July 27, 2010

What Real Leadership Looks Like

Conn Carroll on Mitch Daniels:

When he was sworn into office in January 2005, the state of Indiana faced a $600 million deficit and a subpar AA S&P credit rating. While other states like Illinois and Michigan wildly increased spending in good economic times, Gov. Daniels did the opposite. Between 2005 and 2008, he reduced the state’s rate of spending growth from 5.9% to 2.8% saving $450 million.

Per-capita state government spending in Indiana has fallen eight spots and is now the sixth lowest in the nation. By 2009, the state sported $1.3 billion in cash reserves and an AAA rating. All this was accomplished while Daniels, working with an opposition-controlled lower house, enacted the largest tax cut in Indiana history, slashing property taxes by a third.

On his first day in office, Daniels issued an executive order stripping government unions of their power to collectively bargain. The decision has not only cost the left's perpetual dependence machine millions in taxpayer-funded union dues, but also enabled the state to cut costs by instituting a "pay-for-performance" personnel system. Without a burdensome labor contract, Daniels slashed government employment rolls from more than 35,000 to 30,454, a 14% reduction. As a result, Indiana now has fewer state employees than it did in 1982.

When the Great Recession hit, the historically high-cash reserves that Gov. Daniels had built buffeted the state through tough times. While 40 other states have raised taxes during this recession, Gov. Daniels made it clear to the Democrats in the statehouse that that was not an option for Indiana: “We will not make this recession worse by adding one cent to the tax burden of our fellow citizens.”

Instead Daniels has found ways to cut even more spending. All state agencies were forced to cut spending by 10%. The state sold two-thirds of its airplanes and thousands of other vehicles. State employees did not receive a pay raise in 2009 or 2010. Gov. Daniels even sacrificed himself, cutting his own pay for both 2009 and 2010.

While the surrounding rust-belt states of Illinois, Michigan and Ohio have suffered through unemployment rates well above 10%, Indiana’s rate has been close to the national average of 9.7%. Meanwhile, the July 2010 Department of Labor State Employment report shows that the state has created more jobs over the past year than any state but Texas, and that its over-the-year percentage increase in employment is second only to Kentucky.

Finally, before the phrase "Obamacare" had ever crossed anyone's lips, Daniels had already enacted free-market friendly patient-centered healthcare reform. His Healthy Indiana Program (HIP) helps Hoosiers who do not qualify for Medicaid to enroll in individual health-savings accounts.

The state then contributes up to $1,100 per enrollee to these accounts on a sliding income-dependent scale. These dollars are controlled, and owned, by the individual to spend on health services as he or she sees fit, with almost no interference from government or insurance-company bureaucrats. The plan was immensely successful. Interest in the program was so high that the state had to suspend enrollment (because of federal regulations) a number of times. Today there are almost 50,000 Hoosiers enrolled in the plan.

A Few More Thoughts from Tom Barrack

From Barrack's Chairman's Corner:

The disposition of distressed commercial mortgages has not happened at a scalable level as a result of relaxed mark-to-market regulations; untested special servicers and CMBS waterfalls; tranche warfare amongst holders of various classes of debt; zero interest rates; "pray and delay" and "extend and pretend" strategies. Consequently, the anticipated recycling profits from a massive macro correction in debt has been slow to come and many funds have been frustrated by the lack of product at what they believe to be attractive discount pricing. As a result, there are very few market clearing transactions for non-strategic, long-term buyers.

Many owners realize their equity value is gone but in many cases, due to historically low floating interest rates, can still make debt service if the term of the loan is extended. Everyone is playing for option value and it is a slow moving train, which becomes a bit "Japanese-esque," and the tea leaves tell me that this stage will be here for a while.

Commercial banks feel no pressure to mark the loans to market value because the regulatory requirements have provided a relaxation of LTV mark-to-market tests if sufficient debt service is still available. Consequently, a loan originated in 2007 on a $100 property at 70% LTV and 1.0x DSC with a 5.5% interest rate can still be "OK" at an LTV of 150% because artificially low interest rates are driving up coverage ratios to acceptable levels (see chart below); thus the dawning of "extend and pretend" and "delay and pray."

(1): Floating rate assumes L+100 bps with 30-year amortization

Real estate equity is moving slowly because a substantial disparity between most buyers and sellers still exists. Buyers have been anticipating price corrections as a result of the market downturn and continued deterioration in fundamentals while sellers who are not under bank or mortgage pressure are simply holding their ground. In most cases they have little incentive to sell, and due to their own debt issues, more likely than not, have lots of reasons to hold.

........In summary, solid risk-adjusted returns will be made by true real estate professionals with the tools and the teams to plow and hoe. By being in the marketplace, we will sense when that next repricing opportunity exists and will avail ourselves of it. The business is not about inventing the next iPad or launching the largest leverage buyout. It is about showing up, doing a good job, harvesting reasonable returns for our investors (which will look strong in hindsight against other asset classes), and waiting for the repricing moment.

