MAY 2008
5/31/08 Coming Late to the Table, Bob Herbert, NY Times.
The war in Iraq is a scandal and a crime. Scott McClellan is a little
late to be blowing the whistle on this outrage. Mr. McClellan is being
denounced as a traitor by those who readily accept the culture of
deception, and who believe that a government official’s primary loyalty
is not to the people, but to power itself — in this case, to the
president. It’s exactly that kind of thinking that begets unnecessary
wars. Comment: There should only be a conflict between serving
the official and the people when the official deviates egregiously from
serving the people.
5/31/08 Blair Charity to Enlist Religion as a Positive Force, NY Times. Tony Blair,
the former prime minister of Britain, formally unveiled plans in New
York City on Friday for an ambitious new charity that he hopes will
enlist religion as a force for economic development and conflict
resolution by supporting religious leaders working to counter extremism
within their faiths. Mr. Blair recently converted to Catholicism, from
Anglicanism, but dates his religious awakening to his student days at
Oxford. The foundation will start with a campaign to
eradicate malaria by distributing mosquito nets. Mr. Blair was
officially an Anglican, but attended Catholic Mass with his wife,
Cherie. British prime ministers have traditionally belonged to the
Church of England (with the exception of Benjamin Disraeli, a Jew). Comment:
An important and timely mission. Actually, Benjamin Disraeli was
baptized at 12 and was raised by his father Isaac as an Anglican.
5/30/08 John McCain's Gramm Gamble, Patricia Kilday Hart, Texas Observer, In
the early evening of Friday, December 15, 2000, with Christmas break
only hours away, the U.S. Senate rushed to pass an essential,
11,000-page government reauthorization bill. In what one legal textbook
would later call “a stunning departure from normal legislative
practice,” the Senate tacked on a complex, 262-page amendment at the
urging of Texas Sen. Phil Gramm. Gramm promised that the amendment—also
known as the Commodity Futures Modernization Act—along with other
landmark legislation he had authored, would usher in a new era for the
U.S. financial services industry. “The work of this Congress will be
seen as a watershed.” Gramm said. Watershed indeed. Financial wizard
Warren Buffett has labeled the risky new investment instruments Gramm
unleashed “financial weapons of mass destruction.” They have fed the
subprime mortgage crisis like an accelerant. While his distracted peers
probably finalized their Christmas gift lists, Gramm created what Wall
Street analysts now refer to as the “shadow banking system,” an
industry that operates outside any government oversight, but, as
witnessed by the Bear Stearns debacle, requiring rescue by taxpayers to
avert a national economic catastrophe. While the nation’s investment
bankers are paying a heavy price for their unbridled greed (in billions
of dollars of write-offs), Gramm has fared quite nicely. He currently
serves as a vice president at UBS AG, a colossal, Swiss-owned
investment bank, the post, no doubt, a thank you for assiduously
looking out for Wall Street interests during his 23 years in public
office. Now, with the aid of his longtime friend Arizona Sen. John
McCain, Gramm may be looking at a quantum leap in power and influence.
Gramm serves as co-chair of the McCain 2008 presidential campaign. As
one of the candidate’s chief economic advisers, he is mentioned as a
possible secretary of the treasury in a McCain administration. Their
friendship was forged in the Senate as they worked against the Clinton
health care proposal, and cemented when McCain served as national
chairman of Gramm’s own (ill-fated) 1996 presidential bid. Comment:
Gramm was the leader in the teardown of the Glass-Steagall wall between
regulated banks and investment banks that opened up the disastrous
CDOs, SIVs and RMBSs that produced today’s soaring foreclosure rates.
The connections between him and McCain are frightening.
5/29/08 Falling Out with the President: the Devious World of George Bush, Rupert
Cornwell, Independent (UK). Scott McClellan, White House press
secretary for George Bush between 2003 and 2006, has delivered the most
wounding critique yet of this unhappy administration by one of its
erstwhile senior officials. What Happened: Inside the Bush White House and Washington's Culture of Deception
is a 341-page disquisition on Mr Bush, on his misbegotten war in Iraq,
and on his entire conduct of the presidency, which Mr McClellan says
was built on the use of propaganda, and on the technique of government
as permanent campaign. "History appears poised to confirm," he writes
in arguably the most damning paragraph of a book full of them, "that
the decision to invade Iraq was a serious strategic blunder. … [W]ar
should only be waged when necessary, and the Iraq war was not
necessary." More. Comment:
The British have done a better job than the United States separating
governance from politics. U.S. governance failures in 2000-2008 have
been tragic and McClellan shows the problem mindset.
