Quote of the Day

"In my opinion, the leaders know better, they can choose what's best for us."

Election Stirs Democracy Debate in China, The Washington Times. 

Stunning.

According to one study, one in seven women who served in Iraq and Afganistan reported "sexual trauma" during their service.  I suspect in cases like this there is some underreporting, so the real incidence is probably much higher.  In case that statistic isn't ourageous enough for you, read this article from the Nation or listen to this interview from Democracy Now!

This bit makes the whole operation sound like a bad episode of MASH.

Horton wonders what the 200 Justice Department employees and contractors stationed in Iraq do all day, noting that there has not been a single completed criminal conviction against a US contractor implicated in a violent crime anywhere in Iraq since the invasion. "We have a complete process in place for solving military criminal violations when soldiers commit crimes, but for the 180,000 employees of private contractors over there, there is nothing," says Horton.

Are You Racist?

Turns out I am, a tiny bit.  Find out here.  And read a related article here.  

Quote of the Day

I'm sure if John McCain was raped and had a baby growing in his penis, he would want it publicly discussed with the same level of abstraction, without concern for his specific "life", or... "penis".

Samantha Bee on Jon Stewart's Daily Show.  Video here.

Naked Sushi Model

Funny thing:  I worked with this girl back in my investment banking days.  

With the crumbling down of Wall Street, should I expect to see a naked sushi model in my neighborhood sushi joint?  Bodega?

The Misbehaviors

Capitalism, it turns out, is dead.  According to the narrative that is rapidly growing roots in the collective consciousness, free markets are not the magic they were cranked up to be.  At least Alan Greenspan seems to have concluded that.  

On the back on that admission, David Brooks' column in NYT echoes a theme I have written about a few weeks ago here, but goes a step further and takes it to the level of policy.

My sense is that this financial crisis is going to amount to a coming-out party for behavioral economists and others who are bringing sophisticated psychology to the realm of public policy.

As I continue thinking along that path of reasoning, I have to wonder what will this shattering of the market axiom mean for all of us?  After the crash of 1929 and the Depression we saw the economic philosophies of Marxism rise to prominence in many countries around the world.  Have we come full circle?

Growing up in post-Communist Slovakia, I was a part of a young generation that was never fully indoctrinated with the theories of Marxism and Leninism.  Anxious to be as western as possible, we embraced the ideas of the free market like a religion.  Capitalism was cool, it was the only way to be.  Today, as I listen to Greenspan, and read more about behavioral economics, I am increasingly aware that what may have previously seemed like an axiom was really just a doctrine.  Maybe it is right, maybe not, but still nothing more than a doctrine. 

  

7 Days To Go ..

Only seven days left until election day, and for the sake of my own sanity, I am going into campaign hypernation, so no more posts from me about the election.  BUT, before I stop, 3 related messages: 

1. Just because I won't be writing about it, doesn't mean I won't be following it.  And if you're an election junkie like me and own an iPhone, you should check out Slate's Poll Tracker, a neat app that allows you to track real time changes in polls on your phone in these crucial hours.

2. I am almost amazed by my own level of emotional involvement and the attention I pay to the campaign narratives.  But it really feeds on itself, so the more attention you pay the more subtleties you pick up and the more interesting it all seems and makes you pay more attention.   But for someone who can't even vote, it may seem rather ridiculous.. Which brings me to my last point: 

3.  I cannot believe I won't be able to vote!  And I am not even talking about the cliche that the whole world should vote for the US president.  Call me whiney, but I actually think it's unfair that after living in this country for 10 years - and paying taxes for all of those years - I won't be able to vote.  Not to mention, I am nowhere even near obtaining permanent residency.  I have lived here my whole adult life yet technically I am barely more than a tourist.  In all seriousness, the archaic immigration policies need to be reformed urgently, and not (only) for my sake, but for the country to stay competitive.  I can only hope that whatever happens on November 4th will be a change in that direction..

READ: Russia Endorses Obama

An interesting piece of news that is making its way around European press and will probably hit the US media with a splash (only to be turned into a new fear-mongering clip by the McCain campaign): certain Russian officials expressing preference for Obama.

In the words of Konstantin Kosachyov, Russian Duma's foreign affairs committee:

"McCain got his political formation during the Cold War, he dedicated most of his life to the fight against communism. It's clear that to this day he still thrashes along that front without seeing any real difference between the Soviet Union and modern Russia."

"Obama doesn't differ particularly in his beliefs about Russia from the Republican candidate, but he is a young politician, without prejudices and so, more ready to take on a new proposals and approaches."

He couldn't have said it better, though a small part of me wishes he didn't, for Obama's sake.

READ: Taking a Peak

In an interview with Fareed Zakaria, former Treasury Secretary Bob Rubin makes me feel good about the kind of leader that Obama would be:

ZAKARIA: People talk about a crisis and how it's going to test the next president. Well, you've been watching, in a sense, a crisis that is testing Barack Obama already, the financial crisis. You've been in on a number of meetings where he has formulated and decided what his position is going to be, what he would do if he were president -- all that kind of thing.  Describe what Obama is like in those meetings.

RUBIN: I think he's remarkable, Fareed. I first met him about four years ago through a fellow who had worked with me at Treasury -- my chief of staff at Treasury -- who had been on the Harvard Law Review with him.

And then after Hillary dropped out, I got very involved with Barack. And they're a small group of us -- Larry Summers, Laura Tyson, Paul Volcker, in some measure Warren Buffett, and a few others a little bit more intermittently -- who have been very involved with him. And I would say that we probably talk with him once a week perhaps, either on the phone most of the time, or occasionally in person.

