2008 in review - The Torch Relay (April)

The story of the Olympic Torch Relay was my favorite international absurdity of 2008.  Let's laugh at it again.

I can’t quite decide what is the most ludicrous aspect of the global public relations nightmare that is the Beijing Olympic Torch Relay.

First of all, why are we having this event in early April when the Olympics don’t kick off for another 120 days.  What kind of symbolism is the Olympic flame leaving Athens four and a half months before the Olympic Games, and taking a plane to Beijing?  If the “official Olympic flame” is already in China, what happens now?  Does it just sit there hissing like the time your uncle Benny forgot to turn off the gas grill and you went out the next morning to find all the Gladiolas lightly toasted?

But forget that part for now.  When did carrying that burning stick become such a symbol of national pride for China.  It’s not their torch.  It’s the Olympic torch.  Shouldn’t Juan Antonio Samaranch or Hootie Johnson or whoever the hell is in charge of the Olympics these days be deciding where the torch goes, and generally saying that the Chinese will get the torch in August when -whether they’ve gotten rid of the smog or chucked a few thousand dissenters into General Tso’s Gulag or not - they actually get around to hosting the Olympics?

The next head-scratcher for me is the vehemence of the protesters, in England and France, for the cause of Tibetan independence.  For starters, since when did the French hit the street to protest the oppression of anyone but the French?  And while there are always agitators for every cause, how did they decide that the flashpoint for this little fiasco would be Tibet.  It probably isn’t in the top five of crimes perpetrated by the Chinese government.  What happened to their cozy sponsorship of the Sudanese genocide in Darfur?  The human rights abuses in their own country? The crippling poverty in the countryside?  The wholesale censorship?  There are plenty of reason to hiss at the Chinese; shouldn’t we be using them all?

The comedy from today’s “torch relay” in San Francisco abounds.  The phrase that lingers longest is still “the only portion of the relay in North America.”  This big, important world event called the Olympic Torch Relay - and it must be a big, important world event because the people doing it are acting like anyone cares, and the people using it as a platform for protest are acting like anyone cares, and the media are covering it like Paris Hilton was carrying the torch while riding a horse bareback - this big, important event comes to North America for a six-mile trip around the Embarcadero?  And that’s it?  Not to sound too jingoistic here, but are you freaking kidding me?  Never mind the part about the US being the world’s only remaining superpower and the straw that stirs the drink in virtually every endeavor, let’s look at it this way: as the Olympic Flame circles the globe to encompass all mankind in the warm “I’d like to teach the world to sing” glow that is the brotherhood of international sport, North America, one of only seven continents, something like 15% of the world’s landmass, gets recognized by a six-mile stroll of Fishermans Wharf.  

The Canadians and Mexicans should be pissed.  They don’t even get sloppy seconds on the continental tour.  And isn’t there something sneakily racist in having the North American segment run through Chinatown, USA?  Maybe I’m just being white here, but this smacks of  “sticking it to the Man.”  I mean, New York has a very nice Chinatown too.

What kind of relay hops from London to Paris to San Francisco?  Doesn’t relay suggest a lengthy chain of hands passing the Olympic Flame across continents?  This sounds more like the Olympic checked luggage derby.

The sight of the Olympic torch being protected by a few hundred police and security in London was funny.  The sight of the Olympic torch being doused and toted across Paris in a bus was laughable.  But the low point for the week was reached in San Francisco when the torch took a different route around the city and then a ceremony was canceled entirely.  

The symbol of the Olympic “Movement” and all of mankind’s highest aspirations for fair play and brotherhood sneaks around the city in a private ceremony.  There was a real “we’re going to carry this damned stick around San Francisco for a while and it will too be important” sound to the whole event.  It a little like finding out that the national anthem will not be sung at home plate before the game but was actually whistled by a guy in the tunnel behind the visitors dugout about twenty minutes ago.  We did it and that’s all that counts.  Symbolism be damned; we’re not going to allow our moment in the sun to be taken away, unless we take it away ourselves.

And in the wake of several consecutive appearances of the Olympic torch in circumstances that could charitably be called unfortunate and could accurately be called acutely embarrassing, there has been a proud stand taken by Chinese and Olympic officials that the torch relay will not be canceled.  Because cancelling the torch toting would be a loss of honor; unlike the lengthy airplay given to the torch being doused and carried in a bus or the farce of holding a ceremony that is so tenuous that the time, place and manner are all changed to avoid having many people know it was going on.  Why not just bring the torch in a handful of cities in the dead of night and ride around on a bicycle for a couple of hours?  That is at least as symbolically significant.

But I am not calling for the torch relay to be canceled.  You can’t give in to blackmail.  I advocate just having the torch-bearers carry right along, without layers of security.  And every time the peace-loving, non-violent protesters trip the torch-bearer to the ground and rip the torch from her hands, the officials would pick her up, dust her off and hand her another cheap Chinese knock-off of the patented Olympic torch to carry down the path. 

2008 in review - The Credit Crunch (March)

Since this blog didn't begin until the end of 2008 (thanks for the push, Ben), all of the good stuff I wrote before then has been composting on the hard drive.  So here as a series of posts are commentaries that were written through 2008.

