It's amazing how tiring continual pain is. I'm having a rheumatoid arthritis flare, which I'm convinced (despite my doctor's insistence that there's no relationship) is related to the damp, rainy weather.
It started last night - I reached out for something in the car and my hand (my right hand, of course, that being the one I use) went crazy with pain. Oddly enough, it didn't hurt when I used the hand, like to write, or drive, or even pick up heavy objects like full teapots; it hurt when I extended the fingers. This isn't something we do all that much, but once it started to hurt, of course I kept doing it to see if it was still as bad. (Don't ask. Also, people with arthritis learn pretty soon that an unworked joint is an unworkable joint.) Over time it settled into a throbbing ache in my right knuckle, which it's been doing pretty much continuously since, somewhat eased by chemicals. The knuckle is reddish and looks enlarged to me, although my rheumatologist regularly tells me I have no deformation in my hands. It isn't warm or sore to touch as the last flare was.
I didn't sleep very well last night, at least partly because I was waiting to see if my hand still hurt (even though I took Tylenol). The trouble with RA flare pain is that it does slack off from time to time; but when it does, you can't quite believe it, so you sit there wondering when it's going to start again. Today was rainy, damp, and chilly (50's), and I spent most of the day trying to get my hands warm. A cold aching hand is much harder to live with than a merely cold hand. Also, I've been having little spikes of pain in other hand joints, and even in my left hand; just my immune system going crazy, I guess. They last 30 seconds or so, so they're mostly just annoying.
Based on previous experience, I think this is beginning to ease off. I first wrote "chronic pain," but it isn't really chronic; "chronic" is constant. I had "chronic" before my first knee replacement and it was Much Worse than this. RA flares come and go, and in a few days it'll probably be fine again. But after roughly 24 hours of it, I'm a basket case; I'm exhausted. As I think about it, the fact that I went out to lunch with some friends and walked 3 miles in the course of it may have some impact on that; but I should be able to walk 3 miles, in 2 segments, without becoming an amoeba.
I started trying to rate it in terms of the 1-10 "pain scale" Kaiser uses. Except that I can't remember Kaiser's stupid pain scale; they gave me a xerox when I had knee surgery but I threw it out. Their web site says "zero is no pain and 10 is the worst pain imaginable." A little Googling of "pain scale" brings up a number of blog posts from medical personnel who think the pain scale is garbage anyway, not to mention the fact that there are multiple pain scales. I give it a 3-4 (the initial spike was at least a 5, really nasty), whatever that is; I can work past it, but unless I'm doing something really interesting, the pain has some of my attention, and I'm always rubbing it to see if it will get better.
You do what you can, you take the pills, you keep things exercised, and it still does this. There Ain't No Justice.
Wednesday, November 26, 2008
Tuesday, November 25, 2008
Paulson's Bailout, Take Two
Some time ago, I explained why I think the credit markets are hosed up; one of my readers was even kind enough to say he thought it was well written and well thought out. In short, I think the banks aren't lending to each other because none of them knows what overblown totals in credit default swaps the others may be sitting on, so they're afraid to lend to anyone. If this sounds as though I think the banking system is insolvent, I'm afraid that's what I think these days.
So now Mr. Paulson has conjured another huge sum of money out of his top hat, only a quarter of which will come from the money Congress actually authorized. He's going to throw this money at the consumer lending industry, so people will be able to borrow again; he's doing this by promising to buy up securitized packages of car loans, consumer debt, credit card debt, etc.
I'm still not sure where he thinks he got the authority to print all this money. Congress didn't authorize it. Does the Federal Reserve really have the authority to print up $800 billion just because the Treasury Secretary says so? I know they can increase the money supply to fight inflation but this seems out of line.
In my previous post, I didn't go into why people aren't spending money because, frankly, I thought it was obvious: the economy is in the tank, job losses are hitting levels not seen in nearly 30 years, mortgages are still resetting higher, everybody's 401K investments have lost 40% of their value, and there's no obvious end in sight. Nobody's spending, even if they still have jobs and can still afford their mortgages, because they're scared shirtless. So to speak. Not to mention the fact that all the credit card issuers (which, to be honest, is the main source of consumer credit in this country) have raised their rates and lowered their credit ceilings.
Is it really necessary for me to explain why offering to buy up bundled securities of credit card and auto loans isn't going to make the American consumer go back out and buy that flat-screen TV?? Apparently it wasn't obvious to Mr. Paulson.
Does Mr. Paulson honestly not understand that nobody is buying houses because house prices are still losing 17.4% a year (per today's Bloomberg article)? Who would go into debt for hundreds of thousands of dollars for an asset that may be worth less next year than what you owe on it? After all, he's supposed to be a brilliant investor.
I'm afraid my paranoia is getting out of control again. I actually just had the thought that Paulson is doing this (assuming he actually has a reason and isn't just flailing) in order to pump the government deficit to even more ridiculous heights, in a deliberate attempt to hamstring the incoming Obama administration's efforts to fix the economy. If I can't fix it, says Hank, it's not going to be fixed.
On the other hand, maybe he's just flailing. That would explain why he never explains what he thinks he's doing.
I flagged this post "we can do this better" - but I have to admit I don't know what we could be doing better. I'm just sure that everything I've seen the administration do to date has not worked, and has not worked for fairly obvious reasons, like being poorly thought out and badly designed. I still think we should force an audit of all the outstanding credit default swaps, publish the results, and let the chips fall where they may. It would destroy a number of insolvent banks; but they're probably going to die eventually anyway, and at least it would make clear where everyone stands.
So now Mr. Paulson has conjured another huge sum of money out of his top hat, only a quarter of which will come from the money Congress actually authorized. He's going to throw this money at the consumer lending industry, so people will be able to borrow again; he's doing this by promising to buy up securitized packages of car loans, consumer debt, credit card debt, etc.
I'm still not sure where he thinks he got the authority to print all this money. Congress didn't authorize it. Does the Federal Reserve really have the authority to print up $800 billion just because the Treasury Secretary says so? I know they can increase the money supply to fight inflation but this seems out of line.
In my previous post, I didn't go into why people aren't spending money because, frankly, I thought it was obvious: the economy is in the tank, job losses are hitting levels not seen in nearly 30 years, mortgages are still resetting higher, everybody's 401K investments have lost 40% of their value, and there's no obvious end in sight. Nobody's spending, even if they still have jobs and can still afford their mortgages, because they're scared shirtless. So to speak. Not to mention the fact that all the credit card issuers (which, to be honest, is the main source of consumer credit in this country) have raised their rates and lowered their credit ceilings.
Is it really necessary for me to explain why offering to buy up bundled securities of credit card and auto loans isn't going to make the American consumer go back out and buy that flat-screen TV?? Apparently it wasn't obvious to Mr. Paulson.
Does Mr. Paulson honestly not understand that nobody is buying houses because house prices are still losing 17.4% a year (per today's Bloomberg article)? Who would go into debt for hundreds of thousands of dollars for an asset that may be worth less next year than what you owe on it? After all, he's supposed to be a brilliant investor.
