Thinking about politics

Really thinking, not playing along with the team.



Individual videos of independents and Republicans explaining why they plan to vote for Obama are here.

Pastrami update

The brisket sat in the pickling brine for three days. (A few hours short of the whole 72, actually, but who's counting?) And this evening I dusted it with toasted, freshly ground black pepper and coriander and moved it into the smoker pit.


Because it's supposed to smoke very slowly (Ruhlman and Polcyn write that usually, pastrami is cold smoked before it's finished in a hot smoke environment), I set a pan of ice in the pit with the meat. You can see that even after the 10 minutes or so it took me to get the photo, the ice has begun to discolor from the smoke.

As I write this, the ice is gone and the meat is getting warmer. Currently it's cooking at about 275 F.

I'll have pastrami before bed time.

Travelling show again and again and...

My magnet painting on the flank of a Toyota Tundra in Greenville, TX. Photo courtesy of Josie.

Two thirds of the economy

Consumer spending represents two thirds of US economic activity. Reuters reports today that the US Commerce Department's estimation of the economy shows we the people tightened our belts considerably in the past quarter:

Consumer spending, which fuels two-thirds of U.S. economic growth, fell at a 3.1 percent rate in the third quarter -- the first cut in quarterly spending since the closing quarter of 1991 and the biggest since the second quarter of 1980. Spending on nondurable goods -- items like food and paper products -- dropped at the sharpest rate since late 1950.

We're eating fewer pork chops and more beans, it seems. As to that new Ford F-150 pickup Bubba wants to buy, well:

Consumers cut spending on durable goods like cars and furniture at a 14.1 percent annual rate in the third quarter, the biggest cut in this category of spending since the beginning of 1987. Car dealers have said that sales have virtually stalled, in part because tight credit makes it hard for even creditworthy buyers to get loans.

A friend of mine owns a car dealership here, and I'm afraid to ask him about his business. A downturn in a business sector of a magnitude not seen in over 20 years can not be ignored. Tightened credit (an artifact of the general financial malaise in the wake of years of unregulated trades in improperly valued financial instruments) is only part of the issue here.

Continuing job losses coupled with declines in the value of stocks, other investments and housing prices have put consumers under severe stress. The GDP report showed that disposable personal income dropped at an 8.7 percent rate in the third quarter -- the steepest since quarterly records on this component were started in 1947...

This is a prima facie case for supporting and expanding the middle class. The US economy is structured upon a foundation of middle class spending. Losing 8.7% of our buying power screws even the rich.

This is why I support Obama's tax plan.

Coupla financial blogs

I've referenced Barry Ritholz's finance blog here a few times, and though a bit more technical than I can easily digest at times, it is a good source of reasoned, non-ideological information about our current meltdown.

Tonight, for the first time, I visited James Surowiecki's blog at the New Yorker online. The guy's good. His print columns are better, of course, but he offers a fresh and sometimes very personal take on developments in the economy. This entry from today poses an interesting move in Social Security, for example:

A couple of weeks ago, economist Brad DeLong suggested (at least semi-seriously, I think) that now might be a good time to “take the Social Security Trust Fund balance out of Treasuries and move it into equities.” As he put it, “Buy low, sell high after all. Just saying…”

This idea was proposed by the Clinton Administration, but didn’t get much traction, in part because Alan Greenspan opposed it for what, in retrospect, looks like largely ideological reasons, namely his disbelief that the government could own U.S. equities without interfering with corporate behavior. This isn’t entirely a red herring, but it’s hardly an insuperable obstacle, either. And given the massive government interventions we’ve seen in the past few months, having the government invest in index funds hardly seems like some intolerable transgression of free-market principles, either. (That’s not even to mention the fact that the sovereign wealth funds of myriad foreign governments have already bought major stakes in American companies, without any obvious disastrous effects.)

Given the market’s current turmoil, it is, of course, unlikely that you’re going to be able to convince members of Congress that now is the time to “gamble” our retirees’ future in the market. But any reasonable expected-value calculation would have to say that it would be sensible to put at least part of the fund into equities. The current yield on a five-year government note is just 2.5 per cent, while the dividend yield alone on the S. & P. 500 is well above three per cent. So even if the stock market goes nowhere for five years and companies keep their dividends flat over that time period (both of which are incredibly unlikely), the trust fund would still come out ahead. And in the more likely scenario, which is that the stock market eventually rebounds from these lows and reverts to its typical performance, the trust fund would come out way ahead. Some may have taken DeLong’s idea as a Swiftian modest proposal, but it’s sounding more sensible every day.

