AIG outrage[s] of the day

The New Neo Posted on by

outrageous.jpg

There’s an awful lot of outrage going around.

The American people are outraged that their hard-earned money has been taken from their pockets and doled out by Congress and the administrations (Bush’s first, and now especially Obama’s) with virtually no oversight as to who gets what, or why.

Congress is outraged at the very people they failed to police, but not of course at themselves or members of their own parties (funny how that works) for that sin of omission.

Obama is outraged at the handouts that he knew about earlier (see this and also this) but failed to be outraged about (got that?). Perhaps he’s really outraged at Geithner for appearing to be a pallid, clueless milquetoast, or at Summers for not sounding outraged enough when Summers pronounced the AIG bonuses “outrageous” but added there was nothing legal to be done to stop them.

Larry Kudlow swallows his outrage long enough to ask this very pertinent question:

Incidentally, has anybody asked Team Obama why it is more than willing to break mortgage contracts with a bankruptcy-judge cram-down, but won’t cram-down compensation agreements for AIG, despite the fact that the U.S. government owns the company? Kind of odd, don’t you think?

Tim Rutten of the LA Times is outraged about the same thing.

Kudlow thinks Geithner cannot survive this. I’m inclined to agree. One of the reasons for my opinion is that I spent a goodly part of last evening visiting a couple of the major blogs on the Left and looking at their comments sections.

The general trend was to blame Geithner and Summers. Hardly a word was said about Obama himself; the sense I got was that the commenters agreed with Maureen Dowd that Obama is being ill-served by his financial appointees (the few he’s made so far, that is; perhaps that’s why he’s been so slow in appointing the rest).

Those who remain Obamaphiles (a dwindling crew, perhaps?) are outraged at the whole situation but so far find it easier to castigate Summers (who was disliked by the Left even before he took the job) and Geithner, who has been a bipartisan public relations disaster, than to point the finger directly at Obama himself.

Obama should have a sign at his desk that says “The Buck Stops Anywhere But Here.” Or perhaps “The Dog Ate My Homework.”

[ADDENDUM: On watching just a few minutes of members of the Congressional committee grilling AIG head Liddy, I’m outraged at the outrage of many of the questioners. Some who are now so very outraged at the relatively piddly $165 million in AIG bonuses want us to forget the trillion-dollar outrage of the pork-laden stimulus package that many of them voted for plus the enormous proposed budget that many of them still support. (Here’s a list of committee members.)

And some of them (the cable networks are very bad at identifying who’s speaking, so it’s difficult to say who’s who at this point) are fuming at Liddy for moves made long before he came out of retirement to try to clean up the mess. This sort of grandstanding and self-aggrandizing puffery is what we’ve come to expect of members of Congress, especially in televised hearings that give them the opportunity to show how tough they are.]

When is a bonus not a bonus?

The New Neo Posted on by

When it’s a contractual obligation.

Not having a lot of experience in the corporate world myself (my only stint having been a summer job in college) I always thought the word “bonus” meant something extra, a special payment given for merit. Dummy me.

The argument for the AIG bonuses goes something like this: for government to arbitrarily abrogate these contractually obligated bonuses would undermine employees’ confidence in the sanctity of contracts. What’s more, in the case of AIG, it would antagonize—and perhaps cause the resignation of?—the very people AIG needs to sort out the mess.

Well, perhaps, although I’m not totally convinced.

Edward M. Liddy, the new government-appointed head of AIG who can hardly be accused of taking too much taxpayer money (he’s working for the sum total of a dollar a year), thinks so:

We cannot attract and retain the best and brightest talent to lead and staff [the company] if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.

I certainly wouldn’t call this “arbitrary;” there seems to be just cause. But then again, not all AIG employees are responsible for this mess. In fact, it is a relatively small percentage, and there should be some way to discover who these people are and stop their bonuses, which would make the decision non-arbitrary. After all, although the general idea of the binding contract is vital to the functioning of our society, individual contracts and their terms, as well as how they might be enforced or abrogated, are the subject of lawsuits all the time.

Such lawsuits tend to be expensive, however, and therein lies the rub. Would it cost more to fight these bonuses than to grant them? But would it be worth it, because failure to stop the payments would be a bad example not only because it would violate our “fundamental values,” as President Obama has declared, but also because it would provide a reward for bad behavior?

Unfortunately, that bad behavior has already been rewarded financially. And it probably will continue to be rewarded, since the article also quotes Pearl Meyer, a “compensation consultant” at Steven Hall & Partners, as saying, “The word on the street is that A.I.G. employees are being heavily recruited.”

