The following story pretty much presents it in a nutshell.
- Powerful insiders rigging the game for their own benefit - making fools out of those of us who do actual work.
- Powerful insiders who are not held accountable for their actions.
Rahm Emanuel's profitable stint at mortgage giant
Short Freddie Mac stay made him at least $320,000
By Bob Secter and Andrew Zajac
Tribune reporters
3:18 PM CDT, March 26, 2009
Before its portfolio of bad loans helped trigger the current housing crisis, mortgage giant Freddie Mac was the focus of a major accounting scandal that led to a management shake-up, huge fines and scalding condemnation of passive directors by a top federal regulator.
One of those allegedly asleep-at-the-switch board members was Chicago's Rahm Emanuel—now chief of staff to President Barack Obama—who made at least $320,000 for a 14-month stint at Freddie Mac that required little effort.
As gatekeeper to Obama, Emanuel now plays a critical role in addressing the nation's mortgage woes and fulfilling the administration's pledge to impose responsibility on the financial world.
Emanuel's Freddie Mac involvement has been a prominent point on his political résumé, and his healthy payday from the firm has been no secret either. What is less known, however, is how little he apparently did for his money and how he benefited from the kind of cozy ties between Washington and Wall Street that have fueled the nation's current economic mess.
Though just 49, Emanuel is a veteran Democratic strategist and fundraiser who served three terms in the U.S. House after helping elect Mayor Richard Daley and former President Bill Clinton. The Freddie Mac money was a small piece of the $16 million he made in a three-year interlude as an investment banker a decade ago.
In business as in politics, Emanuel has cultivated an aggressive, take-charge reputation that made him rich and propelled his rise to the front of the national stage. But buried deep in corporate and government documents on the Freddie Mac scandal is a little-known and very different story involving Emanuel.
He was named to the Freddie Mac board in February 2000 by Clinton, whom Emanuel had served as White House political director and vocal defender during the Whitewater and Monica Lewinsky scandals.
The board met no more than six times a year. Unlike most fellow directors, Emanuel was not assigned to any of the board's working committees, according to company proxy statements. Immediately upon joining the board, Emanuel and other new directors qualified for $380,000 in stock and options plus a $20,000 annual fee, records indicate.
On Emanuel's watch, the board was told by executives of a plan to use accounting tricks to mislead shareholders about outsize profits the government-chartered firm was then reaping from risky investments. The goal was to push earnings onto the books in future years, ensuring that Freddie Mac would appear profitable on paper for years to come and helping maximize annual bonuses for company brass.
The accounting scandal wasn't the only one that brewed during Emanuel's tenure.
During his brief time on the board, the company hatched a plan to enhance its political muscle. That scheme, also reviewed by the board, led to a record $3.8 million fine from the Federal Election Commission for illegally using corporate resources to host fundraisers for politicians. Emanuel was the beneficiary of one of those parties after he left the board and ran in 2002 for a seat in Congress from the North Side of Chicago.
The board was throttled for its acquiescence to the accounting manipulation in a 2003 report by Armando Falcon Jr., head of a federal oversight agency for Freddie Mac. The scandal forced Freddie Mac to restate $5 billion in earnings and pay $585 million in fines and legal settlements. It also foreshadowed even harder times at the firm.
Many of those same risky investment practices tied to the accounting scandal eventually brought the firm to the brink of insolvency and led to its seizure last year by the Bush administration, which pledged to inject up to $100 billion in new capital to keep the firm afloat. The Obama administration has doubled that commitment.
Freddie Mac reported recently that it lost $50 billion in 2008. It so far has tapped $14 billion of the government's guarantee and said it soon will need an additional $30 billion to keep operating.
Like its larger government-chartered cousin Fannie Mae, Freddie Mac was created by Congress to promote home ownership, though both are private corporations with shares traded on the New York Stock Exchange. The two firms hold stakes in half the nation's residential mortgages.
Because of Freddie Mac's federal charter, the board in Emanuel's day was a hybrid of directors elected by shareholders and those appointed by the president.
In his final year in office, Clinton tapped three close pals: Emanuel, Washington lobbyist and golfing partner James Free, and Harold Ickes, a former White House aide instrumental in securing the election of Hillary Clinton to the U.S. Senate. Free's appointment was good for four months, and Ickes' only three months.
Falcon, director of the Office of Federal Housing Enterprise Oversight, found that presidential appointees played no "meaningful role" in overseeing the company and recommended that their positions be eliminated.
John Coffee, a law professor and expert on corporate governance at Columbia University, said the financial crisis at Freddie Mac was years in the making and fueled by chronically weak oversight by the firm's directors. The presence of presidential appointees on the board didn't help, he added.
"You know there was a patronage system and these people were only going to serve a short time," Coffee said. "That's why [they] get the stock upfront."
Financial disclosure statements that are required of U.S. House members show Emanuel made at least $320,000 from his time at Freddie Mac. Two years after leaving the firm, Emanuel reported an additional sale of Freddie Mac stock worth between $100,001 and $250,000. The document did not detail whether he profited from the sale.
Sarah Feinberg, a spokeswoman for Emanuel, said there was no conflict between his stint at Freddie Mac and Obama's vow to restore confidence in financial institutions and the executives who run them. At the same time, Feinberg said Emanuel now agrees that presidential appointees to the Freddie Mac board "are unnecessary and don't have long enough terms to make a difference."
