I Guess God's On Her Side

Elizabeth Dole must be getting scared or she's doing a McCain. In this ad she accuses her opponent, Kay Hagan, of being godless. Whether or not Hagan believes in god should be beside the point in America, or at least the America I know.

I Hope They Don't Come To My Door

Courtesy of Jon Snyder

Some Sense About Foreclosures

Barry Ritholz has another sensible article about the current crisis and the impending push to 'save' borrowers and prevent foreclosures. He starts from the premise that many of these people should not be saved. They screwed up and bought property they could not afford when they bought the property and, importantly, cannot afford it now even if the mortgage is cut by 20% or 30%. The people who gave them the mortgage because they were greedy should pay the price for their stupidity.

One argument for 'saving' these mortgages is the “prevent(ion of) the continued downward spiral of the housing market.” But Rithholz argues that, by almost any past standard, in many cases housing prices are still totally out of whack. If the market is ever going to recover, house prices have to be more in keeping with the norms that have proven themselves over the years - such as the relationship of one's income to the value of one's house or the cost of owning versus renting.

Ritholz is not saying no help should be given. He feels that it should be given where there is a reasonable chance that an alternative structure - i.e., dividing a mortgage into two parts: what one can afford today and a ballon payment due in ten years - could be used where the house price is reasonable and both parties could agree on the details of the alternative structure.

Finding Real Men

The Catholic Church will ask seminarians to take a test(s) to determine whether they will have "difficulty living in celibacy". Some of the characteristics that would indicate difficulty are "uncertain sexual identity," "excessive rigidity of character" and "strong affective dependencies". The church wants priests who have a "positive and stable sense of one's masculine identity".

Paying One's Debts

Will the banks that receive part of the $700 billion be allowed to pay their executives the money they owe for past performance? That's the question the Wall Street Journal asks today. The Journal has analyzed financial statements and other filings of the nine major banks who will be bailed out and discovered that the executives of these banks are owed $40 billion in deferred compensation. This money is owed to the people who got the banks in their current position. How can one say that their performance is worthy of any deferred compensation?

I've written about the overpayment of CEOs often and noted that usually the pool of money reserved for executive retirements exceeds that of the pool for the rank and file. For example, Goldman Sachs owes its executives $11.8 billion and its employees $399,000,000. Bank of America's $1.3 billion executive retirement pool reduced the bank's earnings by over $100,000,000 last year; its plan for the rank and file is overfunded and bumped earnings up by $32,000,000.

Will Treasury take action on this 'debt'?

Another Index

Indexes are a popular fad of 'serious' magazines. The Economist has published a 'democracy index' for the past couple of years. In its latest version, the U.S. does not fare very well (at least in my opinion); it ranks 18th. Sweden ranks #1, the other Northern European countries occupy the next five slots.

The index is based on five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. Our rank was reduced because of poor scores in civil liberties and the electoral process.

While one can use the index to compare individual countries, the Economist concludes that the spread of democracy has halted. And, they place a fair amount of the blame? You guessed it - Mr. Bush and Iraq.

Seeing the light?

The recent actions of the Bush administration make me wonder whether Bush has seen Jesus or has had a breakdown. How else can one explain talking to the Taliban and establishing a diplomatic post in Iran?

One Less

In my youth The Christian Science Monitor was one of those newspapers you turned to when you wanted a sober, intelligent view of the world. Erwin Canham, the editor, was a leading spokesperson for rationality and common sense. But in its 80th year the Monitor is moving away from the printed word. It will now offer a print edition only on the weekend; it will be on the web daily.

It's a sad day.

Rethinking Australia

Okay, I don't spend a lot of time thinking about Australia. I've been assuming that it's a nation that believes in free speech at least as much as most Western countries do. However, today comes news that Australia wants to be like China and ban some things from the internet, the things being whatever the powers that be think harmful to the citizens of their country.

Where is this world heading to? I was born when Fascism was at its height in Europe. When I die, will I be living in a West comprised of fascistic states?

A Changing World

David Brooks has a column I can agree with. He feels that we are in more than a financial change, it is a cultural one as well. He writes of the work of some behavioral psychologists, one of whom, Nassim Taleb, “believes in the existence of [humankind's] inherent limitations and flaws in the way we think and act and requires an acknowledgment of this fact as a basis for any individual and collective action.”

"Let the Market Decide"

Wasn't that our leaders mantra? Then, why are they even considering helping GM and Chrysler merge? Both companies are doomed. Why put more of our money in them? Yes, they do employ many people, but these people could move to Toyota or another car company that seems to understand the market. Or, we could put the money into rebuilding our roads and bridges and making our water systems safe and.....

Just Like You And Me? Far From It

The legislative bodies of the United States contain some of the wealthiest people in the world. The 2004 Democratic nominee for president, John Kerry, has a net worth of over $336,000,000. The average net worth of those who represent us is $746,000. 2007 was not a bad year for them as their net worth increased by 13%; since 2004 it has increased by 61%. While attaining millionaire status is not what it was, 39% of our senators have reached that level, only 1% of we voters have.

A few of our leaders are struggling, sixteen reps and 3 senators have a negative net worth. Still it's not a bad job.

Keep It Quiet and Magic Will Happen

That's probably the motto of the Army Corps of Engineers in Iraq. How else explain the Ambassador and other major people in Iraq not knowing that the building of a wastewater treatment plant in Falluja was three years late and had tripled in cost? Why will it cost homeowners to connect to the system, assuming that one day there will be sufficient electricity to run the pumps and purification tanks?

An Embarassment to We Old Folks

My Sentiments Exactly

From today's Boston Globe:

IN THIS YEAR'S presidential campaign, both candidates have attempted to position themselves as champions of change. However, neither John McCain nor Barack Obama has devoted much attention to the obvious and troubling ways that America has already changed.

