Mark Sigal's Blog - The Network Garden

Thought Streams: Confidence Reset, Epicurious and Putin's Russia

We need a Confidence Reset. Good Interview with Obama (and his wife, Michelle) on ’60 Minutes.’  Here’s an excerpt (check out the video below):

"There's no doubt that we have not been able yet to reset the confidence in the financial markets and in the consumer markets and among businesses that allow the economy to move forward in a strong way," Obama said.  "And my job as president is going to be to make sure that we restore that confidence."

Rocking Party at my Pre-school Fundraiser.  Oxymoron, I know, but after dancing with my wife to Sweet Child O’ Mine (and many other classic songs), and hanging out with a bunch of nice parents and great teachers at some place called ‘The Log Cabin’ in the Presidio, definitely a good time.  No qualifiers necessary.

Now We’re Cooking: Epicurious.  I have been cooking a lot more lately, which has refreshed my memory about why I love Epicurious so much.  Start with great recipes (sources: Bon Appetit, Gourmet).  Make them search-able by food type, ingredient, etc. and filterable by many, many different combinations.  Cultivate deep user reviews and ratings, including answers to “Would you make again?” and you have something special.  For example, the notes from other people who actually cooked the recipe are invaluable since they include suggested refinements and detailed sentiments.  All of this is easy to save, print (with some, none or all notes) and send to phone.  I have made a LOT of meals across all of the food courses using this service, so I highly vouch for.  Case in point, I decided to make some vegetable soup the other day but I did not want to spend a lot of time making it.  I was able to filter on lentils, soup and quick & easy to find and make French Lentil Soup.  Quick, easy, YUM.

Need a Bigger Boat. Thomas Friedman comparing the financial crisis with a pivotal scene in Jaws: If you want to know where we are right now, rent the movie “Jaws.” We’re at that moment when Roy Scheider first sets eyes on the Great White Shark and comes back and says to the skipper, with eyes wide with fear: “You’re gonna need a bigger boat.”  Read the full article.

Putin Russian and the Financial Crisis.  In ‘Why Experience Matters: On Palin, Putin and Prudence,’ I expanded upon “Dead Soul,” the definitive assessment of Vladimir Putin in Vanity Fair (October). In essence, it documents how Putin’s Russia is an unseemly marriage of endemic corruption, Mafia-style criminality and 1984-like spy state tactics.  Well, Russia has not escaped the one-two punch of falling oil prices (a cornerstone of its wealth) and the global financial crisis (it’s stock market has fallen by 75 per cent since August).  Telegraph (UK) captures what’s going on.  Here’s an excerpt:

Until last week, Svetlana, a young mother of two, held decidedly middle-class ambitions. An executive at a construction company, she was hoping to save enough to send her children to school in Britain and buy a new flat in an upmarket part of Moscow. But then, without warning, she was made redundant along with about 70 colleagues. She received no severance pay and was instead forced to sign a letter saying she had voluntarily resigned.  "They said that if I didn't sign then I could look forward to burying my own children," Svetlana says. "What kind of country do we live in? I thought we were close to becoming a civilized nation, but I've been forced to realize that that is an illusion."

Course Correction: What Obama's Victory Says About Us

“If there is anyone out there who still doubts that America is a place where all things are possible; who still wonders if the dream of our founders is alive in our time; who still questions the power of our democracy, tonight is your answer…It's the answer spoken by young and old, rich and poor, Democrat and Republican, black, white, Latino, Asian, Native American, gay, straight, disabled and not disabled - Americans who sent a message to the world that we have never been a collection of Red States and Blue States: we are, and always will be, the United States of America.” – President Elect, Obama

God bless America.

This is what makes America such an amazing place.  We took an ugly fork for the past eight years, and we are all paying our share of the price – lest we forget the lessons learned anytime soon.

But in America, the past is prolog.  It is not destiny.  What makes our country so great is its ready elasticity and ability to accommodate seemingly head-spinning change.

In four years, we have gone from the re-election of George W. Bush to the election of Barrack Obama.  From the scorched earth politics and division to a commitment to unity and global outreach.

This election was fought in 50 states, which ironically is a departure from recent times.  Most campaigns are constituency plays and chasing ‘winnable’ states with meaningful electorate counts.  We have elected a president that recognizes that not all of these good folks voted for him.

But unlike his predecessor, “THAT ONE,” as McCain euphemistically called Obama, reaches out versus squeezing out.  The headline is clear:  Hope (once again) Prevails over Fear.

How improbable that such an audacious vision should take hold in the face of a meltdown, no less (too see where our markets/economy is headed, read my post ‘Capitalism 2.0’).  We Americans should take great pride for being willing to hold such a vision as essential and true.

Slaying the Rove and Clinton Dragons
But it wasn’t easy or bloodless.  To be the king, you must slay the dragon, and our political system has many such dragons, and the one question that this long campaign has answered is whether Obama is mere orator and academic, or couples that goodness with the boxer’s intensity and ability to go for the knock out (read, 'Obama and the Dems').

By perennially exhibiting grace under pressure, by being reasoned, well-prepared and showing good temperament, Obama slowly, but surely, squeezed the life out of both McCain and Hillary Clinton. 

It was amazing to watch.  The way that they were out organized and out funded is impressive, but the way that they ultimately fell on their own swords, says as much about the failure of our current political system (which Clinton and McCain are offspring of) as it does about Obama’s own prowess.

For Clinton, it was stumbling out of the gate when the official story line was invincibility and quick victory.  For McCain, it was the campaign suspension ‘hail mary,’ which coupled with the Palin pairing, raised all sorts of questions about his judgment and temerity to lead.

Some Thoughts on the Road Ahead
Let me leave you with three thoughts.  One is that we have a tough road ahead.  Every day I see the old homeless lady in my upscale neighborhood I am reminded that the line between Capitalism 2.0 and ‘eating dog food’ is relatively thin.

Two, we as individuals must commit to “something” real, no matter how small the ambition committed to is.  We must own the outcome and become more compassionate and more engaged in the ambitions of others.  Change begins within.

We must find our own call to action, and I believe that this president is committed to harvesting our willingness to be enlisted.  His roots are as a community organizer, after all.

Three, CNN commentator, Alex Castellanos sagely compared Obama and McCain, and their respective campaign approaches to ‘The Cathedral and the Bazaar,’ Eric Raymond’s seminal piece on the yin-yang marketplace of open source versus closed architectures.

While chewing on how embracing such a credo might open up new market horizons, know this; the results prove out (as NYT’s David Brooks frames it) that the Obama election “marks the end of an economic era, a political era and a generational era all at once.”

In terms of where this leads us to (beyond Capitalism 2.0), it’s worth also noting that in an age of irrational financial markets, the concept of the ‘wisdom of crowds’ passed a litmus test in this election. 

Specifically, the prediction marketplace (Intrade is my source) did a pretty good job of pegging an Obama blowout in the 364-174 electoral vote range for two plus weeks running.

Even more amazing, other than Indiana and Missouri flip-flopping in the last week (from Blue to Red, and vice versa) the rest of the map in terms of which states voted in favor of whom, was completely accurate. 

If you haven’t read James Surowiecki’s ‘The Wisdom of Crowds’ you should as this is a long term trend that touches media, markets, communications and ideation.

