Penn State and the Rule of Errors

The career of Bill Buckner's career teaches a lot about life. He played 22 seasons in Major League Baseball, 2517 games, 9397 at bats, 2715 hits, was in the top ten in doubles ('81 and '83), had 174 homers, 1208 rbi's, top ten in stolen bases ('74 and '76), averaged .289 with an OBP of .321 and a fielding percentage of .991. He batted number two because he was an accomplished contact hitter. In 1985 he hit .299 with 16 homers and 110 rbi's.

This looks like a good career and he seems to have been an able player, certainly an above average number two hitter. But in the sixth game of the 1986 World Series with the Mets down to their last out, he misplayed a soft grounder to first which allowed the Mets to tie the game and eventually win it. In the seventh game the Mets won the series. Buckner is remembered for that single moment in his career--not for the other 22 years of accomplishment.

Baseball only gives errors for physical mistakes, not mental, emotional or character errors and, while most fans remember Buckner's error, if pressed, they will give him his due. Yet it is still a harsh reality in sports that defining moments may not be characteristic ones. But errors in judgment, errors in character and errors in virtue are invariably seen as characteristic ones. This fierce rule will ruin the lives of everyone at Penn State who has been involved in this mishandling of the Sanduskey scandal, will invalidate their accomplishments and destroy their futures.

Penn State and Camelot

The Penn State horror continues to evolve. As with most of these smoldering abuse cases the magnitude will probably increase. The responses have been varied. Some, provincial athletic opponents, are glad. Others, provincial alumni, are rallying a defense. Paterno himself has always been a polarizing figure, the most successful major college coach in history will draw indiscriminate fire from the envious and his holier-than-thou persona will ripen quickly in the heat.

Penn State's reputation as an entity that does things right and is still successful will disintegrate, the efforts of well-meaning men will dissolve. But the real question might never have an answer. How can these well-meaning, thoughtful men explain their inaction? One of the janitors was reportedly so upset he was thought initially to have a heart attack yet he did nothing. McQueary, clearly distraught, apparently did the minimum. We have yet to see the others.

What is lurking in the background is the apparent consideration of other factors in the evaluation of these atrocities, mitigating factors that influence the situation for those peripherally involved. Reputations, job risks, perhaps friendships and appearances and the like all seem to have been considered in the evaluation of the atrocities. Letters of the law were studied. The "French Defense," "responsible but not guilty," may have been considered. Right and wrong were only additional factors.

We have become an uncertain culture. College campuses by their nature are peculiarly isolated and self contained. And Heisenberg and Freud are dangerous in the hands of amateurs. The legal system encourages doubt. Indeed multiculturalism demands hesitant judgment. Decisions are made like a poker player; your two queens are only as good as the other players bets allow. Circumstances and setting determine all. And so making a decision on right and wrong sounds like the behavior of a wild eyed fundamentalist.

There was a demonstration by some kids last night in support of Paterno on his front lawn last night, a wonderful response of youth. They just do not understand. Penn State will never be the same and many pasts will be rewritten.

The Commons

In the last week I have been in both the Public Library in Boston and the converted rail station, The Grand Concourse, in Pittsburgh and I have a new respect for beautiful public places. These places, accessible to all, should raise anyone's spirits. The Concourse is elegant and beautiful, the Library simple and beautiful and both places give a glimpse into what man and nature have to offer. A quiet hour there is soothing, inspiring and reassuring. We can do some things very well and sometimes that is very good to know.

Our public places have drifted into commercial or sports venues and are hampered by utility and cost. The modern glass and metal architecture raise little other than hackles. Our own homes and work places usually can not relax or inspire us. Perhaps it is the secret of the Italians whose living quarters are never emphasized; they have too many lovely places to go. In our complex world there is real value in simplicity.

These wonderful old structures should be visited by everyone regularly. I would sooner have "make work programs" build and improve beautiful common living spaces than clean the streets. If people spent more time in lovely enviornments they would not need cleaned up after.