It wasn't so long ago that America was in a class by itself. American industrial, military, and scientific strengths played a vital role in winning World War II. In the postwar period, the standard of living enjoyed by the average American family was beyond the imagination of most of the world. American cars, appliances, and electronics set the global standard. And when a challenge did arise, from the Soviet Union's emergence as a nuclear power and its launch of Sputnik, America's response was to increase investment in education, research, and development, and to pledge to put a man on the moon within a decade.

That was then. Today's America:

Achieves inferior health outcomes and life expectancies compared with many other developed nations despite spending more money on healthcare and covering fewer people;

Has an education system that produces mediocre results and leaves millions of high school dropouts behind every year;

Holds only 3 percent of the world's oil reserves but consumes 25 percent of the world's oil, building up the economic, political, and military power of petroleum-exporting countries and spewing more greenhouse gases into the atmosphere than any other nation;

Spends more on its military than the 14 next highest-spending countries combined, but finds itself bogged down in two wars still seeking an elusive security;

Supports its consumption and lifestyle by tapping into home equity, maxing out credit cards, and becoming the biggest debtor nation in the history of the world by borrowing hundreds of billions of dollars from other countries.

These are certainly among the most critical challenges facing our country in the coming decades. But for the most part, you wouldn't know it from the candidates' speeches and debates.

One candidate or the other may tiptoe up to one of these inconvenient truths if he thinks he can blame the other party for them. Obama and McCain have both tried to pin responsibility for the massive financial meltdown on the opposing party. But much of the campaign has been devoted to blather about how we can drill and mine our way to energy independence. Or tired platitudes about how our workers can out-innovate and out-compete anyone. Or outright falsehoods about American medical care being the envy of the world. And, of course, studied silence about how a country so deep in hock can maintain its standing in the world and afford all its spending commitments.

Hey guys, it's not 1958 anymore.

There's no secret why candidates tend to speak so bullishly yet vaguely about America's future: Voters like optimism. Such different presidents as George W. Bush, and before him Ronald Reagan and John Kennedy, and before them Franklin Roosevelt made optimism the hallmarks of their political personae.

Projecting confidence in the future is one element of leadership. But if candidates largely avoid candid talk about the most important challenges ahead, our election campaigns, for all their length, expense, and 24/7 news coverage, do less than they should to engage voters on the issues facing the country. Maybe this is smart electoral strategy. However, if so it comes at a cost - namely, a lost opportunity to build popular support for critical decisions the new government will have to make.

The stakes are very high in this election, and there are passionate partisans on both sides. But whomever the voters choose next week, America will not magically become more prosperous, healthy, competitive, and secure next Jan. 20.

As our new president-elect contemplates the awesome responsibility he soon will inherit, he should consider this: More Americans than ever believe the country is on the wrong track. On some level, the American people know that the sunny bromides of politicians do not reflect America as it is today and will not help to build the future Americans hope for.

Maybe once the campaigning is over and the governing begins, they will be ready for some straight talk.

Jim Gomes, a guest columnist, is the director of the Mosakowski Institute for Public Enterprise at Clark University.

Points of View

Okay, the NY Review of Books is a quite liberal publication, so you wouldn’t expect them to support John and Sarah. They have solicited views about the upcoming election from fourteen ‘intellectuals’, seven of whom have academic connections. While the fourteen are all Obama supporters, just about each of the fourteen has an insightful point to make.

Russell Baker, ex of the NY Times, reminds us of Kennedy’s youth (he was younger than Obama) and Catholicism. David Bromwich of Yale focuses more on the campaigns’ unwillingness or inability to address basic issues, such as the Petraeus doctrine which ‘licenses a general militarization of US foreign policy’. Mark Danner of Berkeley and Andrew Delbanco of Columbia reflect on the fact that the issue of race is not addressed directly. Delbanco quotes Tocqueville to the effect that unless there is a catastrophe, we don’t manage public affairs very well and clearly we are in catastrophic times. Joan Didion doubts Tocqueville and cites a number of instances where we have failed to acknowledge a real problem. Ronald Dworkin of NYU worries about our constitution should McCain win, particularly when we are no longer the king of the hill.

Frances Fitzgerald riffs on Palin’s religious views. Timothy Garton Ash of Oxford talks about the hope the world has that Obama wins. Paul Krugman of the NY Times, believes that this election is a referendum on conservative economic policies. Joseph Lelyveld, another ex-Times man, praises Obama’s coolness. Darryl Pinckney, an African-American writer praises Obama as a ruthless politician and relates this race to Bobby Kennedy’s in 1968 with its promise of radical change. Thomas Powers, a writer, reminds us that things can get a lot worse, particularly in the Middle East. Michael Tomasky, an editor at The Guardian, compares the candidates’ approach to the daily news cycle. Garry Wills, ex of Northwestern, brings things back to the usurpations of the constitution that have occurred in the start of the 21^st century.

Take a half-hour or so and read some of the essays.

Provocateur

Of what value in encouraging world peace is the move to admit Georgia and the Ukraine to NATO? Bush and our presidential candidates apparently think it's worth really pissing Russia off, while supporting a nation that attacked its minorities.

The situation with Georgia is not as simple as our leaders think. The issue with Ossetia and Abkahzia goes back many years. Georgia has not exactly protected its minorities or granted them the same rights as the majority. For example, in the early days, the minorities held less than 5% of the seats in parliament yet made up 38% of the population. The inability on the part of Georgia to recognize the rights of its minorities is the basis reason why Ossertia and Abkahzia want to leave.

Protecting America

Two years ago I wrote "Homeland Security seems to have a fetish about airports and airplanes. Yet, more of us travel to work every day by car, bus and train than fly around the world. Each day more of us are in office buildings than airport terminals."

Although DHS is focused on airports, they are not doing a very good job as an article by Jeffrey Goldberg in this month's Atlantic clearly shows. Goldberg claims to have passed through security with a vast number of prohibited articles - pocketknives, matches, cigarette lighters, nail clippers, box cutters. Once he wore a device, called"Beerbelly", in which he could have transported 80 ounces of any liquid. He brought to the plane a bottle labeled "Saline Solution"; again, it could have been something nasty.

