"We can live with a nuclear Iran"

Economist Daniel Kahneman's Nobel-winning cumulative prospect theory (or my crude interpretation of it): humans irrationally tend to overly fear unlikely events and "worst-case" losses, and will take unreasonable measures to avoid them




http://www.washingtonmonthly.com/magazine/marchapril_2012/features/we_can_live_with_a_nuclear_ira035772.php

http://news.yahoo.com/blogs/envoy/daily-show-jon-stewart-takes-iran-war-drums-210908399.html



Isn't it funny that we only freak out about Iran's nuclear program during election years (McCain's "bomb, bomb, bomb... bomb, bomb Iran" and now the 3 GOP stooges talking tough)? The difference now is that Obama and others have convinced the UN to issue the toughest round of sanctions ever against Iran, but they are only a few months old. Yes Iran has made progress on its program since 2008 (though still years away from a functional bomb, and a primitive one at that), but their regime is weakened economically and due to heavier internal protests against their legitimacy. We and our proxies have also whacked some Iranian scientists and corrupted their computer systems, setting their program back a while.



During the recent AIPAC conference, Israeli leader Netanyahu was a broken record: "Imagine an Iranian ICBM heading towards a US city." Well Iran doesn't have ICBMs, and won't for several years at least. If they're lucky, their crappy rockets may reach London. "We are you and you are us... To Iran, the US is the 'great Satan' and Israel is the 'little Satan'... This is a regime that has vowed to wipe Israel off the map." If we are you and you are us, then why do you keep building illegal settlements when our leaders tell you not to? Why do you keep taking our money and giving us nothing in return but diplomatic headaches?



Yes, it's true that Iranian bluster has threatened to destroy Israel, and maybe America too. They clearly aren't friendly. But the Soviet Union (the 2nd strongest military empire the world has ever seen, with tens of thousands of nuclear weapons on hair-trigger alert) threatened to bury the West too, and did they ever come close? Did they ever even try? The same stereotypes and accusations were levied against them for decades: the Soviets are irrational, bloodthirsty, fanatical, can't be reasoned with, hate what we stand for, and hell-bent on world war. But in the end they chose to holster their nukes EVERY SINGLE TIME, even when war seemed inevitable in Cuba and as their regime collapsed (supposedly when they had nothing to lose). And some would argue that the Soviets have more of a penchant for suicidal behavior than the Iranians, considering Stalin's purges and whatnot. So is Iran somehow worse than the Evil Empire, despite being much smaller, poorer, and weaker? Yes they are a theocracy with too much centralized, abusive power, and have done some "crazy" things in the past. But in general, their regime has a rational track record (i.e. they are not suicidal). Launching a tiny nuke against Israel (with no guarantee of it "wiping them off the map") would be suicide. Finito. Why would a regime whose only petty desire is to retain power (by hook or by crook) suddenly decide to self-destruct? That is, unless they were prodded and provoked by warmongering opponents.



The hawks' rhetoric is illogical, and I doubt that they even believe it 100%. If Iran is truly the crazy monster than the Israelis and GOP portray, then it would be irrational for us to NOT attack them. If it's only a matter of time, and a total certainty, that they nuclearlize their "global terrorism", then why have we sat on our hands all these years? What are we waiting for!?! Shouldn't we take them out like we did to Saddam and Qaddafi? Our leaders should be FIRED for being so negligent, even hardliners Bush and Netanyahu! So I guess the truth of the matter is that Iran is not such a threat. Former CIA veteran Paul Pillar thinks so in his recent article, and so do the current and former heads of Mossad (the Israeli spy agency entrusted with protecting their tiny nation against all threats before they materialize). All nuclear nations use their warheads primarly as deterrent and bargaining leverage, and only the US has launched them against others in malice. But that was to ostensibly END a war (and signal to the Soviets that East Asia was ours), not start one.



Say that all of what I said is wrong, and we have no choice but to pre-emptively strike. Iranian air defenses are strong, so we would either absorb heavy losses, or need to resort to cruise missiles and even tactical nukes. But those weapons may not be effective against facilities buried under a lot of rock. So how do we penetrate - a ground invasion? We've seen how fanatically Iranians defended their homeland against Iraq, and we know America now has a lower tolerance to sacrifice our sons and daughters overseas vs. a non-imminent danger. And all that would definitely trigger Jihad 3.0 and oil to spike to at least $150/barrel (which would in turn cause fragile recovering markets to plunge into another global recession). Our attack would paradoxically lead to the bloodshed and misery that we supposedly want to prevent by striking Iran! So if it is unfeasible to stop Iran from getting nukes by force, what choice do we have but to "talk and talk" as Gingrich mocked? Talking does not automatically mean appeasement and defeat. But all that macho, ideological crap doesn't matter if we have no other choice. If you don't have a good hand to play, why go all-in with your cash? We can either fight a bloody war with no guarantee of success, nuke Iran pre-emptively to global outcry and Muslim rage, or talk (with the caveat of a remote risk that Iran will betray us and nuke Israel later). Which one of those is least painful? Yes the situation stinks and everyone wishes that Iran would just be more peaceful and give up their nukes. But a lot of people around the world wish that the US and Israel would do the same, and we refuse almost every time.

French parenting vs. Tiger/helicopter parenting

http://www.kqed.org/a/forum/R201203071000




I know before we discussed the merits and pitfalls of obsessive, micromanaging "Tiger" or "helicopter" parents in the US, but here is the opposite extreme: the "laissez-faire" French method. I have never been a parent, but the French method seems likely to reduce overall family stress with little to no harm to the kid (and in fact may teach beneficial habits like patience, self-control, and self-sufficiency). But in general, the kids are not the center of the family, they are the "supporting cast." The couples' marriage is still the top priority. So the adults may maintain higher satisfaction, and the kids are less likely to become egocentric, spoiled brats. They learn that when they cry or mess up, there aren't frantic, doting parents/grandparents immediately racing to their aid. I guess Americans fear that if they don't come running, their kid will end up scarred for life, or they look like negligent deadbeats? And despite all this attention, the kid will probably resent, rebel, and drift apart later anyway, whereas French kids grow up and happily continue to spend time with their parents. Of course these are all generalizations, and no one knows how much parenting techniques actually affect a child's future.



Of course there is a spectrum of behaviors, but the French model is not about being "perfect parents" to give their "precious darlings" every possible joy and opportunity in life. That's impossible anyway, so why run yourself ragged trying? French parents are not obsessed with consuming "parenting paraphernalia," nutrition, and tutoring, yet French kids end up better educated, more law-abiding, and healthier than Americans on average (and middle-class birth rates are higher in France). Of course French society is a lot more mature and adult-centric than ours, and there are many more social services available to make parenting easier on the French. So for Americans, our gov't provides very little help, and our parents put more pressure on themselves to engage in nonstop parenting, so it's a recipe for disaster. Also, schools in France are for education, not for babysitting and learning bad social habits, like they are here.



Another difference is how self-expression is encouraged/managed. Americans, despite being micromanaging, also tend to go easy on the discipline and limits, for fear of damaging self-esteem, creativity, or something. I guess that's why we always hear at the malls, "Mommy I want, I want, I want!" But what is the value of a creative, confident, expressive kid who expects a level of attention that is probably impossible to sustain when they're older? The French philosophy is that unreasonable desire leads to an unhappy and imbalanced kid, so they need to learn limits or that will hurt their self-esteem, creativity, etc. 2 means to the same end I guess. Boredom is also a tolerated and even encouraged part of childhood. Instead of staring at a screen or having an adult entertain them 24-7, maybe kids should learn to sit quiety and imagine/contemplate the world.



A caller on the program: "American parents think their little darlings are gifts to the world, and expect that the rest of us should adore them too." That's probably some sort of psychosis associated with the parents' own inferiority and vicarious ego issues, as well as our cultural values.