In March I took my first look at the evolving credit crisis:

The national media recently made an interesting discovery - that the current financial crisis is actually impacting the economy, that Wall Street’s losses and the subprime mortgage debacle are actually beginning to make people buy less and talk about feeling less secure.  Stories have begun circulating about how the dicey economy is causing people to cut back on the size of their weddings or where they shop or maybe even, perish the thought, not buy that new car.

Now that the shopping habits of such exotic places as Knoxville, Tennessee are being examined, I think it would be a useful service to Manhattan and Washington to explain why these folks are behaving so.  After all, just a few years ago the dot.com bubble burst and stock prices went into a tailspin, but no financial panic ensued.

My explanation: this time, it’s not just a night in a casino.  It’s real money.

The dot.com boom and bust were entertaining stories about capitalism and the economics of hope over experience, but they did not resonate far beyond the stock market and the small alien world of Silicon Valley.  The rest of the economy, where people make things and sell things and buy things, kept going.  Some paper wealth got wiped out, but only the very few people whose monthly income actually depended on the stock market or the dot.com companies were genuinely shoved to the curb.  People watched their 401k nose-dive, but it wasn’t real money.  It was gambling money.

Real money implies real consequences.  Real money is the reason we don’t all splurge on a spa retreat or golf vacation or trip to Kenya monthly.  Real money is why we clip coupons and compare prices and want prescription drug coverage in our health insurance.

Gambling money isn’t real money.  It’s entertainment money.  Once you convert that money to chips, it isn’t your money anymore.  You bought a night’s entertainment.  Only fools and gambling addicts bring their house payment to the casino.  You never bet what you can’t afford to lose.

Money in stock market, for most people, was not their house payment, and so when the market dropped, it hurt like a losing your chips at the blackjack table.  You wanted to win, and for a while you did real well, and you kick yourself for not cashing in at the peak.  But it wasn’t the house payment.  It wasn’t real money.

This time, though, millions of people have discovered that real money is on the table.  (I’ll not torture this analogy further by noting that almost no one understands the game being played - that’s a commentary for another time.)  Suddenly across America, people have discovered that what they thought was financial planning actually involved bringing their house payment to the casino.  It turns out that we’ve all been betting that home values would keep rising.

The recession, and the roller-coaster financial market, is all about home values and monthly mortgage payments.  Consumers bet on continued rises in value to allow them to refinance into a more affordable monthly payments and the financial world bet on continued rises in value to protect the collateral on which the loans were made.  The folly and the blame are for another time.  The impact is clear - untold millions of Americans have far too much riding on the bet that the value of their home was going to keep increasing.  Collectively, we forgot not to bet what we couldn’t afford to lose.

“This is the bedrock asset for the lion’s share of the population of the United States,” Robert Barbera, chief economist for the trading and research firm ITG, said earlier this week in The New York Times.  “It’s not like dot-com stocks, where I bought Webvan for 1,000 times the imaginary earnings, and now it’s worth nothing but I go and have a beer.”

The dot.com bubble didn’t involve real money.  Stock prices fell, and uncertainty chilled the economy for a spell because the “new economy” suddenly was found to have the same rules as the “old economy” - such rules as the purpose of business is to make money.  But it was short-lived.  At the end of the day, most people could continue on exactly as they had the day before their stock tanked.  Not this time.  

Even people who are not on the verge of foreclosure find that the security which they felt is slipping away.  For too long, Americans have used their houses as virtual ATMs – whether they were buying necessities or luxuries or borrowing to send their kids to college or to re-finance the last round of purchases and school tuition.  

Suddenly, because the lenders at the very top of the financing chain no longer consider every house, or possibly any house, to be sufficient collateral - buyers have to come up with more cash, and sellers can’t expect eager buyers to compete for their homes, and only fools and addicts think that re-financing can get them ahead of the game.

January 20

Some thoughts about this seminal day in American history:

The peaceful transition of power.  It is so commonplace to us, since long before we were here to think about, that we sometimes forget to marvel that it has never been the norm in the world.

I've watched or listened live to seven inaugurals now.  This is the first one that brought tears to my eyes.  It wasn't even as much what he said - inspiring thoughts delivered with less fervor than we may have expected - as two ideas that kept coming back to me.  

First is that thrill that after several presidents who did not do so, we have a president who aspires to inspire us.  

Second, and far more importantly, is that the world I was born into is dramatically and permanently different.  The president, after all, is more than an office-holder, he is the face of "America" as a national institution.  Now an entire cohort of children in this country will see the face of the country, the symbol of leadership, is a black man.  For someone who grew up in the massive-resistence South, there is no greater change in our culture.  Racism is not cured, but the message of hate is going to have a harder time getting through the regular picture of the leader of the free world is a man of color.

When Martin Luther King, Jr. stood at the other end of the Washington Mall and declared that he had a dream, I don't think he pictured a man judged by the content of his character not the color of his standing on the Capitol steps within his own children's lifetime.  That was part of why it was a dream.

And one other thing.  Name the next progressive Western democracy which will have a black man or woman as its leader.  Right now, it is as distant as it was for MLK in America.

