Saturday, December 20, 2008

The Real Lesson for Madoff's Chosen People

As Bernie Madoff sits in his Upper East Side apartment ordering take-out, the rest of the Jewish world is reading, writing, watching, listening to, and forwarding emails, blogs, letters, articles, editorials, and commentaries regarding the lessons to be learned from his now-notorious Ponzi scheme.

Facts are emerging at a snail's pace but the opinions are flying around like Weatherbeater at a paintball match. Due to my intense interest and involvement with pretty much all things Jewish, I am in the path of most of them. Here is a brief accounting of the issues in no particular order except I'm saving what I consider to be the most important for last.

I have received and (since I chair two Jewish organizations myself) have written letters to donors, employees, clients, and volunteers to make sure they know that Agency X had no money invested with Madoff. Depending on the organization, this was due either to conservative investment policies, due diligence, or dumb luck.

A few of my friends have written or forwarded emails bemoaning the fact that the Madoff affair has brought the anti-Semites out of the woodwork again. This link will send you to one article:

The Anti-Defamation League (ADL) said there had been "an outpouring of anti-Semitic comments on mainstream and extremist Web sites."

"Jews are always a convenient scapegoat in times of crisis, but the Madoff scandal and the fact that so many of the defrauded investors are Jewish has created a perfect storm for the anti-Semites," said Abraham Foxman, ADL national director.

Some friends have sent emails making sure I know how embarrassing it is that Madoff is Jewish. Others have voiced their disgust over the fact that Madoff stole money from fellow Jews and Jewish charities.

Those friends and the ADL have a point, but they should try to get past their fears. This is a sad, even tragic, occurrence. But no one has become a Jew hater over this and there is no one left for us to feel embarrassed in front of other than ourselves. We live in America in 2008--Thanks God.

Meanwhile, no one has talked much about what I consider to be the most fascinating statistic--that almost all the victims Madoff personally recruited were Jewish and, despite the numerous warnings and red flags, most of them stuck it out until the very end. Madoff did have institutional clients who were brought in by hedge fund managers but most of the individual investors and foundations were people he met at all-Jewish clubs or through charities where he was personally involved.

These customers represent a small minority of American Jews but they are unique in their wealth, their influence, and their visibility as leaders of legacy Jewish organizations. They were attracted to Madoff because he came highly recommended by other wealthy, highly-regarded members of the community. In addition, a big reason they felt they could trust Madoff so completely was that he was one of us--he was a Member of the Tribe (MOT).

I use that term advisedly and for a reason because, thankfully, it is a phrase that an an ever-shrinking number of Jews in America would use to describe themselves. It reflects an approach that served and sustained American Jews well for decades as our parents fought to break down discriminatory barriers and to have full access to every opportunity, job, school, neighborhood, and country club in the U.S.

I became attracted to and ultimately immersed in the organized Jewish community because it felt so good to be part of it all. I have chaired my Federation campaign, Israel Bond campain, the boards of two community Jewish day schools, and donated more money to Jewish causes than I am worth today.

My mentors and role models were people who lived through times when there was real anti-Semitism and a big chunk of the American dream was off-limits to our people. It was a battle that needed to be fought.

The good news is that we won. And because we did, our generation and our children are full participants in everything this great country has to offer with a range of choices and options that our parents and grandparents couldn't possibly begin to understand. Ironically, many Jewish clubs (like the ones where Madoff was a member and sought his prey) and some of our day schools are still among the relatively small number of institutions that remain restricted in our country.

As times have become better for Jews in America, the tribal part of being Jewish has become a liability as well as an asset.

We now live a world where, according to a recent survey, 44 percent of Americans say they have changed their religion at least once during their lifetime. A generation ago, nobody changed religions--we were born Jewish or Christian and we stayed that way and married that way whether we liked it or not. A few generations before that, most people never moved more than a few miles away from their birthplace and they usually took on the occupation of their fathers.

But now, for the first time in history, American Jews have unlimited choices. We are free to marry whomever we want and live, work, and go to school wherever we want. Most Americans are taking full advantage of this amazing range of new choices. The MOTs wring their hands and call it assimilation. The rest of us are thrilled to be so free.

The fastest growing group among Christians are people who describe themselves as non-denominational and by far the largest group of Jews are those who describe themselves as Just Jewish. More than 90 percent say they are proud to be Jewish but they tend not to gravitate to the synagogues, Federations, pro-Israel organizations, and all-Jewish clubs that their parents helped build.

Instead they shop for practices and wisdoms that make their lives more meaningful and better. But not everyone has gotten the message. Ten years ago, a number of Jewish organizations became obsessed with promoting "continuity" which was a buzzword that really meant they were scared to death of rising intermarriage rates. That's because it was assumed that if a person intermarried, they and their children were lost to Judaism forever.

In fact, our synagogues and Jewish day schools are full of kids from families where only one parent is Jewish and the other has not converted. It is not unusual for a family to have a Passover seder in the spring and a Christmas tree in the winter. In some of those families, BOTH parents are Jewish. Only in America.

More and more people are doing more and more Jewish but they'd never consider themselves Members of the Tribe. And most of them would never invest all their money with a man whose methodology was sketchy and whose results were being questioned by a wide range of smart objective people just because he belonged to Jewish clubs and gave to Jewish charities. Some may call that assimilation. I call it common sense.

Which brings me back to Bernie Madoff and his victims. All of his victims were Jews but not all Jews were victims. In a perverse way, that is the exact opposite of what is often said about the victims of the Holocaust.

In Madoff's case, by any objective measure it seems strange that so many of his clients seemed both willing and anxious to ignore the warning signs.

As Exhibit A, I submit this article from Time Magazine:,8599,1866398,00.html

The article, entitled "How I Got Screwed By Bernie Madoff," was written by investor Robert Chew. He explains that all of his money and that of his wife's entire family (more than $30 million) was invested with Madoff.

But look at what he says:

"The call came at 6 p.m. on December 11. I had been waiting for it for five years...
I think everyone knew the call would come one day. We all hoped, but we knew deep down that it was too good to be true, right?"

Which brings us back to the original question: Why did so many smart people give Madoff all their money and sit back and do nothing when it became clear--or at least seemed likely--that he was reporting unrealistic results?

Part of it was human nature but I believe a bigger part was related to the rules of the game governing Members of the Tribe--the Chosen People at the Jewish clubs and charities where a select group of their friends and associates were also invested with Madoff. My guess is that it would have been considered bad form in those citcles to doubt Madoff in public. To question Madoff would have been an affront to the other members and particularly those respected tribal leaders who got them in the door in the first place. Never mind the facts and never mind the gnawing feeling described by Robert Chew that this wasn't going to end well.

The Madoff catastrophe has left the Jewish community reeling financially and emotionally. It has also been jarring for many to realize that a fellow MOT could do this to his own.

But the major positive lesson that might be learned is that we need to move beyond or, at last adjust tribal thinking for our own good. We can't and shouldn't abandon the idea of community and a shared responsibility for each other's welfare. But we live in an open, pluralistic world where the true value of Judaism is now reflected by our wisdom, ethics, and values--not by our need to stick together and blindly trust only our own. Most American Jews realized this a long time ago. Hopefully more of our Jewish organizations and their leaders will finally get the message.

Friday, December 19, 2008

The News Media and Politicians Strike Again

As usual, it seems that the news media and politicians are either distorting or just plain don't understand the real economic issues that are confronting the U.S. and world economic systems.

The two headline stories of the week have dealt with the Madoff multi-billion dollar swindle and the constant screaming by CNBC's Larry Kudlow and others regarding how the U.S. has become "Bailout Nation." The most recent controversy has focused on the government loan package to the auto industry which was announced Friday morning.

The market popped higher early Friday on that news but ended down slightly on the day as investors accurately determined that the $17 billion loan package will mean nothing. There is ZERO equity value in any of the Detroit automakers and common shareholders will probably suffer the same fate as investors in Lehman, Bear Stearns, AIG, Citigroup, Wachovia, Fannie Mae and Freddie Mac. In each of those situations, the companies themselves survived in some form but whatever assets they had were nowhere near enough to pay off their creditors--each of whom get a place in line ahead of the shareholders.

Whether GM goes into bankruptcy or not is irrelevant. The shareholders are likely to get nothing even if they don't. All of the political posturing that has taken place had nothing to do with saving the car makers. It was all about politicians going on record to either support or try to bust the UAW. Democrats can now go the the unions and say that they tried to help and Republicans can go to their supporters and say they tried to help level the playing field. None of the conversation of the last few weeks matters. Detroit went broke because for years the companies were managed badly and, unlike the Japanese, they did not design and produce cars that Americans wanted to buy. End of conversation.

The other phony argument that has been spread goes something like this: "How can the government not bail out the millions of autoworkers when they gave $700 billion to bail out Wall Street?"

Wall Street was never bailed out. The stock of every company I just mentioned has lost between 85-100 percent of its value during the last year. Most of the employees have lost their jobs and those that remain are being paid a fraction of what they previously earned. You call that a bailout? Most of the bailout money has been used to protect the interests of their customers and counter parties to keep the entire financial system from imploding which would create a true catastrophe. I am thankful every day that I work for a conservative Midwestern firm that steered clear of the whole mess but as investors and Americans we're all affected.

