Polyanna meets Frank Merriwell

We all know of Pollyanna the incurable optimist but, Frank Merriwell? For you younger folks, he was a mythical Yale undergraduate scholar athlete who survived repeated kidnapping by gamblers, hurricanes, car wrecks etc. to arrive at the stadium just in time to rescue the weary Eli 11 or 9 from defeat at the hands of Harvard. He would save the day with a line drive double with 2 men on base or a 40 yard touchdown pass...always with the clock running out. Of course he existed only in books and very briefly in a radio serial. That's a shame because we would benefit from a real life action hero on the national scene. And we would all benefit from a little more rationality less rationalization and certainly less unfounded optimism



In the past year, we have been exposed to Pollyanna-ish statements on a number of fronts-- political, diplomatic and the economic downturn. Among the examples that come tripping off the tongue;

• After reflection - some would say dithering- we committed an additional 30,000 troops for Afghanistan but not to worry, we will begin to pull them out after 18 months... something for everybody in that pronouncement!




• It was naive to say as Obama did that there is no trade off between our ideals and our safety...Guantanamo remains open and nearly all the prisoners there in January 2009 are still there, we still do renditions and play whack a mole with civilian casualties. Given 90 Yemeni still in Guantanamo I suspect he now would acknowledge there will sometimes be choices required.
  



• The administration forecast 3 million jobs saved or created, unemployment limited to 8%, budgets balanced within a few years, a green economy saving our economic bacon early on...more likely 0.6million to 1.5million jobs, five years to return to full employment and a very modest role for a green economy component in our GNP at least near and mid term. As for a balanced budget - without tax increases that impact more than just the rich - good luck!
  



• As for his promised bipartisanship, to date Obama is no better than his predecessors . His partisanship is amplified because of his thin skinned reaction to criticism has become predictable, e.g. the treatment of Fox news [and I am no fan of Fox], or proclaiming not to mind "cleaning up the mess that others left him" while reacting to "being criticised for how he wields the mop.
  

I accept we have a charismatic president who is intelligent, articulate and has the voice of an angel. Unfortunately, his management style is, to put it kindly, hands off. He doesn't get involved. Does anyone know even now, what Obama really wants in a health care bill, in a cap and trade bill or for that matter in a revised regulatory scheme for financial services? There has been entirely too much delegation without direction to congress with effect that the house health care effort drifted left [It insures another ~ 30million but does little if any thing for cost control and tort reform], the cap and trade bill gives away 85% of the permits that were to be sold [and intended incidentally to finance health insurance reform]. When public opinion is aroused due to the proclivity in DC for talk rather than action, we see Obama reappear. With the clock running out we are treated to major speeches complete with teleprompter. Unfortunately, speeches are not the presidential actions that major issues require and pale by comparison to Frank's heroics on the playing field.

President Obama is having a very difficult time moving from the campaign mode of promising good things to nearly everyone to the presidential mode of managing which requires timely analysis, doesn't permit waiting for all the facts to be known, necessitates giving clear direction, making tough decisions and most all requires real leadership not just cerebral thinking. Put another way he succeeded in the popularity contest but is struggling in the real world...to quote Sarkosy "is he weak?"

Obama promised the impossible with no one except the very rich paying increased taxes. Clearly, it wasn't and isn't doable but a lot of people believed him. Measured against those expectations, Obama first year has been marginally successful; hardly the B+ he gave himself. Versus more reasonable expectations, school is still out for another few months but it isn't looking all that promising for high grades.

A major task of leadership is managing people's expectations including your own. And yes, demonstrate true grit.

Spitballs II

Noble Gesture... I remember reading suggestions over the years of an anti-American bias in the Nobel literature awards. Today, however, I see irony at work in the committee's award for economics and to put the best possible spin on it - hope in the peace award.

