Before continuing with the train of thought in the last post, a few comments on the "news of the day." On Eliot Spitzer...Masters of the Universe 1; Cape Crusaders 0. Or, one could subtitle the Spitzer Story as "More Irrational Exuberance." If he'd been some obscure Congressman (or U.S. Senator), maybe he could have ridden it all out. But, not as CEO of New York State. What he apparently did was certainly wrong, but it was the hypocrisy that got him, not the crime.
Ferraro comment on Obama...stupid comment from a stupid person. Does not reflect well on Clinton, even though she disavowed it. For those not following the news: Ferraro (Walter Mondale's VP running mate, formerly an obscure Congresswoman) said essentially, Obama would not be where he was today if he wasn't black. Hmmm? While that may certainly be true of Obama's victory in the Mississippi primary, she didn't say that. Her statement was all-inclusive. Old time Democrats (largely Hillary supporters) don't get it. Outside of the Deep South, it's his message and not his skin color. To most blacks, his candidacy may be "racist," in the sense they will not pass up the chance to vote for a person of color, with whom they can agree and one can hardly blame them for that stance. But, Black America isn't going to get Obama elected...they have neither the numbers or the money needed. Obama is beating Clinton for three reasons: 1) he captured the "Change" theme and made it his own); 2) the ABC fear - i.e. "Anybody But Clinton" - that Hillary will bring Republicans out of the woodwork to vote against her; Republicans that might otherwise sit the election out; and 3) The Clinton Years never lived up to their promises - NAFTA, Greenspan, Rubin, the dotcom boom, balanced budget, surplus, etc. may have been good for a minority of the Party, but were viewed by many as a betrayal of the Party's ideals. "Change," in these people's minds, means change not only from Bush, but from the Clinton's as well.
It may be abit of a stretch to call Hillary "Bush Lite," but many of the Obama supporters view her as such. Bush took policy so far to the right, that even "center" today is further to the right than where most Obama supporters feel we need to be. Hillary's big mistake is to try and play to the "New Center."
Broadly, Franklin Roosevelt redefined the center of American politics, by moving it considerably to the left (Keynesian economics, banking controls, government work projects, increasing national debt, etc., etc.). Although Republicans are loath to admit it, I believe that without FDR's policies the country may have well moved farther to the left to some form of radical socialism. Roosevelt, through his policies, largely prepared the country for war and saved the rich from themselves.
Bush has moved the loci of the center of American politics back to the right...sort of the pre-Roosevelt "center." Clinton is now playing to this center. Obama supporters see a McCain-Clinton race as returning to the days of "choosing the lesser of two evils." Sort of which group do you want to vote for: rich Democrats or rich Republicans?
In Obama, they see the "potential" for radical change...IF such change is necessary to hold the country together ala 1933. In this, he has the charisma of both JFK and FDR...the ability to move the country beyond "business as usual." And, of course, it is this feeling that makes "recent experience in American politics" a drawback, not an attribute.
Very little, if any, of this has to do with his skin color.
Speaking of 1933...the Feds have, as a CNBC commentator put it this morning, thrown everything but the kitchen sink, at the subprime mortgage crisis without much effect. Government, as we know it, is running out of options. Did anyone think that a Bush appointee would ever call for additional government regulation? Well, Secretary of the Treasury Paulson did this morning. And to top it off, Paulson is the former head of Goldman Sachs.
It is becoming increasingly clear that the underlying prime mover behind the crisis isn't "liquidity," but confidence. Flooding the market with money doesn't mean a damn if people don't want to spend it. Meanwhile, in large measure, driven by this "flood," the dollar continues to fall and oil and gold continue to rise. Global markets are sensing that the barn door is being closed after the horses have left.
Paulson's speech, which was basically a repudiation of Bush economic policy, will I believe have a positive long term impact. He said, today, what has been obvious for some time and echoed much of what I wrote about in a recent "Guest Commentary" in the local paper. Econ 101: The prime purpose of free markets is to establish value. That value is established by transparency, or "equal information to all market participants."
Many of the new financial instruments do provide a benefit to the market as a whole, but their dangers may off-set their value, through the loss of transparency and being beyond the scope of oversight and regulation. Sort of like, the tail beginning to wag the dog.
Your typical Las Vegas casino contains approximately 30 games of chance. "New financial instruments" probably offer three or four times that number.
Let's say you're a typical Vegas toursit, who is in town primarily to see the shows and eat lots of cheap food, and put a few coins in the slot machines. You know that slot machines are pretty much luck...that the casino operators, by law, have a range of returns (odds) they must obey, and a further range, by specific machines, which they must meet, within the overall range.
The first type of advice you want is which machines give you better odds at this casino (a financial advisor). This person tells you pretty much what you could figure out for yourself - i.e. try the machines by the restaurant...or the machines by the reservations desk. So, you go to one of those machines and gamble a few coins. Ah, but there is another player sitting beside you and that player says: You aren't doing it right; you've got to pull the lever a certain way, or play a certain way...doubling down, etc. So, while you're trying these various methods of playing, another person comes up and tells the person sitting next to you, "I'll bet you he losses on the next play." The person takes the bet; then a third person walks up and tells the person sitting next to you, "I just saw your side bet; I'll let you hedge that bet, by betting that you win your bet, so if you lose, your side bet won't be a total loss."
And, so forth and so on. In a short time, there are numerous bets riding on your next quarter. One person has been watching your particular machine for a year, calculating each outcome; another has inside information on the odds set, by the casino, on that particular machine an hour ago. Another person who is absolutely certain they know the outcome of the next play, but doesn't have the money, borrows to place their side bet. Etc. In sum, you have a lot of money wrapped up on the outcome of your next play. Then, you remember that the show you came to see starts in five minutes and walk away. There is no next play. And, when you get out of the show two hours later, you find you no longer have a room, because the casino has gone into bankruptcy...all because you failed to play a quarter.
I believe that the market today is in a similar unraveling. Like Chaos theory and the butterfy effect, someone, somewhere thought: "I don't want to play anymore; let them foreclose," and walked away. The rest followed. What failed? No regulation of the side bets and no one who questioned: "What if he doesn't want to play?"
[I've gone "off topic" again. I'll continue "on topic" in next post.]
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