The Greying of Obama

People are starting to notice that President Obama is going grey. Supposedly, this started during the campaign and is noticeable now that he is President. We will never know if we would have gone grey regardless of his career choice, but we can be certain he is subject to considerable lifestyle stress.

In a post titled Obama's Ball and Chain, Thomas Friedman fears "that his whole first term could be eaten by Citigroup, A.I.G., Bank of America, Merrill Lynch, and the whole housing/subprime credit bubble." David Brooks in A Moderate Manifesto finds in the Obama budget "a promiscuous unwillingness to set priorities and accept trade-offs."

Nobel prize winning economist Paul Krugman, usually sympathetic to the left, writes in The Big Dither of "a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern." Stanford economist Michael Boskin, in a piece called Obama's Radicalism Is Killing the Dow for the right-leaning Wall Street Journal, charges "that our new president's policies are designed to radically re-engineer the market-based U.S. economy, not just mitigate the recession and financial crisis." Congressional Republicans say the same thing in tweet-sized bites, accusing the President of leading us to socialism or a European-style welfare state. And then there is the comedian Rush Limbaugh, whose radio audience has climbed from 14 million to 25 million in one week.

Commenting on the budget, the conservative British journal The Economist writes in Wishful, and dangerous, thinking that "the president has not explained to Americans that if they want bigger government, they will have to pay for it." Basically, they argue that the numbers don't add up when you increase government spending year after year while lowering taxes on 98% of taxpayers and increasing the tax burden on 2% who are not as rich as they used to be.

A response comes in the Brook's piece titled When Obamatons Respond. Senior administration officials say

1. "They’re not engaged in an ideological project to overturn the Reagan Revolution."
2. "The Obama administration will not usher in an era of big government."
3. "It is going to reduce this spending to 3.1 percent [of GDP] by 2019, lower than at any time in any recent Republican administration."
4. "The Medicare reform represents a big cut in entitlement spending. Health care reform will be deficit-neutral."
5. Deficits are now at a gargantuan 12 percent of G.D.P., but the White House aims to bring this down to 3.5 percent in 2012."
6. "Obama folks feel they spend as much time resisting liberal ideas as enacting them."

In other words, the administration feels its budget is misunderstood and it probably is. On the other hand, any attempts to make statements about the future (aka predictions) must be based on economic models which have assumptions, and the validity of the assumptions is always in question. (The use of mathematical models with invalid assumptions is cited as a primary cause of the financial crisis, so far a mortgage-backed securities are concerned.)

Obama has reason to go grey. Fixing the banks is something that has eluded both Treasury Secretaries Paulson and Geithner. The mess called AIG continues to act as a cancer upon the global economy. Joe Nocera's piece on AIG in the NYT called Propping Up a House of Cards reveals the greatest financial scam in the history of the world, one for which it is unlikely that anyone will go to jail, as everyone knew what was going on and everything was legal. People just didn't anticipate or care about the consequences, as so much money was being socked away.

Yes, Obama has reason to go grey.

Keep Hope Alive!

This past week, President Clinton advised President Obama to be more hopeful about the economy. Better advice might have been to read The New York Times Sunday magazine piece about the undiagnosed diseases program of the National Institutes of Health, which presents a different paradigm for problem solving than the "blind man feeling the elephant" mode we are in (e.g. fix a bridge).

The media is doing it's job in deconstructing the crisis and assigning blame. Time magazine gives us a list of the 25 People to Blame for the Financial Crisis. In summary,