This was hardly a propitious time to recognize the American author of the efficient markets hypothesis, no matter what you think of the theory! [Oh well, I miscalled that one]

Awarding the peace prize to Obama is in a way ironic also. His speeches are wonderful, his goals noble but his accomplishments are hopefully to come. Perhaps, this is merely the Nobel committee's not too subtle celebration of no more Bush? In any event they haven't done Obama or America any favors.


Whack-A-Mole According to some American politicians, the Taliban may not be such bad guys after all - at least in comparison to Al Qaida. According to these experts, we should concentrate on adopting a counter terrorism strategy... zapping Al Qaida from afar with drones and up close with special forces. This is in lieu of a counterinsurgency strategy which would include anti Taliban operations. Presumably we [rather the Afghans] should learn to live with the Taliban [irrespective of their treatment of the 50% + females in the population]. Foolish me, I thought the Taliban was directing attacks including suicide bombings on the government, foreign troops as well as diplomatic missions? This sounds strangely reminiscent of the late 1990's and the then new game of whack-a-mole. Look where that got us!

Maybe, the US congress can reauthorize assassinations as part of this alternate strategy. What will Nancy have to say about that? I wonder if she will even remember being briefed on the matter?


New Boy on the Block Once upon a time, a colleague and I were meeting with our new boss. The only memorable moment was when the new boss said he didn't wish to be treated like the new boy on the block. To which my colleague replied he won't be unless he acted like one.

China has arrived on the scene in a big way. Soon to be the world's second largest economy; no doubt in a few decades it will be the largest. Time will tell how they will get treated; they get good marks [now] on their behavior with North Korea, they are unhelpful on Iran and Afghanistan; they were a player in the stimulus game and talk a good speech on climate change. Their behavior in Africa, their military buildup and the history in dealing with neighbors isn't reassuring either. The Chinese are aggressive; if you have doubts ask the Indians, Tibetans, the Vietnamese, Malays, the Mongolians and the Uighur. School is out on China.



Oxymoron Congress and/or the Administration will find cost reductions in a new health insurance program; they may find costs to avoid in the future [i.e avoiding projected cost increases] but since when is cost avoidance the same as cost reduction?

Obama asking his cabinet to find$100 million in cost reductions in a $3 trillion budget is a typical oxymoron.

Establishing an organization with 32 czars is another; if they have any authority don't they need to be vetted by the senate, if they are staff positions [responsibilities but no real authority] 1] why bother? 2] how unwieldy? Reminds me of the old corporate joke about visitors from HQ..." Hi, I am from the head office and I am here to help!" This is a classic oxymoron.

Give the Devils Their Due

The US gets the credit for the downturn..."this is a blond blue eyed recession", "the financial crisis was a US creation"... we can easily find many such quotes in international journals over the past 12 to 18 months. Yet:

• Deutche Bank's debt was 80% of German GDP and Barclay's exceeded Great Britain's GDP;
• ~$300 million of AIG alphabets [CDO, CDSS] were for European banks to game their regulators capital requirements;
• The housing market bubble was far frothier in Ireland, Spain and Great Britain;
• Hedge funds and private equity are under attack in Germany and France- their sin outside of short sales appears to be their very existence and
• The IMF estimates US banks are more than half way the write down/off restructuring process while Continental banks have barely scratched the surface.

My conclusion is: greed, self interest and incompetence know no boundaries. But to give credit where credit is due, the US should get a large share. The credit belongs to more than just creative and greedy bankers...it belongs to individuals pursuing credit they couldn't possibly repay. It belongs to an incompetence congress which in concert with poor managers bastardized the GSOs in pursuit of increasing home ownership.

Its all too easy to forget the current financial crisis had its origin in the housing market excesses including sub prime lending, people buying what they couldn't afford without serial annual compensation increases that could only be figments of vivid imaginations as well as investors chasing flips with far too much borrowed money. Bankers, loan brokers et al focusing on getting a bigger piece of the ever increasing housing market bubble deserve even more of the credit than do naive and or greedy buyers. Let us not forget Fannie and Freddie, their devoted regulator and the Congress who nurtured these "government sponsored enterprises" that were for profit while tax payer supported to chase the "widespread political lust in the US for subsidized housing".