I'm afraid my paranoia is getting out of control again. I actually just had the thought that Paulson is doing this (assuming he actually has a reason and isn't just flailing) in order to pump the government deficit to even more ridiculous heights, in a deliberate attempt to hamstring the incoming Obama administration's efforts to fix the economy. If I can't fix it, says Hank, it's not going to be fixed.
On the other hand, maybe he's just flailing. That would explain why he never explains what he thinks he's doing.
I flagged this post "we can do this better" - but I have to admit I don't know what we could be doing better. I'm just sure that everything I've seen the administration do to date has not worked, and has not worked for fairly obvious reasons, like being poorly thought out and badly designed. I still think we should force an audit of all the outstanding credit default swaps, publish the results, and let the chips fall where they may. It would destroy a number of insolvent banks; but they're probably going to die eventually anyway, and at least it would make clear where everyone stands.
Monday, November 24, 2008
More About Money
I haven't read them in awhile, but I have several collections of essays by Robert Benchley, the newspaper columnist and humorist from the 1920's and 30's. In a book called The Early Worm (Harper, 1927), his essay, A Plan to Stabilize the Franc, contained this tidbit:
It is much simpler for a nation to go on a budget than for a private family, because a nation never uses real money anyway. A nation says "Here are twenty million francs," or "Give me a hundred million dollars' worth of chips," and, if you push right up close to the counter and ask to see it, what do you find? A couple of theater-ticket stubs, a right-hand glove, and a piece of paper saying, "I.O.U. $100,000,000. . . . A. Mellon." There probably isn't $125 in actual cash in the whole United States Treasury at this very minute. And $45 of that belongs by rights to me, on account of the Government having disallowed my deduction for hotel expenses in my 1925 income tax."Does that sound familiar? Here's more, from the same essay:
This system of dealing in dream-dollars, which seems to be the special prerogative of governments and large corporations, is called "Credit," and a pretty how-do-you-do it is, too. "Credit," as applied to you and me, means that we have until the fifteenth of the month to dig up the actual gold ore with which to pay our bills. But for a large corporation or a nation it means that, so long as the Treasurer can sign his name, they are on Easy Street. I sign a check, in a kidding way, and give it to Altmeyer's Meat Market. And what does Altmeyer do? Right away he presents it at my bank! And then hell breaks loose. Telephone-calls, registered letters, night-sweats - you'd think the whole world had gone money-mad. And I have to go and get a printing-press and print him his money in half a day.What amazes me about this is how little has changed in the 81 years since Benchley wrote that...
But let Mr. Mellon sign a check for a billion dollars and no one even looks at the signature to see if it is genuine.
Money
I'm still listening to the Planet Money podcast on NPR, and this week they'll be well worth listening to. They're doing an entire week's podcasts around the theme, "What is money?" And listening to today's interview with Niall Ferguson, the author of The Ascent of Money (a book I think I have to read), I began to get the weirdest question about the banking system. How is the banking system like a Ponzi scheme?
First, what is a Ponzi scheme? A Ponzi scheme is a fairly common scam (Colombia just had a bad one) which works because of the human urge to get something for nothing. The schemer (the original one actually was named Charles Ponzi) offers to double your money in six weeks, or some other outrageously high interest rate. So you and all your friends give him a lot of money; and six weeks later you get double the amount back. So you give him more money. What you don't realize is that the money you got back after six weeks came from the people who invested with him at 5 1/2 weeks. The Ponzi schemer keeps paying people back for some time, because satisfied customers are the best advertisement to bring in more investors. (If you have to invest in a Ponzi scheme, be one of the first. And don't reinvest.) At some point he judges that he has as much as he can pull in on this round, and he puts it all in a bag and skips town.
The point that Ponzi schemes have in common with banks is: they're both based on trust. You give your money to a bank, and you trust that when you want it back you can get it. And when depositors stop trusting that the bank will give them back their money when they want it, there's a run on the bank. Because at any given time, the bank doesn't have all the money that was deposited with it. It's loaned it out, and is collecting interest on it. (More interest than it's paying you.)
So is the main difference between a bank and a Ponzi scheme the fact that the bank actually intends to give you your money back, on demand, and the Ponzi schemer doesn't? Because in both cases, when you get money back, it isn't "your" money (in the sense that it's the same dollar bills you gave them earlier). It's money that someone else just deposited, which hasn't been loaned out yet. And when that person writes a check, the money that changes hands came from yet someone else.
Money is based on trust. Money is not the dollar bills in your pocket; it's your confidence that when you give enough of those dollar bills to the barista at Starbuck's, the barista will give you a latte in return. And it's Starbuck's confidence that when it gives those dollar bills to the barista as a salary, he'll be able to spend them on rent.
First, what is a Ponzi scheme? A Ponzi scheme is a fairly common scam (Colombia just had a bad one) which works because of the human urge to get something for nothing. The schemer (the original one actually was named Charles Ponzi) offers to double your money in six weeks, or some other outrageously high interest rate. So you and all your friends give him a lot of money; and six weeks later you get double the amount back. So you give him more money. What you don't realize is that the money you got back after six weeks came from the people who invested with him at 5 1/2 weeks. The Ponzi schemer keeps paying people back for some time, because satisfied customers are the best advertisement to bring in more investors. (If you have to invest in a Ponzi scheme, be one of the first. And don't reinvest.) At some point he judges that he has as much as he can pull in on this round, and he puts it all in a bag and skips town.
The point that Ponzi schemes have in common with banks is: they're both based on trust. You give your money to a bank, and you trust that when you want it back you can get it. And when depositors stop trusting that the bank will give them back their money when they want it, there's a run on the bank. Because at any given time, the bank doesn't have all the money that was deposited with it. It's loaned it out, and is collecting interest on it. (More interest than it's paying you.)
So is the main difference between a bank and a Ponzi scheme the fact that the bank actually intends to give you your money back, on demand, and the Ponzi schemer doesn't? Because in both cases, when you get money back, it isn't "your" money (in the sense that it's the same dollar bills you gave them earlier). It's money that someone else just deposited, which hasn't been loaned out yet. And when that person writes a check, the money that changes hands came from yet someone else.
Money is based on trust. Money is not the dollar bills in your pocket; it's your confidence that when you give enough of those dollar bills to the barista at Starbuck's, the barista will give you a latte in return. And it's Starbuck's confidence that when it gives those dollar bills to the barista as a salary, he'll be able to spend them on rent.
Mendocino
It hasn't all been politics lately. My husband and I went to Mendocino the other week, to celebrate his birthday; and I didn't even take the computer. No connectivity for three days. We drove up the coast on Highway 1, because it was clear and sunny; we stayed in Ft. Bragg, in Weller House, which used to belong to a lumber baron in the Good Old Days, and which is distinguished by the ballroom (paneled and ceiled entirely in redwood) on the top floor.
We spent 2 full days just poking around the Mendocino coast: we walked around Cleone Lake in MacKerricher State Park, and later poked through the park's fabulous tide pools. Even with a digital camera, it's remarkably hard to get a reasonable still shot of a hermit crab in a tide pool, because the only thing you can see about them is that they move. Next time I'll have to try video; I think my new camera can do video.