Tomorrow the heavy lifting starts.  But today, every single person should believe in the promise that has always been America.

Tax Money

I'll save some of you the trouble of viewing the comments to earlier posts by quoting the comments - and where appropriate my posting that gives rise to the comment.

In response to my column called It Is our Money. Michelle Peterson writes:

"However, I'm in favor of a tax overhaul. Why not convert to a Fair Tax system? Taxes are paid up front on goods and services. A 23% tax on all new goods and services. There is no need to file income taxes. More revenue would be collected because everyone uses goods and services. Fair Tax brings transperancy to collecting tax paying dollars."

Two thoughts and I would love to hear more.  First is that I don't think that there is anyone who is not in favor of a tax overhaul.  I've never met a soul who likes the current tax system - though there are certainly a large number of accountants and tax attorneys whose livelihood would be in jeopardy if a system like the National Sales Tax were implemented.

Second, I've read the book The Fair Tax and certainly see its appeal.  I'm not opposed to a radical simplification of the tax system.  My concern at this point is that so many economists on both sides of the political spectrum label the plan as "wacky."  For some time, I have been hoping to that such economic voices would address the specifics of the plan, and I would like to invite everyone to join in me in calling for a debate based on the science of the plan.  Michelle, do you have anything?

The Madoff Chronicles - Part III

Opacity v. Transparency

Which brings us to 2009 and the latest round of opacity vs. transparency in the financial world.  ABC News attempted to learn from the recipients of the $700 billion government bailout what they had done with the money, and was sent packing.  The government didn’t bother writing a requirement for accountability for the money into the bailout program, and so it cannot get the information either.  After providing nearly a billion dollars in loan guarantees, loans, and outright gifts, the United States government is unable to learn what its largesse has been used for.

Right now each and every one of us gleefully chuckling over the folly of the rich and connected who tossed their money down Bernie Madoff’s rathole are doing exactly the same thing.  Our tax dollars are being tossed into a couple of dozen ratholes and all we ever get are glimpses of what we’re getting for the effort - glimpses like AIG’s lavish employee retreat, which aren’t exactly reassuring.

This is unacceptable.  Not only is it bad governance.  It is bad capitalisms.

Believe it or not, it is not actually a law of capitalism that transparency is verboten.  It has just increasingly been allowed to run that way.  Opacity has been rewarded in the private markets, because investors would rather hear about returns than ask what their money is really being invested in.  Opacity is being rewarded in the bailout, because the government - for reasons that surpass understanding - has shied away from requiring that the recipients of the money account for it.  Transparency, not opacity, needs to be rewarded.

We need to require more transparency everywhere in our financial world.  As part of the privilege of raking in billions of dollars of investments from people, we should require that financial institutions make meaningful disclosures about what they are doing with the money.  The sheer volume of financial transactions being packaged limits the depths to which we can view into the murky waters, but we should at least have a clean, clear window to look through.

And all the more, we need transparency from the increasingly-broad range of institutions putting their hand out for a piece of the bailout cheesecake.  “Thanks for the cash, but we aren’t telling you what we’re doing with it” is unacceptable.  Period.  

Madoff’s rebuff to anyone inquiring into his fund was that his system was proprietary, a trade secret.  (“Ponzi is a registered trademark of Bernard Madoff and cannot be used, transmitted or published without the express permission of Madoff and the United States Bankruptcy Court for the Southern District of New York.”)  How this statement did not set off alarm bells for each and every investor is simply amazing.  But nobody seems to think that is such a surprise.

The reason is that we have become used to putting our money where we have no idea what will become of it.  We don’t expect to know what happens - which is madness.  We all pay taxes, but nobody can congently explain what the government is doing with the money.  And then the government spends a couple trillion more than it has, but no one can cogently explain how the deficit will be eliminated.  When there are trillions involved instead of thousands, we collectively engage in magically thinking.  The numbers are too big, so we allow ourselves to believe that it is too big to understand but will be alright in the end.  This is folly.

Let’s ask our government to push for a little more transparency.  After all, it’s our money. 

The Madoff Chronicles - Part II

Follow the Money

The person we haven’t heard from in the Madoff affair, the one I am most interested in, is the auditor.  News stories have said that Madoff used an obscure auditor that no one else was familiar with to produce his reports.  Obviously, this shadow figure is complicit in the crime - reports of annual fund growth accompanied the annual dividend payments.  Somebody knew that there wasn’t a fund growing anything but a longer list of new investors.

And the reason that I want to hear from this guy is because that is the person who actually made the whole thing work.  The auditor provided that only window into the Madoff vault.  This little cockroach needs to be brought, blinkingly, into the light of day because it is he, and not Madoff, that we need to hold on to as the symbol of everything that has been wrong with the go-go Nineties and Aughts.

If we look back to the tech bubble, the problem was that people invested tons of money on the belief that the industry had nowhere to go but up.  Sure it was the triumph of hope over experience, but it was brand-new economic model.