And she doesn’t mean by the cops. Let’s just hope that those AIG employees who are so heavily sought after are not the same ones who were responsible for the debacle. But I’m wondering: what Wall Street companies are hiring these days?

[ADDENDUM: Here’s a grisly suggestion. But it would be nice to hear some reasonably calibrated admissions of accountability and remorse from those who messed up so grievously.]

More delicious spam

The New Neo Posted on by

Every now and then the creativity of the email spammers and phishers brings a smile to may face. Perhaps you’ll agree with me that the following demonstrates a certain flair and, shall we say, audacity:

I will like to start with reminding you that your unclaimed inheritance is still lurking around, up till now I am amazed at the way you have ignored all the notice I have sent out to you.

Upon the receipt of this mail I will want you to reconfirm to me your details and also tell me the reason why you have kept quiet all the while; I do believe you should have a logical answer to that.

Oh dear, oh dear, I better come up with something good.

And then there’s this:

This message will be the last notice that I will be sending out to you.

Is that a promise?

Testing spam filter

The New Neo Posted on by

Since my spam filter has decided to go nuts today, I’m starting a new thread in order to see whether comments will go through on this one. Comment away!

I’ll begin….

[NOTE: So far it appears that the spam problem is confined to the previous post.]

[ADDENDUM: I think I spruced up the spam filter to make it a bit more forgiving. I hope this will solve some of the problems.]

Those AIG bonuses prove…

The New Neo Posted on by

…that the law is an ass.

Is there no way for the Obama administration to stop huge amounts of taxpayer money from getting to the very executives responsible (or irresponsible) for making such lousy and self-serving decisions, and bringing us all to this sorry pass? The answer is: apparently not.

This is not just a shot at just the Obama administration, by the way. The bailouts were a bipartisan endeavor, begun—in a great hurry—by the Bush administration in concert with the Democratic-controlled Congress. Haste makes waste, as they say, and there seem to have been a paucity of restrictions on what the companies could actually do with that money.

At the time of the AIG bailout, the crisis was billed as one that had to be acted on immediately or the entire financial system would go down. I have my doubts about that, but who knows?

And who was willing to risk it and see? We don’t have an alternate reality in which to test what would have been the result of delay.

I’ll repeat the very wise words of author Milan Kundera on the impossibility of ever knowing the consequences of having done something different:

There is only one history of the Czechs…

In 1618, the Czech estates took courage and vented their ire on the emperor reigning in Vienna by pitching two of his high officials out of a window in the Prague Castle. Their defiance led to the Thirty Years War, which in turn led to the almost complete destruction of the Czech nation. Should the Czechs have shown more caution than courage? The answer may seem simple; it is not.

Three hundred and twenty years later, after the Munich Conference of 1938, the entire world decided to sacrifice the Czech’s country to Hitler. Should the Czechs have tried to stand up to a power eight times their size? In countrast to 1618, they opted for caution. Their capitulation led to the Second World War, which in turn led to the forfeit of their nation’s freedom for many decades or even centuries. What should they have done?

If Czech history could be repeated, we should of course find it desirable to check the other possibility each time and compare the results. Without such an experiment, all considerations of this kind remain a game of hypotheses”¦

The history of the Czechs will not be repeated, nor will the history of all of Europe. The history of the Czechs and of Europe are a pair of sketches from the pen of mankind’s fateful inexperience.

Not to mention the history of America, and of the world. “Mankind’s fateful inexperience.” I love it.

[NOTE: Here’s an explanation for why it might make sense to pay the price—apparently, these AIG hacks may be the only people who can unwind this mess. What a sad state of affairs.

Here’s a comment that’s pretty on-target:

Basically, $100 million is something like 0.1% of the money that’s tied up in these trades. We the people now owe 80% of AIG. Having new folks try to understand the deals and clumsily unwind them will cost us a lot more than 0.1% of their value, so it’s cheaper to just pay the bastards their money and have them do it.

I’m somewhat more attracted to an alternative where we enslave these people for six months and make them unwind the trades for nothing. But that’s neither legal nor feasible…]

[ADDENDUM: Evidence that the Left is far from happy about this state of affairs, as well. And Obama seems to be hearing it—or at least making a show of hearing it.]

[NOTE: My spam filter seems to be overactive today. Bear with me as I try to fix the problem.]

[UPDATE: There doesn’t seem to be any reason these comments aren’t going through properly. My best guess is that it is something about this particular post rather than a generalized problem. Keep trying to post comments, and I will re-post them if they fail to show up, because they are showing up in my spam filter. If the difficulty continues, I’ll have to make some sort of a more general change.]

Is Obama’s bait and switch a surprise?