This is very different from what would happen if the auto makers went into a structured bankruptcy--but enough about that. The point is that not only are not getting good answers, the issues themselves are once again being totally distorted due to politics and incompetence.

The other huge lie is the widespread complaint that American taxpayers are picking up the tab for all of this. The truth of course is that no taxpayer has paid a penny for any of the trillions of dollars in rescue and stimulus packages. It is likely that none of us ever will. Our kids might, but the far likelier scenario is that the government will just print trillions of dollars to pay back our creditors with paper money that will be worth less and less as time goes on. It may not be a bad time to put a little gold or oil in your portfolio.

The irony of course is that investors are lined up to loan money to the U.S. Government for five years locking in a 1 percent return or for 30 years at 2.60 percent. Our ever-growing multi-trillion dollar deficits almost guarantee that the buying power of our dollars--and every other currency in the world--will drop pretty dramatically when it becomes clear that we can't raise taxes enough to pay down this debt without starting a revolution.

That's the story the politicians and news media should be talking about. Instead all we hear about is how the U.S. taxpayers are bailing out Wall Street and the automakers. Meanwhile, Wall Street and the auto makers are not being bailed out--they're going broke--and the taxpayers aren't paying an extra penny. How's that for good leadership and honest reporting?

Tuesday, December 16, 2008

Bernie Madoff and His Chosen People

Much has been written and said as the shocking details of the Bernie Madoff Ponzi scheme continue to emerge. Most of the commentary has been predictable--shock and dismay over the size and duration of the swindle along with much pontificating regarding the importance of due diligence, not putting all your eggs in one basket, and the wisdom of questioning opportunities that seem too good to be true. The news media have been tripping over each other to trot out the names of celebrities, charities, and regular folks who were wiped out.

Like many others, I've been obsessed with this story since it first was reported. I'd love to write about aspects of the issues just mentioned but, let's face it, we just don't know very much about how the swindle worked, what Madoff was thinking, and how he pulled it off for so long. When we do, I'll weigh in.

We do know that many Jewish charities and philanthropists have been wiped out or mortally wounded. But I have yet to see a serious discussion of why virtually all of Madoff's clients were Jewish individuals or organizations. In many cases, Madoff was entrusted with all the money these people had.

Perhaps the truth that no one seems to want to say out loud is that this could not and would not have happened on the scale it did if Madoff was not Jewish. None of these particular investors would have given all their money to someone who wasn't Jewish.

I have no data to back that statement up, but I'm certain that it's true. It is a byproduct of a world view that served Jewish organizations well for many years--that we are victims and members of a tribe that can only thrive and survive if we trust each other, take care of each of other, and remain wary of anyone who says otherwise.

It was the mantra of the United Jewish Appeal which for years used it to raise unprecendented amounts of money for Israel and other important Jewish causes. But in recent years this tribal view has become increasingly foreign or irrelevant to the thinking of most American Jews. Nevertheless, it continues to be promoted by the leaders of Jewish and pro-Israel organizations as a rallying cry and fundraising tool.

It is also common a common sentiment at Jews-only country clubs (such as those where Madoff connected with most of his clients) as a way of justifying a form of discrimination that is no longer tolerated elsewhere.

As we now know, Madoff attracted billions of dollars from investors at these clubs even though many red flags went up over the years as experts questioned the legitimacy of his legendary returns. An article appeared in Barron's several years ago raising some pointed questions about Madoff's track record. The article was based on this report:

These concerns caused a number of funds, managers, and investors to steer clear of Madoff's scheme. His pitch only seemed to work in exclusively Jewish venues where members couldn't imagine that a fellow lantzman would cheat one of his own. Fortified with a sense of tribal confidence, otherwise sensible people were willing to invest their life savings with a seemingly charming man they hardly knew.

I am reminded of the wise person who once told me that there are two types of people who believe that Jews are smarter than everyone else--Jews and anti-Semites. But I digress.

Before I go further, you should understand that I am a proud and serious financial advisor who has been a member of a Jewish country club and has served as campaign chairman of Israel Bonds and the Jewish Federation campaigns as well as the chairing the boards of two Jewish day schools and a major national Jewish organization.

I love our rituals, culture, and sense of peoplehood but mainly I am passionate about our religion's great wisdom traditions which are amazingly relevant and useful tools that help all of us live fuller and more meaningful and ethical lives.

I have no desire to belittle or put down Madoff's victims who have suffered devastating financial and personal losses. The list of Jewish charities and philanthropists who lost billions in this scam continues to grow. Brandeis University--where Madoff served as treasurer and a board member--lost more than $100 million. Several charities were wiped out and have been forced to shut their doors

My concern is with the culture and mindset that helped make this scam possible--the widening disconnect between the full, diverse, and pluralistic lives being lived by the vast majority of American Jews and the sense of tribalism and victimhood that continues to be encouraged by key Jewish leaders and the organizations they represent. Madoff could never have succeeded to the extent he did without the xenophobic mindset that has been kept on life support by those who purport to speak for the rest of us.

That schism was dramatically reflected during the election campaign when we all received countless Jew-to-Jew blast emails warning us that Barack Obama was a terrorist sympathizer who would "cut the throat" of Israel if elected. Many self-proclaimed leaders of pro-Israel organizations were passionate in their opposition to Obama and gave the impression that they represented mainstream Jewish sentiment. And yet exit polls taken on election day showed that 77 percent of American Jews in fact voted for Obama.

The disconnect extends to views on Israel and the press coverage coming out of our distant homeland.

Whenever U.S. politicians are taken on trips to Israel by AIPAC or other organizations, the first thing they do is visit Yad Vashem--the Holocaust memorial in Jerusalem--quickly followed by a trip to Sderot--the Israeli city located a mile or so from Gaza which suffers from almost daily bombing and rocket fire. Israeli political observers call it the "Look what they did to us then--look what they're doing to us now" tour.

When Obama visited Israel during the campaign, he got that tour but was never shown the bustling city life of Tel Aviv or the prosperous high-tech industrial parks sprinkled around the country. The top priority was to reinforce the mantra that the Jews have been and still are the victims of vicious and murderous foes that want to wipe us out.

Other active pro-Israel groups such as The Israel Project and are devoted to countering what they believe is pervasive anti-Israel bias in the news media here and abroad. But those same organizations were silent when virtually no coverage was given to the violent incident in Hebron last week when Israeli soldiers forcibly evicted 60 Jewish settlers from an apartment. Other settlers then went on a violent rampage (Prime Minister Olmert referred to it as a "pogrom") inflicting injuries and destroying neighboring Palestinian homes and property.

I just got a fundraising email from The Israel Project (TIP). There is often anti-Israel bias in the world media and it's good to have an organization committed to getting the truth out. During the recent terror attacks in Mumbai, TIP was the first group to alert the world media that the Chabad center and Jews had been targeted by the terrorists.

But their fundraising piece was headed "My Son was Killed by a Palestinian Suicide Murderer." The message was written by an Israeli asking us to give money to this organization so his son would not have died in vain. That's why we are supposed to give money--because we are perpetual victims and the whole outside world wants to kill us--not because we need an organization devoted to helping the media do better reporting? Am I the only one who thinks there's something wrong with this picture?

Most American Jews feel a connection to and are proud of Israel. But they also value truth and fairness over loyalty and partisanship. They can relate to honesty much more than boosterism.

Polls show that more than 90 percent of American Jews say they are proud to be Jewish. While most are not ritually observant or actively involved in Jewish organizations, they lead lives that reflect Jewish ethics and values and feel comfortable with their identity.

Unlike 30 years ago, virtually none of them are changing their names or getting nose jobs to make them look less Jewish. They view intermarriage, with all its challenges, as part of life in America--not as an existential tragedy. They would never think of joining an all Jewish club and are not worried about Obama's secret plans to undermine Israel. And they would never invest all of their money with a man whose strategy was based on a system that didn't seem to make sense--even if he was Jewish.

Madoff had hundreds of clients and they assuredly invested with him for different reasons. I only know a few of them so I can't speak for them all.

But from a distance it appears as though most of them trustingly followed the advice of a handful of Jewish leaders within their country clubs or organizations--people who they respected and viewed as wise and successful. It reminds me of the way I used to be solicited for Federation and Israel Bonds. A leader of the community would tell me how special I was, how much I was expected to give, and that I should feel great about it. That was a perfect and effective approach for those times--but not for today.

Although most of those new investors were successful independent thinkers, their common sense was apparently overwhelmed by their desire to be a member of the tribe and to be viewed of a part of the chosen people--the Madoff Jews. They were victims of a con man--and of a flawed paradigm.

Monday, December 15, 2008

The Return of Missionary Position Investing

I have to admit that since I first heard of the unraveling of the Bernard Madoff Ponzi scheme last week, I have been totally obsessed with the whole story on a variety of levels. I don't understand the logistics of pulling off such an enormous swindle for decades involving billions of dollars invested by some of the most successful people in the world.

What I really don't understand is how a person can wake up in the morning knowing that he has been robbing his very closest friends and charitable institutions and has left many of them destitute.

But for all of the questions that remain about the Madoff meltdown, some things already seem quite clear.

