Some Rich to Demonize

According to Politico, Meg Whitman in California alone has spent $163 million in her race against Democrat Jerry Brown. Florida Republican Rick Scott is spending more than $60 million in personal and family money in his race against Alex Sink. According to data at the Center for Responsive Politics, the Democratic committees – including state party coffers – raised $776 million thus far and had $90 million in cash for the final month, compared to $508 million collected by the Republicans who had $55 million available for the last lap of campaigning.

What could explain this? Who would put this amount of money into something with no expectation of return? And under these circumstances, who is a candidate to be a candidate? The careless rich? Anyone who can inspire the careless rich?

The word candidate comes from the the word "white" as "clothed in white"--as ancient Greek candidates were. They were clean, unsullied, candid and straightforward. They were without ulterior motive. Can anyone believe that of these "candidates"?

These are rich deserving of demonizing.

Charlie Sheen to Marry Lindsey Lohan

It is disturbing that, despite the access to information, the scope and depth of the mortgage problem is so poorly covered. Perhaps it is complex, too complex for the casual reader, but it should not be too complex for the average voter. The Interstate Recognition of Notarization Act itself deserves intense scrutiny. On the other hand, this incredible abuse of American citizens, this astonishing lack of ethics, this amazing immorality may be a reflection of us all. Perhaps we do not deserve better.

Subprime Morality

John Mauldin is an investment advisor who has a weekly newsletter. It's an eclectic collection of financially oriented interviews, summaries, opinions and occasionally simple forwards of other letters. Recently he has sent out three letters on the subprime problem. It is available at: http://JohnMauldin@InvestorsInsight.com

It is not for the faint of heart. Starting with this incredible quote from Bernanke, "The subprime problem will be contained", it tracks several parallel problems in the development and potential endgame of the subprime problems for banks, underwriters, investors and homeowners. More important is the insight it gives into the thoughtless black heart of what is masquerading as American capitalism and finance. He starts with the relatively minor housing problem which promises to become major as the subprime problem expands. False appraisals rose 50% last year; over 19,000 claimed the first time house buyer's tax credit but did not buy a house and 74,000 who claimed $500 million in refunds already owned a house; one in twenty-one residential mortgages are in foreclosure.

But enough of the small stuff.

Homeowners can be foreclosed upon and evicted only by the entity that holds the loan paper. As the Savings and loan industry declined, mortgages were shunted away from local institutions and into mortgage backed securities which were pooled together into Real Estate Investment Conduits. There they were divided into groups or tranches based upon various qualities like risk of default, interest rate and the like. The designation of these various mortgages into tranches was presided over by the Mortgage Electronic Registration System, jointly owned by Freddie Mac and Fanny Mae. It was legally impossible for these various organizations to hold the mortgage paper of the various mortgage loans. Thus the transfer of the title of the different properties was never done, the "chain of the title" was broken and the borrower now does not know who to pay. In essence, with a broken chain of the title, the borrower does not have a lender.

Consequently the banks holding these "broken chain" loans hired experts ("Foreclosure Mills") to evaluate the chains. They found these poorly documented titles and began to fix the broken chains by forgery and fraud. The title insurance companies that insured these titles balked and refused to sign on to this obvious illegality so the banks, desperate for protection against this chaos, went to the government and the Interstate Recognition of Notarization Act was created which gave a blanket approval to the fraud the foreclosure mills had perpetrated. This was passed by both, BOTH, houses of Congress but Obama pocket vetoed it--no standup guy he. Now the entire mortgage industry is under question. People foreclosed upon might get their houses back; people who bought foreclosed properties might not own them. The entire industry is in peril.

And the banks knew all the time. Richard Bowen from CitiMortgage repeatedly wrote to his superiors (including the esteemed Robert Rubin) warning them of the problem. He estimated 60% of the mortgages were defective and, as time went by, it increased to 80%.

When any of the mortgages were found on sampling review to be defective, they were recycled back into the general pool. Sometime they used the defective paperwork to renegotiate with the borrower for better terms for themselves. The taxpayers are responsible for some of these through Freddie and Fannie--perhaps 400 billion-- but 1.7 trillion, TRILLION, dollars in securities are not guaranteed and may well go to court. Bank of America's exposure may be 400 Billion. International clients and federal agencies (with subpoena power) will be involved.