Former President George W. Bush voluntarily stopped making such appointments following Falcon's assessment of their uselessness.
In an interview, Falcon said the Freddie Mac board did most of its work in committees. Yet proxy statements that detailed committee assignments showed none for Emanuel, Free or Ickes during the time they served in 2000 or 2001. Most other directors carried two committee assignments each.
Contrary to the proxy statements, Feinberg said she believed that Emanuel served on board committees that oversaw Freddie Mac's investment strategies and mortgage purchase activities. But Feinberg acknowledged she had no official documents to back up that assertion.
The Obama administration rejected a Tribune request under the Freedom of Information Act to review Freddie Mac board minutes and correspondence during Emanuel's time as a director. The documents, obtained by Falcon for his investigation, were "commercial information" exempt from disclosure, according to a lawyer for the Federal Housing Finance Agency.
Emanuel's board term expired in May 2001, and soon after he launched his Democratic congressional bid.
One of Emanuel's fellow directors at Freddie Mac was Neil Hartigan, the former Illinois attorney general. Hartigan said Emanuel's primary contribution was explaining to others on the board how to play the levers of power.
He was respected on the board for his understanding of "the dynamics of the legislative process and the executive branch at senior levels," Hartigan recalled. "I wouldn't say he was outspoken. What he was, was solid."
By the time Emanuel joined Freddie Mac, the company had begun to loosen lending standards and buy riskier sub-prime loans. It was a practice that later blew up and contributed to the current foreclosure crisis.
In his investigation, Falcon concluded that the board of directors on which Emanuel sat was so pliant that Freddie Mac's managers easily were able to massage company ledgers. They manipulated bookkeeping to smooth out volatility, perpetuating Freddie Mac's industry reputation as "Steady Freddie," a reliable producer of earnings growth. Wall Street liked what it saw, Freddie Mac's stock value soared and top executives collected their bonuses.
Another focus of Freddie during Emanuel's day—and one that played to his skill set—was a stepped-up effort to combat congressional demands for more regulation.
During a September 2000 board meeting—midway through Emanuel's 14-month term—Freddie Mac lobbyist R. Mitchell Delk laid out a strategy titled "Political Risk Management" aimed at influencing lawmakers and blunting pressure in Congress for more regulation. Through Delk's initiative, Freddie Mac sponsored more than 80 fundraisers that raised at least $1.7 million for congressional candidates despite a federal law that bans corporations from direct political activity.
Emanuel spokeswoman Sarah Feinberg said Emanuel "can't remember the meeting or topic" but might have been in attendance when Delk outlined his plans. Feinberg downplayed the significance of the fundraiser thrown for Emanuel, which brought in $7,000, stressing that it was but one of many hosted by Delk. The event stood out in at least one respect, however.
The Freddie Mac-linked events were mostly for Republicans, and only a handful benefited Democrats like Emanuel. "Rahm was a good friend of mine. He was on Freddie Mac's board. He was very much supportive of housing," said Delk, who resigned under pressure in 2004.
Then-Freddie Mac CEO Leland Brendsel also hosted a fundraising lunch for Emanuel's 2002 campaign that netted $9,500 from top company executives. Brendsel was later ousted in the accounting scandal.
Federal campaign records show that Emanuel received $25,000 from donors with ties to Freddie Mac in the 2002 campaign cycle, more than twice the amount collected that election by any other candidate for the U.S. House or Senate.
Emanuel joined the House in January 2003 and was named to the Financial Services Committee, where he also sat on the subcommittee that directly oversaw Freddie Mac. A few months later, Freddie Mac Chief Executive Officer Leland Brendsel was forced out, and the committee and subcommittee launched hearings to sort out the mess, spanning more than a year. Emanuel skipped every hearing, congressional records indicate.
Feinberg said Emanuel recused himself "from deliberations related to Freddie Mac to avoid even the appearance of favoritism, impropriety or a conflict of interest."
bsecter@tribune.com
azajac@tribune.com
Copyright © 2009, Chicago Tribune
www.chicagotribune.com/news/politics/obama/chi-rahm-emanuel-profit-26-mar26,0,5682373.story
chicagotribune.com
Tuesday, March 31, 2009
More signs of cultural decline in America
I know, they are all around. Here's the latest:
http://www.msnbc.msn.com/id/26852192/vp/29975490#29975490
where a cool young hipster mocks the latest robotics advance from Japan which he calls "completely impractical, totally useless" and implicitly mocks it as ridiculous looking.
It's a robot which walks (Asimo) and is controlled by the brain waves of a person sitting in a chair. One does not need to be much of a technophile to see the possibilities. Think people who are paralyzed. It really does not take much creativity to imagine all sorts of important things coming out of this research.
But to the Geist all that matters is that it looks really geeky and on a superficial level that makes it easy fodder for mocking.
You can just imagine the Geist switching verbal gears to talk about something really important such as some athlete "making history" by scoring a lot of points (or something like that). You can imagine him being serious.
If we go back to 1900 or so we see an utterly different America one in thrall of progress and technology, a nation that elevated men like Thomas Edison, Alexander Graham Bell to status levels not approached by any athlete of the time. That was a reflection of what was considered important vs. what was basically seen as play.
Oh boy have the roles reversed in 100 years!
