Something So Right

Bubble and Meltdown - Jobs again

2012-01-04T18:48:00.002-05:00

I haven't added to this thread in awhile but nothing much has changed so I can pick up where I left off. We are back in an election cycle so the conversation about policy is pretty much over. For the next 11 months the conversation will be about politics and personality not policy.

Much of the political discourse on jobs and the economy is not focused on what is actually happening.

1) US jobs are being lost due to automation and globalization. Nothing can stop this trend.
2) The largest percentage of US GDP is consumer spending. It is about 70% and it is growing very, very slowly.
3) Businesses do not need tax breaks to create jobs they need demand for their products and services.
4) The biggest uncertainty that businesses faces is not tax policy or the health care insurance reform. The biggest uncertainty is whether there will be demand for their products and services. On the global basis the biggest threat to demand is the Euro crisis. European governments are adopting "fiscal reforms" and "austerity budgets" that will likely result in a recession in Europe in 2012.
5) US consumer spending can only increase on a sustainable basis when personal income increases. The credit bubble allowed consumer spending to increase but spending more than you earn is not sustainable.
6) Accumulation of wealth and income in the US hampers job growth.
7) The conversation about the POTUS "managing the economy" or "creating jobs" is surrealistic. The federal government is powerless to do either one.

So what it the way forward?

A slow recovery. Eventually consumer spending will increase as people who work continue to first pay down their debt and then slowly increase spending. I expect unemployment to be over 8% for years and years.

The US fiscal problem will eventually be sorted out by:
- increasing taxes especially on the affluent
- inflation
- massive cuts on defense spending
- reducing health care costs by expanding on the health care reforms already passed
- economic growth

This will all take time.

Bubble and Meltdown - Jobs, Jobs, Jobs

2011-09-16T17:29:00.002-04:00

I have been meaning to write this for sometime. One of the most underreported aspects of the American economy is the loss of jobs and the decrease in middle class wealth and income. These are long term issues that preceded the bubble and still exist today.

Let's start with the loss of jobs. The reasons are obvious. Technology and globalization. It would be possible to write an entire book about how technology in the long term eliminates jobs. Some argue that technology increases productivity and therefore wealth and income and it has from time to time and in some parts of the economy. But the long term trend is inescapable. From small manufacturers, to farming, to large scale agriculture, and now to services.

The impact on globalization on US jobs is obvious to us all. Impacts started with manufacturing and have extended to low value services and now extends to professional services such as accounting and computer science.

Next combine the loss of jobs with loss of wealth and income for the middle class. The main drivers of this are also long term. First the competition for jobs due to job scarcity drives wages down. The reduction of the power of organized labor has hurt all US workers. Some claim that the unions were too powerful but that was clearly not the case. The unions never had that much power. But while they were viable they supported wages and benefit levels for non-union workers. Almost all gone now.

All of this would eventually lead to a reduction of consumer spending. This was avoided for awhile. First wives entered the work force in the 70s and 80s. In the 90's there actually was a peace dividend and the subsequent economic growth and asset appreciation (housing and stock market) supported consumer spending.

By 2000 all of these short term influences had been spent. Jobs were still being lost and wealth and income was beginning to become concentrated. But we had two bubbles in the 2000's that disguised the longer term trends. After the Internet bubble we had a jobless recovery. We would likely have fallen into a long recession but then we had even a bigger bubble. The bubble was not just housing. It was an overall asset bubble, a credit bubble and a leverage bubble. All of this excess spending saved or created jobs.

Now that's over and the longer term trends have re-emerged.

I would not be surprised if the unemployment rate stays over 8% for 5 to 10 years.

I would not be surprised if we had a Depression with offical unemployment at 15%.

There are government policies that can improve this situation but they will seem so radical to the American voter that they will not have a chance for success until it gets much worse.

Macroeconomics - a political science

2011-04-17T12:21:00.006-04:00

Before I continue on the remaining topics let's pause to talk about the field of macroeconomics. Macroeconomics is a political science. It is not a scientific body of knowledge where there are truths, facts, theorems, or problems with correct answers. It is a body of knowledge about values not truths and in this regard it is like other areas of philosophy such as morals and ethics. It is unlike related areas that are often lumped in with macroeconomics like microeconomics or finance which do contain certain facts, theorems and valid, proveable equations.

When you hear an pronouncement or opinion from an economist ask yourself whether the speaker acknowledges that their views or based on their values.