1. Phil Gramm, US Senate Banking Committee chairman, deregulator
   
2. Chris Cox, SEC chairman, failed to provide oversight
   
3. Angelo Mozilo, predator lender (Countrywide)
   
4. Joe Cassano, AIG exec, issued credit default swaps
   
5. Frank Raines, Fannie Mae CEO, abused position of Government Supported Enterpirse (GSE)
   
6. Kathleen Corbet, Standard & Poor, gave unreliable ratings
   
7. Ian McCarthy, predatory home builder (Beazer Homes)
   
8. Dick Fuld, led Lehman Brothers to failure
   
9. Bernard Madoff, ran fraudulent investment schemes
   
10. Herb and Marion Sandler, predatory lenders (Golden West Financial, World Savings Bank)
    
11. Stan O'Neal, created collateralized debt obligations (Merrill Lynch)
    
12. John Devaney, facilitated predatory loans as a hedge-fund manager
    
13. Sandy Weill, led Citigroup to insolvency
    
14. Jimmy Cayne, led Bear Stearns to failure
    
15. George W. Bush, US President, deregulator
    
16. American Consumers, over borrowed, under saved
    
17. Alan Greenspan, Federal Reserve chairman, deregulator and economic overstimulator
    
18. Hank Paulson, US Treasury Secretary, ineffective policies
    
19. David Lereah, National Association of Realtors economist, promoted housing bubble
    
20. Lew Ranieri, father of mortgage-backed bonds (securitization)
    
21. David Oddsson, Prime Minister of Iceland, led Iceland to bankruptcy
    
22. Fred Goodwin, predatory banker, led Royal Bank of Scotland to insolvency
    
23. Bill Clinton, US President, deregulator and politicized mortgage lending
    
24. Wen Jiabao, supplied US with cheap credit from China
    
25. Burton Jablin, TV programmer, encouraged housing bubble

The list is not "scientific" as it was created by popular vote, but that hardly matters. No matter who is on the list, the point would be same... everyone wanted more, just like Oliver Twist. This list could be easily titled "25 People Who Rose to the Top of their Field".

My favorite post-mortem works so far are Bethany McLean's Vanity Fair piece on Fannie Mae and the CNBC documentary on predatory lending, The House of Cards. As a society, we live and learn, and one must hope that these types of mistakes will not be repeated. We do live by the rule of law, and laws might prevent future tragedies of the economic commons.

So does Obama have reason to be hopeful? Can one be honest about a bleak reality and hopeful at the same time? I say yes, if you look at the world with a perspective that transcends maintenance of America-as-we-know-it. Frank Rich in a NYT opinion piece wrote that

Obama’s toughest political problem may... [be] with an America-in-denial that must hear warning signs repeatedly, for months and sometimes years, before believing the wolf is actually at the door.

But in the same piece he points us towards something hopeful, an America remade.

Writing in the Atlantic, Richard Florida presents a vision of How the Crash Will Reshape America. The world he describes is actually a place I would want to live... highly productive mega-regions, decline of the automobile, smart people being smart together. Home ownership, rather than the American dream, is recast as the bonds that hold you down.

Yes, there is hope, not for pointless attempts to save the doomed, but for nurturing new growth and way people will live in the future.

Catastrophe

In President Obama's weekly video address of February 7, 2009, he said

Because if we don't move swiftly to put this plan in motion, our economic crisis could become a national catastrophe. Millions of Americans will lose their jobs, their homes, and their health care. Millions more will have to put their dreams on hold.

What our president is saying is that a national catastrophe happens when unemployment reaches reaches a certain number, or foreclosures or rent evictions rise to a certain level, or some number of people cannot afford heath insurance. The common denominator is loss of income necessary to maintain the basic necessities of life. Note that this is a quantitative argument, as we have always had citizens without jobs, homes, or health insurance.

What is scary about our current economic predicament is that other types of catastrophes are looming. The one that Obama mentioned is the usual catastrophe brought on by the usual business cycle of recession, recovery, and expansion.

The other catastrophes include

(1) bank failure, where the ATMs and credit cards stop working

(2) hyperinflation, where greenbacks lose their value, absolving all dollar-based debt and wiping out all savings

(3) stock market crash, where equity-based retirement accounts get wiped out and old people must depend on the kindness of strangers and/or their families

(4) economic loss due to global climate change, that is, more devastating hurricanes, tornadoes, heat waves, and wintry weather

(5) a haves vs. have-nots scenario, where ownership of assets is concentrated in the hands of a few percent of the population and everyone else is impoverished

(6) Jim Kunstler's Long Emergency scenario, where our way of life becomes unsustainable due to the depletion of energy resources and the organization of American homes and buildings around automobiles.


