Archive for November, 2008

The attack in Mumbai

Friday, November 28th, 2008

UPDATE: There is a better discussion of what happened here and some analysis that is right on.

Many put the blame for the attack on years of Indian-Pakistani hostility and tension. In fact, relations between the two countries have never been warmer. This past month, Pakistan’s new president stunned and delighted Indians by publicly renouncing any first use of nuclear weapons. Violence in Kashmir, the principal bone of contention between India and Pakistan since 1947, is on the decline. Before the Mumbai attacks, politicians were scheduled to start talks on permitting trade across the region’s Line of Control, so that Hindu farmers in Indian Kashmir can sell their wheat or a used tractor to Muslim farmers in Pakistani Kashmir.

Thus, the purported motivation for terrorist attacks is bogus.

India’s record on counterterrorism is abysmal, almost deliberately so. The government in New Delhi steadfastly maintains a wall of separation between law-enforcement agencies like the one that used to separate the FBI and CIA before the Patriot Act, and keeps counterterrorist units underfunded and undermanned. It has repeatedly given way to the demands of Islamic radical groups and fundamentalist lobbyists in the name of “cultural sensitivity.” India was the first non-Islamic country to ban Salman Rushdie’s Satanic Verses back in 1988.

India has no preventive detention laws; no laws to protect the identity of anti-terrorist witnesses; and no laws to allow domestic wiretapping without court order. In 2004, the new Congress Party government revoked India’s version of the Patriot Act, even as the Indian media was loudly condemning the U.S. for “torture” at Gitmo and Abu Ghraib.

In short, the Indian government has waged the war on terror in much the same way that liberals and many Democrats have been urging the U.S. to carry it out. The result is that more than 4,000 Indians have died in attacks since 2004 — more than any other nation in the war on terror besides Iraq.

I wonder of Obama is digesting this information. His ability to learn, since he begins at such a low information level about anything except running for office, is critical for our safety.

The Washington Post has a mildly interesting account of the terrorist attack in Mumbai. Far more interesting and informative (as usual) are Indian blog accounts with details missing from mainstream media stories. Even cricket blogs have covered the events, and in more detail than US media. Indian newspapers seem to be more willing to criticize politicians, although Indian politicians might even be worse then ours, if that is possible considering the Vice-President-elect.

The police told the Cabinet that the terrorists had arrived in the city in a boat from Karachi. The boat had stopped four nautical miles short of the Mumbai coast. Two hovercraft hired by someone for the terrorists ferried them to the jetty near Colaba.

The government machinery, taken completely by surprise by the terror attack, decided to call in the Army at 11 pm on Wednesday. After frantic calls to Delhi, senior Mantralaya officials requested National Security Guards (NSG) Commandos for the operation. Calls also went to Chief Minister Vilasrao Deshmukh, who was in Kerala.

Deputy CM R R Patil, who was supervising the operation from his official residence at Malabar Hill, was requested by PWD Minister Chhagan Bhujbal to visit the DGP office at Colaba.

Sources said though the plane carrying NSG Commandos was ready by midnight, it could not take off due to the delayed arrival of a VIP, who wanted to accompany them to Mumbai, at the Delhi airport. Worse, the Commandos had to wait for a vehicle at the Mumbai airport until morning.

As I wrote, even worse politicians than ours. The Indians have captured one of the vessels that ferried the terrorists ashore so that may be a lead to local cooperation.

Indian television seems to be no more responsible than our own.

Commandos are landing on the Nariman Building. They seem to be tip-toeing down. They are communicating to each other through hand signals. Secrecy & surprise are paramount. And NDTV is showing this live!!! With informative commentary on how many commandos have landed and so on. Perhaps NDTV’s research has shown that terrorists only watch cartoon network during missions.

As long as we are threatened by terrorists, we will remain in a state of suspended war, and we need to invest in bringing our cops up to date with urban warfare, in terms of both training and equipment.

It even brings up an interesting question.

One of my friends mentioned in an email that perhaps our security forces should ask themselves one question when they are faced with such situations: “WWID:
What Would Israelis Do?”
The Jerusalem Post had some criticism, but of course Israelis were a target of the terrorists.

There is plenty of criticism although it is early but India seems willing to learn and to act when others are often indecisive. Their weak spot, as is ours, seems to be politicians. The Indian news media was fascinated with the exploits of US Armor officer Neil Prakesh, who joined the US Army after graduation from Johns Hopkins and ROTC training, and led a tank platoon into Fallujah in 2004. The Indian Army is professional and the populations seems supportive of them.

India’s leaders — who invariably swan around with armed guards paid for by the taxpayer — can’t even agree on a legal framework to keep the country safe. On taking office in 2004, one of the first acts of the ruling Congress Party was to scrap a federal antiterrorism law that strengthened witness protection and enhanced police powers.

