Friday, September 26, 2008

Less Outrage and False Piety--More Repentance

Maybe I'm getting smarter or maybe I'm just getting old. But more and more I look at what's going on in the world and think the conventional wisdom and behavior is not just wrong but completely upside down.

That's certainly the way I felt watching Henry Paulson appear before two Congressional committees last week. There was a lot of outrage expressed during those hearings, but it seemed to me that the criticism was going in the wrong direction.

Unless I missed something, it was Congress that approved the combination of budgets, spending, and tax cuts that has led our country into near bankruptcy. And it was Congress that abdicated its oversight responsibilities as the agencies that regulate Wall Street and our banking system were neutered by the Bush Administration. It was Paulson who stepped in as Treasury Secretary just a couple years ago to try to sort out the mess.

It was appropriate that outrage be expressed during those hearings, but the criticism should have been directed from Paulson to the members of Congress. "What were you thinking when you approved these budgets? How could you let the President send a strong message to Wall Street that the regulators would look the other way as they leveraged up their companies, their clients, and the whole country to a point where disaster became almost inevitable." That's what he was entitled to say.

Instead, of course, the vitriol flowed the other way. Not a single member of the House or Senate began their questions and/or invectives by apologizing for the role they had personally played in allowing this disaster to happen. And, of course, not a single member of the news media pointed any of this out.

The irony is only compounded by the fact that the $700 billion rescue plan is referred to as a "bailout" when in fact it is far more of an investment opportunity that could enable the government to recoup some of the huge losses it has already suffered through its negligence of the last eight years.

That money would be used to buy substantially solid long term assets at fire sale prices from financial institutions who are desperate and starved for liquidity. Warren Buffet has said he would love to be able to borrow $700 billion to pick off the merchandise that our government would be buying because he thinks he would make a big profit.

Much has been made about the government takeover of AIG, Fannie Mae, and Freddie Mac. I haven't seen a single article or news report mentioning that during the last week, the stocks of all three of those companies skyrocketed to levels which would give the U.S. government a huge profit on those investments.

This plan is not a bailout of Wall Street. Every company that has been "bailed out" has provided the government--or J.P. Morgan Chase which bought Bear Stearns--a nice profit. J.P. Morgan stock is up by 15% since it bought Bear Stearns, despite the worsening financial crisis. The shareholders and employees of every company that has been "bailed out" have lost virtually their entire original investment.

Are there any journalists left in the world to point this out or is it just me?

But I have always had a problem with misplaced outrage and false piety.

When I first started studying Jewish texts and wisdom in a serious way 20 years ago, I was encouraged by several of my teachers to start wearing a kippah--the skull cap worn by traditional Jews--when I went to the synagogue or Jewish community events. The wearing of kippot is a tradition--not mandated in the Hebrew Bible--design to constantly remind us that we are accountable to a higher authority for all our actions.

So I started wearing a kippah for a while but not in the synagogue. Instead I wore it in my office where I worked as a financial adviser. Why in the world would I wear it in synagogue where I was in no danger of doing any harm to anyone? Where I really was challenged was in my work where I was making investment decisions for people who were counting on me to secure their family's financial future. That's where all the challenge and temptation lurked. I never understood the mainstream thinking on this and still don't.

By the way, it's not just a Jewish thing. I now occasionally go to mass in Greenwich CT with my wife and her family where I am told to be on my best behavior and use my "inside voice." Being raised as a first born Jewish son, I was never told to behave and I didn't know what an inside voice was. But think about it. Wouldn't it be better to just chill out in church and then use your inside voice and behave really well the rest of the week when you are out in the world and can do some real damage?

Anyway, as luck would have it, we Jews are approaching the New Year season where we are supposed to repent for our sins and negotiate with God for the right to be included in the Book of Life for another year.

I would like to see our Congress draw on the spirit and lessons of the Jewish High Holidays and do some serious self-examination and repentance. Put the outrage and false piety in a sock and leave it there. Let's hear a little more honesty about your shortcomings and sins as you entreat God and your voters to allow you more time on earth and in office.

I would also plead with the journalists who have gone in to hiding to please come back and be part of the solution instead of exacerbating the problem.

As for me, I will just wish you all a happy and healthy new year and pray that either I or the rest of the world be given a better understanding of what is really going on.

Saturday, September 13, 2008

Journalists--An Endangered Species

The dizzying ramp-up of lies and distortions coming from the McCain-Palin campaign have left many Obama supporters scratching their heads and wondering what ever happened to journalists.

