Tuesday, June 24, 2008

Americans Are Upside-Down In Everything

I am an optimist. I have been an investor and financial advisor for 30 years and am almost always fully invested. Over time that has been the right thing to do. The stock market goes up two years for every year it goes down and for all the mistakes I have made along the way I have done pretty well for myself and my clients over the long term.

That's why I'm so conflicted right now. My positive nature has never been more challenged. Not during the Crash of 1987, the Savings and Loan Crisis, the Tech Bubble, the Aftermath of 9//11. Never.

During each of those periods of dislocation, there were one or two dramatic events that shook our national confidence. Many people who were too close to those situations lost a lot of money and, for a time, consumers and the financial markets extrapolated their fears to the broader economy which, in fact, turned out to be fine. Eventually the markets and consumer confidence recovered and we moved on to new highs.

But this time it feels very different because Americans seem to be upside-down in everything. Being upside-down in a loan means that the borrower owes more money on an asset (mortgage, car, etc.) than the asset is currently worth. For example, if a homeowner owes $1 million on his mortgage but the house he bought with the mortgage money is only worth $650,000 then the borrower is upside-down on that loan.

We have all heard a great deal about the mortgage crisis. There are actually two crises. The first is that many people can not afford to make their mortgage payments. The second far-greater crisis is that millions of homeowners are upside- down in their loans. Many of them can make their payments, but it makes no financial sense for them to do so since they can simply give the home back to the lender and walk away. I'm sure there's great pain associated with that, but it would be worse to pay $1 million plus interest on a house that is only worth $650,000and dropping in value.

What we haven't heard about is all the people who are also upside-down in their car loans, credit card debt, and many other things.

I am part-owner of a Suzuki car dealership in Tucson. Last week, a woman came in with a good credit rating wanting to buy a car. She wanted to trade in her 2005 Suburban (on which she had never missed a payment) for which we were willing to pay her the $10,000 it is now worth. The problem is that she had taken out a six-year loan on the car when she bought it and still owed $28,000 in payments--on a car that is now worth $10,000.

To buy a new car, she would first have to pay the $18,000 difference between what she owed on her old car and what it is now worth. Then we would add on the payment on her new car. Of course she couldn't afford to do that so she left and will keep her $10,000 car on which she owes $28,000.

The biggest financial challenge facing Americans and our financial institutions is not just a sub-prime mortgage crisis. It is the following:

The value of the things people own (homes, cars, investments) is going down sharply and the price of the things people need to buy (food, energy, travel) is going up sharply at the same time.

And this is all happening at a time when most people and our cities, states, and country, are heavily in debt and don't have the flexibility to really address the situation.

Our country's leading banks have been laying off tens of thousands of people and raising billions of dollars in capital to help offset the loan-related losses they are realizing. At this point, the banks have dealt with most of the sub-prime problem. Unfortunately, they haven't begun to deal with the broad-based upside- downedness of many of their customers.

We are in the the third or fourth inning of this painful game--not anywhere near the end.

Sunday, June 22, 2008

Brace Yourself For an Epidemic of Tim Russert-Bear Stearns Syndrome

I was talking with a psychiatrist friend the other day and he asked me if I was having a hard time dealing with the death of Tim Russert.

I am sad about Russert's sudden passing and can remember feeling shock and sorrow when I learned that he had collapsed and died of a heart attack in his office during what appeared to be a normal work day at the age of 58. He was a great journalist and will certainly be missed.

But that's not what my friend was talking about. He told me that a number of his patients were having a very difficult time dealing with Russert's death because it hit too close to home. It was a stark reminder that our desire (and maybe need) to feel in control of our lives is probably doomed to fail. We want to feel that if we exercise, eat right, and avoid dangerous behaviors that we will live a long healthy life.

The sudden demise of a vital, apparently healthy young man like Russert was a stark reminder to many people that despite our best efforts we really have very little control at all. It was that unsettling and inescapable message that was such a disturbing wake-up call to my friend's patients who were already struggling to feel empowered and take charge of the scary parts of their lives.

Most of us are certainly intellectually aware that life is fragile and bad things can happen at any time for no apparent reason. But we tend to view the range of outcomes on the good or bad side as being somewhat limited. If you eat badly you will gain too much weight. If you eat well, you will be healthier. If you don't exercise enough you will be in bad shape but if you exercise too much you could hurt yourself.