The Congress Party has stalled similar state-level legislation in Gujarat, which is ruled by the opposition Hindu-nationalist Bharatiya Janata Party. And it was a Congress government that kowtowed to fundamentalist pressure and made India the first country to ban Mumbai-born Salman Rushdie’s “Satanic Verses” in 1988.

The BJP hasn’t exactly distinguished itself either. In 1999, the hijacking of an Indian aircraft to then Taliban-ruled Afghanistan led a BJP government to release three hardened militants, including Omar Sheikh Saeed, the former London School of Economics student who would go on to murder Wall Street Journal reporter Daniel Pearl.

They may have had enough damage inflicted this time to convince the government that it is time to get professional about terrorism. Finally, definite lessons have been shown to be essential to learn.

First, it is utterly and completely bizarre that while we whine about the Home Ministry, the intelligence establishment gets off scot-free even as Indians are murdered on the streets.

It is impossible for the police to guard every building or check every passenger. All over the world, terrorism is fought through intelligence. A good security service penetrates terrorist cells, monitors radio traffic and picks up intelligence about terrorist activity.

Of course, George W Bush is still getting criticism for his efforts to accomplish this essential goal.

Second, we should recognise that there is a new dimension to these attacks that was missing from earlier terrorist strikes. The aim of the Bombay terrorists was to continue the global jihad on Indian soil. That’s why they sought out American and British passport holders and that’s why Israelis and Jews were among the principal targets of the violence.

India is now a first world country and it is therefore a target of the 7th century militants.

Third, L.K. Advani was right when he said that these attacks were not like the usual bombings, but he was wrong when he drew a parallel with the 1993 Bombay blasts.

When we saw the television pictures of the Taj Mahal hotel in flames, it was not the 1993 blasts we thought of. It was 9/11.

It sounds flip and glib to say that these attacks constitute India’s 9/11. But that, in fact, is the truth.

The significance of 9/11 was that it made Americans conscious of the danger they were in and aware that nothing was safe; that terrorists could destroy such powerful symbols of American prestige as the World Trade Center.

I should correct this to assert that some Americans still deny the danger but, since their candidate is now in power and responsible for failure, some of them may change.

It is now reported that British subjects were among the terrorists targeting British passport holders.

The US auto industry

Wednesday, November 26th, 2008

We have been reading about the trials of the Big Three auto makers for weeks now. Last week, Fox News had a retired General Motors VP on complaining that GM won the Second World War and so we should be happy to bail them out now. We owe them.

I see almost no mention of the other car makers in the US, like Toyota, Honda, BMW and Mercedes Benz. I guess they don’t need a bailout. The fact remans that hundreds of thousands of cars are made in the US by other companies. What is the big difference between them and the Big Three ?

The United Auto Workers Union.

I was also reading, for the fourth or fifth time, Max Hasting’s history of Overlord, the D-Day invasion. In it, he has a section on the weapons and material of the Allies, compared to the Germans. At one point, he makes a statement that, in every instance, the Allies’ infantry and armor weapons were inferior to the Germans’. The only exception was the Garand rifle, invented by a US Army civilian. The most egregious example was the Sherman tank. I have a book written by a former engineer officer who was assigned to a tank recovery battalion in Normandy in WWII. The title of the book is Deathtrap, the name given to the Sherman by many of its crews. During his service in France and Germany, from the invasion to the end of the war, US armored units suffered 600% losses in Sherman tanks. That is, they lost their entire force of tanks six times over before they were done. The US built 88,000 Sherman tanks (not 40,000 as in that link), of which 40,000 were handed over to the British. Finally, the British equipped the Sherman with a more powerful gun and called those tanks the “Firefly.” The British Sherman crews called the tank “Tommy cookers” and “Ronsons.” Both names referred to the tendency of the tank to catch fire easily when hit.

My point in relating this bit of military history (although it may be news to some) is to make a point. After the war, US auto makers quickly resumed civilian production and were unsurpassed in the auto business until the 1970s when German and Japanese auto makers had recovered from war damage and had caught up with superior designs. The US auto makers excelled in making large numbers of mediocre cars and tanks. They were not innovative. The Germans designed and built the Tiger tank, whose proper name was panzerkampfwagen VI, in three years, the same time frame in which the Sherman was designed and built.

What we have now is an industry that is second generation Industrial Age, heavily burdened with old union contracts and pension obligations, trying to compete with fourth generation industries. It excelled in building large numbers on long, fixed assembly lines. Henry Ford established that pattern in the 1920s. They have not improved upon his work since. A bailout will begin the socialization of American industry with five year plans and all the accoutrements of a planned economy.

UPDATE: Here is more on the rest of the auto industry, which has been very much ignored by Washington. I’m sure they hope it continues.