And each time he does the same thing. He says, "I want to put all politics aside. I want to put the campaign aside, and I want to really focus on what's happening."

And it is a remarkable thing for somebody to do in the middle of a campaign. He has tremendous seriousness of purpose. He is very bright, as we all know.

He thinks, he makes decisions very much like President Clinton did. He wants to get all the factors on the table, and then he weighs and balances them, and tries to judge what the probabilities and the tradeoffs are.

And he's very much the leader of these discussions. He is the leader of his own economic team. I think he's really and truly terrific, Fareed.

ZAKARIA: How would he -- but he seems very different temperamentally from Clinton.

RUBIN: He's different temperamentally, but he's very similar in the way that he approaches decisions. He recognizes the inherent complexity of issues, and he's very much focused on trying to get in front of him all the considerations, including the views of those who disagree with him. And then he's very much a weigher and a balancer.

You know, temperamentally, it's interesting. They are somewhat different, but they both have a sense of humor. Obama has a very good, sort of ironic sense of humor. And they're both very similar to work for, in the sense that they're engaged, they're interacting.

And I don't think that Senator Obama cares whether you're a 35- year-old who's sitting at the table, or you're double that age and much more experienced. What he cares about is the substance that you bring to the discussion. And that's exactly the way President Clinton was.

To address a potential source of skepticism about this testimonial, later in the interview Rubin says: "I'm not going back to Washington."

Quote of the Day

"Things continue to fall apart."

Paul Krugman in his Monday morning edition of Apocalypse Now.  

Incidentially, the Telegraph ran a story yesterday with a similar message, including this little precious nugget:   

"Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.  They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles."

Ouch.

READ: Oh, the Euros.

Gotta love the coverage of the US election in Europe.  Perhaps not surprisingly, every major European paper has a dedicated section on their website. 

On the right, a picture from the series at Le Figaro called "Cliches of the Campaign".  

A bit more serious - and written in a language I can read and understand - is this forwarding looking article from the UK Telegraph.  

READ: The Halloween Mask Poll

Forget the Gallup Poll - if you want to see who will snatch the White House on Nov 4th, you have to look at halloween mask sales!

Or so this site claims.

Something tells me, the real winner this halloween will be Sarah Palin.  

[Hat tip: Chicago Sun Times]

READ: If The World Could Vote

From The Economist .. the overall result not terribly surprising, though there are a few head scratchers:  Cuba - Leaning McCain?  Iraq - Strong McCain?  Slovakia - only "Leaning Obama" country in the EU (as opposed to "Strong Obama")?  Huh?

READ: Memo to NYC Women

If you want a husband, move to LA!

Or actually, nevermind.

[hat tip: Ezra Klein]

PLAY: Róisín Murphy

Last night I went to see Róisín Murphy and she was great.  As my friend Brian described her, she is like Björk and Goldfrapp having a disco baby, so if that sounds at all like a desirable combination to you, check her out!  Unfortunately the new album is not on iTunes yet (except one song) but you can sample it on last.fm.

READ: Health Care and Baseball

Today's NY Times op-ed by Billy Beane, Newt Gingrich and John Kerry is a good example why it is pointless if not dangerous to discuss an issue as complex as healthcare in short format.  They try to make the case that the problem in US health care system is the lack of evidence-based decision making. 

Studies have shown that most health care is not based on clinical studies of what works best and what does not — be it a test, treatment, drug or technology. Instead, most care is based on informed opinion, personal observation or tradition.  It is no surprise then that the United States spends more than twice as much per capita on health care compared to almost every other country in the world — and with worse health quality than most industrialized nations.

The implication seems to be that other countries spend less on their health care because they are much better at determining what works and what doesn't, which strikes me as somewhat misleading.  Other countries spend less on healthcare per capita than the US simply because they either cannot afford to or do not want to.  And their outcomes are better on average simply because their healthcare system is more equitable.  The best care in the US is still by far the best care anywhere; the problem is just that fewer and fewer people are able to access it.

I am not saying here that evidence-based medicine is not the right way to go.  I just don't think we should be expecting magic.  There are many serious structural problems in the US health care and lack of data and evidence is only one of them and cannot be addressed in isolation.  

More practically, however, even if we agree that evidence-based medicine is what we need more of, I struggle to see how that can be achieved in the disjointed system of US health care where decisions, financing and delivery of care all exist in their own silos.  The authors suggest:

Working closely with doctors, the federal government and the private sector should create a new institute for evidence-based medicine. This institute would conduct new studies and systematically review the existing medical literature to help inform our nation’s over-stretched medical providers.

However, that seems a touch idealistic.  A lot of review and evidence already exists and is routinely ignored both by payors and providers alike.  Take the example of surgical robots which cost $2 million a piece, have questionable comparative quality outcomes, yet hospitals are tripping over each other buying them and not because they believe the robots are such good medicine.  When I talk to hospital CEOs and CFOs they often express downright hate for the robots.  They cost a lot, they lose money on every procedure they perform, yet - to stay competitive - they know they need to have one.  In a competitive market place there is always the temptation if not actual incentive to do more with more fancy technology, no matter what the evidence says.  

In fact, I am almost starting to wonder if the real argument here is that unless payments, care and decisions are somehow centrally coordinated, we can't ensure they will be both appropriate and economical.  And that, ladies and gentlement, is how this blogger would make an argument for government-run healthcare.  Or as McCain would probably put it, socialism.  Boo!!