You remember journalists. They were the reporters and analysts who used to make sure that stories were true before they published or went on the air with them. Remember a couple reporters named Woodward and Bernstein who doggedly pursued the truth about Richard Nixon and the Watergate scandal? They were journalists. Today, there are virtually no journalists left and none of the few who remain work in radio or television.

Those former broadcast journalists have morphed into one of three types of people. The first are the partisan pundits who cherry-pick among the factoids that support their points of view. This group includes virtually all talk radio personalities and many hosts of TV shows that typically bear their names. These programs are characterized by their lack of balance and the use of partial or incomplete information.

The second are the news readers--almost all of whom are physically attractive--who deal with political issues by inviting a loud, rude surrogate for each campaign to yell and scream at each other at the same time. This is what's called balanced reporting. The role of the moderator is to serve as a referee--not to worry about whether their guests are telling the truth.

The third group are people who used to be real journalists but have now become celebrities. These former reporters who used to be occasional guests on TV news shows are now daily guests on multiple programs. They earn most of their money by charging $25,000 to $50,000 plus expenses for personal appearances and spend much of their time blogging. They just don't have the time to check out facts anymore.

Wolf Blitzer, Andrea Mitchell, and David Gregory are among those who used to be journalists. Now they are celebrities with book tours, agents, and publicists. Don't get me wrong--I don't blame them. They should live and be well. It's just a tragedy for all of us that no one has stepped in to take over their old jobs.

The brilliance of the Karl Rove-trained handlers of the McCain-Palin campaign was to realize the vacuum that has been created by the disappearance of journalism and to exploit it by using lies and distortions to smear Barack Obama and build a phony resume for Sarah Palin.

The Republicans have used this playbook before. That's why so many Americans (apparently including Sarah Palin) still believe that Iraq and Saddam Hussein were involved in the 9/11 attacks. That's why the absurd Swift Boat ads worked so well against John Kerry. Democrats were scratching their heads wondering how their opponents could tell the same lies over and over and have the strategy work. Rove understood that the absence of real journalists meant you could ignore the posted speed limits and go as fast as you wanted--there were no cops around to catch you.

"In the last two election cycles, the very notion that facts matter seems to be under assault," said Michael Delli Carpini of the University of Pennsylvania's Annenberg School of Communications. "Candidates seem to have learned that if you don't back down from your charges or claims, they will stick in the minds of voters regardless of their accuracy. The truth will be viewed as a matter of opinion rather than fact."

Shortly after Steve Schmidt took the McCain campaign out of the hands of McCain and his old team, things got pretty outrageous. McCain called Obama a traitor who was willing to lose a war and was a "me first, country second" kind of guy and then said he wasn't questioning Obama's patriotism. He said Obama cancelled a trip to visit U.S. troops in a German hospital due to lack of press coverage which was a lie. He has said and continues to say that "Obama wants to raise your taxes" while every independent study of Obama's plan has determined that 80-90% of Americans would get a tax cut under his proposal.

Through it all, the only people who seemed to get upset about this were the partisan commentators like Frank Rich, Keith Olbermann, Bob Herbert, and Paul Krugman who could be dismissed or discredited as Left Wing Liberals. The mainstream media simply reported the lies and attributed them to the McCain campaign but almost never pointed out that the information was false.

The McCain-Palin lie machine has been put into overdrive since the Republican Convention. They have stuck to claims made about Governor Palin's past positions on earmarks and the Bridge to Nowhere long after they have been proven false. They falsely accused Obama of calling Palin a pig and also lied by saying Obama wanted sex education classes for kindergartners.

The good news is that the level and frequency of lying by McCain has apparently jarred some sleeping journalists out of hibernation. Articles are FINALLY starting to appear pointing out the untruths that are being spread. The five most emailed articles from the New York Times today were all about the lies and deceptions being spread as truth by the McCain campaign. Charles Babington of the Associated Press just wrote a scathing article expressing his outrage over the tactics of the McCain-Palin campaign.

It will be interesting to see what impact, if any, this mini-wave of vigilance by reporters will have on the public's infatuation with Sarah Palin and John McCain's surging popularity in the polls.

Journalists of America--please come home. Please cut back on your personal appearances and celebrity spots for a few months. Spend less time standing on camera in sideways rain in Galveston and do your job again. Your country has never needed you more.

Monday, September 1, 2008

McCain's Macaca Moment

There is a certain ebb and flow to most political campaigns. One candidate or the other develops positive momentum and takes a lead. The other either mounts a comeback or doesn't but these things tend to develop over time. Seldom is there a seismic event that causes an otherwise competitive race to become a landslide overnight.