Even before this episode, investors were clearly losing their appetite for the esoteric and exotic investment approaches of hedge funds. The massive redemptions that have taken place were actually the cause of Madoff's demise. He had to come up with $7 billion by the end of the year and, as we now know, he didn't have it.

Investors have been moving to the sidelines to a record extent and piling up cash like firewood by the stove. Opportunities are being created and the next bull market will benefit from people chasing performance again. The big question is whether that will take place during our lifetime.

But my sense is that we're going to see a lot more "missionary position" investing going forward and less demand for the manufactured strategies that made Wall Street such a fortune and have now undone many people who really never understood what they were buying in the first place.

I view this as very good news. My investment philosophy for years has been "buy good stocks, live a long time." When I started in the business almost 30 years ago, my role models were people like Warren Buffett and Peter Lynch who advocated buying good companies that you understand and holding them. Over the last 10 years, the traders, arbitrageurs, and manufacturers of synthetic investments and strategies have taken over. It was like they gave the market a face lift and a boob job.

Over the last 10 years the stock market has provided a negative return. None of the major indices is up over that period and the NASDAQ has lost more than 70 percent of its value. Many of my younger colleagues--and a few contemporaries--are now saying that "buy and hold" is a dead strategy and it will never work again.

My feeling is that they are wrong about that and a lot of other things. What the last three months have truly taught us is that money that is going to be needed over the next couple years should be in the bank or a money market fund--not in stocks.

The other great lesson is that leverage is a two-edged sword. That is true whether you are borrowing 95 or 100 percent of the value of your home or if you are investing in "ultra" exchange traded funds (ETFs) which do provide diversification but which can provide up to four times the volatility of a "missionary position" index fund. Instead of getting the performance of the broad group you get four times that. It's sort of like buying a car that will go 240 miles and hour in a state where the speed limit is never above 75. It's a prescription for trouble.

It's hard to ignore the crumbling economy or the staggering losses that investors have absorbed in recent months.

My advice is to try to stay focused on the well-managed companies with strong balance sheets, good management, solid business models, and no need to raise capital in the foreseeable future. Add to that cocktail a chunk of investment grade bonds and preferreds and finish it off with a larger than normal exposure to gold, oil and other hard assets. After all, we will eventually pay a price for running the dollar printing presses 24-7.

Then, instead of day-trading it, put it in a crock pot and let it cook for five years. From these levels, the results are likely to be very tasty. It is not time to be bullish or bearish. It is time to be smart.

Call me old fashioned. Actually, going forward, old fashioned should look pretty good.

Wednesday, December 10, 2008

It Just Gets Curiouser and Curiouser

This time it's different.

That's the one phrase that I was always taught to view with great suspicion because it tends to be used to justify market bubbles when valuations and investor behavior seem to be moving to irrational extremes.

It was used by investors to justify plowing into internet stocks ten years ago even after prices had gone to the moon and the companies that were being valued at billions of dollars still had no earnings. It was also used to justify skyrocketing real estate prices and mortgage lending practices that seemed reckless and dangerous. Instead of pulling back, excited buyers came up with reasons why it was different this time than every time in the past when those bubbles popped and wealth disappeared.

At the end of the day, however, the laws of supply and demand and human nature don't seem to change much. People get too excited (greedy) when prices are going up and they get too excited (afraid) when prices are going down. At those times there are always good reasons to think that whatever trend is in motion is so powerful that it's just going to be different this time. But it never is.

Yesterday marked a real milestone that points out just how extreme the fear and panic about the future have become. The U.S. Government auctioned off $30 billion worth of one-month treasury bills with a yield of zero. An even more shocking statistic is that there was so much demand for those t-bills offering no return that almost $100 billion of additional orders went unfilled. For more details and explanation, check this article from today's New York Times:

At the same time, investors seem totally disinterested in the highest quality corporate bonds yielding 6 percent, the highest quality bank preferreds yielding more than 10 percent, natural gas pipeline stocks yielding 10 percent, and hundreds of established companies with solid cash flows, little or no debt, dividends of between 3 and 6 percent and the potential for growth.

Call me stupid but I think we are at one of those moments in time where excitement ( fear) is causing investors to overlook great opportunities. At the same time, excitement (depression and self-loathing) is causing others to remain paralyzed with their current holdings because they have lost so much already that they feel they can't afford to make a change. As I've said before, this is not a time to invest looking in the rear view mirror and obsessing about how much this or that stock is down. It's a time to be smart and upgrade. It may be that those people can't afford NOT to make a change.

There is no doubt that the economy faces daunting challenges. The wave of corporate layoffs is gaining steam and at this point in time people just aren't spending money or buying anything they don't really need. The news media has focused on the trillions of dollars in government programs as the key to getting out of this mess. But, at the end of the day, a lot of people bought more stuff than they could afford and it's going to be hard for them and hard for the people who loaned them the money to do it.

I read yesterday that in more than half of the distressed mortgages that have been renogiated by lenders, the homeowners were back in default in just a few months. Most of these people just bought way more house than they can afford and eventually the lender will end up taking it back no matter what adjustments are made to interest rates.

Kristen and I were in Las Vegas for two days over the weekend and the place was empty. I met a 23-year old kid from New York who just lost his job on Wall Street. He said he came to Vegas because he got a round trip flight and three nights at the MGM Grand for a total of $329. I ran into a lot of people like that. What I didn't see was a large group of high rollers throwing money around. We went to see Bette Midler and the theater was half full. Large sections of the casinos were shut down due to lack of customers and The Strip was lined with half-finished huge developments. I am not a Las Vegas person but my sense is that these are tough times.

There will be more bad news regarding disappointing corporate earnings and billions of dollars worth of loans that will not be paid back. But for people with a need for current income or the ability to invest with a 3 to 5 year time horizon in stocks, these will prove to have been times of great opportunity.

The riskiest times are those when people feel secure but they really aren't. Once the risks are known and are on our minds constantly {priced into the markets}, times are actually less risky. As a country, we were far more at risk prior to 9/11 than we have been since because we are now aware that those previously unimaginable risks actually exist. Ironically, once we are aware of the threats, we feel more vulnerable but actually we are safer.

Investors have lost a lot of money and are more aware of the risks in the market than they have ever been before. That awareness makes them safer and yet they feel more worried. Even with the challenges that remain, we are less at risk from these price levels than we were a year ago when no one was losing any sleep over their investments.

People ask me if it's time to be bullish or bearish. I say that it's a time to be smart. Three years ago, people were lined up to buy houses in Las Vegas and Aspen that had already tripled in price. That was the sign of an irrational environment that couldn't keep going. Today they are lined up to buy treasury bills that guarantee them zero return. Enough said.

It just gets curiouser and curiouser.

Thursday, December 4, 2008

The Day the Music Died

Everyone knew that the election would change the way we view our country, its leadership, and the way we relate to each other and the rest of the world. But it's now clear that we are talking about a paradigm shift of monumental proportions. Sort of like the feeling we had when we learned the truth about the tooth fairy or Santa Claus.

As a result, points of view that as recently as a month ago were viewed as mainstream and credible now seem so out of touch and ridiculous that we are left scratching our heads wondering how anyone could have believed that garbage.

We were told by the pundits and water carriers of both parties that we are a very divided country with about half of our voters Democrat and the other half Republican. Half on the Left and half on the Right. Half Liberal and half Conservative.

Each side has its base issues and talking points and we were told people would vote one way or the other based on how they felt on those important matters. The Right wing was anti-surrender in Iraq, anti-gay marriage, anti-abortion, and in favor of free market capitalism. The Left wing wanted us out of Iraq yesterday, was pro-choice, in favor of same sex marriage, and wanted America to be a more socialist place where the wealth was spread around.

What has now become clear is that those weren't the issues that divided us at all. Many voters certainly have strong feelings on those topics, but they voted based on their passions and gut feelings about the candidates. What is even more clear is that most voters are as complex and nuanced as are the issues we face.

There were some common themes that showed up in the election results--themes that are very bad news for the Republican Party.

For all the posturing, McCain and the Republicans did well only in those states that spend the lowest amount per capita on education--states in the Deep South and those wilderness states which have no major cities and where each citizen has hundreds of acres to call his or her own. Every other state was carried by Obama and the Democrats.

At the end of the day, Obama's convincing win was a rebellion against stupidity and ignorance. None of the other issues had any real traction. More revealing was that groups of people did not fit into tidy little ideological boxes as the pundits had hoped.

Polls showed that virtually every African-American voter went for Obama. Yet more than two-thirds of Blacks now say they do not believe it is moral or acceptable for people to be gay. Does that make them Liberal or Conservative? They are clearly Democrats, but their values don't fit the pattern created by those who view life as a battle between the forces of the Left and Right. Which team do these Blacks play for?

And what about the 20 percent of Republicans voted for Obama? What uniform do they wear? How about the fact that 80 percent of Americans--many of whom supposedly felt that Obama was a socialist who palled around with terrorists--now give the president-elect high marks for his appointments and the way he has handled himself during the last month?

An entire radio talk show and blogging industry has been built on the premise that there is a massive group of Liberals out there who want to destroy the fabric of American life and undermine everything our country has ever stood for. They painted Barack Obama as a combination of Fidel Castro and Osama Bin Laden--the patron saint of the forces of evil.

Now it turns out that he's none of those things--he's just the smart and honest president-elect of a country that is tired of deceptive and stupid.