One tell-tale sign is their terminology. If the speaker talks about economic growth or GDP as the measure of a countries economic well-being then the speaker is likely a conservation economist. If the speaker talks about unemployment, poverty levels or middle class income as a measure of a nations well-being then the speaker is likely a liberal economist.

Since the two sides have basically different values they will measure the economy in different ways using different tools and different statistics. They can barely have a conversation since they don't see the world the same way at all.

Bubble and Meltdown - the agency problem

2011-03-23T16:26:00.006-04:00

The agency problem was best explained in Stiglitz's book Freefall. In general the agency problem occurs when a economic player is making decisions with other people's money. The agent may not make the same choices as the priniipal who actually provides the money.

In the mortgage mess it seems that everyone was an agent.

The buyer obtained 100% mortgages and therefore had little or no money at risk.
The mortgage broker sold the mortgage to a Wall St. bank. Their risk was limited to the short time they held the mortgage.
The Wall St. bank combined the mortgage into securities and sold the securities. Their risk was limited to the short time they held the mortgage.
The rating agencies had no money at risk.
Often the buyers were fund managers, pension fund managers, bond fund managers, hedge funds, etc. They had little or none of their own money at risk. In fact some of the bond fund managers were obligated to buy high yield bonds.

The "invisible hand" of Adam Smith assumes that prices are set by the market forces of supply and demand. There are free market fundamentalists that still believe that this "invisible hand" actually works to set prices so that supply and demand reach equilibrium. And this does work fairly well for consumer commodity products and services.

But it assumes that the buyers and sellers are rational actors, they are making rational decisions in their own best interest and that they both buyers and sellers have the same information. The agency problem is that if the buyers and sellers are agents and are not making decisions in the interest of the real buyer or real seller then the invisible hand simply isn't there. This is only one problem with the invisible hand. There are others which we may get to.

Contrast the players involved with the housing and credit bubble with the Bailey Savings and Loan system. In this system a local bank lent money to a developer - as a construction loan. Some of the money came from their depositors but some of the money was the bank's own money. The ratio between the depositors money at risk and the bank's own capital is leverage and the leverage was probably around 10 to 1. The banker would make the construction loan based onthe developer's past performance, their credit worthiness and the bank's assessment that the housing that was built could be sold. The developer had to put some of their money at risk as well.

When the contruction was complete the developer would sell the homes. The home buyers would get mortgages from the same bank. The bank would assess the value of the house, the credit worthiness of the buyer and would expect the buyer to put some money at risk - at least 20%. The homes are sold and the construction loan is repaid.

The banks hold the mortgage, collect fees and interest and pass on some of the interest (always at a lower rate) to their depositors. The difference in the interest rates results in profits to the bank less reserves for the possibility of some defaults. But even in the case of default the bank is protected since they assessed the value of the house and the buyer had 20% of their money in the house. Only if the value of the house decreased more than 20% was the bank at risk.

Now compare that simple model with the model used during the credit and housing bubble.

Since most of the players were agents and not principals they due diligence of assessing the overall housing market, the specific home assessment, and the credit worthiness of the buyer, the developed, the mortgage broker and the Wall St. bank were all neglected.

The buyer borrowed money from the mortgage broker.

The mortgage broker borrowed money from the Wall St. bank. They paid the money back when they sold the mortgage to the Wall. St. bank.

The Wall St. bank borrowed money from institutional investors and the ratio of money at risk to their own capital wasn't 10-1 it was 35 or 40-1. They paid the money back when the sold the mortgage securities to their investors.

And the agents became rich by paying themselves large salaries and bonuses while they put their corporations and the shareholders - the real principals at risk.

So when it all fell apart the shareholders or Countrywide Financial, Citigroup, Lehman Bros, Bear Stearns, Bank of America all went south but the executives walked away with their bonuses intact.

Bubble and Meltdown - part 2

2011-03-01T08:18:00.003-05:00

Been away for a couple of weeks. Before I move on to the other topics one more thought on the Giant Pool of Money.

One of the reasons given for a government policy of fiscal restraint is that huge government borrowing will "crowd out" borrowing by business. The idea is that as the deficit and national debt grows the US goverment will have to issue more and more T-Bills and Bonds and will soak up all available fixed income investment money. Over time the investors will require higher and higher interest rates not due to the risk of default but due to the risk of USD inflation. As the interest rate rises on US government bonds then it will also have to rise on all USD corporate bonds. USD corporate bond holders face the same risk of USD inflation plus the credit risk.

