalf of a populist cause -- one can without any evidence -- accuse another of depraved motives like voter suppression or racism and get away with it.  It's grossly unfair and the smears often go unpunished because too many people just shrug it off. 

Remember when Sen. Harry Reid likened the GOP to slavery sympathizers because he couldn't deal with legitimate Obamacare criticisms?  (See my Examiner column published here).  His despicable words are largely forgotten.  

How about Vice President Joe Biden's gem on the campaign trail, telling African-American voters that Republicans are "...going to put ya'll back in chains."  Pundits dismissed the charge as just one more bone-headed comment by Biden, yet Romney got crucified for citing an accurate 47% statistic on the largesse of government transfer payments.  Again, it wasn't a "popular" sentiment to express, so the opposition could paint Romney as heartless.

Political slander typically occurs after Conservatives disclose their ideas to reform the welfare state.  Forget that the ideas make sense, Leftist character assassins only ascribe one motivation to these ideas -- racism.  And any effort to reduce voter fraud can earn one a full scale tar job, replete with charges of "voter suppression". 

It if it happens to you, my advice is simple...don't stand for it.

Friday, November 29, 2013

Thanksgiving gratitude -- one day late

I am grateful for many things including:
  •   my family and friends.
  •   my health.
  •   my job.
  •   that you still read this blog. 
- JJM

Monday, September 02, 2013

Fast food and class warfare

CAUTION: The fast food wage debate is heating up. Get too close and you could get burned.  I dislike debates on economic mobility for several reasons.  Consider recent actions against McDonald's undertaken by labor unions and community organizers and then... 
 
Big Mac
Wikipedia image
read Al Lewis' column, ("Let Them Eat Burgers" September 1, 2013).  Lewis concludes an outsized minimum wage increase is justified on the basis of a single data point (average age of minimum wage workers has increased) and a feeble comparison to an Australian business model.  

His account of a recent protest demonstration reminds me of the danger I've been talking about since 2008.  Here's the story...

A mob is demanding a doubling of the minimum wage to $15 an hour, in front of a Denver-area McDonald's which had to shut down because of the ruckus.  During the process, Lewis interviews a man working at McDonald's (albeit a different McDonald's) -- twenty-six year old Dakota Bosma, who had this to say about his employer, 

"They'd rather line their own pockets, than take care of us." 

According to the Bureau of Labor Statistics (BLS), there are over four million workers employed at fast food establishments in the U.S. and half work part time. Turnover is high and this job pool is expected to narrow as new technologies become cost efficient alternatives to tasks currently performed by humans.

The education level required to perform most of these jobs is less than a high-school education.  Such jobs were never conceived as self-sustaining careers. They are low skilled, temporary jobs for which the market pays a correspondingly low wage.  Nothing wrong with the work of course -- most of us have performed such jobs -- and I take Lewis' point that if the average age of minimum wage workers is increasing, it says something troubling about the employment picture.  And I never said that no increase is warranted.  So far, we're fine.

But does McDonald’s have a primary responsibility to "take care of us" or please their customers, franchisees and shareholders?  What happens next if a corporation like McDonald's is transformed from a great American business into a social safety net that also sells burgers?

What motivates these protests?  Is it a feeling that one has no choice?  What disturbs me most is the implication that employees are "owed" more by McDonald's.  Most McDonald's restaurants are not even owned by McDonald's Corporation -- they are franchised to individuals who pay royalties and franchise fees to McDonald's. This fact makes no difference to Mr. Bosma who added,

"The corporation makes billions of dollars every year -- they can afford to pay us $15".

Piling on, Mr. Lewis writes, "Companies have paid the lowest wages they could, for as many years as they could" but he fails to acknowledge that unions demanded the highest wages they could for the lowest productivity they could.  And that's how it works in a market economy until it can't, of course.  



Microsoft Clip Art




Sunday, June 09, 2013

IRS Plot Could Be Worse Than Watergate

These days, some want to dismiss charges of government abuse as conservative cynicism but 40 years ago during Watergate, Dems made similar charges stick because there was criminal behavior in the federal government.  Although we don't yet know where the IRS plot began and who knew about it before the election, comparison between the two scandals was inevitable.

In the early 1970s, the abuse targeted high level political enemies of President Nixon.  This time, it's hundreds of ordinary citizens who were targeted by the IRS.  They happen to disagree with the direction of our country.