FYI, British parenting resembles the American model more than the French

Michigan GOP changes rules at the last minute to give Romney win over Santorum

Not that I'm a RS supporter, but I will pounce on any opportunity to badmouth Romney.




http://www.usnews.com/news/articles/2012/03/01/michigan-state-gop-awards-romney-at-large-delegates

http://firstread.msnbc.msn.com/_news/2012/02/16/10425254-santorum-romney-allies-going-all-in-in-michigan

http://www.npr.org/2012/03/02/147787317/santorum-upset-by-mich-delegate-decision



We all know that it's a major shame if a politician can't even win his or her own state (e.g. Gore in 2000). So despite Romney et al.'s much more formidable and organized campaigning machine outspending Santorum's at least 3-to-1 in his birth state of Michigan, the polls were neck-and-neck, and some even had RS ahead by double-digits a couple weeks ago before he botched the AZ debate. I have little idea how the stupid delegates system in the US works, but apparently the 2 candidates had earned 14/30 MI delegates each, with the party awarding the final 2 at-large delegates. Party rules stipulated that each candidate would get one, since the voting was so close, so MI would be declared a tie. But the MI GOP changed the rules at the last minute to award Romney both. The reasoning for this change is unclear. Santorum's camp is of course crying foul, and he's not the only one. MI's former Atty. General compared this move to a "banana republic". It stinks of corruption, even if it was done honestly and ethically.



Romney also "stole" a perceived Iowa win even though a recount showed RS barely won (or the 2 tied). But the headlines got out that Romney won, so that is the story. Again here, the press says that Romney won MI, so now he gets the momentum and the publicity, while RS looks like a complainer if he doesn't let it go. But despite all of Romney's advantages, the fact that MI was so close should send his campaign and the country a message on his viability as a candidate.



To me, it's just scary that some careless volunteers in Iowa and some un-elected party bosses in Michigan can literally determine who the next presidential challenger will be.

Linsanity

Hahaha! http://sports.yahoo.com/blogs/nba-ball-dont-lie/kobe-bryant-fires-few-hilarious-salvos-jeremy-lin-174131018.html




Reporter: Would you consider guarding [Lin] if he’s having [a good game]?



Kobe: Jesus Christ! Let’s not get ahead of ourselves.
 
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Just to play devil's advocate (did you expect anything less?), when you play the Nets, Wiz, and then have Old Man Fisher guard you - any mediocre player can look like Wilt Freaking Chamberlain. :)




He is pretty fearless, or maybe he's riding high and the logic center of his brain hasn't yet realized, "Hey, I'm in MSG outplaying Kobe!" I didn't think he could step up and hit the clutch shots, but he proved it tonight. Once again, an ex-Warrior shines AFTER he leaves the Bay! The ESPN announcers were saying they should try to get Lin in the rookie-soph All-Star game.



The W's currently have a PG Charles Jenkins, 2nd round pick out of Hofstra, averaging 2-1-1. WTF they kept that dude over Lin? I really don't think Lin is a legit difference maker (there is obviously a reason he was cut by 2 mediocre teams), but heck, keep him on the roster to sell jerseys and tickets at least (especially in the Chinese-heavy Bay Area). Well, we got clowns for mgmt for all the Oakland franchises.



How are you guys doing?
 
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Whats wrong with a religious comment or two? Kobe Bryant talks about


Jesus Christ in his interviews.



From what I've seen, it seems like Lin has a lot of tools to work

with. The scouting report obviously was that he couldnt shoot so the

Lakers gave him more room on jump shots. We'll see how he does when

defenses adjust to slow him down.



Its just interesting to me how scouts and teams can overlook talent

and how players can develop in ways that defy expectations. Rondo was

a #21 pick. Kevin Johnson was stuck behind Mark Price in Cleveland.

The Blazers took Sam Bowie over MJ. But Lin's story is amazing in

that even colleges didn't seriously recruit him.
 
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obe was just giving ups to Jesus, and actually comparing Lin to him - so it was a compliment!




Yeah I think Lin is another example of the "Moneyball" effect. Sports are so irrational - the "talent scouts" have their subjective biased notions of what a top prospect should look like, and if you don't fit the mold, then they pass on you no matter your intangibles or hidden assets. I guess the principle applies to some non-athletic workplaces too. Top hoops players don't look like Lin, and they are more athletic, so why should UNC or Kansas bother to recruit him (not that Lin was at that level at age 18, but just making the argument)?



You need real metrics to gauge talent (sorry I'm starting to sound like Mark Cuban). If you keep picking the same type of guys, you'll never get an advantage cuz the other teams are doing the same. Then you're just hoping for luck, cheating, or "great coaching" to get an edge. Some impact players don't look that great from a stats perspective: Shane Battier, Nnamdi Asumugua (I know I'm spelling that wrong!). But most people just look at scoring and size, so they want Durant types.



I guess most hoopsters under 21 have at least a couple deficiencies in their games. I am sure NBA teams were concerned with Rondo's size and shooting. But they don't take the next step and look at the kid's potential, or how they can adjust the team's system to minimize the player's weaknesses and enhance his strengths. Look how Denver and Florida's systems made Tebow more successful. It's easy to just look at individual stats or physical features, but these are complex team sports. You have to measure the player's overall contribution to making the team win (like Billy Beane did). And if Lin or Rondo's ratings are higher than say hyped prospects like Wall or Walker, then you pick Lin first. It may not work out every time, but with enough tries you will win in the long term.
 
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So are we saying that the whole scouting profession needs to be re-evaluated because Jeremy Lin has had five good games, one of which included 8-24 shooting? Moneyball was based on using certain statistics to build a team on a limited budget. If the A's had more financial resources, there's no way they would pick the same players. It's easy to sit here and talk about the successful guys that don't "fit the mold", but if you were building a team I'm pretty sure you'd take your chances with five John Walls instead of five Jeremy Lins. John Wall is going to work out more often. Unless you're claiming that you would pick Jeremy Lin with the first pick in the draft. College football fans do the same thing. They have a couple of scrappy, low-rated players that play well, and then they say they need to build their team with those guys. Then they'll turn around and complain about the low star ratings of their recruiting class or the overall lack of talent on the team.




By the way Lin was cut by the Warriors to free up money to get DeAndre Jordan, and they actually tried to get him back.
 
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To be totally honest, I don't really like watching Lin play and I wouldn't want him if I was a GM. I am rooting for him and I like his story of course. I just used Lin as an example to show that deviating from the status quo can be beneficial at times. If the objective data say that Wall is better than Lin in terms of bang for buck, then I go with Wall. I'm just saying that conventional scouting can miss some of the intangibles, or favor some less relevant metrics over more important ones.




Look at the Yankees, BoSox, or Real Madrid soccer - money definitely helps get a decent number of wins, but you usually can't buy a championship. You have to innovate or perish. The rich teams can get away with "stupid" scouting because talent/production is generally correlated with salary, and they can absorb some bad contracts. But the cool thing about taking a chance on a dark horse is it's not that costly. If the Lin experiment doesn't work out, no biggie. But he has upside. Going all-in on a Greg Oden or Eddy Curry is a bigger sacrifice if you're wrong, and could set you back for years. UNLV hoops and Miami football rose to prominence because they took a chance and started recruiting urban kids who were overlooked by the big programs. Unless you're rolling in cash, you have to look for hidden talent and untapped supply. The greenest pastures are already crowded.



As you said, it's easy to Monday evening quarterback this type of stuff. All the signs pointed to Sam Bowie having a great career and Kurt Warner never amounting to anything. They're outliers. In general, making the "safe pick" works out. But the competition in pro sports is getting so tight and unforgiving, that any sort of edge that your rivals aren't exploiting is probably worth looking into.
 
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Obviously every team has to individually evaluate each player. Outside of team-specific systems or preferences, most teams converge on a similar hierarchy of player ratings. Even if a team really likes Jeremy Lin, it makes no sense to draft him high because you can just get him later. You don't choose Jeremy Lin over John Wall, because John Wall's ceiling is much higher. You just pick up Jeremy Lin late in the draft or as an undrafted free agent, which has basically no downside. Then you get both. You don't attempt to fund your whole retirement with money market funds or bonds. If you pick the player that everyone think is a can't miss prospect, and he doesn't pan out, they will say you were unlucky. If you pick the guy nobody else likes, the supposed diamond in the rough, then they will say you were dumb. Using guys who struggled with injuries as examples is not really fair, as no one has a crystal ball to foresee that. Very rarely do teams win championships with rosters full of average or above average players. The 2004 Pistons come to mind, but that was aided by the dysfunction of the Lakers. When you have the opportunity to try to get superstar players you have to take it, especially in the NBA draft, where the rookie salaries are predetermined and not exorbitant. Miami had basically no football history prior to 1980. Sure they took chances on some local talent that they may have overlooked before, but they weren't rejecting highly decorated recruits in order to do it. They didn't really have much of a choice.




The question is not whether you should ever take a chance on an "off the radar" guy but whether, when all players are available, you're going to choose the "off the radar" guy over the "can't miss" guy. You're a Raiders fan. How do you feel about the drafting of Mike Mitchell in the first round (about 3 rounds earlier than his projection) versus the drafting of Mike Huff in the first round? They've both been unspectacular, but one pick looks way worse than the other.
 
