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"Never imply malice while stupidity is still available as an explanation."
I don't know whether I have that quote right, or where it came from. And I choose not to spend so much as a Google search to find out. Somebody else said it; they were being funny. I have adopted it, and labelled it Rule #1.
It is Rule #1 because it is far and away the best rule to follow in life. Remembering Rule #1, if nothing else, will result in a less stress-filled life.
Readers of this blog - currently no one, but what the hell, a boy can dream - will note that there isn't a lot of self-help advice. I bring up Rule #1 not just because it works to make sense of our planet, but also because it will be easier than having to write it out every time it comes up - which it will.
If I decide that any other rules are worth numbering for easy access, I'll highlight them as well. "Don't argue with crazy people" is pretty close to being designated #2, in case you were interested.
Sunday, November 11, 2012
The Mandate
Barack Obama's mandate from this
election is a simple one. “Do Better.”
The Republicans have grasped for a
number of other explanations – from the demographic (“If we had
Marco Rubio on the ticket, we'd have done enough better with Latino
voters to overcome the perception that Republicans simply want to
deport every Hispanic from the country”) to the meteorological
(“Superstorm Sandy won the election for Obama by allowing him to
look presidential”) – but the simple fact is that Americans
usually re-elect the incumbent.
Since 1912, a full century past, there
have been exactly four incumbents who were not re-elected. WH Taft
in 1912, Hebert Hoover in 1932, Jimmy Carter in 1980, and George HW
Bush in 1992 (I am not including Gerald Ford on the list because he
was merely finishing the Nixon's term – and was thus covered with
the stench of Watergate – though the other three “accidental
incumbents” were also re-elected, which I think strengthens my
position.) Four. In a century. We are biased in favor of the
incumbent.
In fact, looking at those four
elections, they weren't even close. Bush in 1992 is the only of the
incumbents who managed to get more than 100 electoral votes – which
is my definition of a landslide. Historically, it seems that
re-election campaigns were almost always landslides – one way or
the other. The undecided voter is really just the reluctant voter,
who needs to be given a good reason to vote for the other guy.
(I believe that something has changed
in American elections in the past generation, though. The last four
re-elections: 1992 – challenger wins handily but not by a
landslide (first time since 1892), 1996 – incumbent re-elected but
not by a landslide (first time since 1948 for that result), followed
by 2004 (narrowest re-election ever) and now this year's narrow
popular vote victory for Obama. This doesn't change my basic
premise, that we prefer to re-elect the incumbent, but it is telling
us something which I am not going to try to decipher it here.)
President Obama did not articulate a new vision for the next four years during the campaign, so he cannot claim that the American people have asked him to pursue any particular philosophy – though he has already tried to claim that the voters want higher taxes on the wealthy (and in fairness, that was a constant refrain in his campaign, though the exit polling indicated people voted for him in spite of rather than because of that position).
He wasn't re-elected by an overwhelming, or even a whelming, margin, which would allow him to claim that the policies of the first term were vindicated. He first ran on Hope and Change, and now he was re-elected by people who decided that now they don't want too much change.
Call it “better the devil you know”
or call it “the American people are sheep who don't understand that
they are ushering in the decline of Western civilization,” the
point is that Obama was narrowly (by historical standards) re-elected
by a populace that usually re-elects its President.
Do Better.
Saturday, March 24, 2012
The rule of law
The Georgia Legislature was engaged in an interesting debate last week. At issue was a bill that would prevent the successor creditor of a debt - specifically intended to to mean the buyers of loan portfolios from the FDIC when it works out a failed bank - from pursuing the guarantor on such loans - specifically intended in this case to benefit developers whose projects were stalled or killed by the Great Real Estate Debacle of 2008 - for any more money than the buyer paid for the loan itself. In other words, if the debt was purchased at 40 cents on the dollar, the guarantor's liability would be limited to that 40 percent of the loan.
As is frequently the case in the world, for every problem there is a solution which is easy to understand, simple to implement and dead wrong. This was another example. The proponents argued that the bill is about fairness - a simple concept. The bill would prevent some vulture from sweeping in and making a substantial profit from the individual guarantor.