5/28/08 Diplomacy Isn't Appeasement,
Spenver P. Boyer, The Root. "It's always sad to see those who have
blundered egregiously defending their mistakes to the bitter end –
hoping that forceful repetition of erroneous arguments will somehow
make up for what they lack in wisdom. We have seen this tactic
throughout the failed presidency of George W. Bush, especially
regarding his disastrous choice to invade Iraq. Bush's most recent
defense of the indefensible was his outrageous comparison of those who
would talk with the government of Iran and radical groups to Nazi
appeasers. Despite White House denials, everyone recognized Bush's
remarks as a swipe at Sen. Barack Obama, who says that the United
States should be willing to talk to its adversaries." Click here for more. Comment:
I recently received an email with a photo of a mushroom cloud and the
comment "never again". This was supposed to be an anti-appeasement
appeal for Americans to be tough with Iran, i.e., be ready to do the
shock and awe thing again. The trouble with this piece of propaganda is
that the last two times nuclear bombs were dropped was from U.S.
planes. "Never again" should mean U.S. support of nonproliferation,
which Dubya is supporting only at the 11th hour. The last word on this
is: "Jaw, jaw, jaw is better than war, war, war," from famed Nazi
appeaser Winston S. Churchill.
5/22/08 How Bad Will NYC's Economy Get? History Has Some Answers, AM New York. The
city has seen epic economic downturns before. If indeed we can turn to
the past to help understand our present meltdown, it may be best to
engage in a little bit of 1980s nostalgia. "There have been four
distinct downturns since the 1970s and the one that seems most similar
to this one is the S&L crisis in 1987," said Rae Rosen, assistant
vice president and economist at the Federal Reserve Bank of New York.
That meltdown began with the jarring stock market crash in October
1987, and lasted into the early 1990s, spreading from Wall Street to
Main Street, and crippling the city's real-estate market. The 1980s
meltdown was known as a "white-collar recession," because it broke the
trend of economic cycles that used to rise and fall on manufacturing.
The pattern today is very much along those lines. The city lost 350,000
jobs during that period, far more than the number predicted to
disappear this time. However, in a note of concern, the city's economy
is far more reliant today on the fate of Wall Street, where most of the
cuts are happening – so far. Wall Street employment makes up about 5
percent of the workforce but about 25 percent of all wages earned; that
figure was only 9 percent in the early 90s. Comment: The
October 1987 stock-market crash affected New York City more than the
nation, which didn’t go into recession until 1989. The low point for
NYC jobs was October 1992 (the month I was first appointed Chief
Economist in the Office of the NYC Comptroller in what turned out to be
a 13-year stint over five administrations). Using annual data, NYC's
economy didn’t turn around until 1993.
5/19/08 McCain Reported to Have at Least 118 Lobbyists Working for His Campaign, Progressive Media USA Research. The
individuals identified in the following chart are current or former
lobbyists who either (1) serve as fundraisers for McCain's campaign or
are (2) senior aides or advisers. To date, three lobbyists have
resigned their role due to conflicts of interests: Eric Robert Burgeson, Douglas B. Davenport, Thomas Loeffler. Comment:
The list doesn't include Doug Goodyear, a PR consultant who was
appointed by McCain to run the GOP Convention but resigned when his
previous consulting work for the Myanmar junta was publicized.
5/16/08 Vallejo Rejects Unions' Contract Proposal, San Francisco Chronicle. Vallejo, Calif., rejected their unions' offer to take $10 million in salary cuts in the coming years, as the school district warned of the problems created by the city's plans to file for bankruptcy. Comment: Vallejo has put itself into play. That can be a difficult place to be.
5/15/08 Rising Estimates of Burmese Dead, Missing and at Risk, New York Times. The Myanmar government puts the number of dead and missing at 66,000 and the UN estimate is close at 60,000 plus. (The UK Foreign Secretary expects the toll to exceed 100,000.) The International Federation of Red Cross and Red Crescent Societies has hiked its estimate to a range of 69,000-128,000. Meanwhile the midpoint of the ranges of estimates for "severely affected" Burmese, i.e., those at risk, has jumped from 1 million to 2 million. The percentage of those in need of humanitarian aid that have been reached so far is estimated at about 13 pecent (AP - 270,000 out of 2 million), 25 percent (UN estimate) and 30 percent (a relief coordinator). Comment: Shocking reports are coming back that Myanmar military personnel are warehousing or diverting aid, sometimes replacing aid with inferior products.
