Better Decision Making? CHECK

The December 10, 2007 issue of The New Yorker has an excellent article written by a physician, Atul Guwande, who summarizes an approach for dramatically improving care and cutting healthcare costs -- with one simple change in daily hospital practices. The full article can be read here:

http://www.newyorker.com/reporting/2007/12/10/071210fa_fact_gawande

The article starts by recounting the successful treatment (resurrection, really) of a drowning victim and uses that to depict the THOUSANDS of tiny individual steps that all must be performed nearly flawlessly in order to save a life in an ICU environment. Thousands of individual steps which, when analyzed independently, may not be terribly difficult to perform correctly but can snowball into bigger problems if overlooked or performed incorrectly.

Guwande then goes off on a seemingly unrelated tangent by describing the final test flight of a new plane delivered to the United States military by Boeing. The plane, the model 229, surpassed all the Army's criteria and was a shoe-in for a major purchase. The military's top test pilot climbed in, fired up the engines, took off smoothly, climbed to 300 feet, then stalled and crashed. Subsequent investigations found the pilot forgot to release a lock on key controls at take-off. The article continues:

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The Boeing model was deemed, as a newspaper put it, “too much airplane for one man to fly.” The Army Air Corps declared Douglas’s smaller design the winner. Boeing nearly went bankrupt.
Still, the Army purchased a few aircraft from Boeing as test planes, and some insiders remained convinced that the aircraft was flyable. So a group of test pilots got together and considered what to do.
They could have required Model 299 pilots to undergo more training. But it was hard to imagine having more experience and expertise than Major Hill, who had been the U.S. Army Air Corps’ chief of flight testing. Instead, they came up with an ingeniously simple approach: they created a pilot’s checklist, with step-by-step checks for takeoff, flight, landing, and taxiing. Its mere existence indicated how far aeronautics had advanced. In the early years of flight, getting an aircraft into the air might have been nerve-racking, but it was hardly complex. Using a checklist for takeoff would no more have occurred to a pilot than to a driver backing a car out of the garage. But this new plane was too complicated to be left to the memory of any pilot, however expert.
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The plane was better known as the "flying fortress" and obviously became a key part of our arsenal. Guwande then returns to the problems of modern, high-dollar health care and explains how one doctor devised a simple checklist for nurses and doctors to follow to ensure the proper placement of lines in patents. Like the checklists for pilots involving 1) tanks full, 2) chocks out, 3) instruments lit, 4) radio working, 5) controls unlocked, the items on the checklist for placing lines were all common knowledge items:

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On a sheet of plain paper, he plotted out the steps to take in order to avoid infections when putting a line in. Doctors are supposed to (1) wash their hands with soap, (2) clean the patient’s skin with chlorhexidine antiseptic, (3) put sterile drapes over the entire patient, (4) wear a sterile mask, hat, gown, and gloves, and (5) put a sterile dressing over the catheter site once the line is in. Check, check, check, check, check. These steps are no-brainers; they have been known and taught for years. So it seemed silly to make a checklist just for them. Still, Pronovost asked the nurses in his I.C.U. to observe the doctors for a month as they put lines into patients, and record how often they completed each step. In more than a third of patients, they skipped at least one.
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Of course, if you miss one of these simple steps, the risk of infection goes way up along with patient costs and patient mortality rates. Hospitals which implemented the checklists, altered personnel policies to ensure nurses had adequate backing when calling doctors on missed steps and ensured the proper supplies were on hand any times lines were placed saw infection rates and complications plummet.

Obviously, one barrier to adopting such a simple fix was overcoming the arrogance on the part of highly trained doctors, interns and nurses who didn't think they needed a reminder of such obvious requirements. As the author points out, the ego of those doing the work isn't the key concern. The goal is to create a process and a mindset in which simple details aren't left to chance.

The point of the story seems not only apropos to problems in healthcare but to problems throughout our society in general. How many financial firms failed to compile and use a checklist for monitoring their involvement in the sub-prime fiasco?

1) who is the borrower?
2) where's the paperwork the borrower completed?
3) do the cash flows really add up here?
4) can someone explain the calculations behind the ratings of these CDOs?
5) if no one can explain the ratings math, how were ratings compiled for millions of loans?
6) are the incentives of the loan originator aligned with the re-sellers?

More generally, how many American citizens watch the news or vote without following a rudimentary checklist to separate all the fact from fiction? Maybe a checklist like the following?

1) can the proponent clearly describe the DIRECT tie of this solution to the problem being solved?
2) does this solution produce multiple benefits that all contribute to solving the problem?
3) does this solution counteract another policy or program that is also needed?
4) can the advocate of this solution even compute the cost of the first five years of this solution?
5) who drafted the legislation?
6) if solution A is so vital, can the proponent explain the tax plan that will pay for it?
7) if solution A is so vital but a tax isn't needed, can the proponent name the program to cut to pay for it?
8) does the proponent actually KNOW what they're talking about?

Our economy and society have become so complex and inter-related that it's easy to lose track of basic criteria that can lead to better solutions if consistently followed. A better checklist of sorts certainly seems in order. We seem to be making far too many easy mistakes on financial, military and political matters to continue free-lancing the country into the ground.

Another Teachable Moment - Squandered

On the same day, both George Bush (#1) and Hillary Clinton (#2) attempted to dash to the head of the parade in the effort to "help" sub-prime borrowers faced with the prospect of defaulting on their mortgages and "losing" their homes. If THESE two players agree that "something must be done," does anyone believe any sound economic principle lies behind this sudden "helpful" instinct? It's pretty easy to argue the negative, just by analyzing the mechanics of a mortgage freeze and its likely impacts.

Some Proposed Fixes

The Bush proposal (actually a joint effort between the Treasury and mortgage industry) calls for freezing mortgage interest rates for a period of five years for a particular category of borrowers who:

* took out a mortgage on a primary (occupied) residence
* between January 2005 and July 2007,
* have not yet defaulted on the loan
* and have not yet been hit with the interest rate adjustment on their loan

The Clinton plan (#3) calls for

* allowing state level bond programs to use funds for re-financing as well as original loan
* providing an extra $2.5 billion to fund those state bond programs (MRB)
* a freeze on sub-prime rates for 5 years or until "affordable" fixed-rate loans can be made
* a 90 day moratorium on foreclosures involving sub-prime loans
* better reporting from the mortgage industry on loans being renegotiated

So is either plan appropriate for the scale of the problem? First some basic statistics:

* nearly $2 trillion in mortgage debt faces rate resets in the next two years (#4)
* the average home price is $211,700 (#5)
* the average monthly home mortgage payment is $1672 (#6)
* estimates for the number of sub-prime mortgages at risk range from 1 to 2 million (#7)
* the current 30-year interest rate is about 6% (#8)

Ignoring for a moment the number of loans originated as interest-only loans or loans with ridiculous 1% rates, let's just assume the average reset increased the interest rate by three percent on a $190,530 loan (a 90% loan to value on an average home). Running the amortization on that loan in Excel shows a monthly payment of $803.28 for the first three years jumping to $1112.13, an increase of $308.85 per month.

Obviously, this implies the average home mortgage amount of current loans (regular and sub-prime) is significantly higher than the overall average home price. A monthly mortgage of $1672 assuming a fixed 30-year mortgage at 6 percent implies a mortgage amount of about $279,000. If a $279,000 loan amount is used in a 3/27 model jumping from 3% to 6%, the monthly payment would jump from $1176.28 to $1628.53 or $452.25. Let's go with that number.

A five year freeze on upward resets aimed at one million borrowers is aimed at deferring 60 months of incremental $452.25 payments the borrowers cannot afford, or a $27.1 billion shortfall. Clinton's proposal to add $2.5 billion in funding to a bond program aimed primarily at original mortgages instead of re-finances would appear woefully inadequate to make even a psychological improvement in the market. Using the above numbers for comparison, a $2.5 billion solution only addresses about 9.2 percent of the at-risk loans, or about 92,250 loans of the low-end one million loans estimated to be at risk.

The plan touted by President Bush involves no direct funding by the government but involves a voluntary agreement by lenders to alter lending terms under specific qualifying criteria. Critics have already raised concerns that the criteria not only narrow the eligible pool to a number far below the million at risk but that they perversely reward those who have the worst credit and closed their loans later in the cycle when presumably the risks should have been better understood. No cost is estimated for the Bush plan but clearly lenders won't voluntarily surrender the right to $27.1 billion in interest payments with all other variables unchanged. The obvious variable under their control is the amount of funds available for other loans. $27.1 billion fewer dollars coming in means $27.1 billion fewer dollars available to lend to ANYONE. The missing $27.1 billion could be used for an additional 160,014 loans for average priced $211,700 homes with an 80 percent LTV. See? This voluntary program would reduce the supply of funds to 160,014 qualified buyers able to produce a 20 percent down payment on an average priced home to allow unqualified sub-prime borrowers to stay in houses they never could afford in the first place for an additional five years. Other than that, it's "free."