So what’s next?  Happily, this is the beginning and not the end.  To frame this truth, in ‘Finishing Our Work,’ Thomas Friedman imagines all of the would-be McCain voters that flipped for Obama on voting day, wondering aloud why did they do it:

“Some did it because they sensed how inspired and hopeful their kids were about an Obama presidency, and they not only didn’t want to dash those hopes, they secretly wanted to share them. Others intuitively embraced Warren Buffett’s view that if you are rich and successful today, it is first and foremost because you were lucky enough to be born in America at this time — and never forget that. So, we need to get back to fixing our country — we need a president who can unify us for nation-building at home…There is just so much work to be done. The Civil War is over. Let reconstruction begin.”

Amen.  Only in America.

Related Posts:

1. Capitalism 2.0: TED Spreads and Lessons from Japan’s Lost Decade
2. The Politics of Hope over Fear: The underlying narratives of McCain v. Obama
3. Eating Dog Food: On Safety Nets
4. Obama and the Dems: The need for killer instincts in an election of change
5. Predictions, Markets and the Wisdom of Crowds: on Intrade and prediction markets

Thought Streams – I'm Not Bush; What does JM see when he looks in the mirror?

“I'm Not Bush,” JM wails.

But what does that mean?

I think that we have to recognize that one essential truth of the past eight years is the importance of Prudence.

We must demand leadership that is well-organized and sweats the details.

It’s not too simplistic to say that Bush, independent of his other faults, didn’t sweat the details and we paid the price.

I believe that how each candidate has managed their campaign tells US a lot about how they will manage the country.

Politics aside, my take is that in this campaign, McCain has repeatedly shown that he hasn’t sweat the details. 

You see it in his message, his organization, how he carries himself and in his decision-making process.

So how would he be different than Bush?

Why do we want that?

In terms of living a credo, Obama is the Un-McCain.

That's a good thing.

RELATED POST: Crazy Wisdom as Rome Burns

Predictions, Markets and the Wisdom of Crowds

What do you get when you cross the so-called ‘wisdom of crowds’ with a marketplace that allows buyers and sellers to sell/trade in predictions (with real money)?

You have a Prediction Market that arguably provides the most unfiltered, intellectually honest, “skin in the game” motivated distillation of the market net perspective on topics such as:

• Who will win the next presidential election?
• Who will be the next American Idol?
• What the box office returns will be for a given movie?
• What is the likelihood of likelihood of a recession in 2009?
• How will the Dow perform?
• Where the next terrorist attack will occur?

Case in point, in tracking the presidential election, several times a day I go to Intrade, a leading prediction market, not only to get the current share value of a bet on McCain’s (un)likelihood to win the presidency, but also the market’s read on a state by state basis of the likelihood of Obama or McCain to win that particular state.

Needless to say, it’s been fascinating to watch traditional media cover, for example, McCain’s recent decision to stop advertising in Minnesota (basically, an acknowledgment that he will lose that state), when for the past few weeks, Intrade has shown a steady increase in the probability of McCain losing Minnesota (it’s gone for the high 60% probability to 90% probability).

In fact, for the past few weeks, the predictions have pointed to a blowout victory for Obama in the 364 to 174 electoral count range.

What is this data worth?  Well, it’s done shockingly well in predicting past congressional election outcomes and the recent flurry of (negative) market moves, and we’ll know soon enough how it performs relative to the presidential election, but most fundamentally, it’s a potent tool to help triangulate on outcomes and their likelihood to play out in the weeks and months ahead.

Here’s a video on Intrade from a 20/20 segment on prediction markets, and do check out the interactive election map HERE.

UPDATE 1: We'll find out soon enough how Intrade did in predicting Obama wins in swing states Missouri, Ohio, Pennsylvania, Virginia, Florida, North Carolina, Nevada, and a total blowout victory for Obama over McCain of 364 electoral votes to 174.

Related Posts:

1. The Choice: Three Weeks to Go
2. Obama and the Dems: Are they just wimps? On whether Obama is prepared to take off the gloves and go for the kill.
3. Why Experience Matters: On Palin, Putin and Prudence.
4. Rhetoric - Why it matters: Obama's acceptance speech and where free markets and government meet.
5. Base motivations: The Matter of McCain v. Obama.
6. The Politics of Fear and Division versus Unity and Hope: The underlying narratives in Obama v. McCain.

Death by Derivatives: On Economic Viruses and Financial WMDs

“Virus, virus, virus is the thread that keeps going through my head.”

What looked like a risk mitigated, readily levered investment to some of the greatest minds on Wall Street turned out to be (in the words of Warren Buffett), a financial weapon of mass destruction, a viral bio-hazard that infected global markets, in the process, killing the banks, hedge funds and insurance underwriters that hosted the virus.

It was infectious by virtue of the simple fact (supported by really complex math) that by being a manufactured ‘class of investment’ rather than an actual investment in tangible assets, once it passed the initial sniff test of the market (of credit agencies, secondary markets, etc.), it pretty much could expand friction-free across the globe. 

And expand it did, both on the BUY side and the SELL side (i.e., buyers of these instruments could be any bank, hedge fund or financial services firm anywhere on the planet – which explains why Iceland is on the cusp of bankruptcy for what until recently was thought to be an American crisis.  Similarly, bankers anywhere could replicate the model to create such instruments/viruses to sell/spread to the global marketplace).

No less important to this mess is the combination of the complexity of these instruments; deregulation's role in de-prioritizing transparency; and the fact that the instruments were created specifically so that the underwriter could quickly get the credit risk off its books.

What do you get when you retard analysis and globally diffuse responsibility for adherence to analytical and underwriting standards?  Experience suggests that you get a sharply under-performing asset class, the perfect storm of which is still unfolding. 

Awe, but the final lethal contagion was the premise that the risk was protected by an ‘insurance-like’ safety net, which now has not only proven to be untrue but as an unregulated segment, we can’t even say with real confidence what the exposure to our global economy really is.

An illusion of safety leading to promiscuous behavior, an easy to spread virus that is hard to ascertain its lethality and the doctor’s have no incentive to care for the patients.  It’s a recipe for an epidemic.

Along these lines, Jesse Eisinger of Conde Nast Portfolio Magazine has written an excellent article, ‘The $58 Trillion Elephant in the Room’ on the birth of the credit derivative market and the lessons learned in the process of its roll-out.  (Side note: Portfolio also provides an interactive timeline, ‘Death by Derivatives’ on the evolution of the derivatives industry). 

It’s akin to reading about scientists creating, then unwittingly unleashing, a lethal virus on the planet, and it does a good job of showing the interplay of the afore-mentioned variables at work. 