The next day we spent the morning in the Mendocino Coast Botanical Garden, wandering around checking out the fall plantings and trying to see some of the 4 species of hummingbirds that frequent the place. We drove into Mendocino and had lunch at the Cafe Beaujolais, then hiked out to the newly restored Pt. Cabrillo light station. They have an inn there, too. On a sunny warm calm day, what a wonderful way to spend an afternoon, to walk out to the point, gradually getting better and better photographs of the Fresnel lens. If you've never seen a Fresnel up close, on a sunny day, you've missed a treat - they shine like jewels in the light station tower. What a place this would be to stay if you want to be "away from it all", and yet you're just outside Mendocino.
The economy isn't being kind to the tourist industry here. We walked into Cafe Beaujolais and got a table, no reservation; I remember when you had to reserve 6 weeks out. We drove into Mendocino at 3 in the afternoon and got a parking place on the main drag. None of the restaurants we ate in was full; the Rendezvous Inn and Restaurant in Fort Bragg, where we ate Thursday night, had only 3 tables full, and the food was fabulous - this place is Zagat rated #1 in Mendocino County for food. The Rendezvous dining room is also fully paneled in redwood - another lumber baron leftover. An added treat: we could walk to it from Weller House.
Saturday night we got a surprise. Remember the ballroom on the top floor of Weller House? The manager of Weller House is a tanguera - she dances the tango for fun. And Weller House was the site of an evening of tango, with a couple of local people providing live music. This isn't the exhibition dance in Tango Forever, which I haven't seen - this is people who dance the tango for fun. They must have had 15 or 20 couples, too, some of whom came a considerable distance - it was quite an evening. The women who danced that night had the most sculptured calves you could imagine, tango is really good for the leg muscles! Most of them wore 3 inch heels, too. In fact, most of the women dressed up for the tango, in elegant cocktail dresses; the men, I'm afraid, were more casual. I saw one guy take off his running shoes and put his leather soled dancing shoes on over his white athletic socks. Sigh. The men generally danced very well, but style? No so much.
I watched them dance for most of an hour, just watching feet. The patterns are hypnotic.
We spent 2 full days just poking around the Mendocino coast: we walked around Cleone Lake in MacKerricher State Park, and later poked through the park's fabulous tide pools. Even with a digital camera, it's remarkably hard to get a reasonable still shot of a hermit crab in a tide pool, because the only thing you can see about them is that they move. Next time I'll have to try video; I think my new camera can do video.
The next day we spent the morning in the Mendocino Coast Botanical Garden, wandering around checking out the fall plantings and trying to see some of the 4 species of hummingbirds that frequent the place. We drove into Mendocino and had lunch at the Cafe Beaujolais, then hiked out to the newly restored Pt. Cabrillo light station. They have an inn there, too. On a sunny warm calm day, what a wonderful way to spend an afternoon, to walk out to the point, gradually getting better and better photographs of the Fresnel lens. If you've never seen a Fresnel up close, on a sunny day, you've missed a treat - they shine like jewels in the light station tower. What a place this would be to stay if you want to be "away from it all", and yet you're just outside Mendocino.
The economy isn't being kind to the tourist industry here. We walked into Cafe Beaujolais and got a table, no reservation; I remember when you had to reserve 6 weeks out. We drove into Mendocino at 3 in the afternoon and got a parking place on the main drag. None of the restaurants we ate in was full; the Rendezvous Inn and Restaurant in Fort Bragg, where we ate Thursday night, had only 3 tables full, and the food was fabulous - this place is Zagat rated #1 in Mendocino County for food. The Rendezvous dining room is also fully paneled in redwood - another lumber baron leftover. An added treat: we could walk to it from Weller House.
Saturday night we got a surprise. Remember the ballroom on the top floor of Weller House? The manager of Weller House is a tanguera - she dances the tango for fun. And Weller House was the site of an evening of tango, with a couple of local people providing live music. This isn't the exhibition dance in Tango Forever, which I haven't seen - this is people who dance the tango for fun. They must have had 15 or 20 couples, too, some of whom came a considerable distance - it was quite an evening. The women who danced that night had the most sculptured calves you could imagine, tango is really good for the leg muscles! Most of them wore 3 inch heels, too. In fact, most of the women dressed up for the tango, in elegant cocktail dresses; the men, I'm afraid, were more casual. I saw one guy take off his running shoes and put his leather soled dancing shoes on over his white athletic socks. Sigh. The men generally danced very well, but style? No so much.
I watched them dance for most of an hour, just watching feet. The patterns are hypnotic.
Capitalists, My Eye
Now the election is over, we can look back at the mess in the economy. I see the latest members of the queue at the federal trough are the auto manufacturers. Bail us out, they cry; we're too big to fail. What's bad for GM will be really bad for the country. Give us money or we'll make a big mess when we fail.
But I have to ask: why is GM in this shape? Why are Ford and Chrysler in such straits? And the answer that comes to my mind is, because for thirty years they've all been making stupid, short-sighted marketing decisions. They've been going for the quick, easy buck, selling oversized SUVs getting nothing to the gallon. Their vehicles are junk, too; they routinely score below average on the Consumer Reports reliability scale. It's true that Ford has recently produced a couple of vehicles that score better; but I haven't seen a sign of it from GM.
Worse, they've actively fought attempts to require them to make more efficient (i.e. higher gas mileage) products. The reason it's taken 25 years to get the CAFE standards raised is because of the money the auto industry has poured into lobbying against it.
So Congress says, show us a plan and we'll consider a bailout. Now, this is uncharacteristically business-like for Congress; but I don't think it's unreasonable. There isn't a lender in the world (especially now!) who would hand out money without some idea of what the borrower planned to do with it, and how they expected to pay it back. And the auto CEOs have slunk back to Detroit.
I'll be very interested to see whether they present a plan as requested. I don't think they will, because I don't think they have a plan. I'm not the only one, either - I heard John Boehner, the House minority leader, was quoted on NPR the other day saying he'd been talking to the auto execs, and he didn't think they had a plan. It's very unusual for me to be in agreement with John Boehner.
Does this remind you of Henry Paulson and the $700 billion? Give us a lot of money and we'll fix things. They're tottering on the edge of oblivion and they can't be bothered to convene a strike team to decide what they would do with bailout money if they got it! We'll see what they present to Congress next week, but by God, if they don't have a business plan - three business plans, one each - they shouldn't get any money.
But I have to ask: why is GM in this shape? Why are Ford and Chrysler in such straits? And the answer that comes to my mind is, because for thirty years they've all been making stupid, short-sighted marketing decisions. They've been going for the quick, easy buck, selling oversized SUVs getting nothing to the gallon. Their vehicles are junk, too; they routinely score below average on the Consumer Reports reliability scale. It's true that Ford has recently produced a couple of vehicles that score better; but I haven't seen a sign of it from GM.
Worse, they've actively fought attempts to require them to make more efficient (i.e. higher gas mileage) products. The reason it's taken 25 years to get the CAFE standards raised is because of the money the auto industry has poured into lobbying against it.