Some Pols are trying to tamp down the significance of what could become one of the saddest chapters in American politics.  George Will made this observation in the Washington Post (May 13, "In IRS Scandal, Echoes of Watergate"),
"Jay Carney, ... calls the IRS’s behavior “inappropriate.” No, using the salad fork for the entree is inappropriate. Using the Internal Revenue Service for political purposes is a criminal offense."
We also witnessed the former IRS Commissioner, Steven Miller, characterize the agency actions by using the word "mistakes."  Borrowing Mr. Will's style, I'd say, no, a mistake is purchasing too much mulch.  Using the power of the IRS to suppress political dissent is a criminal offense.  People go to prison for less -- ask Martha Stewart.

Ms. Lois Lerner, IRS director of tax-exempt organizations, took the Fifth before testifying but not before she exclaimed that she had done nothing wrong.  Really?
 
Even some Democrats like Senator Claire McCaskill (D-Missouri) are upset.  Ms. McCaskill said,
 
"We should not only fire the head of the IRS, which has occurred, but we’ve got to go down the line and find every single person who had anything to do with this and make sure that they are removed from the IRS and the word goes out that this is unacceptable." 
 
We also need to learn who at the highest level of government knew about this despicable effort and when they knew it -- just as Howard Baker demanded to know in 1974 at the Watergate hearings.

Sunday, April 14, 2013

If only the truth could go viral


 




"Vote for me and you'll get free stuff!"
Microsoft Clip Art
This post by a Rabbi in Teaneck, NJ is a powerful reminder why America is in trouble.  I've added blue italics for key points which in my view are spot on.
 