Not that it's ever going to happen. And I suppose in the long run it shouldn't happen. Imagine the effects of a multi-trillion dollar buying spree in a market as volatile as the current one.

Geezer test

Essay portion:


Generation WE: The Movement Begins... from Generation We on Vimeo.



Compare and contrast.(25 points)

Extra credit:



We had our chance. What did we make of it? (10 points)

Pastrami

My family will gather at my house Sunday. I'm making pastrami for them, using the recipe in Brian Polcyn and Michael Ruhlman's book Charcuterie. Currently, I have a beef brisket in a pickling brine in the refrigerator. It's been there for about a day. Two more to go. After three days of brining, it'll get patted dry and rubbed with black pepper and coriander. Then comes the smoke.

Tonight it looks like this:


The brisket started out at five pounds, but the salt and sugar in the brine will draw some moisture (and therefore weight) out during the meat's time in its bath. I imagine I'll end up with about four pounds of pastrami.

Car Art in Nebraska

The "Painting is Never Traveling Show" as it looked earlier on a big Ford van in Omaha. Image courtesy of Jill and Stan.

Paddy Hirsch talks credit default swaps

Video from American Public Media's show Marketplace:


Untangling credit default swaps from Marketplace on Vimeo.

It's a doozy, that credit default swap biz. Things go swimmingly as long as they swim. But the credit downgrade twist where a company like AIG has to up its collateral against its obligations when it's perceived to be in trouble is crucial. Once the decline begins for a company that's too deep into CDSs, the outcome is pretty much a "slam dunk," so to speak.

And the option to bet against an insurable item -- corporate bonds in Hirsch's example -- is a major shitpile. You can legally buy a swap which guarantees the value of debt instruments to which you have no real exposure. That is, you can buy a guarantee that you will be compensated for the total value of an investment you don't even own if you are willing to pay the premium for the "insurance" that will pay you for the lost value that will occur if the bonds (or whatever) go south. You can bet the bonds will fail and get paid their value at the time of the contract even if you never owned the bonds.

It's legal.

All the financial institutions in the world were involved in insuring and counter-insuring assorted iterations of each other's holdings and the speculative values of assorted debt instruments they might or might not even own. For fun and profit. And such transactions are not regulated.

Great system, eh?

Not making this up

I'm sitting in a cheap motel room in College Station, TX, and cooling my heels before an art auction tonight followed by a dinner for community activists. Tomorrow is an all-day affair for the same community activists and representatives of assorted public and private funding agencies. This is all part of a scheme some friends and I have for our tiny town.

Community organizer, moi? Who knew?

And now I read that ole Al Greenspan has said he was pretty much just wrong about some basic economic stuff like regulating markets and regulating derivatives. Greenspan was wrong. He told congress he was wrong. He said his economic theories were not in congruence with the realities of our financial markets. Reuters reports:

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity -- myself especially -- are in a state of shocked disbelief," said Greenspan, who stepped down from the Fed in 2006.

The NY Times reports:

Although he defended the use of derivatives in general, Mr. Greenspan, who left his post in 2006, told members of the House Committee on Oversight and Government Reform that he was “partially” wrong in not having tried to regulate the market for credit-default swaps.

Well, partially wrong is something, right?

The Times article goes on:

Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.

“Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

$2 trillion evaporates from Americans' retirement accounts in 15 months, and Al's very distressed about his world-view.

That's precisely the trouble with an ideologue, and exactly why we need a pragmatist administration

How to engineer a financial mess

An article in today's Dallas Morning News explains a little of how subprime loans were incorporated into securities that seemed (on paper) to be safe bets for investors. A big part of the change from risky to safe (safe-looking) was based on getting credit rating agencies -- private firms like Standard and Poor's, Fitch, and Moody's -- to certify the mortgage-backed paper as credit-worthy.

The magic involved what the article's author, Jim Landers, calls "credit engineers" who packaged mortgages of varying credit quality (subprime and safe all mixed together) into collateralized debt obligations and then running the CDOs through computer models designed to grant them a credit rating. Sensible enough. But the computer models the credit engineers used were the same models used by Moody's, et al.

A financial engineer would take thousands of residential mortgages and bundle them together in securities, some of which were called collateralized debt obligations, or CDOs.

The CDOs would include both good and bad credit-risk mortgages from several parts of the country. This spread the risk of default across a range of investors.

The big rating agencies then would run these securities through computers to assess how risky they were. The software was available to the financial engineers. So, before the rating agencies did their analysis, the engineers tested the securities themselves to see what score they were likely to get.