The final letter describes Ameriquest and its predator employees as they behave like highwaymen and pirates in the field of contract law. Fraud, forgery and malicious insincerity was the norm. A specific sad story, Carolyn Pittman's, shows the callous disregard of these people as they repeatedly return to loot what little this poor woman had left.

Won't someone please call a cop? One only wonders how this will be resolved. Will the mortgage system collapse as borrowers strike back with righteous vengeance and withhold loan payments? How will the Washington Bathoes respond, having already shown their colors with The Interstate Recognition of Notarization Act? Certainly someone will call for a transfusion into the system.

But can morality and character be transfused?

Economic Generation

"In every country of the world, regardless of its stage of economic development, form of government, or age structure, the highest rates of entrepreneurial activity are found among those who are age 25 to 34. The rate of new business ownership in Japan today is just 1.3 percent, the lowest in the world, followed by France at 1.4 percent and Belgium at 1.6. In China, by contrast, with its (for now) oversized population of young adults, the rate is 11.8 percent."

This quote, from Phillip Longman in an article from BQO, puts quite a different slant on the demographic changes in the West. The decline of the birthrate in the West is more than the dénouement of the welfare state's Ponzi tragedy, it strikes at the very heart of the West's economic generation. Not only will there be less for more, less will be created.

The assumption here will certainly be that the older population will not start new businesses because of the investment in time and energy, but mainly financial risk. Governments cannot--despite their delusions of grandeur--improve time and energy in the population but they can influence risk. Whether through encouraging the creation of investment funds or changing tax structures, the government should look to improving these statistics or building their own new ones by encouraging the older population's participation in new ventures.

But it is difficult for insincere myopic followers to lead.

Macroeconomics 101

"Aggregate private consumption spending plus private investment spending plus government spending plus exports minus imports equals production."

This is classical modern macroeconomic theory. So if the government increases spending to fund a successful new copper mine, that is an increase in production. If it funds an unsuccessful mine, that too is production. If the government just gives the money to the miners and has them sit around and not dig, that is production. If it funds a mine, successful or not, then fills it in, that is even more production. If it taxes the copper miner so he can't expand his own mine then takes those taxes and digs a failed mine, that is a wash.

Doesn't this just sound like the old "Broken Window Theory"?

Work

Hegel, and later Marx, felt that the basic act, the inherent characteristic, that defined man and allowed him to define himself, was work. Work. This is a bit different than the earlier notion that man worked to stave off the pain and terror of hunger or cold. There is in Hegel a notion of success as well, a rising above your contemporaries, but he felt that achievement was quite attainable even among the poor and the downtrodden in the very act of their work.

Capitalism has always had a production bias but, when seen in the context of Hegel, it could be just an accident of our predisposition. There is a theory that the Reformation flavored capitalism with just enough self-sacrifice and tight-fistedness to allow it to flourish in the West. This idea also draws on similar qualities in the Japanese feudal culture and implies that the capitalism success in these two cultures is no accident.

If that notion is true, however, we might be in some general trouble. As the strict self-control of Protestantism and Calvinism fade in the West and as the feudal ideals are eclipsed in Japan, what is left to motivate the capitalist?

Consumption, a part of the overall economic equation--and a famous debilitating disease.

Chilean Miners and K 141

A debate has popped up over which economic system is responsible for the rescue of the Chilean miners. (This, in Chile, where the social security system is privatized.) Only socialistic, non individualistic behavior could allow men to survive underground and could altruistically mobilize citizens for their rescue, say the socialists. Only capitalism could create such wonderful technology and tools for the rescue, say the capitalists. Beneath all this wrangling is the belief that politics and government have a morality, that some systems--but not others--act with righteousness in mind.

It is reminescent of another international claustrophobic nightmare. In August 12, 2000 the K 141 Kursk, a cruise missile sub Oscar class 11 and the largest attack sub ever built, sank in 354 feet of water 85 miles out of Sevenomorsk in the Barents Sea. The sinking was proceeded by an explosion, presumably of the hydrogen peroxide supercavitating torpedo propellant, that measured 2.2 on the Richter Scale then, two and a half minutes or so later, by a second explosion that measured between 3.5 and 4.4 on the Richter Scale. 118 men went down. At some point 23 men retreated to Compartment 9. Everyone died.