But after a decade of huge deficits it hasn't happened. Even before the meltdown US government bonds had low yields and after the bubble, the bail-outs, the 2010 stimulus and the 2011 tax deal 10 year bonds are currently yielding less than 4.00%.

Why?

I believe the answer may be the Giant Pool of Money. The supply of money available for fixed income investment continues to increase. The money is concentrated in foreign central banks, balance sheets of the largest corporations, US banks and the super-rich.

If interest rates on US government and investment grade USD corporate bonds stays low then this may be an indication that the Giant Pool of Money is a decisive factor. Stay tuned.

Bubble and Meltdown - chapter 1

2011-01-21T16:59:00.005-05:00

Over the last year I have read 10+ books on the financial bubble and meltdown. Much of the story is well known but there are some aspects that I don't believe have received the attention they deserve.

Here are some under-reported aspects:
- The Giant Pool of Money
- The Agency problem
- How the bubble lead to misplacing of resources and lower rates of unemployment that were unsustainable
- How the wealth and income disparity leads to stagnation
- Repeal of Glass-Steagal
- Global imbalances in trade and savings

Let's start with the Giant Pool of Money. I can across this from a Podcast, This American Life, which is the number 1 podcast on Itunes. http://www.thisamericanlife.org/radio-archives/episode/355/The-Giant-Pool-of-Money. The basic idea is that there is a global Giant Pool of Money available for investing - much of it looking for fixed income investments, e.g. bonds. The Pool of Money is always increasing in the long term but in the years leading up to the bubble it really expanded. Part of this was due to the increased savings in Asia as millions of Chinese and Indian workers climbed out of poverty and saved a large percentage (at least compared to Americans) of their income. In addition the US trade deficit with China lead to the Chinese banks to accumulate billions in USD.

So we had a huge increase in money available for investing at a time when the fixed income investment of choice - US T-bills and Treasury notes had very low interest rates. So investment managers all over the world were looking for investments with a better rate of return and Wall St. invented new investments especially mortgage and asset backed securities that paid higher rates of interest. But even these new securites could not match the demand so Wall St. invented an alphabet soup of financial derivatives that we have all read about - CDO and CDS and then more deriviates based on the derivatives - synthetic CDOs.

We all know what happened next. In order to create more fixed income securities the mortgage brokers made very bad loans. They borrowed money from Wall St. to make the loans but then sold the mortgages back to Wall Street where they were packaged into asset backed securities and sold to global investors. Why did these supposedly well-informed investors buy securities that consisted of bad loans? One, they were rated AAA by the ratings agencies. Two, the feeling was that even if the loans went bad they loans were backed by strong collatoral, i.e. houses.

Of course what most of us missed was that the home prices were based on a bubble.

If you read what those in the industry said at the time it was "housing prices never go down" (even though housing prices have gone down substantially in the past). Looking back it is easy to understand that housing prices in the long term have to be linked to income and income for most Americans was stagnating. If you plotted housing prices and growth in income you would see a huge and growing gap.

These securities were very vulnerable not just to falling housing prices but even if housing prices stayed flat the borrowers would be unable to pay off their mortgages once the teaser rates expired nor would they be able to refinance. Had prices remained flat there would have been a large amount of foreclosures but when housing prices fell the number of foreclosures increased exponentially.

What drove the market for mortgages was not demand by consumers for houses it was demand for fixed income securities from the Giant Pool of Money. So mortgages were offered with no consideration as to whether the mortgage could ever be repaid. More on that when I discuss the agency problem.

The Giant Pool of Money tells Lehman, Bear Stearns, Citi, Merrill Lynch, Goldman Sachs - find us more securities. Wall Street works with the mortgage originators and makes them short term loans to make mortgages. Local banks make short term loans to developers. Developers build more homes and work with the mortgage originators to find buyers. The house is sold. The developer pays back the local bank. The mortgage originators sells the mortgages to Wall St. and pay back their short term loans. Wall St. finances all of this with short term loans in the form of CD and loans from the large banks. The mortgages are packaged into securities and sold to the Giant Pool of Money. Wall St. pays back their bank loans.

Everyone gets paid mostly in fees. The risk has moved from the local banks, the developers, the mortgage brokers and Wall Street to the Giant Pool of Money.