 
~~~~~~~~~~~~~~~~~~~~~~~
"The most charitable way of explaining the election results of 2012 is that Americans voted for the status quo - for the incumbent President and for a divided Congress. They must enjoy gridlock, partisanship, incompetence, economic stagnation and avoidance of responsibility.  And fewer people voted.
   
But as we awake from the nightmare, it is important to eschew the facile explanations for the Romney defeat that will prevail among the chattering classes. Romney did not lose because of the effects of Hurricane Sandy that devastated this area, nor did he lose because he ran a poor campaign, nor did he lose because the Republicans could have chosen better candidates, nor did he lose because Obama benefited from a slight uptick in the economy due to the business cycle.

Romney lost because he didn't get enough votes to win.  That might seem obvious, but not for the obvious reasons. Romney lost because the conservative virtues -
the traditional American virtues – of  liberty, hard work, free enterprise, private initiative and aspirations to moral greatness - no longer inspire or animate a majority of the electorate. 
The simplest reason why Romney lost was because it is impossible to compete against free stuff.

Every businessman knows this; that is why the "loss leader" or the giveaway is such a powerful marketing tool. Obama's America is one in which free stuff is given away: the adults among the 47,000,000 on food stamps clearly recognized for whom they should vote, and so they did, by the tens of millions; those who - courtesy of Obama - receive two full years of unemployment benefits (which, of course, both disincentivizes looking for work and also motivates people to work off the books while collecting their windfall) surely know for whom to vote.
 
The lure of free stuff is irresistible.


The defining moment of the whole campaign was the revelation of the secretly-recorded video in which Romney acknowledged the difficulty of winning an election in which "47% of the people" start off against him because they pay no taxes and just receive money - "free stuff" - from the government.

Almost half of the population has no skin in the game - they don't care about high taxes, promoting business, or creating jobs, nor do they care that the money for their free stuff is being borrowed from their children and from the Chinese.

They just want the free stuff that comes their way at someone else's expense. In the end, that 47% leaves very little margin for error for any Republican, and does not bode well for the future.

It is impossible to imagine a conservative candidate winning against such overwhelming odds. People do vote their pocketbooks. In essence, the people vote for a Congress who will not raise their taxes, and for a President who will give them free stuff, never mind who has to pay for it.
   
That engenders the second reason why Romney lost: the inescapable conclusion that the electorate is ignorant and uninformed. Indeed, it does not pay to be an informed voter, because most other voters - the clear majority – are unintelligent and easily swayed by emotion and raw populism. That is the indelicate way of saying that too many people vote with their hearts and not their heads. That is why Obama did not have to produce a second term agenda, or even defend his first-term record. He needed only to portray Mitt Romney as a rapacious capitalist who throws elderly women over a cliff, when he is not just snatching away their cancer medication, while starving the poor and cutting taxes for the rich.    

Obama could get away with saying that "Romney wants the rich to play by a different set of rules" - without ever defining what those different rules were; with saying that the "rich should pay their fair share" - without ever defining what a "fair share" is; with saying that Romney wants the poor, elderly and sick to "fend for themselves" - without even acknowledging that all these government programs are going bankrupt, their current insolvency only papered over by deficit spending.

Similarly, Obama (or his surrogates) could hint to blacks that a Romney victory would lead them back into chains and proclaim to women that their abortions and birth control would be taken away. He could appeal to Hispanics that Romney would have them all arrested and shipped to Mexico and unabashedly state that he will not enforce the current immigration laws. He could espouse the furtherance of the incestuous relationship between governments and unions - in which politicians ply the unions with public money, in exchange for which the unions provide the politicians with votes, in exchange for which the politicians provide more money and the unions provide more votes, etc., even though the money is gone.
   

Obama also knows that the electorate has changed - that whites will soon be a minority in America (they're already a minority in California) and that the new immigrants to the US are primarily from the Third World and do not share the traditional American values that attracted immigrants in the 19th and 20th centuries. It is a different world, and a different America . Obama is part of that different America , knows it, and knows how to tap into it. That is why he won.

Obama also proved again that negative advertising works, invective sells, and harsh personal attacks succeed. That Romney never engaged in such diatribes points to his essential goodness as a person; his "negative ads" were simple facts, never personal abuse - facts about high unemployment, lower take-home pay, a loss of American power and prestige abroad, a lack of leadership, etc. As a politician, though, Romney failed because he did not embrace the devil's bargain of making unsustainable promises.

It turned out that it was not possible for Romney and Ryan - people of substance, depth and ideas - to compete with the shallow populism and platitudes of their opponents. 
