Perils of Paulson

I bet that most Americans know that Henry Paulson is the Secretary of the Treasury. I also bet that they had no clue who he was two weeks ago. I also guess that most Americans have no idea what the Treasury's role is in our system of government, but I'm pretty sure that they know that Paulson is the man behind the $700 billion government bailout. This is one heck of an expensive cram course in civics for Mr. Average Taxpayer. Even Stanford wouldn't have the cajones to charge this much.

Something like 90% of the population consider Paulson's plan to be a bailout of Wall Street. But, as discussed in the previous post, the cause of the crisis that is gripping the financial system is not just Wall Street's doing. There's plenty of blame to go around. It's now Paulson's job (along with all the political leaders) to sell the plan that has emerged this weekend as a bailout of the nation's economy, not just a bailout for the fat cats on Wall Street. This will not be easy. It's far simpler to scapegoat the unpopular rich guys. Both Obama and McCain did just that in their first debate two days ago.

Paulson's plan was two and one half pages long when he presented it to the President and Congress. After a week of work, the Washington politicos have renamed it the ‘‘Emergency Economic Stabilization Act of 2008’’. It has grown just a bit (by Washington standards) to over 100 pages of legalese gibberish. And it doesn't even cover the details of how the government will determine the price of the toxic assets it will be buying from the private sector.

Congress is set to vote on this bill this week. It appears that both political parties have come to understand the risk of inaction and are likely to pass the proposed legislation on to the White House. I wonder if they'll have the usual signing ceremony. Will Bush sign it using a bunch of pens which he will then hand to the smiling politicians who will be in the signing photo, or will it be done in the dead of night, with no one wanting any part of the whole mess? It should be fun to see which one happens.

As a free market guy, I'm pretty dismayed that the government is doing this. Sure, I like French food, but I don't sure don't like French economics. However, when I see Bush and both political parties agreeing on something smack in the middle of an election campaign, it must be darn necessary. So you can reluctantly count me in. Although it's not like anyone asked you or me.

Bailouts, Bankruptcies and Bloated Blather

Well, it's been quite a week in the money world. Bailouts, bankruptcies and bloated blather dominated the news. The talking heads on cable went wild on the subject, while each of the presidential candidates were especially inane in their varying pronouncements during the week.

Even though the seeds of today's crisis may have been sown well before they took over the reigns of government, who would have thought that a Republican administration would turn our financial system into one that emulates France? The details are still being worked out, but the rough estimate is that the overall government commitment to staunch the bleeding for awhile is approximately $1 Trillion (yup, that's Trillion with a capital T). And I say for "awhile" because no one really knows the full extent of the cost that will ultimately be incurred. History suggests that the amount the government will commit will probably rise substantially.

The basic cause of the financial meltdown that almost occurred this week was a lack of trust. Namely, trust that if I did a transaction with you, you would be around to honor your part of the bargain. In this environment, sane people (and organizations) simply stop doing business with the untrusted party. If nobody trusts anyone, all transactions cease. In the financial world, that's called Armageddon.

The lack of trust all fundamentally stems from the home mortgage debacle, in which scads of money was loaned to people who, put simply and crudely, just couldn't pay it back. Whether it's the creative capitalists on Wall Street who packaged the mortgages into ever more arcane securities sold around the world to organizations stretching for higher yields; or the unscrupulous mortgage banks and brokers who pushed money on hapless people who suddenly and unquestioning were able to live in homes valued at more than their wildest dreams; or the crazy accountants who demanded that the banks holding the mortgage-backed securities value them at unreasonably low prices; or the credit rating agencies who suddenly woke up to discover that their AAA ratings were just a tad overblown; or the government regulators who had no clue what to regulate; or lobbyists who somehow forced the government to bend over in an unseemly manner; or any other organization I've neglected to mention who had the slightest participation in creating the real estate bubble, the problem is real and darn serious.

So, at this point, it seems to me that Treasury Secretary Paulson and Fed Chairman Bernake, flying blind and having properly scared the pants off of the President and the leaders of Congress, are proposing some sensible actions selected from a steaming pile of rather unsavory options. Where and how it will end, no one knows. In this environment, the conventional wisdom still applies: just stay diversified. It's likely, given the strength of the US economy, that this will work out the best through the various ups and downs that are sure to follow.