Recall that those two were basically nerds first, businessmen later. Point is they were not famous because of the money they made but famous for the things they created. We cannot really compare a Bill Gates with those two. Gates is a businessman. He is famous for making a titanic amount of money. Gates has invented nothing. He has taken things invented by others (for example a "windowed" graphical user interface - which was invented by Xerox at PARC) and "mass produced" them. Gates is more like Henry Ford.
The fact is that culturally we have no one like Edison or Bell today. America is a different kind of country now and no longer elevates such people to the kind of status that they once had.
How many Americans have heard of Tim Berners-Lee.
Another nation (an empire really) was a rival to America then and in some ways was culturally similar to the America of today. The Spanish empire was not embracing the new technology of the time but living in a past of "honor" and "chivalry" and had elaborate codes of behavior to reinforce class divisions. Basically they (the upper class anyway) were into riding horses, fencing and looking good while America was into building and inventing.
We know which direction each went.
Now China awards their top undergraduate geeks with $250,000 grants and top PHD's of course get even more. They deliberately make them into stars. America heaps such large rewards exclusively on athletes and movie stars. No mere student at an American university will even approach the status, money and perks heaped on the athletic class. No mere "inventor" in America can approach the status level of a Paris Hilton.
But in 1900 it was the Spanish who thought the first prototype airplanes being built in America (and France) looked oh-so-rediculous.
http://www.msnbc.msn.com/id/26852192/vp/29975490#29975490
where a cool young hipster mocks the latest robotics advance from Japan which he calls "completely impractical, totally useless" and implicitly mocks it as ridiculous looking.
It's a robot which walks (Asimo) and is controlled by the brain waves of a person sitting in a chair. One does not need to be much of a technophile to see the possibilities. Think people who are paralyzed. It really does not take much creativity to imagine all sorts of important things coming out of this research.
But to the Geist all that matters is that it looks really geeky and on a superficial level that makes it easy fodder for mocking.
You can just imagine the Geist switching verbal gears to talk about something really important such as some athlete "making history" by scoring a lot of points (or something like that). You can imagine him being serious.
If we go back to 1900 or so we see an utterly different America one in thrall of progress and technology, a nation that elevated men like Thomas Edison, Alexander Graham Bell to status levels not approached by any athlete of the time. That was a reflection of what was considered important vs. what was basically seen as play.
Oh boy have the roles reversed in 100 years!
Recall that those two were basically nerds first, businessmen later. Point is they were not famous because of the money they made but famous for the things they created. We cannot really compare a Bill Gates with those two. Gates is a businessman. He is famous for making a titanic amount of money. Gates has invented nothing. He has taken things invented by others (for example a "windowed" graphical user interface - which was invented by Xerox at PARC) and "mass produced" them. Gates is more like Henry Ford.
The fact is that culturally we have no one like Edison or Bell today. America is a different kind of country now and no longer elevates such people to the kind of status that they once had.
How many Americans have heard of Tim Berners-Lee.
Another nation (an empire really) was a rival to America then and in some ways was culturally similar to the America of today. The Spanish empire was not embracing the new technology of the time but living in a past of "honor" and "chivalry" and had elaborate codes of behavior to reinforce class divisions. Basically they (the upper class anyway) were into riding horses, fencing and looking good while America was into building and inventing.
We know which direction each went.
Now China awards their top undergraduate geeks with $250,000 grants and top PHD's of course get even more. They deliberately make them into stars. America heaps such large rewards exclusively on athletes and movie stars. No mere student at an American university will even approach the status, money and perks heaped on the athletic class. No mere "inventor" in America can approach the status level of a Paris Hilton.
But in 1900 it was the Spanish who thought the first prototype airplanes being built in America (and France) looked oh-so-rediculous.
Saturday, December 6, 2008
Some ideas
- Allow people to "invest" in other individuals and the investors return would come from the tax revenues paid by the recipient of the investment. For example: Person X, pays 5000 which is applied to Person Y's college expenses. In return some % of persons Y's federal (or state) taxes go to person X for a set number of years. So Person Y does not pay back person X directly, the federal (or state) govt does. But the government would come out ahead if the total taxes paid by person Y are increased enough by the investment to more than offset the payback to person X. Everybody wins. The only serious downside to this idea is a privacy issue. If person X is paid directly from person Y's taxes, person X has a good idea of what person Y is making. This may seem in a way like indentured servitude, but it is really not. Person X has no control of person Y at all, just a stake in his taxes. Person Y is free to do whatever he chooses, free to take any job he wants. Of course person X has a stake in person Y's success so he is an "interested party" so to speak. That makes the situation interesting. You would probably want to make a prohibition against investing in close family members. Perhaps a website could be set up to match up investors and those looking for capitol in this way.
- Pneumatic tubes to deliver the mail in dense urban areas. This was actually done in New York and several other cities around the turn of the 20th century but was abandoned due to motorcar (later auto) delivery of the mail. Now cities are choked full of to much traffic and energy is a huge issue. Key question(s): 1) how much energy does such a system use vs delivery by truck and 2) can such a system handle high volumes. In Chicago there was a whole series of underground tunnels that delivered various kinds of freight until the depression. Part of the rationale for both systems was to alleviate congestion. Why did these systems fall into disuse and why were they replaced. The easy answer is the automobile but I think the real answer is slightly more subtle. Usage of both systems fell sharply during the depression and then after the depression a deliberate decision was made to favor the auto industry which received all sorts of tax breaks and incentives and this may have sealed the fate of competitor systems. Even deeper, the U.S. and to some extent the rest of the developed world has moved in the direction of mass market capitalism as the vehicle for prosperity and progress. Coherent systems - perhaps "centrally planned" in some way fell out of favor. Post WW II progress stemmed from mass production of autos, mass production of TV's, mass production of washing machines and so forth. Europe joined that party. But is the mass production regime the best regime for all sectors of society in the 21'st century? In the realm of transport doesn't it lead to less efficient use of energy and space?