So Congress says, show us a plan and we'll consider a bailout. Now, this is uncharacteristically business-like for Congress; but I don't think it's unreasonable. There isn't a lender in the world (especially now!) who would hand out money without some idea of what the borrower planned to do with it, and how they expected to pay it back. And the auto CEOs have slunk back to Detroit.
I'll be very interested to see whether they present a plan as requested. I don't think they will, because I don't think they have a plan. I'm not the only one, either - I heard John Boehner, the House minority leader, was quoted on NPR the other day saying he'd been talking to the auto execs, and he didn't think they had a plan. It's very unusual for me to be in agreement with John Boehner.
Does this remind you of Henry Paulson and the $700 billion? Give us a lot of money and we'll fix things. They're tottering on the edge of oblivion and they can't be bothered to convene a strike team to decide what they would do with bailout money if they got it! We'll see what they present to Congress next week, but by God, if they don't have a business plan - three business plans, one each - they shouldn't get any money.
Wednesday, November 05, 2008
Conduct Your Triumph As A Funeral
The line is from the Tao Te Ching and the context isn't really relevant here because it refers to war. But it's how I feel.
Last night, as Obama's victory was being proclaimed, I checked my email, and received a blow. A man I've known since high school, probably my first true male friend (as opposed to "boyfriend"), dropped dead of a bilateral pulmonary embolism on Saturday. I've known him over 45 years; and now he's gone. We lost touch somewhat, over the years, as people do; but I knew that I could always pick up the phone and Bill would answer, and we'd pick up the conversation where we left it off. He won't answer any more. Why didn't I call more often? I don't have an answer.
I wish Obama all the best, and he'll need it; but I can't rejoice with him now. I have to mourn.
Last night, as Obama's victory was being proclaimed, I checked my email, and received a blow. A man I've known since high school, probably my first true male friend (as opposed to "boyfriend"), dropped dead of a bilateral pulmonary embolism on Saturday. I've known him over 45 years; and now he's gone. We lost touch somewhat, over the years, as people do; but I knew that I could always pick up the phone and Bill would answer, and we'd pick up the conversation where we left it off. He won't answer any more. Why didn't I call more often? I don't have an answer.
I wish Obama all the best, and he'll need it; but I can't rejoice with him now. I have to mourn.
Tuesday, November 04, 2008
The First Black President
And when can we stop using the Jim Crow definitions of "African-American"??
Barack Obama is "black" only under the 19th century definition that "one drop" of "black blood" makes you black. I regularly drink tea that's darker than his skin color.
It is now legitimate to list yourself on the census as "mixed race", and that's what he is, and that's what a lot of people in California are. They aren't all mixed with white, either - I've known African/Japanese, and Hispanic/Chinese, and California has a whole lot of other couples of various backgrounds who have decided that the special person they wanted to marry was from a different ethnic background and didn't have the same color skin they had. My husband works with a guy in the Albuquerque office of his firm whose last name is Hispanic - and whose mother was Japanese. All these people are American.
Can we all just be Americans, please, and start worrying about the real problems?? (Yeah, I know this is hopeless.)
Barack Obama is "black" only under the 19th century definition that "one drop" of "black blood" makes you black. I regularly drink tea that's darker than his skin color.
It is now legitimate to list yourself on the census as "mixed race", and that's what he is, and that's what a lot of people in California are. They aren't all mixed with white, either - I've known African/Japanese, and Hispanic/Chinese, and California has a whole lot of other couples of various backgrounds who have decided that the special person they wanted to marry was from a different ethnic background and didn't have the same color skin they had. My husband works with a guy in the Albuquerque office of his firm whose last name is Hispanic - and whose mother was Japanese. All these people are American.
Can we all just be Americans, please, and start worrying about the real problems?? (Yeah, I know this is hopeless.)
Election Day Wandering
It's 10:50 AM in Oakland, and I'm sitting in Spasso Cafe on College Avenue. In addition to Election Day, this is also House Cleaners Day, and I usually take the opportunity to walk down to the avenue and hang out. I stopped in at my polling place to say hi, even though I voted last week; and they gave me an "I voted" sticker, so I look politically correct.
The lady in the Chimes drugstore agreed with me that she's nervous about the election.
The gift shop called Heartfelt had a chalk board out front that said, "VOTE! Then step back, take a deep breath, and relax - it's a nice day!" (And it is.)
The elderly street guy, with the beard down to his belt buckle, swung his fist and said, "Landslide! Mandate!" and I said, "Damn straight it better be."
In front of Cole's Coffee, a man blowing across a coffee cup into the ear of a baby in a belly pack (mom, wearing the pack, was on the phone) asked me where my polling station was; he had an absentee ballot to drop off. I told him mine was pretty far away; he thought he'd seen one closer.
Waiting to cross the street, I stood next to 2 youngish guys, also wearing "I voted" stickers. We discussed where we'd watch election returns, and agreed we were all going to have to find a new hobby tomorrow.
Everybody's waiting for the shoe to drop.
The lady in the Chimes drugstore agreed with me that she's nervous about the election.
The gift shop called Heartfelt had a chalk board out front that said, "VOTE! Then step back, take a deep breath, and relax - it's a nice day!" (And it is.)
The elderly street guy, with the beard down to his belt buckle, swung his fist and said, "Landslide! Mandate!" and I said, "Damn straight it better be."
In front of Cole's Coffee, a man blowing across a coffee cup into the ear of a baby in a belly pack (mom, wearing the pack, was on the phone) asked me where my polling station was; he had an absentee ballot to drop off. I told him mine was pretty far away; he thought he'd seen one closer.
Waiting to cross the street, I stood next to 2 youngish guys, also wearing "I voted" stickers. We discussed where we'd watch election returns, and agreed we were all going to have to find a new hobby tomorrow.
Everybody's waiting for the shoe to drop.
Election Day
It's 9:10 AM on Election Day in California. I voted a week ago, so I'm just observing things today. I live about a block from my polling station in the music room of the local elementary school, so about 15 minutes ago I stepped out the front door to see if I could see a line at the polls. I couldn't see a line, but I did see a steady line of people coming back from the polls: early election day voters. It's a beautiful sunny morning, crisp and clean after a big rain storm, and everybody looked cheerful.
If you haven't voted yet, get off your butt. This is the biggest election in my lifetime and probably yours - what are you waiting for??
If you haven't voted yet, get off your butt. This is the biggest election in my lifetime and probably yours - what are you waiting for??
Saturday, November 01, 2008
Reality Check
For the last month or so I've been obsessing over the election and the economy to the point that I got almost nothing else done. Today I got my chain yanked; I got a reminder of what's really important.
It started so normally - my husband picked me up from a dress rehearsal, and we drove home on the streets because the freeway alternative was a parking lot, for some invisible reason. To protect as much privacy as possible, I won't name the exact location, and I don't know the names of most of the people.
Anyway, as we drove up this main street, I saw a woman in an orange-brown jacket, crossing the street in a crosswalk. We were in the right lane and she was past us, so we didn't slow.
Then there was a thump, and the next thing I saw was the orange-brown jacket draped across the right front fender of a small station wagon. I can still see it. The woman fell off into the street, and didn't move.
The station wagon rolled a little farther and stopped, and the driver got out.
