June 30, 2010

What a Wonderful World



Purple and blue lights in the sky contrast with bright yellow and red lava flowing from the Eyjafjallajökull volcano, erupting from beneath its ice cap.


CRE Charts

There is still a whole lot of pain to be felt in the commercial real estate market:







June 25, 2010

What was true then......

"The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, assistance to foreign lands should be curtailed lest Rome become bankrupt, the mobs should be forced to work and not depend on government for subsistence." Marcus Tullius Cicero, 55 BC

June 24, 2010

Don't let facts get in the way of theories

No mere fact ever was a match in economics for a consistent theory. (Milgrom & Roberts 1987)

June 23, 2010

Soccer - Socialist Utopia

Pretty entertaining and insightful article from C. Edmund Wright:

The world's most popular sport? Puh-leeze. This is like saying that dirt is more popular than gold simply because there is more of it. Last time I checked, soccer was very popular where starvation, archery, and badminton were the alternative activities. Where soccer has to compete with the NFL, college football, and basketball -- not to mention WWE, the X Games, cheerleading contests, and cage-fighting -- not so much.

.......The only thing more predictable than Barack Obama blaming George W. Bush and BP is that when you flip over to World Cup coverage, the score will be 0-0. I don't care who is playing or where you are in the game...er, match. It will be 0-0. And for those who think watching the grass grow is more exciting, I think these matches are so long they do have to mow the pitch at halftime. (Hey -- I know they call it a pitch, not a field. Told you I was not a redneck newbie.)

At its heart, soccer is the perfect socialist sport. That's why it will never catch on among Americans the way football or basketball has -- regardless of how hard ESPN or ESPN Deportes tries to force feed it to us. Soccer is a redistributive dreamer's delight, with most of the potential risk-reward strategy of the sport removed by rule. It is a self-esteem cornucopia, where a blistering rout of, say, 2-0 seems so close in the score book. No one's feelings get hurt at 2-0. And on and on the socialist feel goes.

........Soccer is biggest where the "national teams" are the main sports focus of a nation. Hey, you can't get much more socialist than that. And everyone on every street and in every town pulls for the same team. Wow. Isn't that exciting? Whom do you pull for? Oh yeah, the national team.

And let's not forget the off-sides rule. Without getting buried in minutiae, suffice it to say that off-sides in soccer is like making the bomb illegal in football or the fast break illegal in basketball. This is a socialist sport. We can't be having any risk-reward equations here. You see, in soccer, it's not fair that you might take a chance to weaken your defense in order to spring a man deep downfield behind the defense. That would be unfair in a free-market, venture-capital-type way. No, no, no! You must let the defense be behind you. You cannot beat them downfield until you have the ball. That would be unfair and, no doubt, mean-spirited.

This leads to the another socialist issue, which is the low scoring and the self-esteem protection involved in that. In international soccer, 2-0 is a rout and 3-0 an absolute blowout. And yet, it seems so close. Hey, we only lost by three.

In reality, it's like losing by 21 in football -- or worse, actually, given the paucity of scoring. It's a total destruction, but it sounds so innocent at three-nil.

Another way soccer is the perfect socialist sport is the power vested in the nameless bureaucrats and their ability to never have to answer for their screw ups. This sounds like big government to me for sure.

Consider "stoppage time." In soccer, the official clock does not stop for out of bounds or other play stoppages. No, it rolls on, I guess to keep the carbon footprint of the clock operations low. You see, like socialists, the bureaucrats don't actually want to trust the real movers and shakers with information like, well, how much time is left. It's kind of like not knowing how much longer you can keep your current health plan if you like it.

........And no liberal or socialist sport would be complete without a generous dose of self-importance, arrogance, and snobbery among its followers. I mean, it's bad enough that we have to see the kids running around in almost soft-porn thigh-highs and sandals every Saturday as they pile out of mini-vans at every Shoney's, Applebee's, and Hampton Inn everywhere. But it's the "yeah, but it's the worlds most popular sport" attitude that really gets to me.

No it isn't! See the perfect dirt and gold analogy in paragraph one, please. Where people have a choice, soccer is not the most popular sport.