Unclassifiable

The market may be down 10% this morning but that doesn't prevent some people from keeping their priorities straight.  This just in from the corner office:

I haven't seen you today but I was told that you are wearing pants that could be considered jeans or a bit too casual for our office.  I'm just bringing it to your attention so you can help me out by being careful not to get too casual with your great outfits.

As a side note, they are corduroys, which meets definition of business casual.  It's Friday.  I spend 99.9% of my time in my office.  Oh and yea, the world is coming to an end so WHO GIVES A FLYING FUCK WHAT I'M WEARING? 

Fascism.

READ: Quote of the Day

"We had a relationship that went far beyond friendship. Jörg and I were connected by something truly special. He was the man of my life."

Stefan Petzner, replacement of far-right Austrian party leader Jorg Haider after his sudden death, until those remarks got him fired.  From the Independent.  

READ: Here's One from the Left

During my daily check in to the über liberal universe of Democracy Now! I came accross this interview, in which two chaps expressed concern over the implications of Colin Powell's endorsement of Obama

..what disturbs me most is, is this idea that not only is Powell endorsing Obama—Obama can’t prevent that—but that Obama has responded by saying that Powell might play a key role in an Obama administration. And we should ask ourselves, what does that say about Barack Obama’s promises to end this war quickly? I don’t think it necessarily says something good if he’s putting someone around him who helped get us into this war, who helped lie us into this war and has been basically unrepentant about that.

It's almost refreshing to hear a criticism of Obama that comes not from the right side of the political spectrum but from the left.  As a reminder, the left in the US is an approximation of where the much of the rest of the world is philosophically, so it is kind of useful to consider this as I am pondering about the US foreign policy post-election.     

READ: Is This Relevant?

Just because Obama is not a Muslim, does not mean he's not a dancing socialist.  OK, maybe not a socialist, say actual socialists.  But definitely dancing and supposedly better than McCain.  Tonight, Larry King asks: "is this relevant?" For bloggers?  Definitely.  Larry King Life?  Not so much. 

READ: It's in the bag.. Or is it?

You'd think I can finally sleep well at night, given Obama's expanding lead.  Alas, no such luck.   My worries are twofold:  even if nothing changes between now and November 4th, and even if the poll numbers are correct, I hope that people do not get too confident or lazy and still get out to vote.  I would, if I could, even in New York.  

My more serious fear, however, is that anything can happen in 13 days and the closer we get to election day the less time Obama would have to contain the fallout from new information.  What new information am I so worried about?  Days before the '04 election, a new Bin Laden tape came out and I am sure that it tipped a few people over the edge towards Bush.. Yes, times are different today but one never knows how people would react to something like that, especially the marginal voter.  This article does a much better job exploring both the '04 tape and the possibility of another one.

Call me paranoid, but like Ezra Klein, I think it's good to be prepared for the alternative and I hope that somewhere someone in the campaign is ready for it.

READ: Quote of the Day

"Twenty-two months ago, He called me to run for United States Congress. And my husband thought, you need to do this. This is a big deal to do something like this. So we set aside three days where we fasted and we prayed, and long about the afternoon of day two, we knew. We knew that we knew that we knew. This was it."

Congresswoman Michele Bachmann in 2006 about why she is running for Congress. Another sad reminder that the separation between church and state is a complete illusion.

2 years later, she seems unlikely to keep her job after this little performance.

READ: Quote of the Day

"To put them in perspective, I think of being on an airplane. The flight attendant comes down the aisle with her food cart and, eventually, parks it beside my seat. “Can I interest you in the chicken?” she asks. “Or would you prefer the platter of shit with bits of broken glass in it?” To be undecided in this election is to pause for a moment and then ask how the chicken is cooked. I mean, really, what’s to be confused about?"

David Sedaris in Undecided.

READ: Just Because You're Paranoid, Doesn't Mean They're Not After You

Local newspapers can be fun to read just to get a sense of how much sheer crazy there is out there. Here's an example:

Obama couldn't get security clearance

Tuesday, October 21, 2008

About 40 years ago when I was a young man in the U.S. Navy, my job required a secret security clearance. Even though I had already been in the Navy for 10 years, I still had to undergo the clearance process of completing a form telling everything I could remember about my life and family.

My entire life back to my birth was scrutinized by the FBI. Family members called to say they were questioned about me. Some of my friends told me the same. Months later I was granted the security clearance.

In a few weeks we'll be electing the next U.S. president. This person will have access to all our nation's top secrets.

Back when I got my clearance, current presidential nominee Barack Hussein Obama couldn't have gotten his. And if he had been granted clearance before his associations were known, it would have been revoked. Any connection with a terrorist, communist or racist would have disqualified him. Such associations would have adversely impacted his entire career, if he still had a career in the Navy.

It's unbelievable to me that a person like that would even be considered for president. How can we trust him? Where is J. Edgar Hoover when we need him?

The other major party presidential candidate has proven that he would give his life for his country. He has faced death on at least three occasions and survived. He will make sure to the best of his ability that our nation will also survive. He loves America.

My vote goes to a man we know we can trust: U.S. Sen. John SidneyMcCain. I pray that yours will too.

Ralph F. Cauble, Martinez

Amen.

READ: Reverend Dreamy

Somehow the news of a California priest Rev. Jeffrey Farrow being ousted from the Catholic church for his opposition to Prop 8 completely escaped me until I read a letter to the editor of the Boston Globe about it. Naturally, the good juicy stuff is in the comments section:

If you don't like what the Catholic church teaches, don't be a member, its that simple.