The New Neo Posted on by

Clive Crook reflects on Obama’s hard tack to the Left [emphasis mine]:

Mr Obama came to the presidency uniquely equipped to command and retain the confidence of the country—not just his own party. He was elected because he was a hit with centrists…The US wanted to come together and Mr Obama looked the most intent on making that happen.

To a surprising degree, Mr Obama is failing to play to that strength…[H]is budget made no effort to keep centrists on board: it enchanted the left of the Democratic party and might have been calculated to infuriate moderate Republicans. Some of the White House’s recent political stunts…are old-fashioned Washington politics at its worst: polarising, juvenile and unserious.

Mr Obama was supposed to be above all that. This perception was his greatest asset. He has let it depreciate in recent days and the prospects for his ambitious and mostly admirable agenda are diminishing with it.

Shorter Crooks: what we saw is not what we got.

My response: it depends what you think Obama’s agenda was, and is.

The apparent change in Obama should be surprising only to those who failed to look closely at him during the election, and to examine his record. I, along with so many others, was always worried about Obama’s actual plans versus his stated ones, and wrote many posts about what I saw as the large number of troubling signs that he was far more of a Leftist (as well as more hypocritical, misleading, and historically ignorant) than his lofty rhetoric would indicate. This notion didn’t require a perception of him as a Manchurian candidate, just as a politician with a gap unusually vast (even for politicians) between rhetoric and truth.

But still, I preferred to hope that I was wrong, and that his more centrist side was sincere. I was determined to give him the benefit of the doubt, and to wait to form a judgment until he started actually doing things.

Now Obama has done quite enough, thank you, to bring me to the reluctant conclusion that the explanation for his behavior is actually rather simple: the old bait and switch.

Obama’s centrism was necessary to get elected. Now that he is president he can shed the mask and try to use the remaining goodwill and trust he garnered during the campaign, as well as the traditional tendency of the American voter to give new presidents a honeymoon, in order to hurriedly advance causes and proposals that are sharply to the Left, and to enlist the hugely Democratic Congress to pass bills codifying them into policy before most of America—or the press—wises up to the game.

Am I wrong about this? It’s always possible, but the evidence has become overwhelming. The tipping point was reached with Obama’s budget proposal, which seemed designed to outspend the Great Society—and swell our debt to gargantuan proportions, as well as “skyrocket” (his words during the campaign) energy costs—at a time when growing the economy and reassuring the markets and the public should have been his focus.

Is the bait and switch working so far, or have there been enough speedbumps along the way to slow the process down in time? Will Obama feel the need to damp down his Leftist ardor in order to reassure the American people and get his bills past the Republicans and their allies among the more moderate Democrats in Congress? Or will Pelosi and Reid succeed in whipping those recalcitrant Democrats into line?

Larry Summers comes by it naturally—or is it nurturally?

The New Neo Posted on by

I hadn’t previously been aware of these facts about controversial Harvard ex-President and current National Economic Council head Larry Summers:

Born in New Haven, Connecticut, on November 30, 1954, Summers is the son of two economists, Robert Summers and Anita Summers, who are both professors at the University of Pennsylvania, as well as the nephew of two Nobel laureates in economics: Paul Samuelson (sibling of Robert Summers, who, following an older brother’s example, changed the family name from Samuelson to Summers) and Kenneth Arrow (Anita Summers’s brother).

That’s quite a genetic legacy. Not only does he have economic Nobel Laureates who are close relatives on both sides of the family, but these are two of the most influential economists ever. In addition, both are still alive—Arrow at eighty-seven and Samuelson at ninety-three—as his parents also seem to be (from a brief Wiki perusal).

No wonder Summers has a special interest in nature/nurture issues within the rarified heights of the superstars of science.

Obamlet?

The New Neo Posted on by

obamlet.jpg

Sam Schulman offers an interesting notion of Obama as Hamlet. We differ on certain things; Schulman does not believe Obama to be a radical, whereas I currently strongly favor that interpretation.

But the following sounds about right:

[Obama] is a 20th-century liberal of a very conventional type: incurious, superior, and vain. What is unique about him is what is unique about Hamlet…He deliberately prolonged his youth, avoided responsibility and serious challenges, put his great gifts to work in the tiniest possible ways—all in order to protect his illusions from contact with very much reality. And now, in this particular job, he is up against the real world for the very first time. Obama’s trajectory is Hamlet’s, a youth spent as the recognized, indulged, and inevitable Prince, untrammeled by responsibility or experience.

Let’s just hope it ends better than Shakespeare’s play did.

