Thank you, Bush

Last night George W. Bush made history. Yes, we have to give it to him, were it not for the failed policies enacted in the past eight years, the US would not have elected Barack Obama president.
Bush will go into history as the president that passed the helm on to a black man. But also as the man who paved the way for this man to come to power.
Sure, I do not mean to take away all the merits of the great orator and politician that Obama has proven himself. But let's face it: if the US had not slumped into a recession months before the election and our people were not sick and tired of fighting a war for oil companies, it is unlikely Obama would have made it past the primaries, and certainly not to the White House.
Now let me make a digression, by the way. Throughout this year, I have been remembering a tune by Parliament called Chocolate City. In that song, at one point, the great George Clinton starts naming several cities he says have become chocolate city, or CCs. Then he blasts out: It is still called the White House, but that is a temporary condition. Visionary.
Back to the thanks. We cannot forget to extend the warmest thanks to senator John McCain, whose temper and gut-feeling-driven politics caused him to commit fatal blunders as saying the economy was strong in the week when the third Black Monday in history happened and to choose Sarah Palin as his running mate without first properly vetting her.
And, yes, let's say thank you to Sarah Palin. If she were not such a colorful character and did not have such a deep disconnect with anything outside Wasilla Main Street, she might have even captivated Americans enough to sway them toward the Republican ticket.
But now let's be serious. Tonight I am proud to be American.
Thank you USA.

Notes from the IMF meeting

This weekend as the IMF met in their yearly gathering in Washington DC, what I saw was a scary picture. Investors and bankers kept on painting doomsday scenarios, while central bankers and politicians struggled to keep up with the pace of change.
A couple of presentations marked my memory.
Mohamed El Erian, from Pimco, centered all of his speeches on one major theme: there is a fundamental change of paradigm taking place. As he put it - and forgive me if I do not have the exact quote -, never in history has there been such a massive deleveraging process on every level.
What he meant to say is that everyone, from Joe the Plumber - as McCain would put it - to El Erian himself, is reducing debt and amassing cash. The size, the pace and the consequences of this process are daunting and unkonwn.
Therefore, as El Erian indicated and George Soros echoed, we still have not seen the bottom. As people take their money out of their funds because they now pay higher mortgages and credit card rates, funds sell assets to meet redemptions and margin calls. The whole thing keeps on going into a spiral until the last penny is stashed into the mattress.
With no money to invest, there is no credit. Without credit, companies cannot grow and some cannot even function. The rest, you know.
Then there was Robert Schiller's presentation at Deutsche Bank's event. At one point he showed a graph with the prior two Black Mondays - both in October, by the way -, 1987 and 1929. Comparing those to this year's watered-down version makes it clear that we have not, yet, had a Black Monday this time around.
The behavioral economist pointed out that the two prior times happened after a week of high volatility which saw investors come home on Friday mulling if they should or not keep their money in stocks. The decision was made clear the following trading session.
Let's hope this time we can skip it. But, after what I saw and heard this weekend, I doubt it. Fasten your seatbelts.
Photo: El Erian pictured by Barron's

The battle against fear

I cannot let last night's debate go without quickly commenting on it. I saw a desperate John McCain, fear-mongering to try and catch-up with Obama's quickly widening lead.
Barack Obama took the (too) cautious position of avoiding excessive confrontation. McCain's tack was expected and was just a watered-down version of what he has been doing on the campaign trail. I wish I had seen Obama a bit more combative, though. There were some very clear moments in which he could have stood-up to McCain with more vehemence.
But in the end, one thing was clear: McCain managed to explain very little about what he wants to do and how. Obama was as clear as it gets in the time assigned.
The division between the two also was made clearer. McCain is obviously a free-market guy, who believes nothing beats private intiative.
In some ways I agree with the Republican candidate on that one. I do think that government is usually a bad manager and more government intervention often translates into more bureaucracy and higher costs for everyone.
However, unlike McCain, I think the government has to exert strong oversight on the market. I think regulatory agencies need more power and funding to make sure the market is functioning as it should.
Anyway, theories apart, what also became clear is that Obama does really hold a very strong chance to win this election by now. The reason for that is a sad one: the economy is going down the drain fast.
And with his job on the line and collectors knocking on his door all day, the average American does not want to hear about how Obama was on the same board as a former American revolutionary who thought he could make his point get across by bombing public buidlings. He wants to know how on Earth the next president is going to get him out of this bind. And McCain simply did not answer that question. Besides, at this point it is clear that leaving it all completely in the hands of free-market does not work.
In fact, I believe McCain is hitting the wrong note. As Americans see the economy crumbling after decades of laissez-faire policies, they do not want to be given the choice on everything. For the first time since World War II, I daresay, Americans want a strong hand on the helm. They want the government to be there for them, and not the opposite as McCain suggests and assumes.
The problem is that Obama is likely to swing the pendulum too far and overshoot the government clout in his first term. And, as I said before, that is not good.
Finally, there is one thing in all this that makes me sad. I wish we were electing our first black president just because of his merits - which he has now proven -, not because we are desperate.