By the way, it's really interesting that, even in today's highly sophisticated society, most financial transactions still take place based on just trusting the other person's voice (or mouse click) in the transaction. That's the way business has been done since money was invented (except for the mouse click part).

My Vote Doesn't Count

I'm pretty ticked off. I've spent countless hours reading, analyzing and debating who we should vote for to lead the nation; it's all for naught. I live in California. Thus, my vote to elect the President simply doesn't matter.

What? Well, just check out the campaigns' actions themselves. Have you heard about any candidates tromping through California delivering electrifying speeches, declaring that they are going to change politics as usual in Washington while their opponent is such a clueless yutz? No, you haven't. That's because each party knows that, no matter what they do or say, the vote will be decisively for Obama. The Democrats could have nominated Atilla the Hun and he would carry the state. The same situation applies in other solidly blue states like New York, Oregon, Washington or Illinois.

Similarly, the Republicans could have nominated Karl Marx. He would prevail in the solidly red states like Texas, Oklahoma and the rest of what is fondly called by their residents the heartland, and by the people residing on the East and West Coasts, the dustbowl.

The only states that matter are the battleground states. The cruel fact is that, in this election, the electoral college voting system gives the power to determine the leader of the free world to the good people who have chosen to reside in Ohio, Michigan, Pennsylvania, Virginia and Florida.

I guess I wouldn't be so annoyed about this system if I felt that these residents had the intelligence and deep insights that many of us other blue and red state voters lack. Unfortunately, the mere fact that they don't live in California, where the weather is infinitely better, lends me to believe that they don't possess these admirable traits.

So, I'll continue to have fun following the most interesting presidential election that I can recall, but I'll pine for the right to participate in its outcome. Maybe some day we'll scrap the electoral college system and turn our country into a true democracy in which everyone's vote counts equally.

Change Beats Experience: Palin is Perfect

With all the hubbub over John McCain's choice of Sarah Palin as his Vice Presidential nominee, I was wondering how it became the norm for the party nominee to select his running mate. It certainly seems odd that after an incredible amount of time and money is spent to determine the Presidential candidate, the Vice President can be picked on a whim.

I found the answer in an article appropriately entitled: "Process of Selecting Vice President Evolved over Centuries. America’s earliest running mates often competitors rather than partners." It's a pretty good summary of all the stuff I used to know about this subject before my gray matter starting turning really gray. Do you remember that it wasn't until after Eisenhower in 1952 that the Presidential candidate unilaterally selected his running mate? I didn't.

Well, what about McCain's VP choice? It seems to me that the GOP pollsters must have determined that they were not going to win the election based on "Experience", or, to put it more directly, Obama's lack thereof. That means that "Change" will be the key factor.

This was a real problem for McCain. Obama says he's the Change guy, with his continuous chant that McCain is nothing but four more years of Bush. But McCain has always prided himself on being a maverick who goes against the straight line of his party to do what's right for the country. He's even compromised with the other side from time to time, acts which really ticked off his "Base".

So, the answer is to select another Change person who can also bolster his standing with the GOP Base. To McCain, apparently Palin is Perfect.

She's first and foremost a politician who changed the game in Alaska when she took on her own party's politicians for their egregious lack of ethics (and, in some cases, lack of legality).

Second, she's a she. Perhaps that will get McCain a few Hillary supporters, hoping that the women will overlook her political positions, which are almost exactly the opposite of Ms. Clinton.

Third, she's an Evangelical Christian and long term member of the NRA. What more could the lunatic far right wing of his Base want?

Fourth, just let those pesky Dems bring up her lack of experience. This forces them to explain just exactly how their number one guy has more experience than the GOP's number two gal. Here's how I presume McCain expects that debate to go: "She's run the largest state in the land, one of the smallest cities in the land, and a PTA. OK, now, it's your turn. Are you going to tell us again how Obama was an "Organizer" in Chicago for a few months. By the way, what the heck is an Organizer? And it was in Chicago. Sure sounds like a job Tony Soprano and his pals handled in New Jersey."

Will this strategy work? We'll have to wait to find out. It's a high risk, but possibly high payoff gamble.

I'll close with an old aphorism. If you don't like the question, change the topic. Whatever you think of his choice of VP, I think McCain did that pretty well.