The article relies mainly on work done by Bruce Schneier, a well-known and respected security maven. Schneier is able to produce on his PC boarding passes that pass muster with DHS inspectors. Using steel epoxy glue, cardboard and a metal spoon, he can 'build' a knife in the plane's bathroom. Schneier's basic argument is that the precautions DHS has put in place would foil stupid terrorists, not smart ones.

Remind me how much are we spending on 'making our airports safe'

Is the Media Doing its Job?

David Johnston would answer 'No". He has been running a series on the Nieman Watchdog which suggest ten questions that the media should ask - but does not ask - about a particular topic. This week's topic is Sarah Palin

It Costs Money to Look the Part

I guess the RNC did not think much of Ms Palin's sense of style. They just spent $150,000 on new clothes for her and her family. And they did not spend it at WalMart. $50,000 at Saks and $75,000 at Neiman-Marcus took most of the budget.

Incidentally, spending campaign money for personal use is in violation of the federal election laws.

The Dancers

A Bouncing Ball

That's what some of the Guantanamo detainees must feel like. Today, charges against them are dropped, but tomorrow they may face new charges. Yesterday charges were dropped against five detainees. These are the same five whose case caused the resignation of their prosecutor. He resigned as he thought we were withholding information from then defense.

Do We Need to Spend $700+ billion?

That's the question Christopher Fettweis asks about our expenditures on defense. Although it doesn't seem that way to me, he argues the point that "the the incidence and intensity of all kinds of wars – interstate, civil, ethnic conflicts, etc. – are at historically low levels, and still declining". He feels that war is disappearing.

As a counter to my sense that things have gotten worse, Fettweis asserts "although it may seem counterintuitive, given how much attention is paid to Iraq, Afghanistan, Georgia and al Qaeda, a far greater percentage of the world’s population lives in societies at peace than at any time in world history."

While I can't fully agree with him as to the world moving towards peace, he is certainly correct in asking what benefits we get from our budget-killing investment in arms.

Not This Agreement

Only the Kurds approved the current version of the Status of Forces Agreement between the U.S. and Iraq. The rest of the cabinet have said that the agreement is too vague and does not give parliament the right to extend the agreement, the central government could do so by itself. Our buddy, Maliki, did not disagree.

If the agreement is not in place when the U.N. mandate expires at year end, it will make for interesting times.

Finding Real Americans

Plain Vanilla

Robert Kuttner makes the case that I've been thinking about for a while - get rid of all these complex financial transaction that nobody really understands. Let's go back to the days when banks took in deposits and made loans and investment banks underwrote stocks and bonds. Dump derivatives until the day when Joe Blow can understand them and we can calculate a real value for them.

Kuttner makes the point that if these derivatives were so great for the economy why has GDP grown better in the days of vanilla transactions than in the days of derivatives.

Another View of Afghanistan

Nir Rosen is a young guy who has gained vast experience in the wars of the 21st century. In his latest article, "How We Lost the War We Won", he writes about a recent visit with the Taliban in Afghanistan. I'm not sure that 'visit' is the right word. It connotes a more peaceful time than he personally experienced.

Rosen describes a few days that he spent with the Taliban. His conclusion is the same as most of those who have observed the country up close - it is unlikely that we will win this war. Basically, outside of Kabul the Taliban is running the show. The people may not want to be controlled by the Taliban, but they also want to live. Among a number of points Rosen makes, I found two especially chilling:

• The Taliban are now "among the best-armed and most experienced insurgents in the world".
• The Taliban are "not as doctrinaire as they were during their seven years of rule".

Rosen has his own list of losses by the U.S. and NATO - the destruction of supply convoys with as many as 54 trucks, a significant increase in American fatalities, attacks on NGOs, etc. - that echo the words of Cordesman and Gopal.

About half of the article describes his visit with the Taliban, many of whom are portrayed more as fighting for Afghanistan rather than Islam. As with many organizations that have achieved some modicum of success, there are rivalries within the Taliban. Rosen gets mixed up with one of these rivalries and begins to wonder whether he'll come out alive.

They're Having Problems Finding Backers

I wonder why no one is stepping up to finance the GM-Chrysler deal. This is such a good deal. The companies are poised to once more dominate the auto industry. And Alice still lives in Wonderland.

Read This

It is a letter from Andrew Lahde, a hedge fund manager who is retiring. Note that the Journal wrote that Lahde had a return of 866% last year. The letter appeared in the Financial Times.

October 17, 2008

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list of those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they lookforward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant – marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say goodbye and good luck.

All the best,

Andrew Lahde

Copyright The Financial Times Limited 2008

A New Era?

To date the Obama campaign has raised $600,000,000. In September alone he raised a fourth of it. 3,100,000 people have donated which in simple math works out to $200 each. When you add Powell's endorsement is this an indication that the final election could be a blow out?

On a more somber note what else could have been done with $600,000,000? We need to find a new way to elect our leaders.

A Global Company

AIG is truly a global company. A week and a half ago I wrote about the U.S. branch of the company spending excessively at a resort. This past week a similar thing happened in England. Eight people - four AIG executives and four guests - spent about $100,000 of our money in four days. Here, according to News of the World, is what was spent on the shooting party at a posh country manor house:

• FOUR aristocratic-style shooting parties costing a whopping £25,000 in total.
• A PRIVATE JET for two of them from Germany costing £10,000.
• FLIGHTS to and from Madrid and a fleet of CHAUFFEUR DRIVEN cars at £5,000.
• SUMPTUOUSfeasts washed down with bottles of fine wines and liqueurs costing £5,000—plus giant PICNIC HAMPERS to guzzle in between slaughtering birds.
• LUXURY rooms totalling £5,000.

And then one of the guest said “The recession will go on until about 2011—but the shooting was great today and we are all relaxing fine.”