July 26, 2010

Dodd-Frank Bill

Bankstock's Thomas Brown weighs in on the Dodd-Frank bill:

New horrors of the Dodd-Frank bill seem to come to light every day. The latest I’ve learned of is the concept of the “qualified mortgage” the bill codifies into law.

What’s a qualified mortgage? Congress has decreed that it’s one that adheres to these eight rules:

1. The mortgage amortizes. No option ARMs need apply.

2. It can’t result in a balloon payment that’s twice as large as the average of earlier scheduled payments.

3. The borrower’s income and financial resources must be verified and documented.

4. Underwriting is based on the full term of the loan, and takes into account taxes, insurance, and other related payments.

5. If it’s an ARM, underwriting must be based on the max rate permitted over the first five years and full amortization (including taxes, insurance, and other related payments).

6. The borrower’s debt-to-income ratio meets standards set by the CFPB.

7. Related fees can’t exceed 3 points.

8. Maximum term is 30 years.

Got all that? The law basically insists that lenders write only mortgages that are qualified under federal standards. So, for instance, a lender that writes a mortgage that’s not qualified will face an onerous risk-retention requirement if it securitizes it. In addition, the lender can be held accountable for up to three years of interest payments and damages, plus attorney’s fees. Borrowers will receive special foreclosure protection. One size had better fit all, or else.

Ugh. This is the worst sort of nanny-state over-regulation. There’s a reason, believe it or not, that the financial industry makes a habit of inventing lending products that have varying features: individuals’ financial needs and profiles vary. Products that take account of those differences can benefit both the borrower and the lender. Take, for instance, a type of mortgage that came to be widely vilified in the wake of the housing blowup, the Alt-A. Alt-A mortgages were originally invented for—and fill a critical need of—would-be borrowers who can’t provide the standard 1099/paystub types of documentation needed in the course of applying for a standard 30-year loan. These individuals might be high-earning self-employeds, such as physicians. Or individuals (actors, say) who don’t draw a regular salary but are paid sporadically instead on a per-project basis. They can be very strong credit risks, but basically have a paperwork problem. Alt-A mortgages provide a way for these folks to get access to credit.

But with the passage of Dodd-Frank, lenders’ ability to develop new loan products to serve the needs of people like this will be severely constrained. This is not a good thing. It’s not good for the lending industry, which will now have, at the margin, fewer profitable opportunities to lend. It’s not good for the economy. And it’s not good for borrowers, who’ll now be forced into plain vanilla lending products whether they’re appropriate or not.

You object, and point out that, in the end Alt-As did come to be abused; to prevent similar abuse in the next cycle, some sort of regulation of mortgage products is warranted. I’ll stipulate that. But Congress, in its wisdom, might have considered stopping short of writing into federal law what an acceptable mortgage looks like.

There’s already no shortage of provisions of Dodd-Frank—the CFPB, for instance, and the bill’s lack of preemption of state laws—that will have the effect of restricting credit and slowing the economy. Word of Congress’s insistence that mortgages adhere to highly restrictive, inflexible codified standards is the latest. I’m afraid it won’t be the last.


This is awesome stuff!

July 25, 2010

Promises, Promises, and More Promises

From the JP Morgan report that included the charts above:

Some politicians and think tanks (e.g. the Tax Policy Center) have argued that tax revenues and government spending as a % of US GDP are not that high, so there’s room for both to rise. The analysis above renders such claims disingenuous at best. Measures of current spending do not capture the scope and size of government programs that already exist, and which will have to be paid for, although no one knows how. Richard Fisher (Dallas Fed President) likens the US entitlement burden to German attacks on the UK in the 20th century, the costs of which eventually sunk the British pound; except this time, the wounds are self- inflicted.

America's Ruling Class

This entire article is worth reading, but I especially want you to read this section of the article:

Dependence Economics

By taxing and parceling out more than a third of what Americans produce, through regulations that reach deep into American life, our ruling class is making itself the arbiter of wealth and poverty. While the economic value of anything depends on sellers and buyers agreeing on that value as civil equals in the absence of force, modern government is about nothing if not tampering with civil equality. By endowing some in society with power to force others to sell cheaper than they would, and forcing others yet to buy at higher prices -- even to buy in the first place -- modern government makes valuable some things that are not, and devalues others that are. Thus if you are not among the favored guests at the table where officials make detailed lists of who is to receive what at whose expense, you are on the menu. Eventually, pretending forcibly that valueless things have value dilutes the currency's value for all.

