June 2009 Archives
In The Way We Live Now, Trollope gives us a crooked financier by the name of Augustus Melmotte who is for awhile the toast of London--until his finagling comes crashing down and, at last out of options, he takes his own life.
I thought of Melmotte when I read about Bernie Madoff's preposterous sentence of 150 years. God knows I have no intention of defending Madoff, whose crimes really are hideous. I was the guy who unearthed the ZZZZ Best Ponzi scheme perpetrated by Barry Minkow, which at the time was considered enormous but which, even at its peak, wouldn't have paid the interest on the Madoff caper for a month. So if you are running a financial fraud, do not look in this direction for succor or sympathy
But 150 years is absurd. Killers routinely get off with less, and in this case there was no need to pile it on in order to ward off parole (Reuters has a little story about the 100 year club here) because as I understand it, there is no parole nowadays in a federal case of this kind.
All that said, it was clear from the outset that Madoff would spend the rest of his life in prison. What surprised me as much as the sentence was the fact that, unlike Augustus Melmotte, he didn't commit suicide.
In retrospect I'm surprised he didn't do it right when the jig was up--or even just before. Certainly he had reasonable grounds--I daresay more than most of the 32,000 suicides in this country annually. He'd had a good run for 71 years, his life was basically over, and he might have shuffled off the stage before all the trouble. Why not end it all while the going was good? It's strange that some of his investors have done so yet he hasn't. I wonder if he considered it? I'm not advocating it of course, any more than I would advocate a ridiculous prison term--or for that matter, the death penalty.
If I had to venture a guess, it would be that he believed doing himself in might leave his family more exposed to possible prosecution. Madoff has consistently contended that he acted alone. Perhaps he felt he could make the case better in person than in a suicide note.
I thought of Melmotte when I read about Bernie Madoff's preposterous sentence of 150 years. God knows I have no intention of defending Madoff, whose crimes really are hideous. I was the guy who unearthed the ZZZZ Best Ponzi scheme perpetrated by Barry Minkow, which at the time was considered enormous but which, even at its peak, wouldn't have paid the interest on the Madoff caper for a month. So if you are running a financial fraud, do not look in this direction for succor or sympathy
But 150 years is absurd. Killers routinely get off with less, and in this case there was no need to pile it on in order to ward off parole (Reuters has a little story about the 100 year club here) because as I understand it, there is no parole nowadays in a federal case of this kind.
All that said, it was clear from the outset that Madoff would spend the rest of his life in prison. What surprised me as much as the sentence was the fact that, unlike Augustus Melmotte, he didn't commit suicide.
In retrospect I'm surprised he didn't do it right when the jig was up--or even just before. Certainly he had reasonable grounds--I daresay more than most of the 32,000 suicides in this country annually. He'd had a good run for 71 years, his life was basically over, and he might have shuffled off the stage before all the trouble. Why not end it all while the going was good? It's strange that some of his investors have done so yet he hasn't. I wonder if he considered it? I'm not advocating it of course, any more than I would advocate a ridiculous prison term--or for that matter, the death penalty.
If I had to venture a guess, it would be that he believed doing himself in might leave his family more exposed to possible prosecution. Madoff has consistently contended that he acted alone. Perhaps he felt he could make the case better in person than in a suicide note.
There's a thoughtful piece in the Boston Globe arguing that some systems, like some businesses, are too complex to be allowed to fail--and therefore this complexity should be averted or abolished in some way by regulators. The idea, in a sense, is that dangerously complex systems are too complex to exist. And bigness is an implicit culprit. The author even suggests that instead of trying to deal with crises as they occur, the government could head off excess complexity:
Simplicity is always preferred of course. But is complexity really so bad? Modern life is way more complex than it was when someone painted the walls of that cave France. Publishing the Boston Globe is an immensely complex choreography, supported by a vast legal, financial, educational and physical infrastructure. Complex networks, even those whose failures can be catastrophic, deliver a lot of advantages, and I can't see much alternative to them. Like bigness--in business as well as government--complexity is here to stay. The challenge is not just imagining and controlling the risks, but taking the trouble to tote up the benefits.
The author of the Globe essay, it should be noted, works for Yahoo, whose big problem is gigantic competitors. But I doubt that Google or Microsoft meet anyone's definition of too big or complex to be allowed to fail.