And it really gets bad every four months -- or is it four years -- when the World Cup rolls around. That's where the arrogance of soccer folks meets up with the one-world feeling and the can't-we-all-just-get-along crowd and all sorts of international bodies that want to treat the U.S. like just another country like Cuba or Iran. It's nauseating.

And what's so deliciously ironic is that when push comes to shove, the international referees will always manage to screw the United States, even as our PC crowd does all it can to convince the planet that we can love soccer, too.

No, we can't. Not as spectators. Hey, I am all for the fitness involved in soccer or any sport that involves that much cardio activity. But please don't make me watch it -- and please stop insulting my intelligence with the "most popular sport in the world" stuff.

Now, back to the game. It's nil-nil. Still.

June 18, 2010

No Wonder We Don't Save Any Money

From Floyd Norris in the NYT:

This week I checked the Web sites of the four largest banks in the country — Bank of America, JPMorgan Chase, Citigroup and Wells Fargo — to see what they were offering on an ordinary savings account, say, one with $5,000 in it.

Chase, the retail operation of JPMorgan Chase, and Wells Fargo were offering 0.05 percent. That $5,000 would produce monthly interest of almost 21 cents. If you left such an account untouched for 20 years, and rates stayed where they are, the glories of compound interest would lead to a profit of $50. Before taxes, of course.

At that rate, if you wanted to put away enough to produce a retirement income of $50,000 a year, without touching the principal, you would need $100 million on deposit.

June 17, 2010

Talking About a Revolution

If this wasn't so unbelievably sickening, it really would make me laugh.


IMPOSING ONE-SIZE-FITS-ALL ‘UTOPIA’ ON LOCAL COMMUNITIES

With the Federal Government already facing $1.5-trillion deficits, $13 trillion in debt, and a workforce swollen by 15 percent, the administration’s proposed new $20-million “Office of Livable Communities” is yet another way to squander taxpayer funds – and it wins the latest Budget Boondoggle Award. Here are the details:

  • The administration has proposed a $527-million increase for its euphemistically named “livable communities” initiative. As benign as “livability” may sound, however, the program’s aim is to impose a Washington-based, central planning model on localities across the country. It does so by creating a new bureaucracy in the Department of Transportation, and by linking Federal transportation funds with local land use decisions to draw suburbanites into the cities, where they will stop driving their own personal cars and instead rely on taxpayer-subsidized public transportation.

  • When asked to define the vague term “livability,” Transportation Secretary Ray LaHood said it “means being able to take your kids to school, go to work, see a doctor, drop by the grocery or post office, go out to dinner and a movie and play with your kids in a park, all without having to get into your car.” All of which sounds fine – except it’s not Washington’s business to dictate how local communities pursue these goals.

  • Local land use and zoning has always been the responsibility of local and State governments – to coordinate transportation and zoning projects, maximizing economic growth and serving community needs. But the administration’s “livable communities” initiative ignores this jurisdictional boundary by leveraging grant money to gain heavy influence over local planning decisions.

  • The initiative also would further burden communities’ already challenging planning and zoning efforts by adding a bureaucratic layer of three Federal agencies – the Department of Transportation, the Department of Housing and Urban Development, and the Environmental Protection Agency – to coordinate the grants.

  • The new urban-focused “smart growth” fad has been popularized by the model of Portland, OR. The city diverts tax dollars from highway users to pay for streetcars, and to make driving more difficult, encouraging more urban living – and the administration wants to nationalize this approach. But some argue the Portland model has increased housing prices, which has made finding affordable homes a major challenge for the low-income and the young. It has also increased commute times for those who must still rely on their cars.

  • Besides, what works in Portland might not work elsewhere. America’s communities are diverse; “livability” means different things to different people. As researchers from the Brookings Institution recently noted, the country’s metropolitan areas have wide and growing disparities in demographic, cultural, transportation, and educational attainment characteristics that defy a one-size-fits all solution.

  • Cities and local communities clearly face major challenges with growth, congestion, and a broad range of other quality-of-life concerns. The “Office of Livable Communities” reflects Washington’s lack of trust in localities’ ability to solve their own problems; and instead it imposes an urban-utopian fantasy through an unprecedented intrusion of the Federal Government into the shaping of local communities.
  • Conceiving of Many Errors

    The passage below is from Umberto Eco's wonderful book The Name of the Rose:

    ".....you are still far from the solution........"