5/14/08 Banks' Subprime Mortgage Exposure, Fitch Ratings (access requires free registration). Subprime mortgage‐related losses can vary from a low of $400bn to a high of $550bn depending on the estimation method. Fitch believes the lower estimate is more appropriate though sensitive to assumptions on underlying loss rates. Approximately 50 percent of total subprime mortgage‐related losses, $200bn, are estimated to reside within the banking sector. The balance is distributed among financial guarantors, insurance companies, asset managers and hedge funds. To the extent that institutions have hedged their exposures with financially sound counterparties, these loss estimates may be over‐estimated. Reported losses by banks at $165.3bn indicate that more than 80 percent of losses stemming from ABS‐CDO and subprime RMBS exposures have been disclosed. Comment: These numbers are in line with the original estimates last fall by Royal Bank of Scotland and Deutsche Bank. Fitch is only reporting here on Residential Mortgage-Backed Securities and the Asset-Backed Securities form of Collateralized Debt Obligations. Credit Default Swaps open up another avenue of exposure (hybrid ABS-CDS obligations could be classified either way).
5/13/08 Two Lobbyists for Dictators Have Left McCain's Campaign, Three More Still There, Cliff Schechter, Huffington Post. Over the past two days, two McCain aides have resigned because of their public relations work for the Burmese Junta. Turns out he has other lobbyists for unsavory clients. Comment: It's amazing what can be found underneath a rock.
5/13/08 Senate Finance Grapples With Tax Code Overhaul, Congressional Quarterly Today Midday Update. Senate Finance Chairman Max Baucus (D-Mont.) today sought bipartisan agreement on tax legislation for the next Congress. He said the income tax base is “falling apart”. Witnesses said the country could benefit from a tax system that is simpler, broader-based, with lower rates and more uniform rules. Comment: Worthy goals and not too soon to be pursuing them.
5/13/08 Rep. Frank Seeks to Pass Bill Offering Aid to Howeowners Facing Foreclosures, NY Times. Representative Barney Frank, chairman of the Financial Services Committee, has been trying for two months to win Republican support for his bill to help homeowners at risk of foreclosure. “The notion that this bill doesn’t keep people out of foreclosure is true,” he said. “It doesn’t combat global warming. It doesn’t get troops out of Iraq. It won’t help me lose weight. There are a lot of things this bill won’t do that I very much want to do. What it does is go to the aid of cities that have been victimized.” Comment: The Mortgage Bankers Association has put up a fund for counseling homeowners and is providing assistance to cities to help anticipate new foreclosures. But the multiple burdens created by the onslaught of new foreclosures is more than cities can handle.
5/13/08 Vallejo City Workers Offer to Cut Pay, San Francisco Chronicle. Seeking to head off a city bankruptcy that would suspend their union contracts, Vallejo's police, firefighters and other employees offered to cut their salaries 6.5 percent for a year and give up raises totalling 11 percent for the next two years. The City Council voted last week to file for Chapter 9 bankruptcy following predictions by city staff of imminent insolvency. Desert Hot Springs (Riverside County) went into bankruptcy in 2001. Orange County did the same in 1994 after $1.6 billion in investment losses. Both emerged from bankruptcy after resolving the debts and adopting financial reforms.
5/12/08 Is Vallejo's Use of Chapter 9 a Portent for the Future?, San Francisco Chronicle. When Vallejo, Calif., filed for bankruptcy under Chapter 9, it was addressing a problem that many other local governments have - contractual obligations (to its own employees and retired employees) that they can't pay for. It could be a test case for these other governments. "There's a wave of this coming across the U.S.," avers one consultant. Comment: Public employees are famously organized. There are interesting legal and political issues as sacrosanct public-employee contracts are weighed against ability to pay in bankruptcy proceedings. Vallejo proceedings will be closely watched.