So who is now the audience for Sean Hannity, Rush Limbaugh, and their dozens of colleagues who have pledged to continue the Conservative Underground and fight the Liberal forces of evil? Sarah Palin is now considered a star of the Republican base but can the party ever grow beyond the Deep South and the mountain wilderness with her as a leader? As much as she is loved by Bubba and June Cleaver, she is viewed as a sad joke by everyone else.

Meanwhile, the qualities that Bush supporters used to spin as reflecting his loyalty and stubborn devotion to principles are now being revealed as simply the result of stupidity and laziness. Obama is actually putting partisanship aside to put together the best qualified and most competent team he can assemble.

In his recent round of farewell TV interviews, Bush has put a devastating exclamation point on his pathetic track record and persistent cluelessness. He talked about the economic crisis as something that "happened" as opposed to pointing out decisions he could have made differently or things that could have been handled better.

He said he regrets that we never found WMDs in Iraq--not that he took us to war based on flawed information and then deceived the country for years after he learned that all his initial assumptions were dead wrong. To this day, he seems to be more of a spectator who watched his administration create or fail to effectively address disaster after disaster rather than the commander in chief who actually was calling the shots.

Bush's comments stand in stark contrast to Obama's tone and actions that are making the entire country feel more hopeful. We have huge challenges facing us but for the first time in many years, it seems like the man in charge really knows what he is doing.

Americans are tired of stupid empty gestures. I felt it on a very personal level when I flew home from St. Louis after Thanksgiving.

This was days after the bloodbath and terrorism in Mumbai. As I stood in the airport and listened to the recordings blare about us being under Security Code Orange and watching people take off their shoes and throw away their bottles of water and their toothpaste, I felt the anger I always feel when I travel. I am angry that we are being manipulated by stupid ineffective policies designed not to make us safer but rather just to make us feel that our government is doing something to make us safer. I was praying that this recent act of terrorism wouldn't lead to more rules and foolishness imposed on us in the name of security.

I have an artificial hip and wear an insulin pump. I set off all the alarms when I go through security and get the Full Monty ever time I fly. I have no problem with that. It's the foolishness I see going on around me and all the color coding that drives me crazy. Message to Obama--get rid of the colors. Just tell everyone that we live in a dangerous world and we should always be alert and report suspicious behavior.

My friend Jeffrey Goldberg has an outstanding article in The Atlantic where he talks about the "security theater" we are forced to act out in airports. I encourage you to read Goldberg's recent piece and watch his recent appearance on the Colbert show:

For eight years, our president, his team, and his vocal fan club on Fox and the radio have been singing the same sick and dissonant song. They tried to divide the country by spreading fear and hatred of those who dared to question the Bush agenda. November 4th was the day that music died, hopefully once and for all. Most of us are ready to dance to a much different tune going forward.

Friday, November 28, 2008

Longing For The Bad Old Days

A number of my friends have contacted me in recent days wondering why I haven't posted anything on my blog for more than three weeks now. After all, before the election it was all I could do to keep my musings down to three or four a week and people were worried that something terrible had happened to me.

The truth is that since the election it's just been hard to come up with interesting things to say. After a couple of years of constant passion and issues of legitimate contention, we had gotten terribly spoiled. Back then, all a person had to do was sit down at the keyboard and the thoughts came pouring out.

Since that fateful day, it's been tough because there seem to be very few issues about which reasonable people can disagree.

The only people who are carrying on the fight are the professionally angry bloviators of the far Right Wing like Sean Hannity and Rush Limbaugh who didn't get the message that they have been fired as self-appointed spokespersons for conservatism and the Republican Party. They aren't conservative--they're just angry and what remains of their "base" has shrunk to the point where it is no longer statistically significant.

But pretty much everyone else has been on the same page for weeks now. It's hard to find anyone on the Left, Right, or in between who's not reassured by the way President-elect Obama has been handling himself. He has been intelligent, careful, and smart in his appointments (except for selecting Hillary Clinton to be secretary of state, but that's a conversation for another day). It's ironic that the man who Republicans had painted as a socialist and an ultra-liberal has only been criticized by the far Left for being too centrist in his appointments.

It has been so long since we had a president who thinks things through and makes appointments based on competence and ability that we had forgotten how reassuring it feels when it actually happens.

The other emotion that has united us has been fear. The horrible news from Mumbai over Thanksgiving has been shocking and probably hasn't really sunk in yet, but the truth of the matter is that most Americans have been scared to death for months over the financial crisis that we have now exported to the entire world.

Much has been said about the greed of the various villains in this play. But let's be honest--we have all known for years that people in business are greedy. We tend to idolize and reward financial accomplishments. The term "successful" is generally used to describe someone who has made a lot of money. What is shocking is just how stupid and short-sighted our government and financial leaders turned out to be.

As the stock market and every other asset class has collapsed over the last two months, there has been plenty of anger, outrage, and finger-pointing. But most people are past that now. Now we're just afraid--not just because we're in a huge mess but because no one really believes that it will end quickly or painlessly.

It's sort of like the feeling one might get after drinking a whole bottle of scotch and starting to feel sick (by the way--I'm speaking hypothetically--I would never do such a thing). You would do anything to come up with a way to feel better immediately but you also know that it ain't going to happen. The only way to keep from spending the night in a state of total misery is not to have drunk so much in the first place.

So here we are. United in fear. Hoping for better times and praying that the very smart man we have picked to be president can get us back on track.

It's not the end of the world and things will eventually get better. We all pretty much believe that. But in the meantime I fear it's going to be hard to come up with provocative and interesting things to disagree about.

Maybe that's not so bad. After two years of constant passion and contention it's sort of nice to all be on the same page for at least a little while. Nice--and a little boring.

Sunday, November 9, 2008

It Was About Stupid, Stupid

During the last week there has been a lot of discussion about the reasons why Barack Obama won such a broad-based and convincing victory over John McCain.

Most of my Republican friends believe that McCain was doomed from the start due to the collapse of the economy and the overwhelming unpopularity of George Bush. Others believe it was a case of voters choosing a Democrat over a Republican, black over white, young over old, liberal over conservative, left over right, or some combination of the above.

There were certainly voters for whom those criteria were decisive but at the end of the day I believe that a majority of Americans chose smart over stupid.

We have dealt with eight years of stupid and people are tired of it. It is well documented that appointments and decisions within the Bush administration have been made based on loyalty and ideology at times when complicated and nuanced issues required a greater emphasis on ability and competence.

The Bush approach led to predictably disastrous outcomes in Iraq, the response to Katrina, and our current economic crisis. Bush chose to surround himself with people based on personal friendships and their views on abortion and gender issues rather than their professional qualifications and job-specific abilities.

As a result, not only have bad decisions regularly been made but it seems clear that the people in charge were often unaware that problems even existed until it was too late. That would explain the repeated insistence by Bush, McCain, and others that the war in Iraq would be cheap and quick, that we would be greeted as liberators there, and that the economy was fundamentally strong.

Most of the crises we have faced were not entirely of Bush's making, but the "Emperor's New Clothes" culture that has come to be synonymous with the Republican party has made every one of these challenges far worse than it had to be.

That is what this election was all about. Americans were tired of slogans, lies, stupidity and incompetence. With his pick of Sarah Palin as a running mate (can you imagine four more years of NOOK-you-lurr?)and his frequent factual errors and flip-flops on the economy and other key issues, McCain caused voters concern about his judgment while Obama appeared consistent, presidential and, above all, intelligent.

Many McCain apologists have suggested that the meltdown in the stock market over the last month doomed his campaign. That assessment seems far too friendly. McCain was ahead in the polls a month before the election. In fact, it was McCain's awkward and stumbling response to the economic issues combined with the toxicity of the attacks on Obama that were spewed from his campaign and its radio talk show supporters that turned what would have been at worst a narrow defeat into a rout.

There is already a palpable sense of relief that our president-elect has chosen to surround himself with a diverse and accomplished team of advisers to help him address our economic problems. An electorate that has become used to a president who relied on Dick Cheney, Harriet Miers, Alberto Gonzales, and "Brownie" is so ready for a new and smarter approach--one based less on gut feelings, empty slogans and advice directly from God and more on thoughtful rational analysis and expertise.

The challenges our country faces are complex and will require smart and well-reasoned solutions. Joe Sixpack and Joe the Plumber may represent a block of voters, but if someone needed brain surgery they would probably rather have it performed by a trained experienced doctor than by a maverick.

It's time for smart. Stupid has not served us well at all.

Monday, November 3, 2008

Pay It Backward--The Greatest Wealth Transfer in History

For the last 20 years, I have been hearing that we were in the midst of the Greatest Wealth Transfer in History (GWTH). During that period the slogan has remained the same but both the alleged sources and beneficiaries of the wealth have changed several times.

The first time I heard about this wealth transfer was in the late 1980s in my role as both a solicitor for and a donor to a number of Jewish community organizations. We were all told that the next 25 years would be a critical period for philanthropy because the generation of immigrants who had achieved enormous financial success in America would soon start passing from the scene. The huge amounts of wealth they had amassed over the years would be passed on to their families and/or the organizations that many of these people had generously supported during their lifetimes.

