Sunday, May 27, 2012

How Did That Happen?

Since I'm singing this afternoon (with the Oakland Symphony Chorus) at the 75th anniversary celebration for the Golden Gate Bridge, the subject came up yesterday morning in the hot tub at the gym, as we all thawed out after the water aerobics class.  Somebody asked, didn't a lot of people walk on the Bridge at the 50th anniversary celebration? 

And the hot tub group agreed, yes, they did, a ridiculous and uncountable number of people walked on the bridge at the 50th anniversary celebration - so many people that the arch of the bridge visibly flattened, scaring the daylights out of every engineer who could see it.  (The Bridge web site estimates 300,000 people walked on the bridge that day.)  We all agreed, yes, we remembered that; and that's why they are not letting people walk on the bridge this time.

Then someone said, "That was twenty-five years ago??  How did that happen?"

And nobody had an answer.

Thursday, May 24, 2012

Anonymous Money

The 2012 election may be decided by anonymous money.  Since the disastrous Citizens United case, a SCOTUS decision that ranks with the Dred Scott decision in its sheer wrongness, anyone can give any amount of money to any candidate or political organization, and not have to say who they are or why they want to donate.

Here is the Court's chain of reasoning as I understand it:

Money in politics is a form of speech, since it can be used to buy advertising.

Since the First Amendment guarantees freedom of speech, any restriction on money spent in politics is unconstitutional.

The obvious implication to everyone except the Justices is that the election, and the Presidency, is now up for grabs by the people with the deepest pockets.

I suppose if we must have money-driven politics, we must; but why does it have to be anonymous?  As a matter of fact, the Justices argued that it shouldn't be anonymous; but existing law lets nonprofit 501(c)(4) and 501(c)(6) organizations hide their donor lists, and they do hide them.  Two questions disturb me about this situation:

Why do these donors wish to be anonymous?

Why is the Republican Party so anxious to help them remain anonymous?  (The DISCLOSE Act of 2012 has no Republican sponsors.)

Consider the first issue:  why do the donors wish to be anonymous?  I feel very deeply that if you're going to put money behind a candidate or a cause, you should put your name on it.  (Yes, I blog under a pen name; but I don't have any money on the line here, and it isn't that hard to figure out who I am.)

This bothered me in the whole Proposition 8 campaign in California about gay marriage: the opponents were willing to spend huge sums to defeat the measure, and yet they fight bitterly to hide their donor lists.  The opponents of Prop. 8 claimed to fear physical retaliation from gay rights supporters; do the Republican super-PAC donors fear crowds of angry Democrats, with pitchforks and torches? 

What do these donors, the ones donating to the super-PACs, fear?  I have to conclude that they fear the publicity that would be associated with donating money to this or that super-PAC. They want to accomplish a political end but they don't want their fellow citizens to know.  This way lies the end of the American Republic; this way lies dictatorship.  And we won't even know who the dictator is.

On the other question:  Is the Republican Party so anxious to block the DISCLOSE Act of 2012 because it doesn't want its general constituents to know who are the major donors to whom it will owe allegiance if elected?  Fits right in with the donors' reluctance, doesn't it?

If you aren't willing to put your name on your political actions, doesn't that say that there's something wrong with them?

I have just become a citizen co-sponsor of the DISCLOSE Act of 2012, which is supported by (among many others) the League of Women Voters.  I urge all of you to consider supporting this act, and to tell your representatives in Congress to pass it.

Friday, May 11, 2012

They Never Learn

In the fall of 2008, I wrote a couple of posts (The Sorceror's Apprentice, What a Week) about the joys of credit-default swaps (CDSs), a wonderful financial instrument which lets you take out insurance against the issuer of a bond going broke and failing to redeem the bond.  The amusing thing about CDSs was and is that you don't have to own the bond to buy the CDS - in effect you can bet on a bankruptcy that you have no other stake in.  This instrument was part of what brought down the world financial system over the next two years.

I'm therefor Not Amused to discover that JP Morgan Chase has just lost $2 billion through the actions of a rogue trader (nicknamed "The London Whale") who was betting on - guess what! - right, CDSs. 

This isn't the first time a large bank has lost a huge amount of money due to the actions of a single inadequately supervised idiot, or does anyone else remember the name Nick Leeson?  Nick Leeson's bets brought down Baring's Bank, which had successfully done business as a merchant bank since 1765.  The bank was broken up and no longer exists.  I'll be interested to see what happens to JP Morgan Chase, especially since it is one of the 4 or 5 "too big to fail" companies that the U.S. Government has evidently decided they'll have to subsidize.

It is true that Nick Leeson was trading currency futures, while the London Whale, whose name is Bruno Iksil, was trading CDSs.  But they both made the same mistake.  They told themselves they were "hedging," which is supposed to be a respectable activity for a bank.  As Wikipedia puts it, "A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment. In simple language, Hedge (Hedging Technique) is used to reduce any substantial losses suffered by an individual or an organization."  Sorry, as practiced by these loosest of cannons, hedging is just another word for gambling:  you have investment A, which may go down, so you also buy investment B, which you expect to go up.  Do you know it will go up?  No, you don't.  This is gambling.  The house always wins in gambling; I suspect Mr. Iksil forgot that JP Morgan Chase is not the house.  The market as a whole is the house.  And ultimately, nobody wins.

The other issue here is, why did nobody at JP Morgan Chase know what this wildcard was up to?  Questions are popping up all over the press; I linked Yahoo Finance, but just Google "jp morgan loss" to see the scope of this.  I hope we'll see an answer to that in days to come.