The notion of winning an Olympic medal (on the good side) or suddenly dropping dead (on the bad side) are not outcomes that we dwell on because they are outside what we consider to be the range of normal.

All of which leads me to my real point which is that one of the reasons these are such challenging and anxiety-filled times for so many people is that we are getting a whole wave of occurrences that are so outside the range of what we considered possible and it is very disconcerting.

Just a few weeks before Russert's sudden death came the overnight demise of Bear Stearns which, like Russert, went from being a vibrant and well-known part of the American scene to gone forever in an instant.

This has been a very rough period for the financial services industry and over the last year, Bear Stearns' stock had dropped from $130 to the mid-$70 range. That wasn't a pleasant experience for shareholders but it certainly was within the range of a "normal" bad stretch.

But then, after closing at $70 a share on Wednesday, Bear Stearns was bought for $2 a share over the weekend just a few days later. The word went out that without the buyout, Bear Stearns would have gone bankrupt Monday morning.

This was a company that had been around for 85 years. It had survived the Great Depression, the Crash of 1987, 9/11, and 12 recessions along the way. Many of its 14,000 employees and investors had a large percentage of their net worth in their company's stock and had planned their financial future and retirement around what they thought was a reasonable range of potential outcomes.

Then, in an instant, it was all gone. Overnight.

As a nation, we are going through a period where it seems that conventional wisdom is no longer conventional and may not even qualify as wisdom. Our currency is crumbling in value. The value of everything we own--homes, cars, investments--is plummeting while the price of everything we need to buy (food, fuel, etc.) is skyrocketing. In a matter of just a few months, it seems all the walls are moving and no assumptions are safe anymore.

The slogans and reassurances of our political leaders seem particularly foolish and disappointing. They increasingly seem to either not understand what is going on or are unwilling to have an honest conversation with the American public about what's happening.

Politicians on both sides have been anxious to frame our economic problems as a sub-prime mortgage event where gullible consumers were tricked into over-extending themselves by predatory lenders. But it is now clear to any reasonable person that we are facing a nationwide crisis where many, many people have borrowed much more money against their homes, cars, and credit cards than they can afford to pay back.
It is equally clear that Bear Stearns may not be the only financial institution to bite the dust while this all gets sorted out.

And it's not just the economy that seems to be careening off the charts. There has been a numbing spate of weird weather and natural disasters in recent weeks that have killed or wiped out the homes and financial futures tens of thousands of people around the world and the United States. Floods in the Midwest, heat waves and fires in California, Earthquakes in Asia, and on and on. On the network news yesterday they didn't have time on the program to cover all the disasters

I have a feeling that my psychiatrist friend is going to be very busy for quite a while. He and his colleagues should brace themselves for an epidemic of Tim Russet-Bear Stearns Syndrome. At least the therapists will be making some money while the rest of us try to sort things out.

Monday, June 16, 2008

Shimon Ben Zoma for President! Vote the Pluralism Party!

Now that Al Gore has finally declared his support for Barack Obama, I feel free to announce my desire to support Shimon Ben Zoma as the one man who has what it takes to be the next leader of the United States. There are really only two problems with this endorsement--Ben Zoma was not born in the United States and he has been dead for almost 2,000 years. If it weren't for those details, I'd vote for him in a second.

Ben Zoma was a young rabbinic student who died before he could become a rabbi but he lived long enough to make a huge contribution to the lexicon of Jewish wisdom. He is quoted in the Mishna in Pirke Avot--the Ethics of the Fathers--as saying:

"Who is truly wise? He who learns from ALL people."

This is the essence of pluralism. It is different from being bipartisan (the appreciation of two points of view) or advocating tolerance, acceptance, or multi-culturalism which are either condescending by their nature or celebrate diversity for its own sake. These approaches can lead one down the slippery slope of moral relativism which would keep us from labelling some behaviors "good" and others "evil."

Effective leaders will always have strong beliefs and opinions. Being pluralistic requires them to acknowledge that no matter how smart they think they are or how strongly they feel, it is unlikely--maybe impossible--that they possess 100% of the truth. Being pluralistic means search for the partial truth in the beliefs of all people--even those we might disagree with most and, yes, even those we find to be evil.

The Hebrew Bible commands us to learn the difference between good and evil and to hate that which is evil. But it also reminds us that all people are created in the image of God. It seems to set the stage perfectly for Ben Zoma's statement. We need to learn from all people--or at least try--since even the evil ones are created in the image of God.