Valley of the Dead

That's what the U.S. auto industry is today. GM wants to suck the cash out of Chrysler in a bid to delay its own demise or drastic downsizing.

And on the next page of the Wall Street Journal we learn that Toyota has $19 billion in cash as of September 30 and is planning to offer no-interest loans to most customers. What is GM's counter? Have GMAC finance only those with high credit scores.

How can Wagoner hang on?

They Really Want To Get Hamdan

Salim Hamdan has been at Guantanamo almost seven years. His crime was to have driven bin Laden. In August he was convicted by a military commission of providing material support to terrorists. His punishment was four months and twenty-two days in addition to time served. The government is challenging that sentence claiming that the judge lacked the authority to credit Hamdan for time served. If the challenge is upheld, Hamsan will serve another five years.

Furthermore, the government really could care less about the ultimate sentence for Hamdan as it contends that an unlawful enemy combatant can be held forever, if our government so decides.

Is this the kind of government we want?

Hire Whomever You Want....

.... as long as he’s of our faith. Should this be the policy of organizations that receive our money via federal grants? Our Justice Department apparently thinks so, even if the law says they can’t.

Note that the source is Charlie Savage, who has left the Boston Globe for the Big Apple.

Too Quiet

I guess that the economic situation and the presidential election have taken all of the pages and hours allotted by our media for serious news. How else to explain the relative silence by the media about the status of forces agreement that is being reviewed by the Iraqi and U.S. governments?

The agreement calls for our forces to be moved out of Iraqi cities by the summer of 2009 and for us to withdraw from Iraq to a very large degree by the end of 2010. One sticking point in the negotiations has been the question of who has control over prosecuting U.S. soldiers who commit crimes. A more practical sticking point is what will happen to 100,000 Sunnis who were members of the Awakening Councils. The government is taking a long time even planning to integrate them into their military.

The agreement still has to be approved by the Iraqi Parliament; our Congress does not have to approve it.

And the Winner Is

There are a lot of rules and regulations about government procurements. Sometimes, as we well know, these rules defy common sense; at other times they seem geared for the benefit of the one company favored by some bureaucrats. I’m sure that our 21st century wars have provided many examples of silly rules and rules gimmicked for a favorite. The latest such example concerns supplying fuel to our troops in Iraq.

For some unspecified reason the contract to supply such fuels specified that the fuel had to be routed through Jordan and a “letter of authorization” from the Jordanian government was needed. You know the rest of the story, right?

Only one company, International Oil Trading Company (IOTC) had such a letter. They won the contract although they were the highest bidder. DOD renewed the contract with IOTC a couple of times again at the highest price. The State Department and the Jordanian Embassy told DOD that they would be willing to help other firms obtain a “letter of authorization”; DOD said, No, thank you.”

The upshot of all of this was that you and I paid almost $200,000,000 more for this fuel than we should have.

One Part of the System’s Breakdown

The breakdown of a system, any kind of system, is always a very difficult time for you know that you will have to replace that system with, if you’ve learned anything, a better system. That will require a lot of work and time. And you have to do it knowing that one day your new system will also fail, for we fallible people live in a finite world.

We are at that point in time. Many of our systems are failing. One could give up. One could endlessly lament one’s fate. Or, one could try to understand the problem and build a new system. I want to emphasize “try” as, whether we accept it or not, we are always in an experimental mode during the few years we are on this planet. We will never have the final answers or build a perfect system. Yet, we are wired so that we are always searching for perfection. Somehow we have to acknowledge that, despite our wiring, all we can really do is slog away and do our bit to help build the new system.

One of the major problems of our current system is the need to have everyone operate the same way we do because we believe that we are superior and our way is best for everyone whether or not we understand anything about other people’s needs, wants, culture or inner life. And we are willing to go to war to enforce our views.

“War” is one of our favorite words – the war on terror, the war on drugs, preemptive war, war to end all wars, war for democracy, and the list goes on. So much of this country’s system is based on that word.

We spend a hell of a lot of money on war. We spend almost half a trillion dollars a year with our regular defense budget. Add to that the supplemental budgets to fight in Iraq and Afghanistan and you’re talking real money. Are we any safer? How many sons and daughters have been killed or maimed? How much will we spend on our veterans’ services?

The defense department is not the only government agency fighting wars. Homeland Security spends $50 billion a year, up 20% in two years. Our war on drugs has resulted in the largest prison population in the world. We spend hundreds of millions a year advocating abstinence.

What have we gotten for all this money? You tell me.

A More Effective War on Drugs?

Tons of money is wasted on our War on Drugs and our prisons are filled with people arrested on drug charges. Attention is starting to focus on an alternate way of handling drug addicts. There are now 2,100 courtrooms in this country that have been designated as 'drug courts'.

A drug court aims to work a transformation on addicts who have been arrested for low-level dealing or drug-related petty crimes. The addict's life is supervised by a judge for periods ranging from nine to eighteen months. It takes a very special judge to work with these addicts. But even the best judge in the world cannot prevent about half of those those in the program from dropping out. Yet, the rate of recidivism is reduced enough that the program more than pays for itself.

Starting Off Well

You remember IndyMac. Well the FDIC has started a process to allow people to modify their loans to prevent foreclosures which seem unavoidable. Thus far, they've contacted thousands of borrowers borrowers. Seventy percent have accepted the new terms and will be able to stay in their homes. Maybe, government can do some things well.

Love Thy Neighbor

Most of the organized religions espouse similar principles, at least in the abstract. But, when one's economic life is at stake, those principles usually vanish. So it appears with Hindus and Christians in an obscure part of India. The Hindu group resents the Christian group because they (the Christians) get all the government jobs.

The two groups have been at war with each other for many years. The killing of a Hindu leader in August exacerbated the situation to such an extent that 30 Christians have been killed, the homes of 3,000 have been burned and 130 churches have been demolished. The Hindus command the Christians, "Embrace Hinduism, and your house will not be demolished. Otherwise, you will be killed, or you will be thrown out of the village.”