In March 2009, I wrote an article called Evaluating Risk, which summarized a much longer article in Wired Magazine on "the formula that killed Wall Street" (except, of course, Wall Street isn't dead).  Bankers and investors have been plagued by risk for centuries.  In recent decades, brilliant mathematicians have thought that they could measure risk mathematically, and they developed this formula which was supposed to measure risk and reduce it to a single, simple number.  Thereafter, the financial industry assumed they had control of risk.  And the whole subprime mortgage crash happened because bankers thought they could divide risk up and pass it off to others so it wouldn't hurt them. 

This was a lie.  The formula didn't cover all the possible assumptions.  We will continue to be plagued by this sort of crash until "Wall Street" finally admits that what they do is gambling, and that the risks ultmately cannot be controlled.  That means crashes will be around for a long, long time.  Because they do not learn, as this mess shows yet again.

Friday, May 04, 2012

Killing Bin Laden

On the one-year anniversary of the raid that killed Osama bin Laden, the government has chosen to release some of the documents they captured in Abbotabad, which, with the President's night trip to Afghanistan, has revived the subject.  The general summary from NPR today, of the official documents just released, suggests that Bin Laden was frustrated because the regional jihadi groups kept killing Muslims, thus destroying Muslim support for Al Qaeda, and he felt that he didn't have control over them.

Another story published recently was Truthout's Exclusive Investigation:  The Truth Behind the Official Story of Finding Bin Laden.  This article (which is quite interesting) claims that in 2003, the active directors of al-Qaeda isolated Bin Laden in his Abbotabad hideout, and essentially removed him from "command" of al-Qaeda operations, on the dual grounds that he was (a) physically not well and required care, and (b) a total loose cannon whose ideas where impractical and dangerous.  After reading the Truthout article, a friend of mine posted the following on Facebook:
Hmm. So it seems that the killing of Bin Laden was a completely empty gesture? "bin Laden was not the functioning head of al-Qaeda at all, but an isolated figurehead who had become irrelevant to the actual operations of the organization."
The Truthout account sounds plausible, but it concerns me, because as I read it, it is based on information from a single source, retired Pakistani Brig. Gen. Shaukat Qadir.  Gen. Qadir apparently knew large numbers of both ISI operatives and local militants, because of his long military career, and they all seem to have repeated everything they knew to him.  (Great security.)  If you assume that these sources always told Gen. Qadir the truth, and that he repeated what they said accurately, the story is significant; but those are two large ifs.  Also, frankly, I'm not sure the extent of Bin Laden's control over Al Qaeda over the last few years really matters.

Was it really necessary for the U.S. to assassinate Osama bin Laden?  I believe it was.

Bin Laden was the driving force behind the World Trade Center attacks, even though Khalid Sheikh Mohammed did (or says he did) the actual operational planning.  If the World Trade Center attacks had been organized and carried out by a country, they would have been an act of war.  They were the second attack on U.S. territory by a foreign power since the bombing of Pearl Harbor (after the World Trade Center attack in 1993), and one of only a few in the history of the nation.  The casualties were higher than at Pearl Harbor, and worse - 3,000 civilians died in New York, whereas 2,402 military personnel died at Pearl Harbor.

Having been attacked, I believe the United States had to respond.  When President Bush attacked Afghanistan (because the Taliban, ruling Afghanistan, were publicly harboring Al Qaeda) the world supported the action as self-defense.  Unfortunately, Bush and his cabinet soon began planning the insane attack on Iraq.  At that point he lost world support, and the action in Afghanistan took second place to the Iraq war.

Fast forward to the beginning of last year.  President Obama has been in office for 3 years, he is pulling the last troops out of Iraq (finished Dec. 2011).  Osama bin Laden communicates less frequently than he once did, but he's still there, and he was and is the man symbolically responsible for the September 2001 attacks.  President Bush, after talking repeatedly about "getting" bin Laden, ultimately failed to do so.  President Obama now has intelligence that suggests Bin Laden may be in the house in Abbotabad.  What does he do?  We know what he did do:  he authorized a highly risky operation by the Navy Seals to go in and "take" bin Laden.  The Seals say that bin Laden resisted them with arms when they broke in, and they shot him.  Given the Seals' training, this was predictable, although I heard an interview on NPR that suggested they would have taken him alive if he had obviously surrendered.  The point is moot.

What if the President had not sent the Seals?  Bin Laden would have stayed in Abbotabad, probably communicating less and less, and eventually died.  But the man responsible for killing 3,000 civilians in September 2001 would be free and would die a free man.  The symbolic message to the rest of the jihadi world?  You can attack the United States with impunity.  We won't come after you.  The U.S. is a paper tiger - as bin Laden is said to have believed.

It would have been irresponsible of a U.S. President to allow that message to stand, if he could alter it.  The message now is:  attack the United States, and we will hunt you down if it takes a decade.  The operational effect on Al Qaeda may well have been minor; the symbolic importance is overwhelming.

Should we have taken bin Laden alive and tried him in the U.S.?  If we could, yes.  Could we have done it?  I doubt it.  For one thing, I don't believe he would have surrendered.  If we had captured him alive, we couldn't have tried him in civilian courts - we attempted to try Khalid Sheikh Mohammed in the New York courts, and New York refused to host the trial on security grounds.  We would have had to try bin Laden at Guantanamo, which would have tainted the entire proceeding.

If somebody slugs you in the nose, you can choose not to respond, at which point the attacker may or may not hit you again.  No one is at risk but you.  If a group attacks a nation, and kills a number of its citizens, can the government of that nation reasonably say, oh, how sad, we wish it hadn't happened, and take no action against the attackers?  I don't think so.  The rules of engagement with the worldwide jihad are being made up as we go along, but one of the things a government is supposed to do is defend its citizens from attacks by outsiders.