These GSOs have chalked up enormous losses. As Wall St ate into their traditional mortgage securitization business, both bought debt securities of over $1.5 trillion of which nearly $250 million are toxic. In the meantime the agencies guaranteed almost $5 trillion of mortgages with growing delinquency rates presumably mirroring unemployment rates. One wonders if the taxpayer will ever get their money back from this fiasco.

Spitballs for the Board

It's time for a different topic: health care reform will rise or fall on Obama's political and management skills during next few months. As one of my sons suggested and Obama appears to have heard this since he has essentially said this is how it is going to get done [with some large aspects still unanswered]. We must wait and see if he can walk the walk as well as he can talk the talk. I hope he can.



When I was a young aspiring middle manager in finance, I reported to a senior executive who used to ask me for "spitballs for the board"...essemtially succinct statements about the state of the various businesses which he could use at the BOD meetings. It was to be the businessmen's one liner in response to " so, Ed what's new? ". The expression has stuck with me for nearly 40 years. So, lets look at some spitballs on various timely topics as a bridge to Dad's blog next topic.



The US is one of only four large OECD countries that brings under its tax umbrella [so called worldwide system] citizens and firms living and operating abroad. This year Britian and Japan have joined everyone else with a territorial system.. Are we our own worst enemy?

$300billion plus of the AIG alphahets [CDO, CDCCs] recently bailed out by US tax payers were for European banks, the US legal entities of foreign banks were helped by the US stimulus. Yet, Germany and France in particular play beggar thy neighbor with their stimulus plans. Did you know that youghurt making is a strategic industry in France? No foreigners may pursue acquiring Danone.

Germany and China made things and US consumers bought them on credit...is this over?

"The financial crises was a US creation" yet, Deutche Bank's debt is equal to 80% of Germany's GDP and Barclay Bank debt exceeds Great Britain's GDP.

Hedge funds and private equity are in athema in France and Germany yet bear little [if any] responsibility for the crises. Is the "European" approach to global financial regulation based more on a "not invented here" "not understood here" attitude than saving the planet?

Should we have a Tobin tax? Should we have "salary caps" on bankers or limits on bonuses including extended time frames for equity vesting and clawbacks?

Intergalactic financial regulations are being called for; are they desirable, are they needed...why should the US and UK have the same regulations as France and Germany ? The economies are quite different as are their political and social frame works.

How can the US expect cooperation from the rest of the world on "free trade" when the President puts a 35% tarriff on tire imports from China that wasnt even supported by the US tire industry? It was however greeted enthusiastically by the steelworkers union who are involved in tire making. Hmmm! And don't foget the buy America provisions in other legislation.

China is poised to take a leading voice in the UN's climate change discussions. Regardless of the practicality or reality of China's emissions proposals, is this a preface to China's taking a leadership position on other matters that suit its purpose? e.g. replacing the $ as the reserve currency

Banking used to be a boring business and none was too big to fail; investment banking was done through partnerships. Should they be again?

Management 101

The health insurance [ne health care] reform debate is fast becoming farcical. There may be public support for reform but the lack of specifics in what the administration is really targeting is a problem; who pays for it and how it is paid for is another. The Democrats initially focused on covering the 40million plus uninsured rather than how the new plans may be better for the 200million plus Americans on existing plans. The CBO cost estimates have fed public skepticism given the economy, banking and auto industry bailouts, the costly fiscal stimulus and growing federal debt.