Here is an Excerpt:

"Bistro had tied the world together, taking credit risk from the banks and passing it on to anyone who wanted it. For years, proponents of credit derivatives, including then-Federal Reserve chairman Alan Greenspan and current chair Ben Bernanke, had celebrated the way they spread risk. Everyone might share a little bit of risk, but no firm would collapse from it. Yet in this credit crisis, everyone has become infected…The initial slice, the equity layer that Morgan retained as a cushion against trouble, was so thin that it couldn’t weather even one default from one of the bigger companies in the bundle. That ultimately happened, wiping the slice out entirely. The investors who were one notch up, in what’s called the mezzanine layer, lost money as well. Even the buyers of the top-rated tranches, which were thought to be rock solid, had to endure bumpy periods before they got their money back.  During that first major deal, the credit-rating agencies, which were supposed to be impartial, were already deeply enmeshed in the give-and-take of the process. A former Morgan banker who helped create Bistro recalls that Standard & Poor’s was giving the bank a tough time. The rating firm would run the deal through its models, and “each time, it came up with disastrous results. We did some tinkering and all of a sudden, it could rate the deal,” the banker says. The pattern was set. The rating agencies would become integral to the creation of the structures…One major problem was that banks had the ability to substitute loans in and out of the structure, as long as the loans had the same credit rating. This allowed managers to scour their books for a loan that looked shaky but still retained a good credit rating and swap it in for a healthier one. The tranche’s credit rating would remain the same, making the whole deal look better on paper than it actually was."

Also, 60 Minutes did a segment last night on the very same topic called, ‘The Bet that Blew Up Wall Street.’  Check that out HERE.

Taken together, these stories help frame the Capitalism 2.0 meme that I believe will emerge out of this mess; namely, if we know socialism is not the answer and now we know that pure, unfettered free market capitalism isn’t the answer, somewhere between the 'invisible hand' and the 'guided hand' is the answer. 

Related Posts:

1. Engine Failure - When Financial Markets Fail: an analysis of the current financial crisis.
2. Black Swans and Bank Runs: on why this crisis was predictable.
3. Financial Tsunamis: connecting the dots in the sub-prime mess.
4. Capitalism 2.0: lessons from Japan's lost decade, and where do we go from here.

Capitalism 2.0: TED Spreads and Lessons from Japan’s Lost Decade

I remember in my youth a moment in time when Japan was the ‘rising sun,’ an economic freight train, whose momentum was unstoppable; they were destined for global market domination. Then, poof, Japan imploded (its bubble burst in 1990), and has never fully recovered.  What happened?

Most fundamentally, after the bubble burst, a too-proud nation and an intellectually dishonest banking industry refused to write-down a toxic stink pile of non-performing loans (NPLs) to their real-world valuations in a bubble burst-impaired environment – a construct known as Mark-to-Market accounting. 

Instead, they kept the NPLs on the banks’ balance sheets at artificially high valuation levels, and the net effect is that it took Japan a decade to unwind an illusion, restore trust between banks, and restart a stalled lending engine (few of us realize that banks, financial institutions and Wall Street live on short-term ‘intra-bank’ loans,’ and when this lubricant is removed from our financial engine, the engine seizes).

But, what if the Japanese government had forced banks to clean up their balance sheets in months instead of years, stanching the inevitable bleeding with massive infusions of capital into the banks themselves?  Japan arguably would not have lost the last 18 years of global growth to China. (Andy Kessler has some EXCELLENT analysis on this topic – read it here).

The TED Spread, and What’s a LIBOR?
As referenced above, our financial industry is dependent on the willingness of banks and Wall Street to lend money to one another.  The rates that banks charge each other is known as LIBOR, or the London Interbank Offered Rate. 

In less volatile times, the spread between LIBOR and three-month treasury bills (i.e., a largely non-volatile investment path) is typically less than one half of one percent (<1/2%).  This spread is known as the TED Spread, and last week, it reached an unfathomable spread of 4.56% - i.e., 10X the typical TED Spread level (see chart below of five-year TED Spread).

In other words, banks last week were saying that they consider the risk of lending to one another sufficiently high that they were jacking risk premium levels into the stratosphere, which in addition to much more stringent underwriting requirements being in place, effectively means that lenders don’t want to be in the lending business right now, which trickles down to big business, small business and consumers, the crushing impact of which I covered in my post, ‘Engine Failure: When Financial Markets Fail.’

What’s a Fed to Do?
The Fed is forced to play a three dimensional chess game right now. One the one hand, history suggests that in times of financial crisis, governments can and must prevent long-lasting damage to their economies by preventing bank runs (this is a core purpose of FDIC-backing of deposits) and signaling their willingness to maintain a position as lender of last resort (to ensure liquidity and protect against fears of bank failures).

On the other, as alluded to the lesson’s of Japan’s lost decade, proactive, rapid cleanup and transparency of banks’ balance sheets is critical to restoring confidence in the system. 

This task, however, is complicated by so-called Mark-to-Market Accounting rules, which requires financial institutions to reflect the real value of the loans and other securities on their books, and adjust their capitalization levels accordingly (upward) when the value of such assets fails. 

Needless to say, in a TED Spread environment like we have now, this means that banks and Wall Street firms get hit with sudden liquidity crises exactly at the moment when such liquidity is prohibitively expensive (or flat out unavailable).  And this doesn’t even speak to the parasitic opportunities for short sellers to prey on such vulnerable institutions.

The Fed’s Three Dimensional Chess Game
Many have argued that the perilous environment that we are in is specifically the reason that the Fed should suspend Mark-to-Market accounting rules, but happily, the Fed appears to be going a different path and wisely continuing MTM accounting.

They accurately recognize that in post-bubble scenarios, restoration of trust is most integral.  In this context, mark-to-market accelerates the inevitable write-down of bad loans, in the process, defining what the fiscal ‘floor’ looks like (since these values are reflective of the current horrific market conditions, not the market once values stabilize).

For the truly sick and exposed institutions, it is effectively a death sentence.  But for the nominally sick institutions, it is a form of chemotherapy that wipes out cancerous cells without killing the patient.

The key added dimension to this approach is the Fed’s use of direct capital injections into financial institutions to enable them to simultaneously achieve capitalization levels accorded by mark-to-market AND re-price toxic loans to market prices. 

A wrinkle in this is that the Fed is lending to institutions whether they need it (AIG) or not (Bank of America). This avoids signaling to the market which institutions are unhealthy (and thus needing capital), thereby preventing a vicious cycle from propagating.

Net-net: the Fed is front-loading the pain in a manner that should (hopefully) clean up the industry’s balance sheets, restore confidence and re-start the lending machine that the global economy depends on.

Is this the right thing to do? As Andy Kessler, suggests, “Probably not…But it's the only thing to do at this stage.” 

Is it Capitalism or Socialism?  More like Capitalism 2.0.

Related Posts:

1. Engine Failure - When Financial Markets Fail: an analysis of the current financial crisis.
2. Black Swans and Bank Runs: on why this crisis was predictable.
3. Financial Tsunamis: connecting the dots in the sub-prime mess.
4. Oil, Vinegar and Volatility: on the history of volatility in the market, and missed opportunities to move away from foreign oil dependence.
5. How Speculative Markets Crush Amateur Investors: why amateur investors fail to grasp that what goes up inevitability comes (crashing) down.

The Choice: Three Weeks to Go

Can it be?  On Tuesday November 4, 2008 – less than three weeks from now – we get to choose the next president of the United States.  As Bob Herbert notes in The New York Times (read: The Mask Slips):

“The lesson for Americans suffused with anxiety and dread over the crackup of the financial markets is that the way you vote matters, that there are real-world consequences when you go into a voting booth and cast that ballot.”

Along those lines, I strongly urge you to watch the excellent FRONTLINE documentary, ‘The Choice 2008,’ running on PBS this week.  The documentary offers a surprisingly fresh narrative on the men behind the run for the presidency, tracing the paths that Obama and McCain took to get there, their motivations, crisis’/setbacks, adjustments, and equally important, their organizational and managing strategies, and the core philosophies that drive them.