As to the probability of any of these other catastrophes occurring, I have no idea. One must imagine that the transactional functions of the banking system would be maintained at all costs, as this is the circulatory system of the economic body. The fed is supposed to be keeping inflation in check. The stock market is more of a symptom than a cause, that is, when the business cycle recovers, the market should recover. A consensus on the economic effects of climate change is undeveloped.

The last two catastrophes may be the same and both concern our nation's energy policy. Breaking us of our oil addiction is the key policy we must embrace. Kudos to Mankiw for suggesting a Pigovian tax on gas but it seems not to have a snowball's chance in hell of getting enacted by a politician.

Daschle Dashed

The TV machine reports that this NYT op ed piece was the final straw that sunk the nomination of Tom Daschle as secretary of health and human services. It was not just his tax problems; the NYT believed that "financial ties to major players in the health care industry may prove to be even more troublesome." If Obama is to walk-the-walk of shutting down the lobbyist/government revolving door, then he needs to waive the waivers.

Back to the tax issue, I have always been under the assumption that if you don't report taxable income or if you list bogus deductions, you are committing a crime, not an honest mistake. If the reporting is accurate, Mr. Daschle only came clean because he anticipated that his financial records might come under scrutiny. There was no smoking-gun 1099 from his employer, so had he been headed to retirement, he might never had amended his taxes.

But he did amend his taxes and pay off the IRS, without further allegation of wrong-doing, so what's the big deal? That would be perception, that is, the perception that change has not really come to Washington and the rules get changed for special people.

Daschle did the right thing by withdrawing. Nancy Killefer, the almost chief performance officer, also did the right thing. Timothy F. Geithner, our treasury secretary, not so much.

Obama went on the TV machine and admitted to Katie Couric that he had made a mistake concerning the Daschle nomination. Point to Obama.

Week Two

President Obama started week two by going to Capitol Hill to gain support among Republicans for his stimulus package. As one might expect, the Republicans are playing the role of the opposition by opposing the plan, even though it contains things that Republicans usually vote for, like tax cuts.

Were I a member of Congress, I would be hard pressed to know what to support, as the so-called expert economists are not in agreement. In fact, they have started to get testy with one another, as this Mankiw post suggests.

The Jan 26, 2009 issue of the New Yorker (which we receive in Tahoe on Jan 26) has an article by Ben McGrath titled The Dystopians, which describes various current and past prognosticators who have raised alarms against the demise of life as we know it. In particular, he writes about his time with Jim Kunstler, an architectural critic, novelist, blogger, and general critic of the way-things-are-now-particularly-in-America. What gave me pause is that Mr. Kunstler makes a lot of sense to me. I am not sure if this is because his prescriptions for returning to a more sustainable lifestyle are just a good idea or they resonate with my 56-year-old brain that is yearning for simplicity.

The reason I mention this after bringing up the stimulus package before Congress is because, if you believe Kunstler, the stimulus package might put us back on the road that led to the crisis in the first place.

Doesn't anyone have a vision of what the world would be like in 25 years (2034) if our energy, environmental, and economic problems were solved?

Day Four

Obama Reverses Rules on U.S. Abortion Aid

As mentioned in a prior post, giving women control over reproduction leads to peace on earth. Well done!

Day four also included work on the next federal stimulus to improve the economy. Rachel reported that President Obama will now be receiving daily economic briefings in addition to his daily intelligence briefing. Nice to know the POTUS is paying attention.

What continues to annoy me is the lack of agreement among economists about what measures will work.

