Friday, October 24, 2008

Of Water and Stone

Behind stone walls the waters are pent
The stones are earthly demigods bent
On saving us all in their ghastly image
Of Carl and Joseph and Vladimir’s lineage
Those demigods fear that each man might think
For a moment to fetch his own water to drink
Lifted and cupped within each man’s own hands
So decreed it is that the waters be dammed
Each man is to get the same number of drops
Even those who are growing the crops
A few are more equal, like those at the top
But one thing is certain, the free-flowing must stop
So parted and parceled, parsed and partitioned
The water is clouded and roundly conditioned
As children are born in the dam’s shadow, gray
They age and they labor knowing no other way
Still the demigods fear for they know deep inside
The destroyer of stone in water abides
What fathers drank deeply, is dreamt of by their grandsons
To inspire their kin to seek out stone masons
And open a crack that each man may be blessed
The power of water on stone does the rest

Be well,

Saturday, September 20, 2008

AIG, Ben Bernanke, and the Sympathies of a Free Market Capitalist

Did taxpayers REALLY just give AIG an $85 billion dollar bailout?

Turns out, not so much.
For those not in the know, American International Group (AIG) is one of the world’s largest insurance companies, and they insure, well…a lot of things. AIG’s primary and re-insurance policies cover everything from life insurance and annuities to financial securities. It is one part of this business—the part that insures a specific kind of financial security, mortgage-backed Collateralized Debt Obligations (CDOs)—that has them in so much hot water. It is not that the company is bad per se, and it is not even that the company is not profitable (it is). The problem is that the insurance on the mortgage-backed CDOs covered by AIG are in so much trouble that the credit ratings of the issuers are being negatively impacted. Well, in this sense, companies are just like individuals. If one’s credit rating heads South, then other people and banks that you use for loans will charge you a higher interest rate AND—very much to the point at hand—they will likely require you to put more down or have more equity at hand in case there is a problem. This is what is happening to AIG.

If you are a company with the reach and size of AIG and you pay just a little bit higher interest rate, then you end up with billions of dollars of increased costs and will be required to have tens of billions more in readily available capital assets overnight—corporate bonds, stocks, and real estate don’t count, they want you to have that in cash or US Treasury Notes. AIG has hundreds of billions of dollars in assets across the spectrum. It is, as they say, a balanced portfolio. To meet these newly minted capital requirements would require then to literally flood the market with sales of stocks, bonds, real estate, and even some of the businesses that they own within days. This fire sale would drive down prices on all those assets. Real estate and business units on this scale can take literally years to sell, so bonds and stocks would have to be the first to go.

Imagine the Unimaginable
In their current fragile state, imagine the impact of tens of billions of dollars in “sell at market” orders flying into the dimly-lit corridors of Wall Street. Ben Bernanke, Hank Paulson, and Christopher Cox imagined just this sort of thing.***

It must be stated that the patently extra-Constitutional (and therefore, in my book, atrocious) bailout of AIG comes in the form of a loan facility. A mustachioed and cloaked man did not show up at AIG headquarters with a handcuffed attaché' filled with blood diamonds while whispering, “Is it safe?” This is an important distinction. The much ballyhooed number of $85 billion is a loan secured by what amounts to a 79.9% “ownership” of AIG assets. They have to pay this loan back at an interest rate equal to 850 basis points over LIBOR (many readers will have home loans or credit card interest rates based on similar structures). If AIG does not pay the money back, the government gets the assets and the stockholders lose their investments (fair enough). This loan must be paid back in two years. Thought about in this way, this is a bailout of “time” rather than “money.” Two years will allow AIG to sell assets and cover obligations in an orderly way. Their other (very successful) businesses will continue to operate and earn a profit, assets and businesses will be sold over time at what they hope will be fair market values, the loan will be paid back with interest, and the impact to the overall economy will be minimized—though not eliminated. How much of the bill will taxpayers be on the hook for after all this washes out? No one knows, but—based upon estimated asset values—anywhere from a small net profit to a few tens of billions of dollars depending on how successful the overall economic recovery plan is.

The Empire Strikes Back
Do not get me wrong--I am structurally and philosophically against such government action. If we include Fannie Mae and Freddie Mac and the others out there, the Federal Government now has substantial control over about 50% of the nation’s mortgages and the insurance that covers them. This is terrible for free markets, capitalism, the republican form of government, and freedom in general. A few years hence one wonders if the almighty heroes of Washington DC will set the markets free again or cling jealously to their new empires (I shudder at the possibilities). However, to be fair, we must recognize that we were at serious risk of having trillions of dollars in assets suddenly become un-insured and un-insurable for the short term as AIG flirted with the idea of bankruptcy to buy time. That very real possibility, coupled with a likely asset sell-off-driven market disruption, is probably the best definition of "uncertainty" that one can find outside of Schrodinger’s Cat.**

Markets--as we all know--hate uncertainty. As such, the economy was at a very real risk and I suspect that Ben & company looked into the depths of AIG's business structure and saw a spaghetti nest of deals and re-insured assets that could not be untangled in the time allowed—in their opinion—and therefore took what they believed to be the lesser of two very distasteful evils.