Where were the gloomy guys with the green eye-shades?  The accountants whose job was to point out that the company with the five billion in new investment capital had a business plan that was guaranteed to lose money for the next twenty-four months and then after that it was anybody’s guess if they could ever turn a profit.  Nowhere to be found, because no one wanted to know, we all wanted to hope.  Kinda like Madoff’s customers, ain’t it?

Remember Enron?  All the off-book accounting, all the debt magically transferred on the balance sheet to off-shore wealth?  The auditors who blessed Enron’s financial statements, giving them the Good Housekeeping Seal of Approval, had a hand in convincing investors to put billions of dollars into the shredder.  Pretty much the institutional version of the obscure auditor cranking out Madoff’s bogus balance sheets.

The auditors starring in the housing bubble, more than tangentially responsible for the recession of 07-08, were the credit rating agencies.  Their role was to fairly examine the value of the credit-worthiness of the debt being packaged and sold as collateralized obligations.  It is apparent that their examination never contemplated either the value of the collateral or the credit-worthiness of the obligors - as they wrapped pretty red ribbons called “AAA-rated” around millions of packages of debt that should have been labeled “toxic waste.” 

When there are billions involved instead of thousands, who is watching the watchers.  Nobody apparently.

Collectively, we all need to sit down and watch "All the President's Men" again.  To hear Hal Holbrook croak "Follow the Money!"  

The Madoff Chronicles - Part I

Madoff Isn't The Only One

It is easy for everyone here on the outside to ask how hundreds of purportedly smart business people could be suckered by Bernie Madoff’s patently bogus “investment fund.”  All of us here in the tradesman class, without the money or social cachet necessary to get into Madoff’s Ponzi scheme, are having our little moment of schadenfreude at the expense of the landed gentry.  But to be honest, none of us knew any better - we just didn’t have the money to lose there.

Before going any further on the actual topic of the day, I would like to take a moment to marvel at the sheer scope of Madoff’s crime.  Fifty billion dollars!  Does Madoff revel more in the mountain of cash or in the impressive list of marks who willingly handed over money like the little old widows in Mel Brooks’ “The Producers”?  Madoff made the simple calculation that the penalty for robbing the corner liquor store would be the same as stealing all the gold in Fort Knox, and went for the Gold.  That’s the kind of initiative that usually makes me proud to be an American.

But we came today not to praise Madoff, nor to bury him. 

I hope that we are nearly at the bottom of the financial spiral, so that Madoff can serve as the final, best room in this house of horrors, the one we remember when we drive home.  Because beyond the bemusement, we can actually profit from the lesson, if we quit acting like Bernie Madoff was a one of a kind criminal and instead see that his asset-less investment fund was not too far removed from the rest of the financial institutions we are busy bailing out, so that we can return to the days of giving them our money in expectation of high returns.

What part of Madoff’s crime is unique?  He took billions from investors based upon assurances that his fund would generate solid returns on investments.  Which major Wall Street player didn’t?  He used phony accounting.  Every major “write-down” in the past six quarters has an acknowledgment that the previous accounting was not particularly accurate.  He didn’t actually put the money into assets that would yield returns.  Neither did Lehman, AIG or any of the others.  

The real difference is that Madoff didn’t pretend that he was being a prudent financial investor; he told his clients point-blank that he would make them money and they weren’t allowed to know how.  Our major investment houses instead said they would make money and if you could figure out how, good for you.  They created exquisitely complicated debt instruments, whose actual value could not be traced.  Madoff knew he wasn’t going to pay people back.  Wall Street just didn’t care.

The Grand Illusion

Years ago, during a much smaller market bubble burst, I hit upon the analogy that investing is the same as gambling. Hardly an original insight. But what drew me to the analogy wasn't the simple mathematics - risking a loss in exchange for a possible reward. It was the mentality of the investors. This came home in a much, much larger way during the stock market meltdown of 2008.

For weeks on end we heard about how much money people had “lost” in the stock market. The problem with these tales of woe and gloom is that almost everyone involved hasn’t actually lost a damn thing. What almost all of them lost was perceived value.

In January 2007, you handed $1000 over to your broker and had her invest it in something. In August of 2007, you got a report that showed that your investment had increased to $1278. In August 2008, you got a report that showed your investment had tanked to $622. Did you lose 50% of your money in that year?

At 8:45 pm, you handed $1000 over to the dealer at a blackjack table and she passed you $1000 in chips. At 9:22 pm you had hit a couple of good hands and held $1278. At 10:22 you’d been on a slow slide of losers, winning a couple and then losing four or five and then winning a couple, and found yourself holding $622. Did you lose 50% of your money in that hour?

The answer is no. You haven’t lost 50% of your money. You haven’t even lost the $378. Because it isn’t your money. It is just casino chips. In either scenario.

The only way you can ‘win” or “lose” the money is if you cash out. While you are playing, it isn’t your money. The fall from $1278 to $622 wasn’t 50% of your money, it was 50% of your stack.

For most people, though, their investments don't feel like gambling. The hardly original insight somehow disappears from view. And they feel like they are losing real money.