My main sources of economic news/education come from Greg Mankiw's blog and Safe Haven. Mankiw is a Harvard economics professor who worked in the  Bush administration. He links to articles across the political spectrum and has a disarming sense of humor concerning his profession. His own economic prescription is sometimes hard to discern, as Krugman points out, but it is safe to say that he is big on tax cuts.


Safe Haven is a nexus of doomsdayers, skeptics, and gold hoarders, the most celbrated contributor being Peter Schiff, famous for predicted the current global economic disaster. If you read this site, you will find those that believe hyper-inflation is in our future due to the recent gigantic increase in the US money supply, that the housing crisis had its roots in the early nineties when congress/HUD interjected politics into the mortgage business  by mandating "affordable housing",  and that the demise of the US auto industry is due to auto workers with a undeserved since of entitlement and auto execs in pursuit of perks with little regard for consumers or the competition.

So what comes of all these economic readings?

When one considers a financial stimulus, one must think ahead to what is to be improved. Economists and government officials who wish to improve the gross domestic product and the employment rate tend to favor government spending. This is because the formula for GDP is

GDP = consumption + investment + gov spending + (exports - imports)

As people are not consuming, companies are not investing, and our trade balance is negative, the only way to up the GDP is through government spending. To the extent that said spending creates jobs, then employment data is improved, and that is something that looks good on the news.

People that are looking to improve their net worth tend to be for tax cuts, as this is personal. Anyone who has taxable income will benefit, and to the extent that the cuts extend towards lower incomes, more people benefit. There is no telling what people will do with their recovered taxes, but the expectation is that some of it contributes to the consumption part of GDP.

Economists frequently mention multipliers, that is, the way when a dollar is spent, the recepient of that dollar then spends it again, and so on. The problem seems to be that economists don't really know what the mulitpliers are for different scenarios and spend a lot of time discussing methodology. This is an important issue because huge economic decisions are made based on whose numbers you believe. It appears that all must be taken with a grain of salt.

The bottom line for me is that bad (perhaps unintended) consequences happen when government tries to save us all from financial doom. Somewhere I read that the seed of our current financial crisis, as it relates to Wall Street, occurred when the Federal Reserve supervised the bailout of Long Term Capital Management, a hedge-fund that was considered too big to fail. This created a huge so-called "moral hazard", that is, an incentive for people to behave in extremely risky ways because the upside is huge and the downside is tempered by the promise of a bailout. The probability of a bailout increases with the amount of money you owe to others, so you are motivated to assume even more risk (debt) in an attempt to become too big too fail.

In hindsight, the proper role of government should be to let people experience the full consequences of risky behavior, while enforcing regulations that protect the regular investor.

Last I heard, the next phase of the stimulus will be a mixed bag: some tax cuts, some funding of local and state budgets, and some public works (17%). So there will be a little for everyone and know one knows if it will really work, but everyone knows that my childern and grandchildren will be paying for it.

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Day Three

No more torture!

Closing Gitmo!

Thank you Mr. President. This is getting good.

I recently finished Sex and War: How Biology Explains Warfare and Terrorism and Offers a Path to a Safer World by Malcolm Potts and Thomas Hayden and nowhere did the authors suggest that torturing people or detaining them forever in Cuba was part of the terrorism solution.

Actually, the key to peace on earth may rest with a woman's right to make her own reproductive choices. As women take their role as equals in society, nations become less likely to engage in team aggression. When women can choose to limit family size, the age demographics of society are more conducive to economic success. Why be a terrorist when you have other attractive options?

Day Two

Our 44th President was in the oval office by 8:30am on day two. Does he need sleep?

The final inaugural event is National Prayer Service at the National Cathedral. On "The West Wing", President Bartlett reflects on the irony of such a practice in a country that prides itself on the separation of church of state. Of course, the word "separation" appears nowhere in the First Amendment. The scholar Margaret R. Miles believes the phrase "independence of church and state" is more accurate. Religion and government coexist but operate independently.