    "I am very close to one," William said, "but I don't know which."

    "Therefore you don't have a single answer to your questions?"

    "Adso, if I did I would teach theology in Paris."

    "In Paris do they always have the true answer?"

    "Never," William said, "but they are very sure of their errors."

    "And you," I said with childish impertinence, "never commit errors?"

    "Often", he answered. "But instead of conceiving only one, I imagine many, so I become the slave of none."

    Extend and Pretend

    I am seeing this playing out on so many levels here in Nashville (from P.E.R.E. News):

    Heitman chief executive officer Maury Tognarelli warned that the need for US banks to protect their balance sheets, coupled with regulatory pressure, is preventing financial institutions from foreclosing on troubled assets. This phenomenon could last up to four years, he said, but opportunities for deals should emerge in the next 12 to 18 months.

    The US real estate market can expect another three to four years of the so-called “extend and pretend” pattern, said Heitman chief executive officer Maury Tognarelli.

    Speaking at the Old Mutual Asset Management Risk and Opportunities panel in New York today, Tognarelli said that regulatory pressure, low interest rates and the need for banks to protect their balance sheets was responsible for the phenomenon.


    June 16, 2010

    Mitch Daniels - Momentum Building for 2012

    This profile in the Weekly Standard is long but well worth fifteen minutes of your day.

    For my ADHD readers:

    Daniels is a font of statistics, but one comes to his lips more than any other. “Only 61 cents of every education dollar gets into the classroom in Indiana.” School funding increased every year under Daniels before the recession, and since the downturn, when most areas of state government have seen cuts of 25 percent or more, education has been reduced by only 2 percent. Yet the local school boards and their Democratic allies in the state legislature continue to complain. Daniels calls education funding “the bloody shirt” of Indiana politics: “It doesn’t take long before somebody starts waving it.” One of my favorite bits of Daniels video on YouTube shows him at a press conference defending a bill to end “social promotion” in the state’s grade schools. School districts were appalled that the bill would pass without “additional resources” to educate the kids who would be held back.

    A reporter asked him about it.

    “By the time a child has finished third grade, the state has spent $40,000 and the school district has had 720 days to teach that child to read,” he said, tight-lipped. “If that child can’t read by then, there is a fundamental failure in that district. And they’ll need to remedy it. The most unacceptable thing to do is to shove that child along to fourth grade into almost certain academic failure. That’s a cruel thing to do, it’s a wrong thing to do, and we’re going to put an end to it.”

    The reporter pressed: But won’t the schools need more money?

    Daniels’s eyes got wide.

    “More than $40,000 to teach someone how to read? No. It won’t and it shouldn’t and any school district that can’t do it ought to face consequences.”

    We were having lunch one day at a favorite spot, the St. Louis Street Soda Shop in Vincennes, on the Wabash River. Having resisted the Fried Bologna Sandwich ($3.49, with chips, pickle extra), Daniels was washing down a quarter-pound Coney Island dog with a large butterscotch milkshake—“the best in the state,” he assured Dolly, the delighted owner—when a reporter from the local radio station appeared. She pressed him on the education budget cuts too. She told him the local school board had just laid off nine teachers and an administrator.

    “What would you say to those people?” she asked.

    He visibly flinched, just as he had on MitchTV.

    “I’d say it should have been nine administrators and one teacher. There are 20 things that school board could do before it had to lay off one teacher.”

    In fact, the governor’s office has publicized a “Citizens’ Checklist” that people can take to their local school boards to see if school officials have made every possible economy. Citizens in Vincennes need to take that list and get answers, he said. The list is filled with questions. Have the administrators “eliminated memberships in professional associations and reduced travel expenses”? Have they “sold, leased, or closed underutilized buildings”? Have they “outsourced transportation and custodial services”?

    “I want citizens to understand,” he said. “When people start demanding we spend more money, they’re saying, ‘We want to raise your taxes.’ And the citizens should say, ‘Okay, tell me. Which one of my taxes do you want to raise?’ ”

    .........Daniels’s goal means cutting government, high and low. It is work to which he is well suited. He is a famous skinflint. A former employee recalled that Daniels, in private business at the time, asked him to dinner for a job interview and then insisted on splitting the bill. He played golf for several months using a garden glove from home instead of a store-bought golf glove​—“I didn’t want to buy one until I knew I was going to like the game enough to stick with it,” he told me. Family lore has one of Daniels’s four daughters, in grade school, piping up in class during a discussion of money. “Our family has money,” she announced to the teacher, “but my daddy won’t let mommy spend any of it.”