Too much regulation or too little? Maybe it’s the wrong question

The New Neo Posted on by

There’s a lengthy and heated argument going on today about what caused the recession. Not surprisingly, people are inclined to see what fits in with their worldview.

Conservatives and libertarians tend to be on the “it’s the fault of too much regulation” side of the question. Liberals tend to be on the “it’s the fault of too little regulation” side.

Who cares? Well, the blame game is always fun. But the more important reason we should try to understand what happened is that, in trying to design solutions, it helps to know how we got here.

The solution, according to most conservatives? Less regulation. The solution, according to liberals? That’s easy: more, and throw in a lot more government intervention as a whole—why not?

As for me, I’m inclined to believe that in general “less is more,” because of the incomplete state of our knowledge of complex processes. In other words, “first, do no harm.”

I’m not an economist, as I never tire of claiming. But it seems to me that, historically speaking, totally unregulated capitalism is not desirable. The best and clearest example I can think of is the need for child labor laws and other legislation to prevent blatant exploitation of workers.

But most issues are far more complex than that. In the present crisis, let’s take the example of over-leveraging. In 2004 there was a change in the SEC rules that allowed five investment firms to apply leverage ratios that were far more risky than in the past. You can probably guess who these firms were: Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley.

Oh-oh.

So the liberals are right—right? Here’s a perfect example of deregulation—and maybe Bushian deregulation at that—that led us into this mess.

But, not so fast. Here’s the larger picture. It began (sacre bleu!) in Europe, of all places:

In 2004, the European Union passed a rule allowing the SEC’s European counterpart to manage the risk both of broker dealers and their investment banking holding companies. In response, the SEC instituted a similar, voluntary program for broker dealers with capital of at least $5 billion, enabling the agency to oversee both the broker dealers and the holding companies.

This alternative approach, which all five broker-dealers that qualified…voluntarily joined, altered the way the SEC measured their capital. Using computerized models, the SEC, under its new Consolidated Supervised Entities [CSE] program, allowed the broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1.

Not only did Europe lead the way, but this rule change was actually an attempt to increase regulation rather than to decrease it. Sound nuts? Well, let’s take a look [emphasis mine]:

[A]ll five of these major investment banks increased their debt-to-equity leverage ratios significantly in the period following their entry into the CSE program. That higher leverage, coupled with a high concentration of their assets in subprime mortgages and related real estate assets, left them exposed and vulnerable when market conditions soured in 2007-2008. For example, at the time of its insolvency, Bear Stearns’ gross leverage ratio had hit 33 to 1, and press reports placed Merrill Lynch’s debt/equity ratio at the time of its merger at 40 to 1.

But does the adoption of this relaxed net capital rule show that the SEC was “captured”? The problem with this simple hypothesis is that the SEC’s adoption of the CSE program in 2004 was not intended to be deregulatory. Rather, the program was intended to compensate for earlier deregulatory efforts by Congress that had left the SEC unable to monitor the overall financial position and risk management practices of the parent companies controlling these investment banks. Still, if the 2004 net capital rule changes were not intended to be deregulatory, they worked out that way in practice. The ironic bottom line is that the SEC unintentionally deregulated by introducing an alternative net capital rule that it could not effectively monitor.

So the new rule was an attempt to regulate more, not less, although it applied the wrong type of regulation. That’s a lot different than the cry of “more” or “less” regulation. But it doesn’t play as well on the news, does it?

My guess is that many of the policies being discussed as causes (or solutions) for the current recession feature similar ironies and/or complex interplays of regulation and deregulation (I may write on others at some future date). But the most dramatic force of all operating here may well be the law of unintended consequences: actions that lead to unplanned results that most people were unable to predict.

The most vital question is: how can we get smarter about all of this? And even if we were to do so, could we ever trust Congress and the SEC to apply that knowledge to benefit of us all?

In my continuing quest to find…

The New Neo Posted on by

…a way to make us all forget our drab and wretched post-recession lives, I hereby offer some fashion resonances.

People have been stunned by this puzzling look sported by Beyonce:

beyoncehips.jpg

Parisian designer Thierry Mugler has managed to do to Beyonce what most women would kill him for: make her hips look a lot bigger. Thanks, Thierry, for nothing.

The padded hips are said to be an homage to styles popular in the Elizabethan era:

elizabethan.jpg

I beg to differ. The Elizabethan style has an enormously full skirt that, although padded and puffed in the general area of the hips, has no relation whatsoever to the real lower body underneath. The upper torso, on the other hand, is corseted to resemble a smooth and breastless cylinder.

This was the favored body shape. And since it virtually never existed in nature, the 16th-century equivalent of Thierry Mugler had to invent it. There were no curves whatsoever on top, unlike the outfit Beyonce is sporting.

