Archives for: October, 2008

Some Thoughts on The Final Debate

Most of the things I wanted to say about the debate have already been said by James Fallows. Some points I’ll add:

  • Except for the stock market, on every issue that came up relating to economics – taxes, health care, education, international trade – McCain again and again sang the praises of unobstructed free markets. In good times, the underlying message people would hear in this is “opportunity.” But with the markets in chaos and a severe recession looming, this kind of laissez faire message instead communicates “risk.” Leaving aside for the moment the pros and cons of his particular proposals, it’s the wrong message in a time of economic anxiety.
  • McCain didn’t do himself any favors by letting his inner Grandpa Simpson shine again this debate. The split screen used on the major networks didn’t work in McCain’s favor:
    In politics it is generally not considered a good sign when voters are laughing at you, not with you. And by the end of the third and last presidential debate, the undecided voters who had gathered in Denver for Democratic pollster Stan Greenberg’s focus group were “audibly snickering” at John McCain’s grimaces, eye-bulging, and repeated references to “Joe the Plumber.”

    I watched the debate on PBS, which did not have a split screen, so I missed most of McCain’s scowls and tongue juts. This morning I saw clips online with the split screen, and it leaves a very different impression of several key exchanges.

  • I’m generally not a fan of David Brooks, but he had the best observation I’ve heard so far summing up the overall tone of the debate: McCain had some good attacks, but it was like watching someone lob cannonballs into a redwood forest. Obama is amazingly unflappable. Aside from McCain’s “get government off our backs” message, there was no coherent theme tying together any of the points he tried to make. His overall approach was scattershot (Fallows has another good piece from a few weeks ago that relates to this, as it typifies McCain’s campaign in general: On strategy and tactics).
  • This YouTube video – a debate between Batman and the Penguin from the old Batman TV show – pretty much sums up last night’s debate: who is Batman, really? And why do we always see him around criminals? The Penguin even says “my friends.”

The Trillion Dollar Meltdown

A couple of weeks ago, Maria got a copy of the book The Trillion Dollar Meltdown. It’s been on her reading list since it came out about 6 months ago, but she had a backlog of books to read, so she’s just getting to it now. The author, Charles Morris, actually wrote the book about a year ago. I’ve only read the Foreward so far – it’s amazingly prescient, and concisely describes the sources of the current market turmoil in a way that is much more lucid than most of what I’m currently seeing in the media:

The sad truth, however, is that subprime is just the first big boulder in an avalanche of asset writedowns that will rattle on through much of 2008. An overhang of subprime-like assets, at least as large, is sitting in corporate debt, commercial mortgages, credit cards, and other portfolios. Even municipal bonds may be at risk. Loss estimates of $400 billion to $500 billion barely get you halfway where.

We are accustomed to thinking of bubbles and crashes in terms of specific markets — like junk bonds, commercial real estate, and tech stocks. Overpriced assets are like poison mushrooms. You eat them, you get sick, you learn to avoid them.

A credit bubble is different. Credit is the air that financial markets breathe, and when the air is poisoned, there’s no place to hide.

Here is a crude gauge of the credit bubble. Not long ago, the sum of all financial assets–stocks, bonds, loans, mortgages, and the like, which are claims on real things–were about equal to global GDP. Now they are approaching four times global GDP. Financial derivatives, a form of claim upon financial assets, now have notional values of more than ten times global GDP.

The soaring ratio of credit to real output is a measure of leverage, or financial risk. Think of an inverted pyramid. The more claims are piled on top of real output, the more wobbly the pyramid becomes.

…By March [2007] I was convinced that the bubble was vastly greater than I had imagined… I expected the mother of all crashes by mid-2008 or so.

My only complaint to Maria was that I wish she had gotten the book about 2 weeks earlier! It would have motivated me to finally take my retirement savings out of the stock market – something I’d been considering for a while now. I was waiting only because I hadn’t made the time to research where else to put it. Now I’m seriously regretting not having acted sooner. At this point I think I’ll cross my fingers for at least a modest recovery before pulling out.

The reason I was thinking about pulling out – well before the recent turmoil – was because of an article I read four years ago, which I was able to dig up just now, thanks to the wonders of The Google:

Mr. Logue [who retired in 1994], a Massachusetts Institute of Technology graduate, decided to go back and check his own records. Would he have done better investing his money than the bureaucrats at the Social Security Administration?

He recorded all the payroll taxes he paid into the system (including the matching amount from his employer), tracked down the return the Social Security Trust Fund earned for each of the 45 years, and then compared the result with what he would have gotten had he been able to invest the same amount of payroll tax money over the same period in the Dow Jones Industrial Average (including dividends).

To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.

It’s an astonishing finding. The DJIA represents blue-chip stocks. Social Security invests in US Treasury bonds. Over long periods of time, stocks have consistently outperformed bonds. So, you would think that Logue’s theoretical stock investments from 1950 to 1994 would have surely outpaced the return on government bonds.

The fact that they didn’t illustrates one of the hard truths about stock investing: Timing matters.

Although Logue started pouring money into Social Security in the 1950s and early 1960s, some of the best years for stocks, he hadn’t accumulated a lot of money.