On a routine basis, regulators could review the largest and most connected firms in each industry, and ask themselves essentially the same question that crisis situations already force them to answer: "Would the sudden failure of this company generate intolerable knock-on effects for the wider economy?" If the answer is "yes," the firm could be required to downsize, or shed business lines in an orderly manner until regulators are satisfied that it no longer poses a serious systemic risk.It's hard for me to think of a more implausible project. Talk about penalizing success! What if foreign regulators did not share our readiness to prune any trees that grew too large? And how much bigger--and more complex--would the government have to be to carry out this kind of sage adjudication?
Simplicity is always preferred of course. But is complexity really so bad? Modern life is way more complex than it was when someone painted the walls of that cave France. Publishing the Boston Globe is an immensely complex choreography, supported by a vast legal, financial, educational and physical infrastructure. Complex networks, even those whose failures can be catastrophic, deliver a lot of advantages, and I can't see much alternative to them. Like bigness--in business as well as government--complexity is here to stay. The challenge is not just imagining and controlling the risks, but taking the trouble to tote up the benefits.
The author of the Globe essay, it should be noted, works for Yahoo, whose big problem is gigantic competitors. But I doubt that Google or Microsoft meet anyone's definition of too big or complex to be allowed to fail.
In an earlier post that was no doubt cherished by discriminating followers of this blog, I made the point that for various reasons bigness is here to stay, notwithstanding the anti-bigness attitudes fostered by the reckless behavior of our largest financial institutions. Well this morning David Weidner has a column in the Wall Street Journal pointing out some of the global pressures that push financial institutions toward great size. A key observation:
"Even after massive consolidation, the United States remains one of the least concentrated banking markets in the developed world," Oliver Wyman concluded in a report released Wednesday.I would emphasize that these posts of mine aren't so much a defense of bigness as they are observations about its inevitability in the modern world. For better or worse bigness has its uses, in business as well as government, and generally speaking I see no alternative to it, even in the financial arena.
Identification. Not with Al Qaeda or the Unabomber. All it takes is a means of identification, like a driver's license. I have been riding Amtrak lately and visiting with editors in various high rises, and everywhere I go I am asked for a photo ID. Like most people, I show my license. I guess non-driving terrorists might momentarily be thwarted by this measure, but it's hard to imagine what else is accomplished aside from slowing down normal comings and goings.
I am reminded by these episodes of Bruce Schneier's comment about "security theater." While it's true that security used to be absurdly lax--I was once served with a subpoena in the middle of the LA Times newsroom--I have to wonder if we are doing much good now with all the passes and other measures employed in Manhattan office towers. I suppose if nothing else we are giving comfort to the lawyers.
I am reminded by these episodes of Bruce Schneier's comment about "security theater." While it's true that security used to be absurdly lax--I was once served with a subpoena in the middle of the LA Times newsroom--I have to wonder if we are doing much good now with all the passes and other measures employed in Manhattan office towers. I suppose if nothing else we are giving comfort to the lawyers.
My last post on the labor movement (surely there is a better term for something so hellbent on stasis) was so provocative that a comment poured in, so I can't resist pointing to this NY Times article about the entire Obama administration boycotting a national meeting of urban mayors in Providence because local firefighters plan to picket. Note that the firefighters are not on strike; the pickets are "educational" and arise from a decade-long contract dispute. Note also that the mayors, only one of whom is from Providence, were elected by people all over America. No one voted for the firefighters. In fact the mayors represent constituents who are, on average, probably less well off than the municipal workers they pay with their taxes.
Besides Mr. Biden, administration officials who have pulled out of the conference include Valerie Jarrett, a senior White House adviser; Lisa P. Jackson, the Environmental Protection Agency administrator; Housing Secretary Shaun Donovan; Commerce Secretary Gary Locke; Labor Secretary Hilda L. Solis; and Attorney General Eric H. Holder Jr.A presidential spokesman said, "we have always respected picket lines, and administration officials will not cross this one." Think about this; the presumption is that union pickets are automatically in the right, even when their interests are in opposition to those of the citizenry. What if the pickets were demanding full pensions at 30? Or protesting the hiring of African-American firefighters? I hope no unions picket the White House; I would hate to see the president forced by his own policy to sleep in a tent.
Leon Wieseltier has a wonderful little meditation on fear and its uses that packs many insights into very few words. Fear is traditionally feared as the enemy of self-mastery, the trait that may well lie beneath all others, but the absence of fear is not just hubris, it's also a creepy kind of indiffference. If you don't fear for your kids, do you really care about them? Fearing nothing, can we live for anything? Why do liberals and conservatives deviate from one another so strongly in the forms of alarmism they embrace? Don't be afraid, check it out.
