Tuesday, September 30, 2008

the Bailout Congress Forgot

The shameful failure of Congress to pass the bailout hurts an awful lot of Americans, not just wealthy bankers.

Have a retirement account? Own a home? Need a business loan? Whether or not you made any mistakes at all this year, you're getting pummeled by a fractured market and a government that is failing to help.

No one needs a handout - not even failing banks - but we do need restoration of confidence. It needs to be prompt, clear, and sufficient.

Remember the Mexican bailout under the Clinton administration? Maybe not, since it turned out so well. When Mexico was facing financial ruin in a deepening spiral, the Treasury stepped up to offer $40 billion in credit. The amount was considered huge, but that was intentional: it was meant to reassure the markets that more than enough was being done.

It worked. Creditors relaxed, and Mexico was able to get more loans from other sources. It needed little of the money offered by the Treasury and paid back all that it took.

But Congress voted against it, days after promising support. Dissenting Republicans said we couldn't spend our money helping an irresponsible nation, and they yanked their votes.

At that time, the Treasury exercised a little-known option to bypass Congress, and all went well. But Congress later passed a law to close that approach, so now we need their support.

And they've failed to give it.

This isn't about 'principle' or 'voting your conscience,' as  Rep. Jay Inslee (D-WA) claims. How did that kind of reasoning work in the 2000 election?

Whether or not you think we need protection for homeowners and tighter regulation of credit default swaps (as both Inslee and I do),  we need swift action, even if the bailout package is imperfect.

The longer we delay, the more it costs us. Look at the effects of  allowing Lehman to fail, which then hurt AIG, which then weakened Merrill Lynch, which led to a run on Washington Mutual, which increased worry about Wachovia.

Compare that to the swift and comprehensive protection during the Mexican bailout. By acting decisively, the crisis passed quickly and at less cost.

I know that some people feel banks deserve to fail - see my 'moral hazard' blog from last week, and several of the comments after the Inslee link above (and this  thoughtful response from blogger Ken Smith) -  but this is a market crisis that affects all of us.

I'm not out to punish any bank, or hedge fund, or C.E.O.  I don't care about them. I do care about my family, and my friends, and my neighbor, and the rest of Americans hurt by the crisis.

And we deserve a Congress that does, too.

Friday, September 26, 2008

the Hidden Vaccine Debate

If you're a parent of small children, you've heard the usual vaccine debate: one side claims vaccines have suspicious links to autism, while the other claims vaccines are safe. I've never met anyone in the middle.

But the middle is home of the real debate, one hidden from the current yelling about autism. The real question is, 'How much do parents know about the ingredients and effects of vaccines used for their children?'

The answer is: not much. We deserve a debate that asks whether we're adequately weighing risk vs reward, regardless of whether or not a given vaccine contains mercury.

Few childhood vaccines now contain mercury (a very few do, including flu shots), but they do contain other ingredients worth asking about.

The recommended course of childhood vaccines often include about 1875 micrograms of aluminum, for example - astounding in light of the the FDA recommendation that premature babies get no more than 10 to 25 micrograms a day.

Are non-premature babies at risk? We don't know, but we do know aluminum builds in the brain for neurologic damage.

Aluminum is just one ingredient with effects worthy of study. Formaldehyde in vaccines is common, as are odd animal derivatives (like the fetal cow's blood and monkey kidney cells in the rotavirus vaccine).

That doesn't mean vaccines are bad. My kids are vaccinated. Robert Sears recommends vaccines in his excellent Vaccine Book, the most informative and debate-neutral book I've found.

But we do deserve to know more about the ingredients of injectables for our children, and both parents and the medical community deserve a thoughtful debate.

Yelling, 'Vaccines are autism potions!' or shouting, 'Vaccines are perfectly safe!' reduces the discussion to mere bleating. Neither is quite true.

Vaccines offer terrific benefits to children, but they do carry some risks.

Shouldn't parents be well informed about both?

Monday, September 22, 2008

Goodbye, at Last, to David Foster Wallace

Though David Foster Wallace surely meant people to take notice last week, when he hanged himself where his wife would find him, the sentiment is nothing new.

He's always been the center of his writing, and perhaps that's reason enough to move on. Newspapers have been littered with paeans to the lost post-modernist, calling him not just 'brilliant' but 'the best mind of his generation.'

While Wallace was indeed smart,  he was always the center of his own spotlight, a light he held steady with obsessive focus. Instead of using his intellectual gifts to illuminate the outside world - and he wrote on many subjects, from lobsters to infomercials - he compulsively returned to himself, so that all of his books deserved not just the byline but the title 'David Foster Wallace.'

Fans rave about how smart he was, how facile and erudite. But they don't talk about what they as readers gain from him. The whole intellectual exercise, from start to finish, is about the maker of the puzzle. It's a game of see-how-smart-I-am hidden behind literary screens, ever protected by the ready response of 'you-don't-see-after-all?'

Let's look at the passage the New York Times selected as 'exemplary':

At first glance, it's incomprehensible, a miniature display of literary fireworks that threaten to burn you if you come too close. Taken slowly, it's not so daunting.