It seems pretty evident that any of the current proposals involve dollar amounts or eligibility which are at least one order of magnitude beneath the scale of the dollars or numbers of loans at risk. Regardless of the scale, a quick analysis of the mechanics of any such freeze at the micro-economic (the homeowner) or macro-economic (the financial industry) levels makes the logic behind such proposals even more dubious

The Little Guys

Can a mortgage rate freeze actually protect current homeowners, either sub-prime borrowers or the rest of us? In a word, NO. First consider the borrowers nearing default. If our average borrower looking at a $452 dollar jump defaults the very first month after their mortgage adjusts, that literally means that borrower has no other liquid assets to tap to cover a $452 dollar expense. At any time. How many homeowners ignorant enough to sign a $279,000 loan without the financial cushion to absorb a $452 shock are also ignorant enough that they don't understand they have to make 6 percent on their home just to break even? Even if the borrower managed to sell the home to cover their loan, the borrower without $452 in spare cash also won't have the $16,740 to cover the real estate commission on a $279,000 sale. If a government program did nothing but pay the sales commission as defaulting borrowers sold their homes for the loan amount, it might take $16.7 billion just for that.

From the perspective of equity appreciation protection for other homeowners, the logic behind a mortgage rate freeze has equally fatal flaws. First, any arbitrary freeze period doesn't change the underlying economic reality that the sub-prime borrowers CANNOT AFFORD THEIR HOME. A Bloomberg news story (#9) indicates possibly half of the 450,000 sub-prime borrowers facing rate hikes in the next three months will lose their home. That trend is likely to continue for the next full year, putting 900,000 borrowers in the crosshairs. Are you aware of any looming economic boom in America that will produce average take-home pay increases of $452 dollars per month ($5424 a year) for a million workers? I'm not either. Are you aware of any looming economic boom in America that will produce one million new jobs in the next year to help borrowers avoid losing their home after a job loss? I'm not either.

If your home value shot up thirty percent in the past three years because you had a bunch of new neighbors move in with artificially cheap mortgage money that allowed them to get more home temporarily than they could afford permanently, shifting the pain out one year doesn't change reality. The cruel reality is that your home in fact did NOT go up thirty percent in value, unless you happened to luck out and sell your home before the bubble burst. Arguing it did makes no more sense than arguing Enron was ever worth $90 a share. Homeowners who acted upon that inflated valuation before the bubble burst by borrowing against it via a HELOC or by selling and buying an even bigger home are no smarter than the original sub-prime borrowers.

Freezing rates on existing sub-prime loans also hurts the market by freezing all of the current uncertainty in place as well. Protecting teaser rates on current loans won't ease the tighter (justified) lending standards required for new mortgages. As a result, the pool of potential new buyers who can afford an inflated home price is still smaller. Protecting the teaser rates allows borrowers to stay in their home longer, reducing the supply of homes that would otherwise be on sale. The combination of fewer eligible new borrowers and fewer sellers produces reduced sales volume, which makes it more difficult for the market to gauge new price levels and eliminate the uncertainty. A lack of liquidity paralyzes not only the home market but the job market as well. How many people have the nerves of steel required to accept a job in a new city without knowing if they can sell their current home in nine months and without having confidence home prices in their new community won't be tanking a month after they move in? How many employers will be willing to cover that risk as part of relocation benefits?

The Big Guys

Rate freezes , even if voluntary, will fail to help stabilize the broader financial markets for the same reasons they fail at the micro level for individual borrowers. Deferring the point where those who truly cannot afford their home get tossed out doesn't materially change the underlying problem. It simply shifts the timing of the missed payments and the ripples they cause on valuations of the underlying CDOs and similarly obtuse financial instruments built upon the original bad loans. It does nothing to clarify the actual value of the underlying assets. Until that happens, financial markets will continue to seize up any time two major parties to a transaction suffer a panic attack from trying to set a value on assets they give or get in a deal. The longer that goes on, the greater the volatility will be in stock markets as investors try to gauge the true book value of companies holding this debt.

What Should be Done?

The real fallacy about any proposal to "solve" the sub-prime problem starts with the very definition of the problem as limited to the sub-prime mortgage world. The sub-prime mortgage problem is a microcosm of the failure of American economic policy and American politics in general. People taking out a mortgage because they could afford the first three years of payments and "deserved" a nice house are no different than the American public at large, which has continually returned politicians to office who vote for prescription drug programs or wars with dubious near-term benefits using long-term borrowing. Long term borrowing lowers the near term cost of government spending and artificially increases demand.

The complexities of the sub-prime business and the damage done to the economy by its collapse are so great that the odds of a small group of politicians or industry heads devising an equitable and efficient solution are virtually zero. However, the odds of a small group of politicians and industry heads devising a solution that protects their interests (remaining in power and remaining wealthy despite their mistakes) at the expense of those not in the room are a near certainty.

The sub-prime crisis represents another in a series of "teachable moments" for the American public -- moments where the consequences of a decision become apparent in a way that can be inescapably correlated to the decision that produced them and cement a powerful lesson in the minds of the public about future decisions. The idea of one million families losing a home certainly isn't pleasant. There is a worse scenario, however. What if the government saves one million homeowners from default? What's more likely to happen? One million citizens walking away from the cliff saying "Wew, I'll never do something THAT dumb again." Or FIFTY million citizens saying "Hmmm, that worked out OK for them, I bet I can play even closer to the edge." Every teachable moment is a painful lesson. The problem is that every teachable moment squandered produces a much more painful teachable moment down the road. The American economy is running out of road.

The sad truth is that America has raised a generation of consumers and voters so ignorant about legal and financial matters that millions voluntarily entered into legal agreements involving hundreds of thousands of dollars without a clue about the true reality of their situation. They weren't sitting in a room signing closing papers surrounded by people eager to "help" them get into a home they "deserved," they were sitting in a room signing their own financial death warrant surrounded by real estate agents, builders and lenders who devised the perfect financial tool for separating fools from their money while providing a three-year head start in fleeing the scene of the crime.

The even sadder truth is that the same generation of Americans is also likely so financially and politically ignorant they cannot recognize the true cost and the true beneficiaries of the so-called solutions being proposed by the very players who contributed to the debacle in the first place. Hopefully, Americans will recognize the similarities between that sub-prime borrower closing his ill-fated loan and the larger situation we face as politicians promise to help now. It's up to us to realize the big guys in the room aren't really there to help us. They're looking to help themselves -- with our money.

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#1) http://news.yahoo.com/s/ap/20071206/ap_on_bi_ge/mortgage_crisis

#2) http://www.cnbc.com/id/22116919

#3) http://www.hillaryclinton.com/news/release/view/?id=4496

#4) http://online.wsj.com/article/SB114204536747195612.html

#5) http://www.realestateabc.com/outlook/overall.htm

#6) http://wiki.answers.com/Q/How_much_is_the_average_mortgage

#7) http://www.npr.org/templates/story/story.php?storyId=16783072

#8) http://www.msnbc.msn.com/id/7148582/

#9) http://www.bloomberg.com/apps/news?pid=20601103&sid=akOEPec30TR4

Regimes - Three Different Ones

For those reading the news this weekend, the elections in Russia and Venezuela are likely very puzzling developments. Final returns aren't in yet, but it appears citizens in those countries appear to have voluntary walked into the polling booth and exercised their current rights to strengthen the power of individuals over them who really care about none of their rights.

In the case of Russia, Vladmir Putin established new rules which blocked many independent party candidates from filing for election to parliamentary seats, preventing any coalition of parties from putting a brake on the concentration of power being accumulated by his United Russia party. While Putin has publicly stated he will honor current Russian limits on consecutive terms, speculation is rampant in Russia and elsewhere that only his party's candidate has any chance at winning the next Presidential election and any such winner might very quickly resign and allow the party to reappoint Putin to fill the position. No consecutive term violation, no chance of surrendering power to other parties, GENIUS. (#1)

In the case of Venezuela, current President Hugo Chavez put a referendum on the ballot to grant himself power to retain the Presidency as long as his party maintains control One story, typical of the coverage of the Venezuelan vote, is particularly telling (bold emphasis added): (#2)

Three exit polls showed the anti-American leader won by between six and eight percentage points in a vote where turnout was low, the two sources said. If his victory is confirmed, the referendum vote on a raft of reforms would allow Chavez -- in office since 1999 -- to run for reelection indefinitely, control foreign currency reserves, appoint loyalists over regional elected officials and censor the media if he declares an emergency.

Hmmmmm. A leader appointing cronies throughout the entire local / national government chain and reserving dictatorial rights for "future emergencies" all approved by an apathetic voting public. That sounds familiar.

One word that comes to mind after reading about the tactics of Putin and Chavez is regime, a word Americans usually hear in contexts intended to convey illegitimacy, corruption or brutality upon anti-democratic governments or governments not aligned with what we perceive as our current interests.

Recently, I picked up a copy of Bill of Wrongs - The Executive Branch's Assault on America's Fundamental Rights by Molly Ivins and Lou Dubose. In all honesty, my only real motivation in buying the book was partly a combination of trying to show one last bit of support for one of my favorite political "arthurs" and hoping it would have more of Molly's more typical one-of-a-kind observations on the absurdity of politics.

The book is nothing like anything else in her canon, either written alone or with Dubose. There's no aw shucks prose, no stories of state politicians so stupid they'd have to be watered twice a day if they were any dumber, etc. Instead, the book provides details on eight very specific incidents in the last six years in which special interest groups or the government itself ignored and / or abused the most basic rights of those they opposed or used and abused the powers of government to further their efforts.

The stories range from:

* the challenges of speaking truth to power, or the hypocrisy of "free speech zones" in a democratic country where citizens can be arrested for "trespassing" on public property for holding an anti-Bush sign on a motorcade route

* harassing the press to help harass the citizenry AND the press, or how one reporter was jailed for 199 days by FEDERAL officials for not providing his videotape of an incident in which a tail light of a CITY vehicle paid for by federal dollars was broken by protesters, protestors the federal government had its eye on but who committed no federal crimes

* the Dover, Pennsylvania battle over Intelligent Design, or how the attempt to impose religious-inspired teaching in high school biology classes provided a bunch of conservative Christian zealots in a small town the opportunity to abuse both the Establishment clause and the first amendment by suing for the materials of reporters who accurately reported the conduct of the pro-ID officials in public school board meetings.