Beyonce’s dress is actually a throwback to a different—and much more recent—era. Feast your eyes on Isabella Stewart Gardner of New York and then Boston, as painted by John Singer Sargent in 1888:

isabella_stewart_gardner.jpg

This painting was considered rather risque in the staid old Beantown of the times:

When the painting was shown at the St. Botolph Club, Boston, it caused a bit of a stir. The décolletage and the flattering curves of her dress made her husband request that the painting never be exhibited in public again during his lifetime. Mrs. Jack honored his wishes and even refused repeated requests by Sargent to show it in other exhibitions until after her own death, but she clearly loved the painting.

Let us all note, with bowed heads, the stunning difference between what was considered daring then and now.

And speaking of daring—and of Sargent—we have another somewhat-Beyoncelike dress in his portrait of Madame X, a painting considered even more scandalous in the Paris of its 1884 day than Mrs. Gardner’s image was in Boston:

sargent_madame_xl.jpg

The big deal was this:

[I]t became instantly a salacious painting and a scandal in French society as a result of its sexual suggestiveness of her pose and the pale pasty color of her skin.

Once again, we can only sigh at how much the times they have a-changed.

But lest you think the French of the 1880’s utterly and unredeemably Puritanical (not likely), let me add that the original painting as shown was somewhat different and more suggestive than the one you see above. There was a little teaser in the first version that was later painted over for propriety’s sake. Here’s the original:

strappyx.JPG

No doubt Janet Jackson took note back in 2004:

jacksonmalfunction.jpg

Healing time: pay attention to your surgeon—but not too much

The New Neo Posted on by

Recently I was talking to a friend who’d had shoulder surgery six months ago. When I asked her how she was doing she replied, “Oh, generally okay, I guess,” without a whole lot of her usual enthusiasm.

Turned out she had just been to her doctor for her six-month followup, and he had pronounced her shoulder to be as good as it was ever going to get. Since she still has a fair amount of pain and limitation—although certainly nowhere near as much as she had pre-surgery—this made her rather gloomy. She’d hoped for a better outcome.

I can’t tell you how many times I’ve heard this story. I’ve experienced it myself, with various injuries and orthopedic surgeries. It’s happened to friends. It used to happen to people I knew online some years ago in a support group I joined after I sustained an unusual arm injury.

It goes like this: the doctor, or the literature, says that after a certain surgery the patient will have completed all the healing he/she will ever experience by (fill in the blank) months afterwards. I’ve found, over and over, that very often it’s just not true. People can continue to improve for quite a bit longer, even for years in many instances.

In my own case, I had a complex nerve transposition surgery in my right elbow, after an injury that had given me chronic pain and disability for nine years. I’d engaged what seemed to be the best and most experienced surgeons to perform the operation. Before the surgery they told me upfront that it was a risky procedure and that I might even end up worse off than before. They told me that the normal healing time was six months to a year. They told me I should regain full range of motion a month or two after surgery.

They told me a lot of things. And even though they were kindly men and skilled surgeons as well, much of what they told me was just plain wrong.

Initially post-surgery I was very bad, with severe pain and restriction of movement. I was in constant fairly severe pain and unable to use that arm at all. The elbow was essentially frozen.

This stage lasted much longer than anyone had expected, and stumped a number of physical therapists, who proceeded to give up on me after haranguing me. This demoralizing situation continued for months until I found a more creative physical therapist who changed the program and gave me some different exercises from the ones all the others had been pushing, and within a day or two of beginning the new regime that elbow started moving.

After a year I was told this would probably be as much healing as I would ever experience. Oh, maybe there might be a miniscule bit more for the next six more months, but that would be it. I decided that at least the surgery hadn’t made me worse. It had been a gamble that hadn’t paid off, but the result wasn’t horrific, and I never regretted giving it a try.

But the healing continued. It was significant, and it went on for longer than six months.

After two years I felt I had experienced at least a 25% improvement, maybe even more. I’d take it.

After three years that percentage had increased to 50%. I was very happy about it.

And I’m not so sure my arm didn’t continue to improve for several years afterwards. At that point it was harder to tell, since the surgery had happened enough time earlier that I no longer remembered as many details of what it had felt like beforehand. Mercifully so, I might add; I never never never want to go there again, if I can possibly help it.

My experience may be a bit extreme. But from the evidence I’ve gained from talking to friends online and off, I’d say it’s rather typical of the general trend.

So this post is a sort of pep talk, in case you and/or someone you love have been discouraged by a doctor or physical therapist who’s told you that there’s a time limit to how long a person can improve, and that you’ve reached it. Don’t believe them.