Obama mastered the politics of envy – of class warfare - never reaching out to Americans as such but to individual groups, and cobbling together a winning majority from these minority groups. If an Obama could not be defeated - with his record and his vision of America, in which free stuff seduces voters - it is hard to envision any change in the future.

The road to Hillary Clinton in 2016 and to a European-socialist economy - those very economies that are collapsing today in Europe - is paved.
  
  
Society is permeated with sloth, greed, envy and materialistic excess. It has lost its moorings and its moral foundations.. The takers outnumber the givers, and that will only increase in years to come.  The "Occupy" riots across this country in the last two years were mere dress rehearsals for what lies ahead - years of unrest sparked by the increasing discontent of the unsuccessful who want to seize the fruits and the bounty of the successful, and do not appreciate the slow pace of redistribution.
   
If this election proves one thing, it is that the Old America is gone. And, sad for the world, it is not coming back."
   

Sunday, February 24, 2013

The yoke of two Americas

It became clearer to me after President Obama’s re-election that we are two Americas.  Has our country been this divided since the Vietnam War, or perhaps the Civil War?  Afterall, Mr. Obama captured only fifty-one percent of the popular vote.  Is this a popular mandate? 

Last November, I expected more from voters in the Center.  I thought Romney would win due in part to the now infamous, You didn’t build that slip, which I believe validated much of the Obama skepticism.  I felt there was no credible way to take such a gaffe out of context and that the ripple effects would sink the President's campaign.  I was obviously wrong -- I didn't realize how much of the voting public is "envious and covetous" as Mr. Prentis warned some seventy years ago (see my previous post). 

Our car tires rolled on public pavement while we drove to work or university to build our careers and businesses. Therefore, the government allows one to prosper as much as personal initiative and hard work.  Sadly, this is how one America thinks and behaves. 
Leaders of that America use a mix of scare tactics and class warfare to preserve immoral government spending levels.  They also use subterfuge to increase taxes like the 2% payroll tax hike on all taxable wages up to $113,700 -- which some in the press dismiss only as end of a tax "holiday" -- as though it's a more acceptable way to reduce one's take home pay. 

The other America, believes our nation didn't rise or flourish due to the government's expansion -- it was limited government and freedom that enabled our growth and prosperity.
This America remains convinced that the most perilous problem faced by our nation today is federal spending and added taxation by any name or game, is only an enabler -- it's an anti-solution.  This America sees the prospect of a meager $85 billion spending reduction from a government that spent over $3.5 trillion last year and yet Obama's faithful still protest.  We have a chit worth $85 billion. Now we’ll see who has courage to apply it. 

White House Fiscal Advisor?
Wikimedia Commons

Saturday, November 17, 2012

The "historical cycle" that rings true today

A friend* trying to console me after Mr. Obama's re-election, shared a timeless quote:

HENNING WEBB PRENTIS, JR
 
 
 
 
"Again and again after freedom has brought opportunity and some degree of plenty, the competent become selfish, luxury-loving and complacent, the incompetent and the unfortunate grow envious and covetous, and all three groups turn aside from the hard road of freedom to worship the Golden Calf of economic security.  The historical cycle seems to be: from bondage to spiritual faith; from spiritual faith to courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to apathy; from apathy to dependency; and from dependency back to bondage once more."
These words came from the leader of a Pennsylvania cork company during a speech given back on March 18, 1943.  The speech was delivered by Henning Prentis.  Mr. Prentis also believed this:

"At the stage between apathy and dependency, men always turn in fear to economic and political panaceas." (Industrial Management in a Republic, p. 22.).  

"Economic and political panaceas" might be a more elegant way of referring to Santa Claus-like candidates, but the concept still rings true today just the same.

*Thanks, Kevin.

Sunday, November 04, 2012

Defending Paul Ryan

Excerpts from my letter to the editors at the New York Times Magazine concerning a cover story on Paul Ryan in the October 21 issue, were published online November 1.  

Illustration by Jaime Hernandez
The excerpts also appear in today's print edition of the New York Times Magazine.
 



Friday, October 05, 2012

Ben Stein speaks about hypocrisy

I saw Mr. Stein speak in San Diego last June.  An interesting figure: part lawyer, part economist, part actor -- he's also quite funny at the stump.  His latest wisdom follows...


Ben Stein - SodaHead image
"Fathom the hypocrisy of a government
that requires every citizen to prove they
are insured. . . but not everyone must
prove they are a citizen."
   
Now add this, "Many of those who refuse,
or are unable, to prove they are citizens
will receive free insurance paid for by
those who are forced to buy insurance
because they are citizens."





Saturday, September 29, 2012

The Romney tax policy


Conceptually, it's not more regressive than what we have but it's being labeled as such by Obama supporters who conflate marginal tax rates with effective tax rates.

Lower marginal rates on a broader base of income is a step toward real tax reform.  Reduce the mountain of deductions, credits and incentives -- apply lower (or even present) marginal rates to a greater aggregate of taxable income and in the process remain revenue neutral while simplifying the code.  What's wrong with that?