* the practice of material witness detentions, or how our government is detaining citizens indefinitely to extract testimony from said citizens AGAINST said citizens for alleged crimes the government is not required to divulge (read that again, several times, slowly)

* national security letters, or how the government can compel testimony from citizens while eliminating their legal right to tell ANYONE, including their own lawyer, of the request and how the FBI pursued a particularly abusive NSL case against librarians, paralyzing their ability to contact even their own Senators and Representatives about the abuse until the FBI dropped the case -- only after Congress renewed the Patriot Act and NSL provisions without seeing confirmation of its abuse

* the abuse of habeas corpus protections, or how our government has illegally kidnapped, detained and tortured citizens of OUR ALLIES as part of our war on terror

Keep in mind, each of these stories is not an analysis of how CONCEPTUALLY the flawed Patriot Act and other similar measures COULD BE used to infringe the rights of Americans. These are concrete examples of actual cases.

In the course of the book, Ivins and Dubose make three almost off-hand points that after reading the entire book, outline the most important points of the book and our current situation. In the discussion of the crackdown on protests in sight of the Presidential bubble, the arguments around the original Alien and Sedition Act are recounted and they quote law professor Leonard Levy, who stated that the concept of seditious speech is alien to American democracy because "it only exists where people are subjects rather than sovereigns and their criticism implies contempt of their master."

In the chapter about the detained videographer, they recount the fact that Dick Cheney, as Ford's chief of staff in 1974, suggested getting a search warrant for the papers of reporter Seymour Hersh, who broke the story of the existence of the Pentagon Papers. Cheney had qualms about the warrant though... Well, one qualm. "Will we get hit with violating the 1st amendment to the constitution?" As Ivins and Dubose note, Cheney was not concerned that such an action WOULD be a violation of the 1st amendment, only that they might suffer flack from pursuing it. This is Cheney's strategic viewpoint expressed within months of the resignation of a President disgraced and nearly impeached for identical actions.

In several of the chapters, the examples detail how federal officials operate through local police and law enforcement agents to accomplish their illegal goals while keeping federal fingerprints off the actual activity, making it difficult for citizens trapped in the web to understand their legal position, their rights or even what the charges are. The phrase "Kafka-esque" comes up often in the text and yet doesn't really do the situations justice.

The clear-cut pattern of behavior and obfuscation of actions taken makes it very clear the actions taken are not the result of amateurs or incompetence, but the result of a very coherent, well-formulated and frighteningly effective plan that clearly has the support of a critical mass of adherents who fear their fellow Americans as much as they do "them." It's easy to argue they fear us MORE than "them" cuz we're here, right in front of them every day.

Regime. It's a word we should be using a lot more right here in America. As Bill of Wrongs makes clear, there are many in our government who reject the idea of the people as sovereign and the government as subject and aim to establish precisely the opposite relationship as the preferred state.

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#1) http://news.yahoo.com/s/ap/20071202/ap_on_re_eu/russia_putin_s_future

#2) http://news.yahoo.com/s/nm/20071202/ts_nm/venezuela_referendum_dc

I Have A Question

Hillary Clinton managed to plumb a new campaign low in a now-infamous appearance at Grinnell College in Iowa on November 6, 2007. After providing a rather wooden answer to an oddly on-message question from a local student, it became known that the student had been prodded by Clinton's own staff to pose her question. Well, actually not HER question, but any one of a multitude of questions in this here binder that we on the campaign staff have conveniently compiled here for your electoral enlightenment. Go ahead, pick any of the spontaneous questions on this page right here... (#1)

Of course, the American people should be used to the concept at this point. We've watched with dismay and horror as the current White House occupant, despite packing public appearances with carefully screened, hand-picked, loyalty-oath-pledging crowds and hosting press conferences staffed by party operatives masquerading as independent reporters lobbing softball questions, still manages to turn every speech into a tour de farce of half thoughts and mangled syntax. One presumes that Gary Trudeau, who first represented GWB in his column as an empty Stetson hat above a asterisk later adopted an empty Roman centurion helmet atop an asterisk, decided at some point drawing a potted plant for GWB would just take up too much time.

It's not much of a puzzle as to why the candidates and their handlers insist on such moronic attempts at eliminating all risk and spontaneity from public appearances. With millions of dollars in PAC and special interest money riding on every word, any flub has the potential to become website gold on JibJab or YouTube and lead for the candidate's polls. In this climate, saying as little as possible and saying even less off the cuff is simply an effort by the candidates and those buying their favors to preserve their joint investment. Exxon, GE, and Consolidated Baby Diapers and Missile Systems, Inc. have too much riding on their lobbying dollar to have their candidate destroy their shot at writing their own regulations by actually providing a complicated, nuanced answer to a question such as "How do you propose to stabilize financial markets without protecting corrupt banks, mortgage lenders, credit rating agencies and individual borrowers who all should have know someone making $60,000 a year couldn't afford a balloon mortgage on an $600,000 home?"

What's most puzzling is trying to gauge exactly how much the bar of expectations on basic think-on-your-feet skills and public speaking has been lowered. Think of the benchmark to which every single candidate is being compared --- George W. Bush -- arguably the worst public speaker and without a doubt the worst thinker to occupy the White House in the mass media era. How little confidence must you have in your own intellect and speaking skills to risk getting caught staging your own "spontaneity" and wind up getting compared to the all-time worst? All you have to do is form a sentence with a subject, verb and object and you come off like Lincoln or Longfellow in comparison.

Have we really reached the point where we can't expect the would-be leader of the "Free World" to be able to handle five minutes of un-scripted, un-scrubbed, un-filtered questions from a soccer mom, auto mechanic, accountant or history professor in front of a public audience? Hell, Carol Burnett did that on TV every week for eleven years in front of millions wearing a cocktail dress and high heels at the end of her show.

At this point, I think I know the question I'd like to ask if given the chance at one of the debates.

Is Carol available?

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#1) http://www.cnn.com/2007/POLITICS/11/13/clinton.planted/index.html

Anti-Virus Software for Your Portfolio?

The cover story (#1) on MIT's Technology Review magazine for November / December 2007 has a cover story on "quants" -- the geniuses in the financial industry who combined skills in financial analysis, mathematics, statistics and software development to create complicated financial derivatives and a myriad of automated strategies for profiting from them. The article, entitled Blow-Up, starts off with a rather over-the-top melodramatic description of an early August conference held in the New York offices of Merrill Lynch in which 200 of the "smartest people on Wall Street" gathered to collectively scratch their head about the inexplicable behavior of the market as the impact of the credit crunch began to emerge. From there, it actually provides a good introduction to the strategies for pricing derivatives that have evolved over the past thirty years ranging from the Black-Scholes method that attempt to model variability to later Monte Carlo based methods for estimating the variability of the variability in financial models made practical by ever-faster computers.

The most insightful two points of the article come towards the end and provide the most food for thought:

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In the mid-1990s, [said Greg Berman of RiskMetrics] a good algorithm might trade successfully for three or four years. But the half-life of an algorithm's viability, he says, has been coming down, as more quants join the markets, as computers get faster and able to crunch more data, and as more data becomes available. Berman thinks two or three months might be the limit now, and he expects it to drop.
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Sound familiar? Sound like the life span of the signatures used by your PC's anti-virus program?

A little later, the author includes this quote from Emmanuel Derman, noted professor of financial engineering (an actual college curriculum) at Columbia University:

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Quantitative finance superficially resembles physics but the efficacy is very different. In physics, you can do things to 10 significant figures and get the right answer. In finance, you're lucky if you can tell up or down.
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Curiously, the author of the article spends no time elaborating on these points. Except for those purely interested in the market meltdown as a mathematical problem solving exercise, these are probably the most important ideas to consider. Even more curiously, a column at the end of the magazine recounts an op-ed piece in the same magazine by Lester Thurow written after the October 1987 crash in which he stated human herd behavior rather than computers were to blame for that crash.

Go back to the comment on the half-life of computer trading algorithms for a second. Does an investing strategy based on finding firms that consistently grow earnings have a half-life? Does an investing strategy that cannot work if anyone else uses it sound like something on which to bet your retirement? We really may not have a choice.

The analogy of computer trading algorithms in financial markets to computer viruses in a worldwide network is very apropos. One would think the goals are diametrically different -- trading is intended to produce a good result, viruses are designed to produce problems in a network -- but think again. A hedge fund with a multi-million dollar bet based upon on finding a temporary price differential on a complicated derivative could spend vast amounts of time creating an algorithm to identify that delta before everyone else. They could instead spend less time simply attempting to manipulate the markets to produce the delta, execute their trades, then get out. With trades initiated from potentially thousands of accounts in thousands of locations, who would be able to reverse engineer the attempt amidst a market trading six billion shares daily?

The danger of even a few rouge traders operating in a vast, highly automated market with thousands of other traders depending on highly complicated but incompletely understood programs is identical to the danger of a few malicious virus developers turning their code loose in a worldwide network of complicated PCs with complicated software that isn't well understood either. Combining complicated, automated trading strategies which aren't always assured of functioning correctly to vast computer networks to obtain real-time information to drive trades when those networks are prone to random catastrophic faults makes it pretty apparent that somewhere out there lurking in the future is a "Melissa" for the market. The implication is even worse because the market mechanisms have evolved to the point where typical human herd behavior isn't necessarily the dominant force in either direction. The dominant force may be nothing more than a ghost in the machine, in the form of flawed human algorithms implemented in flawed software running on flawed networks.