A new concept: reward good behavior

Sunday, November 23rd, 2008

UPDATE: A bit of good news for a change. The Credit Default Swaps are working. Of course, now that they are working, Senator Harkin wants to ban them.

Sen. Tom Harkin, who has proposed banning these swaps and last week introduced a bill to regulate them. “With the value of swaps at a high of some $531 trillion for the middle of this year — 8½ times the world GDP of $62 trillion — it is long past time for accountability in the markets,” he said. The notional amount of the credit default swaps got as high as $62 trillion, with the rest of Sen. Harkin’s estimate coming from other financial transactions. “Shouldn’t we just outlaw all of these fancy little things?” he asked.

Of course. We wouldn’t want it to get out that the real problem was CRA.

The current housing collapse and associated financial meltdown were the consequences of a bubble. There has been considerable analysis of how this happened. We had low interest rates, a government program to increase home ownership and a delusion that housing prices could only go up. In addition to those mechanisms, we had a drive for high yields and resulting extreme leverage in the financial services industry. Something similar to this occurred in Orange County, California in 1994 when the county Treasurer got caught in a classic short squeeze while investing in bonds and their options. He was betting on an arbitrage between short and longer terms rates. When rates rose, his investments fell in value. Unfortunately for the County, the investments were highly leveraged and the fall in value triggered what in effect was a margin call.

What happened in the housing and financial markets was similar.

At the end of 2004, Eisman, Moses, and Daniel shared a sense that unhealthy things were going on in the U.S. housing market: Lots of firms were lending money to people who shouldn’t have been borrowing it. They thought Alan Greenspan’s decision after the internet bust to lower interest rates to 1 percent was a travesty that would lead to some terrible day of reckoning. Neither of these insights was entirely original. Ivy Zelman, at the time the housing-market analyst at Credit Suisse, had seen the bubble forming very early on. There’s a simple measure of sanity in housing prices: the ratio of median home price to income. Historically, it runs around 3 to 1; by late 2004, it had risen nationally to 4 to 1. “All these people were saying it was nearly as high in some other countries,” Zelman says. “But the problem wasn’t just that it was 4 to 1. In Los Angeles, it was 10 to 1, and in Miami, 8.5 to 1. And then you coupled that with the buyers. They weren’t real buyers. They were speculators.” Zelman alienated clients with her pessimism, but she couldn’t pretend everything was good. “It wasn’t that hard in hindsight to see it,” she says. “It was very hard to know when it would stop.” Zelman spoke occasionally with Eisman and always left these conversations feeling better about her views and worse about the world. “You needed the occasional assurance that you weren’t nuts,” she says. She wasn’t nuts. The world was.

This was bad enough. What happened with those mortgages after they were written was worse.

Enter Greg Lippman, a mortgage-bond trader at Deutsche Bank. He arrived at FrontPoint bearing a 66-page presentation that described a better way for the fund to put its view of both Wall Street and the U.S. housing market into action. The smart trade, Lippman argued, was to sell short not New Century’s stock but its bonds that were backed by the subprime loans it had made. Eisman hadn’t known this was even possible—because until recently, it hadn’t been. But Lippman, along with traders at other Wall Street investment banks, had created a way to short the subprime bond market with precision.

Here’s where financial technology became suddenly, urgently relevant. The typical mortgage bond was still structured in much the same way it had been when I worked at Salomon Brothers. The loans went into a trust that was designed to pay off its investors not all at once but according to their rankings. The investors in the top tranche, rated AAA, received the first payment from the trust and, because their investment was the least risky, received the lowest interest rate on their money. The investors who held the trusts’ BBB tranche got the last payments—and bore the brunt of the first defaults. Because they were taking the most risk, they received the highest return. Eisman wanted to bet that some subprime borrowers would default, causing the trust to suffer losses. The way to express this view was to short the BBB tranche. The trouble was that the BBB tranche was only a tiny slice of the deal.

But the scarcity of truly crappy subprime-mortgage bonds no longer mattered. The big Wall Street firms had just made it possible to short even the tiniest and most obscure subprime-mortgage-backed bond by creating, in effect, a market of side bets. Instead of shorting the actual BBB bond, you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs. It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.

The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L. Eisman was perplexed in particular about why Wall Street firms would be coming to him and asking him to sell short. “What Lippman did, to his credit, was he came around several times to me and said, ‘Short this market,’?” Eisman says. “In my entire life, I never saw a sell-side guy come in and say, ‘Short my market.’”

The total amount of financial paper based on the mortgages far exceeded the actual value of the mortgages themselves. If all the mortgages went to zero, that would not be the end of it. There was still paper out there that had no basis in reality. There were no assets behind it.

The housing bubble still went forward.