As fund raisers we were instructed to get out in front of this transfer of wealth lest all the money pass into the hands of their less generous children who would be more likely to spend it on themselves and less inclined to be philanthropic.

I have to assume that this wealth transfer is well underway but we don't hear so much about it anymore.

That's because a new GWTH has supplanted it in the public conversation with an assist from T. Boone Pickens.

That GWTH is the transfer of more than $700 billion a year from the United States to those countries that provide us with oil. Pickens has spent more than $50 million of his own money over the last year to publicize our need to eliminate our dependence on foreign oil. The case is even more compelling since the recipients of our wealth include all the countries and leaders in the world who are trying to destroy us.

Pickens has met privately with and apparently had a great influence on the thinking of both John McCain and Barack Obama, each of whom has incorporated most of his talking points into their campaign rhetoric. Each candidate,of course blames the other for the problem.

As is so often the case, while all of the media headlines and political attention has been focused elsewhere, the real GWTH has been taking place quietly and beneath the radar. There is no Pickens Plan or other public effort being made to alert people, but it is by far the most significant wealth tranfer in our lifetime.

It has been the trillions of dollars of wealth that our generation has transferred (actually embezzled) out of the pockets of our children so we can live way beyond our means.

This addiction to debt--the things it can buy us and the painful choices it keeps us from making--has saturated every level of our society including government, corporations, and our personal finances.

The devastating impact that the irresponsible use of leverage has had on the financial system is well documented. Established blue chip companies such as Lehman, Bear Stearns, and AIG have disappeared from the scene completely and many others are a shadow of their former selves--not because they made bad investments but because they were so leveraged up and had borrowed so much that a big move against them in the market could actually wipe them out.

On the personal finance side we have all heard about the sub-prime mortgage disasters but we're learning that the sickness is far more widespread. According to CNN, more than 20% of all homeowners in the U.S. now owe more principal on their mortgages than their homes are now worth and that number is rising. That means that purely from an investment perspective, they would be better off giving their homes back to the lender and walking away with nothing.

And it doesn't end there. Millions of people now owe more on their auto loans than their cars are currently worth. Pools of securitized car loans could be the next credit issue that the markets have to deal with.

On top of that, millions more Americans are maxed out on multiple credit cards which they have used along with home equity loans to maintain their unsustainable standards of living for many years. Now credit is harder to come by and the credit card companies are actually starting to call in outstanding debt and raise minimum monthly payments dramatically. It's not surprising that the economy is in the tank.

But the real embezzlement from our kids has taken place on the government level. Since 2001, our national debt has more than doubled and is now spiraling into the stratosphere as the result of needed rescue programs designed to keep our financial system from totally collapsing.

Since Bush took office, we have embarked upon two wars and seen government programs grow exponentially without any serious discussion of how we are going to pay for any of it. Instead, our president has given us tax cuts and told us to keep shopping.

Throughout the presidential campaign, both McCain and Obama have been obsessed with defining who is rich and figuring out which of us should get the biggest tax cuts. There has been no discussion from either side about how we are going to pay our bills much less the bills we have racked up over the last eight years.

New York Times columnist Thomas Friedman said it perfectly: "Never has one generation spent so much of its children's wealth in such a short period of time with so little to show for it as in the Bush years." The bill for our tax cuts, wars, and bailouts will all fall on the heads of our kids. And still there is no serious discussion of what it means and how to deal with it.

There is no doubt that the Greatest Wealth Transfer in History is taking place right under our noses. It's just not the one we've been hearing about. It's about our generation spending our kids' inheritence and embezzling money from their futures to pay for our addiction to wars, bigger houses, fancier cars, and more stuff.

Before we can hope to solve the problem, we have to recognize it. Hopefully our new president will help us act like grownups so we can put ourselves in "time out" until we learn how to behave as individuals and as a country.

Wednesday, October 29, 2008

Arizona's Twin Tragedies

October has been a cruel month for a broad range of people. But it has been particularly brutal for those of us who live in Tucson, Arizona.

We have participated fully in the worldwide stock market meltdown which has come on top of major problems in the real estate market which have hit our Sun Belt city pretty hard. Virtually nothing is manufactured in Tucson. Many of the people who have made money here have made it in real estate as the population has exploded from 250,000 to more than a million residents in just 40 years.

But for many in southern Arizona, twin insults have been added to injury in a major way.

First, our own John McCain has seen what once was a close presidential election turn into a landslide victory for the other guy. Now the polls show that Obama is not only winning all the toss-up states, he might even carry Arizona as well.

Second, our own Lute Olson who brought a national championship to Tucson and put the University of Arizona basketball program on the map suddenly announced his retirement from coaching just a couple of weeks before the season is about to begin.

There is a sad similarity to the way in which these stories have played out over the last year.

In the first place, each of these men is in his 70s and they are somewhat similar in appearance with distinctive white hair that each has had for a very long time.

But what is truly striking is that each of them spent their entire lives in the service of others and earned the admiration and adoration of thousands of people for their accomplishments.

John McCain was a true American hero who had earned the respect of millions of people for his heroism and public service. Lute Olsen was the most loved and respected sports figure I have ever known. Over a 25 year period, he brought the U. of A. basketball program from the outhouse to the penthouse. His team won the NCAA basketball championship in 1997 and over a 15 year period the Wildcats were a perpetual contender.

He and his late wife Bobbi became local legends in Tucson known for their warmth and civic-minded community service.

In short these are two men who became deservedly known throughout Arizona and the country for their great abilities, competence, and values.

That's what makes the events of the last year so tragic. And there seems to be a spooky and instructive set of similarities to the story lines.

The McCain situation is pretty well known by now. He came from way behind to win the Republican nomination. In May, he staked out the moral high ground promising to run a clean campaign. His theme was that he had a history of putting Country First and that he had the experience and the temperament to be president and commander in chief on Day One.

But, as we all know, McCain lost his way. He made a series of decisions that flew in the face of his principles and now he is in a position to not only lose the election but to lose his legacy.

Instead of being remembered as war hero and a maverick, he will be remembered as a confused and angry old man wandering around the stage during the debates and for picking the least experienced, least "Ready on Day One" running mate in history.

Lute also has lost his way. When I moved to Tucson seven years ago, a good year for U. of A. basketball was measured by whether they reached the Final Four. A couple years later, it was measured by whether they made the Sweet Sixteen. For the last two years, it has been measured by whether they made the NCAA tournament at all. The program has clearly been in decline.

Like McCain, Olson always claimed that he would put the interests of the program ahead of his own private agenda. But a year ago,a couple weeks into the basketball season, he suddenly announced that he needed to take a leave of absence and he put an assistant coach in charge of the team. No details were given other than to assure people that the leave had nothing to do with his health.

Against all odds, the team made the NCAA tournament. Then, a week before the tournament, Olson announced that his problems WERE health related but that he would be coming back next year.

The team lost recruits and had a hard time retaining some of their current players but Lute assured them and us that things would be fine. Now, a week before the start of this year's season, Lute has announced his retirement effective immediately--for health reasons.

More recruits have already walked away and it is clear that the program will have to rebuild itself from square one.

One man is in the sports world and the other is in politics. But their situations are sadly connected in that they both show how quickly a lifetime of good work and a great legacy can be destroyed when people get let their selfish desires to overwhelm the greater good.

It is not Olson's fault that he got sick and McCain is not to blame for running into the Obama juggernaut.

But each man seemed to lose his compass. Each of them developed a sense of entitlement due to their seniority and feeling of being above the constraints that mere mortals have to deal with. And now each will be remembered as much for the way in which they limped off the field long after their prime had passed and dragged thousands--or millions--of people who were counting on them down with them. That's sad because each of them has accomplished so much and deserved better.

I'm sure my mother told me many wise things over the years. Somehow I don't remember most of them. But one that has stuck in my mind forever is that you should leave the party while you're still having a good time.

After watching the sad story lines of Lute Olson and John McCain unfold this year, I would expand that advice to include everyone else who is at the party. If you hang around and are still having a good time but you're making everyone around you miserable then you stayed too long.

Sunday, October 26, 2008

Time To Take a Xanax and Chill Out

Every day I receive four or five emails from my Republican friends to make sure I haven't forgotten what a horrible socialist terrorist liar Barack Obama is and how the Democrats--who have had essentially no power since 2000--are really responsible for everything that's wrong with America.

I appreciate that. Occasionally I forget. I hope and assume that in a week or so when the election is over that those emails will stop. I have already noticed that some of my friends have started to lose a little of their energy as it has become increasingly clear that the presidential race is already decided and Obama has not only won--he has won in a landslide. Those who disagree are in luck. They can get 8-1 odds on McCain on right now so if they bet enough, they can make back what they've lost in the stock market this month.

There are some diehards and true believers who think the game isn't over. That's fine. This is America. That doesn't bother me a bit. What does scare me are the vicious and hateful attacks against Obama that seem to be gaining in frequency and toxicity on Fox News,, and talk radio even as the math makes a McCain win a virtual impossibility.

When the McCain campaign first started going negative a few months ago, the party line was that Obama was too risky and inexperienced. He sat in a church for 20 years and listened to hateful sermons, he used to hang out with shady guys, but mainly he was not ready to be president or commander in chief on day one and McCain was. Obama put politics before country while McCain put "Country First" all the time. Many people found that to be both a compelling and encouraging sales pitch.