- Pneumatic tubes to deliver the mail in dense urban areas. This was actually done in New York and several other cities around the turn of the 20th century but was abandoned due to motorcar (later auto) delivery of the mail. Now cities are choked full of to much traffic and energy is a huge issue. Key question(s): 1) how much energy does such a system use vs delivery by truck and 2) can such a system handle high volumes. In Chicago there was a whole series of underground tunnels that delivered various kinds of freight until the depression. Part of the rationale for both systems was to alleviate congestion. Why did these systems fall into disuse and why were they replaced. The easy answer is the automobile but I think the real answer is slightly more subtle. Usage of both systems fell sharply during the depression and then after the depression a deliberate decision was made to favor the auto industry which received all sorts of tax breaks and incentives and this may have sealed the fate of competitor systems. Even deeper, the U.S. and to some extent the rest of the developed world has moved in the direction of mass market capitalism as the vehicle for prosperity and progress. Coherent systems - perhaps "centrally planned" in some way fell out of favor. Post WW II progress stemmed from mass production of autos, mass production of TV's, mass production of washing machines and so forth. Europe joined that party. But is the mass production regime the best regime for all sectors of society in the 21'st century? In the realm of transport doesn't it lead to less efficient use of energy and space?
Tuesday, October 7, 2008
Now for some analysis
The m2 money supply is rising at the fastest rate since 9-11.
Source:
http://research.stlouisfed.org/fred2/data/M2.txt
The latest week (9/22) shows the second greatest gain in the entire range! The greatest gain was in the week after 9-11.
The increase in the money supply was over 2% (vs. just over 3% the week after 9-11).
2% in one week is a LOT for money supply growth. Compound that kind of growth over 52 weeks and you would have hyper inflation.
No week other than the post 9/11/2001 week and the 9/22/2008 week show even a 1% gain. The average weekly gain in M2 has been about 1/10 of 1 percent. So the latest reported week shows a gain of 20 times greater than normal.
It will be interesting to see if there is another big gain in the week of Sept 29 and also interesting to speculate where this money is going right now.
I feel confident that we are not headed toward hyper-inflation; in fact we seem to be in a somewhat deflationary period -think stocks, job losses, energy prices in the last month.
Source:
http://research.stlouisfed.org/fred2/data/M2.txt
The latest week (9/22) shows the second greatest gain in the entire range! The greatest gain was in the week after 9-11.
The increase in the money supply was over 2% (vs. just over 3% the week after 9-11).
2% in one week is a LOT for money supply growth. Compound that kind of growth over 52 weeks and you would have hyper inflation.
No week other than the post 9/11/2001 week and the 9/22/2008 week show even a 1% gain. The average weekly gain in M2 has been about 1/10 of 1 percent. So the latest reported week shows a gain of 20 times greater than normal.
It will be interesting to see if there is another big gain in the week of Sept 29 and also interesting to speculate where this money is going right now.
I feel confident that we are not headed toward hyper-inflation; in fact we seem to be in a somewhat deflationary period -think stocks, job losses, energy prices in the last month.
Saturday, October 4, 2008
Robert Reich on the socialization of risk and privatization of gain
From
http://quote.yahoo.com/expert/article/stockblogs/94661
• Former Secretary of Labor Robert Reich has some harsh words for policymakers. He says that "socialized capitalism of the sort the Fed and the Treasury are now practicing, consisting of private gains and public losses, is untenable. On the other hand, giant Wall Street investments banks as well as Fannie Mae and Freddie Mac are too big to fail." How to reconcile the two? Reich has an intriguing proposal - that "[w]hen taxpayers insure a giant entity against loss, the entities must agree that for the duration of the bailout, their top executives can't be paid more than the President of the United States; and the government gets 5% of their current valuation as shares of stock (roughly representing the benefit to their shareholders of the federal insurance) -- so that if and when the entities become profitable again, taxpayers are compensated for the risk they've taken on."
This sounds like a decent proposal to me.
We as a society need to think long and hard about this injustice (the privatization of gain and socialization of risk) should be addressed.
In prior times the centerpiece of dealing with this issue was a progressive income tax system but this has been rejected because it punishes the hardest workers, the most talented and the biggest risk takers. But our system clearly does not give it's highest rewards to those people now so we are back to square one! Who we reward in America in 2008 are those whose imprimatur is on things whether they have anything to do with gains or not - or even if they fail!
We were told that one of the biggest reasons to flatten the tax system was that a progressive tax punished those who "took the risk" yet we know now that those who claimed to be taking the risk (the CEO's and business elite) were in fact not taking the risk - as illustrated spectacularly on Friday.
Perhaps a better way would be to
a) identify real risk takers (starting with those who put their *own* money on the line) and tax gains that come from that lower.
b) If we want lower taxes on those who work hard how about a lower rate for overtime.