Not a Golden Parachute, More Like and Emergency Rip Cord
Thomas Sowell—noted economist and a true lover of all free markets—once postulated that if one were to fall out of an airplane, the price you would be willing to pay for a parachute would quickly escalate to your entire net worth, but there is no way that the market could react fast enough to deliver one to you in time. To his way of thinking, these types of things occasionally occur in nations and should rightly be the only times when we accept drastic governmental actions that interfere with free markets. Perhaps we should allow a little charitable reflection on this concept when we deride Mr. Bernanke and the actions of his economic team.

Be well,

* Full Disclosure: I own about one hundred shares of AIG--now worth the equivalent of one high-quality steak dinner with cocktails.
** Yes, I know that Heisenberg is a better analogy to uncertainty, but the “alive/dead” paradox is far more prosaic under the circumstances.
*** Ben Bernanke is the head of the Federal Reserve Bank, Hank Paulson is the Treasury Secretary, and Christopher Cox leads the Securities and Exchange Commission (SEC).

More information can be found in the MarketWatch article.

Monday, September 08, 2008

Hype “O” crite? How Sarah Palin Exposed Oprah Winfrey

To Palin, or Not to Palin?
Oprah Winfrey is losing a few fans, probably for the first time in her career. She who is famous for bonding with her decidedly female-centric audience and calling every female guest “girlfriend” has discovered at least one lady she does not want to bond with; Sarah Palin, the nominated Republican candidate for Vice President.

Oprah’s Un-fairness Doctrine
Now it must be said that I am no proponent of the Fairness Doctrine; that misguided and elitist effort to force certain broadcasters and journalists to carry opposing opinions and representatives on their capitalistic and privately-owned programs. Just the opposite. In Oprah’s case, she most definitely owns her show and should be able to put anyone on it that she wishes, banish anyone that she does not, and to enjoy or suffer the consequences therein through the free market of her fan base. But her claim that she has decided to NOT have Sarah Palin (arguably the hottest interview ticket in town) on the Oprah Winfrey Show because, “I made the decision not to use my show as a platform for any of the candidates” is a bit hard to swallow.*

Oprah’s Favorite Candidate?
Is there anyone who has not heard Oprah calling Obama “my favorite Senator” or seen her hosting events and giving speeches on his behalf? Did she not arrange a gushing interview with Barak’s wife Michelle for O Magazine?** Has she not introduced and hosted and anchored events to no end for the Obama-nation? (The links are many—search YouTube and News)

Could it possibly be that Oprah knows who she wants to be president? Could it be that she also knows—all of those far too friendly “girlfriend” comments aside—that somehow having the opportunity for an exclusive interview with a successful, popular, stand-on-her-own-two-feet, truly strong, and independent woman who has a fair chance of becoming the first female Vice President of the United States without the need of riding on a man’s coat-tails—thus fulfilling the aspirations of over one hundred years of feminist promise since the days of suffrage—might just not be in the best interests of “her” candidate?

One can argue politics. One can argue freedom. I would not rise to criticize if Oprah said, “Hell no, it’s my show!” and got about filling her popular TV time-slot with segments on how to use common house-hold items in the creation of “Obama for President” posters for your kid’s kindergarten classroom. But to spend over a year campaigning for one side and then to obliquely dismiss a truly historic interview opportunity with some feigned notion of electoral objectivity is, at this point in the game, just silly, stupid, and “O” so hypocritical.

Perhaps some of her ardent fans are seeing these more unseemly traits for the very first time.

Be well,

Thursday, September 04, 2008


Life is refined for us

Our love made more complete
As the generations planted
Spring up about our feet

As the summer rains and solstice
Quench their peaking needs
We determine by time and distance
If sown among grasses or weeds

For by our hands all manner are planted
And they will reap what we have sown
Within them the seeds we've planted
Bearing fruit once they have grown

Sow therefore with caution
Plant your lessons with great care
For the harvest of your sowing
Is the burden they will bear

Be well,

(tip 'o the hat to UJ)

Monday, April 07, 2008


“Each one of them that heeds the call,
Veritably to the justice hall,
Ends not with a simple vote or tally
Reaching unto every street and alley.

Yet the pealing of the Liberty Bell
Makes low the gates of tyrant hell.
Ask I, ‘Who should ring it?’ and
None answers, save one outstretched hand.”

Be well,

Sunday, April 06, 2008

Truth, Error, Lies, and Deception

No lie exists until spoken, therefore lies serve at the pleasure of the liar. Error exists only upon action, therefore errors serve as traps to the actor. Truth stands unspoken and without recognition or action. No deception exists until truth, error, and lie are in the hands of the deceiver—they are the raw materials with which he plies his craft.

Be well,

Thursday, April 03, 2008


A bit if meat, a draught of wine
A spoon of kingly porridge
Each rests within temporal reach
And within these we may forage

Tell me then which is not for me
From which I must refrain
Yank upon the steely bit
Place your hand upon the rein

You who say, “There be no God
And each man’s choices are his own”
Would make me pay another’s fees
And set yourself upon that throne

Can quorum pars enslave a man
By lot or plebiscite
Without risking rude awakenings
When the slaves don to unite?

Be well,