No candidate is perfect, to be sure (as the documentary underscores well, showcasing Obama’s crisis with Reverend Wright, McCain’s status as one of The Keating 5, etc.). 

But, we also have no right to expect our government to be better than we hold it accountable to be, an essential truth worth ruminating on next time you try to calculate the real cost of unilateralism, partisanship, secrecy and the 'ideology over prudence' mindset that have been the hallmarks of the George W. Bush era.

With that as a backdrop, in choosing the next president we have some choices: 

1. Should the litmus test of the next president be likeability (i.e., the man or woman you’d most like to hang out at a barbecue with) and Joe six pack regular guy-ness?  Or crispness of vision, grasp of policy specifics and ability to organize and lead? The GWB period was marked by a decided slant towards the former, especially fascinating in how it manifested in the GOP’s ability to persuade so many voters of modest means that, as NYT’s Herbert puts it, “its wrongheaded, favor-the-rich, country-be-damned approach was not only good for working Americans, but was the patriotic way to go.”  Would-be voters should note that the analog that stands out here is, ‘first time shame on you, second time shame of me.’
2. Is McCain’s choosing of Sarah Palin, a cynical, singularly political decision that is a statement of his penchant for recklessness and a cancerous growth that must be excised from the Republican party or a sign of his maverick brilliance, choosing a promising young wine from the conservative vineyards, a recognition that star power matters a lot. In light of the Trooper-gate inquiry that concluded that Palin abused her powers, it seems that her shelf life as a ‘maverick and an ethics reformer who has taken on special interests and fought for average residents’ may be limited (excerpt from the article: “The report says she knowingly ‘permitted Todd Palin to use the governor’s office and the resources of the governor’s office, including access to state employees, to continue to contact subordinate state employees in an effort to find some way to get Trooper Wooten fired.’ Further, it says, she ‘knowingly permitted a situation to continue where impermissible pressure was placed on several subordinates in order to advance a personal agenda.”) 
3. In grading the experience factor, what counts most?  Years of service, voting history or something else?  I personally believe that the best proxy is to look at how each has run their campaigns, as these are essentially big businesses, with a core cabinet of key advisers, multi-million dollar monthly budgets, thousands of paid and unpaid organizers spread out across the fifty states, and lots of data of how their approaches have worn and evolved over time. Here the data seems to suggest that the junior statesman, Obama, not only organizationally and operationally outflanked the more senior McCain, but the battle-hardened Clinton machine before that.
4. How much do we tar McCain for the Bush years? This is a tough one since ideologically, McCain is clearly not a Bush clone.  That said, it is hard not to conclude that he was a politically motivated Bush enabler from 2004 on when it seems clear that his desire to be his party’s anointed choice for president instigated a very pronounced shift away from Straight Talk Express and towards Bush lackey (the PBS documentary captures the specifics very well here).  This goes back to the experience factor question; namely, McCain’s penchant for political expediency over principle, which seems reasonable to damn him for given his decision making process these past four years.  What have you done for me lately, John?
5. Does the tortured state of the economy and our financial markets meltdown make it all a moot point, such that it’s time to turn the page away from the party in power (i.e., vote for the dem candidate because he's not a republican)?  History suggests that people vote with their pocketbooks, and their pocketbooks are in pain right now, meaning that McCain, barring a game changer, is a cooked goose.  A note aside on this topic, a great article called, ‘The Real Great Depression’ argues that the depression of 1929 is the wrong model for thinking about the risks associated with the current economic crisis, arguing instead, that the Panic of 1873 is the better analog.  Here is an excerpt: “If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment..The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs.”

Netting it out: the choice that we will soon make for the next president is about whether details matter; whether accountability matters; whether hope and unity and vision matter; whether consistency, organizational execution and a culture of learning and growth matter; and whether i'ts time for our political system to be re-tuned for the 21st century.  As noted above, this 2+ year campaign cycle has provided a fairly clear window into how each candidate will lead, and we do wise now to remember that what we sow is what we reap.

I am obviously biased on this one, as an Obama supporter, but I will leave you with a quote I recently read in an op-ed piece from Thomas Friedman called, ‘Why How Matters’: 

“I have a friend who regularly reminds me that if you jump off the top of an 80-story building, for 79 stories you can actually think you’re flying. It’s the sudden stop at the end that always gets you.  When I think of the financial-services boom, bubble and bust that America has just gone through, I often think about that image.”

For many of us, our life experience is limited to the first 79 floors so it is hard to make decisions with an eye to the painful splat that occurs when you hit bottom.  My only guidance here is to pick the president with the clearest measuring stick, a healthy respect for data and deliberation, and coldly rational understanding of the laws of gravity.

UPDATE 1:  The Washington Post endorses Obama as its choice for President.  Here is an excerpt:

"Mr. Obama's temperament is unlike anything we've seen on the national stage in many years. He is deliberate but not indecisive; eloquent but a master of substance and detail; preternaturally confident but eager to hear opposing points of view. He has inspired millions of voters of diverse ages and races, no small thing in our often divided and cynical country. We think he is the right man for a perilous moment."

UPDATE 2: David Brooks of NYT assesses Barack Obama as President.  Here is an excerpt:

"His instinct is to flee the revolutionary gesture in favor of the six-point plan.  This was not evident back in the “fierce urgency of now” days, but it is now. And it is easy to sketch out a scenario in which he could be a great president. He would be untroubled by self-destructive demons or indiscipline. With that cool manner, he would see reality unfiltered. He could gather — already has gathered — some of the smartest minds in public policy, and, untroubled by intellectual insecurity, he could give them free rein. Though he is young, it is easy to imagine him at the cabinet table, leading a subtle discussion of some long-term problem."

Related Posts:

1. Obama and the Dems: Are they just wimps? On whether Obama is prepared to take off the gloves and go for the kill.
2. Why Experience Matters: On Palin, Putin and Prudence.
3. Rhetoric - Why it matters: Obama's acceptance speech and where free markets and government meet.
4. Base motivations: The Matter of McCain v. Obama.
5. The Politics of Fear and Division versus Unity and Hope: The underlying narratives in Obama v. McCain.

The Politics of Fear and Division (versus Unity and Hope)

Wow. This presidential election season has it all.  You’ve got dueling rock star candidates, a historically unpopular president, the Clintonian drama, financial meltdowns and a one-time maverick who sold his soul eight years ago, but of course will never admit it. 

And the latest is that the same candidate – John McCain – who is now getting pummeled in the polls due to his party’s role in the deepening financial crisis (and his own seeming disconnect from the depth of the pain), now plans to 'suspend his campaign' to work on the Wall Street Bailout plan.  Yeah, I am sure that’s not political spin.  More like, keep throwing ‘Hail Mary’ passes in hopes of the big touchdown score.

When you net it out, however, this election is about which vision of our political future prevails.  Do we continue to embrace the politics of ‘fear and division?’  Or do we aim higher and embrace the politics of ‘hope and unity?’

To be clear, it’s not a black and white decision, and obviously there are a lot of underlying social, economic and global world views that go into how we as individuals opt to place our vote.

It is shaped by whether you view the next four years as needing to materially depart from the past eight years or if you don’t. 