I'm sure there are other ideas...this is just a start.
http://quote.yahoo.com/expert/article/stockblogs/94661
• Former Secretary of Labor Robert Reich has some harsh words for policymakers. He says that "socialized capitalism of the sort the Fed and the Treasury are now practicing, consisting of private gains and public losses, is untenable. On the other hand, giant Wall Street investments banks as well as Fannie Mae and Freddie Mac are too big to fail." How to reconcile the two? Reich has an intriguing proposal - that "[w]hen taxpayers insure a giant entity against loss, the entities must agree that for the duration of the bailout, their top executives can't be paid more than the President of the United States; and the government gets 5% of their current valuation as shares of stock (roughly representing the benefit to their shareholders of the federal insurance) -- so that if and when the entities become profitable again, taxpayers are compensated for the risk they've taken on."
This sounds like a decent proposal to me.
We as a society need to think long and hard about this injustice (the privatization of gain and socialization of risk) should be addressed.
In prior times the centerpiece of dealing with this issue was a progressive income tax system but this has been rejected because it punishes the hardest workers, the most talented and the biggest risk takers. But our system clearly does not give it's highest rewards to those people now so we are back to square one! Who we reward in America in 2008 are those whose imprimatur is on things whether they have anything to do with gains or not - or even if they fail!
We were told that one of the biggest reasons to flatten the tax system was that a progressive tax punished those who "took the risk" yet we know now that those who claimed to be taking the risk (the CEO's and business elite) were in fact not taking the risk - as illustrated spectacularly on Friday.
Perhaps a better way would be to
a) identify real risk takers (starting with those who put their *own* money on the line) and tax gains that come from that lower.
b) If we want lower taxes on those who work hard how about a lower rate for overtime.
I'm sure there are other ideas...this is just a start.
Monday, September 29, 2008
The fundamental problem: lack of trust
The reason why no bailout is yet at hand for the current problems is simple: there is not enough trust.
Calls and letters coming in to congress are running 50-1 against the bailout. Why? few trust Wall St. and congress to be telling them the truth and most suspect that this is simply a gambit for continued big paydays by wall st. honchos.
Why?
In the mid to late 1990's the pundits and experts lauded the so called "new economy" which needed no profits and then didn't even need revenues. All it needed was "eyeballs" watching the new web sites that the new economy was spawning. Spawning massive new wealth practically through thin air (A.K.A the internet). Those who were skeptical and felt business would need revenues and profits were told they "just didn't get it." The "new economy" was not a fringe idea, it had became conventional wisdom before the concept crashed and burned in the "tech wreck" of 2000-2002. This kind of episode erodes trust.
Why?
The election of 2000 was contested. It was not won cleanly but decided by a supreme court decision. Never before in our history had we gone through something like that. Some important assumptions about our country flew out the window in that episode. This kind of thing erodes trust.
Why?
In 2003 our nation was led into war via a claim that Iraq had "Weapons of Mass Destruction." Iraq was invaded and no Weapons of Mass Destruction were ever found. Iraq is believed to possess the second largest reserve of oil of any nation on earth. This kind of episode erodes trust.
Why?
Throughout the middle of this decade a deliberate effort was undertaken to bolster/inflate the housing market. Lending standards went down down and then down some more. We were told by the "experts" not to worry. Housing cannot go down. None other than Alan Greenspan claimed that there was nothing systemic to worry about because there could not be an overall drop in housing prices. Simply couldn't happen. He lectured that there was "no nationwide housing market" - that housing consisted instead of many local markets that moved somewhat independently so if Phoenix was dropping then Philadelphia would probably be rising and if not Philadelphia then somewhere else. Bottom line: don't worry your pretty little heads about a housing downturn. It has never happened and can't happen. As we know, housing is now in a dreadful tailspin; according to Case/Schiller it's down 17% and dropping. This kind of episode erodes trust.
Furthermore, in each of these episodes there has been skepticism from those of us outside the halls of power and it has often met with a concerted effort to get us all "on board."
- See the video's of Abby Joseph Cohen, Bill Gates and others in the 90's extolling the "new economy." Those who didn't see the new economy just didn't "get it" - maybe they were not so smart.
- Watch the mocking sarcastic comments of Donald Rumsfeld when asked directly where the WMD's were in early '03. Watch the comments of Dick Cheney and Bush on the subject in 2002-2003. We were told that everyone knew they were there. Everyone.
- Watch the oh-so-sober presentations of Alan Greenspan on the possibility of a housing bubble (it can't happen he said). Watch other "expert" commentary on the risk of a housing bubble. Consensus until this year was that it cannot happen.
The unwashed masses might *think* that any asset could be bid to high and a mania could develop anywhere but the experts assured us that housing was an exception. They used advanced statistics and calculus and a lot of other neat things to drive home the point.
Put together, these events have done a lot to diminish trust in our leaders over the past 10 years and given the ultimate outcomes one must ask what the hell is going on.
A subtext to all of this of course was sky high executive compensation for those who were on the inside and a yawning gap between the "haves" who were running the show and the unwashed "have nots" - who were often the doubters.
We were told that our leaders really knew what was going on, we were told that our leaders had the character to stick with the program and make the tough decisions, we were told that our leaders had the seasoning to have "been through it all before" and the intelligence to make good tactical decisions. They create the wealth we were told. And in return for all this a 10 or 20 million a year was but a trifle.