Except that there are always more loans to be made. More construction loans, more houses, more bad mortgages, and more risky mortgage backed securities some of which are not sold to the Giant Pool of Money but are held by the Wall St. banks.

So where's the blame? Well kind of everywhere. Every one in this chain is making mistakes. It may be that the least informed about the risks are the consumers and the Giant Pool of Money. Everyone else is simply trying to skim off fees and trying not to be standing when the music stops.

More on the agency problem next time.

Ticket to Ride

2008-01-10T07:00:00.000-05:00

Well, the NH primary was discouraging. Clinton won and Guiliani wasn't buried by Ron Paul so the dread Clinton-Guiliani race is still a possibility.

If that occurs we need an independent ticket and I have a better idea than Mike Bloomberg.

The 2008 Dream Team

President - Colin Powell, VP - Bill Bradley

They announce the following choices for their cabinet.

Secretary of Defense - John McCain
Secretary of State - Al Gore
Secretary of Treasury - Mike Bloomfield
Attorney General - John Edwards
Head of Homeland Security - Mitt Romney
Head of EPA - Ralph Nadar

We Didn't Start the Fire

2008-01-09T19:35:00.000-05:00

Goose Gossage into the Hall of Fame, finally.

Boys and girls back before the days of the closer, back before Lee Smith, Dennis Eckersley, Mariano Rivera and Trevor Hoffman; baseball teams had relief pitchers who were Fireman. They came into the game - not in the beginning of the 9th inning, no on, no out, with their team ahead. They came into the game in the 7th, 8th or 9th with men on base and good hitters up and their job was to prevent not merely the batter at the plate from scoring, their job was to prevent the runners at 2nd and 3rd from scoring. They were call Firemen. They doused opposition rallies.

In this role no one was better than Goose Gossage.

In the beginning, pitchers pitched the entire game. Babe Ruth pitched 107 complete gamesi in 5+ seasons; Greg Maddux has completed 109 games in 22 seasons. Relievers were not that important before the 1960's.

There were a couple of successful relievers for a season or two but the first star reliever was Hoyt Wilhelm. He changed the game. He was a knuckleball pitcher and a relief specialist. He set the example for relief specialists who had one or two dominant pitches. In the 1960's the firemen role was established by guys like Roy Face, Ron Perranoski and Dick "the Monster" Radatz. This was the role that Gossage assumed in the 70's and 80's.

He came to the Yankees in 1978. In the previous year, 1977, Sparky Lyle was the Yankee fireman and won the Cy Young award. But everyone knew that Gossage was much, much better. Craig Nettles offered a famous and brilliant line that Lyle went from Cy Young to Syanora when the Yankees signed Goose.

He was that good. And, certainly better than Bruce Sutter who was elected into the Hall of Fame last year.

Rocket Man

2008-01-07T11:50:00.000-05:00

So what do we make of Mike Wallace's interview of Roger Clemens?

Not much I think.

First, I do not trust anything I see on 60 Minutes. The interviews are edited. It seems to me that the story lines are always one-sided. It is not journalism, it is a TV entertainment show.

Putting that aside, at least Clemens directly and vehemently denied the allegations. So it really comes down to who is lying? Brian McNamee or Roger Clemens? I don't think we will ever a final answer to this unless one of these two change their stories, or this is a third party with corroborating evidence - one way or another.

NcNamee's claim is bolstered by the Mitchell report which states that McNamee made the following deal with that prosecutors.

"No truthful statements can be used against McNamee in any federal
prosecution by that Office; if, however, he should be untruthful in any statements made pursuant to that agreement, he may be charged with criminal violations, including making false statements, which is a felony."

This suggests, and apparently Mitchell believed this, that McNamee had no reason to lie and a very good reason to tell the truth. Additionally McNamee's story about Andy Pettitte was confirmed by Pettitte.

On the other hand, McNamee claimed he started giving Clemens steroids during the summer of 1998 and Clemens showed immediate improvement. My understanding is that steroids does not work this way. It only works over time.

Clemen's version is bolstered by (a) his agreement to testify before Congress, (b) his slander suit, and (c) most importantly, his performance and his body.