If they didn't like the results, they sometimes took the riskier loans and created a second CDO packaged with other loans, a piece of legerdemain called "CDO-squared." The result was a higher score and a higher credit rating.

The engineers then gave these CDOs to the rating agencies and, voilà, most of the subprime mortgages issued in the last six years earned a AAA rating.

Soooo... If the credit ratings weren't high enough, the engineers commenced to tweak their products and noodle around with a few variables and packaging strategies to adjust the models' evaluations. A Landers points out, this is tantamount to giving a copy of the test to a student to help him study for it. When you allow cheating, the student always gets an A. Or AAA, rather.

But it was all illusion, not magic after all:

In the last 18 months, the credit rating agencies have downgraded three-fourths of those CDOs.

The IMF estimates losses will reach $1.4 trillion from U.S.-originated debt securities.

But wait! There's more! Credit agencies are paid for their work, of course. Guess who pays them? The financial engineers! Conflicts of interest are just about inevitable when a producer pays an evaluator to assess his product so it can be then sold to a third party.

George Will's tools

What a way to trope this shit. Asked about a cogent, reasoned Obama endorsement by a man who is a former secretary of state, a former national security adviser, a former chairman of the joint chiefs of staff, and a farking Republican, Will opines about the political sweetness of blackness. Never mind that Powell's foreign policy cred is unassailable, he's a, you know, a fellow of the dark-skinned persuasion. Never mind Powell's stated concerns for the tenor of the campaign and what it shows about the state of Republicanism, he's NOT WHITE.

And with the right tools, the sort of tools you can use to trump rational judgments based upon sober examinations of policy and fact, Will can measure the feel-good yumminess factor that motivates people to want an African American president. Not a man we think is best suited for the job, but a black man.

This is deplorable psychobabble of the worst kind. Some guy on a Sunday morning talk show claims he knows why millions of people hold a political opinion. He knows their motivations. He reads their inner thoughts and divines their desires. Powell, me, and millions of Americans say we favor Obama because of facts, values and policy. Our support is based on his temperament, his strength of character, his tax policies, his sober assessment of the condition of the economy, his evident pragmatism in matters concerning international relations. We have weighed these things in our minds and reached a reasoned conclusion in Obama's favor.

But according to Will, somehow really it's about sweet, sweet black skin and liberal guilt and making ourselves feel good. That and a wish to consign Al Sharpton to the dustbin of history.

And we only need the right tools to measure this effect. Tools. How scientific. He wants tools. Tools to measure a spurious political effect that he's just pulled out of his ass so he won't have to actually consider that Powell thinks Obama's the better candidate.

Shit rulers. Turdometers. Poop calipers.

So what did Powell say?



McCain is unsure about how best to deal with the crisis in our financial markets. Selecting Palin as his running mate was an error of judgment because she is not ready to assume the office of the president. At the same time Obama has "displayed a steadiness, an intellectual curiousity, a depth of knowledge" and a "way of doing business that would serve us well." McCain and the Republicans have become narrower and narrower. Obama has proved to be inclusive in his campaign. Harping on Bill Ayers, as McCain has, is irrelevant to the nation's very real concerns. McCain/Palin would push the Supreme Court to further the right. The Republicans have played the Muslim card to a polarizing effect on the body politic.

Who do we as a nation need now as president? Obama can inspire, is inclusive in his politics, has a great rhetorical gift, has substance as well as style. He is a "transformational figure."

There's more but blackness ain't there except insofar as Powell speaks of Obama's reaching out across racial barriers.

Liberal feel-goods and Sharpton shut-ups didn't make it to the party. So what's to measure, George? When you get your tools where you gonna stick 'em?

Another debate

Check this out. McCain and Obama respond to 14 questions presented by the scientific community on topics ranging from the health of the world's oceans to stem cell research to the climate to the looming water crisis.

I particularly recommend perusing the comments section where there is some political posturing but mostly some really informed responses to the candidates' answers. A few point out that McCain's stem cell answer confuses embryos and fetuses, for example, and his take on water is entirely locked up with his Western state POV.

Not surprisingly, I learned a few things from the discussion. "Virtual water," for example. It's the amount of water needed to produce something. The World Water Council states that it takes about 1,000 liters of water to produce a kilo of wheat.

$1.6 trillion

The Urban Institute reports that Americans' retirement accounts lost $1.6 trillion of their value in the 12 months from 9-30-07 through 9-30-08. That's a bit over 18%. The losses have had the effect of reducing the average retirement account held by people age 50 and over from $105,000 in 2007 to $89,000 this year.