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I never said that you should draft longshots over safer bets. But at least look at the longshots when appropriate - and not every team does. Lin may be a relative "steal" at his $300K one-year contract or whatnot (esp. if NY is paying luxury tax, but I'm not sure their situation), but probably most teams would prefer to save up and pay a superstar like Durant $16M/year. You can only have 5 guys on the floor at a time, and 12 total, so of course you want to pack in as many stars as you can afford, instead of 12 under-rated value players. But for MIA that spent a lot for 3 stars and 2 more veterans, they could really benefit from penny pinching at the back end to find enough value to get them to the promised land. Of course you have to pay the right stars the right amount of money. The NBA probably overpays for size, and the NFL sometime overpays for speed and QBs. Bottom line, get the most bang for your buck - wins, jersey sales, TV contracts, whatever you measure success by. Don't just pick a player because he looks good or fits some arbitrary profile.




With the Yankees' financial advantages, I actually consider them bigger losers than the Rockies, who at half the payroll give it a good playoff run each year. Of course they have a weaker division and all that, but you get my point. The Yankees are supposed to win each year, so if they don't, they have fewer excuses than the A's. The equation is different if you are the deep pocket Goliath, or the reigning champ. But 90% of the teams in the league are not in that situation. That's why they have to be different to get an edge. If a poor team does exactly what a rich team does, they will lose 99% of the time, and at best they will achieve parity (with amazing luck). "Fight fair but avoid a fair fight." Don't play on Goliath's terms. Most franchises have more in common with U-of-Miami than the Yankees. I guess the draft helps weaker teams get a fighting chance next season, but clearly it's not a guarantee. So that puts even more pressure on struggling teams to get drafts and trades right.



The Raiders are kind of a bizarre example because their recent drafting history has been so atrocious. For the prospects that Davis "over-paid" for (i.e. drafted too highly) like Huff and Bey, there was an equal number of "sure thing" college stars who underperformed (Russell, Gallery, and probably McFadden too considering his health). So no formula is 100% safe. Maybe Seabass and Lechler were their best picks, but we'd probably need a more sophisticated analysis to measure their incremental benefits to the team vs. alternatives.
 
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Well I guess I'm not sure what we're arguing about then. It could be argued that three teams have looked at Jeremy Lin "when appropriate", because three teams have had him in on their rosters. All of them got him without having to draft him instead of another player, and they are paying him about as little as he can be paid. That seems like bang for your buck. And again, it's not like no one has given him a chance. He's been on three teams and up until 10 days ago hadn't played well enough to warrant being given more playing time. Obviously teams want to get superstars. No team goes into free agency with "under the radar" guys as its first choice, unless that's all they can afford. As for using arbitrary profiles, I think if you look through the entire draft you will see people of all shapes, sizes, and skill sets. I'd say the one thing that is common is that they usually have one standout, or at least above average trait. They are either big, strong, quick, long, great ballhandlers, great shooters or something. Jeremy Lin doesn't have any of those traits and generally played against a low level of competition. He's arguably average at best in all those areas, so it's hard to justify picking him any earlier than late in the draft or as a free agent. I would be curious to know what qualities you would look at in a guy who is doesn't have good athleticism, is not a good shooter, and plays against weak competition that would make you comfortable in projecting them to be successful in the NBA. Come to think of it, I think both your teams (Kings and Warriors) have drafted players high in the draft (Stephen Curry and Jimmer Fredette) that were both pretty highly rated prospects despite not having prototypical traits. So in that regard I would say the scouting is not as rigid as you make it out to be.




As for your paragraph about baseball, that's consistent with what I said. The teams that are penny pinching are doing it because they have to. They don't have a choice. The teams that have more resources aren't penny pinching because they don't have to. It seemed like you were saying before that teams should be targeting "under the radar" guys over highly rated guys even when they have the opportunity and means to get either one. I thought this because the frequent examples of John Wall and other NBA draft choices. But you're saying that you didn't mean that. So, just like in your example of the University of Miami football program, the choice of under the radar guys is made out of necessity. The only reason I brought up the Raiders (Huff and Mike Mitchell) was to make a point about drafting under the radar guys high versus picking guys where they are projected to go. Mike Huff may not have turned out to be great, but he was a consensus first round pick and someone would have picked him in the next handful of picks. I don't think anyone faulted the Raiders for picking him at the time. At most they could have traded down a few picks and gotten him, but they couldn't have waited another round to get him. Mike Mitchell was projected in the 3rd or 4th round, and they took him in the first round. That means they could have waited and gotten him for much less money. This was meant as an example of why it would be acceptable to pick John Wall first overall and dumb to pick Jeremy Lin overall, even if you like him a lot. But you said that you didn't mean that, so it doesn't really matter anyway.
 
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Scouting is not as rigid as a 2x4, but it could be more open-minded and data-driven, that's all. I wouldn't say that players like Jimmer and Curry don't have prototypical traits. They were dead-eye shooters who could also drive, and had some success in clutch situations leading their teams against bigger programs in the NCAA tourney. They aren't physical, but not every scorer has to be (Reggie, Mullin). They were also "high character" guys and likely fan favorites. I am not sure if those traits are worth drafting high for vs. pure athleticism, but they have them at least. I also think that the NBA draft is the lowest-risk draft compared to MLB and NFL (I think the data bear that out too). NBA rookies can contribute immediately, top picks are less likely to bust, and they have relatively fewer problems adapting to the pros. HS players are more risky of course.




Your comment about the level of competition a prospect faced is a good one. That's probably why many soccer players on the US national team don't get recruited by the top Euro clubs, either justified or not (they don't care if Donovan scored 3 goals vs. Honduras). OTOH, Duke players who come from an elite system and face top competition each season usually aren't top NBA prospects, probably due to lack of great physical skills and superstar potential.



I didn't know anything about Lin's history and looked on Wiki. He led his previously unknown HS team to a CA Div II title against a top Catholic school hoops powerhouse, and won a lot of individual honors. Stf and UCLA now "regret" not offering him a scholarship. Lin basically broke all the Ivy League hoops records, but I guess that isn't saying much. He did perform well in non-conf. games and put up 27 and 30 vs. BC and UConn. Not sure how critical those games were, and probably Lin's lack of hype and scouting made it easier for him to surprise big programs. Despite not facing much competition, some ESPN guy put him on a short list with Hayward, Vasquez, Singler, and Turner. BTW - he only got a 3.1 GPA at Harvard... pfffff.



http://en.wikipedia.org/wiki/Jeremy_Lin



I previously said I wouldn't consider Lin if I was an NBA GM. But now I'm tempted, not because of the typical assets, but somehow he has that intangible factor that allows him to defy his critics and surprise people. It may be just a face he puts on, but the kid acts fearless and like he belongs, despite our conventional wisdom thinking WTF is he doing being a starting PG? I can't believe how well he is handling himself. Confidence without attitude is an important trait for a star, and I think some highly touted draft picks lack it (Kwame and Darko come to mind). But we'll see how he responds when he hits the rookie wall or a prolonged slump. He thinks team first, but of course his decision making and passing need improvement. That may come with experience. Defensively he could be a liability, but D'Antoni's system doesn't really depend on that, and NY has Chandler and Amare to try to erase mistakes. Lin's game is also disruptive, which is useful. For some reason, other teams don't look comfortable when he is on the floor and hitting shots.



And then of course there is his story and cult fan following. Tonight in TOR, the fans were cheering for him as he hit the GW shot. I know it's TOR, but still. A team is still a business, so the buzz he generates is valuable. Plus other teams may be resenting Linsanity and are gunning to shut him down, so he could be a useful decoy to allow other Knicks to excel. My conspiracy theory is that Stern wants to create the NBA Tebow story, so he is throwing the games to allow Lin to succeed. The kid isn't even getting hard fouls, which is definitely what I would do to cool him off. All of this is very bizarre. NY won't make a deep playoff run even with Melo and Amare, but the Lin story should at least get scouts, GMs, and analysts to reconsider their assumptions. Coaches seem to be lumping real praise on Lin.



To be honest, I had no idea that Oakland even drafted a Mike Mitchell guy. :) I guess that shows how much the franchise wants to bury its mistake, or how much of a fan I am. Sorry that my previous emails let you to believe I held different opinions than I actually do. I have to work on my communication clarity.
 
