DECEMBER 23, 2008

There is still much talk about the Madoff problem and the lack of "due diligence" performed by managers when they were Investing in Madoff's activities. Where is the discussion about due diligence for the Paulson $350 billion, or the Obama proposed $1 trillion? There has been none and there will be none. Should we all just give up and trust those to whom the power to approve spending resides; and to those who implement said approvals? It is not exactly like we have any choice in the matter, at least until the next set of elections. For now, it is Pelosi and Frank in the House and Reid and Dodd in the Senate to whom we place much of this "trust". In the executive branch, it will be the various Cabinet heads who will administer the "stimulus" package. Who will they give this money to and why? Does this make you feel better than tax cuts, where thousands of entrepreneurs and millions of consumers would  make decisions instead of a few select politicians and bureaucrats? It doesn't me. It is not as if there is some unified field theory of Macroeconomics supporting such "stimulus" proposals. To quote Greg Mankiw, "My advice to Team Obama: Do not be intellectually bound by the textbook Keynesian model. Be prepared to recognize that the world is vastly more complicated than the one we describe in ec 10. In particular, empirical studies that do not impose the restrictions of Keynesian theory suggest that you might get more bang for the buck with tax cuts than spending hikes."

(posted at 6:30 pm by Mike Rulle)

 

Like Kling, I too am "gobsmacked" that Glenn Hubbard, Dean of my Alma Mater Columbia Business School, is proposing to prop up the price of housing. This is clownishly ridiculous Subsidizing Mortgages. To quote Kling, who says it quite clearly,"The problem with subsidizing mortgages is you're subsidizing people getting into debt. You're putting people into houses with no equity," said Arnold Kling, a former economist at both the Federal Reserve and Freddie Mac. The goal should be getting people to own homes on a sound basis. Among the many problems with the Hubbard-Mayer idea is that trying to prop up home prices is crazy when so much overbuilding has taken place and so many housing units are unoccupied. We need another two or three years of record low housing construction to get rid of the overhang". It simply continues to amaze me how the concept of Moral hazard- Wikipedia, the free encyclopedia has just been tossed aside as irrelevant.

(posted at 10 :00 am by Mike Rulle)

    

The reality is that in the current scheme of things, Bernie Madoff is small potatoes. When the entire Federal Government seems dedicated to the proposition that there is no irresponsible behavior too big that should not be paid for by the American Taxpayer, it is difficult to get exorcised by the mere pittance of a $50 billion dollar Ponzi scheme (Pinball Wizards). Still, old Bernie is going to cause a lot of headaches for a lot of officials before his days are done Madoff had steady presence in Washington.

(posted at 9:45 am by Mike Rulle)

    

Many commentators have said this, and of course it has been a constant refrain of mine before most observers, but Yale Chief Investment Officer David Swenson is quoted by Fareed Zakaria (Newsweek, WaPo) about the ineptness of the Bush administration's response to the financial crisis. "And the administration's actions have actually increased uncertainty and unpredictability. Its measures have been ad hoc, its response to each institution has been different, its reasoning has been opaque -- all this creates confusion, and that drives capital away." The quote unfortunately appears in an article whose larger point is the usual Zakaria bloated exaggeration of Obama's superhuman skills versus Bush's subterranean skills "Can Obama Save Capitalism?" Nothing Obama has proposed has changed my view of the ineptness of the Executive Branch of Government. But, admittedly, there is still plenty of time.

(posted at 9:35 am by Mike Rulle)

   

Hillary is supposedly seeking to expand the role of the State Department. In a big picture generalized sense, the State Department historically "manages relationships" with other countries. Think of them as a Marketing Department for an Administration. The reason "State" is often criticized is like any good marketing group, they tend to identify with their "clients" and often are advocates for their position. If this article in the NY Times is accurate--obviously a big if---Hillary has other ideas Clinton Moves to Widen Role of State Dept.She wants State to have a bigger role in setting policy. That is often a bad idea for any "marketing" organization. Of course, it does all come down to the details. One thing that may seem surprising, is I believe Obama will give her, and much of his cabinet, more free reign than is typical.

(posted at 9:22 am by Mike Rulle)

     

When I was in school, still half my life, as old as I am, one of the features about the Great Depression---(I don't recall the term the "Great" Depression until recently; it was just "the Depression")--that stood out was the phrase "Cash is King" Real Time Economics : On Black Friday, Cash Is King. The truth behind that statement is that in a deflationary environment, cash in the mattress increases in value as prices decline. Certainly, all assets today have declined precipitously in price, from the entire productive capacity of America (sometimes called "the stock market"), to large pockets of real estate collapse (yes, California, Florida, Vegas and Phoenix). Even for consumers cash is king. Not a bad time to have a job, have been a renter, and have invested only in liquid assets Get that Aston Martin for the Price of a Honda.

(posted at 8:55 am by Mike Rulle)

   

As mentioned earlier, Caroline Kennedy's support base is really Manhattan and the "downstate" Democratic Party establishment, not all of New York City. Queens Congressman Gary Ackerman says Kennedy's only qualification is her name recognition, a quality he says she shares with J. Lo. I object to that insult to Ms. Lopez. The difference between Kennedy and J.Lo is that the latter earned her name recognition Good-Bye, Gentry.

(posted at 8:43 am by Mike Rulle)