Response: If you don't like gay marriage, don't marry someone of the same sex, it's that simple.

But back to the case of Mr. Farrow - how refreshing to see a man in the ranks of the Catholic church who puts conscience and compassion first and is not afraid to stand up to the backwards ideas of the Vatican.

"I know these words of truth will cost me dearly, but to withhold them . . . I would become an accomplice to a moral evil that strips gay and lesbian people not only of their civil rights but of their human dignity as well."

The statement from Fresno Bishop John Steinbock, on the other hand, reminds me why the Communists ( back when I was growing up) could never live harmoniously side by with the church - there just wasn't enough room for two ridiculous dogmatic ideologies.

"Your statement contradicted the teaching of the Catholic Church and has brought scandal to your parish community as well as the whole Church."

READ: I Care, You Care, We All Care About Health Care

For an issue I know and care so much about, I have neglected health care suspiciously on this blog. This neglect partially stems from the fear of boring the reader; much greater part of this hesitation is really my appreciation for the complexity of the issue that is preventing me from trying to spit out quick and dirty entries I could never consider complete or comprehensive enough.

But I guess I have to give in at some point and we can thus consider this the virtual popping of my health care blogging cherry. And it all started when Ezra Klein pointed me to an op-ed in the Boston Globe today by Jeff Jacoby saying that health care shouldn't be linked to employment. The premise of the piece is that the skyrocketing costs can be attributed to the hidden true costs of care and lack of consumerism in health care. Break health care away from employment and voila - the patient-consumer seeking cheaper better care will magically curb the growth in health care costs.

Ezra, while agreeing with the idea of de-linking employment and health coverage, objects to the notion of consumerism by pointing out that there is a great asymmetry of information between the patient and the provider. While that is a valid point, I do think there is a role for consumerism in health care. For one, even if the patient has to rely on the doctor to figure out what his health care needs are (ie, he cannot - in a truly consumeristic manner - simply decide what he wants and needs), encouraging consumer-driven approaches to finding the best and most appropriate sites of care (ie, the $500 surgery center vs the $5,000 hospital surgical suite) should not be dismissed entirely.

My problem is with the implicit assumptions behind Jacoby original thesis, namely that (a) de-linking health care from employment is necessary to induce consumerism, that (b) lack of consumering in health care is the sole (or biggest) cause of rapid growth in health care costs and (c) the individual somehow has greater power or incentive to drive down health care costs that his employer doesn't. Addressing these points one by one:

(a) consumerism in health care is entirely feasible even under the current employer-based system and is actually quite explicit in many plans based around flexible spending account.

(b) many other culprits can be name that lead to rapid growth in health care costs, among them the cost of new technologies, cross subsidization of less profitable payments in health care and rapid growth in the key health care input such as nurse wages.

(c) under the current arrangement the employers actually exercise a lot of negotiating clout on their employees behalf when negotiating insurance premiums of providers rates, which individuals would never be able to obtain on their own in the market place.

I just reread this entry and I see how it's both too technical and too superficial at the same time but I will develop these ideas further in the next few days but right now work is calling.

READ: Earth to Kristol: What Planet Do You Live On?

Sometimes opinion pieces are so infuriating that I hesitate if they are even worthy of a response and today's op-ed from Kristol fits right into that category.  

Here's a bon mot that made my jaw drop in disbelief this morning and wonder if we actually live in the same country or on the same planet:

"...as Sept. 11 did not result in a much-feared (by intellectuals) wave of popular Islamophobia or xenophobia, so the market crash has resulted in remarkably little popular hysteria or scapegoating."

Really?  Even though I have no statistics to definitely prove that the opposite is that case, I have heard enough anecdotal material to be astonished by Mr. Kristol's apparent lack of hesitation to make big sweeping statements like this and expect his readers to simply accept them as the truth.

As for the Islamophobia claim, apart from numerous reported cases of discrimination and hate crimes, it is clear that the country suffers from a serious and mostly unrecognized fear of Islam, most vividly displayed by the fact that the accusation the Barrack Obama is a Muslim is exactly that - an accusation.  And even those defending him are more focused on proving that he is not a Muslim than they are on the irrelevance of the claim.  It's amazing that it finally took Colin Powell to say the words that not even the most liberal supporters of Obama dare speak:  

“The really right answer is, what if he is? Is there something wrong with being Muslim in this country? No, that’s not America.”  

Tip of the hat to Andrew Sullivan for that one.  

As for the latter statement, has Mr. Kristol talked to anyone anywhere? Was he paying any attention at all when the bailout package was first turned down in the House because the members were bombarded by letters from their constituents infuriated by the idea of bailing out Wall Street, which they singularly blamed for the mess we're in?  So much for no scapegoating. 

As for no hysteria, not to belabor the point, but has he talked to anyone anywhere?  At work, I interview and survey businesses around the country constantly to understand various trends and most recently I have been on the phone with dozens of them talking about the impact of the slowing economy and the financial crisis.  While the real-time impact on current profits may not yet be catastrophic, business owners are extremely nervous; nervous, as in hoarding cash and not planning any major purchases for the foreseeable future.  My favourite example was a dentist in Iowa who decided not to purchase a piece of equipment for his practice because of the volatility on the stock market.  A dentist - one of the most economically resilient professions - in Iowa - pretty removed from Wall Street.  

So before making any more sweeping statements for international circulation, can Mr. Kristol do me a solid, get his head out of his ass and talk to, say, 5 people?  It may not be super scientific, but it's a good baby step in the right direction.