But look what has happened as the Straight Talk Express has become a train wreck. First McCain started calling Obama a traitor who tried to lose a war. Then Obama played the race card. Then Obama palled around with terrorists. Now, depending on which furious true believer you listen to, Obama is a foreign socialist agent who was not born here and wants to destroy America, Obama is a terrorist, Obama is a liar, Obama is a criminal, Obama supporters are big black guys who attack and carve their initials in the faces of McCain supporters, and so on.

Meanwhile, McCain has steadily frittered away all of his credibility. His "Country First" and "ready on Day One" credentials went out the window with his pick of Sarah Palin. Then he came across as frantic and very confused about the economy. In August and September, he echoed President Bush 17 times stating that the economy was fundamentally strong.

He proudly called himself a deregulator and stated firmly that he was against "the bailout of AIG or anyone else." Then two days later, he said we were facing the greatest economic crisis in 75 years and that he supported the bailout of AIG, the $700 billion rescue plan, and promised more regulation when he's president. Right after voting to socialize our banking system, he started accusing Obama of being a socialist.

During the three debates, he looked angry and confused while Obama looked controlled and presidential. All the polls showed voters thought Obama won each of the debates by a margin of 2-1.

Then, as a perfect metaphor for the whole campaign, McCain introduced us to Joe the Plumber, a guy who owns a business, makes more than $250,000 a year, and is upset that Obama will make him pay more taxes. Of course the guy's name isn't Joe, he's not a licensed plumber, he doesn't own a business, he doesn't make $250,000 a year, he is delinquent in his current taxes, and under Obama's plan he would get a tax cut. Other than that, McCain nailed it perfectly--the new Straight Talk Express.

McCain hasn't been done in by the Left Wing media or by ACORN or by the economy or because he's a Republican in a bad year. Obama has had his own challenges since 33 percent of all voters have said they know someone who won't vote for Obama because he's Black.

Obama has won the election fair and square because he has been the more appealing candidate to most Americans and McCain has lost it. There are dozens of Republican and Conservative newspapers, public figures, and columnists who have announced during the last few weeks that they are supporting Obama or that they simply can't support McCain-Palin. They have all cited the sleaziness of McCain's campaign and the poor judgment he has shown on the economy and with his pick of Palin. There have been no such defections from the ranks of Obama supporters because they have no reason to defect. Obama has delivered and McCain has not.

It's over. The American people have spoken. If this was a basketball game, it would be time to clear the benches and let the subs play out the clock.

But instead, the fanatics on the Right--particularly on Fox and the radio--are committing hard fouls and trying to injure the winner. It's ironic since these are the people who claim to be pro-America patriots. Where I come from, patriots fight hard but when the game's over, they unite behind the winner and work hard to help him succeed. We're all Americans and in this together.

Because of all this hate and ugliness, what was shaping up as a Republican defeat is turning into a Democratic landslide that is spreading to Congress and might give the winners a filibuster-proof super majority in the Senate. If that happens--a thought that scares me as an Independent--it will be a harvest reaped by the voices of hate. They have turned off, frightened, and disgusted not just the Left but also virtually every Independent and moderate Republican voter in the country. And it's getting worse by the day. The more vicious and loud they become, the further behind the Republicans fall in the polls.

I worry about the country and I also worry about Obama's safety.

Many of my Republican friends are also staunch supporters of Israel. When they are not reminding me how horrible Obama is, they are making sure I realize what a threat Islamic terrorism poses to Israel and Jews everywhere. There is certainly a lot of truth in what they say.

But what they seem to have forgotten is that the only Israeli prime minister ever assassinated was not killed by an Arab or a Palestinian terrorist. Yitzhak Rabin was murdered by a ritually-observant Jew named Yigal Amir--a young yeshiva honor student who listened attentively when his rabbis told him that Rabin was a traitor for negotiating with the enemy. So Amir--a Jewish Israeli patriot in his own mind--murdered Rabin.

Today, 12 years later, recent polls have shown that 38 percent of religious Israeli Jews consider Amir a hero and rallies demanding his release are held on a regular basis.

It's one thing to say the other candidate is not ready or experienced enough to lead our country. It's another thing to call him a traitor, a socialist foreign agent, a terrorist, and a person who wants to destroy our country.

This has been a tough and energizing campaign and it's about to be over. Isn't it time to start chilling out and cutting back on the most extreme and inflammatory of rhetoric and to get about the business of rebuilding and reuniting our country? Isn't it time for Hannity and Friends to go back on their meds?

All the pro-America patriots I know feel that way. There's probably a name for people who feel differently, but they're not patriots. Not even close.

Some Thoughts on the Stock Market

As we approach yet another week, I wanted to share some thoughts regarding
the recent volatility in the financial markets and what investors
should do going forward.

Until a few weeks ago, there were two significant groups of investors
out there. The "proactive" ones were those who rightfully determined
that our financial system would go through a major shock due to the
excesses of lenders and financial institutions and the "buy and hold"
investors who believe that you just buy good companies, be patient,
and the market will take of itself.

The proactive investors did well during the first part of the year.
They invested in cash, short positions, and commodities which were
considered a store of value. They did well on both a relative and
absolute basis while the buy and hold investors were down anywhere
from 10-30 percent on the year depending up what they had bought and
were holding.

But all that has changed during the month of October. The energy,
commodity, and agriculture related companies that had soared during
the first nine months of the year have come crashing down hard in the
last few weeks. Oil has gone from $147 a barrel to around $60. Gold,
metals, and agricultural commodities have been in free fall across the
board. The other smart folks who had been cautious have mainly become
more aggressive during the last two weeks and have now lost almost as
much as those of us who have been more fully invested all year long.
Warren Buffett is down about 30 percent for the year while some of
the most successful and legendary hedge fund managers have blown up

High quality corporate and municipal bonds have been hammered as well
as investors have flocked exclusively to U.S. Government-guaranteed
short term debt which is literally yielding next to nothing. The
yields on short term treasuries are well under 1 percent across the
board while intermediate term AAA-rated municipal bonds are providing
after-tax returns of more than 9 percent.

Some stocks are now trading at very low multiples of seemingly
reliable earnings and many high quality companies are paying yields
well above 5 percent. None of it seems to make any sense and in spite
of it all stocks here and around the world keep dropping.

So what's going on here and what should a reasonable person do?

As always, people should always keep cash they know or suspect they
will need in the near future out of harm's way. That is true no
matter what the prospects for the stock market might be.

Beyond that it is important that people understand that much of the
selling is coming from hedge funds and mutual funds that are facing
severe liquidations, margin calls, and in some cases are going out of
business. As was the case with the banks and insurance companies, the
amount of leverage in the hedge fund system has been underestimated
and the selling has persisted far beyond what was expected. That is
in part because hedge funds are unregulated and don't have to report
their holdings so no one really knows how much they have to sell
before they're done. Suffice it to say that it has proven to be a lot
more than anyone thought was possible.

It is telling that on most down days in the market, the selling
intensity has picked up dramatically in the afternoon as fund trading
desks get the word from the front office how much cash they need to
raise by the close. In the case of margin calls, stocks and other
holdings are simply sold out from under them at whatever price they
can get. As hedge funds go out of business and frightened investors
decide to bail out of the market in their 401-K's and mutual funds,
the need to raise cash has been widespread and non-negotiable. Hedge
funds were the biggest investors in hard assets and foreign markets as
well so it is not surprising that those asset classes have been hit
the hardest but they're clearly selling other more marketable assets,
including U.S. stocks, as well.

I have linked you to Warren Buffett's article in the New York Times
and some recent reports by Riverfront Investment Group that suggest
that these aberrations have created outstanding opportunities to pick
up quality assets at very low prices. They also make the case that
while there is no way of telling where the bottom is, we are in a
period of enormous potential for long term returns due to the market

For those of us who have been strapped in and ready for the ride
upward to begin for a while, it means that it just makes sense to gut
it out and wait for some sense of normalcy to return to the markets.
We expect that to happen sooner rather than later. When I woke up at
3 a.m. today the markets were melting down overseas and it was
expected that the Dow Jones Average would open down 1,000 points here.
As we approach the close of trading today, the markets are down but
by "just" a couple percent. Maybe that's a positive sign.

There are those who believe that the financial world as we know it is
coming to an end and the is the beginning of the end of days. Those
people could be right. Even if they're wrong, there is little doubt
that we are in for a prolonged stretch of economic contraction for a
variety of reasons that are now pretty well known.

But it continues to be my belief that a long deep recession is
reflected in today's stock prices and better times lie ahead for those
who can afford to be patient.

Here are the links I referred to:

Sunday, October 19, 2008

Will the Republican Party Survive--And Does Anybody Care Anymore?

Just two months ago, I talked with John McCain in Aspen. Since moving to Arizona seven years ago, I have voted for and supported McCain for Senate and always admired his independence and willingness to cross party lines to do the right thing. I asked him why he had suddenly aligned himself with the most Right Wing, scariest people in the Republican Party and had named the same people who smeared him so viciously in the 2000 primary to run his campaign.

"The Republican Party is a big tent." he told me. "There's room for everyone."

In recent weeks, that tent seems to have gotten much, much smaller as some people have gotten disgusted and left and others have been thrown out. And, as many Republicans and Conservatives have recently pointed out, it's a neighborhood that very few people want to live in any more.