    Like governor, like state. Daniels’s miserliness has proved infectious. In the early days of the administration he had a hunch that the government owned more cars than it could use. Lieutenants were dispatched to the parking lots of state facilities to place pennies on a tire of each car. They returned in a month and if the pennies were still there, Kitchell told me, “We said, ‘Give us the keys.’ ” To save on paper, a study was made to find the narrowest type font. Most state newsletters, once printed in color, are now in black and white. The state no longer pays for employee business cards. Agencies that were discovered to be net-users of paper clips—another study—were put in touch with the revenue service, which had a surplus of clips sent by taxpayers with their tax forms. The list of economies is long.

    ..........In 2000, George W. Bush, at Hubbard’s suggestion, named Daniels director of the Office of Management and Budget. “I never thought I’d go back to Washington,” he said, “but this was the one job I’d go back for. It’s the best job in government. Everything comes together right there.” Daniels left Lilly and liquidated all his stock options and other securities, for a payoff well over $20 million.

    Bush called him the Blade, at least in public, and the first budget Daniels submitted was indeed restrained, in comparison with the Bush budgets that followed. With his excellent political sense Daniels fastened on a couple of gimmicks to illustrate his tight-fistedness. He tried to have his office voicemail system altered to play “You Can’t Always Get What You Want” when callers were on hold, but had to settle for piping the song into the Government Printing Office location when congressional staff showed up to pick up their copy of the budget. At a Capitol Hill hearing, out of patience, he said he’d discovered the motto of Congress: “Don’t just stand there, spend something.”

    Then came 9/11 and Iraq. In some quarters, Daniels is notorious for publicly declaring that the war in Iraq would cost no more than $60 billion, as a way (goes the theory) of solidifying political support. It’s a particularly egregious charge, reeking of toadyism. It won’t die, and it clearly rankles him.

    “The facts are otherwise,” he told me, exasperated, when I mentioned it. “I thought we’d dispensed with this, but I guess not. I think we got it straightened out on Wikipedia at least. I got so sick of it I put together a whole file of stuff that lays out the facts.” Among the material is a background briefing Daniels gave reporters in April 2002, outlining Bush’s request for $74 billion to fight the war. “I said to the Pentagon, give us your assumptions. They talked about a six-month conflict, and we made our estimate on the basis of that.”

    The briefing transcript bears this out. “This [budget request] will, to the best of our ability to estimate this, cover all costs from now to the end of the fiscal year,” Daniels said then. “Six months contemplates a conflict, a period of stabilization in Iraq, and the phased withdrawal of a large number of troops.”

    He says now, “If someone had come to us and said, What will it cost to invade Iraq, beat the Iraqi Army and stay in Iraq for eight more years, we would have given a different answer. But that wasn’t the question.”

    ...........As our dinner wound down—I insisted on paying the bill, he offered to split it—he said he was going to give a commencement address the coming weekend, at Franklin College, south of Indianapolis. It had been inspired partly by the theme of “public service” struck by Obama’s recent commencement addresses, in which the president discouraged the pursuit of mere material gain in favor of nonprofit and government work.

    “That strikes me as exactly the wrong message to send to young people,” Daniels said. “He’s got it completely wrong. Government service—nonprofits—all that’s fine and necessary. But the host can only stand so many parasites.”

    He stopped himself and glanced at my open notebook.

    “Maybe that’s too harsh,” he went on. “But someone’s got to say to these kids, There’s nothing wrong with going into business. It’s not selfish. It’s good. Build a business, create jobs for people, create wealth for people. It helps people. And that’s what we’re supposed to do, isn’t it.”

    The troopers pulled the Sequoia up to the door of the restaurant, and Daniels left me with what he said was one of his favorite quotations.

    “I remember it from a book by Bruce Catton,” he said. “It’s a Union general commenting on Ulysses S. Grant. He said, ‘There was no nonsense, no sentiment; only a plain businessman of the republic, there for the one single purpose of getting that command across the river.’