Laws and regulations nowadays are longer than ever because length is needed to specify how people will be treated unequally. For example, the health care bill of 2010 takes more than 2,700 pages to make sure not just that some states will be treated differently from others because their senators offered key political support, but more importantly to codify bargains between the government and various parts of the health care industry, state governments, and large employers about who would receive what benefits (e.g., public employee unions and auto workers) and who would pass what indirect taxes onto the general public. The financial regulation bill of 2010, far from setting univocal rules for the entire financial industry in few words, spends some 3,000 pages (at this writing) tilting the field exquisitely toward some and away from others. Even more significantly, these and other products of Democratic and Republican administrations and Congresses empower countless boards and commissions arbitrarily to protect some persons and companies, while ruining others. Thus in 2008 the Republican administration first bailed out Bear Stearns, then let Lehman Brothers sink in the ensuing panic, but then rescued Goldman Sachs by infusing cash into its principal debtor, AIG. Then, its Democratic successor used similarly naked discretionary power (and money appropriated for another purpose) to give major stakes in the auto industry to labor unions that support it. Nowadays, the members of our ruling class admit that they do not read the laws. They don't have to. Because modern laws are primarily grants of discretion, all anybody has to know about them is whom they empower.

By making economic rules dependent on discretion, our bipartisan ruling class teaches that prosperity is to be bought with the coin of political support. Thus in the 1990s and 2000s, as Democrats and Republicans forced banks to make loans for houses to people and at rates they would not otherwise have considered, builders and investors had every reason to make as much money as they could from the ensuing inflation of housing prices. When the bubble burst, only those connected with the ruling class at the bottom and at the top were bailed out. Similarly, by taxing the use of carbon fuels and subsidizing "alternative energy," our ruling class created arguably the world's biggest opportunity for making money out of things that few if any would buy absent its intervention. The ethanol industry and its ensuing diversions of wealth exist exclusively because of subsidies. The prospect of legislation that would put a price on carbon emissions and allot certain amounts to certain companies set off a feeding frenzy among large companies to show support for a "green agenda," because such allotments would be worth tens of billions of dollars. That is why companies hired some 2,500 lobbyists in 2009 to deepen their involvement in "climate change." At the very least, such involvement profits them by making them into privileged collectors of carbon taxes. Any "green jobs" thus created are by definition creatures of subsidies -- that is, of privilege. What effect creating such privileges may have on "global warming" is debatable. But it surely increases the number of people dependent on the ruling class, and teaches Americans that satisfying that class is a surer way of making a living than producing goods and services that people want to buy.

Beyond patronage, picking economic winners and losers redirects the American people's energies to tasks that the political class deems more worthy than what Americans choose for themselves. John Kenneth Galbraith's characterization of America as "private wealth amidst public squalor" (The Affluent Society, 1958) has ever encapsulated our best and brightest's complaint: left to themselves, Americans use land inefficiently in suburbs and exurbs, making it necessary to use energy to transport them to jobs and shopping. Americans drive big cars, eat lots of meat as well as other unhealthy things, and go to the doctor whenever they feel like it. Americans think it justice to spend the money they earn to satisfy their private desires even though the ruling class knows that justice lies in improving the community and the planet. The ruling class knows that Americans must learn to live more densely and close to work, that they must drive smaller cars and change their lives to use less energy, that their dietary habits must improve, that they must accept limits in how much medical care they get, that they must divert more of their money to support people, cultural enterprises, and plans for the planet that the ruling class deems worthier. So, ever-greater taxes and intrusive regulations are the main wrenches by which the American people can be improved (and, yes, by which the ruling class feeds and grows).

The 2010 medical law is a template for the ruling class's economic modus operandi: the government taxes citizens to pay for medical care and requires citizens to purchase health insurance. The money thus taken and directed is money that the citizens themselves might have used to pay for medical care. In exchange for the money, the government promises to provide care through its "system." But then all the boards, commissions, guidelines, procedures, and "best practices" that constitute "the system" become the arbiters of what any citizen ends up getting. The citizen might end up dissatisfied with what "the system" offers. But when he gave up his money, he gave up the power to choose, and became dependent on all the boards and commissions that his money also pays for and that raise the cost ofcare. Similarly, in 2008 the House Ways and Means Committee began considering a plan to force citizens who own Individual Retirement Accounts (IRAs) to transfer those funds into government-run "guaranteed retirement accounts." If the government may force citizens to buy health insurance, by what logic can it not force them to trade private ownership and control of retirement money for a guarantee as sound as the government itself? Is it not clear that the government knows more about managing retirement income than individuals?

July 24, 2010

James Montier on Insurance

James Montier on insurance:

In the past I've talked about the need for cheap insurance, and the benefits that this can bring to a portfolio in terms of robustness. However, the key word is that the insurance must be cheap (or at very worst fair value). Buying expensive insurance is a waste of time. I used to live in Tokyo and was constantly amazed that the day after an earth tremor the cost of earthquake insurance would soar, as would the demand! You should really only want insurance when it is cheap, as this is the time when the no one else wants it, and (perversely) the events are most likely. Buying expensive insurance is just like buying any other overpriced asset...a path to the permanent impairment of captial. Rather than wasting money on expensive insurance, holding a larger cash balance makes sense. It preserves the dry powder for times when you want to deploy capital, and limits the downside.