The water carriers of the Right--particularly Fox News, bloggers on, and the dozens of talk radio hosts who call themselves Conservative--have always been biased. But as McCain has fallen farther behind in the polls their shows and blogs have become cesspools of hatred, anger, lies, distortion and vitriol which are liberally spewed on Democrats, Obama, and anyone who would vote for either.

In their passionate determination to vilify Obama and the Left, they have ignored the fact that the most devastating critiques of McCain and Palin have come from their own ranks. Conservatives and Republicans such as Charles Krauthammer, David Brooks, Kathleen Parker, George Will, and Christopher Buckley have all expressed their disgust with McCain's selection of Palin, his gutter campaign tactics, and his lack of the temperament, judgment, and ability to be president.

The coup de grace came Sunday when General Colin Powell--a Republican--announced his endorsement of Obama for president. Powell cited a wide variety of reasons that he was excited about Obama, disappointed in McCain himself and disgusted with the way he has run his campaign. Powell was precise, logical, and objective. His criticism of McCain was well thought out and devastating.

After hearing Powell, I immediately switched over to Fox News in time to get their reaction which was entirely critical and dismissive of Powell. One "analyst" speculated this was Powell's way of getting even with McCain for not selecting Powell to be his running mate. Another focused on how unfair it is for anyone to criticize McCain or his campaign since McCain is honest and righteous and Obama is so much worse. No one mentioned the merit or accuracy of Powell's statements. Later on MSNBC, Republican Pat Buchanan speculated that Powell picked Obama because he was just anxious to endorse a fellow Black guy.

Meanwhile, the Rush Limbaugh, Sean Hannity, Mark Levin, Hugh Hewitt, Michael Medved, Dennis Prager radio crowd has gone non-stop venal and ballistic over the airwaves this month. Their entire programs are filled with lies, distortions, and partial truths about Obama and his positions. He is freely and constantly called anti-American, a traitor, a socialist, a terrorist, a friend of terrorists, a liar, a thief, a criminal, and a "bloodsucker" who wants to take every hard-working citizen's money--all of it--and distribute it to his liberal, radical, good-for-nothing friends.

This is not just about politics or an election. This has become a Holy War with these guys. My longtime friend Dennis Prager told me last year that unless I had learned to loathe the Left, then I had learned nothing from him in the 20 years I have regarded him as a teacher. He recently wrote a column on in which he explains the difference between people on the Left and people on the Right. Apparently being a pluralist or an independent--trying to learn from all people--is no longer an option.

This latest descent completes the utter destruction of the Republican party as a force for good in this country. Until eight years ago, Republicans had a deserved reputation for being more socially and fiscally conservative and responsible. When the party culture became infected with the Bush/Rove/Cheney virus, it began to morph into a divisive force that possessed none of those qualities.

Now the mass exodus is underway. Anyone who is fiscally conservative can't call himself a Republican anymore. Anyone who is a religious Christian can't honestly be part of this since Jesus preached about caring for the sick and the poor--not about eliminating reproductive choice or issues related to same-sex marriage. There's nothing Christian about the agenda of the Religious Right--it's a totally political movement focused on issues that Jesus never mentioned and they ignore the issues about which Jesus preached constantly.

Anyone who believes in honesty or competence in government wouldn't call themselves a Republican after Bush. And now, no one who is not a committed soldier in the Holy War against the Left is welcome either.

The only ones left inside the tent are people who don't want to vote for a Black person, those who mistakenly believe they have been better off financially over the last eight years than they'd be under Obama, or those who are driven by a complete and unwavering hatred of liberals, Democrats, and the Left. It doesn't take a lot of room to accommodate that crowd and who would want to be in that tent anyway?

I find all this frustrating and it makes me sad. I liked being an independent. More important--we need the old Republican party--the one that thought the only thing worse than taxing and spending was borrowing and spending which is what the Bush/DeLay crowd has done for years in the name of Conservatism.

I hope the recent meltdown will set the stage for a revival of something we all need now more than ever--a viable intelligent alternative to complete control by the Democrats. As much as I like Obama, the thought of either party having that much power still scares me. Reed and Pelosi scare me much more than Obama does. I think Obama is smart, presidential, and will surround himself with smart, good people.

It's time for a change.

Wednesday, October 15, 2008

Sarah Palin and Her Pals--The Real Unrepentant Terrorists

You can learn a lot about a person's agenda by looking at the terms they use to describe others.

I first learned this many years ago from my friend and radio talk show host Dennis Prager. He was cynically amused at the fact that Rodney King--a car thief with a criminal past who violently resisted arrest by four Los Angeles police officers before they subdued him and beat him to a pulp--was always referred to as "motorist" or "black motorist" Rodney King by the news media covering the story. Dennis accurately pointed out that the media wanted to focus on the police brutality in the case so they came up with a term that essentially ignored everything about King that might distract attention from the point they wanted to make.

I was reminded of this in recent weeks as the McCain campaign and the water carriers on the Right (including Prager himself) have honed in on Barack Obama's relationship with "unrepentant terrorist" William Ayers. I am cynically amused for a number of reasons.

First, Dr. Ayers probably doesn't have that title on his business card. He is a few other things that are perhaps more currently relevant. He is a Distinguished Professor of Education at the University of Illinois-Chicago. He has been such an important force in improving the Chicago public schools that he has been effusively praised by Mayor Richard Daley and was also named Chicago Citizen of the Year in 1997--the year held a fundraiser for Obama.

On top of that, it could be argued that he is neither unrepentant nor a terrorist.

For guidance on the first point, I refer as usual to my religious tradition. Last week, Jews around the world observed Yom Kippur--the Day of Atonement. On that holiest day of the year we are commanded to repent for our sins against God and other people and commit ourselves to do better during the coming year.

In our tradition, the way we determine true repentance is not by what we say but rather by how we behave going forward. One of the values I like best about Judaism is its focus on actions. Doing the right thing means everything. Saying the right thing means nothing. If you talk the talk, you get no credit unless you walk the walk.

Years ago a wise Jewish commentator said true repentance is having the opportunity to commit the same sin over again but resisting that temptation and doing the right thing instead.

By that standard, Ayers has fully repented for whatever sins he might have committed 40 years ago. After his run-in with the law while protesting the Vietnam War, he has gone on to dedicate himself to teaching and making Chicago and its education system a better place for tens of thousands of students and families. As far as I know, he was never convicted of a crime during his Weather Underground days and has been totally law abiding ever since.

Although I was familiar with Ayers since I too worked and spoke out against the Vietnam War 40 years ago, I never heard the term "terrorist" applied to him or anyone else who opposed the war until this campaign season.

My dictionary defines a terrorist as someone who "uses violence or threats to intimidate or create a state of fear and submission."

While the activities of the Weathermen were clearly illegal and in some cases violent, they were a targeted response against the U.S. government. They were never designed to instill fear--they were designed to hamper the U.S. government's effort to prosecute the war. By no definition were those actions ever considered terrorism and even though most Americans (including me) felt they were wrong,over the line, and illegal no one ever called them acts of terror--until McCain came along.

In addition, even McCain supporters concede that Obama and Ayers have never been close and that the two men have essentially had no relationship at all over the last ten years.

One of the presidential candidates HAS been palling around with unrepentant terrorists very recently but it's not Barack Obama. That candidate is John McCain and the terrorists are his running mate and his increasingly angry and desperate supporters on Fox News and the radio.

Sarah Palin and her broadcast partners in crime have been spending virtually all their time trying to intimidate, coerce, and create a state of fear and submission among U.S. voters. Although John McCain has tried to stay above the fray by trying to calm down his most rabid fans at a recent rally, the very reason his supporters are screaming for blood--literally--is because they are being whipped into vengeful frenzy by the terrorists of the Right.

During the last couple of months, McCain has called Obama a traitor who's willing to lose a war for political gain, said Obama pals around with terrorists, that Obama has blown off the troops in Germany due to lack of press coverage, that Obama wants to raise taxes, that Obama lies, that Obama has sold his soul to Fannie Mae, and that he's not "like us." These are all points designed to cast serious doubts on Obama's character and fitness to serve. According to McCain's actions, we should all be very afraid of an Obama presidency.

Palin doesn't even pretend to be repentant. When Rush Limbaugh asked her if she was going to stay on the attack, she replied "Of course I will--what do I have to lose?" The fact that the inflammatory rhetotic used by her and the people who introduce her at rallies have prompted screams of "traitor," "terrorist," and "kill him (Obama)" doesn't seem to bother her.

All of these developments are sad and somewhat predictable. Fortunately they are also irrelevant since the duration of this campaign and new technology have enabled voters to view speeches and articles on demand. Most voters will make up their own minds about the candidates based on hearing and seeing them live and in action.

It is also encouraging that most Americans are clearly not giving in to the terrorists and seem to understand exactly what is going on. Since the McCain campaign promised and delivered on their stepped-up smear campaign two weeks ago, his popularity and poll numbers have dropped like a rock and his negative ratings have been soaring. The campaign is over, Obama has won, and we need to move on as a country. If anyone doubts that assessment and wants to bet on McCain, they can get better than 6-1 odds on Intrade

Still, it's ironic and disappointing that the McCain campaign can continue to stand the truth on its head and go unchallenged by the media. Fortunately, they are being challenged by the voters who know a terrorist when they see one and certainly recognize people who are unrepentant for their sins.