The problem for Obama's supporters is that remaining revenue neutral might help curb federal spending.  Fomenting class warfare is an effective way to divert the conversation away from government spending.

(This is a CEO, not a Community Organizer)

Sunday, September 16, 2012

FORTUNE-ATE? Don't sulk, resist!

In his piece from the current issue of Fortune magazine, Geoff Colvin says the current environment is a "...nasty, insidious force that's undermining the native optimism that buoys up business people everywhere" and then admonishes readers with one word -- "Resist!"

I like it.  I liked another article in this issue about prospering in difficult days, by Ms. Mina Kimes who wrote about a manager for the MFS International Value Fund -- Mr. Barnaby Wiener. 

I'm not an investment adviser and I'm wary of many (most?) of them.  I largely stick to index funds, but Mr. Wiener's actively-managed fund according to Fortune, is one of the best in its class having outperformed 99% of its peers since 2002.  Impressive, but what surprised me was his bias toward risk aversion. 

Mr. Wiener believes "It's much more important to avoid losing money than it is to make money."  I agree.  He adds, "If you avoid the big losses, you make money almost by default."

It seems consistent with Warren Buffet's view, "The first rule of investing is don't lose money; the second rule is don't forget Rule No. 1."  Anyway, please read on...

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Election year stakes and all I care to say today 
1. The presidential election is only 50 days away.
2.  It's the most important election of my conscious lifetime (in other words, since I was 26).
3.  We desperately need a CEO more than a Community Organizer with velvety speeches.
4.  Encourage everyone still on the fence to get out and vote for Mitt & Paul.
Wiki image by Gage Skidmore


Wikipedia, Ryan official portrait
5. Thanks!


Saturday, June 09, 2012

Maddente.com raison d'être

Raison d'être - is french for "reason for existence" which is a pretty heady concept.  I'll define this blog's primary raison d'être for my five readers (I used to say six but I've annoyed one and possibly lost him).  Many of my posts center on fiscal responsibility.  That won't change.  I care more about it than the environment (yes, I wrote that), abortion (yeah, I just wrote that too) or any other cause célèbre (the french theme won't last, so keep reading) that others hold dear.
Fotosearch Image
So when I see a column I agree with as I did today in WSJ by Steven Malanga ("State Politicians and the Public Pension Cookie Jar") -- I share it and talk about it.  I hope in a small way, I'll add attention to the wholesale theft taking place to the detriment of taxpayers and their children.  The size and scope of the problem is staggering.

Mr. Malanga focuses on a part of the problem called defined benefit programs for public employees -- better known as public pensions.  I didn't understand how outlandish they are until some six years ago -- when a retired pediatric dentist of all people -- educated me.

I have similar misgivings about pension plans in the private sector, but I say less about them because shareholders choose where to invest their money.  If they can stomach outrageously high employee "retirement" and health care benefits -- that's their business.  Investors can, and do vote with their feet.  But taxpayers have to work harder than making a few clicks to sell shares online. So, that's my topic du jour (OK, that's it -- I promise). 

Fortunately, voters are beginning to wake up and support leaders like Governor Scott Walker and the fiscal reforms they sponsor to curb these budget busters.

By the way, someone asked why I haven't been posting much lately -- the answer is simple -- I've been busy working and trying to add to my defined contribution plan.
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Governor Scott Walker / Wikipedia Image
Finally, I'll share another column also found in today's WSJ  by Peggy Noonan about Governor Scott Walker's resounding win this week, called "What's Changed After Wisconsin". 

Mr. Walker, you'll remember -- not recall -- was the first recipient of the Maddente.com MVP Award for public adherence to fiscal responsibility under adverse conditions. 

No word from the Governor's Office about his availability to accept the trophy, but that gives me time to find one.

Saturday, March 17, 2012

Thank you, Phil Gramm

Why don't more TV journalists address the ways that federal government actions and GSEs perverted our housing markets?

While watching Bloomberg TV last month, I witnessed former U.S. Senator Phil Gramm discuss the housing meltdown, as well as, his own work to deregulate the banks.  The interview lasts about eight and a half minutes, with the point behind this post examined in the last two and half minutes. 

Phil Gramm, Wikipedia
Mr. Gramm highlights "concerted government action and pressure on banks" to make sub prime loans and destructive decisions in Washington "to force feed housing" ownership.

The interviewer (predictably) insinuates that there were as many predatory lenders as borrowers. 

Gramm then asserted that for every sub prime borrower who truly got swindled, there were "one hundred" that exploited the system, i.e. predatory borrowers.  There's the debate, Mate.

I thought I coined the term, "predatory borrower" but I discovered that Mr. Gramm was using it before me, perhaps in response to Paul Krugman types blaming him for the housing meltdown, instead of the Barney Frank types that forced poor lending requirements on the banking industry at your expense which enabled millions of borrowers to buy properties they couldn't afford.

If you don't have time for the whole interview, consider moving the needle to the six minute mark.

Saturday, February 04, 2012