So buy insurance when it's cheap. When it isn't and you are worried about the downside, hold cash. As Buffet said holding cash is painful, but not as painful as doing something stupid!

July 22, 2010

Paul Johnson on Coaching

Georgia Tech football coach Paul Johnson delivers a classic line on coaching:

Where coaches make big mistakes is in wanting their people to like them. But I’ve never worried about that. I’m going to be me. If they like me, fine. If they wouldn’t piss on me if I was on fire, fine. But they’re going to respect me. And that’s the one thing. If you operate that way, you usually get both eventually.

July 19, 2010

Recovery coming?

Not if you read Tom Price's latest letter:

......The latest reason for a considered pause comes with publication of the most recent minutes from the US Federal Reserve. Fedspeak is a bureaucratic sedative at the best of times, but sometimes the dry-as-dust language is unable to conceal some real firecrackers. The minutes from the Open Market Committee of 22-23 June contain the following observation; it‟s interminable but bear with it:

“Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants‟ interpretation of the Federal Reserve‟s dual objectives [price stability and full employment]; most expected the convergence process to take no more than five or six years.”

Couched in such bland and soporific prolixity, the point of that sentence may initially pass most readers by. Here it is shorn of its anodyne length and fussy circumlocution:

The US economy may not recover until 2016.

And this from a committee that is preconditioned to be on the side of the optimists.

........The admittedly subjective assessment of the FOMC is not the only reason to be a little wary of the vigour of the apparent recovery:

The Baltic Dry Index, a measure of shipping costs and a plausible barometer for world trade, has fallen by almost 60% in its longest streak of successive declines for 9 years;

The Thomson Reuters / University of Michigan preliminary index of consumer sentiment fell from 76 in June to 66.5; consumer spending accounts for roughly 2/3 of US GDP;

The Philadelphia Fed‟s July index of new manufacturing orders fell from 9.0 to minus 4.3; The US workforce has contracted by 1 million over the past two months; US mortgage applications have fallen by 42% to a 13-year low.

July 18, 2010

Tom Barrack's Latest Thoughts

Tom Barracks' latest thoughts on the commercial real estate market:

........Barrack spoke today exclusively with PERE following widely reported comments this week that he finds real estate to be “tiring and boring”. Barrack said the comment was intended to highlight a market changed by the credit crisis, in which “the fast guys looking for fast money” are now a thing of the past.

The report had caused some head-scratching among real estate market insiders, who privately questioned whether Barrack was signalling less enthusiasm for the asset class.

However in the interview, Barrack said that his commitment to real estate has never been stronger. “Ninety-nine percent of our assets are in real estate, and 100 percent of my life has been real estate,” he said.

Barrack insisted that amid an era of low interest rates, relaxation of mark-to-market accounting rules, and so-called extend and pretend debt refinancings, real estate had come down to “single and doubles” returns, with “no outsize returns and no velocity”.

“The reality of life is that returns for real estate for the foreseeable future are going to be ordinary not extraordinary,” Barrack said, noting that this view excluded Asia, the Middle East and South America.

As such, he added, there was really only one game in town – with debt the new equity and real estate the new value-add. However, Barrack warned that debt workouts, recapitalisations, restructurings and discounted payoffs were “exhausting”.

“It’s real work,” he said, explaining that for complex, securitised loans in particular an investor could face up to 100 bondholders invested in just one mortgage but “all with different agendas testing waterfall schedules and rules that have never been tested before. All this restructuring is going very slowly,” he said. “Its hand-to-hand warfare and it’s happening at the asset level itself.”

..........“We cannot keep running a $1.5 trillion deficit and printing money to spend our way out of problems without some effect. Money will return to US assets and my instinct is that, for the most part, real estate will return to a very solid 10 percent,” Barrack said, adding that this would “create select opportunities for opportunistic players.”

The rise in demand is “not around the corner”, he said. “It could be three to seven years out.”

Barrack said the private equity real estate industry had been “spoiled by incredible outsized returns fuelled by high octane growth”, but “no-one had anticipated the power of zero interest rates and how you can hold [onto real estate] for a long, long time.”

The wave of deleveraging that was expected to hit commercial real estate globally didn’t happen as it did in the residential sector, he added, meaning too many people were “eeking along”.

July 14, 2010

Investing Like the Government

It's always refreshing to see how wisely the government is spending our money:

As the midterm election season approaches, new road signs are popping up everywhere – millions of dollars worth of signs touting "The American Reinvestment and Recovery Act" and reminding passers-by that the program is "Putting America Back to Work."