More generally, the subprime market tapped a tranche of the American public that did not typically have anything to do with Wall Street. Lenders were making loans to people who, based on their credit ratings, were less creditworthy than 71 percent of the population. Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. “The price was absurd, and they were giving her a low-down-payment option-ARM,” says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he’d hired back in 1997 to take care of his newborn twin daughters phoned him. “She was this lovely woman from Jamaica,” he says. “One day she calls me and says she and her sister own five townhouses in Queens. I said, ‘How did that happen?’?” It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. “By the time they were done,” Eisman says, “they owned five of them, the market was falling, and they couldn’t make any of the payments.”

But that wasn’t the end of it.

Moses actually flew down to Miami and wandered around neighborhoods built with subprime loans to see how bad things were. “He’d call me and say, ‘Oh my God, this is a calamity here,’?” recalls Eisman. All that was required for the BBB bonds to go to zero was for the default rate on the underlying loans to reach 14 percent. Eisman thought that, in certain sections of the country, it would go far, far higher.

Thus, the financial paper based on the mortgages far exceeded the amount of the purported assets backing them. Well, that collapse has occurred. What do we do now ?

Laurence Lindsay has a suggestion.

It is quite natural for politicians to seek to target benefits on those that they perceive to be in need. It is the normal political response to the wheel that is squeaking the loudest. Regardless of motive, the reality is that these programs and indeed the bailout’s whole approach is failing. Even Treasury Secretary Henry Paulson has now thrown in the towel on his original proposal to buy bad assets from the troubled financial firms: the Troubled Assets Relief Program (TARP). None of the $700 billion targeted for TARP will be used as originally intended. Instead most of it will prop up the capital position of the troubled financial institutions, allowing them to hold existing portfolios of questionable loans on their books. The rest will be spent on other distressed firms and troubled markets.

What else could be done ?

Hundreds of billions of dollars later, we are left with the same three underlying economic problems the economy faced when the bailout was proposed. First, the troubled housing-related financial assets that TARP was supposed to move onto the government’s books are still in the private sector, while the nation’s banks rush to pare down their balance sheets in the only way they can–by recouping existing loans and not making any new ones. Second, the housing market continues to fall–prices are down 22 percent from their peak and dropping roughly 1 percent per month. Housing starts are at a 17-year low, and homebuilder confidence is the lowest ever recorded. Third, with unemployment rising and consumer credit tight, household cash flow is in desperate shape. If it doesn’t stabilize, the odds are high that the current recession will wind up being as bad as, or possibly even worse than, the deep recessions of 1974-75 and 1980-82.

Try something new ?

The country faces three major economic problems: (1) making liquid the troubled housing debt that is clogging up the books; (2) stabilizing home prices; and (3) improving household cash flow. Each can be more easily achieved by rewarding virtue than by continuing down the current path.
The government should offer the option of a new mortgage to everyone now holding one, be it from a Government Sponsored Enterprise like Fannie Mae and Freddie Mac, a bank, or a mortgage broker. The principal amount would be the same as the existing mortgage. If the home-owner had two mortgages or a home equity line, they could all be rolled together into one new 30-year fixed rate mortgage. The new mortgages should have a substantially lower interest rate than existing mortgages. I suggest 4 percent, but the rate could be slightly higher without affecting the program.

This is a bit like the proposal McCain made during the campaign with one big exception. It would be offered to homeowners who are NOT in danger of foreclosure. It would be offered to everyone but with one significant provision. It would be a “recourse loan.” You would have to repay it even if your house sold for less than the amount of the loan. Recourse loans were common when I bought my first home. It never occurred to me that I could walk away from the home. The other provision would be that the loan would be assumable, another feature of mortgages 40 years ago.

The new mortgage would have one very significant difference: It would be a full recourse loan. That is, if the borrower fell behind in the payments, the government could use any means necessary to get repaid. That means not only foreclosing on the house (as under current mortgages) but also collecting any remaining unpaid sums after the house was foreclosed on by garnishing the wages, bank accounts, and other assets of the borrower. Think of it as the IRS providing the loan on the same collection terms as it does on taxes, or perhaps using the powers the government now has to collect on student loans.

The new mortgages are aimed at people who really plan to remain in their homes. There would be no incentive to accept if the homeowner is planning to move on and sell the home soon.

Homeowners facing some economic distress but who otherwise would like to stay in their homes, even though the price was below the mortgage, might still find it attractive to take the new financing deal. For example, anyone with a 6 percent mortgage would see a 200 basis point drop in the cost of carrying a home. On a $200,000 mortgage, that would be a saving in principal and interest of $244 per month. (The monthly income of that homeowner is usually in the $3,000 to $4,000 range, so this is a significant saving.) In addition, the monthly payment would likely go down even more on loans that have been in place several years since the principal repayment period would once again become 30 years. If the homeowner is about to face a balloon repayment on a home equity line or an interest-rate readjustment under a variable rate mortgage, the new mortgage terms might make the difference between being able to stay in the home and facing foreclosure.