Waste of loss and by the wind grieved. Ghost come back again.

She Hasn't Sung Yet

Despite the unbelievable rise in the Dow, the TED spread was unchanged today. At 4.57 it is still very close to its historic high; long term it has averaged .3. The spread measures the difference between the rates on 3 month Treasuries and the 3 month LIBOR (London InterBank Rate), the amount banks charge each other for loans. Until this gets back down to 1 or so, look for difficult credit times.

Swift Boat 2008

Barry Sussman, of the Neiman Watchdog Project, asks why two negative stories about McCain have not been picked up by more of the media. The LA Times reported on McCain's accidents before he became a POW. He had three, which I suspect is more than average, one of which was the result of his "not paying attention". The Rolling Stone interviewed fellow POWs and concludes that his experience was really not that different from others.

Regrets? He may have had a few

This is from John Cory, t r u t h o u t | Perspective

Senator McCain. Was this the moment? The epiphany? The realization that stoking the flames of bigotry and fear had come home to roost?

As I watched your town hall gathering, I wondered what was going through your mind when you came face to face with the incendiary results of your campaign tactics. What did you see and feel when that elderly woman said Obama was an Arab? Or the man who said he feared an Obama presidency? And all the others?

I saw your face. I watched your body language as you took the microphone and quickly distanced yourself from that one.

At that moment, did you see your reflection in the mirror of her eyes? A reflection, not of a maverick, but a pariah? Did you see the decades of American scar tissue? Birmingham? Burning crosses? The noose? Did you see that awful year in American history when Dr. King and Bobby Kennedy were assassinated, cut down in the prime of their dreams for a better America?

Did you hear the echo of Dr. King's words about being "judged not by the color of their skin, but the content of their character," and suddenly realize that it was not your opponent's character in question - but yours? Perhaps you heard the whisper of Langston Hughes when he asked, "What happens to a dream deferred ...? Maybe it just sags like a heavy load. Or does it explode?"

Did you suddenly smell the rot and fetid acrid aroma of fear and hate, the carcass of mendacious political tactics decaying at your feet? Or did you sniff the flop-sweat of your own campaign standing in a puddle of decimating poll numbers?

I watched your mouth dry up and wondered if you could taste the bitter words like "Arab," "terrorist," "treason," "kill him," - all served up on the plate of red meat politics by your campaign. Did it make you choke and want to spit out the rancid flavor of ignorance and violence? Or did you want to savor the success of the politics of personal destruction?

Did you feel the cold chill of defeat? Did your heart pound with the all-encompassing realization that you would never be president? Could you sense that the America you appeal to is stale and dying out and being replaced by the freshness of hope and tolerance and a rainbow of change?

No doubt, the media will genuflect before your image and be pushed by your campaign spinners to reanoint you as a maverick and honorable man in rising to the defense of your opponent. But your ads still sully the airwaves. Your surrogates still spew their venom. After all, this is just politics. People need to understand that. Nothing personal - it is just politics.

But here was this moment. And you know it, regardless of whether or not you were reading from cue cards or just looking down to avoid having to face the ugliness before you - you know.

And when the crowd booed as you struggled to use words about decency and honorable character to defuse the situation you created, you must have recalled the words from Proverbs, "He that troubleth his own house shall inherit the wind ..."

This is not a moment for you to be proud of in this campaign. Garnering credit for coming to the defense of Senator Obama is like an arsonist claiming heroism for saving lives after having set fire to the building in the first place.

It does not matter how the media or your advisers and consultants spin this moment because it can only reflect badly on you. If it is tossed off as politics as usual, your campaign appears shallow and less interested in what's best for America than what is best for John McCain. If it is said that there is no room for this kind of rhetoric in a presidential campaign, then you look weak and unable to control your own staff that continue to push these messages. If it is about leadership and going against the flow, then we see that a McCain presidency will be divisive and reinforce the meme of "two Americas." We have already had eight years of a divided country from the man who ran as a "Uniter not a divider."

This was a defining moment.

And you, sir, lost.

Morgan Has a Lifeline

Despite a halving of its stock value since the deal with Mitsubishi was announced, Morgan Stanley was able to close the deal. True, the deal has been modified. True, you and I via our leaders have made promises to Mitsubishi. True, there is a lot more preferred stock paying 10% in the deal. But it may prevent Morgan going the way of Lehman.

Smiles Replace Tears

It ain't over until the fat lady sings. And she still has a lot of breath left.

It's great to wake up to a day when the markets are buoyant. But, we have not yet solved our problems. We have quite a way to go to reach that point.

A Surprise

Paul Krugman has won the Nobel Prize in Economics. I would have thought he was too liberal for the committee.

Europe Moving in Concert?

Well, they may actually be. They, the countries using the euro, have announced that they will guarantee loans between banks at least until 2010 and, following Buffet's lead, they will be buying preferred stock.

Here's My Candidate

The Auditors Are Speaking Up

Day by day the AIG situation gets more disturbing. Today's story from the Wall Street Journal is that AIG auditors - both internal and external - warned top management of potential problems with the CDS the company held. Top management either didn't believe the auditors or preferred to ignore the issue, as at an investor conference in December the CEO said, "Now at the end of the day, what is the bottom line? And, what should you take away from today's discussions? First of all, that AIG has accurately identified all areas of exposure to the U.S. residential-housing market; second, we are confident in our marks and the reasonableness of our valuation methods."

There is not one culprit

The President's Working Group on Financial Markets is part of the Treasury but has representatives from the Fed, SEC and CFTC. In its latest update it concludes that there is more than enough blame to go around. Here are what they assert as the major reasons for the current disaster:

• a breakdown in underwriting standards for subprime mortgages;

• a significant erosion of market discipline by those involved in the securitization
process, including originators, underwriters, credit rating agencies, and global
investors, related in part to failures to provide or obtain adequate risk disclosures;

• flaws in credit rating agencies’ assessments of subprime residential mortgage-backed securities (RMBS) and other complex structured credit products, especially collateralized debt obligations (CDOs) that held RMBS and other asset-backed securities (CDOs of ABS);

• risk management weaknesses at some large U.S. and European financial institutions; and

• regulatory policies, including capital and disclosure requirements, that failed to
mitigate risk management weaknesses.