So the gains of his theoretical stock portfolio would have been limited.

By the time he had substantial sums, the market swooned for long periods. From 1965 to 1982, for instance, the DJIA made no progress. Logue retired before the real run-up in stocks in the latter half of the late 1990s.

My sense is that my market timing will likely match Mr. Logue’s. The 1920s saw a market boom, followed by the Great Depression, and the stock market didn’t regain its values from the 20s until the mid 1950s. Then the markets stagnated from the mid 1960s to the mid 1980s, before taking off again in the mid 1990s. My hunch is that we’re following this pattern again now, so we’re in for another 20 to 30 years of poorly performing markets (as noted in the Morris quote above, there are likely still other shoes to drop, from derivatives based on credit card debt, commercial real estate, etc). There probably won’t be another boom until around the time I retire. I’ll likely be better off (both psychologically and financially) with my retirement money somewhere other than the stock market.

Crummy Cell Phone Pictures, Part II: Fun on the Oreo

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The Question I Want to Hear in the VP Debate Tonight

The question I want to hear tonight is one that Gwen Ifill asked in the 2004 VP debate. It was unusual for a debate question, in that it was directed solely at one of the candidates:

IFILL: This goes to you, Senator Edwards, and you have two minutes.

Ten men and women have been nominees of their parties since 1976 to be vice president. Out of those ten, you have the least governmental experience of any of them.

What qualifies you to be a heartbeat away?

Depending on how you want to judge being mayor of a town with a population that would all fit in the bleachers at Fenway Park, Palin has even less experience than Edwards did. I doubt she’ll ask this question again tonight though. The McCain campaign is already working the refs, and they would spin it as an openly partisan attack.

Palin is likely having a difficult time preparing for Ifill, because Ifill has a habit of asking questions that force the candidates off their talking points, and make them think on their feet. Like this one from the 2004 VP debate:

IFILL: I will talk to you about health care, Mr. Vice President. You have two minutes. But in particular, I want to talk to you about AIDS, and not about AIDS in China or Africa, but AIDS right here in this country, where black women between the ages of 25 and 44 are 13 times more likely to die of the disease than their counterparts.

What should the government’s role be in helping to end the growth of this epidemic?

A generic talking points driven answer about affordable health care would have been glaringly inadequate for this question, and a political pro like Cheney had no problem weaving together an answer on the spot. But given Palin’s recent interview debacles, I can see a question like this producing a real moose-in-the-headlights moment for her.

However, it’s more likely that there will be little drama tonight, and VP debates typically have little to no impact on the overall race. The McCain campaign successfully negotiated for rigid rules in this debate and very limited time for answers (90 seconds) – perfect when you want to just stick to memorized talking points. Still, unlike any Presidential or VP debates in my memory, there’s a chance for a cringe inducing, painful to watch flame-out. One that could bring the whole McCain campaign down with it.

Post Debate Update: I was right about Ifill having a few questions that didn’t square neatly with pre-packaged talking points. But I incorrectly assumed she would make at least some effort to press for something resembling an answer. Palin’s moments of babbling incoherence in the Couric interview came when Couric would ask follow-up questions, to see if Palin had anything to offer beyond her memorized 30-90 second talking points. Here’s Ifill with a good question on when to use nuclear weapons, Palin’s meaningless response, and Ifill then making no effort at all to get an actual answer:

IFILL: Governor, on another issue, interventionism, nuclear weapons. What should be the trigger, or should there be a trigger, when nuclear weapons use is ever put into play?

PALIN: Nuclear weaponry, of course, would be the be all, end all of just too many people in too many parts of our planet, so those dangerous regimes, again, cannot be allowed to acquire nuclear weapons, period.

Our nuclear weaponry here in the U.S. is used as a deterrent. And that’s a safe, stable way to use nuclear weaponry.

But for those countries — North Korea, also, under Kim Jong Il — we have got to make sure that we’re putting the economic sanctions on these countries and that we have friends and allies supporting us in this to make sure that leaders like Kim Jong Il and Ahmadinejad are not allowed to acquire, to proliferate, or to use those nuclear weapons. It is that important.

Can we talk about Afghanistan real quick, also, though?

IFILL: Certainly.

Imagine Palin as President in a situation like the Cuban Missile Crisis.

A.L., in his post The Soft Bigotry of Low Expectations makes this cogent point:

What’s saddest I think is that Palin is getting much better reviews than she would have if she were a man. Let’s face it. The press is holding her to a much lower standard for fear of being called sexist by Republicans. Dan Quayle did much better than Palin did in his 1988 debate and he didn’t get nearly the praise she has. I think Joe Biden did an excellent job last night, but at times I almost wished that Hillary had been up on that stage, if for no other reason than to remind people what an intelligent, knowledgeable, competent woman looks like in a debate. If Hillary had demolished Palin in the way Biden did (and she would have), the press would have been much less reluctant to call a spade a spade.

In that sense, I really think Palin is setting the women’s movement back. There’s no reason that her threshold for competence should be so much lower than everyone else’s.

Crummy Cell Phone Pictures, Part I

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