On the road leading to Dulles Airport outside Washington, DC there's a 10' x 11' road sign touting a runway improvement project funded by the federal stimulus. The project cost nearly $15 million and has created 17 jobs, according to recovery.gov.

However, there's another number that caught the eye of ABC News: $10,000. That's how much money the Washington Airports Authority tells ABC News it spent to make and install the sign – a single sign – announcing that the project is "Funded by The American Reinvestment and Recovery Act" and is "Putting America Back to Work." The money for the sign was taken out of the budget for the runway improvement project.


July 13, 2010

Montier is Back

One of my favorite financial voices has returned to blogging:

Here are some snippets from James Montier's latest post:

The sheer hubris of many in the economics profession never ceases to amaze me. Take for instance a recent paper by Kartik Athreya of the Federal Reserve Bank of Richmond[1] entitled “Economics is Hard. Don’t let Bloggers Tell You Otherwise”. In a move that is eerily reminiscent of the controversial talking Barbie of the early 1990s who fatefully uttered “Math class is tough”[2], Athreya’s short paper essentially lays out a quite staggering claim :- that economics should be left to those with a PhD in the subject!

.......In fact, Athreya’s ire isn’t limited to what he sees as uninformed debate, he seems to object to anyone who attempts to make the policy issues of the day clear even if they have a PhD. He pejoratively describes both Paul Krugman and Brad DeLong as “Patron saints of the Macroeconomic Policy is Easy” movement.

He argues that we won’t expect particularly informed discussion on the causes, consequences and treatments for cancer from non-Oncology specialists, so why we would we expect non-specialists to offer any useful debate on economics.

However, the analogy is false. Modern medicine is based on scientific principles and follows an evidence based approach. Even then some estimate that the majority of published findings in medical journals are false

Economics starts from a far worse place. It isn’t a science, and often seems more interested in twisting the facts to fit a theory rather than the other way around. In fact, as Nassim Taleb has pointed out, economics is more akin to medieval medicine than its current practice, “Medicine used to kill more patients than it saved – just as financial economics endangers the system by creating, not reducing, risk.

.....In many ways economics as it exists today is largely a victim of learned helplessness - a phenomenon was first documented by Martin Seligman in the 1960s. He was working with dogs (dog lovers look away now) and studying conditioning when he came across something interesting. Seligman was subjecting pairs of dogs to nondamaging but painful electric shocks. However, in each pair of dogs one animal could put an end to the shock by simply pressing the side panels of its container with its head. The other dog was unable to turn off the shock. The electricity was synchronized, starting at the same point for both dogs, and obviously ending when the dog with the control turned off the power.

This gave the each of the pairs of dogs a very different experience. One experienced the pain as controllable, while the other did not. The dogs which had no control soon began to cower and whine (signs of doggy depression) even after the sessions had stopped. The dogs which could control the shocks showed no signs of this behaviour.

In the second phase of the experiments dogs were placed in box with a low wall separating the container into two. One side (the side on which the dog started) was electrified. To avoid the pain the dog simply had to jump the low wall. The dogs which had controlled the shocks in the first round quickly learned to jump the wall. However, the around two-thirds of the dogs who had no control in the first round, simply laid down and suffered the pain, they had learned to become helpless.

Modern day economics is much like these poor animals. Many economists have learnt to become helpless. They would rather lay down and whimper and whine about how unfair the world is, and mutter that everything would be alright if only people behaved like their models, than seek to look outside the narrow confines of their obsession with rationality and mathematics to see if others might just have some useful insight.

The age of the specialist (people who learn more and more about less and less, until they know absolutely everything about nothing) has proved to have some fundamental flaws. Three cheers for the generalists!

Amity Shales on Humble Policy

A must read from Amity Shales:

.......The problem for all is that business isn’t an identifiable person, group or company. Good policy is what might be called humble policy. It starts with admitting what we don’t know. That includes who will lead growth in 2011 or 2012, where that person lives, and how he or she will get capital. Humble policy then goes on to concentrate on trying to let our economy become that broad space that future businesses and industries still unknown, might find inviting.

Humble policy is, of course, hard for a U.S. Congress to get its head around. Policy, in lawmakers’ minds, is all about knowing and crafting smarter law. Lawmakers are arrogant in their certainty that voters will never accept policy that doesn’t reward voters like Pavlov’s dogs. Lawmakers are also certain that they shouldn’t be seen to write law that will help the rich in the future. But again, there is that mistake: they are assuming they know who the rich will be.

......First Step

But to the plan. Humble step No. 1: Permanently set tax rates lower for all. That means keeping the dividend tax low, keeping the top income-tax rate at 35 percent and sustaining the capital-gains rate at 20 percent or lower. Cutting the corporate tax would help the U.S. compete with the rest of the world.