The 1% ers

Some curious numbers from the IRS:

The top one percent of earners in the United States includes 1.4 million tax returns. The threshold is 343,927, down from 410,000 in 2007.

Households making at least 154,633 were in the top 5%, 112,124 in the top 10%, 66,000for the top 25% and 32,00 the top 50%.

Total income in the top 1% fell 21% from 2008 to 2009 while the average tax rate for the group went from 23.3% to 24%. Total income for the bottom 50% fell 2% in the same period.

The national average effective tax rate across all income levels was 11.06

After tax income for the upper 1% almost tripled from 1979 to 2007. The middle group was up 40% and the bottom 20% was up 18%. These would be good numbers if the currency value was constant.

"The 1%" used to be a bad ass motorcycle club, now it's dentists, neurosurgeons and bond traders. And these groupings are surprisingly close; it's doubtful many in the country would think earning 343,000 dollars would put you in the top 1% of the country. And these are returns, not necessarily individuals, so husband and wife in a successful small business might easily make these numbers. I doubt that many people think of the lower end of this 1% as their enemy and the movie stars , power hitters and kindly old curmudgeon philanthropists on the upper end make tough targets too. "Envy is sadness at the success of others." Sadness. It's a true individual emotion but among some cultures, it may be hard to institutionalize.

In the Belly of the Beast #4

The last speaker. A young guy with an uncertain voice but his mind was very certain. The private sector problem led to a public sector bailout which will lead to a public sector crisis. He is long gold and short St. Joe's. (He hates St. Joe's.) There are two possible "tail events," the Fed, which he feels is dominated by academics and extremists who will continue to put money into the system and inflation. Zero rates does not increase risk, it decreases spending. The safe thing to do in the setting of decreasing rates is to sell equities and buy bonds, not to sell bonds and buy equities.

The value is not in the idea, it is in the evaluation of the idea.

He is avoiding emerging markets because of "cultural, social and legal disadvantages."

The short term will be negative. There are some things you must accept.

In the Belly of the Beast #3

The next guy many had come to see. He deals mostly with distressed securities and I thought him the least impressive of the speakers. He has opened a London office to deal with the coming debt problems in Europe. The banks must recapitalize either by selling stock and diluting the current owners (some of whom are governments) at low prices or by shrinking the balance sheet by selling declining assets.

The next guy was interesting, interested and intense. He was 30% in cash. He is hiring lawyers to figure out how the European governments will invalidate the Credit Securities Swaps and their holders. Being early in the distressed securities market is usually a mistake because, in a distressed market, the buyer is usually yourself; you can't sell to yourself. Worried about the "double decker bonds" which buys the Brazilian currency and shorts the high yield Brazilian bond. He shorted Japanese utilities because he thought the Chinese economy would decline and then the tsunami hit, ruined the utilities and made him look like a genius.

In the Belly of the Beast #2

The first speaker was in his 60's and had grown his investment business from 1 million to 17 billion over the years with a 14% return, 7 down quarters and two down years. A successful guy. He offered some general observations that everyone can learn from. The major one is that complexity and effort limits risk. Reward increases when the problem is difficult and you work hard. This is true even with MIT analysts. Hard work on hard problems gives you a great advantage. Second, no combination of growth and taxes will solve the current insolvency problem; something is going to bleed. Third, inflation does not work as a policy; it destroys the middle class. Fourth, the Orderly Liquidation Authority in Dodd-Frank will be a disaster. Incidentally, one of the companies he looked at last month had, on its books, 75 trillion dollars in derivatives. Trillion.

The next speaker was younger and had just sold all of his debt/equity portfolio and bought bonds. He was "surprised at the lack of engagement" to deal with the problem of sovereign debt. He said that hedge funds are, essentially, "a zero sum game." His emphasis will be on the European bank market where there will be bargains because of the debt crisis. He feels that the equity markets must be reorganized because small ownership with new managers with new options and reasons to develop and sell works well in rising markets but poorly in negative ones.

More to come.