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Just to clarify, of course in hindsight it's easy to say that teams should have shown more interest in Lin now that he has had some sustained high performance. But I think based on his college record and his bio, it shouldn't have been a mystery that Lin would have had some pro potential - at the minimum from the "first Asian American in the NBA" angle. But from his workouts (in one case he showed up Wall, right?) and interviews and such, a smart coach/GM could have seen Lin's disruption/intangibles potential. I just don't think they took the time, or maybe they let their biases get the better of them, or maybe they had justifiably more important personnel issues to worry about.




As you said though, it's too bad that Lin left the Warriors over money issues for a transaction that never even happened. But maybe this was the best thing for him and the league, because Lin would have never had the chance to shine on GS as he is doing with NY. The path to fame is rarely straight and predictable. Notice how I didn't say "path to greatness" though, which I doubt will apply to this guy - but you never know.
 
Sorry a slight correction, Lin isn't the first Asian-American in the NBA, not by a long shot. A Japanese-American played for NY as well... in 1947 (same year Jackie R joined the Dodgers)! That is a great show of post-war reconciliation (not that the guy did anything bad to the US during WWII, but you know how the prevailing racism was at the time). He was even shorter than me!




http://www.npr.org/blogs/thetwo-way/2012/02/15/146888834/pro-basketballs-first-asian-american-player-looks-at-lin-and-applauds

More on Freddie Mac

More on the Freddie Mac saga: http://www.npr.org/2012/02/09/146585726/potential-conflicts-at-freddie-mac-draw-scrutiny




NPR really isn't letting this go, and I guess they are not aware of, or refusing to acknowledge, challenges to their "betting against homeowners" accusation along the lines of the naked capitalism piece. Recently they interviewed the FHFA head DeMarco over this, and from what I could tell, the questioning was somewhat biased by NPR standards, and DeMarco's answers seemed to get cut off more often than usual (you could hear his words getting cut off fairly noticeably). When asked why Freddie invested in inverse floaters, DeMarco explained that he was trying to avoid losses to taxpayers. But he never even touched on hedging risk and portfolio diversification. I know some listeners may find that stuff boring, but NPR has tackled CDS's and other complex financial stories before. So either DeMarco totally whiffed on PR, or NPR suppressed his full explanation. A former Freddie risk management exec was interviewed in the NPR series as well, and he expressed shock and disapproval of Freddie's actions. But his job was risk mgmt! Couldn't he explain the situation, or was he worried to swim against the populist tide and be labeled a Freddie apologist crony?



So now there is sufficient buzz and anger over this that Congress is holding hearings. As you would expect, lawmakers from both sides are quite upset. But from all the hours of testimony, you would think someone would bring up the risk issue. Congress and the public are rightfully still unconvinced that the rule-making and investment arms of Freddie are sufficiently segregated, so why can't the Freddie execs explain their internal workings and safeguards to protect against COI (if they exist)? It's tough because the tighter refi and restructuring rules were rolled out before Freddie invested more heavily in inverse floaters. So one could argue that the investment side took notice of the tighter refi rules, and then made sound bets accordingly. That is technically legal and may not even be unethical. But if the investment guys were pressuring the rules guys a priori to make refi rules tougher, in anticipation of taking these inverse floater positions, then that's much worse.



I guess conservatives have ostensibly been against GSE's since even before the housing crisis (they never complained when the GSE's were making investors a ton of cash though), saying that gov't participation in markets usually ends up bad. And the progressives are outwardly hostile to anything that remotely resembles a bank, even if it is a GSE under the stewardship of a Democratic administration. So no one is on Freddie's side now, whether fully justified or not. I'm wondering if Fannie has also made investments of the same nature. Fannie is basically a twin entity, but we haven't heard anything from their end.



Interestingly, Freddie got in similar hot water in 1997 when it was discovered that they invested $340M in Phillip Morris corporate bonds just as the investigations against Big Tobacco's misdeeds were building up. When the story broke, they quickly dumped that position. Maybe this suggests that GSE's, or any gov't entity in general, shouldn't bet on the private sector. Like Solyndra and insider trading by Congress, there's just too much chance for COI, or the suspicion of COI, which these days is almost as bad. Freddie is so big, and with so much influence, that it could affect its own investments and the market as a whole if it wanted. Yes it's great when our gov't can make some capital gains to counter all the billions we lose from interest payments on our debt. But with so much COI risk, maybe the gov't should limit itself to investments only in Treasuries (basically internal lending) or CDs. Yes their return will be lower, but the chance for impropriety will be greatly reduced too. I know this is probably impractical, but I'm just saying.

Deal between states and banks on mortgages

So far, [mortgage relief] hasn't worked on a grand scale. As one person said to me, this is a slap on the wrist of the banks. It's not a fix for the housing problem. -NPR

http://www.nytimes.com/2012/02/09/business/states-negotiate-25-billion-deal-for-homeowners.html?_r=2
http://www.npr.org/2012/01/23/145535135/foreclosure-robo-signing-deal-worries-n-y-official?ps=rs

So I guess the states' AG's are closing in on an agreement on the big settlement with the banks over robo-signing and other improper foreclosure procedures. Considering current economic and budgetary conditions, the banks seemed to be playing the states against each other in order to get a sweeter deal. Some of the states hardest hit by foreclosures (CA, FL, NY, MA, DE) initially refused to endorse the deal because they thought the banks were getting too much immunity without sufficient investigation, and it would prevent them from launching future civil lawsuits as more evidence emerged. But critics within those states, as well as the other states already endorsing the settlement, were pressuring the holdouts to get on board. They justified the compromise by saying, "It's not a perfect deal and we're not getting everything we want, but homeowners are suffering every minute we delay and we need relief now."

States are hurting financially and are willing to drop the investigations for some chump change (the current deal sends $2.7B directly to states). At least NY and CA pushed at the eleventh hour to retain the rights to seek future damages regarding improperly formed MBS's and some criminal wrongdoing. But even if the states build strong cases on those charges, the track record suggests that banks will continue to stall, appeal, or pressure states into hasty settlements.

Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure...

Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000. The aid is to be distributed over three years...

On average, these homeowners are underwater by $50,000 each... A recent estimate from the settlement negotiations put the average aid for homeowners at $20,000. -NYT

So the bank seizes your home illegally and you get $2K over 3 years (with discounting more like $1.93K in value)? Do they get to live in their homes again? And distressed homeowners who on average owe $50K more than their homes are currently worth are only getting $20K in assistance on average, so how much help is that really? I guess we should be grateful for any charity that the mighty banks see fit to bestow upon us, but the refi-restructuring aspect of this settlement will only help less than 15% of underwater borrowers. It clearly is not big enough to "fix" the housing market, and is just serving to help the banks sweep their past misdeeds under the rug.

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It's a pretty big bank bailout. Note how effective the Obama administration has gotten at concealing these. Orwell would be proud: a bailout of the banks presented as a victory for the homeowner. A couple little comments.






- Only about $5B of the touted $25B comes from the banks. The rest of it is coming from you and me. $3B is for refinances, which reduces the amount paid to the investor who owns the security. $17B is actually credits for principal modifications. Banks either get 1:1 credit for mods to bank-owned mortgages, or 0.5:1 mods for investor-owned mortgages. That is, instead of taking the $17B hit on their own balance sheet, they can choose to put a $34B hit to the investors they sold the mortgages off to. I wonder which one they'll choose. Since the investor is pensions, 401k's, and the taxpayer (via Fannie and Freddie), that's us paying $20B of this settlement.





- One thing we've heard a lot about is how the market for mortgage-backed securities has been very shallow since the crash. This is the usual argument for why Fannie/Freddie have to step up their purchases of mortgages, because no one else is buying them. The banks have argued that it's skittishness, or that investors don't have money, or whatever, but a big piece of it is that investors are rightfully wary of putting money into a market that they know is deeply opaque and full of chicanery. This was the big argument in favor of stock market regulation in the past, that if you have a strong SEC making the stock market transparent and legal, investors will flood into that market. The banks have done the opposite to the mortgage-backed securities market, and it should be no surprise that investors are wary. Now that investors see that $20B of settlement fees are going to get pushed down their throats, do we imagine anyone is going to be willing to buy mortgages? Expect Fannie and Freddie, and through them the taxpayer, to continue to be on the hook for this because no one wants to participate in a market that is so clearly rigged.
 