Some of that is colored by whether you look at McCain’s veep selection as bringing in a fresh, original outsider to ‘change Washington’ or view it more darkly, as, “the first pure Rovian Republican (i.e., Karl Rove), grown totally in the petri dish of cultural crusaderism,” as Maureen Dowd aptly puts it.

Some of that is further framed by whether you see McCain's surprise VP choice, his sudden decision to suspend his campaign and spontaneous pronouncement that he would fire the head of the SEC (a week after saying that the economy is fine) as examples of the old Maverick in action, or as proof positive of a desperate, reckless, shoot from the hipster.

As the final credits approach on this election season, one particularly interesting question is whether old media ‘grows a pair’ (euphemistically speaking), and is relevant to the narrative that shapes these final days, or once again allows themselves to be bullied into submission, as will be their legacy during the Bush administration.

One final note on the topic of division versus unity.  Part of Obama’s vulnerability is a by-product of a continued division within his own party, the flames of which are not so subtly kept burning by the always self-dealing Clintons.  Consider this excerpt from Dowd's 'Park Avenue Diplomacy' in yesterday’s The New York Times:

Even if she (Sarah Palin) blows off the First Amendment — and lets McCain’s Rove, Steve Schmidt, demonize the press even though she disdains women politicians who whine — Bill Clinton is still a fan.

Besides talking about what a great man John McCain is on “The View” and “David Letterman,” Bill praised Palin at his Clinton Global Initiative meeting in New York and will receive her there on Thursday.

“I come from Arkansas. I get why she is hot out there,” he said authoritatively, adding: “People look at her, and they say, ‘All those kids. Something that happens in everybody’s family. I’m glad she loves her daughter and she’s not ashamed of her. Glad that girl’s going around with her boyfriend. Glad they’re going to get married.’ ” He said voters would think: “I like that little Down syndrome kid. One of them lives down the street. They’re wonderful. ... And I like the idea that this guy does those long-distance races. Stayed in the race for 500 miles with a broken arm. My kind of guy.”

On “The View,” he said he understood that some women might vote for Palin on the basis of gender, even if it was against their economic interest.

“You can’t tell someone else that the ground on which they make their voting decision is irrational,” he said primly.

Well, actually you could, if you weren’t still sulking and plotting for 2012.

As they say, politics makes for strange bedfellows, an all the more appropriate double-entendre considering old Bill’s adulterous legacy and Palin’s rumored one.

UPDATE 1:  The New Yorker has a great article, 'The Choice,' which crisply, and in detail, articulates why Obama is the right presidential choice for our current world, and not McCain.

Here is an excerpt:

Never in living memory has an election been more critical than the one fast approaching—that’s the quadrennial cliché, as expected as the balloons and the bombast. And yet when has it ever felt so urgently true? When have so many Americans had so clear a sense that a Presidency has—at the levels of competence, vision, and integrity—undermined the country and its ideals?

(article found via Daring Fireball)

Related Posts:

1. Obama and the Dems: Are they just wimps? On whether Obama is prepared to take off the gloves and go for the kill.
2. Why Experience Matters: On Palin, Putin and Prudence.
3. Rhetoric - Why it matters: Obama's acceptance speech and where free markets and government meet.
4. Base motivations: The Matter of McCain v. Obama.

Obama and the Dems: Are they just Wimps?

There is a saying that you shouldn’t bring a knife to a gunfight unless you want to end up in the morgue.  So, too, it is with presidential elections.  And that is the fundamental drama yet to be played out in the election battle between John McCain and Barrack Obama. 

We know that the Republicans have no problem pulling out the heavy artillery, and will go for the kill every time.  What we don’t know is whether Obama and the Dems have the cajones to beat the schoolyard bully at his (her) own game.

Because of this, what would otherwise be a one-sided victory by Obama over McCain is instead (currently) fighting to a draw. 

Think about it.  Despite a cratering economy, an unfathomably expensive war with the wrong enemy in Iraq and a historically unpopular Republican president, McCain is still very much in the game.  How can this be so?

Frank Rich, in Sunday’s New York Times, sums it well in the Op-Ed piece, ‘Truthiness Stages a Comeback:

“McCain has largely pulled it off so far, under the guidance of Steve Schmidt, a Karl Rove protégé. A Rovian political strategy by definition means all slime, all the time. But the more crucial Rove game plan is to envelop the entire presidential race in a thick fog of truthiness. All campaigns, Obama’s included, engage in false attacks. But McCain, Sarah Palin and their surrogates keep repeating the same lies over and over not just to smear their opponents and not just to mask their own record. Their larger aim is to construct a bogus alternative reality so relentless it can overwhelm any haphazard journalistic stabs at puncturing it.”

So where does that leave us?  There are two primary ways to win an election.  One is to focus your efforts on ‘owning’ a well-defined constituent base, and then surgically targeting that base (via direct mail, geo-targeted ads, etc.).   

The Republicans have mastered this approach by intersecting the binary interests of BIG business, STRONG military and CONSERVATIVE religious values advocates, and frankly it’s too late in the game for the Dems to define themselves so singularly (and effectively).

The other approach is to wrap yourself in popular sentiment and target your message accordingly.  Bill Clinton’s poll-driven ‘I feel your pain’ mantra is the quintessential example of this approach played to perfection.

Ironically, Obama was well down the popular sentiment road with his populist ‘Change You Can Believe In’ message (since re-framed as ‘The Change We Need’) when the Republicans got smart and decided to co-opt the change message as their own.

What to do?  Cue up the classic scene from ‘The Untouchables,’ where Sean Connery’s Jim Malone sermonizes mob fighting District Attorney, Eliot Ness (Kevin Costner), as follows:

Malone: You said you wanted to get Capone. Do you really wanna get him? You see what I'm saying is, what are you prepared to do?

Ness: Anything within the law.

Malone: And *then* what are you prepared to do? If you open the can on these worms you must be prepared to go all the way. Because they're not gonna give up the fight, until one of you is dead.

Ness: I want to get Capone! I don't know how to do it.

Malone: You wanna know how to get Capone? They pull a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue. *That's* the *Chicago* way! And that's how you get Capone. Now do you want to do that? Are you ready to do that? I'm offering you a deal. Do you want this deal?

Ness: I have sworn to capture this man with all legal powers at my disposal and I will do so.

Malone: Well, the Lord hates a coward. [jabs Ness with his hand, and Ness shakes it]

Malone: Do you know what a blood oath is, Mr. Ness?

Ness: Yes.

Malone: Good, 'cause you just took one.

Ah, but isn’t such an approach yet another example of politics as usual?  Doesn’t this undermine Obama’s message of change?

Well, maybe if campaigns were fought in isolation chambers, such analysis might hold. In the real world – of flesh and blood and human emotions – life is a complex bundle full of paradoxes.  So get over it.

People want to elect someone that they identify with, that they ‘get’ at the gut level, someone who will fight for them. They don’t want an egghead, they don’t want an academic and they certainly don’t want a preacher…they want passion, and the best place to channel that passion right now is….anger!

Anger?  Yes, anger at the party that has stolen our civil liberties, sat idly by as our 401Ks washed away, turned a blind eye to protecting our enlisted youth by fighting an unprovoked war – on the cheap no less – and basically, shit upon every bit of collective good will that our country had after 9/11. 