As my husband pulled our car over to the curb, I dived for my cell phone, entered the password, and speed-dialed the police department emergency number. Then I waited. (Our local dispatch center is notoriously understaffed.) After 1 minute 40 seconds (per the call duration meter), I climbed out of the car and looked around.
I have to give my fellow citizens credit. There were at least 7 or 8 people out there. Five or six were gathered around the woman in the street: reminding each other not to move her, covering her with a blanket, feeling her pulse. Protecting her. The rest had put out flares, parked cars sideways, and were very professionally directing traffic around the accident. One man had a cell phone to his ear, and I yelled, "I'm still trying to get through to 911!"
Eventually I got through (I estimate in about 2 minutes). Since she landed in the street, the woman in the orange-brown jacket hadn't moved. Dispatch asked if she was bleeding; I yelled, "Is she bleeding?" to the group in the street, and relayed the "yes" back to the operator.
After that, response was very quick: first the nearest patrol team, then the ladder truck from the fire station, finally a pair of ambulances. One of the policemen asked me for a statement, and we adjourned to the patrol car to get his paper report form out of the rain. The police, fire, and EMT personnel scurried professionally around, and in about 45 minutes the whole area was cleaned up.
One of the officers told me the injured woman was alive when they put her into the ambulance. I was glad.
But this is a reality check. We Americans, especially younger ones, have an unspoken assumption that we're invulnerable and immortal. If we're older, we know we are neither, but we sometimes think, nothing will happen to me, I don't have time for it. But sometimes it happens anyway. I hope very much that everyone will come out of this intact (or at least, not permanently damaged); but the victim put a hole the size of her head in the car's windshield. And the EMTs took the driver off in the second ambulance, just to make sure she wasn't hurt.
You hear a lot of rhetoric from the anti-abortion zealots about the sanctity of life, as if once those two cells merge, the resulting entity has some kind of right to a full life, the threescore-and-ten or whatever we live to these days. It's because of that "Right to Life" statement in the Declaration of Independence, and it's baloney. It's a nice sentiment, but people get killed all the time, by disease, accidents, and by other people. Life is very uncertain; modern drugs save lives that used to be lost to pneumonia and measles and tuberculosis, and they actually cure many cancer patients these days; but traffic accidents kill 40,000 - 45,000 people every year, or over 110 people a day, every day. And you get no warning, and no chance to clean up those things you were going to get to someday.
I'm not even sure what point I'm trying to make, except maybe: let's cut each other a little slack, and try to listen to each other, because we don't know how long any of us will be here. And maybe, there but for the grace of God go I.
It started so normally - my husband picked me up from a dress rehearsal, and we drove home on the streets because the freeway alternative was a parking lot, for some invisible reason. To protect as much privacy as possible, I won't name the exact location, and I don't know the names of most of the people.
Anyway, as we drove up this main street, I saw a woman in an orange-brown jacket, crossing the street in a crosswalk. We were in the right lane and she was past us, so we didn't slow.
Then there was a thump, and the next thing I saw was the orange-brown jacket draped across the right front fender of a small station wagon. I can still see it. The woman fell off into the street, and didn't move.
The station wagon rolled a little farther and stopped, and the driver got out.
As my husband pulled our car over to the curb, I dived for my cell phone, entered the password, and speed-dialed the police department emergency number. Then I waited. (Our local dispatch center is notoriously understaffed.) After 1 minute 40 seconds (per the call duration meter), I climbed out of the car and looked around.
I have to give my fellow citizens credit. There were at least 7 or 8 people out there. Five or six were gathered around the woman in the street: reminding each other not to move her, covering her with a blanket, feeling her pulse. Protecting her. The rest had put out flares, parked cars sideways, and were very professionally directing traffic around the accident. One man had a cell phone to his ear, and I yelled, "I'm still trying to get through to 911!"
Eventually I got through (I estimate in about 2 minutes). Since she landed in the street, the woman in the orange-brown jacket hadn't moved. Dispatch asked if she was bleeding; I yelled, "Is she bleeding?" to the group in the street, and relayed the "yes" back to the operator.
After that, response was very quick: first the nearest patrol team, then the ladder truck from the fire station, finally a pair of ambulances. One of the policemen asked me for a statement, and we adjourned to the patrol car to get his paper report form out of the rain. The police, fire, and EMT personnel scurried professionally around, and in about 45 minutes the whole area was cleaned up.
One of the officers told me the injured woman was alive when they put her into the ambulance. I was glad.
But this is a reality check. We Americans, especially younger ones, have an unspoken assumption that we're invulnerable and immortal. If we're older, we know we are neither, but we sometimes think, nothing will happen to me, I don't have time for it. But sometimes it happens anyway. I hope very much that everyone will come out of this intact (or at least, not permanently damaged); but the victim put a hole the size of her head in the car's windshield. And the EMTs took the driver off in the second ambulance, just to make sure she wasn't hurt.
You hear a lot of rhetoric from the anti-abortion zealots about the sanctity of life, as if once those two cells merge, the resulting entity has some kind of right to a full life, the threescore-and-ten or whatever we live to these days. It's because of that "Right to Life" statement in the Declaration of Independence, and it's baloney. It's a nice sentiment, but people get killed all the time, by disease, accidents, and by other people. Life is very uncertain; modern drugs save lives that used to be lost to pneumonia and measles and tuberculosis, and they actually cure many cancer patients these days; but traffic accidents kill 40,000 - 45,000 people every year, or over 110 people a day, every day. And you get no warning, and no chance to clean up those things you were going to get to someday.
I'm not even sure what point I'm trying to make, except maybe: let's cut each other a little slack, and try to listen to each other, because we don't know how long any of us will be here. And maybe, there but for the grace of God go I.
Thursday, October 30, 2008
Stop the Hate
I'm quoting my fellow blogger, D.B. Echo (at Another Monkey). It's getting really scary. I've already commented about Sarah Palin's apparent pleasure when people at her rallies scream, "Kill him!"
I got another example yesterday. I have a friend who lives in a suburb of San Francisco and has an Obama/Biden sticker on her car. The other day, she said "a couple of guys" made "ugly remarks" at her as she drove past them. Then she stopped at a light, and a well-dressed, prosperous-looking woman in a prosperous-looking car stopped next to her, rolled down the window and screamed, "Traitor!"
When did it become treason to disagree with someone? When did it become treason to want to change the government? This is what the Republican tactics of the last eight years have brought us to - they've been telling us, ever since 9/11, that anyone who disagrees with them is unpatriotic and possibly treasonous, and we must support them so we'll be "safe."
Do you all feel "safe" now? Is that why tens of thousands of people turn out to see Barack Obama and cheer for him, because they feel "safe"? I certainly don't feel safe if my neighbors feel they can scream insults at me because they disagree with me.
And the conservative commentators hammer this home on Fox News daily - Limbaugh. Hannity. O'Reilly. Coulter. In any organization, the tone comes from the top; and the top of this organization tells us that dissent is treason. The whirring sound you hear is Thomas Jefferson, spinning in his grave.