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#1) http://www.technologyreview.com/Infotech/19529/?a=f

Haven't I Seen This Before?

The October 23 edition of Frontline on PBS entitled Showdown with Iran should be required viewing for all Americans. The show looks backward from the current drumbeats for war against Iran coming from 1600 Pennsylvania Avenue and Dick Cheney's secret bunker to previously unpublicized interactions between Iran and the United States after September 11, 2001. The show highlights the disconnect between clear attempts by Iranian moderates to alter a poisoned twenty year non-relationship with the United States and the Bush Administration's rebuff of those attempts in favor of heightened tensions.

The analysis of the show begins with some background likely to surprise most Americans. After the September 11, 2001 attacks, all the moronic, institutionalized "Death to America" chants in mosques and most public gatherings stopped -- at least briefly. Also, as America chased down Bin Laden and decided to go into Afghanistan, the Iranian government actually provided HELP to America. No, they didn't give us five billion dollars to help defray the cost of the invasion of Afghanistan. No, they didn't send troops to help patrol Kabul side by side with American soldiers. No, they didn't provide communication systems or advanced spy drones (is there really anything in the realm of materiel we'd need from ANYONE else?).

Iran DID help, however. From the Frontline piece:

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The US accepted Iran's help in Afghanistan. Sunni extremists like Al Queda and the Taliban were also enemies of Iran's Shia regime. Iran encouraged its allies, the Northern Alliance, to fight alongside US special forces. Within weeks, the Taliban collapsed. In fact, Hamid Karzi took charge in Kabul only after Iran had broken an impasse with the Northern Alliance.
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Our attitude in response? In the words of Richard Armitage (remember that name?), "Their cooperation on Afghanistan was quite good but in my own opinion, was somewhat lacking in other areas." Our attitude by January 2002? A mere four months later? George Bush labeled Iran a member of an "axis of evil".

That phrase "somewhat lacking" merits some comparisons.

Think for a moment about the "help" we've received so far from our ally Pakistan in the first six years of the "war on terror". Pakistan, our ally, could very well be the country housing Bin Laden. Pakistan, our ally, has done more to proliferate actual working nuclear technology and equipment than Iran is likely to possess in the next ten years. Pakistan, our "democratic ally", very nearly had its likely next prime minister assassinated in an attempt that had cooperation from forces within the current Pakistani government. America could do far worse than the support Armitage termed "lacking" from Iran. America IS doing far worse in the support from our so-called allies in the region.

The Frontline show makes a convincing argument that the Bush Administration blew an ideal opportunity to change the tone of our relationship with Iran. When presented with an opportunity to move a variety of regional problems from warm to simmer, we instead put more pots on the stove and set all the knobs to boil. The irony of Richard Armitage discounting the value of Iran's cooperation in a four month period after September 11, 2001 as "lacking" then pushing policies to build towards a war with that country for its alleged nuclear ambitions while LEAKING the name of a CIA operative who was actively engaged in quantifying that country's real nuclear threat is just too much at this point.

Watching the Frontline piece was like watching a two year old re-run of Frontline explaining the debacle in Iraq. ONLY IT'S NOT A RE-RUN. The actors are all the same. The made-up plot is identical. Cheney is out on the stump talking about sending "clear messages." The only difference? We're already on the path to spend TWO TRILLION DOLLARS over ten years on the first two fronts in our war on terror. Does anyone seriously think we can afford a third?

Ask the Wrong Questions...

One of my "rules of management" is "Ask the wrong questions and you'll get the wrong answers." In other words, you have to ask appropriate questions to identify the correct answers that allow a problem to be solved. The appearances before Congress of General David Petraeus and Ambassodor Ryan Crocker and the September 13, 2007 address by President Bush serve as a classic study of this rule.

Even a quick glance at the resumes of Patraeus and Crocker conveys the fact they are easily two of the most qualified people ever appointed or promoted to a position of power during Bush's Presidency. Petraeus has been criticized for a "failure" in the training of the Iraqi police forces in 2004 but you can't hold him accountable for widespread desertions of Iraqi policemen trying to protect their family amidst ethnic cleansing made possible in part by our failure to properly staff the post-Saddam occupation. Patraeus understands more about fighting insurgencies than anyone Rumsfeld consulted in planning the war and the hole we're in might not be as deep had Patraeus been in charge instead of Tommy Franks. Crocker has spent much of his career on Foreign Service appointments actually stationed in the middle east or on middle east related domestic assignments. It's not hard to argue our management of the Coalition Provisional Authority would have been vastly more effective had someone with Crocker's insight into local ethnic / sectarian divisions led the effort instead of Paul Bremer.

Despite the competence and relative expertise of these witnesses before Congress, members of the House and Senate panels conducting the reviews failed to pose any question that drew any useful insight into where the current path is likely to lead or the nature of any change that could improve the short term or long term situation. In one case, hilariously lampooned on The Daily Show, Senator Barbara Boxer failed to even ask a single question --- IN SEVEN MINUTES. The pointless questioning of the lead military and civilian Americans in the theatre made it clear how poorly Congress understands the role of these two players, the role and responsibilities of the Commander in Chief and the role of Congress itself in conducting this war or any war.

Republican Senator Norm Coleman asked General Petraeus "Can we get a longer term plan? Can we say that we'll be down to half our troops in say five years? ; we can get to five years; we can be turning over our bases in some other paradigm?" (#1) WRONG. Ask him if the tools provided by the Pentagon enable the type of real-time communication from the field to commanders to conduct his assigned missions. Ask him if intelligence teams are providing sufficient information to identify and eliminate insurgent threats. Questions about whether and when bases should be turned over to a local government to alter the political climate involve decisions way above the pay grade and command authority of a field commander. If Congress has a question about what those goals are or the progress towards them, it should be directed to the Commander in Chief. In their frustration at not being able to ask the big questions of the big guy, Congress also blew its chance to ask questions it needs answered to fulfill its role in overseeing the execution of and spending on the war.

Democratic Senator Barack Obama asked Ryan Crocker "under what circumstances would you recommend more troop withdrawals?" (#1) WRONG. Crocker's responsibility as Ambassador is to maintain communication between the US government and the elected Iraqi leadership, serve as a resource to the Iraqi government on domestic Iraqi political and civil issues and work with our foreign service staff in neighboring countries to improve regional communication and support for the Iraqi government and people. He's not the guy to talk about whether troop levels should change, especially when he's sitting next to the General who DOES carry that tactical planning responsibility.

The cluelessness of Congressional Democrats and Republicans was only eclipsed by the cluelessness of the Command in Chief, demonstrated by his Oval Office address on September 13, 2007. (#2) Bush's obliviousness began with his opening sentence:

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Good evening. In the life of all free nations, there come moments that decide the direction of a country and reveal the character of its people. We are now at such a moment.
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Quick!

Which country is being described, and in what sense? Our partner, Iraq, and their need to decide on unity and democracy to secure peace and stability? Or America, which needs to decide to stick with Bush's plan to thwart the "enemies of freedom"? Or maybe a meaning he didn't intend -- America, the country that needs to recognize the drain on its military strength, financial solvency and moral leadership in the world and stop its participation in a war of occupation which cannot be won?

The lack of thought that went into this epitome of Bush fuzzy logic was indicative of the rest of the address. Bush quickly jumped into used-car salesman mode and gave this upbeat assessment of progress in Anbar province as an example of what could happen elsewhere:

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Anbar province is a good example of how our strategy is working. Last year, an intelligence report concluded that Anbar had been lost to al Qaeda. Some cited this report as evidence that we had failed in Iraq and should cut our losses and pull out. Instead, we kept the pressure on the terrorists. The local people were suffering under the Taliban-like rule of al Qaeda, and they were sick of it. So they asked us for help.

To take advantage of this opportunity, I sent an additional 4,000 Marines to Anbar as part of the surge. Together, local sheiks, Iraqi forces, and coalition troops drove the terrorists from the capital of Ramadi and other population centers. Today, a city where al Qaeda once planted its flag is beginning to return to normal. Anbar citizens who once feared beheading for talking to an American or Iraqi soldier now come forward to tell us where the terrorists are hiding.
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Anbar is the best example you have for success? Anbar, the province you visited via a pre-dawn landing? Anbar, the province in which you never left the American air base during your entire half-day visit? Anbar, the home of the courageous Sunni sheik who actually fought with Al Qaeda, shook your hand personally no more than 10 days ago, and was converted to pink mist just this week in a terrorist bombing?

Bush and his speechwriters are so clueless, they failed to contemplate an obvious counter message that comes to mind from any reference to a murdered ally in a speech on progress and improved security. It seems likely Al Qaeda's bombing was aimed at telling the entire world they can reach ANYONE with violence, even someone high enough in the emerging Iraqi pecking order to be trusted with a face-to-face meeting the President of the United States.

Bush went on to say the Anbar miracle is spreading across Iraq, including to Baghdad.

