Saturday, November 1, 2008

Bradley Effect

A generation ago Tom Bradley, charismatic black mayor of Los Angeles, lost a California gubernatorial race despite a ten point lead in the polls. Conventional wisdom is that racial attitudes among poll respondents embarassed by their own prejudice led to that outcome. Something similiar is about the best the McCain Palin crowd can hope for in the current presidential race. It's not a nice strategy, but it's about all they've got at this point.

I think it's a possibility. But I don't it will happen.

Here are three pieces of Texas trivia that suggest not. First, for most of the year my son was a 'closet Obama supporter' down in the Rio Grande Valley. In the last month or so, Obama has been doing well enough on the Border that he decided to come out of that particular closet. Second, my mother-on-law, who has lived her life according to the gospel of Nieman-Marcus for the last half century, claims that she voted for Obama (she's already voted since she and a girlfriend headed out to La Jolla for November). I'm not sure if I believe that, or not,but it's the fashionable claim to make. Finally, the local newspaper in Bryan College Station, home town the Texas Aggies, home base of Professor (before Congressman or Senator) Phil Gramm, and site of the presidential library of Bush 41, has endorsed Obama. He's the first the first Democrat the paper has endorsed since the 1950s.

I'm not saying Texas is in play. I'm just asking, as if I were a Republican riposte to Thomas Frank, 'what's the matter with Texas?'

Friday, October 31, 2008

Richistan doesn't get it

The world has changed.

The good burghers of Richistan don't understand that.

The key to understanding is stolen money, a/k/a executive compensation.

If institutions receiving, say, $125-billion in federal assistance, pay out, say $109-billion in executive compensation, the recipients will be regarded by the taxpaying public and treated by the criminal justice system, as common criminals.

This is not a public relations problem, it is a paradym shift. And people who miss paradigm shifts get squished.

Maybe this isn't fair. Sure, there are contractual rights, and compensation in private organizations isn't a public concern. But once public money has been taken, game, set and match, Waxman.

Wednesday, October 29, 2008

Submarine Races

Last week, the Russians were making noise about lending to Iceland to see that country through its currency crisis. Of course, Iceland was a huge Cold War base for the United States, linchpin to the logistics of supplying Europe in the event of some kind of protracted crisis with the potential to segue into WW3 (20th century version). Meanwhile, in the Eastern Hemisphere, the Pakistanis propositioned the Chinese about a bailout, though nothing came of that, either.

This week the Japanese were expressing concern that the Chinese and the Russians might use the current financial unpleasantness to extent bilateral loans to troubled emerging market economies to see those countries through their times of trials. A sensible strategy for the Russians and the Chinese (whose principal motivations aren't financial, in the traditions of the Anglosphere), and a sensible concern for the Japanese, who motives, recently, have been.

And so, yesterday, the US Treasury announced unconditional swap lines along the lines of those previously made available to the G7 countries, and the IMF creates a $100-billion liquidity facility that won't carry the traditionally racist and onerous conditions the imperialists have historically imposed on little brown brother.

This, brother, is progress. Just a straw in the wind, so far, but you can safely bet that the Chinese, in particular, will cautiously assess and act on the opportunities created by the crisis.

Buying time

is the core strategy that the world's public authorities have developed to deal with the global financial crisis. Call it a liquidity issue for as long as possible, then admit it's a solvency problem only when smacked by the dead fish of a school of floundering institutions too big to fail. Now that those institutions stopped serving the social purposes that entitled them to preferential treatment, step in and do the job for them, to keep the wheels from coming off.

But that's all it does. It keeps the wheels on, but they're spinning, losing traction, and the jalopy is skidding into the ditch.

The bedrock problem is that the financial institutions of the Western world are collectively insolvent. Yes, there are sound insurance companies, and leasing operations, and community banks, and so on. But the institutions that molded and drove the capital markets are, as a group, insolvent. That isn't the end of the world--Japanese banks stayed insolvent for a decade and it's an open secret that most Chinese lenders are sitting on mountains of bad domestic loans made under political duress (maybe duress is not even the right concept, the loans were extended at the direction of governmental authorities--not necessarily the central government, either--to further political and social developmental goals). An insolvent global financial system is not the end of the world, but it's a new problem for the world. Who issues letters of credit to finance trade if everyone is insolvent? For that matter, who honors them?

Buying time is probably the best of a set of bad alternatives. But don't call it a policy.

Tuesday, October 28, 2008

New light

Two very interesting little facts from September came out this week. The first was that Morgan Stanley was forced to inject $23-billion into its money market funds to keep them liquid and avoid breaking the buck. All by itself, that pretty much explains the sudden Federal guarantees of the money market funds. The second was that Goldman approached Citicorp about a link up. A move like that has only one explanation, and it speaks volumes for just how dicey things have gotten. There are times you want to win the race, and there are times you just want to get off the horse.

Information in real time vs. information with a lag. In happier days long ago (well, a year or so) the Fed's pressing issue was transparancy and self-regulation in principles-based regulatory schema were argued as a legitimate alternative to groady rules-based compliance. And now a decent cloak of obscurity is pretty useful when nasty things need to be done to keep the sun shining.

That all seems like a long time ago. But it's still interesting how the passage of a little time and a little more information can put things in a new light.

Monday, October 27, 2008

New Snouts at the Trough

Three new snouts at the trough. Insurance companies. Hedge funds. Auto companies. Yes, no and maybe. Not surprising. $700-billion is going to attract flies.

Insurance companies. They are regulated financial institutions providing a utility-like function to the general public. The AIG rescue amply demonstrates that an insurance company collapse can have systemic repercussions. As financial institutions, they are in the general scope of the problem the bailout, er, rescue package was intended for. Yes, though, as always, the devil is in the details.

Hedge Funds. Let's see, hedge funds are unregulated pools of capital contributed by sophistical investors and run by the most arrogant and avaricious group of people this side of the Russian oligarchs. Unlike, say, a venture capital firm or a postal savings system, they have no redeeming social purpose, but exist, like a drug cartel, solely to enrich the participants. I'd say no space at the trough. If hedge fund failures create systemic issues, address them in the institutions burned by those collapses, and create a conduit with plenty of bandwidth to the criminal justice system.

Auto companies. Hmm. They really weren't part of the original problem. But they are a problem. I'm old enough to remember the Chrysler bailout. That had a mixed outcome. It kept the company afloat (good), allowed the ossified culture of the auto industry to be perpetuated for another generation and delaying the day of reckoning (with additional accrued interest) for a quarter century (bad) and inflicted Lee Iacocca on the public consciousness for a decade (the price you pay, I guess). A toss up. Maybe the next Congress should deal with it as part of a general industrial policy, a la francaise?