Leaving the bill writing to congress [presumably to avoid a repetition of the Clinton administration's health care misadventure] has illuminated the acute divisions within the Democratic party, the negligible GOP support and amplified the criticism of the CBO. The lack of support from other parties including the Mayo Clinic and AARP have created real issues to be dealt with. These issues when combined with the creative and repetitive distortions by conservative activists are creating a potential fiasco. The crowning achievement was making a heroine of Sarah Palin by withdrawing "end of life counseling" as a response to her 'Death Panels" comment. How brave our legislators are! These issues are further exacerbated by the poor responses from key Democrats a la Pelosi's "villainous" insurance companies and describing rowdy town meetings as "unAmerican", Rockefellers calling the insurance companies "rapacious". How did we get here?



Obama's essentially hands off management of the reform process has resulted in congress owning health care reform; unfortunately congress is held in low esteem by the American public. Surely the White House [WH] knows the liberal, generous bent of this House? The WH should not be surprised at the dog's breakfast being served up by the House nor the predictable objections of the Blue Dogs once the CBO weighed in? Could any thinking person have expected Pelosi to acted differently? She is after all considered an extremely tribal politician even by Democrats. So, now we await the proposal of Max Baucus' senate committee which will at least will contain a modicum of bi-partisan cooperation.

The poor execution is exceeded only by the poor management up front has gotten the administration and the Democrats where they are today. Since health reform is Obama's signature issue , he needs to be seen taking charge and he may finally be doing that. When he speaks to Americans about health care, it shouldn't sound like policy gobbledygook; forget the 45 minutes of lofty rhetoric in front of teleprompter. Keep it simple; "see John run " speak to both pros and cons, forget the techno babble that so enthralls congress. if you want health care reform Mr. President tell us what it is specifically and sell it. Tell us:

• how will the new plan help the 200 million plus who have insurance be better off , can thy keep their existing plan if they wish??
• can't existing group/employer policies be made "portable"?
• who pays for the new program... surely we are running out of "other people's money"?
• how is a public plan to keep insurance companies honest if the government has already done a cost reduction deal with the big players?
• how do we expect private plans with their need to pay taxes and generate a profit to co-exist with a public plan that will essentially be tax and profit exempt?
• aren't there any cost reductions besides "streamlining" and paperwork reduction? Unfortunately the prose here sounds like...well, we will try harder. This from the government and the congress that gave us $16000 screwdrivers and $32000 toilets.
• what about tort reform or otherwise moderating malpractice insurance?
• what about eliminating the geographic health insurance oligopolies in much of the country?

The president is far more credible than congress. He wants reform; he needs to put his reputation on the line. He needs to tell us what he will support, what he wants. That's management 101.

Health insurance and sausage making

It was Bismark who said there were two things we didn't want to see being made; sausage and laws. This summer we are really lucky- we can watch the manufacturing process in living color for both simultaneously! At summers' end, the challenge will no doubt be to make the distinction in the finished products. For without real leadership, the best we may get is a health care plan that passes for sausage.


It began with health care reform initially focusing on the uninsured and medical cost reduction. Then the plot sickened with CBO estimates in the trillions, concern for cut backs in Medicare/Medicaid, tax increases and fears about a public option. It didn't help that the Mayo Clinic has panned the pending house bill. The areas for decreasing costs in our lifetime appeared limited to less paper work via computerization of records, and amorphous administrative savings. Not much about tort reform, or otherwise moderating malpractice insurance. Not much about breaking the geographic health insurance oligopolies in much of the country. Nothing about equalizing the tax treatment for employer provided and individually owned health insurance plans. Little about making costs transparent. In hindsight, we shouldn't be surprised at the lack of specific cost control substance coming from this congress; look at the battle over 7 F22s', Nancy's airplane upgrade. You really cannot expect the foxes to mind the chicken coop - can you?


With the growing public unease about costs, the public option, and the lack of definition on the likely program, our politicians took the low road; health care reform morphed into health insurance reform and finally as an attack on insurance companies. We are now treated to senior congressional leaders going on about "rapacious", "villainous" insurance companies. Of course we do have the equally inane coming from the other side including ignorant comments about "death panels".