What we get from our political leaders today is the exact opposite. They tend to stake out their position on an issue and then seek to discredit and demonize those who disagree. There has always been negative campaigning but Karl Rove took it to a new level with his vicious smear campaign against John McCain in 2000 and the devastatingly effective Swift Boat ads against John Kerry in 2004.

My friend and teacher Dennis Prager was a major role model for me in the 1990's and helped me get excited about Jewish wisdom. It was from Dennis that I learned of Rabbi Yitz Greenberg's warning not to fall into the trap of comparing the best things about our religion or political views to the worst things about those of others with whom we disagree.

Now Dennis repeatedly rails against Democrats and Liberals on his radio show and notes that there is "zero wisdom" Left of center while he ignores the shortcomings of Republicans and people on the Right. Like so many others, he spends all his time and energy demonizing those with whom he disagrees and violates Yitz Greenberg's rule on a regular basis. It is disappointing to see the man who taught me many of these insightful and useful rules violate them so blatantly himself, but that is what hatred and our polarizing environment has done to many people.

Barack Obama and John McCain both seem to be good people who don't like that type of thinking or campaigning but it is clear that they have fallen in line with their party leadership in the early stages of their campaigns.

It opens the door for Shimon Ben Zoma to move in and fill the gap.

Over the next few days, I'll be laying out what a pluralistic platform might look like on a number of key issues confronting the world and our country. Stay tuned.

Sunday, June 8, 2008

I Don't Want To Brag, But....

The scenario for the presidential election that I predicted three months ago is now moving into its next phase and so far everything is unfolding exactly as predicted.

On April 22 (The Media Has It All Wrong--As Usual), I wrote that the Democratic primary race was over and that Obama had won. The math had become unforgiving for Clinton. The news media's addiction to the race made them unwilling and unable to admit that so we suffered through six more weeks of meaningless primaries and false suspense. But now, belatedly, we are moving on to the McCain-Obama matchup.

My other prediction seven weeks ago was that the election will be a blowout. Obama will trounce McCain in a landslide.

Most polls show the two candidates running about even and we can watch the cable news pundits go over the red state-blue state scenarios and show how close the election is and how either candidate can win. Argument in favor of McCain is based on the premise that a large number of Americans will find Obama unacceptable and that many Clinton supporters are so angry about Hillary's loss that they will move to the dark side in protest.

It has become pretty clear in just the five days since Obama clinched the nomination that neither of those scenarios will play out.

Since the moment he clinched the nomination a few days ago, Obama has moved quickly and decisively to take control of the Democratic National Committee operations and install some of the bright and capable people who engineered his amazing upset in key positions. He is using his large money advantage to continue to campaign aggressively and a wide variety of state and regions. Most important, he has ignored the negative campaigning against him and remained totally positive with his message of hope and change.

As I predicted, it didn't take long once McCain started to come back into focus for Americans to realize what a weak candidate he will be. Like Bush, he is a terrible speaker and often looks confused and uncomfortable on television. On the substance side, he is strongly pro-life and anti-choice and has voted along with Bush 95% of the time over the last four years. Since becoming the Republican nominee he has flip-flopped on many of the courageous stands he took that earned him his "maverick" status. For example, several years ago he opposed the Bush tax cuts claiming it was "immoral and wrong" to give the wealthiest Americans a tax cut while we had men and women fighting a war that we couldn't pay for. Now he favors making those "immoral" tax cuts permanent.

Now that Clinton is on the Obama team and supporting him strongly, her supporters will quickly follow. For all of their talk about leaving the party or voting for McCain, most Democratic women would rather cut off their hand than use it to vote for a guy who is anti-choice, favors tax cuts for the rich, and has been a strong supporter of the Iraq war from the outset.

As I said before, there is zero chance that Obama will ask Hillary to be his vice-president but she has no choice except to support him vigorously after she behaved so badly during the last month of the primaries.

I also predict that Obama will take McCain's advice and visit Iraq during the coming months. He will also stop in a number of other countries as well and be greeted like a rock star. Most Americans only vaguely remember what it's like to have their president loved and respected by our friends overseas. That will just add to his momentum on the way to a landslide win in November.

Remember, you heard it all here first.

Wednesday, June 4, 2008

Hillary Needs to Fade Away--For Her Own Sake

What do we learn from the self-destruction of Hillary Clinton? A lot!