The power of bureaucracy

Unfortunately, as I predicted in my last posting, lawmakers in Washington DC preferred to allow the markets to nosedive and the Russell 3000 to lose over US$1 trillion in value than to sign a US$700 billion check for Secretary of Treasury Henry Paulson. Talk about money out of the pockets of taxpayers.
As I said before, there is no force more powerful than a bureaucrat trying to cover his ass. However, I would like to take this opportunity to discuss briefly the drivers for this decision at the House of Representatives in a day when five banks had failed around the world - in case they needed any more reason to pass the package.
A friend of mine summarized the issue talking to me a few weeks ago. His words: "The ultimate goal of every politician is to be re-elected." In fact, it is as simple as that. On Capitol Hill they are not worried about the country's interest unless that means securing another term for them. The same applies, naturally, to the executive branch, though there, especially in a second term, the dynamics are a bit different.
Once you understand that, it is clear why politicians chose to let the market go down the drain instead of signing a (slightly) controversial rescue package. They are afraid of the consequences. And, just five weeks before a historic presidential election, all actions are blown out of proportion.
No lawmaker wants to risk being thrusted into the spotlight as the one who made the wrong decision - though any of them would love to be the one that made the right decision. And since none of them really knows what the right decision is, they are afraid. Scared that the public will be enraged and not reelect them.
I don't mean to be biased here, but Barack Obama put it best in a quote today: "It is not a time for politicians to concern themselves with the next election. It is a time for all of us to concern ourselves with the future of the country we love. This is a time for action."
McCain completed: "There is no time for inaction."
I think I know what I can do. I will right now start writing my representative - and all the other ones whose emails I can get - to make them know that if I lose my job and this country goes bankrupt because they were afraid of signing that check for Paulson, they are the ones who will lose their jobs. I will not reelect them.
Photo: House republican Whip Roy Blunt, caught by the lenses of Chris Kleponis From Reuters.

It's the end of the world as we know it

Some friends have been asking me how come I have not been writing in the blog in the past two weeks. My answer: I have just been awestruck these days! Also, I have been thinking that I did not want to write an "I told you so" post, since I published an entry on us being on the verge of 1929 back in July, when stocks of Fannie Mae and Freddie Mac first signaled what was about to happen.
However, yesterday's events prompted me to return to this forum. I am referring to the Washington Mutual debacle. Within 10 days account holders pulled out almost US$17billion from the institution, forcing the feds to take it over and sell the remaining deposits to JPMorgan for US$1.9 billion - small change for the bank. It was the biggest commercial bank failure in US history.
That single event really puts us on the same footing as we were in 1929. Let me explain, not without an anecdote as is my style. The first stages of the stock market crash in 1929 and ensuing economic depression had many similarities to our current crisis. However, as a friend insisted in pointing trying to make a distinction between the two crises, in 1929 the crash also entailed a run to the banks which, naturally, shook the whole financial system.
Washington Mutual's fall from grace marks that exact turning point. To be sure, in an internet age you do not see lines outside the bank anymore, with people running to pull out their deposits. They do it from their laptops, at home. But it still is a run to the banks. And anybody who studied a little bit of economic theory and understands the meaning of M1 and M2 knows what that means. It can be summarized in one word: fuck. Excuse my language.
So, where do we stand, people have been asking me. We are one month away from the election, so nobody wants to take the blame for a wrong decision. Nothing can be more powerful and destructive than bureaucrats trying to cover their asses - sorry for my language again, but extreme times require extreme wording.
So chances are, the rescue package will be caught up in Congress filibusters. Meanwhile, the whole thing is going down. And it is not only investment banks anymore. The problem is no longer saving Bear Stearns, Lehman Brothers, Merill Lynch, Morgan Stanley and Goldman Sachs. What is at stake now are the commercial banks, those in which people like you and me have their deposits.
And that brings me to my anecdote. This week I heard a friend telling me that her professor in the university had said the safest banks to have an account in was Chase, as it is part of JPMorgan. That scared me.
It means two things, both very worrisome. One, is that people are trying to safeguard their money. As most people outside the financial world, they tend to misunderstand things and think that the bank crisis means their deposits are at risk - which is only true for deposits bigger than US$ 100,000, as up to that limit they are insured by the FDIC. As an example of how people misunderstand stuff, somebody else told me JPMorgan was trying to sell itself this week. The person was thinking about Morgan Stanley.
The other is that Main Street has become aware of the crisis. It is common knowledge among investors that whenever the clerk at the pharmacy starts talking about an investment it means you should have already left it for it is a bubble.
That also works the other way around. Meaning, by the time Main Street starts worrying about a crisis it has become out of hand.
I am sorry for making it so long, but I just want to make a final remark. Even more amazing has been the US government's response. They have basically instituted socialist measures, nationalizing huge private corporations. It should not come as a surprise, though, as Robert Kurz had already predicted that. Here I quote from Imperialism of Crisis:
"Every time that a phase of valorisation (in capitalism) is exhausted, the political institutions, afferent concepts and ideologies become also obsolete."
In that article Kurz was not foreseeing our current events, but the quote applies.
My only comfort is that Ben Bernanke's post-doctorate was on the 1929 crisis. So, he is probably the single most prepared person in the world to deal with what we are going through.
Last, but not least, I'd like to share some quotes a smart economist in Chile gathered about the 1929 crisis.