On day one, I attended a late afternoon yoga class taught by a wonderful yogi who also teaches first grade (qualifying her as a saint, in my book). She said the children were so excited that anyone can now be President.

Almost. Just as people are born into their skin and sex, they are also born into the religion of their family. Who will break out of the glass cathedral? When will a viable presidential candidate be a non-Christian? When can we elect a Jew, or a Muslim, or heaven forbid, one who finds no evidence for the God hypothesis.

To clear up any possible constitutional issues, President Obama took the oath again in the map room of the White House, administered by the Chief Justice. There was no bible this time, as the Constitution does not require one and they had probably already returned Lincoln's book to the Smithsonian.

Day One

Following the Fortran array indexing convention (Fortran is a classic computer programming language), the first day of the 44th presidency is day one, not day zero.

The GeoEye image of the inauguration shows an interesting distribution of people on the mall. I had thought that they would be more or less solid back to the Washington Monument, but not so. Rather, people seemed to be clustered in front of the jumbotrons, leaving plenty of walking room around the crowds. Evidently, the crowd problems involved ticket holders for spots closer to the Capitol. As the areas filled, people were turned away.

What was Chief Justice John Roberts thinking? Was it a simple lack of any preparation for administering the presidential oath that caused his flub? Or do you subscribe to the conspiracy theory? I'm going with the "who needs to rehearse the oath" theory.

Biden was back with the big family bible, which Stephen Colbert believes is actually the Hogwart's spell book. Could be.

So cutting to the chase, what did I think of Michelle's inauguration gown? First, it is wonderful that she wore something by Jason Wu, who is young, talented, and deserves a break. In an interview, he said that he had no idea she had selected it until he saw her on TV. Fashion is not my game but I am a huge Project Runway fan and think that Heidi and Tim rule. And my nephew John Renaud is a senior fashion design student at Brooklyn's Pratt Institute, so fashion is a big topic in our family. Overall, the gown was just OK for me, not a knockout. The best part of the dress was what it did for her shoulders and arms. Our First Lady has a very fit and athletic body and the gown played to that. The choice of white was not ideal, as under the intense lights of the media, the gown morphed into a white blob on HD TV screens across the world. This was a bit unfair to Mr. Wu, as his gown had rich texture and fine detail. Perhaps a beautiful shade of blue or perhaps a metallic tone would have worked better. The bottom portion of the gown was full and flowing and worked well. Not so much for part above the hips. A ball gown should leave no doubt that a woman is underneath, and this one did nothing to flatter her curves.

If I could have given the First Lady one piece of advice, it would have been to wear the most comfortable shoes possible.

The media coverage of the various balls was lacking. I was watching CNN, MSNBC, and a little Fox, all of whom kept their talking heads going the whole time. Hey, it's time to par-tee. Where is E!? Where is the TV Guide channel? We want fashion, celebs, performers, and shots of the first couple that don't appear to be on a loop.

One exception to my "talking heads" comment is Rachel Maddow. Those who know me know that Ms. Maddow is the best thing that has happened to my TV machine since they started showing space shots in the 60's. Rachel, I hope you are on my TV/internet tube for a long time. And I love it when you say "infrastructure".

Day Minus Two

It's nice to be inspired and the presidency of Barack Obama has inspired me to write this blog. My daughters, Jane and Julia, who have been hearing me go on about things for some time, suggested the same.

The "We Are One: the Obama Inaugural Celebration at the Lincoln Memorial" occurred on day minus two, that is, two days before the inauguaration. Can an event of the federal government be any better? The music was fun, the remarks appropriate, and the clothes were fun to watch. For a while I was wondering if everyone over 30 was color coordinated... blacks, browns, and earth tones. Then there was Renee Flemming in red with red on top of red... guess not.

Garth Brooks was the most suprising act for me, him being a country star and all. But Obama's got a big tent so there was plenty of room for the big hat. The act that hit home emotionally was James Taylor, performing with friends. And Stevie, of course.