APRIL 2008
4/9/08 High School Seniors Fail at Finance, AP. Young people's financial know-how has gone from bad to worse. High school seniors, on average, answered correctly only 48.3 percent of questions about personal finance and economics, according to a nationwide survey paid for by the Merrill Lynch Foundation and released today by the Federal Reserve. That was lower than the 52.4 percent in the previous survey in 2006 and marked the worst score out of the six surveys conducted so far. Comment: To what extent are Wall Street's problems the result of financial ignorance? Financial misjudgments at the securitization (CDOs etc.) end were made by supposedly sophisticated financial experts, so the ignorance goes high up the skill spectrum. The abandonment of standards at the mortgage origination end resulted from deliberate decisions by financial institutions (e.g., not checking with the IRS on incomes). But it also depended on ignorance on the part of borrowers about such details as the implications of interest-rate step-ups for monthly payments. It's unacceptable that what young people know should be declining when Washington has been seeking to provide Social Security beneficiaries with nore discretion over how their funds are invested.
4/8/08
Why Bear Stearns Failed and Why Lehman Is In Trouble, David Einhorn. Bear Stearns failed because it was over-leveraged, a predictable consequence of the way that employees were compensated and how risk was measured. In this case it had little to do directly with CDOs. Lehman is in the same situation and may need the same aid. The victims are investors as well as employees. The problem areas are risk management inside investment banks/hedge funds and the monoline insurance companies, the rating agencies' lack of investigation, and a vacuum in regulatory oversight for the financial industry. Comment: This is a well-argued case for a clear diagnosis of Wall Street's underlying malady. Text of Einhorn's speech to Grant's Interest Rate Observer Conference is here.
| MAY 2008
5/28/08 (Blogspot). Outlook for the NYC Economy, Independent
Budget Office. The New York City IBO predicts in a mandated report dated May 20
and released at the end of the week, 33,000 jobs for NYC bankers and financiers
will disappear by mid-2009. These losses come on top of what Bloomberg news
estimates as 83,000 financial-company layoffs worldwide since July 2007. NYC
alone has lost about 10,000 financial-service job losses August 2007, 3.5
percent, according to the BLS. Bear Stearns is laying off 9,159 people,
two-thirds of its pre-demise total. Citigroup is laying off 15,900 workers
worldwide, a 4 percent reduction. A table of cuts from the NY Post is here.
Comment: NYC's economic dependence on Wall Street has periodically been
bemoaned, but as Wall Street productivity increased, revenues and income
(including bonuses) per Wall Street worker have been rising steadily with other
industries not replacing these jobs.
   5/23/08 (HuffPost) Free
Biking in Paris. May is
Bike Month NYC, according to Transportation Alternatives, so
it's a good time to report on a trip up and down the Seine with my wife Alice
using the Velib' ("Velo-libre" or "free bike") system. This
is the less-than-a-year-old brainchild of the socialist Mayor of Paris,
Bertrand Delanoe. Paris has more than 230 miles of well-marked cycling lanes
and the Velib' has been a big success with more than 20 million trips as of
this month, or 70,000 trips per day. At this pace, by the first anniversary on
the day after Bastille Day, July 15, the Velib' will have attracted an amazing
25 million trips. To add our two more trips to the counter, we first buy a
Velib' map, sold at any newsstand. The Google map of Paris has its green arrow
pointed exactly to where we decide to join the Seine from the north. We decide
to start with the bicycle route on the north (right) bank of the Seine headed east,
ride this until the Seine-side bicycle path ends (it goes north), then cross
over the Seine and take the bicycle path west on the south (left) bank to the
Branly Museum. Our trip has some lessons for New York City.
 5/20/08 (HuffPost) The Iraq Crusade Is a Recruiting
Sergeant for Bin Laden. Soon
after President Bush swore his support of Israel before the Knesset, Senator
McCain questioned whether Senator Obama fully appreciates the threat from Iran.
Bush and McCain are double-teaming Obama, defining themselves as hawks, with
the implication that Obama is an appeasing dove. Sorry, but this picture
doesn't fit the actual history of the Iraq war. The right contrast to make is
not that Bush and McCain are hawks and Obama is a dove. The right contrast is
that they are cuckoos and he is an owl.
5/20/08 (Blogspot) McCain's Posse of Lobbyists. The junta in
Myanmar has been taking its sweet time about getting help to the victims of the
cyclone. Humanitarians they are not. A big surprise was that the Arizona PR
firm head that Senator McCain appointed to run the GOP Convention did
substantial work for this bunch, Doug Goodyear. He had the wisdom to resign
when the information was publicized. Now we find that lobbyists are all around
McCain - he has or had at least 118 of them working on his campaign, according
to Progressive Media USA Research. Click on the link below for details. The
individuals identified in the linked chart are all current or former lobbyists
who serve as fundraisers for McCain's campaign or senior aides or advisers. To
date, three lobbyists have resigned their role due to conflicts of interest:
Eric Robert Burgeson, Douglas B. Davenport, Thomas Loeffler. The list doesn't
include Goodyear. Link to lobbyist list.