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One year ago, much of Baghdad was under siege. Schools were closed, markets were shuttered, and sectarian violence was spiraling out of control. Today, most of Baghdad's neighborhoods are being patrolled by coalition and Iraqi forces who live among the people they protect. Many schools and markets are reopening. Citizens are coming forward with vital intelligence. Sectarian killings are down. And ordinary life is beginning to return.
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This phrasing implies a direct correlation between our presence and the reduction in sectarian violence. This overlooks a more obvious explanation made by CBS reporter Lara Logan, who stated in her September 13 report that we didn't "stop" the sectarian violence with our presence, the killings ended because they achieved their end -- formerly integrated sectors of Baghdad are now distinctly separated into Sunni and Shia camps with no Iraqis brave enough (or stupid enough) to stay in the "enemy" camp and risk execution. That's progress? Progress for the Islamic militants but not for Bush's surge strategy.

The tone of the President's address wasn't calming, confident or convincing. It sounded angry, arrogant and annoyed -- annoyed at reaching a position where he had to explain and justify, regardless of how poorly the attempt, his proposals and decisions. Bush set up the conclusion of his address with what for him is a classic exercise in idiotic circular logic. This logic was first lampooned by media watchers like Mark Crispin Miller, who included this gem in his book The Bush Dyslexicon: Dick Cheney and I do not want this nation to be in a recession. We want anybody who can work to be able to find work. Despite the political weight riding on this address, the best setup to Bush's pitch for spending hundreds of billions more dollars on a lost cause was this:

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Whatever political party you belong to, whatever your position on Iraq, we should be able to agree that America has a vital interest in preventing chaos and providing hope in the Middle East. We should be able to agree that we must defeat al Qaeda, counter Iran, help the Afghan government, work for peace in the Holy Land, and strengthen our military so we can prevail in the struggle against terrorists and extremists.
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WHAT?

We're not debating whether America should act to help preventing chaos and bloodshed anywhere in the world when it lies within our practical power and national interest to do so. No one's arguing about the need to defeat al Qaeda or keep Iran's nut-job leader from obtaining a nuclear weapon. We're listening to see if you can describe how ONE SINGLE immediate tactical strategy you've proposed contributes to any of these goals. YOU DIDN'T. YOU CAN'T.

The conclusion to the address was structured with a reference to a litany of particular audiences he wished to reach with specific messages. Given the importance of the speech to the country, the choice of audiences included is telling:

* Congress - who should reward the profound logic I've just cited with more billions
* the Iraqi people - who simply have to demand their leaders make tough choices to win their freedom
* Iraq's neighbors -- who need to support us in Iraq or else…
* the international community -- who need to support, among other things, the UN I ignored when starting this war
* our military personnel, families and contractors -- who are in large part responsible for the success so far

Notice any group missing?

How about the American public?

The address was obviously aired on network TV to the American public but a read of the actual text shows no actual direct reference to the American public in the address. We, the people, are barely an afterthought to a President who has spent over $500 billion dollars claiming to protect us but has actually harmed our country militarily, politically and financially.

Bush's exclusion of the American public from the conclusion of his address is the truest indicator of his view of his responsibility for the war to date and his obligations going forward. He has no intent to serve as a leader. He isn't running again, he got the votes in 2004, there's no sense of ACTUAL accountability or sense of the need to even CONVEY the ILLUSION of accountability to the American public at large. Even for a war. A disastrous war. He doesn't care. He will continue doing exactly what he wants, the opinions of Congress, the Courts or the American people be damned.

When you ask the wrong questions, you get the wrong answers. For nine months, Congress and the American people have been asking "What will Patraeus say in September?"

WRONG QUESTION.

We should be asking "Who will write the articles of impeachment?"


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#1) http://www.slate.com/id/2173737/pagenum/all/#page_start

#2) http://www.whitehouse.gov/news/releases/2007/09/20070913-2.html

Remember the Constitution?

Delaware Senator and Democratic Presidential Candidate Joe Biden appeared on Meet the Press on September 9, 2007 to weigh in on the upcoming report on the Iraq surge strategy and American options going forward. In one span no more than 2 minutes apart, Biden made two comments that do much to explain the mess in which President Bush and Congress have placed the country. (#1)

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First of all, let’s speak truth to power here. You need 67 votes to cut that off. All 51 votes will do is delay building these vehicles. And, look, Tim, if you tell me I’ve got to take away this protection for these kids in order to win the election, some things aren’t worth it.
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I'm not sure what is more alarming about this statement -- Biden's forgetfullness about the Constitution or his lack of logic. First, by alluding to 67 votes, he is referring to a veto-proof majority in the Senate. He then couples that with the topic of initiating additional spending, forgetting that according to the Constitution (remember the Constitution?), all spending bills originate in the House of Representatives. Do I really need to cite the reference on this? Apparently, I do. (#2) (#3)

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Section. 7. All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.

Section. 8. The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow Money on the credit of the United States; To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water; To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years; To provide and maintain a Navy;
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Biden's comment also defies logic because he's implying you need a veto-proof majority in either house of Congress to NOT do something. This of course implies that ABSENT any action by Congress, the Executive Branch can initiate new spending or continue spending of an existing program (or even a war) across a Congressional term. In a word, NO. I again refer the diligent reader to the above highlighted excerpts from the United States Constitution. Remember the Constitution?

The situation in Iraq is a perfect example of why, as part of the balance of powers, the Founding Fathers put that power squarely in the hands of the House of Representatives, the elected officials theoretically closest to the immediate will of the people by virtue of their two year term.

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I will vote, as long as there’s a single troop in there that we are taking out or maintaining, either way I will vote for the money necessary to protect them, period.
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Biden made this point after patting himself on the back for spending on new up-armored troop carriers with V-shaped bottoms designed to deflect explosive forces away from the troops inside. The new transports are a welcome improvement for the troops but Biden fails to mention why Congress failed to investigate why such an obvious tool took so long to deploy. Biden made a second poorly worded, poorly thought out point about the benefit of the new transports ("lives are increased -- lifespans increase 80 percent if we continue to fund building these vehicles") which epitomized the larger flaw in the logic of "supporting the troops" in a failed war. Biden was attempting to indicate casualties are reduced 80% or so by the new transport vehicles therefore continuing spending would help reduce American casualties.

Increasing the spending on a tool that reduces casualties 80 percent in an attack makes perfect sense when taking the risk of the attack is necessary and produces a material improvement in our tactical and long term military goal. In a conflict consisting of nearly 100 percent asymmetric warfare, neither of these conditions are satisfied. Faced with a choice of providing a tool that reduces casualties 80 percent while continuing the risk of attack versus changing strategy and reducing our exposure to attack, spending more on gear that doesn't improve our position makes no sense. Biden's "protect the troops" justification of continued funding is flawed to its very core and represents a gross perversion of the hierarchy of responsibilities of Congress.

We are facing a situation in which a war was instigated by an Executive branch which provided grossly incorrect and misleading information to Congress to "prove" a security threat that wasn't present. The Executive branch's fixation on the Iraq war and its planning shortchanged resources in the existing war in Afghanistan which yielded a less-than-complete defeat of the Taliban, allowing them to reconstitute their forces and keep us tied down in Afghanistan. The Executive branch chose a strategy for conducting the war that understaffed boots on the ground and over-emphasized outsourced efforts for support work and reconstruction, costing American tax payers TENS OF BILLIONS of dollars, including over EIGHT BILLION IN CASH delivered by the ton into a war zone dominated by terrorists which vanished with zero accountability . The Executive Branch has lied to Congress repeatedly about domestic spying programs.

Most importantly, with all of that history already behind it, the Executive branch and this President completely fabricated the intent of the so-called surge. It was publicly pitched as an effort to create an demonstrable increase in security for a significant period of time to allow a "virtuous circle" to have time to kick in and allow all of the original benefits of Saddam's ouster to take effect. Instead, it is absolutely clear the intent of the surge was to increase troop levels so if Congress and the American people later decided they had enough and demanded a change, thirty thousand or so troops could be withdrawn with much public protest from the President and war supporters to yield...

...the exact same disastrous situation with which we started the year. One involving 130,000 troops stuck in the middle of a civil war between factions living in an environment that is literally TOXIC to democracy and the rule of law.

Of course, the surge failure has produced two key differences. The President who instigated this disaster has been allowed to defer further strategy changes to avoid the enormity of the failure becoming apparent until after he leaves office. The shame of our withdrawal will be left to the next President (likely a Democrat) so the remaining neo-conservative true believers can spend the next fifty years fantasizing about the victory that coulda / shoulda been had not the enemies of freedom not again chickened out at the last minute.

The other key difference between January 2007 and now is of course the thousands of additional dead and wounded (American and Iraqi) who sacrificed everything while politicians (American and Iraqi) continue their charades.

With all those facts in evidence, Joe Biden's "protect the kids" position is no less disingenuous than the trumped up security concerns cited by President Bush to start a war we didn't need in the first place. If Congress cannot grasp the deceit presented to it by the Executive branch and its conduct of this war and put an end to it, they are risking far more lives than the 160,000 troops already trapped in the current quagmire. They are risking countless more in future quagmires launched with equally fraudulent justifications and executed with equally incompetent and corrupt leadership. Without a change, those troops are in harm's way fighting for one man and his pride and arrogance, rather than the Constitution.

Remember the Constitution?

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#1) http://www.msnbc.msn.com/id/20676549/page/4/

#2) http://www.constitution.org/constit_.htm

#3) (WTH: While the Constitution only mentions "raising revenue" and not "spending" or appropriation of that revenue, in practice that is exactly how the House and Senate behave.)

A Failure to Communicate

Michael Gordon, author of the book C.O.B.R.A. II covering the planning and execution of the Iraq War, appeared on Charlie Rose on September 4, 2007 to discuss the current sitation and America's choices. Towards the end of his segment, the issue of communication between Paul Bremer and Bush and his Cabinet was discussed and some amazing information divulged.