But now we know that the new economy was a fraud, there were no WMD in Iraq and housing prices are now dropping like the price of unsold Halloween candy on November 1.
There is extremely little trust right now. People do not trust their leaders, they do not trust the CEO's, they do not trust Bush, they do not trust the Democrats.
Most "main street" type people feel this wall street bailout is just a grasp at another grandiose payday by powerful people who seem very adept at manipulating and used to getting their way.
Could this bailout be just an attempt to again profit at the expense of the rest of us? Much of the public believes this.
Consider that CEO and upper management pay packages are based on stock prices and nothing has to get paid back if stock prices decrease later. These guys are usually in their 50's or 60's. Helping along a "new economy" bubble could therefore be rational from their perspective. Consider that a big new market should have been opened up with the invasion of Iraq (it's as big in population and size as California and has 4 times as much oil as the U.S.) Consider the paydays "throughout the chain" from the origination of mortgages. None of those origination fees have to be paid back.
Could it be that the much of the general "advice" from our leaders and experts on the subjects I touch upon above was self-serving (as opposed to 24-Karat gold insight?)
Could it be that they simply told us to do what was good for them and were not all that concerned about the risks we were exposed to in following it?
The troubling fact is that the self-serving thesis makes sense given the ultimate outcomes: the insiders made out like bandits even while their rationales were exposed as bunk each time.
We probably cannot know yet whether our leaders are being sincere of whether this is another "new economy" sham but regardless we have no reason to trust them.
If they are finally telling the truth then we are all in deep *****.
Calls and letters coming in to congress are running 50-1 against the bailout. Why? few trust Wall St. and congress to be telling them the truth and most suspect that this is simply a gambit for continued big paydays by wall st. honchos.
Why?
In the mid to late 1990's the pundits and experts lauded the so called "new economy" which needed no profits and then didn't even need revenues. All it needed was "eyeballs" watching the new web sites that the new economy was spawning. Spawning massive new wealth practically through thin air (A.K.A the internet). Those who were skeptical and felt business would need revenues and profits were told they "just didn't get it." The "new economy" was not a fringe idea, it had became conventional wisdom before the concept crashed and burned in the "tech wreck" of 2000-2002. This kind of episode erodes trust.
Why?
The election of 2000 was contested. It was not won cleanly but decided by a supreme court decision. Never before in our history had we gone through something like that. Some important assumptions about our country flew out the window in that episode. This kind of thing erodes trust.
Why?
In 2003 our nation was led into war via a claim that Iraq had "Weapons of Mass Destruction." Iraq was invaded and no Weapons of Mass Destruction were ever found. Iraq is believed to possess the second largest reserve of oil of any nation on earth. This kind of episode erodes trust.
Why?
Throughout the middle of this decade a deliberate effort was undertaken to bolster/inflate the housing market. Lending standards went down down and then down some more. We were told by the "experts" not to worry. Housing cannot go down. None other than Alan Greenspan claimed that there was nothing systemic to worry about because there could not be an overall drop in housing prices. Simply couldn't happen. He lectured that there was "no nationwide housing market" - that housing consisted instead of many local markets that moved somewhat independently so if Phoenix was dropping then Philadelphia would probably be rising and if not Philadelphia then somewhere else. Bottom line: don't worry your pretty little heads about a housing downturn. It has never happened and can't happen. As we know, housing is now in a dreadful tailspin; according to Case/Schiller it's down 17% and dropping. This kind of episode erodes trust.
Furthermore, in each of these episodes there has been skepticism from those of us outside the halls of power and it has often met with a concerted effort to get us all "on board."
- See the video's of Abby Joseph Cohen, Bill Gates and others in the 90's extolling the "new economy." Those who didn't see the new economy just didn't "get it" - maybe they were not so smart.
- Watch the mocking sarcastic comments of Donald Rumsfeld when asked directly where the WMD's were in early '03. Watch the comments of Dick Cheney and Bush on the subject in 2002-2003. We were told that everyone knew they were there. Everyone.
- Watch the oh-so-sober presentations of Alan Greenspan on the possibility of a housing bubble (it can't happen he said). Watch other "expert" commentary on the risk of a housing bubble. Consensus until this year was that it cannot happen.
The unwashed masses might *think* that any asset could be bid to high and a mania could develop anywhere but the experts assured us that housing was an exception. They used advanced statistics and calculus and a lot of other neat things to drive home the point.
Put together, these events have done a lot to diminish trust in our leaders over the past 10 years and given the ultimate outcomes one must ask what the hell is going on.
A subtext to all of this of course was sky high executive compensation for those who were on the inside and a yawning gap between the "haves" who were running the show and the unwashed "have nots" - who were often the doubters.
We were told that our leaders really knew what was going on, we were told that our leaders had the character to stick with the program and make the tough decisions, we were told that our leaders had the seasoning to have "been through it all before" and the intelligence to make good tactical decisions. They create the wealth we were told. And in return for all this a 10 or 20 million a year was but a trifle.
But now we know that the new economy was a fraud, there were no WMD in Iraq and housing prices are now dropping like the price of unsold Halloween candy on November 1.
There is extremely little trust right now. People do not trust their leaders, they do not trust the CEO's, they do not trust Bush, they do not trust the Democrats.