The key is that homeowners would have to make the choice. Only the homeowner knows whether he or she will be likely to stay in the house and repay the mortgage or be forced to give it up. Under the current arrangements, the homeowner has no incentive or need to signal his or her intentions.

What is the benefit of such a program ?

Given the risk-averse nature of current markets and the lack of any real information, it is likely that the market price of the mortgage pool is well below the actual likely outcome. But no one knows for sure. As a consequence, Mortgage Backed Securities (MBS) and Collateralized Debt Obligations (CDOs) are clogging up the financial system.

Under the refinancing option, this problem goes away. The world is divided into two sets of homeowners: those who think they will repay and those who don’t. Those who think they will repay take the new government mortgage. The old mortgage is repaid. All of the MBS and CDOs in the system therefore face immediate full-dollar repayment of all the “good” loans in the mortgage pool. Everything that is left can pretty much be written down to pennies on the dollar. The uncertainty regarding securities pricing is gone. Banks and the financial markets know with a good deal of precision what each security is worth. In fact, they are handed a series of checks for the bulk of the true value of the security as the wave of refinancing works its way through the system. Thus, not only is the uncertainty removed, but the entire financial system is liquefied.

Thus the mortgage market is divided into two groups; those who will stay in their homes and who will repay their mortgages, and those who will not. The first group has a low default rate, the second is probably worthless. It doesn’t solve the problem of all the Credit Default Swaps floating out there but they are lost anyway. The market can resume to function. It sounds to me like a good idea.

Gay rights and freedom

Friday, November 21st, 2008

UPDATE #2: The hate goes on unabated. I don’t think this is winning gay rights any friends but they seem as oblivious to this as Governor Blagojavich.

UPDATE: Attacks on the Mormon Church are escalating and gay activists seem to be planning attacks on all religious institutions.

Chai Feldblum, a Georgetown University law professor and gay activist who helps draft federal legislation related to sexual orientation, says that, when religious liberty conflicts with gay rights, “I’m having a hard time coming up with any case in which religious liberty should win.” A National Public Radio report on the conflict noted that if previous cases are any guide, “the outlook is grim for religious groups.”

I have explained to my older son that I think the gay marriage issue is an attack on organized religion, on those churches like the Catholic Church, that do not perform gay marriage. Andrew Sullivan, a prominent gay blogger (who seems to be having mental health problems lately) makes a great show of being a devout Catholic and a fervent advocate of gay marriage. My son dismisses this concern as a delusion of an out of touch old man (although he doesn’t say so openly). He recently sent me an e-mail about the “sinister conspiracy” behind the gay marriage advocacy, a sarcastic reference to my comments earlier. I think recent developments support some of my concerns,

A gay man has forced eHarmony, a Christian internet dating site, to settle a lawsuit by agreeing to establish a gay dating site.

“It’s a great victory,” said McKinley, 46, a computer programmer. “I tried to use their Web site, and you simply cannot. You only have two options: a man seeking a woman or a woman seeking a man. I’m a man seeking a man, and obviously I can’t force it to change its interface.”

The internet is full of gay dating sites. Craig’s List, a huge internet site that includes everything from jobs to prostitutes, has gay matching sites that are widely used. What did this gay man in New Jersey want ? I think it had to do with eHarmony’s Christian reputation.

The eHarmony founder, a psychologist, said that he had no expertise in gay psychology and therefore no particular talent in matching gay couples. His premise in eHarmony has been that members are looking for a marriage partner and that the intent of the service is matching people who are looking for a mate, not just a date or sex partner.

eHarmony founder Neil Clark Warren says the company has declined to serve the gay market because the compatibility research on which it relies to match people was done with heterosexuals and may not be applicable to same-sex couples.

He also states the free market argument for allowing him to decline business that he disapproved of.

But even if he decided to focus on heterosexuals because he disapproves of homosexuality, that should be his right in a free society. Potential customers excluded or offended by that choice then would have a right to go elsewhere, instead of forcibly imposing their preferences. Likewise, competitors would be free to take advantage of eHarmony’s perceived shortcomings, as they’ve been trying to do.

Talk radio appeared because of frustration on the part of conservatives with mainstream media, long perceived to be biased against them. This argument is dismissed as paranoia by the left, which claims there is no interest in reimposing the “Fairness Doctrine”. Read the comments on that post and tell me the concern about free speech is irrational.

Anyway, people who support free trade and freedom of speech and association tend to be on the political right. Those who would compel even dating services to toe the line tend to be on the left. I doubt most gays are interested in a membership in eHarmony. It is all about rubbing the noses of the majority in the “rights” of gays. I think the same applies to gay marriage. The rage about Prop 8 is the rage of frustration that the majority “got away with” something.