    “I like that. I like that a lot.”

    June 15, 2010

    Commercial Real Estate - Still Closing at Steep Discounts

    From P.E.R.E. News:

    The Mexican billionaire has bought 417 Fifth Avenue from Goldman Sachs and Moinian Group for $140m – a 56% discount to its 2007 price. Ashkenazy is also reportedly set to close on the New York Knickerbocker Hotel this week for a 46% discount of its 2007 peak valuation.
    Mexican billionaire Carlos Slim has closed on a prime New York office building at 417 Fifth Avenue for $140 million, according to Cushman & Wakefield.

    The real estate broker said the 11-storey office was bought by Inmobiliaria Carso, an investment company controlled by businessman and investor Carlos Slim Helu. The property was originally bought for $250 million by Goldman Sachs and developer Moinian Group in a joint venture in July 2007, according to data provider Real Capital Analytics.

    ......Another iconic New York asset is also reportedly set to close this week, with Ashkenazy Acquisition expected to buy the former Knickerbocker Hotel and an adjacent lot on 42nd Street for $173 million. The Real Deal reported that the hotel was originally acquired by Istithmar World, the private equity and real estate investment arm of Dubai World, in 2006 for $376 million.

    June 14, 2010

    Hussman - Born on Third Base

    John Hussman's latest investment letter is a must read:

    Barry Switzer, the former head coach at the University of Oklahoma, once said "Some people are born on third base, and go through life thinking they've hit a triple." Among the fascinating aspects of the recent economic "recovery," probably the greatest is the failure of analysts to understand that this growth is none of the private sector's doing.

    Wall Street seems to have no concept at all that every bit of growth we've observed over the past year can be traced to government deficit spending, with zero private sector expansion when those deficits are factored out. As I noted last week, if one removes the impact of deficit spending, "the economy has recovered to the point where the year-over-year growth rate since early 2009 now matches the worst performance of any of the 50 years preceding the recent downturn." In effect, Wall Street's is seeing "legs" where the economy is in fact walking on nothing but crutches.

    Similarly, it is apalling that Ben Bernanke can say with a straight face that many of the "investments" made by the Fed have been repaid "and some have even made a profit," without immediately noting that the two primary sources of these repayments have been, directly or indirectly, the U.S. Treasury, and savers who are receiving near-zero interest on bank deposit instruments.

    If we fail to recognize that the "good news" reported over the past year is due not to a recovery in intrinsic economic activity, but instead to massive government intervention, we risk being blindsided as those synthetic effects gradually erode.

    .........The following is our refined set of "Aunt Minnie" criteria for identifying oncoming recessions. See the November 12, 2007 comment Expecting a Recession for details. In every instance we've observed these conditions, the U.S. economy has either already been in a recession, or has been within a few weeks of what turned out in hindsight to be the official beginning of a recession. There have been no false signals.

    1: Widening credit spreads: An increase over the past 6 months in either the spread between commercial paper and 3-month Treasury yields, or between the Dow Corporate Bond Index yield and 10-year Treasury yields. This criterion is currently in place.

    2: Moderate or flat yield curve: A yield spread between the 10-year Treasury yield and the 3-month Treasury yield of anything less than 3.1%. As of last week, the 10-year Treasury yield was 3.22%. The 3-month Treasury bill yield was 0.08%. So virtually any decline in the 10-year yield from here will put this criterion in place.

    3: Falling stock prices: S&P 500 below its level of 6 months earlier. This is not terribly unusual by itself, which is why people say that market declines have called 11 of the past 6 recessions, but falling stock prices are very important as part of the broader syndrome. This criterion is currently in place.

    4: Moderating ISM and employment growth: Manufacturing PMI (at or) below 54, coupled with either total nonfarm employment growth below 1.3% over the preceding year (this is a figure that Marty Zweig noted in a Barron's piece years ago), or an unemployment rate up 0.4% or more from its 12-month low. At present, both of the employment measures are in place. Last month, the ISM PMI dropped from 60.4 to 59.7.