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Thx. I really appreciate your insights on these topics. As you said, it should tell us something when only the politicians with skin in the game are celebrating this settlement, and the homeowners and advocacy groups are mostly silent or upset. I didn't know about those accounting schemes to shift the costs to investors (us) - are any media outlets getting the word out? Then that begs the question: is it cost-effective to siphon money from taxpayers and investment funds in order to give marginal relief to a small subset of distressed borrowers, with no guarantee that the aid is sufficient to keep them in their homes? If at proper scale and price tag, I think mortgage relief is an important social priority now, and if that means investors needing to write down some of their returns, then that should be nothing new considering what we've gone through since 2008. But I'm just not sure that this is the right plan for that objective.




I totally agree - without confidence in a market (especially ones dealing in virtual capital), who the hell would want to invest? That's why savers in banana republics (and some G20 nations) prefer to keep their cash under their mattresses. Effective regulation can be GOOD for business as you intimated. It's not as bad these days, but investors have been so risk averse during this downturn that the yield on some short term Treasuries was actually negative (i.e. they would rather burn some of their money in return for safety, rather than trust the stock market or secretive banks). And as you said, now gov't & taxpayers have to hold their nose and chug more toxic assets. It's amazing that after 3+ years, we still can't effectively value these vehicles, and some banks still haven't come clean on their balance sheets (and their stock prices continue to get punished for it).



"They'll see, real estate is going to make a comeback!" - Dick Fuld (Lehman's last CEO, a week before his firm folded in 2008) in the film "Too Big to Fail"

Freddie Mac, WTF? Also Israeli settlements

Freddie Mac, formally called the Federal Home Loan Mortgage Corp., was chartered by Congress in 1970. On its website, it says it has "a public mission to stabilize the nation's residential mortgage markets and expand opportunities for homeownership." - NPR




http://www.npr.org/2012/01/30/145995636/freddie-mac-betting-against-struggling-homeowners



This is just unbelievable, even for mortgage finance standards. Maybe you've noticed the rush to re-fi due to the record-low interest rates now. My wife and I just closed ours, and we cut 100 basis points off our APR, which may save ~$36K in interest (2012 dollars) over the life of our loan. It was an excruciating process though, and my household has near-perfect credit (if you can believe it haha). The bank demanded everything short of a urine sample to make sure we were "qualified borrowers". I can understand if private banks are making it hard to re-fi now, since they are very risk-averse and hesitant to lose out on interest income. But FNME and Freddie Mac are "gov't sponsored enterprises" (and now nationalized as part of their $160B-plus bailout package). They want to make money for their employees and investors, but also function to promote the public good through increased home ownership (the merits of that mission, and the concept of GSE's in general, are debatable of course). Obama has chastised the banks to do more to renegotiate bad mortgages to keep more Americans in their homes and more money in their pockets (since almost everyone loses from a foreclosure). Some banks have been sued recently over improper foreclosure procedures that hastily removed good people from their homes before exhausting all other options.



Fannie and Freddie effectively act as re-fi gatekeepers, because they underwrite most new mortgages. They've made the lending standards so strict that far fewer people can quality than before. I know that lax lending standards got us into the real estate mess, but loan modifications like re-fi's entail less risk on banks (assuming property values are not underwater). If John Smith is affording his $2K/month mortgage now, then he should be able to handle a re-fi down to $1,700, right? That is extra money in Smith's pocket that he will likely inject into the consumer economy, which will help our recovery. And since banks charge re-fi fees and many homeowners don't stay in their homes over the full life of the mortgage, banks don't lose much on a re-fi if at all (or they wouldn't do it in the first place).



But here's the problem, Freddie is also an "investment house" with portfolios of mortgage-backed securities and other vehicles that it uses to generate profit to fund new loans. That sounds fine on the surface, but Freddie has sold the safest tranches of MBS's to Wall Street already, leaving them with the riskiest, most default-prone tranches that sane investors shunned. Those "equity tranches" often contain mortgages from sub-prime borrowers with very high interest rates though (hence the default risk). But they can still generate income if the homeowners keep paying. So Freddie is hoping that those borrowers won't re-fi. In addition, Freddie holds "inverse floater" tranches, where mortgage principal payments are sold to investors, and they retain the interest cash flows. So they have a financial conflict-of-interest to prevent or restrict loan re-fi's.



But you might think, isn't it good that Freddie earns a healthy return to pay off the taxpayer loans faster and loosen up credit for new home buyers? Well yes in the short-term, but no in general. By making it harder to re-fi, Freddie is depressing consumer purchasing power and increasing systemic foreclosure risk, which has economic and social consequences on America for reasons we've already discussed. Those consequences don't affect Freddie of course, which seems more interested in the bottom line than its public mission.



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http://www.npr.org/2012/01/28/146024083/israeli-outpost-pits-courts-vs-government



Also, pretty upsetting news out of the West Bank. Israeli peace activists sued their government over some illegal settlements, and the Supreme Court rules in their favor. By strict international law, all Israeli settlements in the occupied West Bank are considered illegal, but the Israeli gov't has "legalized" some settlement areas in an annexation effort based on Biblical borders. But in the case of the Migron settlement, even Tel Aviv ruled that it must be dismantled because it was built on private land seized from Palestinians (that is still illegal in Israeli law). So on one hand, the courts rule that these places must be torn down, but on the other hand, the gov't rarely acts, or pretends to act, allowing the illegal settlements to continue and even grow. But the Migron case has gotten such publicity that it will be hard to ignore. Though after hearing the news, the Zionist settlers vandalized local Palestinian property and torched their mosque in retaliation.



Is that the conduct of civilized persons? You have beef with your gov't, so then you engage in hate crimes on innocents who had nothing to do with the court ruling, and whose land you stole in the past anyway?

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I am not sure of the nature of Freddie's holdings, but from what the article describes, that is the nature of the business - it is not "betting against homeowners" as NPR suggests (playing the populism card). However, what is/would be problematic is the extent to which holding these positions created incentives (on which they acted) to increase the red tape associated with refinancing. This is why Freddie insists that  ``...its employees who make investment decisions are "walled off" from those who decide the rules for homeowners."

I do not know exactly how Freddie addresses these issues and if it compensates its employees in a way that avoids this conflict of interest. But it sounds as though they are at least thinking about it.

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I'm as appalled as anyone about the actions of big banks and Fannie/Freddie in the housing market.  But I'm not convinced this is a real story.

These inverse floaters may be part of a legitimate hedging strategy.  As part of its core business Freddie has a huge exposure to mortgage interest rates.  If mortgage interest rates go up, the mark-to-market value of those mortgages will drop.  That's the scenario when hedging is the right thing to do: when as part of your core business you have an exposure to market forces outside your control, the responsible action is to hedge against that risk.  It's like airlines buying oil futures to hedge against future changes in oil prices, because they buy a huge amount of the stuff as part of their core business.

We don't know Freddie's overall exposures here.  $3.4B sounds like a lot of money, but compared to Freddie's overall portfolio, and their overall exposure to the mortgage interest rate, that may be tiny.  That is, we know they've got $3.4B betting this direction, but if they've got $50B betting the opposite direction (because that's their core business, buying mortgages), it'd be obvious that their net position is actually the opposite direction.

Only knowing one piece of their portfolio doesn't give us enough information to conclude the direction of their overall financial interest.

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I agree that we don't know enough to make an informed evaluation. However, NPR did reach out to Freddie execs and their PR to give them a chance to respond, and they mostly declined. If the their portfolio positions are truly as you said, don't you think they would want to explain that to the public in order to diffuse the "betting against the homeowner" allegation? Especially now that they are a ward of the state, under a "pro-homeowner" administration, you would think there would be a better effort at disclosure and explanation. Also, PIMCO's Simon came down pretty hard on Freddie over this - he should know more about Freddie's positions, and what incentive would he have to exaggerate?

Of course we don't want Freddie and Fannie to make stupid mortgage bets (on top of the stupid bets already on their balance sheets), and they are entitled to hedge their risk. I think the Obama admin. is offering additional incentives to get them to relax re-fi rules, but can't they just force their hand through the FHFA? Maybe Congress can rewrite their protocols, but that process would be slow I suppose.

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Naked Capitalism does a long-form argument against the NPR/ProPublica piece here: http://www.nakedcapitalism.com/2012/01/propublicas-off-base-charges-about-freddie-macs-mortgage-bets.html  She argues they've just misunderstood how this trade works, that it's a hedging issue primarily, and that even if their net position is what ProPublica argues, the causality runs the opposite way (they don't set policy based on their trading book, they set the trading book based on the policy).  There's also a long explanation of inverse floaters with the technical details, which is pretty interesting (or maybe just incredibly dry, depending on your perspective!).  And towards the end there's some speculation about why PIMCO would offer the quotes they did.