Most "main street" type people feel this wall street bailout is just a grasp at another grandiose payday by powerful people who seem very adept at manipulating and used to getting their way.
Could this bailout be just an attempt to again profit at the expense of the rest of us? Much of the public believes this.
Consider that CEO and upper management pay packages are based on stock prices and nothing has to get paid back if stock prices decrease later. These guys are usually in their 50's or 60's. Helping along a "new economy" bubble could therefore be rational from their perspective. Consider that a big new market should have been opened up with the invasion of Iraq (it's as big in population and size as California and has 4 times as much oil as the U.S.) Consider the paydays "throughout the chain" from the origination of mortgages. None of those origination fees have to be paid back.
Could it be that the much of the general "advice" from our leaders and experts on the subjects I touch upon above was self-serving (as opposed to 24-Karat gold insight?)
Could it be that they simply told us to do what was good for them and were not all that concerned about the risks we were exposed to in following it?
The troubling fact is that the self-serving thesis makes sense given the ultimate outcomes: the insiders made out like bandits even while their rationales were exposed as bunk each time.
We probably cannot know yet whether our leaders are being sincere of whether this is another "new economy" sham but regardless we have no reason to trust them.
If they are finally telling the truth then we are all in deep *****.
Saturday, September 27, 2008
The case for progress and reason
The essay "The Case Against Perfection" by Michael J. Sandel (http://www.theatlantic.com/doc/200404/sandel) encapsulates well the establishment argument against Genetic Engineering.
His case is groundless.
The title implies that genetic engineering is a "quest for perfection" but this idea is of course a canard. We engineer cars, airplanes, roads, buildings and all sorts of other things and such engineering is neither a "quest for perfection" nor is it denounced as such. It's problem solving and it's what we do.
Sandel further states that "the moral quandary arises when people use such therapy not to cure disease but to reach beyond health, to enhance their physical or cognitive capacities, to lift themselves above the norm."
But wait, I drove a car to my office and that car traveled at times faster than any human has ever physically run. The computer that I am using now is providing me with a very real cognitive boost, checking the spelling as I type and allowing me to look up just about anything I want in another browser window. Many people in this world do not have cars nor computers hence I have have a clear advantage and have been thusly lifted "above the norm". Is it incumbent on me to ditch my car and computer for these reasons? If so where do we draw the line?
An important difference between genetic engineering vs. engineering cars, computers and the like is that engineering cars and computers do not change us from the "inside", they do not change who we are, they do not change our "character".
Or maybe they do.
Human beings have been changing physically since our ancestors left Africa and much of those changes have been driven by technology. We have little body hair yet live successfully in cold climates because we figured out how to make clothing. We can throw an object with deliberate aim (we are the only animal that can do that!) and have been perfecting things to throw for a long time (spears, stones, bows and arrows etc.) Clearly we have already been changing ourselves and this did not begin yesterday.
We have already been changing our character via technology, genetic engineering would only make the changes more exact and deliberate. If you look at the arc of human history you see that more exact and deliberate methods of change are the rule as time goes on. Sandel does claim to be favorably inclined towards this "conventional" technological progress but he (and like minded people) want to make an exception in the case of genetic engineering. Everything else is be under one framework (go for progress, progress, progress) but an exception is to be made in the case of genetic engineering where we should eschew progress. This is inconsistent and will not hold up. In the long run exceptions cannot and will not be made.
Sandel claims that genetic engineering would usher in a world "inhospitable to the unbidden." (things not asked for). This is not the case. The unbidden will still lurk around every other corner. Genetic engineering could *in theory* only eliminate the unbidden in the realm of biological reproduction - a tiny slice of the physical universe. But even here it's elimination is questionable - just watch "Prototype This".
And much of modern civilization has been about changing the unbidden into the bidden! Boil that concept down and what you are talking about is progress. Hunting and gathering were dependent on the the vagaries of wild animals and plants. The "unbidden" Wolly Mammoth could be the difference between starvation and living. With agriculture, cows and sheep are deliberately raised for sustenance. Big change from the unbidden to the deliberate. How about government. Prior to democracy we had monarchies - kings and queens. The people did not ask for their king, he was given: he was unbidden. Democracy has made government what the people deliberately ask for. Is this a bad thing?
I would suggest that moving the unbidden and unknown "away" is part and parcel of progress - and it's generally a good thing (think democracy). I would also suggest that there will be no way to entirely eliminate the unbidden - ever. Worrying about that is kind of like worrying that engineering will eliminate entropy.
Sandel correctly notes that we do not really have a meritocracy because much of success is based on inherited genetic talent and that inherited genetic talent is not earned - it's given. Then Sandel goes on to make the absurd claim that "genetic control" would erode the "actual solidarity that arises when men and women reflect on the contingency of their talents and fortunes." This "solidarity" is a fantasy. Kind of like the "solidarity" that kings and queens had with the people they ruled. The prevailing mindset throughout history is "things are the way they are for a reason", or "it's part god's plan". Inherited gifts (like royal blood) inevitably lead to feelings of superiority and entitlement - not solidarity. Royal blood is really just another form of generic gift.
Sandel would have us give up the possibility of an actual *real* meritocracy in order to maintain fantasy "solidarity" that clearly does not exist.
There is of course a class warfare element here. Sandel and his cohorts in the elite of this world have generally inherited a relatively superior genetic profile and their relative position in the genetic lottery would of course be threatened by the introduction of genetic engineering.