In 2008, the impact was much more dramatic because, unlike in any casino, almost everyone who has money invested had been raking in the chips during the years running up to 2008. Everyone who had money in the market while the the Dow climbed all the way to 14,000 was way ahead, in chips. And so when it fell all the way to 8000, it was a disaster of perception, and has certainly aided in the recession we are all feeling. But the fact remains that they haven’t actually lost any money.

The Lessons of the Casino
And that’s why there are two lessons of the casino to apply to your investment portfolio. The first lesson is psychology - while your chips are on the table, you can’t act like the chips are your money. The play of the hand has to decide how you bet, not the “money” that you are risking - if you need to split that pair of aces, the fact that it might cost you double can’t govern the decision. It’s not your money; acting like it is will only make you crazy.

The second lesson is common sense. Don’t bet money you can’t afford to lose. Never bring your rent money to the casino. You bought the chips to try to grow the stack, knowing that you might not win. If you can’t afford to cash in for less than you started with, don’t even start.

And so we return to the fact that “almost everyone” has not lost anything. There are some true losers in the market crash. People who actually need the money, for retirement or for investment capital, for any use that people put actual cash to. People who had to cash out for less than they put in, are true losers. But even most of these people “lost” because they ignored the second lesson. If you can’t afford to lose, don’t play. The grand illusion of the go-go Nineties and Aughts has been that somehow investments couldn’t lose. People who got caught up in that illusion are paying the price.

It is the people who didn’t have a real choice about playing - when their company pension was invested in company stock, for instance - who deserve our sympathy. And there are some. And they are the real story. But that story is not told nearly as often as the scary headline about the billions being lost by people who haven’t lost anything yet.

The grand illusion has been exposed. But for most of the players, their billions are still right where they were. In casino chips. Time to remember lesson number one.

IT IS OUR MONEY!

In 2007, I paid about 22 of my income to the Federal Government and the State of Georgia in income taxes. On every dollar I spent doing my part in the consumer economy, there was another six or seven percent added for sales tax. I threw several thousand more dollars at the county where I lived in property taxes. Round figures - thirty percent of the money I earned in 2007 was handed over to various governments in taxes.

I’m not particularly upset at the idea that so much of my money was siphoned away. I would have pissed away most of it on other stuff I didn’t really need anyway, so I’m fine with the idea that I bought some decent neighborhood schools, police and fire protection, bridges that don’t collapse regularly, highways that have reduced the trip to visit loved ones to hours instead of days, and planes, tanks and missiles for our nation’s defense, to name a few things. Taxes are the price of citizenship, someone once said (or at least has now).

And I’m not particularly incensed about most of what the governments spend my money on. Some of the choices wouldn’t be mine, but they are largely arrived at through the democratic process and if I don’t like the choices, I need to elect better representatives. And on the whole, the money I give to governments seems to be used for good more than evil.

Therefore, I think the very least that the government can do in spending all of our tax money is to remember that IT IS OUR MONEY! The money wasn’t magically spun by Rumplestiltskin. It was taken from us, not ever entirely willingly, in order to do things that we cannot do individually. It does not, upon hitting the door of the US Treasury, become anything else - it is still our money.

And so this will be a common theme here at the Middle Ground. We can fight about the wisdom of how the government spends our money, but I think we can all agree that it is our money and we ought to require that government act like they know that. Condemnation is the only response to wasteful spending.

If enough of us condemn fiscal stupidity loudly enough, perhaps we can get the people who actually spend the money to remember that it is our money in the first place. THAT would be change I can believe in.

Private Enterprise/Public Debt

The trip to Washington by the automakers this week highlights one of the most common and troubling aspects of American capitalism - large private businesses which spend the majority of their time giving government the back of their hand, but run to receive public funds to boost their business at the first sign of financial winter.

For years, professional sports teams have been hijacking public funds from the local city, county and state to build the newest, modern and skybox-stuff stadia to host the team’s home games. Over and over the taxpayers are asked to foot the bill with bonds and sales tax hikes, and the even more insidious visitor’s taxes (so that we don’t have to pay for the new Dome, just the yokels that we con into coming to town for a conventions), while the revenues go to the team.

In 2008, the bandits have been businesses that are “too big to fail” convincing Congress to shovel cash into their coffers to stave off economic disaster. Ford, GM and Chrysler are only the latest in line, and they won’t be the last.

Everyone has wanted government out of the way, until the day of reckoning. Now they can’t snuggle up close enough. Pure capitalism requires a certain amount of giving the government the finger. But pure capitalism also requires that business operate entirely independent of government, and that has never been wholly true. Pure capitalism has always been a myth. Its proponents need to admit that, before they request any government aid.

Another problem with this approach is that it positively fails unless your company is big enough to throw some weight around. My guess is that $700 billion dollars loaned to every business with 100 or less employees in America would have done much more to stimulate the economy than pouring it down the sewers of Wall Street.

Leverage is a term that economists use to explain part of the financial meltdown. Companies are engaged in de-leveraging when they have to pay real money to cover their paper-asset bets. But leverage has been around a lot longer, in the sense more recognizable to fans of The Godfather - the ability to make an offer that can’t be refused.