I see that mortgage rates are up 79 basis points (more than 3/4 of a point) in just a couple of weeks, imperiling a mess of refinancings. At the same time, I'm sure you've noticed that gasoline has gone up quite sharply, and apparently crude oil topped $72 a barrel yesterday. Meanwhile, on the black swan front, the World Health Organization has declared a swine flu pandemic. And since the S&P 500 hit a low of 666 in March, it's up around 42%. Banks in particular--toxic assets notwithstanding--have been raising capital.
So--feel like buying stocks?
So--feel like buying stocks?
From the Boston Globe:
One stock analyst, Craig Huber of Barclays Capital, issued a report this week suggesting Times Co. shares could fall to $1 each within the next year. That's cheaper than the price of a daily Times.
"In our opinion, newspapers cannot cost cut themselves to prosperity and an online-only newspaper model is not profitable, not even close," Huber wrote. "We do not have a solution on how to solve the difficulties newspapers face."
I have no idea what's going to happen at the Boston Globe now that the Newspaper Guild has rejected givebacks demanded by New York Times Co., which owns the joint, but the ongoing mess got me thinking about the essential dilemma facing organized labor.
Despite their traditional association with progressive change, unions in fact are profoundly conservative organizations which depend more than anything on maintaining the status quo. Disruptive technologies, evolving social and political arrangements, changing consumer tastes, a shrinking planet--these forces are beating the hell out of the traditional union model, which depends on cartelizing the labor force and codifying every aspect of work. The result is that unions in America are associated with our most hidebound and beleaguered sectors: big city newspapers, auto companies, and public schools, to name just three egregious examples. Nobody looks for the union label; on the contrary, people prefer cars from non-union companies and education from private (non-union) schools. What can be the future of a movement that practically repels brains and investment?
One big problem is that the inability of the traditional labor model to accommodate change helps ossify the industries in which unions predominate. Unions today represent less than 8 percent of private sector workers, down from a peak of around 35 percent in the 1950s. Their challenge is to find a new model that can improve the welfare of workers without suppressing change, which is necessary and inevitable. The alternative is that you end up like the United Auto Workers, owning a business no one else wants after watching your membership decimated.
It's not encouraging that unions are mainly thriving in the public sector, where there are no profits to share in but where pliant legislators, ignorant voters and something like a natural monopoly have insulated organized labor from forces which, in the private sector, yield no quarter.
I don't have the answers, but one plausible approach might be to shift the focus of union efforts to government. Instead of taxing individual businesses on an ad hoc basis (that's essentially what unions do), why not aim higher--say, for a more progressive national tax system and universal health insurance, among other things? There is a danger, I suppose, of just taking the same problem and writing it larger (ossifying the entire society instead of just some key sectors), and there are some big contradictions (better education, which is crucial, probably means less powerful teachers' unions). But I think we can figure those things out, and meanwhile working people have the worst of both worlds: government that does little to meet their needs, and unions that pretend to do so by strangling their employers.
Despite their traditional association with progressive change, unions in fact are profoundly conservative organizations which depend more than anything on maintaining the status quo. Disruptive technologies, evolving social and political arrangements, changing consumer tastes, a shrinking planet--these forces are beating the hell out of the traditional union model, which depends on cartelizing the labor force and codifying every aspect of work. The result is that unions in America are associated with our most hidebound and beleaguered sectors: big city newspapers, auto companies, and public schools, to name just three egregious examples. Nobody looks for the union label; on the contrary, people prefer cars from non-union companies and education from private (non-union) schools. What can be the future of a movement that practically repels brains and investment?
One big problem is that the inability of the traditional labor model to accommodate change helps ossify the industries in which unions predominate. Unions today represent less than 8 percent of private sector workers, down from a peak of around 35 percent in the 1950s. Their challenge is to find a new model that can improve the welfare of workers without suppressing change, which is necessary and inevitable. The alternative is that you end up like the United Auto Workers, owning a business no one else wants after watching your membership decimated.
It's not encouraging that unions are mainly thriving in the public sector, where there are no profits to share in but where pliant legislators, ignorant voters and something like a natural monopoly have insulated organized labor from forces which, in the private sector, yield no quarter.