And supreme anger at the former maverick who, for the past eight years, has abandoned every moral fiber of his leadership responsibilities and status as Mr. Straight Talk in the vain hope that he could become president.  Anyone willing to exhaust a lifetime of personal currency on such a Faustian bargain has no right to lead his nation. 

To frame the potency of such a message, Maureen Dowd, writing in The New York Times, imagines a conversation between Obama and Jed Bartlett (the fictional former president of TV’s West Wing) that goes like this:

OBAMA: The problem is we can’t appear angry. Bush called us the angry left. Did you see anyone in Denver who was angry?

BARTLET: Well ... let me think. ...We went to war against the wrong country, Osama bin Laden just celebrated his seventh anniversary of not being caught either dead or alive, my family’s less safe than it was eight years ago, we’ve lost trillions of dollars, millions of jobs, thousands of lives and we lost an entire city due to bad weather. So, you know ... I’m a little angry.

OBAMA: What would you do?

BARTLET GET ANGRIER! Call them liars, because that’s what they are. Sarah Palin didn’t say “thanks but no thanks” to the Bridge to Nowhere. She just said “Thanks.” You were raised by a single mother on food stamps — where does a guy with eight houses who was legacied into Annapolis get off calling you an elitist? And by the way, if you do nothing else, take that word back. Elite is a good word, it means well above average. I’d ask them what their problem is with excellence. While you’re at it, I want the word “patriot” back. McCain can say that the transcendent issue of our time is the spread of Islamic fanaticism or he can choose a running mate who doesn’t know the Bush doctrine from the Monroe Doctrine, but he can’t do both at the same time and call it patriotic. They have to lie — the truth isn’t their friend right now. Get angry. Mock them mercilessly; they’ve earned it. McCain decried agents of intolerance, then chose a running mate who had to ask if she was allowed to ban books from a public library. It’s not bad enough she thinks the planet Earth was created in six days 6,000 years ago complete with a man, a woman and a talking snake, she wants schools to teach the rest of our kids to deny geology, anthropology, archaeology and common sense too? It’s not bad enough she’s forcing her own daughter into a loveless marriage to a teenage hood, she wants the rest of us to guide our daughters in that direction too? It’s not enough that a woman shouldn’t have the right to choose, it should be the law of the land that she has to carry and deliver her rapist’s baby too? I don’t know whether or not Governor Palin has the tenacity of a pit bull, but I know for sure she’s got the qualifications of one. And you’re worried about seeming angry? You could eat their lunch, make them cry and tell their mamas about it and God himself would call it restrained. There are times when you are simply required to be impolite. There are times when condescension is called for!

For starters, it wouldn’t hurt to relentlessly, mercilessly remind people that the best proxy for understanding our current financial meltdown was the S&L crisis, whose cast of infamous ‘political insider’ characters were known as ‘The Keating Five.’  The most famous member of The Keating Five…was/is….John McCain.

So, Obama, what are you prepared to do?

UPDATE 1:  In response to a clear turn by the McCain/Palin campaign to "go negative" in the final days and weeks of the election,  Obama is FINALLY counter-punching, and launching a multimedia advertising/education campaign against McCain, drawing tight parallels to the current financial crisis and the S&L crisis where McCain was a member of The Keating Five.  Check out Keating Economics for more detail (story first covered at Huffington Post).

Related Posts:

1. Why Experience Matters: On Palin, Putin and Prudence.
2. Rhetoric - Why it matters: Obama's acceptance speech and where free markets and government meet.
3. Base motivations: The Matter of McCain v. Obama.

Bank Runs and Black Swans

Nassim Nicholas Taleb, author of ‘Black Swan’ and ‘Fooled by Randomness’ was recently quoted as saying, "Anyone who knows anything about the history of banking...will tell you that the sub-prime crisis was so bound to happen [but] banks have a tendency to sit on 'time bombs' while convincing themselves that they are conservative."

Or, in the immortal words of Yogi Berra, “This is like déjà vu all over again.”  Consider:

• In 1988-1993, as a young commercial real estate asset manager, my baptism by fire was the Savings and Loan Crisis, a by-product of the deregulation of S&Ls, and the rampant speculation it begat. Between 1989 and mid-1995, the Resolution Trust Corporation, the governmental entity created to clean up the mess, closed or otherwise resolved 747 thrifts with total assets of $394 billion.
• In 1998, Long-Term Capital Management, a hedge fund that had ostensibly created the perfect risk arbitrage vehicle, came crashing down to earth, requiring the government to step in and orchestrate a massive bailout by major banks and investment houses, to avoid a global financial crisis.  Ironically, Bear Stearns, one of the banks intended to participate in the bailout refused, no doubt evoking a fair bit of Schadenfreude when they themselves collapsed earlier this year. (If you’ve never read Roger Lowenstein’s brilliant, ‘When Genius Failed: The Rise and Fall of Long-Term Capital Management,’ use the downtime in the market/economy to give it a read.  Very relevant to our current time.)
• In 2000, aided by a frothy IPO market that couldn’t last (and didn’t) and fueled by legions of morally compromised stock analysts, the tech stock bubble burst, taking the economy, portfolio holdings and countless thousands of jobs with it.
• Now in late 2008, the housing bubble, lead by cheap and easy credit, has punctured, and is expanding into a full-blown financial crisis, exacerbated by a proverbial run on the bank (and the major brokerage houses), as balance sheets prove worse than promised, and the ratings of ‘independent’ credit rating agencies prove meaningless.

To me, this suggests a few essential truths:

1. Four MAJOR financial crisis’ in twenty years is not the hallmark of an ‘efficient market.’  Believe me, as an eight-time entrepreneur, I am the consummate free marketer.  But I also believe that something is systematically wrong when greed, arrogance and faux-transparency can run unfettered, generating the type of collateral damage that wipes out not only sick institutions, but healthy ones as well.
2. There is something fundamentally wrong when Morgan Stanley, a strong institution that just beat earnings, finds itself under siege from short sellers (often naked ones, to boot), who are spreading rumors to profiting mercilessly on the current climate of fear. If the perpetrator were al-Qaeda, we would consider it a matter of national security to protect Morgan Stanley and crush the enemy.  Yet, call these same slime bags hedge funds and we celebrate their ingenuity.  Enough!
3. We no longer live a market that the layperson can understand.  How to assess the convoluted financial supermarket that is Citigroup?  What is smart investing in an increasingly global, interconnected market dominated by the programmed trading, exotic financial instruments like derivatives and highly leveraged, amoral and faceless hedge funds?
4. In the high-risk, high reward world of the financial marketplace, self-governance often is worse than no governance at all, inasmuch as it provides a fig leaf of legitimacy for investors but is akin to letting the wolf watch the sheep.  From deregulated lenders and shadowy hedge funds to compromised (nee polluted) analysts and intellectually bankrupt credit ratings agencies, the data is unfortunately uniform on finance industry self-governance

While it’s all fine and good to say that the market will sort this out, the truth is it’s the free market chant on the way up, but safety nets and taxpayer assisted bailouts on the way down.

Thomas Friedman of The New York Times puts it very succinctly in the highly educational, ‘Keep It In Vegas,’ saying:

“That’s what happens when bubbles burst. You feel wiped out, and the coolness with which the dealers — in this case the markets — sweep away all your chips is unnerving. It’s easy to over-react, and it is important that we don’t. Now is the time for coolly sorting out what markets can do best and what governments need to do better.”