And it would be easy to implement - if you are the buyer, you give up the right to more than your purchase price against the guarantor. End of story. Nobody is forcing you to buy the distressed loans of a failed bank.
(I will not pursue one line of objections to the bill - that the developers made millions in the decade leading up to the debacle and many of them pocketed the development loans. Rule #1 still applies and I will not imply malice while stupidity is still available as an explanation - we will presume that the developers who benefit from this bill were just hopelessly over-extended and got crushed when the economy tanked. Greedy is different than evil; and in this case, greedy is enough.)
Except in classic fashion, the bill didn't just say if you buy distressed loans from a failed bank you give up the right to collect more than the purchase price from the guarantor. Instead it said that all successor creditors were barred from pursuing guarantors on any debt beyond the purchase price. That sweeping generalization led to a storm of protest from all sorts of places that the bill's author had never thought about - car notes, equipment lessors, and lots and lots of small banks with weak loan portfolios who didn't appreciate being told that the market to sell those loans in was going to dry up.
To flip to the end of the game, eventually all of the objections to the sweeping nature of the bill caused the final product to be amended to really say what the tool of developers who originally introduced the bill meant to say - buyers of loan portfolios from FDIC asset sales are limited in their ability to pursue guarantors to the purchase price of the loan. The final version is so narrow that they almost could have named the company that they were trying to inflict this on - except that is unconstitutional.
(The whole thing may very well be unconstitutional. I'll not bore you with a lot of legal argument. It's just that legislatures aren't allowed to pass laws that change the terms of existing contracts. That, by the way, is why the Democratic congress of 2009 couldn't actually just re-write everyone's mortgage to a lower interest rate so that fewer people would default. They might have wanted too, but that pesky Constitution got in the way again.)
But the final bill, which is yet to come to a vote in the Georgia House, still has a major flaw. The problem is that the Georgia legislature (and not only Georgia's, because this state is almost never on the cutting edge of anything, so the same lobbyists who got this introduced in Georgia are doing the same elsewhere) has declared that promises don't mean anything. In certain, very limited, situations, a promise to pay is malleable. And I bet that 99 out of 100 people promoting this bill - legislators and beneficiaries - have at some point said their word is their bond.
One of the least appealing features of democracy is how the governing bodies have a tendency to forget what was important six months ago. One of the biggest arguments against the bank bailouts was that it created a situation where banks could be wildly reckless with their assets - investing ludicrous sums of money (mostly other people's money) in virtually-bogus financial instruments because there were massive profits to be made when the next chump bought them from the bank. There is no moral hazard - it was I win, you lose.
This "spend like a drunken sailor, we'll take care of you when it goes south" message was a great talking point. Unless we make sure banks don't do this again, we're just encouraging risky behavior. It was all the rage. But nothing came of it, banks are back in the black, probably investing our money in ways that defy explanation, and there is no more regulation than there was in 2007.
And now, the Georgia legislature, taking a cold-eyed look at the amount of money developers poured into their campaigns, has done exactly the same thing. "It doesn't matter that your company actually got the money; it doesn't matter that you made a promise to pay the money back if the company couldn't; if the bank that loaned you the money goes under (in part because your loan and bunch of others are secured by 400 acres of worthless red clay), you can sleep easier knowing that your exposure is limited to the steep discount someone pays for a bunch of bad loans."
A disclaimer. When I put on the glasses and suit and kiss Lois Lane goodbye each morning, I become a lawyer who represents creditors. Not the creditors involved in this particular transaction, but creditors nonetheless - ones that rely upon the basic truths that when you buy something you are supposed to pay for it, and when you promise to pay for something, your promise is enforceable.
It is called the rule of law. It is an essential cornerstone of capitalism. If your promise to pay cannot be enforced then why should I sell to you? Countries where there is uncertainty have a hell of time getting investment money.
For now, the Lege decided not to publicly declare that Georgia was a backward economy operating by crony capitalism - who you know determines what the rules are. But they've cracked open the door.