First and foremost let me say that there is no way in the world that Obama will ask her to be his vice-president. This was always the decision that Obama should have made but Clinton has made it so easy for him with her recent behavior that I continue to be amazed that the addicts of cable news seem to be able to talk about little else. By going so public with her desire for the job, she has created a situation where Obama can't pick her without seeming weak and malleable. His biggest challenge right now is to be strong and presidential.

I declared the race for the nomination to be over in a post months ago. It wasn't a prediction--it was a statement of fact. The math had become totally unforgiving to Hillary. Obama was up five holes with four left to play. Match over. The vice-president thing is a little different because it is much more subjective but it too is now so over.

Why would Obama want Hillary on the ticket? She and Bill have centainly done neither him nor the party any favors in recent weeks. One of her two stated reasons for sticking around in the campaign was because Bobby Kennedy was assassinated in June so anything can happen. That statement was so raw that she immediately backtracked and apoligized to the Kennedy family. But she never apologized to Obama for implying that she was hanging around in case he got shot and she never implied that she shouldn't have said it. Before that she said that she could get the votes from white, hard-working voters and Obama couldn't. Then, last night, her court jester Terry McAuliffe introduced her as "the next president of the United States" and no one--including Hillary--made any reference to the fact that Obama had actually won the nomination.

Today, all the experts are talking about the great strengths that Clinton would bring to the ticket as V.P. Let me get this straight. Here is Hillary Clinton who came into the first primary five months ago as the presumptive nominee. She had a lead of 22-30 percentage points over Obama in all the major polls. She had all the money, all the momentum, and it seemed as though the primaries were just a formality.

Obama came out of the blocks in Iowa and never looked back. He led the race from wire to wire and outraised Clinton by tens of millions of dollars. Bill has been a liability almost from the outset like the crazy drunk uncle who is always ruining Thanksgiving dinner by blurting out the wrong thing. Meanwhile, the Clinton campaign staff and message were reshuffled repeatedly as it managed to run up a $20 million debt and blow the biggest lead in American political history.

And now we're told that Obama needs Hillary to win! What am I missing here?

Hillary spent the first three months of the year proving that she couldn't win a national campaign no matter how big a lead in money and support she started out with. She loved portaying herself as the scrappy underdog for the last two months but she was only in that position because she found a way to lose 11 straight primaries and caucuses and send her campaign into financial ruin.

Then she and Bill flipped from being incompetent to being evil as well. They attacked Obama--even when they could no longer win--in ways that could only hurt the Democratic Party and help McCain.

I view the Clintons as being comparable to a basketball team that was favored to win the championship game but ended up down 30 points with 5 minutes to go. There was a little time left on the clock but the game was over. The winning team put in its reserve players--just like Obama stopped campaigning against Hillary a month ago and starting campaigning against McCain--because the outcome of the game was not in doubt, only the winning margin.

But the Clinton team left its starters in until the end. In addition--and here's the telling part--they committed hard fouls designed to injure their oppenents in an effort to stop the clock and prolong the game. A team that competes hard after all is lost can't necisarily be criticized for that. But it says a lot about a team's character--all of it bad--when a team tries to injure its oppenents EVER--but particularly after the outcome of the game is no longer in doubt. Then, in another classless move, they screamed that the game was stolen from them by the referees.

The keen political instincts that served the Clintons so well for years have completely atrophied in recent weeks.

Obama will continue to be respectful to Clinton because it is the right and smart thing to do. But unless Hillary and Bill start behaving like grownups soon, they will be damaging their position in the Democratic Party so badly that no one will want them around in any capacity.

In her non-concession speech last night in which she repeatedly talked about how she had earned the right to be the Democratic nominee, she said everyone had been asking her "What Does Hillary Want?" She has to quickly understand that the game is over and nobody cares what Hillary wants. They want to help Obama beat McCain. They just want her to start doing what defeated nominees are supposed to do--figure out how they can help the party and the guy who won. That seems to be the furthest thing from the Clintons' minds right now.

By the way, she is also benefitting from reverse-sexism. This kind of whiny, self-absorbed, selfish and damaging behavior would never be tolerated from a man. Yes she ran a hard race and yes she really wanted to win. But so did John Edwards, Mitt Romney, Mike Huckabee, and others. None of them behaved so horribly when it became clear they had lost and none of them acted in a way that was damaging to the party or other candidates. In politics, only one person can win and when you lose you lose. End of conversation.