Freddie does have a conflict of interest here, but it's not because of this trading position.  It's because their objectives of supporting homeowners and taxpayers are to some extent at odds with one another.  There's plenty going wrong in mortgage-land, but this trading position isn't a smoking gun, it's a distraction.  You know they're planning to wrap up the "state AG mortgage settlement" whitewash this week, by Friday?  They've done no investigation, they're just selling the banks a waiver of liability for pennies on the dollar, and the result will be to close off a whole range of serious legal abuses from any criminal charges.  If it goes through, expect bank stocks to jump up.

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Thanks for the link and I think that's pretty convincing - sorry to send everyone that trash piece (well on the bright side it was a quick refresher course in MBS's and GSE's). I would have expected better from NPR and ProPublica. If PIMCO's Simon was trying to use his comments to stir things up, you would think he would employ media with larger audiences though. Or maybe if he expressed his "shock" to the business press, they would have ridiculed him?

As you said, it's a shame that we haven't really engaged in serious investigation and punishment over mortgage and securities fraud. A few people were made examples of (and they were so foolish and egregious that Elle Woods could have gotten them convicted), but many worse offenders are still at large. There isn't the political will in DC, and after the Citizens United ruling, I think big money interests will be able to lean on and silence regulators even more.

Romney, private equity, and attacks on the free market

Maybe you heard that in South Carolina, a big financier backing Perry withdrew his support and shifted to Romney after Perry accused Romney of being a "vulture capitalist" from his record at Bain. He was upset that a GOP nominee would make such attacks on free enterprise. Romney himself has said as much regarding some of his critics. I am really tired of this type of rhetoric. Question any sort of business practice, and all of a sudden you are against the entire free market and a bloody communist? If I denounce David Koresh and pedophile priests, does that mean I am against all of Christianity?

I know that America's "true religions" are business, war, and football (the three not so different), so I shouldn't be surprised if the captains of industry get defensive or hostile over even minor critiques. I guess to them, US capitalism is divine and perfect (well, it's working perfectly for them and the 1% at least). There's no need to tax or regulate or question perfection, right? If so, then why is there even a market for private equity firms like Bain Capital - which exist to help struggling companies improve? Why is 20% of business school learning about how previous firms and leaders messed up, in order to avoid those pitfalls in the future? Nothing is perfect, and we usually find out that things are much more f'ed up than advertised. If we believe in and care about something, we should constantly scrutinize it and hold it to higher standards. We can't just have blind faith and obedience that it will always turn out well. True "lovers of the free market" should want to diligently police it, because greed or scandal could cause dysfunction (i.e. lost wealth/jobs) and erode support for the whole system (we generally don't see this in practice, but we should). Those who pretend that everything is great and rebuke any critics (especially after all we've been through since 2007) are probably hiding something or struggling with their own guilt.

As usual, there's a balance and lots of gray area. We don't have to be labeled as 100% free market disciples or 100% communists, but unfortunately in politics (especially during campaigns), those type of messages carry more traction. The free market is amazing in its potential to create (and destroy) value, and affect millions of lives (for better or worse). Private equity has created and destroyed some American jobs (studies suggest there has been a net job gain vs. similar companies, see link below). It has made some money for investors (not just rich people but also public pensions), though it's unclear whether the gains are better or worse than market averages. It has helped some companies succeed and ruined others (they play a dangerous game with leveraged buyouts and such). But that is business risk - you can't win 'em all, and obviously firms like Bain must have a track record of doing some good, or clients wouldn't agree to fork over a whopping 20% of their profits to them as consulting fees. Voters just have to decide if a private equity exec has the background to be a good president or not (or at least, is he the best choice of the field?). What we do know for sure is people like Romney got mad rich from private equity, especially since they structure their compensation as capital gains for the very low 15% tax rate (like hedge fund managers do). Would a patriot short-change his nation out of millions of revenue like that, even if it was technically legal?

Private equity 101 FYI:
http://www.theatlantic.com/business/archive/2012/01/is-private-equity-bad-for-the-economy/251245/

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I agree that there's room for a more nuanced critique of capitalism, and you don't have to be 100% pro or con.  But the critiques being presented by the other GOP hopefuls aren't nuanced and aren't careful: they basically boil down to a kind of ham-fisted populism of "the rich guy got rich and some workers lost their jobs."  That's a broad brush that tars most any businessperson, because it's an attack on all forms of creative destruction.

I think the more cutting argument against private equity is that at least some part of their profits come from shifting costs from the business to the government.  That is, they use financial engineering to extract money from the taxpayer through government, rather than creating new profit.  The template of how a PE firm does this goes like this:

1 - After buying the company, have it issue a big pile of new debt and pay that out as a dividend (i.e. to the PE firm which now owns it).  Now some of what used to be the company's profits go into paying interest on the debt.  Since interest is not taxed, but profit is taxed at 35% (less deductions, which are huge, of course), this single bit of financial engineering allows you to get the government to subsidize that debt to the tune of 35% in lost tax revenue.

2 - Start breaking the company up into smaller pieces.  Sell this as being designed to "make the company more lean and efficient."  But you basically strip the company of its assets, paying out the results as dividends (back to the PE firm, helping you recoup your investment).  This has the effect of really levering up the company because you've still got a ton of debt, but now a lot fewer assets behind it.

3 - If the company does well (keeps making enough profits to cover the interest on that massive debt), that's great, good work.  If not, declare bankruptcy.  Since the company now has far fewer assets, your creditors don't have much to go after - they can't come after the dividends you've paid out to yourself.  And often in bankruptcy you can pawn off your pension benefits on the Pension Benefit Guaranty Corporation, where the government basically takes on your pension obligations.

Some portion of PE firms' financial returns comes from making the businesses more lean and efficient.  Some portion also comes from exploiting loopholes in the way government works to extract money from the taxpayer.  It's not obvious what the mix is.  But that's the knock on PE firms.
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Thanks for the information, J. Certainly I'm not supporting the validity of the GOP rivals' attacks on Romney's business record. I mean, it's hilarious to watch them go after each other, but for the most part their arguments are not supported by much fact as you said (the Wash. Post gave Gingrich's super PAC's anti-Romney video "King of Bain" the lowest score for truthfulness). Still, Romney is billing himself as the only private-sector guy in the field who knows the real economy and how to create jobs, and I call BS. 

I am totally naive about PE (though my intro finance course starts next weekend haha), so I am shocked that the technique you described is their meal ticket. It reminds me of the free conferencing calling loophole (http://www.linkedin.com/answers/technology/telecommunications/TCH_ITS_TCI/222909-22366013).

I just can't believe that the client companies' boards would approve large dividend payouts early into their relationships with PE firms, especially when it's financed by new debt or fire-sales on their assets. Is it stipulated in the contract or something? These firms are struggling, hence the need to hire bloodsuckers like Bain, so they should retain every cent of earnings to invest for future profitability. BP suspended dividends after the Gulf disaster (probably anticipating big write-offs for fines and suits), and I think the big banks did too (or at least severely decreased payments) during the financial crisis. How can the PE clients' justify otherwise? Maybe there is some truth in the accusations that PE firms "loot" their clients?

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PE isn't consulting.  They come up with financing (either raising it as equity or by issuing debt), and then use that money to take over a targeted public company - that can be hostile or not, but basically they buy enough shares on the open market, then negotiate with the board to sell the remaining shares to the PE firm, taking the public company private.  At that point the target company doesn't have an independent board anymore - the PE firm owns the company outright.  And since the PE firm owns all the shares, the dividend is just a cash transfer - the dividend goes to the owners of the shares, which is 100% the PE firm.  There are laws about asset stripping, because it reduces the assets available to the creditors in bankruptcy - but these things are complicated, and there's enough wiggle room that if you've got smart folks you can find holes to get through.

That's not to say this is the only way PE firms make money.  Often they do help firms become more agile and so on.  But they can do both.  Maybe the most cutting argument you can make against PE is to ask: Without the regulatory arbitrage, without the effective government subsidy, would PE be profitable on its own?  Is PE just a form of government-subsidized welfare for the rich?  Is Mitt Romney just a welfare queen riding around in a G5? ;)

I'm not sure if you've seen Dean Baker's book "The End of Loser Liberalism" (http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism - ebook is free to download), but it's really pretty interesting.  He basically argues that it's wrong to allow the economic arguments to be presented as "conservatives are for free markets, and liberals want to limit free markets and use taxes to transfer money to the people who lose out in the free market."  Because the economic policy choices the US has made, from trade to copyright to monetary policy, are not designed to create a free market.  They're designed to transfer income from the lower and middle classes to the rich.  Some of his suggestions can be a bit impractical, but the reframing of the whole dialog around "free markets" is really interesting.