There has been a lot of discussion. Why would the Russians use hydrogen peroxide propellant when the British had declared it too dangerous two decades earlier? How long did the men live in Compartment 9? There was a fire; was that from the emergency oxygen source? Did the fire kill the men in Compartment 9? Why did Putin stay on vacation when the country was overwhelmed with the tragedy? But these all beg the real question: Why did the Russians refuse the aid of the British and Norwegian diving teams that are experts in submarine rescue?

There are a number of answers here and, while the truth is not known, none of the possibilities are nice. The government gave up on the men, the sailors were presumed dead, and, the favorite, the government did not want to ask another country (and culture) for aid. They did not want to be seen as inferior in technology and expertise.

The important notion here is that governments, while comprised of people, are not people any more than armies or corporations are. By necessity governments have qualities and interests that may actually be opposed to the interests of their citizens. In the thirties, German Jews were Germans; the American soldiers exposed to radiation at Bikini were Americans and so were the untreated men from Tuskegee; the Russian government denied the very existence of the Chernobyl disaster at the very time the men charged with stopping the disaster climbed into reactor knowing full well they would never survive.

Sometimes government behavior is foolish, sometimes stupid, sometimes outright evil. But no government is any more or less moral than the post office or the LSU lacrosse team is. (But as the Chernobyl example shows, people are often a lot more moral than their governments.) Some may fit better with human nature but the people who make up the government are different from their subjects. Why? Emergent behavior? They sell their souls to the devil? Sunspots? Who knows. But no one should try projecting human qualities on to the structure of an inanimate object; they should just be as careful as they would be around any machine or animal they did not know or understand.

Hi, it's not Brett

Now that phone call sources are so readily identified we don't see a lot of obscene phone callers anymore. For a long while, though, they were common: Breathers, guys who talked dirty, guys with elaborate routines to pull a girl into a conversation that ended up in some obscene alleyway. The obscene caller has always been of interest not because of what he does but rather what he did before the invention of the phone. Whatever the thrill is in what he does, it is unlikely that it was quite the same with obscene shouting or obscene notes or obscene smoke signals. Certainly graffiti does not seem to fit the bill. What outlet did the perverse phone caller use before the phone?

Or is he new? Is his perversion created by the phone's availability rather than tapped in a more modern way? Indeed CD's, TV, movies and the like all seem to be logical extensions of preelectronic passive pornography but how do phone perversions fit in? And once opened, what happens when caller id closes this outlet? Does technology create and destroy behavior among us? Once opened, does it move on to new areas when closed? Konrad Lorenz thought that the ability to kill among mammalian species was naturally inhibited by the proximity of the combatants but when man developed the technology to kill at long range he became much more abstract and dangerous a killer. Does technology however seemingly innocuous, carry these great risks?

More specifically, Brett, what the hell were you thinking?

On Winning and Losing

It would be of interest to survey men and women separately as to the notable events they felt were of the greatest influence in their formative years. The academic world might well blush as it is likely sports and particular sporting events or moments would likely be high on the list of the men. Higher than most classroom experiences.

All the usual subjects would be rounded up-- the value of hard work and its correlation with success, surrendering individual for team goals, the importance of preparation and practice, the need for self control during competition, the subtle relationship between athlete and coach and how to take instruction, good sportsmanship, comradeship, how to eat and exercise--and all would be seen as important to some degree among the men surveyed.

The most complex sports lesson, though, is how to win. Physical skills, preparation, practice, diet, training are all important components but not learning how to win can trump them all. And it is not easy to learn because one can not learn to win unless one learns to lose. The heart is tender in the hardest athlete, shy in the gruffest competitor. and can easily protect itself in the shade of indifference. Pledging oneself completely to the task at hand carries great risk as failure can be devastating. So failure--losing--must be understood and managed. While the individual submits completely to the event, he must somehow make his investment total yet contained. He must understand that the struggle is not with his opponent but with himself, to perform as best he can and recognize that and nothing more is at stake and is enough. The outcome is not a judgment, it is a conclusion. The outcome is his own preparation and effort coming to fruition. Sometime the opponent is faster, quicker, stronger and will be victorious; such qualities are unlearned and are gifts of God. But the opponent must never be more committed or more dedicated, he must never fear failure less. Only when one learns that the outcome is nothing personal can losing become tolerable. Then the athlete can dissolve his fear of failure and learn to win.