As is frequently the case in the world, for every problem there is a solution which is easy to understand, simple to implement and dead wrong. This was another example. The proponents argued that the bill is about fairness - a simple concept. The bill would prevent some vulture from sweeping in and making a substantial profit from the individual guarantor.
And it would be easy to implement - if you are the buyer, you give up the right to more than your purchase price against the guarantor. End of story. Nobody is forcing you to buy the distressed loans of a failed bank.
(I will not pursue one line of objections to the bill - that the developers made millions in the decade leading up to the debacle and many of them pocketed the development loans. Rule #1 still applies and I will not imply malice while stupidity is still available as an explanation - we will presume that the developers who benefit from this bill were just hopelessly over-extended and got crushed when the economy tanked. Greedy is different than evil; and in this case, greedy is enough.)
Except in classic fashion, the bill didn't just say if you buy distressed loans from a failed bank you give up the right to collect more than the purchase price from the guarantor. Instead it said that all successor creditors were barred from pursuing guarantors on any debt beyond the purchase price. That sweeping generalization led to a storm of protest from all sorts of places that the bill's author had never thought about - car notes, equipment lessors, and lots and lots of small banks with weak loan portfolios who didn't appreciate being told that the market to sell those loans in was going to dry up.
To flip to the end of the game, eventually all of the objections to the sweeping nature of the bill caused the final product to be amended to really say what the tool of developers who originally introduced the bill meant to say - buyers of loan portfolios from FDIC asset sales are limited in their ability to pursue guarantors to the purchase price of the loan. The final version is so narrow that they almost could have named the company that they were trying to inflict this on - except that is unconstitutional.
(The whole thing may very well be unconstitutional. I'll not bore you with a lot of legal argument. It's just that legislatures aren't allowed to pass laws that change the terms of existing contracts. That, by the way, is why the Democratic congress of 2009 couldn't actually just re-write everyone's mortgage to a lower interest rate so that fewer people would default. They might have wanted too, but that pesky Constitution got in the way again.)
But the final bill, which is yet to come to a vote in the Georgia House, still has a major flaw. The problem is that the Georgia legislature (and not only Georgia's, because this state is almost never on the cutting edge of anything, so the same lobbyists who got this introduced in Georgia are doing the same elsewhere) has declared that promises don't mean anything. In certain, very limited, situations, a promise to pay is malleable. And I bet that 99 out of 100 people promoting this bill - legislators and beneficiaries - have at some point said their word is their bond.
One of the least appealing features of democracy is how the governing bodies have a tendency to forget what was important six months ago. One of the biggest arguments against the bank bailouts was that it created a situation where banks could be wildly reckless with their assets - investing ludicrous sums of money (mostly other people's money) in virtually-bogus financial instruments because there were massive profits to be made when the next chump bought them from the bank. There is no moral hazard - it was I win, you lose.
This "spend like a drunken sailor, we'll take care of you when it goes south" message was a great talking point. Unless we make sure banks don't do this again, we're just encouraging risky behavior. It was all the rage. But nothing came of it, banks are back in the black, probably investing our money in ways that defy explanation, and there is no more regulation than there was in 2007.
And now, the Georgia legislature, taking a cold-eyed look at the amount of money developers poured into their campaigns, has done exactly the same thing. "It doesn't matter that your company actually got the money; it doesn't matter that you made a promise to pay the money back if the company couldn't; if the bank that loaned you the money goes under (in part because your loan and bunch of others are secured by 400 acres of worthless red clay), you can sleep easier knowing that your exposure is limited to the steep discount someone pays for a bunch of bad loans."
A disclaimer. When I put on the glasses and suit and kiss Lois Lane goodbye each morning, I become a lawyer who represents creditors. Not the creditors involved in this particular transaction, but creditors nonetheless - ones that rely upon the basic truths that when you buy something you are supposed to pay for it, and when you promise to pay for something, your promise is enforceable.
It is called the rule of law. It is an essential cornerstone of capitalism. If your promise to pay cannot be enforced then why should I sell to you? Countries where there is uncertainty have a hell of time getting investment money.
For now, the Lege decided not to publicly declare that Georgia was a backward economy operating by crony capitalism - who you know determines what the rules are. But they've cracked open the door.
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