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Thx, J. Yeah my bad on the naivete - as you said PE firms engage in leveraged buyouts and hostile takeovers. They're not angels of mercy that poor souls call on. 

Thanks for the book rec too, you are da man. The free market ruse by wealthy conservatives is like public enemy #1 to me, and I'm glad at least a few people are analyzing and writing about it. Not only do the rich strike down most efforts to redistribute for the less fortunate, but they pervert the markets and laws to actually funnel money upwards. Unfortunately, their propaganda is generally persuasive due to civilization's bad track record with tyrannical gov't and taxation (and America's narrative of rebellion against those things). Add to that The American Dream of rags to riches, and the horrible history of central planning/communist governments in the 20th Century, and you have all the public bias/support you need to maintain the status quo and resist efforts for economic reforms. Only temporary outliers like the financial crisis and Occupy Wall Street bring these issues to the forefront (but remember how little press and political endorsement OWS was getting at first?). So fairer taxation and more regulation are tough sells, especially in a down economy with the conservatives reciting the usual lines about killing jobs, socialism, lazy black people, etc.

Though gradually more people are seeing through the BS and realizing that they'll never reach the top 1% with the way things are going. If you can't join 'em, beat 'em? And I mean physically beat them, with medieval weapons. :)

What would a truly free American market look like though? Probably more oligopolies and monopolies in some industries?

Buffet takes on the GOP

http://swampland.time.com/2012/01/11/warren-buffett-to-mitch-mcconnell-put-up-or-shut-up/
http://finance.yahoo.com/news/buffett-gop-pay-211046623.html

“I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions... We need a tax system that takes very good care of people who just really aren't as well adapted to the market system, and to capitalism, but are nevertheless just as good citizens, and are doing things that are of use in society," [Buffet] said.

EXACTLY! Why the hell does the GOP (and the Dems to a slightly lesser extent) set policies that incentivize risky investing, and give breaks to people who are already the most wealthy and savvy capitalists in our society? Those people can make it on their own, so if you're going to help anyone, why not help the honest, humble folk who still perform vital but underpaid jobs (janitor, nurse, etc.), but don't have the knowledge/time/resources to invest their way to financial security?

The GOP keeps touting the greatness of the American free market meritocracy, a level playing field that rewards valuable contributions and where anyone can make it with hard work. If so, then why do the rich get laws passed so their resources and connections grant them an *unfair* advantage over the rest of us, and they can make vast sums of money without actually contributing anything valuable to society? In fact, they often profit by harming society, then escape punishment and underpay taxes (or steer bloated gov't contracts their way) so there are not enough resources left to help the most needy.

The GOP candidates (especially Romney) mask their wealth-gap-widening agenda with calls for reining in Washington spending and voting out a president who wants to make us like Europe (yeah, wouldn't that be terrible? The top European nations outrank us in most major health and social welfare metrics). Fine, while I may not agree with it, I respect their right to have a vision of minimal gov't. Then cut the "handouts" for everyone, starting with the worst offenders. Conservatives love to bash the Earned Income Tax Credit, welfare, and other programs for the poor, but the truth is that tax evasion and subsidies to rich families/companies are much more costly. Oh those "poor" rich people who pay taxes though the nose, and curse those unemployed deadbeats who live large off the gov't dime. While there are obviously a few anecdotes to support that narrative, we should be looking at aggregate stats. If it's so terrible to be rich in America, then why are they prospering many fold more than the other classes since the 1970's?

It goes back to the Tea Party and Occupy Wall St. discussion we had before. S said that the TP was mad about gov't spending, and OWS was mad that the gov't was spending to help the rich at everyone else's expense. OK, then cut off the rich (we're not even talking about taxing them more, but just stop giving them the extra benefits unavailable to the 99%), and re-evaluate gov't spending at that point. We may then find that we face a much smaller crisis, but if further cuts are still needed, then do it across the board or progressively.

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http://hinterlandgazette.com/2012/01/gop-presidential-frontrunner-mitt-romney-obama-divides-bitter-politics-envy.html
http://www.npr.org/blogs/itsallpolitics/2012/01/10/144938684/rivals-attack-romney-s-record-at-bain-capital

Romney is trying to spin attacks against his record at Bain as "the politics of envy" and resentful of his success. Uh no, you don't hear us bashing Buffet or Jobs or other people richer and "more successful" than Romney, because the public mostly believes that those people earned their keep. Well, I guess it's hard to justify one human being "worth" a billion dollars, but those chaps at least got rich more honestly than dictators or unscrupulous bankers.

Romney on the other hand profited from causing misery and debt for some of his clients (40% of Bain's top 10 contracts went bankrupt, yet they still got paid handsomely). So actually his critics resent his lack of business ethics and legitimate value creation, not his business "success." Like his careless $10,000 bet comment with Perry, this just shows execs like him totally don't get it. Out-of-touch people like that shouldn't be leaders. The US middle class is going through its worst stretch since the Depression (much of it caused by Wall St.), the wealth gap is near record highs, and he's talking about how real Americans should work hard to be rich, not be jealous of the rich? Well maybe "real Americans" don't want to be like you, Mitt.

More consequences of fracking

http://www.npr.org/2012/01/05/144694550/man-made-quakes-blame-fracking-and-drilling
http://www.csmonitor.com/Science/2012/0102/How-fracking-might-have-led-to-an-Ohio-earthquake

We've discussed fracking before, and now it is a fairly mainstream topic (but you heard about it here first!). Like the almost unreal tar sands projects in northern Canada, maybe we have to rethink our energy consumption habits if our society finds a process as zany as fracking to be economically viable: truck tons of equipment to some remote site, drill a deep hole, then pump millions gallons of chemical water thousands of feet underground just to release some methane trapped in rock pores. And of course we don't capture all the gas, so some leaks and contaminates the environment and human settlements. And then there's the question of what to do with all the waste water (or as the industry likes to call it, "produced water"). Plus, it's not like the gas firms are so diligent to recover every last ounce of their poison. They of course swear that the used water is perfectly safe. If so, then why did the industry lobby for a waiver from the EPA Clean Water Act? And why then are they pumping/trucking the water hundreds of miles for underground disposal in economically-depressed states like Arkansas and Ohio, places desperate for new jobs/investment at the cost of public safety and the environment? Like with nuclear power, maybe "green" natural gas wouldn't appear so cheap and clean if the waste management costs and other externalities were rightfully factored into the market price. I know we want to wean ourselves from foreign oil, combat climate change, and the US is sitting on huge natural gas reserves. Gas prices are at almost record lows. But nothing comes free. If we had the misfortune of living near a neighbor who sold land rights for drilling or waste disposal, we might feel a lot differently.

So on top of all these problems associated with fracking, now there is evidence that the fracking and waste water disposal may even be causing small earthquakes! Water is a lubricant, and a lot of water is very heavy and exerts pressure on its surroundings. Mix a small fault in there and what do you get? Fortunately the shale gas areas in the US Midwest are not very seismically active, but Ohioans living near waste water wells have experienced 11 quakes as high as 4.0-magnitude since the projects began. So Ohio and Arkansas are now banning waste disposal in certain sensitive areas of their states. Of course the drilling and waste companies say that no one can definitively "prove" that their activities caused the earthquakes, because many natural stimuli also contribute to quakes. The tobacco companies and their lawyers used to say the same thing about their products and human diseases. But enough correlation can usually convince sensible people.

Geology is a delicate balance of forces, and we can barely understand and predict quakes. Like with climate change, some people can't believe that tiny humans and our tailpipes could affect changes in the massive atmosphere. But small perturbations eventually accumulate into big consequences. Yes, faults and rock formations are huge compared to the relatively small volumes of water we're injecting, but a tiny pin can pop a balloon. Aware of this controversy, companies have tried to filter and recycle the waste water instead, but couldn't get the output to meet gov't purity standards (which I'm sure aren't that strict). If so, then I don't see how it makes sense to dispose of the untreated water in the ground, where it can eventually seep into aquifers and faults. There's just a lot we don't know about the consequences of fracking, but US policy is reactive - the companies say it's safe, so let them do it until there is clear proof of a problem, and then maybe take action if Congress or the courts are interested. But by that time it's too late for the first rounds of victims. And the gov't fines and litigation settlements are measly compared to the huge profits already extracted.