I don't claim they're treasonous (although they'd say I am). I say they're wrong; but what's really distressing is that they're so rude. Those who disagree are not merely wrong, they have to be insulted, and assailed as stupid and treasonous. And the conservatives lie - the oft-repeated McCain claim that Obama sponsored legislation authorizing giving sex education to kindergartners is a barefaced lie, repeatedly debunked by www.factcheck.org; and yet McCain keeps saying it, and claims it's true. This is Orwellian.
When did we lose civil discourse? When did it become impossible to discuss certain issues without falling back on slogans and insults? I have to admit my generation, the Baby Boomers, carry some blame for this. We were the ones who screamed slogans at rallies and labeled anybody we disagreed with as "pigs." So, we had something to do with the demise of civil discourse. But we weren't alone.
The most important question about civil discourse is not who stopped it. It's - how do we get it back?? I hate this. I hate conflict and screaming. But if I don't scream back, I'm leaving the field to the liars.
I got another example yesterday. I have a friend who lives in a suburb of San Francisco and has an Obama/Biden sticker on her car. The other day, she said "a couple of guys" made "ugly remarks" at her as she drove past them. Then she stopped at a light, and a well-dressed, prosperous-looking woman in a prosperous-looking car stopped next to her, rolled down the window and screamed, "Traitor!"
When did it become treason to disagree with someone? When did it become treason to want to change the government? This is what the Republican tactics of the last eight years have brought us to - they've been telling us, ever since 9/11, that anyone who disagrees with them is unpatriotic and possibly treasonous, and we must support them so we'll be "safe."
Do you all feel "safe" now? Is that why tens of thousands of people turn out to see Barack Obama and cheer for him, because they feel "safe"? I certainly don't feel safe if my neighbors feel they can scream insults at me because they disagree with me.
And the conservative commentators hammer this home on Fox News daily - Limbaugh. Hannity. O'Reilly. Coulter. In any organization, the tone comes from the top; and the top of this organization tells us that dissent is treason. The whirring sound you hear is Thomas Jefferson, spinning in his grave.
I don't claim they're treasonous (although they'd say I am). I say they're wrong; but what's really distressing is that they're so rude. Those who disagree are not merely wrong, they have to be insulted, and assailed as stupid and treasonous. And the conservatives lie - the oft-repeated McCain claim that Obama sponsored legislation authorizing giving sex education to kindergartners is a barefaced lie, repeatedly debunked by www.factcheck.org; and yet McCain keeps saying it, and claims it's true. This is Orwellian.
When did we lose civil discourse? When did it become impossible to discuss certain issues without falling back on slogans and insults? I have to admit my generation, the Baby Boomers, carry some blame for this. We were the ones who screamed slogans at rallies and labeled anybody we disagreed with as "pigs." So, we had something to do with the demise of civil discourse. But we weren't alone.
The most important question about civil discourse is not who stopped it. It's - how do we get it back?? I hate this. I hate conflict and screaming. But if I don't scream back, I'm leaving the field to the liars.
Poetry on NPR
You never quite know what you'll hear when you tune in to NPR. I tuned into All Things Considered on Tuesday night on the way to the gym (after spending $70 to get my car radio working again - blown fuse - this is the week everything breaks), and found myself listening to a discussion of the election with a group of people from a job training center in St. Louis. And at the end of the section, there was a remark that brought tears to my eyes.
Checking the web site for the transcript, I just realized I didn't even hear all of it, but here is the whole thing, which was sent as a text message to the training instructor:
Checking the web site for the transcript, I just realized I didn't even hear all of it, but here is the whole thing, which was sent as a text message to the training instructor:
"Rosa sat so Martin could walk. Martin walked, so Obama could run. Obama is running so our children can fly."'Nuff said.
Tuesday, October 21, 2008
The Heat is Off
Our furnace is dead. This is less critical than if we lived in, say, Wisconsin or Maine, or even Washington state; but the tag end of October is a bad time for the heating system to go Tango Uniform, even in California.
It's only a relatively new furnace. We put it in 20 years ago (almost exactly 20 years), to replace a gravity-feed gas furnace dating from 1938, which took 40 minutes to warm the house up. It's run like a clock since then, we never even serviced it except to change the filter. The other day we turned it on, and it began to cycle - on, and on, and on, and on, about once a second. We turned it off and waited, and it was OK. Then it did it again.
Today the furnace man came. His name is Mike. It took Mike about 5 minutes to find the smoke stains on the control board where a resistor burned out. (He didn't call it that, but it looked like a resistor to me, and I used to sell 'em.) He took the board with him, so he could order the correct replacement. It was a period classic - I haven't seen a breadboard hookup with individual transistors and resistors for years. Mike assured me that the replacement board would be "all digital." He'll also bring an elbow joint for a 4 inch pipe - the one we have has had a segment crack loose and fall off, which Mike tells me has been flooding the basement with carbon monoxide. Maybe it's a good thing we don't spend much time in the basement.
Mike will be back "in a couple of days," with the new furnace motherboard; he'll change the filter and "give it a bath" (OK, after 20 years, I guess it needs one). In the meantime, we have no heat. Today is a lovely warm autumn afternoon in the mid-70's, but mornings are getting colder, and all the windows downstairs (where I prefer to spend my days, as the view of the garden is better) are single-paned. Time to break out the sweaters, and the wool socks. And I think I'll take my travel kit to the gym tonight, and take a shower there instead of at home tomorrow morning. The heat works in the gym.
It's only a relatively new furnace. We put it in 20 years ago (almost exactly 20 years), to replace a gravity-feed gas furnace dating from 1938, which took 40 minutes to warm the house up. It's run like a clock since then, we never even serviced it except to change the filter. The other day we turned it on, and it began to cycle - on, and on, and on, and on, about once a second. We turned it off and waited, and it was OK. Then it did it again.
Today the furnace man came. His name is Mike. It took Mike about 5 minutes to find the smoke stains on the control board where a resistor burned out. (He didn't call it that, but it looked like a resistor to me, and I used to sell 'em.) He took the board with him, so he could order the correct replacement. It was a period classic - I haven't seen a breadboard hookup with individual transistors and resistors for years. Mike assured me that the replacement board would be "all digital." He'll also bring an elbow joint for a 4 inch pipe - the one we have has had a segment crack loose and fall off, which Mike tells me has been flooding the basement with carbon monoxide. Maybe it's a good thing we don't spend much time in the basement.
Mike will be back "in a couple of days," with the new furnace motherboard; he'll change the filter and "give it a bath" (OK, after 20 years, I guess it needs one). In the meantime, we have no heat. Today is a lovely warm autumn afternoon in the mid-70's, but mornings are getting colder, and all the windows downstairs (where I prefer to spend my days, as the view of the garden is better) are single-paned. Time to break out the sweaters, and the wool socks. And I think I'll take my travel kit to the gym tonight, and take a shower there instead of at home tomorrow morning. The heat works in the gym.
Monday, October 13, 2008
Strategy and Tactics
Driving home today, I listened to Talk of the Nation, on which Bill Kristol urged John McCain to fire his campaign staff because it isn't working. Apart from the fact that I want McCain's campaign to fail, I was interested in one remark Kristol made. Loosely paraphrased, he said that McCain had some good ideas (choosing Palin as VP, suspending his campaign to go to Washington to create a miracle for the bailout), but they weren't followed up. They're all tactical, said Kristol; there's no strategic thinking.