Even better would be to pass the plan of the humble congressman, Republican Paul Ryan of Wisconsin. The Ryan plan advocates abolishing taxes on capital gains and dividends, and reduces the top marginal rate on income taxes to 25 percent.

......Cutting Regulation

Cutting regulation, including the new health-care mandate, would generate the missing jobs that are driving our political and policy debates. It is the definition of arrogance to assume employers can afford the modern mandates.

The next humble step would be to set policy to benefit the overall economy, not any specific group. The Obama administration’s new emphasis on exports is misguided. Promulgating export policy may help one politician through one election cycle. But overall, emphasizing exports ignores that exports may not be the area in the U.S. economy where growth will be most productive. Therefore export politics misallocates economic resources.

......Dropping Stimulus

The third humble policy is demanding a serious commitment from lawmakers to abandon fiscal stimulus. Stimulus spending represents an even worse misallocation of resources than export promotion. Optimal of course would be if Washington used savings it gets from abandoning stimulus to pay for the supposedly impossible task of maintain the Bush tax rates.

The fourth humble move is up to voters. It is to reduce expectations about entitlements. This would be easier to do if the fifth and final requirement were met: electing lawmakers or hiring government advisers with an ability to demonstrate humility.

One such humble hero in the wings is Mitch Daniels, Republican governor of Indiana. Daniels spent time in the second Bush administration as director of Office of Management and Budget, so he knows the details of crafting, say, a humbler Medicare policy. Ryan, the congressman, may also meet the humility criterion.

Right now there’s little evidence of humble vision in Washington. At a hearing on the future of taxes in the Senate Finance Committee this week, for example, the debate will range from extending the Bush rates for some to extending them for all to extending them for none. Any other possibility, deeper cuts for example, will be ridiculed because it won’t fit the pay-as- you-go budgeting regime. And tax cuts never will meet that standard, goes the argument, because lawmakers will never be willing to make the offsetting spending cuts.

Even as it is ridiculed, humble policy still is worth laying out. Doing so reminds us that what is failing us isn’t our economy, but our politics.

July 12, 2010

Some Baseball History for You

From an LA Times article:

It's a long story — as is the story of how "Take Me Out to the Ball Game" became an American staple.

Norworth had never seen a baseball game when he wrote the song's lyrics. He was riding the subway in New York when he saw a billboard for the Polo Grounds, the legendary ballpark where San Francisco's Giants then played. He pulled out a pencil and paper and dashed out the lyrics.

The song was a big hit for the prolific Norworth, who followed it up later that year with another: "Shine On, Harvest Moon."

Norworth didn't see his first baseball game until 1940. And the first time he heard his song performed at a game was in 1958, when the Dodgers, newly arrived from Brooklyn, honored him at the Coliseum during the tune's 50th anniversary. The makers of Cracker Jack presented him with a trophy.

That the song is played at every professional baseball game is a relatively recent phenomenon. The Baseball Hall of Fame dates it to the mid-1970s, when Chicago White Sox owner Bill Veeck, ever the showman, encouraged announcer Harry Caray to serenade the crowd during the seventh-inning stretch. A tradition was born.

Norworth died in 1959 at the age of 80. He was a longtime resident of Laguna Beach, where he founded the city's Little League. Today, teams still compete for the Jack Norworth Trophy — the one he was given the year before his death.

July 9, 2010

Open Letter to Cleveland Cavs Fans

This a pretty fantastic letter from Cleveland Cavaliers' owner Dan Gilbert:

Open Letter to Fans from Cavaliers Majority Owner Dan Gilbert

Dear Cleveland, All Of Northeast Ohio and Cleveland Cavaliers Supporters Wherever You May Be Tonight;

As you now know, our former hero, who grew up in the very region that he deserted this evening, is no longer a Cleveland Cavalier.

This was announced with a several day, narcissistic, self-promotional build-up culminating with a national TV special of his "decision" unlike anything ever "witnessed" in the history of sports and probably the history of entertainment.

Clearly, this is bitterly disappointing to all of us.

The good news is that the ownership team and the rest of the hard-working, loyal, and driven staff over here at your hometown Cavaliers have not betrayed you nor NEVER will betray you.

There is so much more to tell you about the events of the recent past and our more than exciting future. Over the next several days and weeks, we will be communicating much of that to you.

You simply don't deserve this kind of cowardly betrayal.

You have given so much and deserve so much more.

In the meantime, I want to make one statement to you tonight:


You can take it to the bank.

If you thought we were motivated before tonight to bring the hardware to Cleveland, I can tell you that this shameful display of selfishness and betrayal by one of our very own has shifted our "motivation" to previously unknown and previously never experienced levels.

Some people think they should go to heaven but NOT have to die to get there.

Sorry, but that's simply not how it works.