5/15/08 (HuffPost) Nazi Photo Exhibit in
Paris, In
Paris last month my wife Alice and I chanced to walk past the Paris Historical
Library and discovered housed in its basement through July an exhibit
("Les Parisiens sous l'Occupation") of Nazi propaganda photos of
Paris life. The exhibition is completely new because the photos of Vichy-era
Paris were in the files of a Nazi magazine, Signal, that were only recently
opened. The photos by André Zucca are uniquely in color because no one in Paris
but the Nazis could get color film in the war years. Here are some sample pictures. While the sight of Nazi troops parading in
the streets is chilling, even more upsetting are photos of Paris life seeming
to go on as usual. Can we bring this to New York City (with some balancing
photos to show the reality of life in Paris)?
5/14/08 (Blogspot) Site Values in NYC and
the Genius of Bill Vickrey. The Federal Reserve Bank of New York has performed a
service showing that CoStar data can be used to generate
estimates of land value over time and across an area. Three Fed staffers
(Andrew Haughwout, James Orr and David Bedoll) calculated average land values
per square foot in the New York City area. The average rises sharply from
$47/sf in 1999 to $89/sf in 2001, soaring to $366/sf in 2006. Prices are
highest in mid-Manhattan and fall off as a property is more distant from the
center. Most interesting to me is that site value taxation was at the heart of recommendations for New York City presented at NYC economic hearings in 1993
by Columbia Prof. William Vickrey, who was awarded the Nobel Prize in Economics
in 1996. Vickrey’s ideas faced practical implementation problems 15 years ago.
Today, the obstacles are more political. If NYC evolves toward rationality it
will follow more of Vickrey’s recommendations. It was part of his genius to
know that technology would in due course catch up to his brain. The NY Fed has
helped move this process along.
5/14/08
(HuffPost) Burma's Criminal Malign Neglect. Burma is making China look like a world leader on human rights.
The troops in China are moving out in force to help Chinese eathquake victims,
while in Burma the troops have blocked the way to relief from the devastation
of the Nargis cyclone. Now, 11 days since the cyclone, British Foreign
Secretary David Miliband told the BBC today that the junta was guilty of "malign neglect" and that
he would be amazed if 100,000 Burmese have not already died, with
"hundreds of thousands" more at risk of starvation and disease. He
says that a natural disaster is turning into a "humanitarian catastrophe
of epic proportions". Afraid that epidemics may already be starting,
relief agencies have thrown themselves into the logistics of the enormous
challenge, especially in the Irrawaddy Delta, only to find soldiers blocking
their way at the behest of the Burma's ailing xenoparanoid dictator, Senior
General Than Shwe.
5/11/08 (HuffPost) McCain and Myanmar. Senator
John McCain told Katie Couric that Myanmar has "a very bad government" and that the
United States should "ask the other countries in the region as well as
China" to "really put some pressure on the junta" to accept
humanitarian aid for cyclone victims. The Burmese junta is worse than
"very bad" – in its lack of response to the cyclone disaster it is murderous
of its own people. And so far as putting pressure – McCain's first major
appointment upon winning the Republican nomination for president was Doug
Goodyear, an Arizona PR consultant with just one foreign client... Myanmar.
Goodyear's firm attacked Bush administration reports of "deplorable"
human rights abuses in Myanmar, describing them as "falsehoods".
Within hours of the Newsweek scoop on Saturday, Goodyear wisely resigned from his McCain assignment.A YouTube post summarizes the story and concludes with a photo of McCain and the
voiceover: "It's about a lack of judgment."
APRIL 2008
4/5/08 (HuffPost) Survey: "19% Say USA on Right
Track." Who ARE These People? The lead NY Times story yesterday
is headlined: "81 Percent in Poll Say Nation Is Headed on Wrong
Track" and the first paragraph tells us this is the highest number since
1992 poll (this Times/CBS News poll was first conducted in 1991) and way up
from the 35 percent figure in 2002. Hmmm... (1) The last time four-fifths of
the nation was so negative about the future of the United States was in the
last year of the presidency of Bush 41. (2) The percentage of people generally
happy with the direction of the country has been steadily declining during the
presidency of Bush 43. |