READ: Lessons - Follow Up

A few days ago I wrote about a greater need for integration of economics and psychology to understand (and prevent) situations like the current financial crisis.  On Friday, Ezra Klein had a similar post inspired by a New America Foundation event he attended.  Is behavioral finance the next big thing?

PLAY: What a Hike!

Today I did something rather unusual: I spent the day hiking in the Catskills. It was phenomenally beautiful and so nicely exhausting. The leaves are more colorful than your typical gay pride flag.

Below are my adorable fellow travellers- Kevin, Bryan and Brian.
Final note worth sharing is that the patron saint of the journey was Suze Orman by way of Kirsten Wiig. Inspired by this video, we spent the whole day talking in Suze-talk..
So. Good night. My. Dear. Readers.

READ: Goodbye and F---- You

Don't you sometimes wish you could just quit and write a letter to the whole world detailing everything that bugs the hell out of you?  Well, this guy did just that:

The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point?

I do often wander what keeps people who have amassed a certain fortune in this business.  I guess they can't imagine doing anything else?  

READ: At Least We Can Still Laugh

Times are bad and laughs are appreciated.

If you've watched CNN for more than 10 consecutive minutes any time in the last 6 months you have surely seen David Gergen, their senior political analyst.  I love the guy, unlike so many of the other pundits he's so calm and pleasant.  It was therefore amusing to come accross this profession of love to him by Jessi Klein at the Daily Beast.

But it got even better when Anderson Cooper, after asking him some serious political stuff on AC360 last night, surprisingly brought up the article, quoted it and showed a recording of her, again professing her love.  Again, maybe I'm deprived of humor but this gave me a chuckle or two.  

READ: And The Winners of This Election Are..

.. the writers of Obama's and McCain's speech at the Alfred E. Smith Charity Dinner.  Either my comedic threshold has sunk really low from obsessing about the election and the market or these speeches are actually pretty funny.

And speaking of comedy, CNN broke the news last night that Sarah Palin will be appearing on Saturday Night Live.  Is she smart enough to use it to her advantage, like Clinton did during the primaries?  Or will it be like the car crash that McCain's stint on that show was?  At any rate, she is probably the first politician to make it on SNL before hosting a press conference.  I am guessing Andrew Sullivan must be close to losing it.

READ: R.I.P. Good Times

It's one thing to see the data in the New York Times.  It's another to get an email which originated at one of the largest venture capital funds in the world with the following message:

"We are in a serious economic downturn and this is just the beginning. Immediate, decisive and swift action is required, along with frugal, day-to-day management of expenses and our business is required."

The email I am talking about details a mandatory meeting with a hudred CEOs where the following were some of the messages delivered while the conference room screen was apparently showing the image above:

We are in drastic times. Drastic times mean drastic measures must be taken to survive. Forget about getting ahead, we’re talking survive. Get this point into your heads. 

We are in the beginning of a long cycle, what we call a “Secular Bear Market.”

This is a global issue and not a ‘normal’ time.

There is significant risk to growth and your personal wealth.

A “V” shaped recovery is unlikely [√]

Cuts in spending will accelerate in Q4/Q1. Look at eBay—this is just the beginning.

This is a different animal and will take years to recover.

In other words, CEOs are being told to assume the business equivalent of the fetal position.  

This is a beast that feeds the beast.

READ: You Say Blah, I Say Blah

Perhaps the most frustrating element of the last debate (apart from watching John McCain twitch, smirk and roll his eyes) was how little the substance mattered since all the commentary before and after revolved around the candidate's demeanor. So much so that few people even noticed that McCain seems to confuse autism with Down's syndrome. I didn't either, at first.

So last night, instead of dissecting the debate right away, I played a little game with myself and I recommend that you play it, too. It's called "close your eyes and imagine." It's actually quite simple yet quite powerful. After the longest campaign in the history of the world, the 2 candidates are omnipresent; you can hardly go a minute without either hearing about them, reading about them or seeing them. However, we still think of them as candidates. So last night, I tried to forget about my biases, and my substantive policy views and tried to imagine what they would each look like as the President of the United States. How will they look addressing the American people especially in the time of crisis? How will they connect with world leaders especially those they don't like - and those they have offended in the past? How will they interact with those that disagree with them in the Congress - especially if both chambers end up being majority ruled by the other party? How will they deal with complex issues that transcend the simplistic dichotomy of left and right and that go beyond war and spending? After watching the candidates side by side in three debates, I cannot guarantee you who will do a better job with the economy or who will do a better job in Iraq. I do, however, have a fairly definitive answer who made me feel better during the "close your eyes and imagine" game. What was yours?

That said, why not have some fun with some highlights from the debate?

When asked about their VPs:

McCain: .. And, by the way, she [Palin] also understands special-needs families. She understands that autism is on the rise, that we've got to find out what's causing it, and we've got to reach out to these families, and help them, and give them the help they need as they raise these very special needs children.

Obama: .. I do want to just point out that autism, for example, or other special needs will require some additional funding, if we're going to get serious in terms of research. That is something that every family that advocates on behalf of disabled children talk about. And if we have an across-the-board spending freeze, we're not going to be able to do it. That's an example of, I think, the kind of use of the scalpel that we want to make sure that we're funding some of those programs.

McCain: .. But again, I want to come back to, notice every time Sen. Obama says, "We need to spend more, we need to spend more, that's the answer" -- why do we always have to spend more? Why can't we have transparency, accountability, reform of these agencies of government?