Unlike Bonds, Clemens did not get better after 1998. True, his performance at that stage of his career was historic. He won two Cy Young Awards after 1998 but neither year matched his early years with the Red Sox. He stopped pitching complete games after 1998. His last good year was 2005 at age 43. His ability to sustain his performance is similar to Nolan Ryan who also pitched effectively into his mid-40's.

So bottom line, Clemens is innocent till proven guilty. Assuming that his performance was not improved by PED, then you have to say that he is easily the greatest pitcher since WWII. Walter Johnson, Lefty Grove and Clemens are the three best pitchers in history.

Dr. Robert

2008-01-01T13:44:00.000-05:00

So what are we to make of the Mitchell Report on steroids and performance enhancement drugs(PED)?.

Not much I think.

The report affirms what we all believed which is that the use of PED was widespread and that baseball managers, general managers, owners, trainers, players, agents, players union and the commissioner's office were all aware of this fact and did nothing.

Why was nothing done? I'm not sure. Who was being hurt by the use of PED? Not the owners, general managers, managers or the players who were using PED. I think the only potential agents for fixing the problem were the commissioners office and the player's union. The primary victims were the clean players who were at a competitive disadvantage to the users.

The reasons for using PED were and are compelling. Take the example of a marginal catcher. If you play at AAA level you would make less than $100,000. The minimum salary for the major leagues is about $400,000. If a marginal catcher can sustain a career as a backup catcher the salary would grow to $400,000 - $700,000 a year. If a marginal catcher could land a starter's job even for a year or two the salary would probably exceed $1,000,000.

The difference is ability of a AAA-catcher and a backup catcher (e.g. OPS .630) and a marginal starting catcher (e.g. OPS .700) is indeed thin. But the difference is salary is enormous.

The same salary disparity combined with ability similarity exists for marginal relief pitchers.

So it was not too surprising to see that many of the players named in the Mitchell Report were marginal players. They had a lot to gain and little to lose by taking PED. And since there is no testing for HGH, I would suspect that there are many players in these categories still using HGH.

What should we think about the players named in the report?

Not much I think.

Mitchell had very few sources. There was a concentration of players named that were associated with the Mets trainer and Yankees conditioning coach. I suspect that other teams had as many players involved as the Mets and Yankees. My guess is that many of the players named were users but the evidence in the report was not corroborated by second sources. As my son pointed out, a newspaper, even the NY News or Post would not have printed these names based on only one source.

The one issue that remains open is how should serious baseball analysts evaluate the records of players in this era in general, and how should we evaluate the records or known PED users such as Bonds and McGwire? Note I leave Clemens off the list of "known users" for now.

That's a difficult question that I leave for another time.

Mrs Robinson

2007-12-31T07:22:00.001-05:00

Sitting on a sofa on a Sunday afternoon,
Going to the candidates debate ...

A presidential election between Hillary Clinton and Rudy Guiliani would give us a choice between two candidates completely unqualified to be president based on their experience and personal integrity. This would be the ultimate "lessor of two evils" election. Maybe our worst option since Nixon-Kennedy.

Here's a look at some of the other possible elections.

The polar opposite of this would be a race between two "nice" guys - Obama vs. Huckabee. They also lack experience but at least we would not have to listen to Hillary and Rudy shriek at each other for months.

If somehow Iraq becomes the central issue and we want to elect a president that actually has some ideas regarding Irag and some foreign policy experience then the choice could be McCain vs. Biden. Both of these candidates at least thought about what to do next in Iraq.

If the election becomes a choice between management and leadership skills and experience then Mitt Romney becomes the obvious Republican choice. For the Dems the choice is less obvious. If you were an investor in a Fortune 500 company which one of the Democratic candidates would you want to run that company? The answer may be Bill Richardson or perhaps John Edwards.

If each party was most concerned about electability then they would each choice a white, male, Protestant that was either a sitting president, governor, former vice president or war hero and was not from the north-east. Did you know that there since World War 2 we have elected only one senator, only one North-Easterner and only one person who was not a Protestant? All three exceptions were JFK, 1960.

This 'electability' eliminates all of the Senators and Guiliani. It also eliminates Romney. That leaves Bill Richardson vs. Mick Huckabee. I could live with that choice.

Here Comes The Sun

2007-11-21T16:27:00.000-05:00

It seems that the dialog about global warming and climate change is very different than it was a year ago.