A memorable exception to this rule occurred two years ago when incumbent Republican Senator George Allen of Virginia was running for re-election with a comfortable lead when, for some reason, he decided to taunt a non-caucasian photographer who was filming him at a campaign event--repeatedly calling him "macaca." That term is an African racial slur used against Black people and word itself is derived from a word for "monkey."

Suddenly the campaign was over. Underdog Democrat Jim Webb became an overwhelming favorite and won the election easily. What was a competitive race ended overnight months before the election due to a single disastrous decision.

It's still to soon to tell, but John McCain may have had his Macaca Moment last week when he shocked the political world by picking Governor Sarah Palin of Alaska to be his running mate.

McCain began the week with positive momentum. He had pulled even with Barack Obama in most national polls and had gone ahead in a few of them. Then he got hit with a hugely successful Democratic Convention where Michelle Obama, Hillary Clinton, Bill Clinton, Joe Biden, and Barack Obama hit the ball out of the park in five consecutive at bats. Then, the next day, McCain announced that he had picked Palin, a former beauty queen who he had met one time to be his vice-presidential candidate.

By the end of the week, Obama's lead was back up to eight percentage points. I believe the race is over.

The pick was clearly a desperation move by the Republicans who realized after Denver that McCain had no chance to beat Obama unless they threw and connected with a Hail Mary pass. So they abandoned McCain's "maverick" choice of Joe Lieberman and the "ready to be commander in chief on day one" choices of Tom Ridge and Mitt Romney for a young attractive hockey mom who had never lived outside Idaho or Alaska and had no experience in the areas of national security, foreign affairs or economics.

Now they act shocked that they are learning details about Governor Palin's past that are surprising and disturbing. What did they expect? They never sent a team of McCain people to Alaska to learn about her themselves until four days after they picked her.

McCain campaign was seriously damaged in July when he violated his earlier promise not to run a negative campaign. With Karl Rove protege Steve Schmidt calling the shots, the campaign went into full smear mode with McCain calling Obama a traitor who was willing to lose the Iraq war and a person who didn't care about genocide.

But in late August, McCain seemed to be back on track and gaining traction until he self-destructed with the Palin pick.

Now every effective line McCain has used against Obama can be thrown right back at him. How can McCain dwell on Obama's inexperience when he has picked an even younger less experienced person to be a heartbeat away from the Oval Office? After McCain questioned Obama's patriotism, he announced that "I'm not questioning your patriotism, I'm questioning your judgement." Who isn't questioning McCain's judgement after this inexplicable selection?

The Republican pipe dream that Palin will somehow enhance McCain's status as a maverick and would attract disgruntled female supporters of Hillary Clinton was flawed from the start. The selection of the anti-choice, pro-gun Palin who supports teaching creationism in the public schools shows McCain to be firmly under the control of the most Conservative Right Wing elements of his party. And it has already been pointed out by many women that to assume Clinton supporters would ever warm up to Palin is an insult to their intelligence.

They used a sketchy weather forecast as an excuse to cancel George W. Bush and Dick Cheney from the Republican Convention. At this point, they might as well cancel the whole thing.

The race is over. McCain has knocked himself out with one punch.

Here's What is Really Wrong With the Economy

We are in the eye of a Perfect Storm when it comes to silliness and downright stupidity of assessments regarding the state of the U.S. economy and what should be done to get things back on track.

That’s because we are in the vortex of a high pressure front. We have an election in two months when virtually every public office holder is up for grabs. Those who seek to fill those offices are trying to sound wise. That is combined with the new 24-7 news gathering cycle where every television station, newspaper, and blogger feels under pressure to provide constantly updated factual information and great thoughts regarding the state of things as of this moment.

As a result, politicians say the dumbest things and reporters and pundits repeat them as fact since those reporters—particularly on television—are no longer journalists. They are celebrities with agents and blogs who often make more money from outside speaking appearances than they do at their day jobs.

One of the most troubling consequences of this state of affairs is the foolishness and misinformation that is being spread regarding our economy which has been in profound distress for quite some time now.

First the news media spent months trying to determine if the U.S. economy was in recession—as if that mattered.

What matters is that we have been going through a vicious downturn that is unprecedented in my lifetime. In my 30 years as a wealth manager I have been through severe market downturns and recessions. Most of them have been events based on the unwinding of market excesses or external events. The Crash of 1987, the Savings and Loan Crisis, Hedge Fund blowups, and the attacks on 9/11 were behind a few of those dislocations.