The report also indicates that more older Americans are still working after the age of 65.

Meanwhile Richard Fuld, the former CEO at bankrupt Lehman Brothers lost more than the average Joe (either Sixpack or Plumber). Near the end of his career, he sold 2.88 million shares of his company for less than $500, 000. They had been worth $247 million 18 months before.

But I don't feel too sorry for ole Dick. Bloomberg reported in September that he realized almost half a billion dollars from sales of Lehman stock during his 14 years at the helm.

I got some pig lips around here someplace.

Update: make that $2 trillion over the past 15 months. See here for details. And see here for an opinion about what that would have meant for folks if their Social Security benefits had been invested in the equity market.

Hint: They'd be screwed.

Candidates' arts policies

Here are the arts policy statements for the two presidential candidates.

McCain sez:

"John McCain believes that arts education can play a vital role fostering creativity and expression. He is a strong believer in empowering local school districts to establish priorities based on the needs of local schools and school districts. Schools receiving federal funds for education must be held accountable for providing a quality education in basic subjects critical to ensuring students are prepared to compete and succeed in the global economy. Where these local priorities allow, he believes investing in arts education can play a role in nurturing the creativity of expression so vital to the health of our cultural life and providing a means of creative expression for young people."

That's the whole thing. All of it. In a nutshell it's "You get your art when you finish your math, kid."

Compare to this from Obama:

"To remain competitive in the global economy, America needs to reinvigorate the kind of creativity and innovation that has made this country great. To do so, we must nourish our children's creative skills. In addition to giving our children the science and math skills they need to compete in the new global context, we should also encourage the ability to think creatively that comes from a meaningful arts education. Unfortunately, many school districts are cutting instructional time for art and music education. Barack Obama believes that the arts should be a central part of effective teaching and learning."

The Obama policy statement goes on to cite a number of specific proposals for nurturing the arts in our country including creating an "Artist Corps," increasing funding for the NEA, and providing health insurance for artists.

Somebody did his homework. A pit bull ate the other guy's paper, teacher. Honest she did.

New review

My review of William Lamson is online here.

Paul Solman talks credit default swaps

Particularly apt is the poor schlub who insures Mr. Magoo. Kinda reminds me of Hank Paulson.

And $62 trillion! Warms a fellow's heart on a cool fall evening.

Traveling show update

The "Painting is Never Traveling Show" continues. Above my painting on a Subaru in Brooklyn. Below in view of the Texas State Capitol in Austin.

Artist assistance

The Arthouse, an Austin-based arts organization, has issued a call for donations to its emergency relief fund. The fund was set up to provide assistance to artist who have experienced some an emergency that threatens their ability to work. The wide-spread destruction from Hurricane Ike has pretty much depleted the fund's modest reserves. If you care to donate, you can do so here.

Cogent analysis

Nobel Laureate Joseph Stiglitz writes in Vanity Fair:

We are in the midst of micro-economic failure on a grand scale. Financial markets receive generous compensation—in the form of more than 30 percent of all corporate profits—presumably for performing two critical tasks: allocating savings and managing risk. But the financial markets have failed laughably at both. Hundreds of billions of dollars were allocated to home loans beyond Americans’ ability to pay. And rather than managing risk, the financial markets created more risk. The failure of our financial system to do what it is supposed to do matches in destructive grandeur the macro-economic failures of the Great Depression.

Let's take a moment to contemplate the idea that 30% of all the profits generated by corporate America goes to our financial markets. That fact alone makes Wall Street's failures utterly shameful.

He goes on to describe how blind faith in unregulated financial markets got us into this swamp -- that and the corollary belief that government is always bad. He doesn't say it in so many words, but the extremist market ideologues' argument is analogous to asserting that baseball would be a much better game if only we got rid of the umpires.

Full text is here.

Car art in the heartland

The painting as it looked on the hood of a Volvo in Wichita, KS on the night of the show's opening. It's gratifying to have it spread around like this.

Car art redux

The "Painting is Never Traveling Show" as it looked recently in the ominously named town of Fate, TX.


And a distance shot of the painting at the Newark, NJ airport.

I'm still waiting for pictures from Houston (Ike and all that), Austin, Brooklyn, and numerous points in between.

A wink is a good as...

I, for one, do not want a Vice President who winks at me.