Message in a bottle

Tuesday, November 18th, 2008

There was an excellent book about the culture of Wall Street a few years ago called Liars Poker. I have a copy. The author has now written a piece explaining the current financial meltdown. I think it is as good as we will see for a while.

I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

He finally wondered if it would ever come to an end.

Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.

Read the rest. His conclusion ?

This was what they had been waiting for: total collapse. “The investment-banking industry is fucked,” Eisman had told me a few weeks earlier. “These guys are only beginning to understand how fucked they are. It’s like being a Scholastic, prior to Newton. Newton comes along, and one morning you wake up: ‘Holy shit, I’m wrong!’?” Now Lehman Brothers had vanished, Merrill had surrendered, and Goldman Sachs and Morgan Stanley were just a week away from ceasing to be investment banks. The investment banks were not just fucked; they were extinct.

It’s going to get worse.

There was an interesting story in the Wall Street Journal yesterday (NOvember 24) on the bear raid on Morgan Stanley last September. It seems to have been started by false rumors but the nature of the market today allowed the rest. This article comments on the atmosphere that allows such behavior. The market is only peripherally about investment anymore. Mostly it is about predatory money making. I guess that is capitalism but it is not anything I want to be involved with. The consequences of such behavior will be the destruction of capitalism unless we are very lucky.

Obama’s foreign policy

Tuesday, November 18th, 2008

There has been a lot of talk about Obama’s instincts in foreign affairs. He has surrounded himself with apologists for the Palestinians, for example. Plus of course his previous statements in debates. What counts is who he appoints in his administration. There are signs already of where he is going.

We have some appointments as indicators.

First, his National Security Advisor, General Jones, whose views on Israel are in the public record.

According to both Israeli and American sources, the envoy’s conclusions about Israel are scathing. Israelis who met with Jones on his most recent visit here a few weeks ago, including Israel Defense Forces officers, said their impression was that the report would be “very harsh, and make Israel look very bad.”

Jones is apparently critical of Israel on two key issues. One is its fairly broad definition of its security interests in the West Bank under any final-status agreement. The other is its attitude toward the PA security services.

However, the sources said, Jones also had some criticism for Washington: He said its efforts to reform the PA security services fell short and complained that U.S. government agencies are not coordinating their assistance for these forces. In addition, he reportedly concluded that the PA forces are not yet capable of effectively enforcing the law in the West Bank.

Well, that was not much of a surprise. There’s always the new CIA chief.

John Brennan, who heads the Obama team managing the transition process for the intelligence community, is rumored to be Obama’s pick to head the CIA. Brennan published a long article on Iran in July 2008, expressing a benign view of the Islamic Republic and harsh criticism of U.S. policies that he believes have driven Iran in the wrong direction. Excerpts follow:

“Notwithstanding the fiery rhetoric coming from Iranian officials such as President Mahmoud Ahmadinejad, the Iranian theocracy has made much more limited use of terrorism over the past decade than it did in the first twenty years of its reign….Although it would represent a significant act of domestic political courage, U.S. national security would be best served if Washington publicly acknowledged and explored the roots of this shift in Iranian state support for terrorist activities….While it may serve some narrow political agendas to lump together a wide variety of Iranian policies and actions that are antithetical to U.S. policy aims under the rubric of state-sponsored terrorism, U.S. strategic interests require a more nuanced analysis of and less absolutist approach to this problem….Instead of pursuing a nuanced strategy that could have allowed flexibility in U.S. policy, the Bush administration regrettably opted to conduct its activities under the overarching banner of “The Global War on Terrorism” and declared it would make no distinction between terrorist operatives and their state sponsors.

Sounds like a devoted “root causes” guy, doesn’t he. Well, I guess the Jews knew who they were voting 77% for, didn’t they ?

The anti-intellectuals

Monday, November 17th, 2008

The New York Times today has a piece on National Review, and its alleged decline in erudition. It looks to me, on reading the piece, that it is another in the Palin-bashing thread of the left. Erudition and intellectual power on the left have virtually disappeared in an academic world exposed by The Sokol Hoax. Books have been written about the implications of the Hoax for intellectual life in the 21st century.

Now, we have elected an alleged intellectual as president. The Republican Party has been attacked as “anti-intellectual. Sarah Palin has been the focus of some of these stories. Not everyone agrees with the premise.

the left has long been the welcoming home of fashionable postmodern nonsense like deconstructivism and moral and cultural relativism. Under these doctrines there are supposed to be different kinds of “logics” (male logic, female logic, &.) and none is more valid than the other. All of them are simply clever masks for a brutal competition for wealth and power. This is a profoundly anti-intellectual strain of pseudo-thought which avoids the need to take any arguments seriously, because such ideas simply be accused of corruption. When Sandra Harding called Newton’s Principia a “rape manual,” she did so from the left, not from the right. And the cultural relativists who demand that we treat the dismal productions of barbaric cultures as the intellectual equivalents of Shakespeare and Homer—and tars as “racist” anyone who suggests that some cultures and their mores are better than others—are fundamentally, even proudly anti-intellectual.