    For all intents and purposes, unless the credit spreads, the S&P 500, or the yield curve reverse, a further decline in the Purchasing Managers Index to 54 or below would be sufficient to confirm a "double-dip recession." Note that by itself, such a level might not be particularly troublesome. But in concert with the other evidence we observe, it would be sufficient to complete the syndrome of risk factors.

    Soccer Comes Out

    This made my day:

    The Joy of the Marketplace

    From a recent commencement speech given by Gov. Mitch Daniels to the graduates of Franklin College:

    ......I believe the happiest people I've met are those who started a business from scratch and led it to growth and marketplace success. As you listen to such folks, it's clear that what made them happy was less the money the business brought them than the joy of seeing large numbers of other people obtain work, support families, and realize their own dreams because of what the creator of the business had done. Living in a country where such "earned success" is still possible and even commonplace is a great piece of luck we all share. Not all your luck has been so good.

    Your generation enters adulthood saddled with the largest debt burden ever left by one generation to another. Think student loans are a load? Through no fault of your own, each of you already owes $100,000 to pay for the retirements of those who went before you. Each of you will be providing half of some old-timer's Social Security and Medicare costs, not to mention all the other costs of government, before the remnants of your paycheck ever hit your bank account. You didn't have a say in this, but at least you will have a chance to weigh in as our nation tries to avoid the kind of Greek tragedy we're watching unfold in Europe right now. I don't know how that court case is going to turn out, but I don't mind saying I'm rooting for Mr Donovan. I'd like Indiana always to be a place where people get ahead by talent, and good judgment, and hard work, so that they tilt the odds as far as possible in their favor. We can't take all the luck out of the game of life, but, through wise choices, we can shift the odds in our direction. You're at the table now. With the help of your wonderful parents, and this fine institution, you've been dealt a promising first hand. From now on, you're the player. Count the cards and the luck will take care of itself.

    I leave you with a favorite story I've used at previous commencements, but never more aptly than today. A man's friend was expanding his business, so he ordered a floral arrangement sent to the grand opening. On arrival, he was shocked to find his flowers with a card reading "Rest in Peace." When he called to complain, the florist told him "Calm down, sir, think of it this way. Somewhere today a soul was buried under a sign that said 'Good luck in your new location.'" And that's what I wish each of you. Good luck in all your new locations, luck improved vastly by the learning and diligence with which you have earned the distinction this outstanding school is about to confer upon you.

    June 10, 2010

    John Wooden's Seven-Point Creed

    1. Be true to yourself.
    2. Make each day your masterpiece
    3. Help others.
    4. Drink deeply from good books, especially the Bible.
    5. Make friendship a fine art.
    6. Build a shelter against a rainy day.
    7. Pray for guidance and give thanks for your blessings every day.

    June 9, 2010

    Strasburg - Hall of Fame or DL?

    Stephen Strasburg made his MLB debut last night and had an absolutely dominating performance, striking out 14 Pittsburgh Pirate hitters with some really nasty pitches.

    As a student of the art of pitching, I always find myself studying a pitcher's mechanics.

    I noticed something last night that has me worried that Stephen Strasburg may land himself on the DL long before he finds himself on a Hall of Fame ballot.

    The pictures below are of pitchers who have struggled with arm injuries their entire careers. Each and every one of these pitchers is what I call an "elbow lifter." Former big league pitcher and current pitching instructor Dick Mills provides us with a very clear and concise definition of elbow lifting:

    Elbow lifting causes the elbow to lift up above the throwing shoulder. Then upon landing with the elbow above the shoulder the elbow must quickly snap into a position to begin arm acceleration. This is very, very stressful and is the cause of many elbow and shoulder injuries in pitchers.

    Pitchers below in order of appearance (Brandon McCarthy,Mark Prior, Francisco Liriano, Kerry Wood, John Smoltz)






    Now, let's look at some pictures of Mr. Strasburg:





    Let's compare the pictures above to the pictures below of some of the best pitchers in baseball who have had very few arm injuries in their career. Pay attention to the position of their throwing elbow.





    These pictures may mean absolutely nothing or they mean everything for Mr. Strasburg. Only time will tell.

    Crowding Out at It's Finest

    In economics, "crowding out" is any reduction in private consumption or investment that occurs because of an increase in government spending. The only way governments can spend more is to tax more or borrow more.