In summary, it's greed and people not doing their jobs.

A Change in Plans

It sounds as though Paulson and company are moving away from their original idea of buying troubled assets, perhaps because few can figure out who owns what mortgage (or part of a mortgage). The move now is to mimic Buffett and buy stakes - probably preferred stock - in financial companies.

This could mean something: the G-7 and EU could act - rather than just talk - in concert

Learn Something New Every Day

Today's lesson - the Commission on Presidential Debates is a private organization. I thought it was part of the Federal Election Commission. Not only is it private but it's totally controlled by the two major parties. That's why Nader and other minor candidates never appear. And that's probably why the debates have degenerated to stump speeches. As a private non-profit corporation, the Commission raises money from whoever. Some of the sponsors have had parties for the media before the debate, others have displayed banners touting their support.

Perhaps the worst aspect of this situation is that other candidates, such as Nader or Barr, are not even allowed into the auditorium, and, in fact, have been arrested when they try to get in.

Are You Better Off Now Than You Were 8 Years Ago?

From the Center for Economic and Policy Research

Economic Indicator	2000	2008
Unemployment rate	4.0%	6.1%
Inflation rate	3.3%	5.4%
Job Growth (preceding 8 years)
Total nonfarm employment	21.4%	4.3%
Private sector employment	23.6%	3.6%
Manufacturing employment	2.9%	-22.2%
Employment rate (% of population)
All, age 16 and older	64.4%	62.6%
Men, age 16 and older	71.9%	69.1%
Women, age 16 and older	57.5%	56.5%
Real wage growth (preceding 8 years)	8.2%	1.8%
Minimum wage (July 2008$)	$6.58	$6.55
Family income
Median, 2007$	$61,083	$61,355
Growth (preceding 8 years)	14.7%	0.4%
Poverty
Rate (% of population)	11.3%	12.5%
People in poverty (millions)	31.6	37.3
Uninsured (health insurance)
Rate (% of population)	14.0%	15.3%
People without insurance (millions)	38.7	45.7
Personal savings (% of disposable income)	2.3%	0.6%
College tuition (average per year, 2007$)
Private four-year college	$19,337	$23,712
Public four-year college	$4,221	$6,185
Gasoline (gallon, 2008$)	$2.03	$4.09
GDP growth (preceding 8 years)	34.2%	19.6%
Productivity growth (preceding 8 years)	15.9%	21.9%
Trade balance (% of GDP)	-3.9%	-5.1%
Federal debt (% of GDP)	57.3%	65.5%
Net foreign debt (% of GDP)	13.6%	17.9%

Reality Obscured

Sometimes the most interesting and relevant articles are found in out-of-the-way places. So, it is with the Justice Department report on the firing of U.S. Attorneys by Gonzales and Co. It took the Toledo Blade's Marilou Johanek to write about the report issued this past week. The report tells us what many knew: the firing of some of the prosecutors was solely politically motivated. Couple this with reports of hiring new attorneys using litmus tests and you have a Department of Justice that is just like most of our government, an irresponsible, unethical agency that is driven by winning and only by winning.

Is Mukasey changing that ethos?

An Era Coming to a Close

The auto industry is a lot different from the days when Charlie Wilson could boast, "What's good for General Motors is good for the country." Toyota is now the world's #1 car manufacturer. There has been talk of GM declaring bankruptcy. I can't remember when I last bought a car made by a U.S. company.

Now there is talk of GM buying Chrysler. Cerberus, the owner of Chrysler, feels that GMAC, GM's financing arm, is a better bet and wants to own all of it (Cerberus now owns 51% of GMAC). GM, of course, is looking for capital and Chrysler has $5 billion in cash plus there are all the other possibilities of cost-cutting (heard that before) so that GM may last another few years.

Should we emulate Denmark?

George Soros thinks we should when it comes to mortgages. Since 1795 Denmark has had the same system of handling mortgages. A key piece of this system is that the originator of the mortgage holds it and services it, which is what we used to do here. The innovation in Denmark is the existence of a pool of mortgage bonds directly tied into the mortgage itself. So that, when you take out a mortgage, a bond for the amount of the mortgage is issued and traded in a securities market. If the price of your house increases, so does the value of the bond. The reverse is true; house prices decline and bond values also decline. You can pay off your mortgage in the normal way or by buying a bond at current prices; in a declining market, you will not have to pay the remaining balance of your mortgage, you can simply buy a bond which will cover the amount due.

Soros thinks that, through Ginnie Mae, we can convert to such a system. But, first we'd have to make sure mortgages reflect current value. Securitization does not make that an easy task.

Afghanistan Today

Anand Gopal's article will bring you to tears. He recounts four or five incidents, including one in which he was involved, of life in Afghanistan today. He concludes

This is a war to be won by constructing roads, creating jobs, cleaning up the government, and giving Afghans something they've had preciously little of in the last 30 years: hope. However, hope is fading fast here, and that's a fact Washington can ill afford to ignore; for once the Afghans lose all hope, the Americans will have lost this war.

Cut the Crap

Anthony Cordesman has a prescription for improving the situation in Afghanistan. He calls it "Winning the War in Afghanistan:The Realities of 2009", but victory is very far away.His basic idea is that we need to see the situation as it really is and move on it without a lot of talking. Plan, think, act - but act now, not a year from now. We need leadership, we need resources, we need execution.

A New Day

The sun was shining when I woke up today. It looks as though the temperature will be in the high 60s for most of what will be a long weekend, capped by the Columbus Day holiday. We have yet to turn on the heat and the price of oil has dropped from the $140 of a few months ago.