Monday, October 6, 2008

Stock Market Foreclosures--The Whole World Is For Sale

I have tried traveling around the world in search of the solution to
the meltdown in the financial system and stocks markets everywhere and
I am sad to report that I haven't found it yet.

I was in Hong Kong last week ushering in the Jewish new year with my
son Sam who works for Goldman Sachs there and we not only had to watch
the market collapse, we had to do it in a state of exhaustion in the
middle of the night. We Jews view the ten days between Rosh
Hashanah and Yom Kippur as the Days of Repentance. The holiday spirit
is truly upon us.

This has been a horrible year for the stock market with all of the
major averages down well over 20 percent and as I sit here on Monday morning,
all the Asian and European markets are down another 6 to 8 percent and our
market is trading down dramatically as well. As bad as it has seemed
for most of the year, the truth is that most of the damage has been
done over the last few weeks.

The depth and magnitude of the financial crisis has certainly come
into sharper focus in recent weeks. I sat in Hong Kong at 3 a.m. last
Monday as Congress voted down the rescue plan and $1 trillion in
wealth vaporized in an hour. On Friday I sat in Tucson at noon as
Congress approved the rescue plan and $500 billion in wealth vaporized
in an hour. It seems pretty clear that neither the facts on the
ground nor time of day nor geography seem to matter much in this

All this leads me to the point I want to make about what's really
going on. The gut-wrenching drops in stock prices are not related any
more to economic prospects or the decisions of Congress. Stocks, like
real estate prices before them, are in a foreclosure mode and values
have been destroyed by forced selling--major repentance for past sins.

We have all heard a great deal about the impact of massive foreclosures
on the housing market. We understand that the price of a house can drop
dramatically in foreclosure because it immediately goes for sale on
the market without regard to price. It doesn't mean that there is
anything wrong with the house. It just means that the owner is in the
horrible position of having to take whatever he can get.

In many markets around the country--and particularly here in
Arizona--many homes have lost 20-40 percent of their value during the
last year due to forced sales. Since most investors put 10 percent
down or less, they have lost their entire investment and the banks are
on the hook for the rest.

We have heard virtually nothing about a similar phenomenon that is
taking place in the hedge fund world. Hedge funds are private
investment funds which in many cases are not hedged at all. When I
started the Gellman Growth Partners 13 years ago, there were a few
hundred such funds in the world. Now there are thousands.

The managers of these funds now typically receive 2 percent of the
assets as an annual fees and 20 percent of the profits as a bonus. As
a result, the managers of these funds often take on great risks since
they don't personally participate in the losses but they get a big
chunk of the profits. To enhance those returns, virtually all these
funds--like our recently failed financial institutions--take on huge

Many of them are down 30 percent or more for the year and are now
either suffering through massive redemptions or going out of business
altogether. As a result, they are selling anything and everything
they have to raise cash before either shutting down completely or
sending big chunks of their remaining capital back to dissatisfied

What's the proof that this is going on? Look at where the huge losses
are being suffered in the market over the last couple months. They're
coming in the sectors that were the best performers over the last few
years where all the hedgies plowed in. Energy, commodities, global
infrastructure plays, technology, basic materials and emerging markets
stocks are all down between 40-60 percent in recent months. The BRIC
complex (Brazil, Russia, India, and China) markets are down an average
of 50 percent this year.

Meanwhile, against all logic, the home builders and many
financials--those that haven't gone broke--are trading at or near
their 52-week highs even as the fundamental news
about those sectors has been just horrible. That's because most of
the hedge funds either didn't own those sectors or, more likely, were
short them and have been buying those stocks to cover their positions.

So what is a person to do in this environment?

I can tell you that the smartest real estate people I know are
selectively buying properties at foreclosure sales confident that over
time they will do extremely well. I believe they are right, but they
may have to watch prices decline ever more before the market gets
flushed out.

I feel the same way about the stock market. Incredible opportunities
present themselves during times such as this because the markets
become so inefficient. But they are opportunities that are only
appropriate for those investors who are willing to take a long term perspective. The forced selling could end tomorrow or it could end weeks or months from now at lower levels. But when it does, the turn will come.

The biggest problem most of us face is that technology now enables us
to watch our portfolios on a real time basis all day long. During
times like this, the drops in value can keep us awake at night and
cause us to cry "uncle" at the worst possible time.

There is no doubt that our economy faces problems that won't go away for a long time. But there is also no doubt that this wave of forced liquidations is creating outstanding long term opportunities for patient investors. The only question is how patient we will have to be. I'd like it to happen in my lifetime.

One thing's for certain. There will be plenty to think about on Yom Kippur this week.

Wednesday, October 1, 2008

The Whole World is Watching--and It's Not Pretty


Like an impressionist painting, the political and financial mess that is besieging the U.S. seems much clearer from a distance.

I have spent the last week visiting my son here in Hong Kong where interest in our election campaign and economic meltdown are both intense and very personal. As in the U.S., wealth and jobs have been disappearing here at an alarming rate as the financial crisis that began in our country has spread throughout the world like an epidemic.

I have been hanging out with smart, ambitious young professionals who are really struggling to understand the seemingly bizarre behavior and suicidal choices that are coming from America’s political leaders. They all had the same question:

“How can a country that is so smart choose people who are so stupid to be their leaders?”

It has popped up in one form or another all week long. During that week, we sat together and watched the Katie Couric-Sarah Palin interviews. You can imagine how that went. Actually, no one said much. People were just searching for some explanation that would cause Palin’s candidacy to make sense. They want it to be less outrageous and frightening than it is.

We saw McCain suddenly promise to suspend his campaign (he didn’t) and suggest that his debate with Obama be delayed for no credible reason, much in the way Bush and Cheney were cancelled from the Republican Convention due to a weather forecast. We saw Bush and McCain then strongly urge their Republican followers in Congress to support the Paulson rescue plan. Then they assured Nancy Pelosi and the country that they had enough Republican votes to bring the matter to a successful vote.

We then watched in disbelief as two-thirds of the Republicans voted against the plan, their president, and their nominee less than 24 hours later. They precipitated a market panic that cost investors $1 trillion in the U.S. alone in just a few hours. After the vote, GOP leaders said they had been all set to vote for the plan they had agreed to support but then Pelosi got them all upset with her speech so they decided to get even with her by trying to destroy our financial system.

It really makes one proud to be an American.

So how do we get back on track? We need to stop defining ourselves and our political leaders in black and white terms based on party and ideology and instead look to be guided by truth and wisdom without regard to the source.

People are labeled and label themselves as either being on the Left or the Right, Democrat or Republican, liberal or conservative, for higher taxes or against them, for more regulation or for free markets, and so on.

This labeling has dumbed down both the level of conversation and the people themselves.. Our leaders have trapped themselves in ideological boxes which keep them from making intelligent decisions.

Don’t get me wrong. It’s important for people to have values and to stand for something. But they also need to be pluralistic and anxious to learn from and incorporate the best aspects of positions from the other sides because life is just too complex and nuanced to be an ideologue. As with most things, pluralism is the key to success.

In business we call pluralism using “best practices.” In sports we call it “cross training.” The top performers in every field use the approach to get even better at what they do. We desperately need it in political discourse because we just can’t afford to act this stupid any longer. There’s way too much at stake.

We can’t afford to continue the dishonest luxury of blaming “Washington” for our problems. In a democracy, we elect leaders to act on our behalf. If they decide that we need to fight wars, improve security, provide health care and social security, build bridges and roads, then we should insist that they make us pay enough in taxes to pay for them. If we don’t want the stuff they are buying on our behalf or it we can’t or don’t want to pay bill, then we should let them know or replace them.

Free markets are preferable but we can't afford to be stupid.

If our financial system is too important to the welfare of our country to be allowed to fail, then we need to create and enforce regulations to make sure that we never again come close to the position we find ourselves in now.

We need to preserve unfettered free market capitalism but only in those areas where success is desired and failure can be tolerated. That’s the essence of the entrepreneurial system that has made our country great. But at the same time, we can’t have Congress approving huge deficit spending and allowing system-threatening practices to run amok on Wall Street and then acting outraged at anyone but themselves when the taxpayers have to intervene to prevent a collapse.

When a criminal escapes from jail because the guard fell asleep with the cell door open, it’s the guard’s fault. Criminals are criminals—they do what criminals do. Wall Street is greedy. That’s what Wall Street does and is rewarded for. That’s why we have guards and regulators and a president and Congress to maintain control. When the guard falls asleep and things get out of control, the outrage should be directed at the guard and he should feel terrible about letting us down. We have seen none of that. On Capital Hill, it’s the Congressmen who fell asleep at the switch who are expressing all the outrage.

Where is the pluralism, the outreach, the self-examination? Is there anything about this that is complicated or hard to understand?

Viewing it from halfway around the world it all seems pretty simple. The only real question is if we as a country are ready to start acting like grownups or if we’re going to keep blaming Washington, illegal immigrants, liberals, conservatives, Wall Street, mortgage lenders—everybody but ourselves—for our problems. We know what we need to do. The only question is if and when we’re going to make it happen.