The new Bush biography written by Robert Draper mentions the fact that Bush thought he set a policy to retain the Iraqi army to help secure the country and the policy of dismantling was not part of the initial planning. Paul Bremer of course has been providing his view of events and stating he wrote to Bush personally and told him he planned on dismantling the Iraqi army and there should have been no surprise.

Gordon stated that Bremer really doesn't have a leg to stand on.

Gordon has personally seen the documents and summaries of the original war plan supported by commanders in the field, supported by the first appointed interim governor Jay Garner and presented to and agreed to by President Bush which explicitly stated Iraqi army forces were to be used for security in the country.

Uh oh.

Bremer is hanging his hat on the following text in his letter to Bush (#1):

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I will parallel this step with an even more robust measure dissolving Saddam's military and intelligence structures to emphasize that we mean business. We are seeing signs that the outlawed organizations are behind some of the street violence here.
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Gordon points out that the decision to completely dismantle the military itself (not just "intelligence structures" or the "ministry of defense") was actually an "audible" call made by Bremer in those first days of the war when they found vast numbers of the military had gone AWOL and couldn't be found to be reorganized / reconstituted. In essence, after realizing much of the force had vanished anyway, they decided to completely eliminate the entire army as part of their other primary goal of de-Baathification and thereby send a stronger message to Iraqis that all vestiges of Saddam would be eliminated.

Gordon also points out that this decision was made by Bremer and supported by Rumsfeld and others in the strategy department assembled within the Pentagon but was not popular with field commanders and was not shared with Colin Powell, Condoleeza Rice or apparently (as we now know) the President of the United States.

UH OH.

The purposeful lack of communication and intra-squad power struggles within the Bush Administration while attempting to plan and conduct a war simply defy belief. Bremer clearly doesn't have a leg to stand on with his story. However, the President and his Cabinet failed in their role as well. With disastrous consequences for the United States.


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#1) http://www.nytimes.com/ref/washington/04bremer-text1.html

We're Number One?

A report (#1) issued by the International Labor Organization September 4, 2007 found that America had the highest productivity on a per worker basis of any country in the world. As enjoyable as it would be to be able to say "We're #1", does anyone really buy this?

Before analyzing this in detail, a few obvious caveats require explanation. First, the figure cited is measured on a PER WORKER basis so dividing GDP by the number of people in the work force produces a larger number when the denominator doesn't increase to reflect longer work hours. Per the story, Americans average 1804 hours per year (about 45.1 forty-hour weeks) while some European countries clock in around 1400 to 1550 hours. If the figures are calculated on a per hour of work basis, Norway comes out on top in the productivity race.

The other problem with the figures as reported lies in the count of employees. As you might have heard from recent political debates within the country, America has nearly 12 million undocumented immigrants. Those of working age are not people who tend toward the leisured life sipping margaritas by the pool as they check their portfolio. They are roofing homes, cleaning hotel rooms, mowing lawns, etc. In other words, doing REAL WORK that should be counted in GDP. So are they counted in these numbers as part of the workforce? It's hard to tell. The government doesn't know either and makes no real attempt to include or exclude them per the FAQ page issued with their summary statistics. Whether they are or are not, the numbers still don't add up.

For "per worker productivity" to come out at $63,885 per worker in a $11.6 trillion dollar economy for calendar year 2006, the analysis assumed 181.6 million workers.

Hmmmmm. SOMETHING is out of wack. Recent 2007 data from the Bureau of Labor Statistics puts total employment at 146 million (138 million non-farm). (#2 and #3) Even if you add the entire undocumented alien population into the calculation, you still only have 158 million. So is someone "imputing" another 23.6 million workers? Maybe THAT'S why my project is behind -- I forgot to "impute" another 15 members on the team and leave the windows open at night for the "labor fairies" to materialize in the conference room and do the extra work.

Even after ignoring the "hours worked" versus "people worked" question about the denominator, the fact that American workers come out on top in any figuring of productivity seems highly suspect, especially if you've spent time in Corporate America. I posted a rant (#4) a few weeks back entitled "Earn Your BS In Corporate Communications" about the mindless drivel us wage slaves have to listen to all day as we try to "take things to the next level", get "air cover from senior management" and "work the issues" involved with deploying "business critical functions" across the "enterprise." The rant was pure sarcasm (but possibly quite entertaining after a few beers) but the problem of flawed management and poor / dysfunctional communication in business is very real -- and a major productivity killer.

That's probably the biggest flaw in looking at macro numbers like GDP and productivity. Once spending on contractors, consultants and work that was never required in the first place gets counted as someone else's income, it doesn't suddenly become "productive", especially if you own shares in the business that spent the money on the never-ending project. Furthermore, even a cursory analysis of the numbers coming out of government or think tanks about the economy turns up more questions than it answers. With so many people with vested interests to rig the numbers, it seems a strategy based upon macroeconomic factors as reported / massaged by government and corporate entities is bound to be flawed if your horizon is any shorter than five years.

Now excuse me, I have to log in and check my email at work to find out how many more days my project lost today. I was too tied up in meetings all day to keep up with my project slips.

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#1) http://www.rttnews.com/sp/todaystop.asp?item=14

#2) http://www.bls.gov/web/ceshighlights.pdf

#3) http://www.bls.gov/news.release/empsit.nr0.htm

#4) http://watchingtheherd.blogspot.com/2007/02/earn-your-bs-in-corporate-communication.html

Adventures in Stagecraft

Coverage of President Bush's "surprise" visit to Iraq raises a question for nearly every visual talking point intended to come out of the trip.

Where to Land?

Some have theorized that the Bush Administration selected Al-Asad Air Base in the Anbar province over Baghdad as the site for the visit for symbolic reasons, principally that a province where we have focused military stabilization efforts with surge forces has enjoyed a turnaround and is safe enough for even the American President to visit. CBS reported the site may also have been chosen for the public picture of a Shi'ite dominated government being able to communicate with Sunni Iraqis who dominate the region.

In reality, it seems clear that few other sites were remotely suitable, either from a security or public relations standpoint. The southern city of Basra was not a useful PR choice because even though Iraqi forces are officially taking over from the British (that's the goal, right?), they're taking over because the British decided it was time to leave, regardless. Oops, don't want to remind the American public of that. Baghdad itself was not a viable security or PR choice because we have failed to make a material dent in reducing violence there on anything larger than a block by block basis.

In the end, even the sites involved with the President's visit or on-the-street interviews of General Patraeus by Katy Couric were not terribly useful for the Bush Administration's purposes. Bush arrived at an heavily protected air base and never left the base to venture anywhere in the province outside the base. Katy Couric's walking-the-street interview with Patraeus involved a street seemingly deserted bombed out street and a ride in a presumably heavily armored HumVee in which he said the streets are now quite safe. Really? Why the HumVee?

What Surprise?

The American press uniformly described the trip as a top-secret surprise visit, which of course makes perfect sense given that Defense Secretary Robert Gates and Secretary of State Condoleeza Rice also attended. But was it a surprise?

Russ Mitchell and Harry Smith filled in for Katy Couric on the CBS Evening News late last week as she traveled "on assignment" to Iraq to set up coverage for the inevitable focus on the upcoming Patraeus report to Congress. In her Monday report, Katy summarized all of the locations that would be involved with her reporting which included Basra, Fallujah, Baghdad and one or two other major towns, all at opposite ends of the war-torn country. All of this makes perfect sense.

Despite that adventurous travel plan and a Sunday spent almost entirely with General David Patraeus, Katy managed to wind up at precisely the location where President Bush arranged a pep rally in front of troops at Al-Asad Air Base and managed to score a one-on-one interview with Der Decider. I could believe if the President arrived at a major American position within the country and CBS had a stringer reporter or a major "name" reporter like Lara Logan nearby who could then rush in to nab the scoop. However, for the anchor to be in the right place at the right time with the degree of secrecy normally required for an American President to drop into a war zone smacks of stagecraft and a media willing to help set the stage. Bush Administration, meet Katy Couric, your new stenographer. Here's your "scoop." We won't have to wait long to see what was in the scoop.

What's The Mission Again?

The meeting at the Al-Asad Air Base gave the President a chance to give the troops stationed there a pep talk and well-deserved morale boost. But again, let's consider the stagecraft. The video of Bush's talk with the troops depicted him amidst a backdrop of probably 20-30 troops and what sounded like at least 200-300 people in front of him in the facility. As short-staffed as we are across Iraq, I find it puzzling how that large a number of troops, who typically work 12-15 hours probably 6 out of 7 days or 13 out of 14 days, would be all available and on-base to provide scenery for the President's appearance. Obviously, knowing the Commander in Chief was coming would alter daily schedules to increase security but 300 troops cheering the President are 300 troops NOT patrolling the streets of Anbar province and rooting out "evil-doers." What exactly is the mission again?

I Did It All Myself

The September 2007 issue of The Atlantic has two stories that further cement what will surely become the over-arching diagnosis of the psychosis of the Bush Administration and the problems and divisions they created for the country. Reading the stories doesn't produce any sense of surprise, just a disturbing sense of familiarity with both the arrogance and ignorance of key members of the Administration and with the long term damage produced as a result.