This shocking act of disloyalty from our home grown "chosen one" sends the exact opposite lesson of what we would want our children to learn. And "who" we would want them to grow-up to become.

But the good news is that this heartless and callous action can only serve as the antidote to the so-called "curse" on Cleveland, Ohio.

The self-declared former "King" will be taking the "curse" with him down south. And until he does "right" by Cleveland and Ohio, James (and the town where he plays) will unfortunately own this dreaded spell and bad karma.

Just watch.

Sleep well, Cleveland.

Tomorrow is a new and much brighter day....

I PROMISE you that our energy, focus, capital, knowledge and experience will be directed at one thing and one thing only:

DELIVERING YOU the championship you have long deserved and is long overdue....

Dan Gilbert
Majority Owner
Cleveland Cavaliers

July 7, 2010

Sign of the Apocalypse

From Burt Fulsom:

....The Siena College presidential poll–a ranking of 44 presidents by 200 historians–put Franklin Roosevelt in first place. In other words, the man who, during his first two terms, gave us nonstop double digit unemployment–and 20 percent unemployment toward the end of his second term, is ranked ahead of George Washington, Abraham Lincoln, and all other American presidents.

And that may not be the worst indiscretion. These historians also ranked Barack Obama ahead of Ronald Reagan. In other words, if you start your presidency with 8 percent unemployment and run it to 10 percent (all the while going further in debt by more than $1,000,000,000,000) you are greater than the president who sharply reduced unemployment and inflation during his first term and then ended the Cold War in his second term.

Most Americans are repelled by the judgment of Siena College’s historians. Most Americans believe in more limited government and they are skeptical of concentrating power in the hands of one leader, or a small group of leaders. Most Americans instinctively smile when they read these words from James Madison: “The great security against a gradual concentration of the several powers in the same department consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others. . . . Ambition must be made to counteract ambition.”

July 6, 2010

Kagan - No Limit to Fed. Govt. Powers in Her Eyes

A friend sent me the video below from Elena Kagan's confirmation hearing and my blood literally boiled after watching it.

It should literally make every single, solitary American citizen sick to their stomachs to hear silence and stuttering from a woman who is going to be confirmed to the UNITED STATES SUPREME COURT when asked the question "Do we have the power to tell people what they have to eat every day."

Let's see what James Madison, the Father of the Constitution, had to say about the original intention of the Commerce Clause that so many liberals are hiding behind to mask their unquenchable desire to expand the role of the federal government:

"Yet it is very certain that it grew out of the abuse of the power by the importing States in taxing the nonimporting, and was intended as a negative and preventive provision against injustice among the States themselves, rather than as a power to be used for the positive purposes of the General Government, in which alone, however, the remedial power could be lodged." - Letter to Cabell, February 13, 1829.

We are literally handing away liberty each and every day in this country, and I am scared to death that we all are going to wake up in the very near future and simply mutter "How did we let this happen."

Theodore Roosevelt on Success

"Only a very limited amount of the success of life comes to persons possessing genius. The average man who is successful----the average statesman, the average public servant, the average solider, who wins what we call great success----is not a genius. He is a man who has merely the ordinary qualities that he shares with his fellows, but who has developed those ordinary qualities to a more than ordinary degree." Theodore Roosevelt

And I Thought My Neighborhood Pool Was Busy This Summer

July 4, 2010

Warburg - Old School Banker

A great read from Niall Ferguson on one of the 20th Century's greatest bankers Siegmund Warburg:

......The distinction between transactions banking and relationship banking was already well understood in the 1960s. Warburg defined the former as “channelling big sums of money from certain quarters which had a surplus to certain other quarters where there was a scarcity of funds ... trading in money and of moving funds”. Relationship banking, by contrast, meant knowing the client in deep psychological detail. It was not about piling the securities high and selling them dear, it was about advising owners and managers.

The striking thing about this formulation is that Warburg regarded transactions banking as a thing of the past. From his perspective, looking back to his early career in Hamburg, New York and Berlin in the 1920s, transactions banking – the preference for quantity over quality – had been one of the root causes of the Wall Street Crash and the Great Depression. The lesson of history, in his eyes, was that bankers should engage in advising firms they got to know intimately, rather than in speculation.

.......Beginning with his triumph in the hostile takeover of British Aluminium in 1958-1959, Warburg was renowned for his skill in boardroom battles, the key to which was his keen psychological understanding of both his own clients and the other side. Yet the basis for all that Warburg did was a set of five haute banque (elite banking) principles that he referred to in a 1953 memorandum directed at the US investment bank Kuhn, Loeb & Co (which he believed was deficient in all five). He wrote that “the important elements of a first-class private banking business” were:

1. Moral standing

2. Reputation for efficiency and high quality brain work

3. Connections

4. Capital funds

5. Personnel and organisation

.......Relationships were not just with clients. There were also “connections” to be cultivated. “Most of the substantial transactions which have been done by us are the result of the cultivation of contacts over very many years,” Warburg reminded his fellow directors in a typically admonitory memorandum from 1964. “It is, of course, important that the technical details of a transaction are dealt with in the most thorough and painstaking manner possible, but this should not make us forget that ... this would be fruitless without human contact with the client in question ... In our kind of business, the continuity of valuable connections overrides in importance the conclusion of any specific transactions.” It would be hard to find a better expression of the theory of relationship banking.