    CHART OF THE DAY: Banks Are Lending Money Like Crazy To Single Borrower

    That would be Uncle Sam.

    The latest data, which just came out yesterday, confirms that while bank lending remains subdued, purchases of government securities continue to soar.

    Why the thirst for government securities? Well, government has a big thirst for money, and in this environment, it's nice to put money with an entity that you're sure can pay you back.

    Seriously, why would you bother lending to an actual job-creating small business.

    The UnAmerican American President

    A friend and fellow commercial real estate broker sent me this Op/Ed piece from today's WSJ.

    I thought Ms. Rabinowitz' piece makes very clear what a lot of Americans have been thinking about President Obama since he took office:


    A great part of America now understands that this president's sense of identification lies elsewhere, and is in profound ways unlike theirs. He is hard put to sound convincingly like the leader of the nation, because he is, at heart and by instinct, the voice mainly of his ideological class. He is the alien in the White House, a matter having nothing to do with delusions about his birthplace cherished by the demented fringe.

    One of his first reforms was to rid the White House of the bust of Winston Churchill—a gift from Tony Blair—by packing it back off to 10 Downing Street. A cloudlet of mystery has surrounded the subject ever since, but the central fact stands clear. The new administration had apparently found no place in our national house of many rooms for the British leader who lives on so vividly in the American mind. Churchill, face of our shared wartime struggle, dauntless rallier of his nation who continues, so remarkably, to speak to ours. For a president to whom such associations are alien, ridding the White House of Churchill would, of course, have raised no second thoughts.

    .........The president's appointees, transmitters of policy, go forth with singular passion week after week, delivering the latest inversion of reality.

    ........Consider the hapless Eric Holder, America's attorney general, confronting the question put to him by Rep. Lamar Smith (R., Texas) of the House Judicary Committee on May 13.

    Did Mr. Holder think that in the last three terrorist attempts on this soil, one of them successful (Maj. Nidal Hasan's murder of 13 soldiers at Fort Hood, preceded by his shout of "Allahu Akbar!"), that radical Islam might have played any role at all? Mr. Holder seemed puzzled by the question. "People have different reasons" he finally answered—a response he repeated three times. He didn't want "to say anything negative about any religion."

    And who can forget the exhortations on jihad by John Brennan, Mr. Obama's chief adviser on counterterrorism? Mr. Brennan has in the past charged that Americans lack sensitivity to the Muslim world, and that we have particularly failed to credit its peace-loving disposition. In a May 26 speech at the Center for Strategic and International Studies, Mr. Brennan held forth fervently, if not quite comprehensibly, on who our enemy was not: "Our enemy is not terrorism because terrorism is just a tactic. Our enemy is not terror because terror is a state of mind, and as Americans we refuse to live in fear."

    He went on to announce, sternly, that we do not refer to our enemies as Islamists or jihadists because jihad is a holy struggle, a legitimate tenet of Islam. How then might we be permitted to describe our enemies? One hint comes from another of Mr. Brennan's pronouncements in that speech: That "violent extremists are victims of political, economic and social forces."

    They are attitudes to be found everywhere, but never before in a president of the United States. Mr. Obama may not hold all, or the more extreme, of these views. But there can be no doubt by now of the influences that have shaped him. They account for his grand apology tour through the capitals of Europe and to the Muslim world, during which he decried America's moral failures—her arrogance, insensitivity. They were the words of a man to whom reasons for American guilt came naturally. Americans were shocked by this behavior in their newly elected president. But he was telling them something from those lecterns in foreign lands—something about his distant relation to the country he was about to lead.

    The truth about that distance is now sinking in, which is all to the good. A country governed by leaders too principled to speak the name of its mortal enemy needs every infusion of reality it can get.

    June 7, 2010

    Chart of the Day

    Mitch Daniels Op/Ed

    The last politician I put a lot of faith in turned out to be more worried about his Argentinian mistresses than governing the State of South Carolina, so I am going to be careful about getting to excited about Mitch Daniels. That being said, I am having a very hard time not getting really, really excited about the prospect of Mitch Daniels running for President in 2012:

    The article below is from an Op/Ed Daniels wrote for the WSJ:

    June 10 will be a silent anniversary, but one worth noting by those alarmed at the past year's assault on free institutions. It was last June 10 when the federal government tossed aside the option of proven, workable bankruptcy procedures in order to nationalize Chrysler on behalf of its union allies.