"We will not have any more crashes in our time."
John M. Keynes, October 1927.

"No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding."
President of the United States, Calvin Coolidge, on December 4, 1928, in his last message to the nation before handing over command to his successor Herbert Hoover, 10 months before the crash in the New York Stock Exchange and the Great Depression of 1929-33.

"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
Andrew W. Mellon, United States Secretary of the Treasury, December 31, 1929, when the Great Depression had just begun, which would end only in World War II.

"Gentlemen, you have come sixty days too late. The depression is over."
Herbert Hoover, President of the United States in June of 1930, in response to the petitions for the creation of a public employment program to stimulate a reactivation of the economy.

And McCain's running mate is... Who is that again?

It sounded grand. When he started the speech I was sure he was going to make a huge announcement. And then John McCain told the nation that his running mate will be Sarah Palin. Immediately a co-worker of mine told me: "He chose her because Tootsie was not available."
His justification: she has a proven track record of fighting big oil and executive experience. OK, I do think that the Democratic ticket lacks executive experience as both nominees have only legislative seats in their resumé. But, with all due respect, being the mayor of a 9,000 strong town in Alaska and then becoming governor of a state with less than 700,000 inhabitants does not necessarily qualify as executive experience in my opinion. The mayor of Newark has more experience than her, if you stop to think about it.
The bottom-line is, why on Earth did McCain choose Palin? Sure, the obvious answer is, she is a woman so with her he can round-up all those Hillary Clinton votes who are not so sure about Barack Obama. And she is young, so he slaps back those who point at his age as a problem for him to become president.
Which, by the way, reminds me: when McCain was born Alaska was not even a state yet. In fact, its statehood completes 50 years in 2009.
Anyway, my point is, did he really choose her for those reasons alone? I mean, seriously, this woman will become president if McCain is elected and dies suddenly - something not that impossible considering he just turned 72.
I am not sure I want to have our first woman president coming from Alaska. And, more important, I am sure I do not want to have a president who chooses his deputy based on gender and electoral appeal.
As Eric Cartman would say, screw you guys, I'm going home.

She is better off as senator

I finally saw the Hillary Clinton I hoped for during the primaries. Her address to the Democratic convention on Tuesday was powerful, witty, to the point and politically savvy.
I was thrilled listening to it, something that did not happen a single time when I followed the primaries. She strongly supported Barack Obama's bid for the presidency, but discreetly brought the democrats' attention to issues he may not be addressing as directly as she would like.
She also showed bright rhetoric when she began mentioning John McCain, saying he is a friend and has served the nation with valour, just to begin pointing out what are, in her opinion, the reasons why he should not be elected. Sounded to me like she was using McCain's very weapon of heartfelt sincerity against him.
She was more confident than ever, and more powerful too. I am very happy to see that she is going to be a driving force in the Senate during the next term, regardless of who is sworn in.
It was just sad to see that she could not find her full force until she was bowing out of the election.
Oh well, I guess that is it. Hillary Clinton is just better off as a senator.