I have no more meetings this week. On Sunday we may go to see the "Barber of Seville", a nice, light interlude in the catastrophe that, eight years in, is an adequate definition of the 21st century; it is calming to know that people are still watching an opera that was written almost 200 years ago. I think my kids - even the day trader - are doing okay.

Yes, I am being selfish. I'm still here and in decent shape. But, I'm old enough to know that everything can change in a second. And things have changed for the worse for many, most of whom deserve better. At the same time things have stayed the same for those mired in poverty, sickness and war.

Let's hope today is a new day for most of us exploring life.

It's Still Up In The Air

Despite the decline in violence, the latest National Intelligence Estimate (NIE), the product of all our intelligence agencies, echoes Petraeus' recent assessment - Iraq is a fragile place. The NIE points to a few big question marks:

Will Sadr continue to stay quiet?

Will the Sunnis, whom we paid to fight on our behalf, become part of the Iraqi security forces, most of whom are still Shiites?

How will the question of controlling Kirkuk and oil be settled?

When, if ever, will the displaced people be able to retrn to their homes?

Moving the Country Along

Courtesy of Vulomedia and my friend, Kate.

ZZZZZZZZZZZZZZZ

I did actually doze off after an hour of bromides by both candidates. At least Obama does say a little more than "I'm experienced, therefore vote for me, my friends."

I'm terribly fearful for this country. We have two people who are unwilling to tell it like it is, a Congress that only passes bills if they benefit from them, a judiciary that feels that it knows what was in the minds of people who have been dead for a couple of hundred years, business people who want only to line their own pockets, an economy that's in the toilet and no one has a plunger, media that focuses on inanities, a nation that refuses to look at itself in the mirror. Brrr!

Spending Our Money on Fripperies

I really find this hard to believe, but a week after AIG was approved to get $85 billion of our money, the executives did not think twice about holding a conference for its top salesmen. They could have canceled it. They could have had it at a less posh place. They could have not charged spa expenses of $23,000 to us. This was but 5% of the total cost of $442,000 for the week's conference.

I'm beginning to see why AIG failed. They seemed to have cared much more for themselves than for anyone else. For example, the guy who led the London office which was very instrumental in the company's destruction is still being paid $1,000,000 a month. Does he need it? Is the $200,000,000 he made running things into the ground not enough?

And then you have Sullivan, the CEO, who I thought was a reasonable guy. Although AIG lost $5 billion in the last quarter of 2007, Sullivan argued that bonuses to executives should still be paid. Was that because he would get $5,000,000?

Ho Hum

The Perfect Weapon?

Israel has had a hard time breaking up protesting crows in a way which does not result in death and injury. But they may have found a solution which does not kill or injure anyone - a 'stink bomb' or, rather, a stink cannon. The Israelis have devised a concoction which apparently stinks to high heaven. You can't wash it off. People can smell you from a distance. It lasts at least three days. It can't be stored in police stations because it will eventually smell the place out. But it can be deployed via a water cannon and is non-toxic and contains no poison.

A Fitting Day

More gloomy news. This time on the scientific front. The Beeb reports that over 20% of mammals are at risk of extinction, due largely to loss of habitat from such activities as deforestation and hunting.

Not Looking Good in Hindsight

Throughout the past year or so, Lehman was telling the public and its customers everything was rosy, while internally they were wondering how they would survive. Just days before going belly up, Lehman agreed to pay three executives $23,000,000.

Biden and Palin

McCain on Health Care

Courtesy of Paul Krugman:

In short, the McCain plan makes no sense at all, unless you have faith that the magic of the marketplace can solve all problems. And Mr. McCain does: a much-quoted article published under his name declares that “Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”

I agree: the McCain plan would do for health care what deregulation has done for banking. And I’m terrified.

Here's a Surprise

This video is put out by the GOP but it demonstrates that both parties shoulder the blame for getting into Iraq - and we are equally, if not more, culpable for electing these people.

Der Spiegel

I may subscribe to this magazine. It seems able to look at the world more truthfully than most of our periodicals. Take the latest issue in which the lead article is entitled "America Loses Its Dominant Economic Role". Here are some pieces of the article I found fascinating.

• I can't say that I spent much time trying to find out how Bush did at the UN, but Der Spiegel and, I suspect, many other foreign magazines, spent time analyzing his speech. They quote a German diplomat's comment on the speech, "Absurd, absurd, absurd". The focus of the speech was terrorism, but everybody else was concerned about the economic situation.
• Germany is pissed off because for the past three years they have been urging tighter control of the international markets and we have opposed them.
• The authors see our problem as stemming from three 'rules' - cheap money, free markets and double-digit profit margins - which define American 'turbo-capitalism'. And it is our form of capitalism that has been the dominant economic force for the past 25 years.
• They quote an American economist I had never heard of, Raghuram Rajan, warning against the tightly integrated system the world's economy had become.

There is the usual chapter and verse outlining the severity of the problem here and in Germany. Although the authors laud Germany's risk-averse, savings-oriented economy, they are not gloating. They are worried as to whether the Europeans will be up to the task, for they close with the following. "In the past, the US government's solo efforts provided the Europeans with an all-too-comfortable excuse for simply doing nothing. But that excuse is no longer valid."

Staving Off Armageddon

In order to get the bailout bill to pass, our peerless and fearless leaders included the following earmarks in the bill:

• Rose City Archery and other companies which make a certain type of arrow will no longer have to pay excise tax on these arrows. Cost to us - $2,000,000.
• The IRS will not be able to make owners of auto tracks depreciate their facilities over a longer period of time than the seven years the tracks want. Cost to us - $100,000,000.
• Makers of rum made in Puerto Rico and the Virgin Islands will continue to enjoy a rebate from import duties until at least 2010. Cost to us - $192,000,000.
• The tax credit for research and experimentation will be extended two years. Cost to us - $19 billion.
• Recipients of the damage award re the Exxon Valdez will be allowed to average their award over three years. Cost to us - $49,000,000.
• The Secure Rural Schools Program is back. This pays communities with Federal Service land that is logged; the program was stopped in 2006. It’s back now. Costs to us - $3.3 billion.
• If you’re a producer of certain tv shows or movies, you don’t have to capitalize costs, you can write them off immediately. Cost to us - $478,000,000.
• If you’re a producer of worsted wool fabrics that use imported fibers and yarns, you don’t have to pay import duties. Cost to us - $148,000,000.
• If you operate in American Samoa, you may be able to take certain tax credits. Cost to us- $33,000,000.