Sports teams use their leverage, such as the increase in tax revenue to the city for all the sales of food and merchandise to all those people who troop into the stadium, the threat of moving to a city where the citizens will cheerfully pony up to make the team happy. They lean on these levers until the city fathers decide that they simply must build a new sports complex with enough skyboxes to pay for the team’s future bone-headed draft choices. But these deals never seem to result in the city recouping its investment with a share of the profits from the skyboxes, and parking deck, and concession stands. Usually about the time the bonds are paid off, it’s time to build another coliseum. Heads, I win; tails, you lose.

The pattern has been all too recognizable as large companies and financial firms approach Capitol Hill to scrounge a few billion in table scraps. The leverage these businesses use is the threat that their failure will cause even greater harm to an already struggling economy, that hundreds of thousands of job losses when the auto companies fail, that hundreds of thousands of houses will sit empty after foreclosure if Fannie Mae can’t re-capitalize. But as each of these companies tries (rather poorly) to humbly ask for help, we should not forget that they spent the past several decades paying lobbyists mucho dinero to fight against whatever Washington wanted to do that might cost them two cents per share in dividend. Heads, we win; tails, you lose.

Capitalism works in a simple model - maximize revenue. Take every advantage, squeeze through every loophole, maximize leverage to increase revenue and profits. There’s nothing intrinsically wrong with this model; it is still better than every other economic model tried so far. But for far too long, we’ve allowed companies to take actions that are simply contrary to the best interests of the country without holding them accountable for their decisions.

The automakers fought for decades over fuel efficiency. As recently as last year, they were hard at work again to undermine reasonable fuel economy standards. In 1979, Chrysler - which had caught it in the shorts when the oil crisis crippled demand for its fleet of big, ugly cars - convinced the government to issue it loans to avoid collapse. Chrysler took the money and spent the next couple of decades paying fat bonuses and dividends, while making a fleet of big vehicles that people still don’t want, and that didn’t enhance air quality or fuel economy one jot. Heads, we win; tails, you lose. The government hadn’t bothered to ask Chrysler to fix its brain-dead economic model or to be a better corporate citizen.

Fannie Mae and Freddie Mac spent millions lobbying to avoid Washington oversight and regulation - even though they are government-sponsored entities, whose losses are guaranteed by the full faith and credit of the US Government, in the first place. Huge pay packages and bonuses all around when business was booming. But with the mortgage meltdown came Fannie and Freddie’s likely demise, until the government promised to keep them afloat. Heads, we win; tails, you lose. The government didn’t require that executives return some of the bloated bonuses that were upon bogus balance sheets.

Banks pushed hard for less regulation, so that they could expand their business into flashier and more lucrative investment instruments - all of which have been exposed as an elaborate house of cards. The depositors are protected by the government, which is taking over banks as rapidly as they can spot the rotting corpses, now that all the phony wealth from creative and ultimately worthless investments has disappeared. But for a few years there, the banks were raking it in. Heads, we win; tails, you lose.

And all along the way, companies looked to find ways to shelter assets, off-shore profits, and relocate operations to minimize the taxes sought by the government. The wisdom of corporate taxation is for another time. For the present, these are the laws and those companies that worked to avoid them need to confess their sins - contrition before absolution, before contribution.

It is counter-productive and pointless to go back in time to identify the “bad corporate citizens” who are now clamoring for public funds. First, almost all of them are guilty of some amount of sacrificing responsibility for profits. More importantly, we are all complicit in allowing the lobbyists for capitalism’s interest to defeat the country’s interests. We’re the ones who kep electing legislators who didn’t mandate better tailpipe emissions standards, fuel standards, or transparency in financial transactions. We the people made the mess.

But that does not mean that cannot stop the endless cycle of private profits/public losses. We can quit financing stadiums for billionaires. We can require that money given to companies be investments, not simply loans to be paid back. We can claw back some of the obscene bonuses paid to executives who ran the company into the ground. At minimum, we should require that the company fire the lot of them and start anew. It is time for the carousel ride on the taxpayers' dime to end.

Bailout Fatigue

The big three automakers returned to Congress, somewhat contrite and with at least marginal explanations for how a bail out will help them, only to find that the audience is more hostile now than it was two weeks ago.

A couple of weeks ago I recommended that the automakers returned to Congress with detailed plans, with apologies for running their businesses into the ground, and with some demonstration that they are serious about not wasting money. They came through all of these points. However, that now appears to be not nearly enough.

One of the key factors is “bailout fatigue.” After all, we’ve been at this for months, to the tune of about $700 billion (which doesn’t actually include the 700 billion for Wall Street) for Citigroup and AIG and Fannie and Freddie. And there has not been a single indication that any of the money which the government has thrown at a private enterprise has succeeded in slowing the kamikaze descent of the economy. Skepticism, to say nothing of outright pessimism, reigns.

The contingent of legislators who have never been comfortable with the idea of the federal government pouring money into private business is now joined by those who have watched money disappear into the hands of companies with no accountability. The automakers have several other groups in opposition, but for now we will focus on the general sense of disgruntlement among the legislators.