The cover story on Karl Rove, The Rove Presidency by Joshua Green, garnered most of the attention, partly because it hit the newsstands the day Rove announced his decision to leave the Administration but also for its synopsis of the complete 180 degree reversal in the legend of Karl Rove in a mere eighteen months. Days after the 2004 elections, a parade of political watchers were virtually proclaiming the beginning of a "pax Republicana", a period of Republican invincibility in government that would yield all of the things Republicans have been promising from government since the Nixon era, despite controlling the White House for twenty four of thirty six years from 1968 and controlling the House and Senate since 1994.

Leading the post-2004 election parade, of course was Karl Rove himself, patting himself on the back for his ingenious approach to elections and government, an approach one could term the 50.0000000001 percent solution. In Rove's warped view of the world, as long as policies and positions could be forged (both in the created or fabricated sense) that could secure 50.0000000001 percent of the vote, any citizens in the other 49.9999999999 percent were immaterial. We won, we're in control, SCREW YOU.

The article describes meetings and public appearances with reporters after the 2004 elections in which Rove not only touted the brilliance of this approach, but also used the election victory as a reminder to political friends and foes alike that the strategy would continue and even friends better play the Rove way or else. It then goes on to describe how Rove focused the political agenda of the entire Administration on policies believed to be crucial to the Republican fanatical faithful but of yawning interest to an electorate increasingly puzzled and annoyed over an Administration making zero progress on terrorism or even delivering water to hurricane ravaged Louisiana and Mississippi.

In a nutshell, the 50.0000000001 percent solution summarizes exactly what is wrong with the Rove strategy for winning friends and influencing people. It involves neither winning friends or influencing people. It amounts to political exclusion of your enemies and political terrorism of your "friends" to keep them in line with the party line dictated by a very isolated and dogmatic few. In essence, the story of Rove is the story of how the Republican Party became a hostage of a single political strategy and a single political mind who thought he could win elections by himself without alternative strategic input and thought he could subsequently fashion policy in the same vacuum chamber of thought.

The second story, Present at the Creation by Matthew Scully, was perhaps even more interesting, in the psychological train wreck sense. Scully was one of three principle speechwriters for Bush and "served" from April 1999 during the early days of the campaign through August 2004. His story reads like a psychotic, delusional version of Forrest Gump, with fellow Bush speechwriter Michael Gerson in the starring role. If you Google "speechwriter Gerson", you come across dozens of stories written in the past seven years which recount the tale of a strong Christian faith and unparalleled command of language and metaphor combining to allow our hero, Michael Gerson, to craft the development of nearly every notable turn of phrase uttered by Bush in his Administration.

Singlehandedly.

There's only one small problem with the stories.

They're not true. Not remotely true.

In a polite tone but in withering detail, Scully describes a variety of famous Bush appearances and speeches, describes the glowing accolades showered upon Gerson by the press, describes how Gerson himself fed the sound bytes to the reporters writing the bon mots, then describes what ACTAULLY happened within the team of Matthew Scully, John McConnell and Michael Gerson to craft those speeches. The essence of Scully's piece boils down to the following paragraph from the story:

Without fear of contradiction -- because it's all in the presidential records -- I can report here that Michael Gerson never wrote a single speech by himself for President Bush. From beginning to end, every notable speech, and a huge proportion of the rest, was written by a team of speechwriters, working in the same office and on the same computer. Few lines of note were written by Mike, and none at all that come to mind from the post-9/11 addresses -- not even "axis of evil."

After reading Scully's piece, one comes to at least one inescapable conclusion --- Michael Gerson has some serious psychological issues. He is not only a compulsive liar but possibly a megalomaniac suffering from delusions of his own genius. One also gets the impression his supposed Christian faith has done little to temper these behaviors, even when they directly or indirectly take credit from those he worked with every day. A real team player. So much for the "shalt not bear false witness" clause of the Ten Commandments.

If this were just one story about one actor in an otherwise average American Administration producing the average set of mistakes and problems, the Scully piece would just be an interesting political read with shades of schadenfreude. In the Administration of George W. Bush, the Gerson fabrications are just one chapter in an entire book where the exact same combination of ignorance, arrogance and religious self-righteousness combined to produce long-lasting damage to the country.

One gets the feeling when all of the major players of the Bush Administration reach the end of their road, they'll all request the same epitaph on their tombstone:

I DID IT ALL MYSELF

The only problem is they did it to us.

The Fed's Psychological Move

After attempting to prop up the US markets on August 9 and 10 of 2007 with an unprecedented $62 billion dollar injection and watching the markets slide for another week, the Fed called another surprise audible at the line of scrimmage on August 17.

Last week, it agreed to materially lower its quality threshold for collateral used to secure overnight borrowing for cash while initiating an unprecedented injection of funds on those looser terms. The move was prompted by major banks all reaching the same conclusion at the same time -- customer demand for cash outstripped their willingness to trust mortgage backed securities as collateral for loans among themselves. In essence, they all simultaneously realized they were holding the same empty bag -- or at least a bag filled with question marks.

Despite the $62 billion dollars injected August 9 and 10, banks and investors gained little confidence and stocks declined for four straight days despite additional injections from the Fed. On August 17, the Fed intervened again by lowering the rate it charges for "discount window" loans AND extending terms from overnight to thirty days. Manipulation of the discount rate is nothing new. Converting discount window terms from overnight to thirty days is another matter entirely. The extension of terms for discount window borrowing in the current climate is the financial equivalent of sending a teenager cross-country in a Camaro with a case of beer and a cell phone after they already crashed the family sedan pulling out of the driveway. The financial markets have already demonstrated

1) they cannot be trusted to enforce adequate credit standards at the retail level
2) they cannot be trusted to properly evaluate the risks of securities sold to one another
3) they cannot be trusted to cut their losses early instead of doubling down in search of a greater fool

With these facts already in evidence, the Fed's move reinvented fundamental mechanics of its "lender of last resort" function by creating MORE of the arbitrage opportunities that have already destabilized the entire banking system.

The only FOR argument for the Fed's action is that extending the terms gives the market additional time to reach some conclusions about the true value of the bundles of mortgage backed securities and let those adjustments trickle through the system in an orderly frenzy rather than an outright panic. The arguments AGAINST this move have already been itemized above. Banks have already demonstrated they cannot properly judge the risks associated with complex bundles of loan securities of unknown, mysterious provenance. Banks have already lost tens of billions of dollars attempting to operate hedge funds specializing in these high-risk segments of the market.

The players are all the same. The incentives are all the same. The stakes are getting bigger. The Fed continues to instill false confidence in a financial safety net big enough to catch every bank falling off the high wire at the same time. Are we really expecting a better result this time?

Virtually all of the talking head market watchers asked to comment on the August 17 intervention described it as a "mostly psychological" move by the Fed. For once, they're right. This is absolute INSANITY.

Financial Markets Running On Empty

Glen Hubbard, former Chair of the Council of Economic Advisors, and Laurence Meyer, former Federal Reserve Bank Governor and current principal of noted economic consulting firm Macroeconomic Advisors, both appeared on a segment of The NewsHour on PBS on August 10, 2007. They addressed questions about the past two weeks of wildly fluctuation stock prices and the financial linkages between the hedge fund world, the sub-prime lending sector, the general banking industry and the overall economy.

Hubbard and Meyer are two of the highest profile "professional" experts on the economy and the financial sector. So how did the "pros" do at explaining the crunch? Not well. Their explanations both framed the wild fluctuations as a perfectly logical result from a sudden shift in the "risk spread" between the cost of "safe" money versus the cost of achieving higher returns as markets realized the risks taken to earn those higher returns were in fact much larger than previously understood.

Oh. Of course! Makes perfect sense. A little temporary confusion over the amount of risk I took on getting that 7% return instead of the safer 5% return. The Fed steps in, puts a little cash into the pockets of the big banks to calm the fears of the little guys driving the banks' temporary need for additional cash and presto! Everything will be smoothed out in a few days. Nothing to see here, move along…

Both Hubbard and Meyer indirectly commented on the staggering $38 billion dollars injected by the Fed during the August 10 trading day to calm the market but glossed over details about the very short term benefit of the intervention, the sheer size of the intervention and the quality of the assets swapped to free up the cash. For that, the mechanisms have to be looked at from other angles.


An Amateur Explains Borrowing from the Federal Reserve

How does the Fed actually "inject" the cash? Member banks needing extra cash to meet reserve rules or pay out cash for withdrawals can borrow money from the Fed at the Federal Funds rate, currently targeted at about 5.25%. Borrowing banks typically provide collateral for these loans in the form of Treasury Bills, which don't eat into the borrowing bank's cash reserve but are almost as "liquid" as cash in terms of their safety. These loans are typically termed repurchase or "repo" loans and typically have very short terms -- usually two weeks.

If the Fed decides the market for this money only requires X billion to be made available, that's all they loan out. If member banks become more nervous about cash needs and want to borrow more, they can borrow from each other or any other source but, like any other market, if demand exceeds supply, the price (the interest rate) goes up. The Fed "injects" additional cash by deciding to loan out more of its cash. As the supply gets closer to demand, the "price" of the money falls, reducing the interest rate.

If the Fed wants to reduce cash on hand in member banks to shrink the money supply, it can reverse the direction of a "repo" and act as the net borrower of the cash rather than the source. This bids up the interest rate but attracts cash in from member banks, thus reducing the money supply. Since the market for these short term funds varies daily and terms usually extend 14 days, at any given time, the Fed's books will show outstanding "repos" and "reverse repos".

In a balanced market where the Fed and all of its member banks agree upon the degree of risk in the world and their short term needs for cash, the rate on inter-bank loans matches the rate target publicly advertised by the Fed. Before the opening of trading on August 10, the rate on inter-bank loans between member banks had reached 6.0% in contrast to the 5.25% target rate of the Fed. In short, the member banks had become extremely nervous about demands for cash and the price of borrowing to get that cash was spiking up.