This exchange, apart from showing McCain's confusion of various special needs, revealed the internal lack of logic in McCain's disdain for government spending as a concept and Obama jumped on it perfectly. You can't promise to invest in certain initiatives and promise not to raise spending at the same time. Also, I wonder how much self control it took for Obama not to criticize Palin even a little bit.

McCain: Joe wants to buy the business that he has been in for all of these years, worked 10, 12 hours a day. And he wanted to buy the business but he looked at your tax plan and he saw that he was going to pay much higher taxes. You were going to put him in a higher tax bracket which was going to increase his taxes, which was going to cause him not to be able to employ people, which Joe was trying to realize the American dream.

Since when does being in a higher tax bracket cause people to not be able to employ people and since when is buying a business the American dream? McCain again fails to make a concise, logical and compelling argument about why higher relative taxes in US motivate companies to look for cheaper places to do business which, in turn, reduces employment in the US. This alone could be his key economic motto. No need to mention class warfare non-sense, fairness of taxes and redistribution of income. Just stick to jobs and people will get it.

McCain: I admire so much Sen. Obama's eloquence. And you really have to pay attention to words. He said, we will look at offshore drilling. Did you get that? Look at.

McCain's arrogance in this one is only trumped by his silliness. "Look at" is about as good a guarantee as either one of you can give us about anything at this point. If he is truly so concerned about words, this is one of the lesser offenses in the debate.

McCain: I would have, first of all, across-the-board spending freeze, OK? Some
people say that's a hatchet. That's a hatchet, and then I would get out a scalpel, OK?

Actually, no. A "hatchet" would be if you instituted an across-the-board cut. A spending freeze followed by a scalpel has the same end result as using a scalpel. Once again, it's just words, but he himself said we need to pay attention to them.

McCain: I know how to save billions of dollars in defense spending. I know how
to eliminate programs.

I think I also know how to eliminate programs. You write a law that cuts a program, pass it in the house and the senate, sign it and voila! Ignoring for a moment him being unlikely to pass anything in a democratic house and senate, dare I ask what programs?

McCain: Sen. Obama, I am not President Bush. If you wanted to run against President Bush, you should have run four years ago. I'm going to give a new direction to this economy in this country.

The commentators applauded this (He really needed to say that! was the line) as if (a) he said something novel (b) it mattered at this point. Hillary Clinton said it best "He's obviously not the same person" and I prayed to Gods of satire that she would just leave it at that; alas, she continued with "but he has voted with President Bush about 90 percent of the time."

Obama: .. the fact of the matter is that if I occasionally have mistaken your policies for George Bush's policies, it's because on the core economic issues that matter to the American people, on tax policy, on energy policy, on spending priorities, you have been a vigorous supporter of President Bush. Now, you've shown independence -- commendable independence, on some key issues like torture, for example, and I give you enormous credit for that. But when it comes to economic policies, essentially what you're proposing is eight more years of the same thing. And it hasn't worked.

Here Obama gets points not for stating why McCain is like Bush v 3.0 but because through all the antagonistic back and forth he manages to acknowledge something good in his opponent. He's tough yet graceful and gracious. He gives credit where credit is due.

McCain: And, Sen. Obama, when he said -- and he signed a piece of paper that said he would take public financing for his campaign if I did -- that was back when he was a long-shot candidate -- you didn't keep your word. And when you looked into the camera in a debate with Sen. Clinton and said, "I will sit down and negotiate with John McCain about public financing before I make a decision," you didn't tell the American people the truth because you didn't.

A reminder that is it possible for McCain to have a truthful and substantive criticism of Obama. Like one.

Obama: I think the American people are less interested in our hurt feelings during the course of the campaign than addressing the issues that matter to them so deeply.

Well put and a sharp contrast to McCain's insistence on Obama's repudiation of statements made by someone unassociated with his campaign.

McCain: By the way, when Sen. Obama said he would unilaterally renegotiate the North American Free Trade Agreement, the Canadians said, "Yes, and we'll sell our oil to China." You don't tell countries you're going to unilaterally renegotiate agreements with them.

Maybe right on substance but the condescending tone is hard to swallow.

McCain: Free trade with Colombia is something that's a no-brainer. But maybe you ought to travel down there and visit them and maybe you could understand it a lot better.

There are ways to look smart and more experienced than your opponent. This is not one of them. Again, when I close my eyes, how would this guy work with his opponents in the Congress?

McCain: .. as he said, his object is a single payer system. If you like that, you'll love Canada and England. So the point is...
Schieffer: So that's your objective?
Obama: It is not and I didn't describe it...
McCain: No, you stated it.
Obama: I just...
McCain: Excuse me.

Simply stated, that's a lie and huge embarrasment for McCain. And repeating a lie doesn't make it a truth or a smaller lie. It's still a lie. Done.

Obama: I just described what my plan is. And I'm happy to talk to you, Joe, too, if you're out there. Here's your fine -- zero. You won't pay a fine, because...
McCain: Zero?
Obama: Zero, because as I said in our last debate and I'll repeat, John, I exempt small businesses from the requirement for large businesses that can afford to provide health care to their employees, but are not doing it.

Obama makes a strong substantive point and McCain's "Zero?" which starts out as another sarkastic jab, quickly transforms to disbelief. As in, he can't believe that he fucked that one up so badly.

McCain: Hey, Joe, you're rich, congratulations, because what Joe wanted to do was buy the business that he's been working for 10-12 hours a day, seven days a
week, and you said that you wanted to spread the wealth, but -- in other words, take Joe's money and then you decide what to do with it. Now, Joe, you're rich, congratulations, and you will then fall into the category where you'll have to pay a fine if you don't provide health insurance that Sen. Obama mandates, not the kind that you think is best for your family, your children, your employees, but the kind that he mandates for you.