Parenthetically, it should be noted that a significant cohort of the skeptics are Democrat. Ever since the election, there has been a concern that a Democratic controlled Congress will legislate the most free-spending and liberal policies possible. This debate gives the lie to those fears. Given the very real evidence that a bankruptcy by one or more of the automakers could toss thousands or hundreds of thousands of workers onto the streets, it would have been easy for the Democratic leadership to urge a blank check over the objections of Republicans in the House, Senate and even the White House. Instead, it is clear that the economic horror show of 2008 has reined in even Nancy Pelosi’s more socialist impulses.

One of the most compelling arguments against proceeding is that it sets the dreadful precedent that every business that is “too big to fail” could come to Washington with an appeal and walk out with another boatload of the taxpayers money. Unfortunately, there is no good retort to this argument. Yes, the auto industry is critical to American commerce. So was the finance sector. So is steel, farming, and energy production. Just because none of these people are currently asking Washington for money doesn’t mean that pretty soon they won’t.

The haste with which a number of brokerage houses and other financial institutions suddenly asked to become banks, in order to score some of the bailout cash, makes it clear any time a business can find a loophole, some CFO will drive his company right through it. If American Express can become a bank, who’s to say that a bicycle company can’t be designated as an automaker?

There are no good answers to the question of whether the country can afford to watch one or more of the major automakers file a Chapter 11. All anyone has is the suspicion that it isn’t going to work, the fear that more money won’t solve Detroit’s problems, and the hope or perhaps merely wish that this will be the money that marks the bottom and fiscal stimulus in the future will get the economy moving the right direction.

But it is clear that anyone coming to Washington needs to have not just a hat in hand, but a business proposal.

Georgia's runoff

The 2008 election campaign will finally conclude tonight, with the runoff election of Saxby Chambliss over Jim Martin in Georgia. (I know the counting continues in Minnesota, but at least nobody is still voting after today.)

The reason that this is the last act of the 2008 election cycle is because Georgia has a ridiculous rule requiring that candidates receive 50% + 1 vote to be the winner. This has got to be one of the greatest wastes of state resources imaginable - holding a whole 'nother election so that the 15% of the people who still give a flying rat's ass can go by the poll and vote for the same guy they voted for last time.

Even more sad than the idea that a state with a growing budget deficit is financing another election round at every single precinct in the state is how the god-awfully this campaign in Georgia has been run.

Neither one of these guys deserves to be elected to anything. Their campaigns have been 100% negative. Saxby Chambliss is the incumbent, but you wouldn't know it from the commercials he has run; there has not been a single ad listing an accomplishment, an initiative or even a truckload of pork that Chambliss has delivered for Georgia. Nope. Every ad simply lists all the reasons why Jim Martin is somewhere between moronic and evil. What has this guy done to justify six more years? No one can say. But at least he isn't Jim Martin.

Martin, who was a state legislator for a while, hasn't been any better. Chambliss' vote in favor of the Wall Street bailout has been fodder for Martin's commercials, when he wasn't saying that another Saxby term would be four more years of George W. Bush. What is this guy for if he gets to Washington? No one really knows. But at least he isn't Ssxby Chambliss.

And so, since the candidates are utter nobodies without a good idea between them, the campaign has become about how nasty, brutish and short life will become if there are 60 Democratic senators. It is simply pathetic that a sitting Senator cannot find any better reason for people to vote for him than that. Or that a Democratic challenger in a runoff after a significant Democratic victory in November cannot point to one way that he will help the incoming President.

And just to push the voters over the edge, their commercials tend to run back to back. You can't watch a football game without regular assaults of kindergarten name-calling - "vote for me, cuz he's a butt-head"

The new voters, black voters and mobilized Obama voters from November 4 are not likely to brave the cold to cast a vote for Jim Martin. The state is still demographically Republican, and so Chambliss will prevail in the runoff. Which is probably how it should be, since he did win more votes in November and would have been re-elected if Georgia didn't have this silly requirement of an absolute majority.

Saxby Chambliss is a non-entity who richly deserves the anonymity that he will soon disappear back into. But the alternative isn't any better. Georgians are faced with the choice of the lesser of two lessers. Incompentence rules either way.

Last and certainly least in this is that some idiots are going to decide that negative campaigning still works. That Chambliss prevailed in a runoff against an opponent whom he should have trounced easily in November is exactly not a recommendation for going negative; that Martin survived to a runoff without once articulating so much as an airy-fairy policy goal is exactly not a recommendation. But it can't be helped.

The real lesson of this runoff is that there is still a crying need for, and absolutely no hope of success for, a third party with ideas. An articulate fifth-grader running on a platform of reduced milk prices in the lunchroom could have won this election. Ge9rgia is getting the Senator it deserves - even if that other polecat should somehow win.

New York stories

As a lifelong resident of the world west and south of the Hudson River, I am regularly disgusted by the level of media coverage paid to what I call "New York stories."  These are stories - news, business, and sports - which dominate discussion for a period of time purely because they involve people or things closely tied to New York City.

Today's example:  a wide receiver for the New York Giants, Plaxico Burress, shot himself in the thigh while hanging out at some nightclub in New York.  The injury isn't life-threatening; it probably won't even end his career.  Another professional athlete, another gun incident, this is weekly "dog bites man" news. But it leads the Sunday morning sports conversation.  Why?  Because it happened in New York.