Do You Smell Smoke?

If the Fed loans money every day to member banks, what's the big deal about the $38 billion lent on August 10? The best way to answer that question is to pose another one: Did August 10, 2007 feel like September 11, 2001?

The first bit of perspective comes from examining normal values of outstanding repo and reverse repo agreements on the Fed's books. Each Thursday, the Fed publishes a summary reflecting the averages of that week's daily figures:

Report Date    Repos    Reverse Repos
August 9       $18.6B      $31.6B
August 2       $25.8B      $33.3B
July 26        $18.9B      $31.5B
July 19        $22.5B      $31.6B

http://www.federalreserve.gov/releases/h41/20070809/
http://www.federalreserve.gov/releases/h41/20070802/
http://www.federalreserve.gov/releases/h41/20070726/
http://www.federalreserve.gov/releases/h41/20070719/

As an example for clarity, the $18.6 billion shown for the report issued August 9 means that over the seven day period from August 3 to August 9, the value of outstanding repurchase agreements averaged $18.6 billion each day.

The $38 billion dollars of repo agreements issued August 10 represented a huge spike in "smoothing" from the norm. The $38 billion total is certainly an attention getter but were the events of August 10 nearly equal to the threats to market stability after September 11? Keep reading…

In the week after September 11, 2001, the markets faced all of the following unprecedented risks:

* stale, uncertain pricing for stocks and bonds from days of halted trading
* major social and political uncertainty after a critical financial and military attack
* major damage to the physical and electronic trading engines used in the markets
* billions in risk from uncertain claim amounts on major insurance carriers

To address the post September 11 crisis, the Federal Reserve used the repo mechanism to inject huge amounts of cash, including one infusion totaling $50.4 billion on September 19, the third trading day after markets re-opened. (#3) By September 20, total outstanding repos were valued at $75.3 billion. (#4)

The sequence and timing of the injections on August 10 are noteworthy as well. One day prior, the Fed injected $24 billion dollars yet the market plunged 387 points. (#5) Prior to the markets opening on August 10, an additional $19 billion was injected, yet the Dow dropped another 93 points immediately after opening. The Fed then had to publicly state to the market it would intervene throughout the day as necessary and, sure enough, it felt the need. The Dow dropped a net of 212 points before recovering to close only 31 points down.

A second key concern about the market picture is that central bank intervention was not limited to the United States. The European Central Bank announced its own weekend injection plan to the tune of $83.6 billion (US) beginning August 10 following a $130.6 injection completed on August 9. (#6) The Bank of Japan performed an equivalent operation worth approximately $8.4 billion (US) as its stock market plunged on fears over US mortgage problems. (#7). The need for simultaneous emergency interventions across multiple continents means the theories underlying a huge variety of derivative investments used to hedge against currency fluctuations and regional economic problems may all be at risk. Leveraged bets on those derivative instruments has wound up coupling the performance of investments thought to be independent or inversely correlated with one another, completely defeating the purpose of many of these investments.

Perhaps most disconcerting about the one-day $38 billion dollar injection is a change in practice announced by the Fed with the intervention. Each weekly report on the Fed's positions includes a footnote to the repurchase figures which states (emphasis added)

4 Cash value of agreements, which are collateralized by U.S. Treasury and federal agency securities.


In English, this means the Fed provides these repurchase arrangements and frees up cash for use by borrowing banks in exchange for very low-risk, "near-cash" securities. As very short term instruments, this improves liquidity throughout the system by narrowing the risk spread between the two classes of assets being swapped (cash to the banks, near-cash securities to the Fed) as much as possible.

In announcing its operations on August 10, the Fed actually stated it would accept mortgage backed securities (MBSs) as collateral. Of course, mortgage backed securities are the very instruments which have changed hands from sub-prime retail lenders to MBS intermediaries and now to top-line banks who have been purchasing the higher interest debt hoping to collect interest payments to help them pay higher competitive rates to their own retail money market customers.

Just stop and think about that for a moment. Some of the most risky debt floating around the financial industry that is CAUSING the financial instability is now being accepted by the Federal Reserve central bank as collateral for daily "liquidity lending" at the core of our banking system. This makes about as much sense as regular banks lending additional cash to pay-day loan stores experiencing a spike in demand for emergency cash and accepting held pay stubs from their end customers as collateral even though half of the pay stubs are from companies already on the brink of bankruptcy. The need by member banks to offer mortgage backed securities as some of their collateral on daily inter-bank borrowing means even top-line banks have virtually NOTHING left in the tank as a cushion to protect them from any surprises in their loan portfolios or the investments they've made trying to collect higher returns to turn around and offer higher returns to compete in a bubble financial climate.

Were the financial risks averted on August 10 nearly as dangerous as those in the days after September 11, 2001? The Fed certainly seemed to think so. In the absence of any other social, political or military input to cause a panic, the Fed's decision to intervene on a scale not seen since that obviously crucial period should make every American ponder how our economy is being operated and for whom. None of us have seen this exact movie before. It's still being filmed on the lot. However, I'm guessing the screenplay doesn't end with the words "soft landing."

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#1) http://www.ft.com/cms/s/0b908a2a-4767-11dc-9096-0000779fd2ac.html

#2) http://findarticles.com/p/articles/mi_qa3678/is_200201/ai_n9039172

#3) http://www.cnbc.com/id/20211772

#4) http://www.federalreserve.gov/releases/h41/20010920/

#5) http://www.bloomberg.com/apps/news?pid=20601103&sid=aKF5hoe_fU2Y&refer=news

#6) http://money.cnn.com/2007/08/10/news/international/bc.centralbanks.reut/

#7) http://www.komotv.com/news/business/9086551.html

Operation Squirm

After watching the American public sit in stunned or ignorant silence through a six year assault on American's worldwide reputation, our budget and our Constitution, it is frightfully apparent we cannot tolerate another major election driven by the traditional political parties and media outlets. The Legislative branch is abandoning its obligation to oversee the Executive branch's enforcement of the law in exchange for not being subjected to proper law enforcement of its own activities. The Executive branch has repeatedly provided false information about proposed legislation involving issues ranging from half-trillion dollar ten-year prescription drug coverage plans to domestic spying programs which violated existing laws. The Judicial branch has contributed to an undermining of basic property rights with rulings on eminent domain abuses aiding big business at the expense of individual Americans.

Americans have been notoriously short sighted for decades when faced with issues involving complicated multi-year tax or spending plans or issues combining domestic policy and international politics. The behavior of the major media outlets on both broadcast and cable TV all but disqualifies them from being trusted to educate the American public about the choices we face or to ask the right questions on our behalf of our elected officials and follow up on their answers.

It is up to We The People to use the tools at our disposal to reorient the political process to suit our purposes.

Maybe one way of doing that is to collectively assemble a list of questions sharpened to a razor's edge that accurately, concisely and inescapably frame the failure of our leaders to do the right thing and serve their own interests rather than those of We the People. Armed with that list of questions, every voter of every affiliation needs to hammer candidates mercilessly at every baby-kissing shopping mall appearance, Rotary Club meeting, Chamber of Commerce convention and every national or local debate with these questions.

The goal is to frame these questions to be so "non-partisan" and so well-crafted so that A) the American public can instantly "get it" and understand the absurdity of the situation our government has created on the issue and B) the politician answering the question has no where to hide when a simple, coherent answer cannot be provided.

Think of it as "Operation Squirm".

The real goal is to metaphorically blow the blow-dried, talking points tested candidates off the national stage and identify the REAL candidates of either party that have a grasp of basic finance and basic government and can articulate a coherent plan for the country that has more than one degree of synergy with other polices.

I'll toss out some questions to get the process started.

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WHO IS OUR ENEMY? -- Can you explain why the American government:

1) spent $400 billion on the war in Iraq to topple a dictator dependent on a Sunni minority?
2) provided billions to a new interim government led by Shia Muslims allied with our enemy Iran?
3) is now soliciting help from Iraqi Sunnis who have supported our enemy Al Qaeda while we aided Shia groups?
4) is now selling $20 billion of weapons to Saudi Arabia, which provides 55 percent of the foreign fighters in Iraq shooting at our troops?

Shia and Sunni sects haven't "changed sides" in roughly 1400 years. Why are we formulating policies based upon them switching sides every year?

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TAX OR BORROW? --- Explain to the American public your criteria for deciding between current taxes and borrowing to pay for a program. Do you roll your monthly electric bill into your home's 30 year mortgage? (Then why would you saddle a taxpayer who hasn't been born yet with the cost of a program providing short term benefits to a current citizen by borrowing money to pay for it?) Do you solicit your neighbors to pay part of your mortgage even through you're the only one living in your house? (Then why are federal dollars being used for local-interest projects such as tractor museums, etc.?)

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CORPORATE VERSUS INDIVIDUAL BANKRUPTCY -- If you believe the changes to personal bankruptcy laws enacted in October 2005 were too onerous in some areas, describe how you would alter those rules without allowing out-of-control credit card users to saddle other Americans with their bad debt. If you believe the changes were appropriate, explain why a clampdown on personal bankruptcy is justified while laws governing corporate bankruptcy encourage a similar cavalier approach to pension obligations and union contracts that stick American taxpayers with the costs of underfunded pension plans via the PBGC while executives of those firms receive outsized pay for helping stick those costs to taxpayers.

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Any other suggestions?