Relationships, then, were at the core of the haute banque style. “Our ambition should not be ... to do quantity-wise as much or even more business than our chief competitors,” wrote Warburg in 1968. “On the contrary, our emphasis should be on making SGW & Co an elite house, excelling in the service it gives to its industrial clients rather than on doing business on a mass-production basis.”

Amazing Grace

This morning at church, we had the pleasure of having Amazing Grace played by on the bagpipes.

It literally moved me to tears.

Paul Ryan - 4th of July Column

From today's Chicago Tribune:

America's first debt crisis

Honoring our founders' wisdom

By Paul Ryan

July 4, 2010

The Declaration of Independence, 234 years ago today, proclaimed that self-government exists in order to secure the rights of the people. As we celebrate America's birthday, it's easy to forget that this experiment in freedom nearly collapsed in its first decade because of a massive debt crisis.

The wave of debt now bearing down on the U.S. poses no less a threat to our way of life than our first debt crisis did. Can we learn anything from the financial upheavals of the 1780s that might guide us today?

Following the Revolutionary War, the U.S. found itself under a mountain of mostly foreign debts. Financial collapse wrecked the new American economy and foreign trade, brought civil violence, set states against each other and endangered our nation's moral character. Every state acted like a separate nation. The national government, under the Articles of Confederation, was practically moribund.

Some printed huge quantities of paper money with no guaranteed value, resulting in uncontrolled inflation. Creditors rejected this unsecured paper. Without real money, commerce ground to a halt. Farmers were especially hard hit. Some states enacted laws preventing debt collections, causing credit to disappear completely.

Massachusetts rejected these debtor laws. In 1786, gangs of farmers, led by Revolutionary War veteran Daniel Shays, terrorized the western region. To stop foreclosures, they shut down the courts. The reign of violence peaked when upward of 2,000 men tried to capture the national arsenal in Springfield but were driven off by state militia.

In December 1787, two ringleaders of the Shays Rebellion were hanged. The U.S. was on the verge of dissolution. Self-government had become a mockery. Soon, the Old World powers would recolonize the states, perhaps invited by Americans themselves to restore order.

Earlier that year, a few public-spirited leaders who desperately wanted America's experiment in freedom to succeed met in Philadelphia. Rising above personal and partisan rancors, they drafted a new Constitution with the powers necessary to address the debt crisis and economic collapse.

The new government, led by President George Washington and Alexander Hamilton, his treasury secretary, resolved to assume, fund and pay off all foreign, private and state debts.

In 1791, the national debt equaled about 40 percent of the gross domestic product. With its interdict on paper money and its stable dollar guarantee, the Constitution combined with the financial instruments Hamilton created to fund the debt provided an incredibly powerful stimulus to economic growth. National and foreign trade reopened. Federal revenues grew rapidly from sales of western lands and the tariff. Old taxes were cut, and the Jefferson and Madison administrations imposed new limits on federal spending. By 1836, 45 years after Hamilton initiated his audacious debt plan, the U.S. government paid off the entire debt.

From this history, we see that a debt crisis dissolves social bonds, weakening economic, personal, social, moral and political relationships. As government monetizes the debt to meet rising interest rates, inflation is unleashed and the currency devalued. Money whose future value is unpredictable cannot serve its most important purpose, to provide a common rule to equate goods, services and work effort. When social transactions are undermined, people lose trust in one another.

A society without trust cannot long remain free. A paralyzed democratic government, unwilling to act against a predictable threat, such as a growing debt crisis, invites popular contempt and resistance. Frightened citizens whose representatives will not protect their private property or the public treasury may not only give up on their representatives but dismiss constitutional self-government as weak, inadequate, servile and ignorant.

Recent polls show a near majority believe their government has now become the chief danger to their rights.

America's looming debt crisis challenges this experiment in democracy. Political leaders should meet this crisis with the same seriousness and determination they would bring against an invading army. There are no Madisons, Hamiltons and Washingtons to save us from our folly, nor do we need a new Constitution. Yet the courage, imagination, wisdom and public spirit that provided the founders with the plan to end America's first debt crisis can also supply our needs. We only need leaders who will rise above narrow partisanship to confront our debt challenge and save our exceptional country.

Republican U.S. Rep. Paul Ryan represents the 1st Congressional District of Wisconsin.