I don't have the answers, but one plausible approach might be to shift the focus of union efforts to government. Instead of taxing individual businesses on an ad hoc basis (that's essentially what unions do), why not aim higher--say, for a more progressive national tax system and universal health insurance, among other things? There is a danger, I suppose, of just taking the same problem and writing it larger (ossifying the entire society instead of just some key sectors), and there are some big contradictions (better education, which is crucial, probably means less powerful teachers' unions). But I think we can figure those things out, and meanwhile working people have the worst of both worlds: government that does little to meet their needs, and unions that pretend to do so by strangling their employers.
The New York Times reports on a great new designer who's trying to get man wearing "classics with a twist." The twist evidently is that you have to be certifiably insane to buy them. His cut-off shorts, for example, cost around $600.
PS--I would like to hear from someone who buys this stuff. There's got to be someone; maybe just one person is all it takes, at these prices, to sustain a business.
He is, at least, open about his prices. "It's crazy," he said. "I can't even afford my clothes." A dress shirt from his line can cost $425; pants, $550; a sport coat, $1,150.I am wondering what he charged before the recession.
PS--I would like to hear from someone who buys this stuff. There's got to be someone; maybe just one person is all it takes, at these prices, to sustain a business.
Greater minds than mine (and I realize this doesn't narrow it down much) are locked in a fierce debate: will prices go up or down? That is, should we be more worried about inflation or deflation? Paul Krugman, who is right about almost everything but seems to lack self-awareness when he hurls charges of partisanship at his opponents, says we should forget about inflation. NIall Ferguson, also a smart guy and probably a snappier dresser, derides mainstream economists for clinging to their Keynsian teddy bear. He can't understand the hair-of-the-dog approach (debt got us into this mess, so why should the doctor order more of it?) and fears inflation from all this money Uncle Sam is printing.
What's a poor ignorant investor to do? "The test of a first-rate intelligence," Scott Fitgerald said, "is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function." Here I am, living proof that no such intelligence is required. Just buy equal parts inflation-protected Treasuries and investment-grade corporates, which i was fortunate enough to do a few months ago, when both were being given away. Sure it's early on the TIPs but they are a direct obligation of your dodgy uncle (the soul of propriety compared to the alternatives) and capital preservation has its virtues. With the rest of your portfolio you can worry about stocks, commodities or foreign holdings (the dollar ought to fall, except so should everything else). Most of that stuff scares me just now, so I'm on the sidelines.
In general, I remain in the woe-is-me camp. We have huge debts, suspicious creditors, a terrible employment picture, falling real estate, busted banks, a huge foreclosure mess and a considerable level of federal and state political dysfunction. Our schools are inadequate and in some crucial ways so are our values. Once we get thru the worst, it's easy to imagine years of stagnation (or likelier still, stagflation) ahead. On the other hand, people have been betting against this enterprise of ours ever since Plymouth Rock, and doing so has always been a reliable way to lose money. So my guess is that sooner or later things will be fine.
What's a poor ignorant investor to do? "The test of a first-rate intelligence," Scott Fitgerald said, "is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function." Here I am, living proof that no such intelligence is required. Just buy equal parts inflation-protected Treasuries and investment-grade corporates, which i was fortunate enough to do a few months ago, when both were being given away. Sure it's early on the TIPs but they are a direct obligation of your dodgy uncle (the soul of propriety compared to the alternatives) and capital preservation has its virtues. With the rest of your portfolio you can worry about stocks, commodities or foreign holdings (the dollar ought to fall, except so should everything else). Most of that stuff scares me just now, so I'm on the sidelines.
In general, I remain in the woe-is-me camp. We have huge debts, suspicious creditors, a terrible employment picture, falling real estate, busted banks, a huge foreclosure mess and a considerable level of federal and state political dysfunction. Our schools are inadequate and in some crucial ways so are our values. Once we get thru the worst, it's easy to imagine years of stagnation (or likelier still, stagflation) ahead. On the other hand, people have been betting against this enterprise of ours ever since Plymouth Rock, and doing so has always been a reliable way to lose money. So my guess is that sooner or later things will be fine.
First Obama, now Bill Clinton on the cover of the NYT Magazine. How did this whole faux-aristocrat thing get started? Is it only Democrats? And why would they, at this particular time especially, want to look like old money? Baby blue, shimmering pink, with those big fist-like Windsor knots that take us back to the Reagan years--you have to wear them with an extra wide spread collar too, evidently, as if Prince Charles ordered up the whole outfit. There was a vogue for pink polos among the boys at my kids' school a couple years ago, and that was a little precious too, like the boys all spent too much time playing tennis. On the other hand I do miss pink button-downs--whatever happened to those?--which look good on us swarthy guys.
Daniel Akst