So what is government’s role in mitigating or completely avoiding the next financial collapse?  Again, Friedman:

“In sum, government’s job is to police that fine line between the necessary risk-taking that drives an innovation economy and crazy gambling with other people’s savings in ways that threaten us all. We need to make sure that what happens in Vegas stays in Vegas — and doesn’t come to Main Street. We need to get back to investing in our future and not just betting on it.”

This suggests clearer, more transparent underwriting standards, more constraints on the amount of leverage investment banks, et al can undertake, and perhaps, more stringent controls against predatorial investing strategies, like short selling.

Some, like David Rothkopf, author of ‘Superclass: The Global Power Elite and the World They Are Making,’ argue that “We are at the end of an era — the end of ‘leave it to the markets’ and of the great cop-out that less government is always better government.”

But the hard truth is that few of us honestly believe that more government equates to smart government, something Rothkopf spotlights, saying, “We do not need a regulatory ‘surge’ on Wall Street. We need a complete rethinking of how we make global financial markets more transparent and how we ensure that the risks within those markets — many of which are new and many of which are not well understood even by the experts — are managed and monitored properly.”

If it were only that easy.  As ‘Black Swan’s’ Taleb has repeatedly shown, game changing market disruptions along the lines of our current financial crisis – so-called black swan events – simply defy predictability.

So I guess the moral of the story is: sleep easy...on your cash filled mattress.

UPDATE 1: Great catch by Daring Fireball on the $700B Bailout, 'All of a Sudden':

Senator Bernie Sanders:

For years now, they’ve told us that we can’t afford — that the government providing healthcare to all people is just unimaginable; it can’t be done. We don’t have the money to rebuild our infrastructure. We don’t have the money to wipe out poverty. We can’t do it. But all of a sudden, yeah, we do have $700 billion for a bailout of Wall Street.

In just one week.

UPDATE 2: Warren Buffet interview with CNBC on crisis and why the bailout necessary:

What you have, Joe, you have all the major institutions in the world trying to deleverage.  And we want them to deleverage, but they're trying to deleverage at the same time.  Well, if huge institutions are trying to deleverage, you need someone in the world that's willing to leverage up.  And there's no one that can leverage up except the United States government.  And what they're talking about is leveraging up to the tune of 700 billion, to in effect, offset the deleveraging that's going on through all the financial institutions.  And I might add, if they do it right, and I think they will do it reasonably right, they won't do it perfectly right,  I think they'll make a lot of money.  Because if they don't -- they shouldn't buy these debt instruments at what the institutions paid.  They shouldn't buy them at what they're carrying, what the carrying value is, necessarily.  They should buy them at the kind of prices that are available in the market.  People who are buying these instruments in the market are expecting to make 15 to 20 percent on those instruments.  If the government makes anything over its cost of borrowing, this deal will come out with a profit.  And I would bet it will come out with a profit, actually. 

Related Posts:

1. Financial Tsunamis
2. Oil, Vinegar and Volatility
3. How Speculative Markets Crush Amateur Investors

Why Experience Matters: On Palin, Putin and Prudence

In the latest issue of Vanity Fair (October) is a detailed essay on Vladimir Putin called ‘Dead Soul’ that is a MUST READ.  It is incredible, shocking, thought provoking and the consummate ‘truth is stranger than fiction’ read. 

In essence, it documents how Putin’s Russia is an unseemly marriage of endemic corruption, Mafia-style criminality and 1984-like spy state tactics.  This is a country that is less about a return to Soviet Union era Communism, and more akin to the horrific subterfuge envisioned in the movie, ‘V for Vendetta.’

After reading the article, you can’t help but wonder what it was that Vladimir Putin said to George W. Bush (at their first meeting in 2001) that prompted Bush to say he had “gotten a sense of his soul.” 

You also have to wonder what it says about us as Americans that we twice elected a president who trusts gut instinct over facts, binary decision-making over reasoned, pragmatic analysis, unilateralism over multi-lateralism and most troubling, fear over hope.   

The greatest irony in ‘Dead Soul’ is that, far from being groomed for his role as supreme leader of the new Russia based on proven skills and experience, Putin was plucked from obscurity by the oligarchs as someone that could be packaged up and marketed as westernized, moderate and market friendly. 

Unfortunately, once in power, Putin consolidated his grip on the country and crushed the very patrons that enabled his ascent.

Enter Presidential Election, 2008, and the cynical choosing of Sarah Palin by one-time maverick, John McCain, as his VP.

As Frank Rich puts it crisply in, ‘The Palin-Whatshisname Ticket’:

“The cunning of the Palin choice as a political strategy is that a candidate who embodies fear of change can be sold as a ‘maverick’ simply because she looks the part. Her marketers have a lot to work with. Palin is not only the first woman on a Republican presidential ticket, but she is young, vibrant and a Washington outsider with no explicit connection to Bush or the war in Iraq. That package looks like change even if what’s inside is anything but.”

Rich notes sarcastically of the GOP's bullying of the media with cries of sexism, elitism and liberal bias:

“They want the bar for admission to the White House to be placed so low that legitimate scrutiny and criticism of Palin’s qualifications, record and family values can all be placed off limits.”

Ironically, however, some conservatives not only see this as hypocrisy and a double standard at work, but worry that historical conservative hallmarks of prudence, experience and knowledge are giving rise to an ugly strain of populism.

Byron York of National Review, a rare conservative who acknowledges the double standard, captured it best: “If the Obamas had a 17-year-old daughter who was unmarried and pregnant by a tough-talking black kid, my guess is if they all appeared onstage at a Democratic convention and the delegates were cheering wildly, a number of conservatives might be discussing the issue of dysfunctional black families.”

David Brooks, a conservative writer for The New York Times in ‘Why Experience Matters’ sounds the alarm that Palin is unqualified to be a heartbeat away from the presidency, noting:

“In the current Weekly Standard, Steven Hayward argues that the nation's founders wanted uncertified citizens to hold the highest offices in the land. They did not believe in a separate class of professional executives. They wanted rough and rooted people like Palin.

I would have more sympathy for this view if I hadn't just lived through the last eight years. For if the Bush administration was anything, it was the anti-establishment attitude put into executive practice.”

And the problem with this attitude is that, especially in his first term, it made Bush inept at governance. It turns out that governance, the creation and execution of policy, is hard. It requires acquired skills. Most of all, it requires prudence.

What is prudence? It is the ability to grasp the unique pattern of a specific situation. It is the ability to absorb the vast flow of information and still discern the essential current of events — the things that go together and the things that will never go together. It is the ability to engage in complex deliberations and feel which arguments have the most weight.  How is prudence acquired? Experience."

He finishes, “Sarah Palin has many virtues. If you wanted someone to destroy a corrupt establishment, she'd be your woman. But the constructive act of governance is another matter. She has not been engaged in national issues, does not have a repertoire of historic patterns and, like President Bush, she seems to compensate for her lack of experience with brashness and excessive decisiveness.”

Returning to where we started, the Palin parallels to Putin are a bit unnerving.  Rich summarizes what a McCain victory means:

“If we’ve learned anything from the GOP. convention and its aftermath, it’s that the 2008 edition of John McCain is too weak to serve as America’s chief executive. This unmentionable truth, more than race, is now the real elephant in the room of this election.