Here I just gave up. McCain was either having a mental breakdown or he was trying to make a point that was so complex that I just didn't get it. Perhaps avoiding tripple sarcastic negatives would help clear that one up for all of us.

McCain: I would consider anyone in their qualifications. I do not believe that someone who has supported Roe v. Wade that would be part of those qualifications.

Quite simple: McCain would not pick a supreme court judge based on their views. He would look at their qualifications. And someone of the view that Roe v. Wade was right is unfortunately just not qualified! Well done, John. It turns out you can have your cake and eat it too.

McCain: Just again, the example of the eloquence of Sen. Obama. He's health for the mother. You know, that's been stretched by the pro-abortion movement in America to mean almost anything. That's the extreme pro-abortion position, quote, "health."

Yes, women, you and your, quote, health. It's about time you dropped it!

Obama: Well, we have a tradition of local control of the schools and that's a tradition that has served us well.

Finally Obama trips. If it has serves us well, why are talking about changing it?

McCain: We have to stop the spending.

Another one where words are just pure semantics. We have to stop the spending. Huh? Stop what spending and why? Is there any reason to say this other than that it sounds good?

READ: Are We Done Yet - Update

For a moment it seemed like my prediction of further challenges ahead was, in fact, picking the bottom of this mess.  Surely everyone rejoiced on Monday when the market saw the largest point increase ever.  Alas it turns out we are indeed not done.  Surely enough, the news is now coming out about the real economy going down, the market is down some 5%, and I think it is likely to be worse in October since the downturn probably accelerated in the back end of the month which means more bad news can be expected.  

So for those that saw Monday as a huge relief, hold it.  On a related note, this chart helps put Monday's gain in perspective and demonstrates an interesting point.  Namely it shows that the largest % gains in history occured during the depression which isn't necessarily to say that we are experiencing a second great depression.  Instead it helps to point out that large gains should not be interpreted as a guarantee of things getting better.  

READ: Lessons

As I go into work every day fearful of what will happen next, I am truly envious of scholars in just about every branch of academia. Instead of worrying about the impact of this crisis on their livelihood (unless they invested their retirement savings in the stock market, oops), they benefit from the endless material that a spectacular meltdown like this provides for further study and analysis. Those in finance and economics are reconsidering how we think about risk (and some are being propelled from the outskirts of economic theory right to the forefront); political scientists are exploring the role of the government and regulation in causing, preventing and resolving situation like this; sociologists can study the impact of the decline in the housing market on communities around the country. In other words everyone worth their academic post can find something in this mess worth pondering about, at least for a few moments.

However, while we're still deep in the middle of it all, I can also see how it is incredibly demoralizing to some: Markets are supposed to be perfect.. Regulation is supposed to prevent this.. 10% drops and gains in the stock market are supposed to be extremely unlikely.. People are supposed to be rational. In other words, imagine your whole professional life is predicated on certain assumptions and overnight those assumptions turn out to be shaken, if not crumbling down. A perfect case in point is this blog entry:

We should ditch the assumption - which in a sense is mere courtesy - not only that others are rational but even the weaker assumption that they are nearly so. Perhaps we should indeed regard them merely as “empty suits.”

Apart from making that substantive point about ditching a widely-held assumption, I was quite moved by the sense of helplessness and confusion embedded in the final words of that entry:

All of which leaves me genuinely puzzled. Were banks risk managers really that bad? Are bosses an order of magnitude stupider than even I had thought? Or is something else happening? Help me.

I can relate to this sense of confusion, anger and frustration. I encounter it quite often in my job: when common sense logic and endless analytical work is telling you one thing and the market is telling you the complete opposite. When you spend days, weeks, months and sometimes years being right about something fundamentally but still lose money in the market. Problem is that quite often the market is not driven by logic or common sense, but rather by pure emotion. It can be anywhere from humbling to outright insulting to see that your analysis is correct albeit sometimes completely irrelevant.

Market fundamentalists often respond to this observation by saying that eventually, in the long run, the market gets it right - emotions give way to underlying fundamentals and the prices correct. However, that long run can be painfully long, especially for those who are evaluated on their daily, weekly, monthly, quarterly and - if they're lucky enough to be still around - annual performance. (Which is why people often find it easier - and more lucrative - to predict emotions rather than to predict fundamentals, but there I really digress.)

So how is that related to the frustration expressed in the blog post and this meltdown? Perhaps the answer to the deep questions underlying this whole crisis cannot be found in any one of the academic fields I mentioned above because all of them either simplify or altogether ignore the role of psychology and the human element in their analysis. In other words, the assumption that people are rational is not necessarily flawed; maybe people are just much more complex that we give them credit for in standard economics analysis and until we can somehow break down the artificial barrier between economics and psychology we will never quite get it.

Surely enough, this idea is not at all novel. In its origins, classical economics was indeed quite interested in understanding the link between human psychology and economic decision-making and more recently there has been a resurgence in behavioral finance and economics. However, much like the idea of a Black Swan, it sits very much on the fringes of academia. Perhaps thanks to this situation it will finally get more respect and airtime in those Econ 101 classes.

Until then, I have found myself a new interesting read which may contain some good insights applicable to this situation: Almost Certain Loss: The Psychology of Pyramid Schemes.