    In order to provide preferential treatment to its cronies, the Obama administration confiscated the property of those creditors who had lent money to Chrysler in good faith, believing that their interest was legally secured and that they stood at the head of the line in the event of the auto company's failure.

    The shock wave through the economic markets from this arbitrary redefinition of "secured creditors" rights was profound. Could centuries of crystal-clear law really be overthrown by executive fiat? Apparently, yes. The Supreme Court declined to intervene in the takeover. The cost of corporate borrowing was clearly headed upward as the U.S. for the first time imitated those Third World despotisms where economic rules can be changed without warning at the ruler's whim and convenience.

    Equally profound was the message sent to the legal community, which quickly began to cite the "Chrysler precedent" as the now-acceptable judicial model for stripping secured creditors' rights in the name of expediency. Just days after the decision, the Phoenix Coyotes of the National Hockey League invoked the Chrysler case in an attempt to undermine secured creditors' rights and hasten bankruptcy.

    Those brave few who protested the brute force taking of their money were attacked by administration apparatchiks for the sin of doing their fiduciary duty to their investors and shareholders. Calls went out from the White House, encouraging submission and warning of the consequences of opposition. One by one, potential plaintiffs surrendered.

    The one effort to stop the Chrysler cramdown was launched by three Indiana pension funds. Believing they were making both a wise investment and a gesture supportive of a longtime state employer, Hoosier retired teachers and state policemen had purchased some $19 million in Chrysler's secured debt. The market consensus at the time was that, at 43 cents to par, the bonds were well below their value if bankruptcy ultimately came.

    Bankruptcy came, all right, but in a new, extra-legal form run by the federal government. The United Auto Workers, who owned no interest in the company, were simply handed a 55% interest, a gift valued then at $4.5 billion. When no one else wanted to buy the firm, Fiat was given a 20% stake for free to take it over. After this looting, the legitimate creditors were told to be happy with the remnants. For Indiana's retired teachers and state policemen, this amounted to 29 cents on the dollar, a loss of $6 million versus the purchase price and millions more below the expected value in a standard Chapter 11 proceeding.

    When, alone among the victims, Indiana retirees went to court, they caused a lot of discomfort but no change in the outcome. The Second District U.S. Court of Appeals declined to overturn the cramdown, but the judges refused to go within a mile of the merits. How could they? The law calls certain instruments "secured" credit for a reason, and there was absolutely zero precedent for the Chrysler confiscation.

    In an article by Zach Lowe published last fall in the Am Law Daily and the American Lawyer magazine, UCLA Law School Prof. Lynn LoPucki said of the cramdown: "What happened . . . was so outrageous and illegal that until March of this year [2009], nobody even conceptualized it." The Second Circuit opinion, like the Supreme Court's refusal to stay the nationalization, went out of its way to state that the ruling did not reach the substantive issues raised.

    Aided by incensed counsel donating much of their time pro bono, Indiana returned to the Supreme Court with a slim hope of recovering its pensioners' assets, reinstating traditional American property rights and making secured credit secure once more. It seemed to some an exercise in futility: The judge in the Coyotes case commented from the bench that the "poor pension manager from Indiana . . . was kind of like the gentlemen in Tiananmen Square when the tanks came rolling."

    On Dec. 14, 2009, in the under-reported news story of the year, the Supreme Court granted the request of Indiana pensioners and took the case. The Court immediately ruled from the bench to strike down the decision of the Second Circuit Court of Appeals, eliminating it as a possible precedent in any future proceeding. Our retirees are still out the $6 million but enjoyed the small vindication of being awarded the court clerk's costs at Chrysler's expense.

    The nation is not safe from crony capitalism. In the past year we've experienced the nationalization of the student loan industry and the passage of national health-care and financial-services regulation, each of which is rife with new opportunities for government favoritism and preferential handouts to favored corporations like Chrysler.

    But thanks to a quiet correction by the Supreme Court—and a little Hoosier stubbornness—the rule of law has been re-established. The greatest benefits will accrue not to lenders and borrowers but to all those whose jobs are created because investors once again can trust that the money they've risked is safe from seizure by the state.