If it happened in Cincinnati or Denver, it would be reported on as "another professional athlete, another gun."  Which is unfortunate enough on its own, but just isn't news any more.  This is a classic New York story.  And it happens over and over. 

This isn't about New York City itself.  I love the place.   It's just the level of navel-gazing on national outlets that drives me nuts.  Hey, media types, we don't care as much as you think.

The Debt Obama Owes Clinton

Of all the beatings which conventional wisdom took during this marathon election season, none was more brutal than the notion that Hilary Clinton’s four-month death swoon was going to ruin the Democratic Party’s chances for victory in November.

Obama’s significant electoral vote totals clearly gave the lie to this particular shreik of doom.   It was always going to be a Democratic year - with an incumbent less popular than bread mold and an economy that continues to require new negative adjectives - but it cannot be denied that the year-long slog that was the Democratic primary season has been a huge boon for Obama.

The biggest reason is the perception of experience that arose from a year and a half on the campaign trail.  The defenders of Sarah Palin’s scant record tried to point to Obama’s similarly- thin experience on the national stage, but the criticism simply didn’t stick.  By the time we got to September 2008, Obama had been talking about the important issues of the day for over a year; even if he hasn’t cast many critical votes or shepherded ay important legislation through Congress, he has been on the stage for so long that he has experience by proxy.

The longer Obama spent on the stage, first with four or six or eight others, and then since February in mano-y-mano bouts with Hillary Clinton (sexism be damned, sometimes the language works that way), the longer he had to shrink the perception that he was unready, until it had utterly disappeared by June.

But the most glaringly-obvious reason emerged in the last month, as the campaign wound down and the rabid attack-dog wing of the Republican party keep reaching for different ways to go negative.  Clinton did Obama a tremendous favor by giving the media months to talk about Rev. Wright, William Ayers, the Islamic schooling in Indonesia, the liberal voting record - in short, every negative line that was raised by the McCain campaign.  Because all of these lines were trotted out from February to June, there was just no juice left in them.  They failed to stick because none of them were new and shocking.  They had a “been there, done that” which left them sounding old and tired.  

The Republicans kept tryng to justify guilt-by-association attacks, such as Palin’s “palling around with terrorists” line, by saying that “the voters have the right to know who Barack Obama is.” But this line of attack failed to catch hold precisely because the voters had  already decided that they knew Obama.  By October, outside the whack-job world of conspiracy-theorist bloggers, who is Obama stirred no interest as a story line.

Because the fact was that voters had gotten to know who Obama was a hell of a lot better than they got to know the ultimate nominee in many a year.  John Kerry in 2004, Bill Clinton in 1992, and Michael Dukakis in 1988 all sewed up the nomination in the early spring (remember the mad rush to hold a primary before March 1st in order to be “relevant”?) and then spent several months coasting along without being challenged to say what they were going to do as President or to defend themselves from attacks, legitimate or scurrilous or whatever in between.  Without Hillary Clinton pushing for the nomination, it might have been fall before Obama addressed his troubling association with the incendiary Rev. Wright - a time when it might have become the Swift Boat of 2008.  Obama should call at least once a week to thank her. 

The next reason why the state-by-state debate-a-thon benefitted Obama was that it required him to build an organization in state after state.  The clear result of Pennsylvania mattering during the primary campaign is that Obama emerged with a ground game built in the state.  Even states where he was pummeled by Clinton in the primary vote, such as West Virginia, left him with a campaign headquarters and volunteers ready to work in the fall.  

The story of the final month of this campaign was Obama’s ability to mobilize the vote the way Bush did in 2004 and turn a close contest into a clear victory.  And it was entirely due to the primary campaign.  As a result of the North Carolina primary being contested by the Democrats, Obama has been able to keep active in a state that was thought to be safely Republican, forcing McCain to expend resources there, and ultimately connecting with enough of the voters in the state that it voted Democratic for the first time since 1964.  Does that happen if he had won in Texas or Ohio and sewed the nomination up in April?  Possibly not. 

The final reason why running the Barry & Hillary show through the entire winter and spring was a boon for Barack is really perverse: the voters were so freaking tired of the horse race that they just didn’t care about anything except the issues anymore.  Unlike any election in recent memory, none of the character attacks, none of the negative ads, none of the snarky debate comments about either candidate seem to get any traction. 

Sometime back in the spring, the politics of personal destruction, at least for this Presidential cycle, lost its fastball.  The McCain campaign was perceived as the more negative and, not coincidentally, McCain’s campaign lost ground with the large cohort of middle-of-the-road and independent voters that ultimately determine the election .  The live audience meters during the debates showed it best - any time either guy went on the attack, the audience got hostile.  “Shut up about him and tell us what you’re going to do about the mess we’re in” was the undeniable message.

Barack Obama owes a huge debt to Hillary Clinton.  And the prophets of doom who predicted that Hillary was killing the Democrat’s best electoral opportunity since 1932 (and you know who you are), owe her a very large apology.