In the EU, drilling companies have seen the boom in North America and want a piece of the action. Shale gas exists over there too, but the French government has voted to ban domestic fracking entirely (despite sitting on the 2nd largest reserves in the EU). They have more incentive to frack too: energy prices are usually 4X as expensive in France than the US (and they are at the mercy of unstable exporters like Russia and Libya), but their consumption is probably 1/2 ours, and their energy companies seem to have less political sway. They have studied the risks and costs, and found that a moratorium is the best course of action for their people's future. Poland, with the biggest gas reserves in the EU, is pushing hard to frack (and foreign energy companies like Exxon and Conoco are salivating to get a piece of the action), as they are under more under Russia's thumb and dependent on dirty coal than Western Europe. The EU can impose union-wide environmental regulations, so the countries are sparring as to what the overall policy on fracking should be. It's tough because the EU also had ambitious carbon reduction goals, and converting to natural gas would help there (especially since nuclear is falling out of favor after Fukushima). But we shouldn't create 2 new problems to solve 1 old problem. Of course the more consequence-free solution is energy conservation, but that is not as sexy as a new technology or new exploration.

http://www.bloomberg.com/news/2011-07-01/france-vote-outlaws-fracking-shale-for-natural-gas-oil-extraction.html
http://www.economist.com/node/18867861

Newt Gingrich, also "All-American Muslims"

Newt on the poverty solution (i.e. fixing lazy black people):
http://www.thedailyshow.com/watch/tue-december-13-2011/newt-gingrich-s-poverty-code

Newt's tax plan: Bush on steroids (zero cap. gains that helps the rich, but deficit will probably balloon)
http://www.npr.org/2011/12/13/143656946/analysis-gingrichs-tax-plan-would-benefit-the-rich

Newt's career highlights (Main St. GOP likes him because he is boldly attacking Obama, but no conservatives in DC are celebrating as they remember his shaky record as Speaker)
http://www.npr.org/2011/12/08/143281791/gingrichs-path-from-flameout-to-d-c-entrepreneur

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Also from tonight's Daily Show, you can't make this stuff up. A douchebag Florida conservative group is protesting the "All-American Muslims" show on TLC (a reality TV show following "regular US Muslims" in Michigan). The FL group is basically offended that the show is not portraying the radical fringe of Islam, and showing Muslims acting too normally. This conflicts with the "belief structure" that they hold about Muslims, so they don't like it. They want to hate and fear ALL Muslims, but it's harder to do that when you see them going to work just like us, loving their families just as we do, and doing all the other American things. This was probably one of the show producer's goals, but I guess some Americans prefer to cling to their black-white, good-evil stereotypes rather than consider another viewpoint supported by evidence. It's not like the show is claiming that all Muslims are normal and peaceful (though clearly many of them are), but the protesters probably feel that the show is just propaganda to get us to lower our guard on the "sharia threat." Yes, that treacherous TLC is clearly bent on America's destruction. You can FFWD to 1:30 on the video to skip past some fluff. 

http://www.thedailyshow.com/watch/tue-december-13-2011/kabulvision

Maybe we can dismiss these protests as just ignorant xenophobia, but apparently corporate advertisers are acting on the complaints. For example, Lowes decided to pull its ads from the show (they claim they don't want to be associated with a "lightning rod" program). So they are OK to advertise during Jersey Shore and other crap, but a show with real Muslims acting too normally - that's a no-no. Just shameful.

http://www.cnn.com/2011/12/11/showbiz/all-american-muslim-lowes/index.html

Congess' outrageous insider trading

Corporate executives, members of the executive branch and all federal judges are subject to strict conflict of interest rules. But not the people who write the laws.

http://www.cbsnews.com/8301-18560_162-57323527/congress-trading-stock-on-inside-information
http://money.cnn.com/2011/12/07/news/congress_insider_trading/index.htm?section=money_topstories

"60 Minutes" had a recent report exposing the egregious insider trading conducted by members of Congress that is technically not illegal for them, but would put normal people in the slammer. Sensing that the gig is up and anticipating public outcry, the Senate is now resuscitating 2004's STOCK Act: a failed bill to explicitly ban insider trading by Congress, and require more frequent public disclosure of lawmakers' trading activities. In order to look ethical leading up to an election year, the bill has currently attracted 171 co-signers (possibly a record), whereas it couldn't get an ounce of support during its original drafting. Some critics say that the bill is unnecessary because regular trading laws already apply to Congress, and they are not "insider" employees of the companies whose securities they trade. But of course neither was Martha Stewart.

As an example, take September 2008. Lehman was about to go under, and the whole system was on the edge. Paulson and Bernanke called a select group of lawmakers for ultra-secret meetings to break the bad news and plan responses. Maybe it was just a coincidence, but one of the attendees, the ranking GOP on the House Fin. Svcs. Cmte., AL's Spencer Bachus, suddenly bought a massive amount of options that would pay out if the market tanked. Bachus was one of our elected officials who was supposed to avert the crisis, yet he had a clear financial incentive to let the market plummet. WTF?

Maybe another coincidence, but current House Speaker Boehner was trading in health insurance stocks during the health reform debate. Shortly before Washington decided to kill the public option proposal, Boehner bought shares of private insurance companies when everyone else was bearish on them. And of course with the news of the public option's demise, insurer's stock prices rose and he made money.

We already know that most legislators leave DC much richer than when they arrived (and it's not because of their generous salaries). They make decisions with millions or billions at stake, so of course private interests attempt to sway their opinions with bribes. It's not as bad as Nigeria or Iraq, but it happens here plenty. On top of that they need to play the markets too? Aren't they too busy running the country and serving their constituents to trade on the side? Most of us don't even have 5 min a day to watch the tickers, but trading is much easier when you are way ahead of the information curve. It's ridiculous, they are beyond shame.

Take this other example involving IPOs:

If you were a senator... and I gave you $10,000 cash, one or both of us is probably gonna go to jail. But if I'm a corporate executive and you're a senator, and I give you IPO shares in stock and over the course of one day that stock nets you $100,000, that's completely legal.

Look at Pelosi's reaction to questions about her profiting from the 2008 Visa IPO: http://www.youtube.com/watch?v=e0LMAP0L5G4

She claims to fight the big banks and help ordinary Americans, yet she accepted shares in Visa while helping to kill CC reform legislation back then that could have saved Americans billions during this horrible recession. The specific reform was eventually signed into law in 2010, but banks got 2 precious years to restructure their revenue models in anticipation of this change. So clearly it's not just a GOP problem.

I would go further than the STOCK Act: Congressmen can't trade in any equity, real estate, or international securities while in office, AND one year thereafter. Maybe bar their immediate families too. They get the pension anyway, why the need for more cap. gains? They can park their money in a 1% CD or money market account like the rest of us saps. They are public servants after all, and servants sacrifice, they don't get rich. How bad would it look if a US soldier in Iraq was in charge of protecting a BP facility, but one night insurgents blow it up? Then later his superiors find out that he was shorting BP stock a week before the incident. As far as I know, FDA employees aren't allowed to trade in stocks of the companies they're auditing, and I think employees at the Fed and Treasury have to sell all their financial stock before taking the job too. It's common sense, so why is Congress somehow exempt? Are they saints? I would also copy China and EXECUTE public officials convicted of corruption, fraud, etc. I'm against capital punishment except for this. I know China's policy hasn't fully stopped the problem, but at least it sends a message that people can't just profit with impunity and make a mockery of the law/public office. But this is America, the country that pardoned Tricky Dick. So tired of this crap.  

From "60 Minutes":
But what baffles Baird even more is that the situation has gotten worse. In the past few years a whole new totally unregulated, $100 million dollar industry has grown up in Washington called political intelligence. It employs former congressmen and former staffers to scour the halls of the Capitol gathering valuable non-public information then selling it to hedge funds and traders on Wall Street who can trade on it.

Baird says its taken what would be a criminal enterprise anyplace else in the country and turned it into a profitable business model.
Baird: The town is all about people saying-- what do you know that I don't know. This is the currency of Washington, D.C. And it's that kind of informational currency that translates into real currency. Maybe it's over drinks maybe somebody picks up a phone. And says you know just to let you know it's in the bill. Trades happen. Can't trace 'em. If you can trace 'em, it's not illegal. It's a pretty great system. You feel like an idiot to not take advantage of it.