We’ll see how the “intellectual” president does.

The most common delusion of the intellectual today is the global warming hysteria, which is reaching a stage where facts appear to be irrelevant. Typically, it was a British newspaper that called attention to the errors.

A surreal scientific blunder last week raised a huge question mark about the temperature records that underpin the worldwide alarm over global warming. On Monday, Nasa’s Goddard Institute for Space Studies (GISS), which is run by Al Gore’s chief scientific ally, Dr James Hansen, and is one of four bodies responsible for monitoring global temperatures, announced that last month was the hottest October on record.

This was startling. Across the world there were reports of unseasonal snow and plummeting temperatures last month, from the American Great Plains to China, and from the Alps to New Zealand. China’s official news agency reported that Tibet had suffered its “worst snowstorm ever”. In the US, the National Oceanic and Atmospheric Administration registered 63 local snowfall records and 115 lowest-ever temperatures for the month, and ranked it as only the 70th-warmest October in 114 years.

So what explained the anomaly? GISS’s computerised temperature maps seemed to show readings across a large part of Russia had been up to 10 degrees higher than normal. But when expert readers of the two leading warming-sceptic blogs, Watts Up With That and Climate Audit, began detailed analysis of the GISS data they made an astonishing discovery. The reason for the freak figures was that scores of temperature records from Russia and elsewhere were not based on October readings at all. Figures from the previous month had simply been carried over and repeated two months running.

So the data was merely extrapolated from September to October. No matter that the time is fall when temperatures are falling in temperate climates.

In fact, there is some evidence that we may be entering a new Ice Age due to decreased sunspot activity.

The intellectuals will persist in their delusion until glaciers begin to appear in upstate New York.

The cruise was about more than eating

Sunday, November 16th, 2008

My wife and I spent a week on the National Review post election cruise.

That is Half Moon Cay and the ship did offer a lot of eating. However, that wasn’t all we did. Cindy had a ball driving a jet ski around the island for an hour.

We went ashore and did sight seeing. This is Grand Turk Island, which got flattened by Hurricane Ike on September 7. There were repairs going on all over the island.

Then, of course, there were other people on the cruise.

The program was put on by National Review and two full days plus most evenings were filled with seminars. Guests included Mitt Romney and Fred Thompson plus a number of well known writers such as Bernard Lewis and Bing West. I read West’s book, The Strongest Tribe, which I think is the best book on Iraq thus far. I have read several of Bernard Lewis’s books and he has another currently available that is a primer on Islam. Additionally, there were National Review writers and other well known writers, such as Mark Steyn who is as colorful in person as in print and on the radio, and John O’Sullivan, a Margaret Thatcher intimate. O’Sullivan joined us even if his luggage didn’t, and his enthusiasm for Sarah Palin was reciprocated by the cruisers.

The theme was a review of the election and a discussion of where the GOP goes now. There were some very frank discussions and assessments of the Bush administration and the McCain-Palin campaign. The first day was mostly devoted to the election results and Fred Thompson was interviewed by Kathryn Lopez from NRO. Fred was a McCain supporter and is a likable and engaging speaker. He also has a gorgeous wife and cute kids. The afternoon session the first day was a discussion of the GOP future. I drew some conclusions that were not necessarily those of the panel. We need a better “ground game” and Brent Bozell addressed this but there should have been more talk about it. This pertains to reaching the young voters through avenues like “Facebook.” The discussion of a possible reimposition of the “Fairness Doctrine” by Obama should prompt a serious discussion of satellite radio and its role in the future of talk radio. I think Obama will appoint an FCC that will impose it since it will thrill his base and there is not much else he can offer them given current economic conditions.

There is a debate going on in the party that will continue for some time. This concerns health care and other policies that might appeal to part of the Obama coalition, such as Hispanics.

Scott Johnson, from Powerline, was also on the cruise and here is his take on what went on. I didn’t get a chance to meet him but he did contribute quite a bit on a couple of panels. More of his thoughts are here. Victor Davis Hanson was there and he has a nice assessment this morning of the Obama future.

The Monday afternoon session (After a tour of Grand Turk Island that had been flattened by Hurricane Ike in September) concerned external threats in the Middle East. Anne Bayefsky was the most pessimistic of the commenters, possibly because she is an expert on the UN.