No longer is there a serious disagreement or debate on (1) the earth is getting progressively warmer, (2) there is a statistical correlation between green house gasses and the earth's temperature, (3) there is a causal relationship between burning fossil fuels and green house gasses, (4) therefore the earth's rising temperature is caused by the action of humans over the last 50 years, and (5) the trend will continue unbated at least in the short term, probably for 5-10 years.

Now the conversation is about medium term adaptations and longer term solutions.

It seems to me that some of the news (again medium to long term) is positive. Alternative energy solutions abound and as the direct cost of oil increases and the indirect costs of burning oil and coal become more objectionable then these other alternative sources will become economically viable. For example, I would not be surprised to see solar panels as a routine addition to residential housing or average car efficiency exceeding 50 mpg.

Someone once posited that in time George Harrison would be remembered as one of the major figures in bringing eastern religion and philosophy to the attention of the West and ,oh, by the way, he was also a musician.

Perhaps Al Gore will be chiefly remembered as one of the main figures who changed perceptions about climate change and ,oh, by the way, he was once close to being the president of the US.

What's Going On

2007-11-09T06:36:00.000-05:00

Some ideas about the economy and markets. I have been thinking about the macro trends in the economy and have wondered how we can maintain these trends:

The US government spends more money than it raises each year.

As a nation we import more than we export each year.

As a nation we consume more than we produce each year.

As a nation individual house-holders spend more than they make.

Some individuals borrow more than they can repay.

So he have a huge and growing national debt. Living it up ..

The concern of foreclosures is leading to a tightening of credit and leading financial losses for the financial services companies and a slowdown in home-building.

And, lastly, a huge and growing deficit in the balance of payments. Let's start there.

The trade imbalance means that China ends up with lots of US dollars that they do not spend on US goods and services. What happens to the money? It goes into savings and investment accounts denominated not in Chinese Yuan but in US dollars. So the money has to be invested in either US dollar financial assets, e.g. stocks or bonds, or the Chinese investor can exchange the US dollar for some other currency. Since China has so many USD they primarily invest in US Treasury bonds, e.g. they are buying the bonds the US government has to issue each year since the US government spends more than it collects in taxes, fees, etc. So China is lending the US government money to finance the war in Iraq, tax cuts for the wealthy, and bridges to nowhere.

When the Fed reduces interest rates, short term T-Bills will pay less in interest and and inflation may grow. If we get inflation the value of long term bonds will decrease. Both of these make buying USD financial assets less attractive. So holders of USD trade them for more "stable" currencies such as the Euro, British pound, etc and then buy financial assets dominated in these currencies.

For this currency trading, if someone is selling Euro for USD they will play less for the USD as the number of sellers increases. This is just basic supply and demand combined with the financial risk of owning USD. So what happens, the USD gets cheaper in relationship to other currencies, the price of imported goods and services increases. The price of oil may exceed $100 a barrel before I finish writing this.

So what does this all mean?

The bond market is worried about inflation.

The stock market is jittery.

Stuff, especially imported stuff will cost more. Since we import oil this means the cost of energy will go up so the cost of US produced goods will also increase. In a word, inflation will increase and eventually interest rates will go up.

We will have to buy less stuff. This means a "reduction in the standard of living". I put that in quotes because it does not mean a reduction in the quality of life for most of us. It just means less stuff.

This could be a good thing. We spend less on imported stuff and maybe more on local goods and services. We use less energy. We create less waste. We buy only what we can afford because of the increase in the cost of borrowing. Maybe we save a little money from time to time. We visit the Blue Ridge or Rocky Mtns instead of the Apennines. Maybe we ask Dad for some money.

Maybe the Chinese economy slows down and they slow down a little in the pollution of the planet. Maybe the US government balances the budget.

In the meantime if you are an investor, invest in stocks not bonds especially not bonds in USD. Invest in natural resources as a hedge against the USD continuing to getting weaker.

Lastly and most importantly, Don't Panic.

It's just stuff and mostly harmless.

Nowhere Man

2007-11-04T15:15:00.000-05:00

I inadvertently blocked all comments. You would think that someone who has worked with computers for 30 years would be able to figure this out. Thanks Tom for the heads-up.

Money for Nothing

2007-11-02T16:23:00.000-04:00

You all knew I would post something about baseball and with the end of the season it seems a good time to reflect on the Yankee's situation.