My take on GOP presdential candidates

Ron Paul, Wikipedia
Ron Paul - I remain conflicted about Ron Paul.  The reasons are simple and shared by a number of GOP voters.  Let's first look at the plus side.  I love the man on fiscal and monetary policy.  As he once described his zeal to cut federal spending, “I am absolutely convinced it is the only road to prosperity.”  So am I and I believe he means it.  On monetary policy - Ron Paul is the gold standard (pun intended).  If not for the Tea Party, I'd have bolted from the Republican Party a few years ago because I wasn't seeing enough Republicans "walk the fiscal talk" that Rep. Paul walks every day.

Yes we had Paul Ryan and Jim DeMint and others -- but too few.  In short, I was becoming disgusted.  Then I discovered Ron Paul.  When Ron Paul says he'd cut a trillion dollars in federal spending year one, he even tells you how he'd do it.  When he talks about The Fed's destructive, easy money policies -- he means it.  I admire his courage and consistency. 

Unfortunately, I have to describe Rep. Paul's foreign policy thus: "Blame America First."  It's dangerously naive to brand virtually all American foreign intervention as "nation building" and as Commander-in-Chief, Dr. Paul could become Dr. Disaster.
 
He's more worried about domestic TSA agents, than foreign enemies of this country plotting against us.  He's obsessed with rights of enemy combatants (non Americans) in Guantanamo, Cuba and then he dismisses the record of domestic security our existing policies (maintained by leaders in both parties) have engendered.  I also question his commitment to Israel.

I recall an attempt Mr. Paul made to appeal to people like me (Republicans that terribly want to vote for him, but struggle to do so), when he highlighted the fact that he had voted to use force after 9/11.  Hallelujah!  Who didn'tMy fear is that a President Paul would wait for another 9/11 before acting.  Ignoring one's enemies has nothing to do with liberty. 

All said, people like me have more in common with Paul supporters than either side has with Democrats -- and probably always will.  I respect the ideological purity of Libertarians -- their loyalty and unswerving respect for the Constitution.  My problem is their all-hands-off judgement about containing evil and preserving national security.

Newt Gingrich, Wikipedia
Newt Gingrich - If you never took the opportunity to see Newt Gingrich speak in public, you really must make the time.  He's a rare breed of public speaker - impressively poised, colorful, with a command of American history and politics that is virtually unparalleled.  I've never seen him use notes.  He doesn't need them.  Speaker Gingrich also says dumb things at the worst possible moments.  His recent attacks on Romney's private equity group were reprehensible, desperate attempts to harm Romney which utterly failed.  Mr. Gingrich will not be the nominee of his party.                    
                                                     Rick Santorum
Rick Santorum, Wikipedia
A lot of Americans are getting their first taste of Rick Santorum.  He's been a part of the Washington landscape for a long time while managing to keep his nose clean and win respect from people who agree with him and scorn (welcome publicity for him) from those who don't.  Mr. Santorum will not be the nominee of his party either.  His character, social values and deeply-held convictions are the stuff that lands one a spot on Mount Rushmore, but we need a CEO in the Oval Office more than a role model for at-risk youths.  I'm also troubled by (and suspicious of his explanation for) a vote against the Commonwealth of Pennsylvania when it tried to become a Right To Work (RTW) state.  Mr. Santorum says he'd sign an executive order allowing all states to become RTW states.  Perhaps he would.  By the way, check out this site to learn more about RTW...site.

Mitt Romney

That brings us to Mr. Romney.  Words that come to mind are: urbane, wealthy, smart and energetic.  Of course, that's not enough to lead.  I hope Governor Romney's commitment to balanced budgets will remain as pure as Governor Scott Walker's performance here in Wisconsin. 

By the way, I'm now awarding an annual Maddente.com MVP Award for public adherence to fiscal responsibility under adverse conditions.  Mr. Walker earns the inaugural award -- hands down -- for his 2011 performance.  Taking a $3.6 billion dollar deficit to a $300 million dollar surplus, without raising taxes, against a Tsunami of cheap legislative stunts and vicious public union attacks, has re-defined courage and leadership in this state. 

But back to Mitt.  There's much more to learn and discuss about Mitt Romney, of course, but for now I'll close with this thought: Mr. Romney will be the GOP nominee facing Barack Obama in November and if elected, he'll become an infinitely better President than his predecessor.




Friday, December 16, 2011

A book: All The Devils Are Here

Back in 2007 while waves of defaults occurred after subprime loans "reset" (meaning an adjustable rate mortgage payment that increased after the interest rate increased) I naively asked a loan officer,  "Why did lenders write variable rate notes when they knew these borrowers had little or no capacity to make higher payments?"

What I heard in reply was that risky as these credit bets were, if conventional, higher fixed-interest rates were used, the borrower could not have "qualified" for as much of a loan.   My reaction to that answer?  Exactly!

I'm reading a book by Bethany McLean and Joe Nocera - All The Devils Are Here - The Hidden Story Of The Financial Crisis (Portfolio/Penguin). 

I'm learning about the origin of subprime lending and the players behind it but I'm also struck by a rhetorical question the authors pose in Chapter Six, concerning the line between predatory lending and what I have called predatory borrowing:

"But in the larger scheme of things, did it really matter who was at fault?"

In my view, it matters now more than ever and it seems that few policy-influencers want to examine the share of loans gone bad caused by borrowers who knew they were borrowing too much.

Attention to causality (i.e. fault) is important because sweeping policies are being hatched to curb systemic risks for the future.  If they get it wrong, we'll over-regulate mortgage originators - possibly choking off  liquidity for many qualified, low income borrowers. 

My biggest fear is that we'll fail to transfer liability from the American taxpayer, and to the future borrowers-lenders-investors (where it belongs).

Saturday, December 10, 2011

A debate over a Kyle Bass interview

Cameron and I are jousting again. 
Wikipedia image

This time the fodder is an hour-long interview with hedge fund manager, Kyle Bass which Cameron and I both viewed with great interest.  Taped last month, I encourage you to view it too.
Cameron writes,
John, I watched that video, thank you for forwarding it. It was very insightful. There were a lot of things that really popped out but one especially. Bass states that Washington has a spending problem, but in the same breath he states that the solution is simple. He states we need to raise revenues 2 1/2% and reduce expenses by 5%.   
Which is exactly what I wish Washington would do, but the Republicans stance against no new taxes and no compromise on that issue is hardly going to get that accomplished.”
My reply to Cameron...

Cam,
Note that the spending reduction Mr. Bass calls for is two times the tax increase he calls for.  Perhaps that’s because giving (additional) revenue to the federal government is like tossing it in the ocean.  Politically, raising some taxes might be an expedient way to get a budget bill past the Dems in order to ultimately net a much larger reduction in spending, but we don’t raise taxes because it is morally appealing, or because we think it's a prudent way to help the disadvantaged.
I hope to visit Cameron while I'm in Texas during the holidays.  At this time, I'd also like to wish all six readers of this blog a Merry Christmas.


Wikipedia image

Friday, November 25, 2011

Quick hits for combative times

Super committee fails - or did they?
So, across the board (1/2 defense, 1/2 non-defense) federal spending cuts of $1.2T will begin January, 2013 without any tax increases.  That's the plan, but there is plenty of time for Congress to derail what strikes some of us as a modicum of progress.  Thankfully, President Obama says he'll veto any bill that attempts to overturn the sequester.  Republicans or Dems who try to do it to protect whatever it is they purport to be protecting - will do so at their own peril.  This is the 2012 issue to watch.

GOP nomination and a narrowing field
I felt many of the same hopeful moments and (ultimately) profound disappointments from Herman Cain's candidacy as I felt during the Sarah Palin VP run in 2008.  My current view has less to do with Mr. Cain's alleged personal indiscretions than his performance on the campaign trail which has become every bit as painful to watch as Ms. Palin's was during the 2008 election.  Mr. Cain: Though you are ideologically appealing and charming, you are not ready for prime time, Sir.  Please leave the race with dignity and promote fiscal conservatism -- in a new way.

Cameron weighs in on income redistribution
In May of 2010, I began an interesting exchange with my old pal Cameron
More recently Cameron sent me the CBO report that has garnered so much attention, "Trends in the Distribution of Household Income Between 1979 and 2007.  CBO says, "... the population with income in the lowest 20 percent (quintile) in 2007 was not necessarily the same population group in that category in 1979."  That point seems lost on some who believe this 20% is the exact same control group tracked during the period of study and thus still the one mired in poverty.  The fact is, there always has been and always will be, a lowest quintile - with changing occupants.  CBO also mentions that this lowest 20 percent quintile, actually experienced income "18 percent higher in 2007 than it had been in 1979."  This data point suggests that a rising tide has lifted their boats too, though admittedly, not to the same degree as boats in higher quintiles. 

OWS and that "evil" one percent
Debate centers on the top 1% of income earners where the share has increased dramatically in recent years.  Why?  Because if one looks at the income share by quintile, going back to the late 1960s, one sees that the share percentage of income earned by the top quintile has gone up (and down) in  percentages of total income between roughly 43 percent to 50 percent.  When I looked back further to the 1940s, the data for this quintile was still bouncing around in the mid 40s share percentage.  Thus, the share of total income going to the top quintile, hasn't changed much. 

We all look at the part of the statistical puzzle that supports our worldview (this blogger included).  Don't want to talk about who pays the income taxes?  Just talk about the income.  Don't want to talk about higher living standards, or increased consumption by all Americans?  Just focus on the income.  Don't want to talk about anemic economic growth, growth in government employment levels, or "temporary" food and energy inflation?  You got it - single out income disparity - particularily that one percent group. 

What's also troubling, is the class envy and resentment bubbling over on the streets.  For additional perspective, check out David Malpass' article in the current issue of Forbes Magazine ("Class Warfare Hurts Growth").

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Tuesday, September 27, 2011

"Tis but a scratch"

When the bill comes due, nations that have fallen prey to the entitlement vortex foster more than street violence and class warfare.  These nanny states also breed denial once they run out of other peoples' money. 