Tuesday and Wednesday had day-long shore excursions (during one of which Cindy and I toured Morro Castle) with late night sessions by some of the speakers. Thursday was another all-day session as the ship was returning north to The Bahamas. The morning session was on “America’s Enemies” which began with an interview of Bernard Lewis by Jay Nordlinger. Professor Lewis does not look or sound 92 years old. The afternoon session was on the GOP future. The Friday afternoon session was an assessment of the Bush Administration and Deroy Murdock’s column above was previewed during the discussion.

We met some interesting people and listened to some interesting talk. Whether the Republican Party returns to power in any degree in 2010 will probably depend on outside influence far more than it depends on these ideas. However, the distant future will be determined by the long range concepts at meetings like this one.

One more outstanding guy we met is a Catholic priest from Michigan named Robert Sirico. His brother is a star on the TV series “The Sopranos.” He runs a free enterprise think tank named The Acton Institute, which is intended to teach the topic to Catholic clergy who have shifted far left politically in the past 50 years. Today, Michelle Malkin posts an excerpt from a speech given before the cruise but he gave some similar talks we attended. She includes his speech as part of a call to reverse the bailout.

The institution of government—what many view as the first resort of charity—is the very thing that unleashed and encouraged those vices of greed and avarice and reckless use of money that got us into the current financial imbroglio. It did so by first placing a policy priority on a worthy goal, increased home ownership, but pursued it with a fanaticism that neglected other goods such as prudence, personal responsibility and rational risk assessment.

Moreover, its official banking centers enjoyed subsidies which distorted that most sensitive of price signals—the price of money—to delude both investors and consumers into believing that capital existed to support vast and extravagant consumerism when in fact no such capital and savings existed.

It’s an obvious point but one the mainstream media appears intent on missing: The financial crisis did not occur within a free market, a market permitted to work within its own indigenous mechanism of risk and reward, overseen by a juridical framework marked by clarity, consistency and right judgment. Quite the contrary. The crisis occurred within a market deluged and deluded by interventionism.

Today we find institution after institution “in the tank” for unrestrained government intervention. One is reminded of Italian philosopher Antonio Gramsci’s call for the left to begin a long march through the institutions of Western Civilization. The left, it seems, got the memo. How will we respond to this disheartening situation? Now is no time to retreat in disarray. Now is no time to stumble. There remains a remnant … a potent remnant who has not bowed the knee to big government. My call to you tonight is a transparent one: strengthen the soldiers of that remnant. In particular—strengthen that band of brothers gathered with you tonight, the Acton Institute.

What we have to look forward to

Saturday, November 8th, 2008

We are getting ready to board the ship soon and we have an adventure to look forward to. Hurricane Paloma right across our track. The forecast shows it just east of Cuba Monday. We should pass across the front of its path tonight and tomorrow so we may miss it altogether. Let’s hope so.

Our course runs from Ft Lauderdale to Puerto Rico. We’ll se how it goes.

Liberal tolerance

Saturday, November 8th, 2008

As I was preparing to head east for my cruise, I read some accounts of the demonstrations at the Mormon temple in West Los Angeles. There was anger directed at the Mormon Church because it had contributed quite a lot of money to the Yes on 8 campaign. Apparently, Mormons are not the only ones gays are angry with.

It was like being at a klan rally except the klansmen were wearing Abercrombie polos and Birkenstocks. YOU NIGGER, one man shouted at men. If your people want to call me a FAGGOT, I will call you a nigger. Someone else said same thing to me on the next block near the temple…me and my friend were walking, he is also gay but Korean, and a young WeHo clone said after last night the niggers better not come to West Hollywood if they knew what was BEST for them.

This was directed at a gay black guy walking with “No on 8” buttons with his Korean boy friend.

Al Rantel is a gay conservative talk show host in LA. Periodically, he gets an angry letter from a left winger complaining about something he said on his show and the number of anti-gay comments (like calling him a “faggot”) are amusing. He reads the best of them on the air.

Of course, Hispanics also supported the gay marriage ban but I don’t see as much mention of them. The rest of us are coming in for our share of the “blame.”

There are so many other groups in the exit polling that voted for Prop 8 overwhelmingly (as in, more than 60%):

The elderly (65+)
People who decided for whom to vote in October (but not within the week before the election)
People who were contacted by the McCain campaign
White Protestants
Those who attend church weekly
Married people
People with children under 18
Gun owners
Bush voters
Offshore drilling supporters
People who are afraid of a terrorist attack
People who thought their family finances were better now than 4 years ago
Supporters of the war against Iraq
People who didn’t care about the age of the candidates
People who are from the “Inland/Valley” region of California
McCain voters

Let’s see. How many apply to me ?

Anyway, it’s a nice lesson in the tolerance found in those of the left. Sort of like the nasty joke President-elect Obama made about Nancy Reagan at his first press conference.

Oh well, it’s early yet.