PLAY: Chicago Marathon + Will it Stick?

elite men at mile 2

In our most recent running-related adventure, Cenk and I flew to Chicago last weekend to watch a marathon we were originally supposed to run. It was my first time in Chicago and I was quite impressed - by the architecture, landscaping and natural setting, at least.  Here are some of photos I took.  While I continue to be uninterested in the incredible and torterous routine of marathon training, watching from the sidelines surely inspired me to start running again.  And indeed, this morning I woke up to do just that.  As I was sitting in the office, I couldn't decide what was making me happier - the heavy doses of endorphins flowing through my veins or the market making the largest up move ever.  As a side note, like Fox over at Time, I am not sure it can stick.

READ: Are We Done Yet?

When people who are normally completely uninformed about the market start talking about it and asking me about my fund's performance it is a sign of how bad things are.  Indeed, unless you've been living in an underground shelter, you know that the market has been dropping like a rock.  So what's the 411?  Well, by at least one measure I have no reason to complain - I still have a job.  Other than that, every day feels like a new chapter in some unlikely science fiction novel.  If you think Lehman going out of business is big and sad news, imagine your whole country going bankrupt.  One day you may be stunned by a $700 billion bailout in the US, but only until you find out the UK - with a much smaller economy and banking system - is ready to plow 500 pounds to rescue it's system (albeit with significantly less politicking and posturing).  

So, are we done yet?  Can it get any worse?  In short: yes, it can.  

The next shoe to drop will be a precipitous drop in consumer spending.  We already saw hints of this in the August consumer credit report, that is before we even saw the true nature of the credit beast unravel during the events of September.  The 29% drop in car sales in September gives us a slightly more accurate view of the more recent trends, but even that probably doesn't fully capture the massive shake up in consumer confidence that has occured in the second half of September and early October.  Why does any of this matter?  Until now, the actual economy hasn't really suffered that much - we have yet to see a quarter of negative GDP growth and unemployment is still in single digits.  People are still holding on to the illusion that this is no Great Depression.  However, with a drying up in consumer spending, that could change very quickly.  Remember that in the last few recessions, it was the continued strength in consumer spending that has buffered the downturn in the economy - even if at the time we didn't fully appreciate the extent to which that was probably supported by a dramatic expansion of consumer credit.  

Then just when the consumer drop becomes apparent we may potentially be served with more news from the banking industry.  Part of the reason why all the recent liquidity measures have seemingly not done much to unfreeze the flow of credit is the growing suspicion that liquidity - while being part of the problem - is not the core of it.  Felix Salmon makes an interesting point to consider:

There's an evolving consensus that we're no longer seeing a liquidity crisis, but rather a solvency crisis. Banks don't just lack cash; they're fundamentally insolvent, with their assets (things like mortgage-backed bonds) worth less than their liabilities (including their deposits). Improving liquidity, through rate cuts or swap lines or discount windows or buying unsecured commercial paper or any other means, can no longer get us out of our present hole. What we need is a recapitalization of the banking system.

The government is slowly realizing this however can it act fast enough - given that only 2 weeks ago they claimed that buying up toxic assets from banks was the only plausible solution?  And what if - in the process of recapitalizations - it turns out that the problem is much bigger that we can, even globally, afford to pay?  Consider what this article says about credit default swaps - the financing instrument du jour - which dwarf the subprime mortgage problem:

So here is a global private market whose products, combined, have a nominal value roughly equal to the total size of the world economy’s output in a year, and apparently no one in any government knows the full market’s shape, distribution, or true vulnerabilities. Gulp.

Last time I wrote about this distaster, after the failure of the bailout package in the House led to a 777 point decline in the DOW, I was worried about what all could happen before it's finally passed and implemented.  Indeed, by the time it was approved, it was almost a moot point as it became clear that the rest of the world in even deeper trouble than the US and that the US employment saw a sharp drop.  5 different steps by the Fed later, it feels like we are perpetually 2 steps behind and 2 days too late.  

Let's just hope we're not a few trillion too short.

READ: The Debate Hitlist

Here's my hit list from tonight's debate:

1.  In a rather unexpected and surprising turn, McCain will instruct the treasury secretary to buy up the bad mortgages.  Apart from being drastically removed from the fiscal conservatism that McCain is supposed to represent (whatever happened to small government?), it is yet another demonstration of his scattered unfocused risk-taking personality. For an idea of that magnitude (it would probably dwarf the $700 billion bailout), it is quite shocking to hear about it for the first time in the middle of a debate. Maybe McCain will also throw in a car, the fiscal conservative he is.  YAY!  Don't worry, it will be a hybrid!  Because today..

2. McCain is in favor of alternative fuels: wind, solar, "all of the above", which is the McCain speak for "bla bla bla".  Or simply [insert whatever sounds good, right now].  Sadly, his record speaks differently.

3. Medicare will not be easy to fix.  Which is why McCain wants to set up a commission on Medicare comprised of experts who will study it and come up with recommendations to solve the fiscal Armageddon that no one talks about.  A commission that studies Medicare payments?  Maybe something like MedPAC?  Well, it already exists.  Incidentially, McCain failed to mention a little detailed reveled by his campaign 2 days before the debate - that he is planning to cut Medicare by $1.3 trillion.  While that, in and of itself, is not necessarily bad, I have to ask - is McCain even aware of this plan?

4. "You know who voted for it?  That one!" will be remembered as this election's equivalent of Gore's loud sighs in 2000 and Bush senior's looking at his watch in 1992.

5. "American workers are the best in the world."  And that is why employers are tripping over themselves exporting jobs to China and India.  Americans are just too good for them.  

Obama's hitlist will be posted tomorrow.

PS. My projection - Obama won and will strengthen his lead.