Not being insured can kill you

Mike Herrera, a member of a noted Dallas family of restaurateurs, died the other day. He waited over 19 hours in a county hospital emergency room, suffering from severe abdominal pain, before he collapsed. Doctors were unable to revive him.

He was uninsured.

As I pointed out a little while back, a McCain health care policy adviser name of John Goodman is on record saying that emergency room care guarantees mean nobody in America is uninsured. All we need to do is change what we call people who don't buy health insurance policies:

But the numbers are misleading, said John Goodman, president of the National Center for Policy Analysis, a right-leaning Dallas-based think tank. Mr. Goodman, who helped craft Sen. John McCain's health care policy, said anyone with access to an emergency room effectively has insurance, albeit the government acts as the payer of last resort. (Hospital emergency rooms by law cannot turn away a patient in need of immediate care.)

"So I have a solution. And it will cost not one thin dime," Mr. Goodman said. "The next president of the United States should sign an executive order requiring the Census Bureau to cease and desist from describing any American – even illegal aliens – as uninsured. Instead, the bureau should categorize people according to the likely source of payment should they need care.

"So, there you have it. Voila! Problem solved."

Here's an excerpt from a Dallas Morning News article about Mike Herrera's death:

[Jimmy] Herrera praised the doctors who tried to save his brother's life.

"I want to commend those doctors for working on him so long and so hard trying to bring him back," Mr. Herrera said.

He also said he understands the reality of the wait.

"Anybody who goes to Parkland knows they are going to be there eight, 10, 14 hours if you go to the emergency," Mr. Herrera said. "If you're not dying or not a gunshot wound or a heart attack victim, you're going to be at the back of the line...

Of the long wait, Jimmy Herrera also said: "In a sense, it's the price you pay for not having private insurance."

Changing how you classify his status with the census will not change the man's fate. Mike Herrera is dead.

Arcane rules and bailout politics

I've heard snippets of discussion lately from some of the "pro-business" opponents of the financial system bailout proposal about changes to accounting rules which -- it is argued -- will help solve the crisis in our financial markets. The issue is so-called "mark-to-market" accounting, or if the speaker is economics-nerdly enough, FASB 157. Some, it seems, want to do away with it.

What hokum.

FASB is the Financial Accounting Standards Board. FASB 157 is an accounting rule that requires businesses to assess the value of any asset (commodity, equity, bond, real estate, etc.) according to what the company can sell it for at the time of a financial report. What's it worth? What can you get for it? Or in the words of the FASB:

The definition of fair value retains the exchange price notion in earlier definitions of fair value. This Statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability. Therefore, the definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price).

Works for me. My car was worth about what I paid for it five years ago. But I can't get that much for it today.

But suppose you're a big bank and you own baskets and buckets and truckloads of paper with names like collateralized debt obligations and other "complex financial instruments." And suppose you paid for your derivatives with real money (which you borrowed). But now the value of the stuff upon which the cost of the derivatives was originally determined has tanked (say in a burst real estate bubble), and nobody really wants to buy your paper from you anymore. What can you do?

Well you can get your friends in Congress to change the rules maybe. The argument is that the decline in real value of the underlying assets, even factoring in the huge numbers of mortgage defaults, is not so low as what the current market for mortgage-backed securities would have it.

So back in July when Merrill Lynch (remember them?) dumped CDOs that were once valued at $30 billion for about 22 cents on the dollar, that didn't really reflect their really real value. And when Merrill agreed to finance 75% of the transaction, the nickel plus on the buck they actually realized from the sale didn't really reflect the ultimate beyond all the fog truly really real value either.

The market is just spooked right now about reams of CDO paper, you see. The market value of mortgage-backed securities just doesn't reflect what they're worth. So when your quarterly report to shareholders about the health of your business comes due, you can pull valuations of unsalable "assets" out of your puckered ass to claim your tanking financials actually are just dandy. You just can't sell them to anybody for what they're worth.

This is to say that market capitalism doesn't work. Tell it to my '03 Honda Element.

The people pushing to change accounting rules like FASB 157 appear to think that saying things are better than they are will make things better than they are. Such magical thinking is of a piece with a long list of right wing ideologue nonsense ranging from "heckuva job Brownie" to McCain advisor John Goodman claiming that there are no uninsured people in America because of rules requiring emergency room assistance. They live in a pretend world full of happy, optimistic, smiling nutcases.

The stupidest aspect to all this is that a few congressmen say they'll vote for the bailout next time around if FASB 157 is suspended for a couple of years. It's just one of those troublesome regulations that get in the way of free markets.

How can the idiots even dress themselves?