The same is true of love.

Westboro Baptist Church and Retirement Plan

The Westboro Baptist Church is in front of the Supreme Court this session. The Church is small, eighteen members or so, and inbred, all of its members are members of the Phelps family, and unaffiliated with any known church, Baptist or otherwise, in the world. Their credo, such as it is, is the United States is being punished for its tolerance of homosexuals and national tragedies are generally attributed to God's judgment of the country's moral laxity. The Church focuses on military deaths and tragedies of national importance to demonstrate and raise awareness of their point. (They also hate most other creeds but that is beside the point here.) The Court is now hearing a case in which the father of a soldier killed by a roadside bomb in the Middle East sued the Westboro Church for their disrupting the dead son's funeral. The Church, defended by the Church lawyer, a daughter of the Church's pastor, argues the Church is protected by the Free Speech and Freedom of Religion clauses in the Bill of Rights. The Church is defended by The Phelps Chartered Law Firm, the family law firm.

It is easy to look at this as a necessary irritation a free society suffers where the edge of a long bell-shaped curve is protected. But there is another aspect here, Section 1988, 42USC Section 1988 "The Civil Rights Attorney Fee Act". This is a law created to pay attorneys who represent deprived clients. Think ACLU. This is a law that forces the people , usually the government, to pay for the lawyer of their opposition. Every time the government sues one of these peripheral shard groups, or are sued by them, the taxpayer pays both sides.

This looks like a fertile field for the entrepreneurial mind. Take some sacred core beliefs--religion and speech--mix with some tender societal events--soldier funeral or mining disaster--and shake well. Bill $350 an hour.

Fortunately lawyers and ministers are above such behavior.

No Pressure Video

I thought the content was so offensive that it should be seen only by eyes attached to jaded minds. It has become such a big deal on the Internet that I suppose everyone has seen it. The conservative political front has gone nuts over this--I think for good reason--but I can see a less agitated, "It's a bad SNL skit" response. I'll try to explain my agitated one.

Any comedy skit, like SNL, has a history and a context in which they are seen. They are also self selecting: People who watch them have found them entertaining before. People who do not like them or are offended do not watch. This clip was not entertainment; it is an advertisement, a political one, but an ad aimed at the general public. It was created by people with the intent of influencing others to agree with their position. I have heard people who actually thought it was an attack on the position of global warming. In essence, it was seen as a parody of their position. These people failed on every level I can think of from aesthetics to persuasion and I think should be held responsible for that failure.

This debate, the debate over global warming and our response, is exactly that. A debate. A discussion. It is not a war. To present it as a war between well established positions of good and evil is inherently stupid and is offensive to those who are trying honestly to wrestle with the question. Regardless of how urgent the question is, belittling the debate is always an unsuccessful way of starting a debate. Certainty and arrogance are always off-putting--whether in the legislature or the dining room--unless you are a Churchill. These guys are not Churchill.

Utilitarianism is fraught with danger. Modern philosophy has even tried to change its name (and exile it under federal protection). Essentially it places a value on results not acts, hence its new name "consequentalism". Sometimes it smacks of tragedy, the bad effects of good intents. (Is an act of loyalty with an unintended bad result immoral?) More often it is a battlefield decision--sacrificing 10 men for 100 (or 11)--and here it gets sticky, particularly if the battlefield is politics. Showing administrators killing people under their responsibility for a greater cause the victims do not support is not humorous for people who know it has been done before.

There is a larger question here, the question of the astonishing insensitivity of the creators. They seem to be genuinely surprised by the response. That is the reaction of the dogmatist, the man so self absorbed in his own righteousness he is unable to see uncertainty and degree. To him the response is the classic physiological "all or nothing" response and that response occurs in the lab without a brain.