And these guys really want to do the right thing??? It is absolutely disgusting.

Courtesy of Taxpayers for Common Sense.

Why Not The States

Now the problem is moving to state governments. Both California and Massachusetts are thinking of asking the federal government for a loan to help them bail out of a nasty financial situation. The printing presses are going to be very busy.

Debate Cheat Sheet

For a larger chart and some interesting comments, go here.

An Example of Lax Oversight in a Free Market

Back in 2004 large investment banks went to the SEC because they were being pressured by the European Union to open their books to either the EU or the SEC. The banks chose the SEC. However, the SEC did not have the authority to oversee the parent company of these large banks, they could only monitor their broker/dealer subsidiaries. A deal was made. The banks would allow the SEC to examine their books. In return, the banks would be allowed greater leverage of their capital. Before this change, the debt-to-equity ratio was maxed out at 12-to-1. After the change, it seemed that the sky was the limit, ratios of 35-40-to-1 became common. So, you had banks using borrowed money to ‘invest’ in low quality mortgages and the 21st century CDO, CDS and other types of securities.

Need I say that Congress said nothing about this fundamental change in the rules of the game? Nor did Congress do anything when HUD changed its rules to make it easier for the predatory practices of some mortgage brokers. And Congress was silent when the Comptroller of the Currency prevented states from enforcing state laws against predatory lending.

But back to the SEC. Did it ever really look at the books of these large investment banks? Not in a very serious fashion. As Stephen Labaton reports in the NY Times, “The commission assigned seven people to examine the parent companies — which last year controlled financial empires with combined assets of more than $4 trillion. Since March 2007, the office has not had a director. And as of last month, the office had not completed a single inspection since it was reshuffled by Mr. Cox more than a year and a half ago. The few problems the examiners preliminarily uncovered about the riskiness of the firms’ investments and their increased reliance on debt — clear signs of trouble — were all but ignored.”

Maybe McCain had something when he called for firing Cox. Here’s a guy who’s been on the side of the investment banks since his days as a Congressman. Again quoting Labaton, “Under Mr. Cox, the commission responded to complaints by some businesses by making it more difficult for the enforcement staff to investigate and bring cases against companies. The commission has repeatedly reversed or reduced proposed settlements that companies had tentatively agreed upon. While the number of enforcement cases has risen, the number of cases involving significant players or large amounts of money has declined.

Mr. Cox dismantled a risk management office created by Mr. Donaldson that was assigned to watch for future problems. While other financial regulatory agencies criticized a blueprint by Mr. Paulson, the Treasury secretary, that proposed to reduce their stature — and that of the S.E.C. — Mr. Cox did not challenge the plan, leaving it to three former Democratic and Republican commission chairmen to complain that the blueprint would neuter the agency.”

I'm sure similar tales of an abandonment of one's responsibilities by our leaders and their appointees will surface.

The Rookie and the Veteran

Ms Palin did a better job last night than I expected from the Couric interviews. But, I can't say she made the sale, far from it.

Palin came across as a very young and inexperienced salesperson just out of a company's internship program. She had memorized the three or four basic selling points and the 'negatives' about the competition and tried to wrap them up in a folksy - you and me - manner. She spoke in generalities as to why her 'product' was better - we'll make changes and you'll pay less in taxes. Most of her pitch was focused on trying to knock down the other guy; a lot of what she said was just wrong. Her presentation was based on a contradiction - we need more regulation but the government should get out of the way. And, if I hear the word 'maverick' once more, I'll scream. Biden did a good job of demonstrating the falsity of this claim, but McCain being a maverick seems to be embedded in the nation's psyche.

Biden did a better job than Obama. He pointed out many of Palin's 'misstatements' (to be polite about it) and made some strong points. I suppose that in this setting it would have been foolhardy to question the success of the surge, but, at some point, this issue will have to be raised unless Iraq gets back on the media's front burner in the next month.

Enough Blame To Go Around

Here, courtesy of a friend, is something from the NY Times of September 30, 1999.

September 30, 1999

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the Americ an Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary mark et. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Another Comment About The Surge

Like many others, Jon Lindsay of MIT fears that we are overlooking other factors besides the surge which have led to reduced violence in Iraq. Fundamentally, the surge has not led to the reconciliation that was its aim. Here are some of the situations that will likely cause Iraq to blow up at some point.

There is significant ongoing violence against civilians despite absolute reductions in its intensity. Political deadlock continues on critical issues like oil revenue distribution, the status of Kirkuk, progress toward provincial elections, and sectarian reconciliation. As reporter Michael Ware noted, “deaths are down because it’s much harder to kill each other until the Americans withdraw and the real battle begins.” Festering sectarian tensions are dramatized by the Shia-dominated government’s hostility towards Sunni Sons of Iraq and Awakening groups; while such groups were instrumental in containing violence before, they can also be a potent force to reignite it if they continue to feel disenfranchised. The release of former insurgents from detention facilities is another wild card for stability.

It's 'Official'

I always knew that my generation was a lucky one. And now, Elwood Carlson, a professor at Florida State, has documented the fact. Carlson writes of the 'Lucky Few', those born between 1929 and 1945. We missed the depression and WWII, but have been able to learn from them. We've lived easier and longer lives than our parents. A changing world has been a constant for us - technology, the role of the sexes, what we eat, how we entertain ourselves, where we live, how we spend our money, the role of government, etc., etc., etc. We lived during America's heyday and are seeing our role in the world change.