It has not been fun being a Yankee fan the last few years. It's not about the results. I don't expect them to win the World Series every year or even be in the World Series every year. For most baseball fans and for most teams the Yankees recent results would be more than satisfactory. They have been in the playoffs every year since 1996 and they have won 10 division championships, 6 AL pennants and 4 World Series. In addition the team is exciting to watch. Attending a game at Yankee stadium recalls the atmosphere at a rock concert.

We have also had some continuity - what my friend Barry calls "real Yankees" - players so familiar we only need to use their first names; e.g Bernie, Derek, Andy, Mariano and Jorge.

So what's the complaint?

It's hard to have fun routing for a team that is stupid.

The Yankees have more resources and spend way more than anyone else. I don't have the exact numbers (maybe Dave will do the research) but I estimate that they spend $40 million more than the #2 the Red Sox. That's an enormous advantage. Ir is equivalent to replacing Jeter and A-Rod with minor leaguers. Their advantage over the other teams such as the Indians, Tigers, Angels, Marlins, D-Backs is even more striking. In some case, the Yankee spending advantage was over $100 million. BTW - those are the other teams the Yankees have lost in the post-season this decade.

To me with an advantage that large the team should be odds-on favorites every year to win the World Series. They may not win every year but if the lose it would be considered an upset. That's not what we are getting. The 2007 and 2004 Red Sox, 2007 Indians, 2006 Tigers, 2005 Angels have been as good as the Yankees. And it is clear now that the Red Sox are better. They were favored to win this year and they avoided their former habit as a team that folds in the second-half.

So my peeve is that the Yankees throw away this advantage because they make stupid decisions. We have to hold Cashman responsible. He's the problem not Torre. I have played in a Rotiss league for about 20 years. In this league each team has equal resources and you gain advantage by using your resources effectively. Csshman and the Yankees throw away their enormous advantage by consistently overpaying for players. The most typical examples are paying for players past their prime, e.g. John Damon, Mike Mussina, Bobby Abreu, Randy Johnson, Matsui, etc. This clogs the roster with untradeable players if their performance slips as can be expected. This is compounded by the inability to evaluate talent. The moves that Cashman made before the 2005 season may represent the worse off-season by any GM in memory. That was the year Cashman brought in Pavano, Wright, Tino Martinez and Tony Womack. Money for Nothing.

And nothing is being learned. The Clemens deal proved Cashman is hapless. It was evident that if they were lucky they would get a mid-level starter who was a 6-inning pitcher and who had a huge downside due to injury risk.

Last year the Yankees added the useless-Igawa while the Red Sox acquired Dice-K and Okajima. And that is symbolic of the main worry. The Red Sox will also spend but they may have a clue. They had the Rookie of the Year, the best Rookie starting pitcher and the best Rookie setup man. They are better than the Yankees and they are younger.

My only conciliation is that I don't have the YES network.

Pity the Poor Immigrant

2007-10-29T14:25:00.000-04:00

It disappoints me that the debate over immigration lacks some fundamental aspects.

1) Facts seems to me to be missing.

Some of the economic data surrounding the impacts of illegal immigration will be incomplete and some will be based on estimates. Estimates could easily be subjective - economic models are complex. I find it difficult to understand any estimate unless the study tells me specifically the assumptions included in the study.

But can we agree on this?
- Illegal immigrants provide cheap labor.
- Consumers and Employers of the good and services produced by cheap labor are both potential beneficiaries. If the illegal immigrant labor was supplied by US citizens and/or legal immigrants the costs of the labor would rise since the supply of labor would be reduced. But it is not clear to me how much the consumer benefits and how much the employer benefits.
- This supply of cheap labor dampens the salaries of legal workers especially low-skilled workers who compete with illegals.

So there is an impact on labor rates, costs of goods and services and probably unemployment. But who benefits and who does it hurt? How much of the cost savings are passed on to the consumer? For low-skilled workers does the cost savings compensate for lower wages?

The other economic impacts are really difficult to estimate. How much public money is spent providing services to illegals for education, health care, etc.? How much money is lost due to crime or uncollected taxes? How much is paid in taxes by illegals who end up with no legal claim to the public services paid by those taxes? I have no idea but shouldn't this be an integral part of the debate?

2) Assumptions are not verified.

We can't deport 12 million people. We hear this all of the time. Is that true?

If we had a policy of finding and deporting all illegal immigrants how would we do it? Some steps could be that for anyone who gets a parking or traffic ticket they must present a valid driver's license. If one can't be produced than there is a second charge and the person must provide some identification.