No strategic thinking. Isn't that an interesting suggestion? McCain isn't a strategist; he's a tactician. Think about his military career - he flew ground-attack aircraft off carriers. You need tactics in that role; other people take care of strategy. McCain retired from the Navy in 1981 (after 23 years), as a captain, and went into politics, where issues of strategy versus tactics are somewhat diluted. A Navy captain is the equivalent of an Army or Air Force colonel, which I'd argue is the lowest possible command level at which you need to begin to think strategically. Below that level you're dealing with much more day-to-day stuff: tactics and logistics. McCain reached captain; then he retired.
This campaign is the most important operation of McCain's career, and he isn't thinking strategically. Why should we assume that he'll start thinking strategically if we elect him President? And what would be the implications of a President of the United States who is driven entirely by tactical considerations? I wasn't going to vote for him for a number of reasons, some making more sense than others; but frankly, this one seems to me to be quite potent.
No strategic thinking. Isn't that an interesting suggestion? McCain isn't a strategist; he's a tactician. Think about his military career - he flew ground-attack aircraft off carriers. You need tactics in that role; other people take care of strategy. McCain retired from the Navy in 1981 (after 23 years), as a captain, and went into politics, where issues of strategy versus tactics are somewhat diluted. A Navy captain is the equivalent of an Army or Air Force colonel, which I'd argue is the lowest possible command level at which you need to begin to think strategically. Below that level you're dealing with much more day-to-day stuff: tactics and logistics. McCain reached captain; then he retired.
This campaign is the most important operation of McCain's career, and he isn't thinking strategically. Why should we assume that he'll start thinking strategically if we elect him President? And what would be the implications of a President of the United States who is driven entirely by tactical considerations? I wasn't going to vote for him for a number of reasons, some making more sense than others; but frankly, this one seems to me to be quite potent.
Is Sarah Qualified??
I got an email link from a friend that I'm reposting here (with some of the capital letters toned down):
Subject: PBS Sarah Palin poll
http://www.pbs.org/now/polls/poll-435.html
When I voted on it, the poll was running dead even at 49% to 49% - quia absurdum est.
Subject: PBS Sarah Palin poll
- PBS has an online poll posted asking if Sarah Palin is qualified. Apparently the repulican party platform knew about this in advance and are flooding the voting with YES votes.
- The poll will be reported on PBS and picked up by mainstream media. It can influence undecided voters in swing states.
http://www.pbs.org/now/polls/poll-435.html
When I voted on it, the poll was running dead even at 49% to 49% - quia absurdum est.
Saturday, October 11, 2008
Shame on You
Shame on you, Sarah Palin. For shame. You stand up in front of a crowd, rouse them up with lies about Barack Obama (yes, they're lies), and when the crowd yells, "Kill him!" - you smile. You encourage them.
This is disgraceful. You claim to be a Christian - this is unChristian. This is what Adolf Hitler did when he encouraged his goons to attack the Jews, before Kristallnacht. Nobody has been hurt yet because of your rabble-rousing - but that's no thanks to you.
And shame on you, John McCain, for allowing your campaign to act like this. Who's in charge, you or she? You weren't ignoring threats of violence from your crowds before she joined you; you weren't hearing threats of violence from your crowds before she joined you. You tried to calm things down the other day; I read about it. You need to try harder.
This is disgraceful. You claim to be a Christian - this is unChristian. This is what Adolf Hitler did when he encouraged his goons to attack the Jews, before Kristallnacht. Nobody has been hurt yet because of your rabble-rousing - but that's no thanks to you.
And shame on you, John McCain, for allowing your campaign to act like this. Who's in charge, you or she? You weren't ignoring threats of violence from your crowds before she joined you; you weren't hearing threats of violence from your crowds before she joined you. You tried to calm things down the other day; I read about it. You need to try harder.
What a Week
I haven't been blogging this week because I didn't know what to say. There's a horrible fascination in watching everything fall apart. I remember the sensation from 9/11, we were all unable to stop watching the instant replay of the falling towers.
However, as the government took step after step to staunch the bleeding, and the credit markets remained stubbornly frozen, my suspicions grew that nothing is working because the Feds are fighting the wrong war. Part of the problem, of course, is that no one believes (I certainly don't) that Paulsen knows what he's doing. He's just hoping that if he throws enough money, something will open up. Injecting capital into the banks may help. But I believe the true problem is the credit default swaps; and until we solve that, the credit markets are going to stay frozen.
For those of you who haven't listened to last week's This American Life, as I recommended, here's a brief summary of credit default swaps, as I understood them from the show:
The basic credit default swap or CDS is insurance against a bond issuer going bankrupt and defaulting on the bond. Just like Lehman Bros. is about to do to me. Company A issues a bond; company B buys it, because the interest rate is so good. Company B, however, is worried about the stability of company A; so they turn to company C, who writes them a credit default swap. Company B agrees to pay company C a percentage of the income stream it's getting from company A's bond; in return, company C agrees to pay company B the full face amount of company A's bonds that company B bought, in case company A goes Tango Uniform (as they say in the military).
Obviously, company C (who wrote the CDS to company B) has more faith in company A's financial soundness than company B does. And they really like that steady stream of income.
Now it starts to twist. Investor D decides that company A isn't a good prospect. So he goes to company C, and says, I want a CDS against X dollars' worth of company A bonds. Investor D doesn't own any company A bonds; he's just betting on the come. He's doing the credit equivalent of a short sale: he's betting that company A will go broke; and he's paying company B an income stream, some percentage of the interest he'd be getting if he owned the bond, in exchange for company C's promise to pay him X dollars (the amount of bond he's buying a CDS on) in case company A goes under. And company C sells him the CDS; another steady stream of money.
Company C has now promised to pay two different parties the face value of a bond that only one of them owns, in case company A goes broke.
Now multiply that by hundreds of deals, all over the U.S. and probably all over the world. And add to that the final twist: thanks to Sen. Phil Gramm's Commodities Futures Modernization Act of 2000 (remember the guy who said we are "a nation of whiners"?), all these deals are unregulated. They're "over the counter."
That means they are all private. There's no central place, like a stock market, that has a record of who has written what CDS against what debt obligations. We can be pretty sure, however, that some or all of the major institutions were writing CDS's against the AAA rated sub-prime backed securities that everybody was buying. After all - they're not going to default, and the housing market will never stop rising. Until it didn't. Until the loans everyone was pushing began to default.
Because if you wrote CDS coverage for, say, a mortgage-backed security worth half a million dollars, you're on the hook for the dollars if that security ceases to pay interest. Do you have the dollars? Or are you so leveraged that you'd have to borrow in order to meet the obligation? Remember, all these people operated on borrowed money, all the time.
Now it's the end of March 2008, and Bear Sterns has just gone under. Immediately everybody who wrote CDS's on Bear Sterns debt has to pony up cash. They know who they are; and their counterparties know; but nobody else does, because CDS transactions aren't regulated and are private. You didn't see any news about people paying off CDS on Bear Sterns.