So what's next? Nancy Air will fly our august representatives home for the August recess. Some how the senators will get home also ... again at our expense . The WH will go on the town meeting tour to try and gain public support for reform. There is public support for reform; the problem is the lack of specifics; not very many people are against apple pie and motherhood. People want to know how a new plan will help them; can they keep their existing plan? What is the public plan? How does all this get paid for? Who is going to pay for the plan? Is there any "other peoples' money left? Fair questions that deserve direct answers...not the DC shuffle.

When congress returns, the various sub committees will no doubt finish their versions and begin a reconciliation of the different versions into one for the House and another from the Senate and eventually into one proposed law. The downside of leaving essentially everything to congress is we will wind up with sausage.

True Grit

My younger son asked why I wasn't more positive about Obama's performance. Although I was not caught up in Obamamania last fall, the platform of change, progress did create some expectations in many people including me . My concerns were and are entered on management experience, skills and whether he was tough enough [ I called it cajones]. In deference to John Wayne, I will start calling it "true grit".

The climate change bill passed by the house, all ~1300 pages of it, gives away 85% of the permits to emit CO2. The Dept of Agriculture gets to monitor the "offsets" that farmers can sell...why not the EPA since this is a climate change bill? Obama extolled the "millions of green jobs" to be created and the reduction in "dangerous dependence on foreign energy". Not a word about the jobs that will be destroyed by a "low carbon economy" not a word about the fact that the proceeds from auctioning permits was to go to help finance the new health care plans. Not a word about the impact on GDP growth. Why doesn't the great communicator tells us the facts; moving to a low carbon economy will cost the US citizen money [much more than $175 per person, the CBO estimated for 2020 well before the bill really kicks in]. Is he being selective with the facts? I trust he is bullying the senate to correct some of the nonense we are seeing in the house bill .

It's difficult to reconcile this energy bill with what we heard earlier from the WH; its difficult to reconcile the present lack of candor with all the promises we heard about fulsome communications. Most importantly, it's difficult to understand how the house got where it did given Obama's earlier statements...so much for presidential direction influencing legislation. I do hope Obama does something to demonstrate that this not going to be the "most congress centric administration" in decades. Particularly with a congress of this ilk. I do hope he does something, almost anything, to help me believe he just might possibly have true grit.

After ~ 200 days, school is out, Mr President.

Relative to what?

VP says we misread the economy...not so says Obama, we didnt have the complete information!!!! [Krugman at least had the courage to say he didnt forsee it would be this bad.] Obama will never have the "complete information" on an estimate until it becomes reality/history. The One is too clever by half... can't get right if I dont have complete info and hey I just set prioities, goals and objectives, congress and the cabinet must fill in the blanks. Making decisions with out all the facts is a fact of life in many adult endeavors. Some call it judgment....others might call it management 101.

Or is it a case of being thin-skinned; do not like being criticized, second guessed, what ever. Either way, welcome to the real world, Mr President

Within 24 hours of a Quinnipac poll citing lower approval levels in Ohio re handling of the economy , WH announces a "tour" of rural towns in former swing states. Why not urban tours in bigger cities and surroundings where 75% of the economy is generated? By all means include NY, SF, LA to ensure some friendly faces are visible. The only thing new is the siren's voice; the rest is the same old, same old...


When faced with trillion $ costs for the health care initiatives, what does DC do? First off, we begin to massage the health care cost curve A.K.A play with the numbers,modify the assumptions. Next maybe we will change actuarial longevity best guesses on how long we will live and, behold...now we will "tax the rich" to take care of the left outs. We will have to do that anyway in an attempt to righten the good ship deficit at some point so why not do it now. Never waste a good crisis!! Eventually to paraphrase Thatcher there will be no one else left to tax some more. And then when it's time to tackle the deficit, the Democrats will have to define rich as anyone with more than $25,000 in the bank and today's California as a model for us all to emulate ,ohee, ohee.