Likewise anyone charged with a crime must provide some identification.

If the person cannot provide identification that are held in jail without bail (due to flight risk). If the person is convicted and still has no identification they are deported and anything property they own is confiscated. Their employer is also notified and may be subject to an investigation about hiring illegals. Remember that hiring illegals is also against the law.

Wouldn't measures like this have the impact of (a) reducing the stream of illegals and (b) convincing some to go home? I am sure that there are any number of measures that would change the risk-reward profile for employers and workers.

Now I am not arguing for any specific measures but I am questioning the assumption that we cannot deport illegals. This would do more to stem illegal immigration than a fence. As T. always tells me, you need to deal with the problem on the demand side and the supply side.

3) Desired outcomes are not expressed.

On each side of the debate, what is the desired outcome or end state? Shouldn't an immigration policy be based on goals about population growth, goals on the composition of annual immigration based on skills, education, age, and nationality? The issue of fairness and nationality is central to the debate. Should we favor Mexicans and our brothers from Latin America over Asians, Europeans and Africans?

If there are resources that deal with the debate in a realistic way - let me know - since I am still undecided about a "comprehensive" immigration bill.

Forever Young

2007-10-28T10:58:00.000-04:00

K and I went to see Steve Forbert in concert in downtown Hendersonville. Back in the day Steve Forbert was part of the "next Bob Dylan" conversation. Which really meant the "Voice of the Next Generation". Also in the conversation were John Prine, Loudon Wainwright, and yikes Joni Mitchell and Leonard Cohen.

We now know that Dylan was not the voice of a generation but just a singer/songwriter looking for Essence. We also know now that Leonard Cohen is a poet and Joni Mitchell a mystic. Performers like Steve Forbert moved in the penumbra, still visible behind the shadow of their early hope and promise.

Back to the present, he sang a song called Middle Age and one of the keeper ideas in the song was that we will never be younger again than we are right now.

So right now we have more experience than we have had before.

So right now we will never again be as young as we are this moment.

So right now we are all at the best point in our lives - balancing youth and experience. And, as we move through the vector of time this will remain true.

Across the Universe

2007-10-27T01:08:00.000-04:00

We have seen this movie three times so far. This film is getting some mixed reviews and I can understand that. I think you will find that it is either the best movie of all time or maybe just in the top 10.

Don't Let Me Down: Presidents and Character

2007-10-24T09:17:00.000-04:00

This started with a dialog on where I stand on issues and how my views compare to the current presidential candidates. My answers to the questions on issues suggested that I was a Populist-Liberal and that none of the candidates agreed with me on the majority of the issues presented.

I made a comment that issues were not the only factor in deciding who to support and maybe less important then management and leadership skills, experience and character. And that raised the issue of character.

Is it important? And, can we make judgements about the character of the candidates?

I think the answer is sometimes and I'd like to look at some examples.

On the positive side I think it was reasonable based on the evidence to favorably judge the character of Jimmy Carter and Gerald Ford. I think we knew enough about them when they ran for President. Both men served with integrity and honesty.

On the other side I think it was reasonable based on the evidence to suspect the characters of Richard Nixon and Bill Clinton. In 1968 we knew Nixon was mean-spirited, quick to anger, ruthless and overly ambitious. In 1992 we had strong evidence that Clinton was personally dishonest in his relationships. Basically both men were liars.

Interesting parallel - Nixon and Clinton. There may be a book here. In contrast to the men of high character mentioned above they were re-elected! But in their second term Nixon's ruthlessness and ambition led to his forced resignation and Clinton became only the second president in our history that was impeached by Congress. Now, I know that Clinton supporters think that his lying under oath to a grand jury was not impeachable in accordance with the constitution. That may be so. But it was a disgrace related to his basic character faults. So both Presidencies were spoiled by their respective character faults.

Infamous quotes:

"It depends on what the meaning of the words 'is' is." –Bill Clinton.
"I am not a crook." - Richard Nixon

Nicknames:

Tricky Dick
Slick Willie

Last Nixon-Clinton parallel. Despite the second term failures both men have followers to this day who think that on balance they were good presidents! The idea that anyone could consider Nixon a good President baffles me. For Clinton we need more evidence. For example, how much focus of terrorism was lost due to the impeachment.

So for me, character matters. Agreed sometimes it is hard to judge but when you have evidence it should be a factor.