Read as a writer's notepad entry, it gains its thickness through abbreviation, like an unfamiliar text messaging that gradually makes sense.  'Narrative intrusion: exposition on Jeni Roberts, in the same flat and pedantic tone as in paragraphs three and four.' 

Fans would tell you that the passage gets ironic heft from its content, since Wallace is writing about a life-changing realization, but one that is here reduced to a near-laundry list notation, giving as much weight to the color of her car as to the details of her epiphany. According to Wallace, stories are 'falsies': what you see is not what you get.

He's entitled to the view, as is Ezra Pound, T.S. Eliot, Barth, Pynchon, Borges, Nabokov, and a whole generation of English departments. It's not a new perspective.

What's different is its unrelenting focus on the writer, this particular writer, so that instead of musings on how our minds work, we get still more on how David Foster Wallace's mind works.

It's a sharp mind, and an observant one, but for all its acclaimed ability, it was rarely brave enough to venture far from its own home, its flesh-and-bone encasing of personal anxiety and guilty condescension.

It's time to give that, and him, a rest.

The Phantom Moral Hazard

There are a thousand theories about why American markets are in such turmoil, and ten times as many about what we need to do. Here's one of the craziest.

Some economists and many conservative pundits say we should let financial giants fail, because if we save them, future executives will feel safe with even more risky behavior.

This so-called 'moral hazard' is a principle of economics that applies in some cases, but it's awfully hard to see it here. Let's see what's happened to the wealth of these executives as their firms prepare for bailout.

Stock value for CEO's of rescued firms ($ millions)

CEO Firm 2007 value Last Friday
Greenberg AIG 1,250 50
Fuld Lehman 827 2
Cayne Bear Stearns 1,060 61
Sullivan AIG (ex-CEO) 3 0.1
O'Neal Merrill (ex) 128 40
Mudd Fannie Mae 26 0.4
Syron Freddie Mac 11 0.1

Look at, say, James Cayne, former head of Bear Stearns. I'm not asking you to feel sorry for him - he's still got $61 million in stock there - but note that up until last year, he was worth nearly a billion dollars.

Can you imagine a CEO saying, after the bailout, "I know I should do more to manage risk, or I might lose 95% of my personal worth, my job, my title, control of the company, and the respect of my peers, but at least the government will keep things from getting too bad" ?

Sounds silly, doesn't it? So is the argument that the government is doing too much.

No one is removing the risk from the financial markets. We're just taking steps to ensure that when Wall Street stumbles, the rest of us lose less than, say, some CEO's.

Saturday, September 20, 2008

Talk then Drive

More and more data show the danger of chatting on the phone while driving, but it's a hard societal habit to break. It's convenient, and the danger isn't immediately apparent.

Yet society has moved beyond other convenient behaviors in the past. Spitting on the street was once common, as was relieving oneself on the side of a building. That still happens here and there, but it's not generally seen on every block each day.

In many areas, public bathrooms reduce trouble on the street. Would more frequent rest-stops or cell-phone side-lots encourage people to talk, then drive?

Friday, September 19, 2008

Wall Street's Fall Guy

The market isn't the only thing in turmoil this week; so is honesty in politics.

As recently as two months ago, the head of the Securities and Exchange Commission was considered a top contender for the Republican vice presidential nomination. Christopher Cox has been long appreciated by conservatives, and he'd done a surprisingly good job of reassuring liberals, who feared he would be too passive in his post. 

Cox reinvigorated the S.E.C. and the conservative American Spectator called him "the best [VP] choice, bar none."

Now John McCain is saying Cox "has betrayed the public trust," and "If I were president today, I'd fire him."

What happened?

Nothing that Cox did, or didn't do. He moved actively to address market problems, and weeks ago, increased criticism of "naked" short sellers seeking to profit from a falling market... the very problem that prompted McCain's comments. Cox's fault here was being in the line of fire.

The McCain criticism is all the more disingenuous because Republicans have been clamoring for less market intervention, not more. It's hard to pick up a newspaper - before today, at least - without reading about conservatives moaning about 'moral hazard' (the presumption firms will assume even more risk if they believe the government will save them. See my next blog entry for more on this canard). 

It's even worse when you consider how Cox arrived at the S.E.C.. The first Bush appointee, Harvey Pitt, resigned under universal criticism of his passive approach (called a "patsy for accounting firms," even the Wall Street Journal called on him to step down.) His replacement, William Webster, wasn't much better. Remember that when President Bush spoke on Wall Street during the first market crisis of his administration, markets fell on news that he wanted to reduce regulation.

Today's Republicans (my apologies to anyone who, like me, believed in the values of Goldwater or the early Reagan years) believe that government action is always bad. But Wall Street does not. When things are going well, firms want the government to keep a safe distance, but in times of crisis, they want America's safety net to be a strong one.

Cox has been the most forward-thinking S.E.C. chairman in several years. He's no Arthur Levitt (Clinton's brilliant appointee), but he's a huge step ahead of his immediate predecessors and a market supervisor who has played a more active role than most Republicans have endorsed.

And now they're attacking him for doing too little?