No longer able to remember his principles any better than he can distinguish between Sunnis and Shia, McCain stands revealed as a guy who can be easily rolled by anyone who sells him a plan for “victory,” whether in Iraq or in Michigan. A McCain victory on Election Day will usher in a Palin presidency, with McCain serving as a transitional front man, an even weaker Bush to her Cheney.”

Putin’s benefactors couldn’t be troubled to look too closely at exactly who they were coronating, and they lost their grip and their country in the process.

Along similar lines, it remains to be seen whether the last eight years have taught us anything, as well as whether Obama can finally convey the gut-level passion, vision and roll up your sleeves mentality needed to overcome the economic devastation that is at the core of the fears that Palin and company are trying to exploit.

In the end, though, we as citizens get the government that we deserve and demand.  And nothing more.

UPDATE 1: Excerpt from Katie Couric interview of Sarah Palin.  All that I can say is "heartbeat away from the presidency" and the fact that McCain says emphatically with a straight face that Palin is "absolutely ready to be president" tells you all that you need to know.

UPDATE 2: The New Yorker has written a really good article on how McCain came to pick Sarah Palin.  Here is an excerpt:

McCain had met Palin once, but their conversation—at a reception during a meeting of the National Governors Association, six months earlier—had lasted only fifteen minutes. “It wasn’t a real conversation,” said the longtime friend, who called the choice of Palin “the fucking most ridiculous thing I’ve ever heard.” Aides arranged a phone call between McCain and Palin, and scrutinized her answers to some seventy items on a questionnaire that she had filled out. But McCain didn’t talk with Palin in person again until the morning of Thursday, August 28th. Palin was flown down to his retreat in Sedona, Arizona, and they spoke for an hour or two. By the time he announced her as his choice, the next day, he had spent less than three hours in her company.

Related Posts:

1. V and The Quiet Coup: on Bush presidency watering down of democracy and American principles
2. Rhetoric - Why it matters: Obama's acceptance speech and where free markets and government meet.
3. Base motivations: The Matter of McCain v. Obama.
4. Why Experience Matters: David Brooks, NYT Op-Ed - excellent piece.

'Whaling': Larger Prey As Targets of Phishing Scams

You receive an email message appearing to be an official subpoena from the United States District Court in San Diego.

Visually, the message looks official, includes your name, company name and phone number, and commands the recipient to appear before a grand jury in a civil case.

What do you do?

Unlike most e-mail phishing scams, this one passes the sniff test.  “I think that it was well done in terms of something people would feel compelled to respond to,” said Steve Kirsch, the chief executive of Abaca, an antispam company based in San Jose, Calif, and a recipient of one of the 'subpoenas'. “Even the U.R.L. to find out more looked legitimate at first glance.”

Clicking on the link embedded in the message (which purports to offer a copy of the entire subpoena) results in the recipient who tries to view the document unwittingly downloading and installing software that secretly records keystrokes and sends the data to a remote computer over the Internet. This lets the criminals capture passwords and other personal or corporate information.

Scary stuff specifically because it does pass the sniff test, and according to the New York Times article spotlighting this, well targeted too (whaling is a play on the phishing term):

Thousands of high-ranking executives across the country have been receiving e-mail messages this week that appear to be official subpoenas from the United States District Court in San Diego. Each message includes the executive’s name, company and phone number, and commands the recipient to appear before a grand jury in a civil case.

Several security researchers said that the real danger of the attack lay in a second level of deception, after the hidden software provided the attackers with digital credentials like passwords and electronic certificates.

Despite the seemingly easy-to-trace domain name, the feds guess this originates from China, and as such will be hard to stop.

Membership has its privileges, I guess.  Welcome to the underbelly of the global economy.

Obama, Clinton and the 'Winner Take All'

While Republicans have long understood the WINNER TAKE ALL nature of presidential elections, Democrats have tended to feel 'dirty' about the dog fight-like nature of process, and fought lamely as a result.

This has yielded vanilla candidate after vanilla candidate (think: Dukakis, Gore, Mondale, Kerry), and defeat after defeat (save for two-time heavyweight champion, Bill Clinton).

With that as a backdrop, some sage clarity  and exposition from Maureen O'Dowd in today's New York Times:

One of the most valuable lessons the gritty Hillary can teach the languid Obama — and the timid Democrats — is that the whole point of a presidential race is to win.

It’s not to share power, or force the squabbling couple into an arranged marriage.

The winner wins, even if it’s only by a fraction of a percentage point or one Supreme Court justice.

Winning has no margin of error, as the Democrats should have learned by now. And the winner gets to decide his or her running mate.

Read the full article HERE.  It is extremely crisp and well articulated.

Billary: The transformation of Hillary Clinton to Bill Clinton

Must feel that way to Barack Obama some times. From Don Asmussen in the San Francisco Chronicle. Click the picture to view full-sized image.

Oil, Vinegar and Volatility

Here is a bookend for you.  On one side, you have “oil and vinegar;” namely, our odyssey into a war with Iraq that was launched on the premise of reversing the rising tide of Islamic fundamentalism, bringing democracy to the Arab states and (implicitly) protecting access to one of our most economically critical resources – oil.

Here, as Maureen Down of The New York Times eloquently captures in ‘Red, White and Blue Tag Sale,’ not only have we failed in our stated objectives, but, as she notes, “our addiction to oil has allowed our pushers in the Persian Gulf to go on a shopping spree to snap us up.”  That's the vinegar.

Specifically, China and Arab countries now have a staggering amount of treasury securities…the oil-rich countries are sitting on so many petrodollars, in fact, that they are taking advantage of the fire sale dynamics to buy eye-popping stakes in our major financial institutions.

For example, Citigroup, which raised $7.5 billion from Abu Dhabi in November, raised another $12.5 billion, including from Singapore, Kuwait and Saudi Prince Walid bin Talal. Merrill Lynch gave $6.6 billion in preferred stock to Kuwait, South Korea, a Japanese bank and others.

The irony, she notes, is that if the president had spent the trillion he squandered on his Iraq adventure on energy research, we might have broken the oil addiction, and potentially changed the power dynamics in the Middle East.

Instead, we have an economy that is teetering on the brink of a recession, “fueled” by an expensive, unilateral war and crude oil prices that have shot up 4X since 9-11 (from the low $20 range to the $90+ range).  Such is the bitter legacy of the twice-elected “mission accomplished” gang.

On the other side of this bookend is volatility, and specifically, the unpredictable, but truly staggering impact that seemingly random events can have in the larger scheme of things.

In ‘Black Swan: The Impact of the Highly Improbable,’ Nassim Nicholas Taleb offers up a potent graphic that provides some context for making sense of today's rocky stock market. 

It spotlights how in the last fifty YEARS, the ten most extreme DAYS in the financial markets represent half the returns…and yet conventional finance sees these one-day jumps as mere anomalies.

I will defer to the reader to discern what one bookend has to do with the other, and how one should play their hand moving forward as citizen, voter and/or investor. 

As alluded to in 'Financial Tsunamis,' and approached from a completely different angle in 'On Intellectual Honesty,' we live in an increasingly interconnected world where understanding the storylines and their respective arcs is not enough. 

You need clear narratives about how the chicken parts coalesce to form a living, breathing chicken and scenario plans for navigating the (turbulent) road that lies ahead.