What is going on is that Sandel and his fellow "Genetic royals" are peddling fear in an attempt to frighten the majority into rejecting what would be for them positive change. This is similar to the scare tactics Royal monarchs used against democracy in the 1600's and 1700's. They and their apologists (who included much of the elite of the time) had dire warnings about democracy. Democracy, it was said would lead to chaos, "mob rule" and ultimately starvation. Equally important, democracy violated god's divine order, his master plan: the divine right of Kings and it's associated order. Messing with that order would result in all sorts of trouble and chaos.
Does that argument sound familiar?
Genetic engineering is really genetic democracy - and it too will ultimately emerge and win the day.
His case is groundless.
The title implies that genetic engineering is a "quest for perfection" but this idea is of course a canard. We engineer cars, airplanes, roads, buildings and all sorts of other things and such engineering is neither a "quest for perfection" nor is it denounced as such. It's problem solving and it's what we do.
Sandel further states that "the moral quandary arises when people use such therapy not to cure disease but to reach beyond health, to enhance their physical or cognitive capacities, to lift themselves above the norm."
But wait, I drove a car to my office and that car traveled at times faster than any human has ever physically run. The computer that I am using now is providing me with a very real cognitive boost, checking the spelling as I type and allowing me to look up just about anything I want in another browser window. Many people in this world do not have cars nor computers hence I have have a clear advantage and have been thusly lifted "above the norm". Is it incumbent on me to ditch my car and computer for these reasons? If so where do we draw the line?
An important difference between genetic engineering vs. engineering cars, computers and the like is that engineering cars and computers do not change us from the "inside", they do not change who we are, they do not change our "character".
Or maybe they do.
Human beings have been changing physically since our ancestors left Africa and much of those changes have been driven by technology. We have little body hair yet live successfully in cold climates because we figured out how to make clothing. We can throw an object with deliberate aim (we are the only animal that can do that!) and have been perfecting things to throw for a long time (spears, stones, bows and arrows etc.) Clearly we have already been changing ourselves and this did not begin yesterday.
We have already been changing our character via technology, genetic engineering would only make the changes more exact and deliberate. If you look at the arc of human history you see that more exact and deliberate methods of change are the rule as time goes on. Sandel does claim to be favorably inclined towards this "conventional" technological progress but he (and like minded people) want to make an exception in the case of genetic engineering. Everything else is be under one framework (go for progress, progress, progress) but an exception is to be made in the case of genetic engineering where we should eschew progress. This is inconsistent and will not hold up. In the long run exceptions cannot and will not be made.
Sandel claims that genetic engineering would usher in a world "inhospitable to the unbidden." (things not asked for). This is not the case. The unbidden will still lurk around every other corner. Genetic engineering could *in theory* only eliminate the unbidden in the realm of biological reproduction - a tiny slice of the physical universe. But even here it's elimination is questionable - just watch "Prototype This".
And much of modern civilization has been about changing the unbidden into the bidden! Boil that concept down and what you are talking about is progress. Hunting and gathering were dependent on the the vagaries of wild animals and plants. The "unbidden" Wolly Mammoth could be the difference between starvation and living. With agriculture, cows and sheep are deliberately raised for sustenance. Big change from the unbidden to the deliberate. How about government. Prior to democracy we had monarchies - kings and queens. The people did not ask for their king, he was given: he was unbidden. Democracy has made government what the people deliberately ask for. Is this a bad thing?
I would suggest that moving the unbidden and unknown "away" is part and parcel of progress - and it's generally a good thing (think democracy). I would also suggest that there will be no way to entirely eliminate the unbidden - ever. Worrying about that is kind of like worrying that engineering will eliminate entropy.
Sandel correctly notes that we do not really have a meritocracy because much of success is based on inherited genetic talent and that inherited genetic talent is not earned - it's given. Then Sandel goes on to make the absurd claim that "genetic control" would erode the "actual solidarity that arises when men and women reflect on the contingency of their talents and fortunes." This "solidarity" is a fantasy. Kind of like the "solidarity" that kings and queens had with the people they ruled. The prevailing mindset throughout history is "things are the way they are for a reason", or "it's part god's plan". Inherited gifts (like royal blood) inevitably lead to feelings of superiority and entitlement - not solidarity. Royal blood is really just another form of generic gift.
Sandel would have us give up the possibility of an actual *real* meritocracy in order to maintain fantasy "solidarity" that clearly does not exist.
There is of course a class warfare element here. Sandel and his cohorts in the elite of this world have generally inherited a relatively superior genetic profile and their relative position in the genetic lottery would of course be threatened by the introduction of genetic engineering.
What is going on is that Sandel and his fellow "Genetic royals" are peddling fear in an attempt to frighten the majority into rejecting what would be for them positive change. This is similar to the scare tactics Royal monarchs used against democracy in the 1600's and 1700's. They and their apologists (who included much of the elite of the time) had dire warnings about democracy. Democracy, it was said would lead to chaos, "mob rule" and ultimately starvation. Equally important, democracy violated god's divine order, his master plan: the divine right of Kings and it's associated order. Messing with that order would result in all sorts of trouble and chaos.
Does that argument sound familiar?
Genetic engineering is really genetic democracy - and it too will ultimately emerge and win the day.
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