Every time since March that a major financial firm has gone under to the point where they default on their debt, more of these chickens have come home to roost. Every bank knows what their own position is; but because of the private nature of the transactions, they don't know what anyone else's position is. And nobody knows what the real position of the mortgage-backed securities is.
And that, compadres, is why banks are not lending to each other. They don't know who's sitting on CDS obligations that exceed their entire net worth.
I'm not an economist; I'm just a techie, and nobody's going to listen to me. But frankly, I see only one thing the government could do that would really open this up: Force an audit. Require every financial institution to compile and publish a list of all the CDS they have written. Only then will we be able to estimate the real scope of the damage, and make realistic plans about how to deal with it.
The truth shall make you free.
However, as the government took step after step to staunch the bleeding, and the credit markets remained stubbornly frozen, my suspicions grew that nothing is working because the Feds are fighting the wrong war. Part of the problem, of course, is that no one believes (I certainly don't) that Paulsen knows what he's doing. He's just hoping that if he throws enough money, something will open up. Injecting capital into the banks may help. But I believe the true problem is the credit default swaps; and until we solve that, the credit markets are going to stay frozen.
For those of you who haven't listened to last week's This American Life, as I recommended, here's a brief summary of credit default swaps, as I understood them from the show:
The basic credit default swap or CDS is insurance against a bond issuer going bankrupt and defaulting on the bond. Just like Lehman Bros. is about to do to me. Company A issues a bond; company B buys it, because the interest rate is so good. Company B, however, is worried about the stability of company A; so they turn to company C, who writes them a credit default swap. Company B agrees to pay company C a percentage of the income stream it's getting from company A's bond; in return, company C agrees to pay company B the full face amount of company A's bonds that company B bought, in case company A goes Tango Uniform (as they say in the military).
Obviously, company C (who wrote the CDS to company B) has more faith in company A's financial soundness than company B does. And they really like that steady stream of income.
Now it starts to twist. Investor D decides that company A isn't a good prospect. So he goes to company C, and says, I want a CDS against X dollars' worth of company A bonds. Investor D doesn't own any company A bonds; he's just betting on the come. He's doing the credit equivalent of a short sale: he's betting that company A will go broke; and he's paying company B an income stream, some percentage of the interest he'd be getting if he owned the bond, in exchange for company C's promise to pay him X dollars (the amount of bond he's buying a CDS on) in case company A goes under. And company C sells him the CDS; another steady stream of money.
Company C has now promised to pay two different parties the face value of a bond that only one of them owns, in case company A goes broke.
Now multiply that by hundreds of deals, all over the U.S. and probably all over the world. And add to that the final twist: thanks to Sen. Phil Gramm's Commodities Futures Modernization Act of 2000 (remember the guy who said we are "a nation of whiners"?), all these deals are unregulated. They're "over the counter."
That means they are all private. There's no central place, like a stock market, that has a record of who has written what CDS against what debt obligations. We can be pretty sure, however, that some or all of the major institutions were writing CDS's against the AAA rated sub-prime backed securities that everybody was buying. After all - they're not going to default, and the housing market will never stop rising. Until it didn't. Until the loans everyone was pushing began to default.
Because if you wrote CDS coverage for, say, a mortgage-backed security worth half a million dollars, you're on the hook for the dollars if that security ceases to pay interest. Do you have the dollars? Or are you so leveraged that you'd have to borrow in order to meet the obligation? Remember, all these people operated on borrowed money, all the time.
Now it's the end of March 2008, and Bear Sterns has just gone under. Immediately everybody who wrote CDS's on Bear Sterns debt has to pony up cash. They know who they are; and their counterparties know; but nobody else does, because CDS transactions aren't regulated and are private. You didn't see any news about people paying off CDS on Bear Sterns.
Every time since March that a major financial firm has gone under to the point where they default on their debt, more of these chickens have come home to roost. Every bank knows what their own position is; but because of the private nature of the transactions, they don't know what anyone else's position is. And nobody knows what the real position of the mortgage-backed securities is.
And that, compadres, is why banks are not lending to each other. They don't know who's sitting on CDS obligations that exceed their entire net worth.
I'm not an economist; I'm just a techie, and nobody's going to listen to me. But frankly, I see only one thing the government could do that would really open this up: Force an audit. Require every financial institution to compile and publish a list of all the CDS they have written. Only then will we be able to estimate the real scope of the damage, and make realistic plans about how to deal with it.
The truth shall make you free.
Saturday, October 04, 2008
Little Flittering Things
It rained last night, for the first time since oh, March? February? It's been a dry year. However, last night or this morning, something responded to the rain, or something. We looked out the window into the back yard this morning, and the entire airspace over the patio was full of small white flittering insects, orbiting around the area and each other. I don't know what they were, but something hatched.
They're gone now, whatever they were.
They're gone now, whatever they were.
The Sorceror's Apprentice
I've concluded this is the appropriate metaphor for the mess the economy is in. The financial geniuses who have been running things, more or less unconstrained by any regulation whatever, developed a set of "tools" that they thought would allow them to hand off risk to other people. They didn't think through all the possible scenarios, and a worst-case scenario has occurred, and now they don't know what to do. See the parallel with Mickey and his brooms??
I'm not sure I want to go so far as to say that Hank Paulsen is the Sorceror, who will step in and wave a wand and make it all go away. I don't have that much faith in Mr. Paulsen.
I have a recommendation, however, for anyone who wants to understand how we got here. I don't normally listen to Ira Glass' This American Life. Today, however, they had a full hour program, Another Frightening Show About The Economy, which I recommend to anyone who wants to understand why that $700 billion bailout may really have been necessary. You may have heard the term "credit default swap"? This broadcast has the clearest description of credit default swaps, why they exist, and why they are a problem, that I've ever heard; and I worked for a major bank. There's also a solid description of the commercial paper market and why that is also frozen.
It'll take an hour of your time. It's worth it. They did a show in May called Giant Pool of Money, explaining the subprime mortgage mess, which I also plan to listen to, and they're putting out a daily podcast on the mess, Planet Money, which I think I'll add to my list as well.
I'm not sure I want to go so far as to say that Hank Paulsen is the Sorceror, who will step in and wave a wand and make it all go away. I don't have that much faith in Mr. Paulsen.
I have a recommendation, however, for anyone who wants to understand how we got here. I don't normally listen to Ira Glass' This American Life. Today, however, they had a full hour program, Another Frightening Show About The Economy, which I recommend to anyone who wants to understand why that $700 billion bailout may really have been necessary. You may have heard the term "credit default swap"? This broadcast has the clearest description of credit default swaps, why they exist, and why they are a problem, that I've ever heard; and I worked for a major bank. There's also a solid description of the commercial paper market and why that is also frozen.
It'll take an hour of your time. It's worth it. They did a show in May called Giant Pool of Money, explaining the subprime mortgage mess, which I also plan to listen to, and they're putting out a daily podcast on the mess, Planet Money, which I think I'll add to my list as well.
Subscribe to:
Posts (Atom)