I'm hoping that the Clintons' conversation will end--very soon--so Obama and McCain can engage each other without the sideshow we have endured for the last two months.

Sunday, June 1, 2008

Addicts Always Lie to Their Pushers

I have always loved that line which New York Times columnist Thomas Friedman has used several times as his way of explaining why the Bush administration behaves so deferentially to the Royal Family of Saudi Arabia--the home of almost all of the 9/11 terrorists and the largest funder of anti-American terror in the Middle East. Friedman says it's all because we are addicted to their oil--a diagnosis that is actually shared by Bush himself.

It seems that this is also the reason why the news media in general and the cable networks in particular continue to pretend that Hillary Clinton is still a viable candidate for the Democratic presidential nomination. They are addicted to watching this particular white woman and black man engage in this political cage fight and they just don't want it to end.

As I stated in a previous post, the contest ended months ago when Barack Obama ran the table on 11 straight primaries and built a huge lead which has continued to grow up until this day.

Nevertheless, perhaps worried that they will be branded as sexist, the media has essentially accepted without question the assertions of the Clinton campaign that the game is still on and there is still a pathway to a Clinton victory.

Let's briefly look out how outrageous those claims are.

Yesterday, Clinton supporter Harold Ickes complained that the Democratic National Committee had "hijacked" delegates from Hillary in Michigan. Ickes is a member of the party's rules committee and was there late last year when that committee decided to strip Michigan and Florida of ALL their delegates for breaking party rules and ruled that any primaries held in those states before February 5 would not count. Neither Clinton nor Obama campaigned in those states and Obama's name wasn't even on the ballot in Michigan. Those were the rules of engagement and both candidates knew and accepted them.

There was no complaint from the Clinton camp when the rules were set. Hillary herself said in an interview that Michigan didn't matter and that "the result there won't count."

The Clinton folks also said then that the nomination was "all about the delegates" and it was clear that under the rules, the candidate with a majority of the delegates would win.

Now that Obama is ahead by all measures, the Clinton folks claim that it's really the "popular vote" that matters and that Clinton is ahead in that category. But she's only ahead if she is credited with all the votes she got in Florida and Michigan and Obama is counted with zero votes in Michigan since his name wasn't on the ballot. It also disregards all the caucus states like Washington, Iowa and others which Obama won by a large margin.

Now the Clintons are pointing to Puerto Rico as a key state even though Puerto Rico has no votes in the November election.

It's disappointing but not suprising that the Clinton people are making these claims. Like everyone else, just a few months ago they expected Hillary to win the nomination easily and they don't want to give up.

What is a little shocking is the manner in which the news media has taken the bait and not only pretends the race is still up for grabs but also actually buys into the Clinton vocabulary about the popular vote and refuses to report the real news which is that Obama has won the nomination.

As I try to figure out what's going on here, I think of Tom Friedman's line.

Addicts never tell the truth to their pushers.

The media--and Fox, CNN, and MSNBC in partiuclar--are addicted to the Clinton-Obama race. They can't tell the truth about it because they don't want it to end. For months now, all three of the cable news networks have devoted more than 80% of their prime news coverage time in the late afternoon and early evening to the campaign and 20% to everything else that's going on in the country and the world.

John McCain gets mentioned occasionally, but it's mainly been all about Barack (and Michelle, Reverend Wright, and Father Pfleger) and Hillary (and Bill and Chelsea)like a great big addictive soap opera.

In addition, it's been an economic windfall for the networks and dozens of "experts" who used to be on the air for 10 minutes every other week or so but are now on for hours at a time every single day.

They talk and talk and talk about the same things over again even though there is really nothing to talk about. They all talk about Hillary being ahead in the popular vote even though the popular vote has no bearing on nominee selection under the rules. It would be like say that a basketball team that was beaten by 20 points should really be declared the winner because it had more assists or rebounds.

They argue about whether the race is really over or it there is anything that Clinton can do to win the nomination even though there has been no way for months.

As I said, It's not suprising that the Clintons are doing whatever they can to stay alive in the race. It's really shocking that the media is playing along so blatantly and shamelessly. It is yet another indication of how entertainment and celebrity creation has replaced journalism on television. As a former TV news reporter it makes me feel sad--and old.

Like all addicts I guess they need to keep their pushers happy.