In this case, the meaningless speculation regarding the presence or absence of a recession soon gave way to an effort to label the current snafu as a Sub-Prime Mortgage Crisis. It was a problem affecting a number of mortgage companies and other lenders who had engaged in unwise or unethical lending practices to get low-income and middle class people to buy homes they couldn’t really afford using deceptive loans with teaser rates that had the potential to blow up on them.

Until just a few months ago, that was the conventional wisdom and in some circles it may still be.

But the truth is far more serious and much more pervasive. As I wrote months ago, I have never lived through a period where the value of virtually everything that people own (homes, cars, investments, jobs) has plunged at the same time the cost of all the things we need to buy (gas, energy, food, health care) has gone through the roof.

And for millions of people across the income and net worth spectrum this shift has been so sudden and dramatic that it has left them in a state of shock.

The sub-prime problem has been well documented. But there are now millions of people who have six-figure incomes and seven-figure net worths—including many whom I know personally-who are “upside down” in their homes, cars, credit cards and investments.

Upside down is one of those great descriptive terms that in credit circles is used to describe a situation where a person owes more on an asset than the asset is currently worth. Being in default means that you can’t afford to pay your mortgage or car loan. Being upside down means that it doesn’t make sense to make your payments even if you can because you owe, for example, $800,000 in principal on a house that is now worth only $600,000 or $20,000 on a car that is only worth $10,000.

Right now, there are 9 million homes in foreclosure in the U.S. because the owners were either in default or upside down in their mortgages and gave the houses back to the lenders. A large number of those were sub-prime loans but foreclosures in that category are slowing down. Delinquencies are exploding however in the prime loan area. It is estimate that over the next year another 5 million homes will go into foreclosure with the vast majority of those coming from defaults on prime quality mortgages.

What happened? Nothing that seemed all that dramatic at the time. People with good jobs and houses that had appreciated in value were encouraged by their lenders and the tax laws to unlock some of the equity in their homes. A person that bought a $500,000 home and took out a $400,000 mortgage six years ago was told the home was now worth $1 million and that they could easily afford to borrow another $400,000 against it and still have $200,000 in equity.

Millions of home equity loans and refinancings boosted the profits of lenders and Americans were able to spend more and do more. When that money was gone, many of those people kept living beyond their means and used credit cards to finance the lifestyle they had come to regard as normal.

Then, seemingly overnight, the value of housing began to drop, monthly payments on loans and the cost of everything else from food to gas to energy to health insurance began to skyrocket and the economy began to slow. Many people have lost their jobs or seen their incomes drop or stagnate while the value of their investments—particularly in the home building, financial services, automotive, and retailing companies fell off a cliff.

The sharp rise in the cost of gasoline has been wrongly blamed by politicians and the media for much of it. While it’s true that gas prices spiked sharply, for all but a few people that has meant an increase of $50-$100 in their monthly bills. Much of that increase has rolled back in recent weeks. While that was unpleasant, it doesn’t explain the tens of thousands of dollars in debt that millions of families have run up—debts that they now can’t pay.

The same thing was happening to our Federal government at the same time. As a country, we ran up debts for wars, homeland security, health care, disaster relief, stimulus packages--you name it. Taxes, which are the way we pay our bills for the goods and services our elected officials buy on our behalf, have been framed by Republicans as some sort of evil and pernicious assault on our freedom. Candidates of both parties are arguing furiously about who should pay how much of the tab, but the real issue is that the bills simply aren’t getting paid. Our national debt has doubled from $4 trillion to $8 trillion in the last eight years and that doesn’t count the $5 trillion in outstanding mortgages that the government has promised to back.

As usual, the news media has allowed the politicians to frame an irrelevant bit of trivia—whether the rich should pay more or less in taxes—as the main point when the real issue are the facts that we’re not paying our bills, we’re falling further and further in debt, and the value of our currency has crumbled world wide increasing the cost of every commodity we buy.

Meanwhile, everyday the news anchors keep asking the “experts” every day if now is a good time to buy cheap bank stocks and if the market has bottomed. After all, "blue chip" companies like Citibank, Wachovia, Merrill Lynch, Lehman, Fannie Mae, and Freddie Mac are down 50 to 90 percent in value in just a few months and Bear Stearns has disappeared altogether.

Maybe these price reflect all the problems and maybe they don't But one thing is for certain. We are facing very serious economic problems that we have haven’t even begun to address. The answer lies in behaving like grown-ups--not in arguing over who should pay what percentage of the bill that is not being paid anyway.