That's the conclusion I reached after reading about the reaction of some Greek politicians who don't appreciate the futility of their situation.  

A year and a half ago, German officials sensibly averred that part of a Greek bailout plan could involve the sale (or lease) of state-owned assets, as well as, austerity measures. This was not a wholesale transfer of Greece's national sovereignty, but rather part of a larger plan to lift a hapless debtor out of its self-induced mess by privatization of government assets including some Greek islands.  

In response, one Greek government official said, if such asset transfers came to pass, it will result in a Greek boycott of German goods.  Oh No! 

You're broke, you can't borrow and you threaten not to buy my products.  I'm reminded of the Black Knight from Monty Python and The Holy Grail.  After being drawn and quartered, the dismembered knight vowed to attack his foe (who didn't want to fight in the first place).  


Above is the clip.  Watch King Arthur's reply to the Black Knight, which could be Angela Merkel's reply to the aforementioned Greek official - "What are you going to do, bleed on me?"  (Start at the 1:15 mark if you're in a hurry).

I don't mean to make light of the suffering in Greece, but it's hard to abide politicians who ignore - or perpetuate - drunken government spending and market meddling that caused this mess.  Debtors can't be choosers, but that won't stop some from trying.  

At the end of a 99 year lease, the British honored their treaty with China and transferred sovereignty of Hong Kong in 1997.  Life went on.  Perhaps a lease of Mykonos to creditors would restore some government credibility in Greece? 
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October 2, 2011 - NEWS UPDATE - Reuters just released this report on the Greek financial crisis...

"The Greek cabinet is expected to approve a contentious plan Sunday to lay off state workers, and sign off on a draft of next year's budget, in a race to slash spending, free up bailout loans and stave off bankruptcy.

Without the release of an 8 billion euro ($10.7 billion) tranche of an EU bailout, massively indebted Greece could run out of money to pay state wage bills within weeks.  European officials are scrambling to avert a Greek debt default, which could wreck the balance sheets of European banks, damage the prospects of the euro single currency and possibly plunge the world into a new global financial crisis."


Sunday, August 14, 2011

When "compromise" and "experts" are dangerous

With a title like, "Are Economists Really That Smart" I had to read Bill Flax's piece in this month's issue of Forbes magazine, especially after digesting his first sentence, "Remember when Joe Biden admonished us to keep spending or else we'd go bankrupt?" 

Vice President Biden's statement reminded me of something uttered by Nancy Pelosi prior to enactment of the unpopular Obamacare legislation affecting 1/6th of our national economy.  (Recall that these people are running the country). 

This clip is five seconds -- please click the YouTube link...


My timing to read the aforementioned Forbes piece was good since I'd just finished fighting my way through Nassim Taleb's best selling book, The Black Swan.  (I use the verb "fight" because some technical aspects of the book are incomprehensible to me).

In their own ways, Messrs. Flax and Taleb neatly fillet, dice and roast the cadre of economists, public policy-makers and financial journalists who ascribe predictive powers to themselves and scream certainty about the curative powers of the Keynesian path. 

Living within one's means and free markets are values ignored by economic intelligentsia like Paul Krugman, as they advocate for trillions in "stimulus."  Their voices clamor for more spending.  The reason QE2 failed, according to these experts, is that the sum wasn't large enough
   
On the other hand, economists like Nassim Taleb largely predicted the economic calamities we now face.  But first back to the Forbes, piece.  Mr. Flax says of the "science" of economics and its modern day application to fiscal policy, 

"The principal failing of macroeconomics is the intrusion it invites and the certainty it instills in politicians...no planner, no matter how wise, could possibly appreciate all the subjective nuances lurking behind these numbers.  Such schemes are doomed to folly." 

There also exists today, a notion that Dems and Republicans sparring over fiscal policy must "compromise" as if the key to solving our economic morass is in the middle of some ideological bell curve.
 
Other columnists, place the blame for legislative gridlock squarely on the shoulders of the Tea Party, a movement which in the opinion of this blogger, is one of the last hopes we have to preserve the future of this country (even successful Republicans cannot save it, only those prepared to sacrifice their own office to entitlement-demanding voters). 

I'll close with Nassim Taleb's eighth principle for a Black-Swan-Robust Society,

"Do not give an addict drugs if he has withdrawal pains.  Using leverage to cure the problems of too much leverage is not homeopathy, it's denial.  We need rehab."
1900 advertisement treatment for morphine addiction - Wikipedia
The same metaphor I used in January of 2009 (and used elsewhere by others) of a drug addict who needs to take the pain, was also used by Dr. Taleb.

The summary point is this - one cannot compromise with a drug addict, they only come back for more, which is why we must focus on the spending.  Tax increases and money printing are analogous to a government's morphine fix - it feels good for a while, but only makes the problem worse before the inexorable crash.
 
We must go cold turkey and take the pain incrementally.  Meanwhile - beware of economic "experts" pushing more stimulus and trust accountants instead.