Spero Consulting

Archive for August, 2009

And a Brief Men­tion about the Decline in Num­bers of Reli­gious Personnel

“Inter­fer­ing with people’s prop­erty, labor, and exchange – except where nec­es­sary to uphold jus­tice and sus­tain soci­ety – is a vio­la­tion of the sacred­ness of the person.”

That’s from an essay by Greg Forster, “Sacred Enter­prise,” in the Clare­mont Review of Books, Sum­mer 2009. (Unfor­tu­nately, it’s only avail­able on-​line to sub­scribers.) He goes on to write, “And increas­ing the total amount of avail­able wealth is morally good, so it is wrong to sti­fle eco­nomic growth or to force poten­tially pro­duc­tive assets to lie waste­fully dor­mant…” (Think the Para­ble of the Tal­ents (Matthew 25:14 – 30) as jus­ti­fi­ca­tion for the first clause, and Cash for Clunk­ers as an exam­ple of the second.)

We only wish that Mr. Forster had cho­sen a dif­fer­ent word instead of “jus­tice,” because that loaded term is too often used to ratio­nal­ize the med­dling and inter­fer­ence that he is condemning.

In the essay, Mr. Forster is mak­ing a moral case for cap­i­tal­ism and mar­kets. It’s an argu­ment that cur­rent Church lead­ers could make, which would be con­sis­tent with their tra­di­tions and cat­e­chism, if they thought about eco­nomic issues a lit­tle more clearly than they do (and had a bit more train­ing in both eco­nom­ics and his­tory). In fact, for quite some time, Church doc­tors , e.g., St. Thomas Aquinas, and oth­ers – the Scholas­tic econ­o­mists – did make such argu­ments. And those argu­ments had a tremen­dous and long-​term influ­ence on many – both reli­gious and irre­li­gious – includ­ing the founders of this great nation.

Mr. Forster men­tions the book, The Vic­tory of Rea­son, by Rod­ney Stark, which pro­vides a good, gen­eral his­tory of the Church’s pos­i­tive influ­ence on West­ern Civ­i­liza­tion, includ­ing its role in the devel­op­ment and defense of cap­i­tal­ism. How the Catholic Church Built West­ern Civ­i­liza­tion by Thomas E. Woods, Jr. is a sim­i­lar and fine book, too.

Those look­ing for more spe­cial­ized books on eco­nom­ics and Catholi­cism should con­sider The Church and the Mar­ket, also by Mr. Woods and Faith and Lib­erty: The Eco­nomic Thought of the Late Scholas­tics by Ale­jan­dro A. Cha­fuen. Both of these show the con­gruity between Catholi­cism and pri­vate prop­erty and free enter­prise. (We’ve men­tioned all of these books at one time or another and highly rec­om­mend all of them.)

We wish that America’s Catholics bish­ops would con­sider the argu­ments found in such books before sup­port­ing gov­ern­ment poli­cies like nation­al­ized health-​care. In fact, we view such sup­port for gov­ern­ment aid (ver­sus Catholic char­i­ta­ble aid and ser­vice) to be an abdi­ca­tion of the Church’s tra­di­tional role and respon­si­bil­i­ties. More­over, we think that as the Church veers from that role (as char­ity provider) it loses much of its vital­ity because it can­not recruit young, spir­i­tual, ide­al­ists who are will­ing to serve those in need. (It’s a long, multi-​part argu­ment that we promise to make in the near future.)

Part of our argu­ment is based upon our view that the sub­sti­tu­tion of government-​provided aid for pri­vate char­ity is a social ser­vice ana­logue of Gresham’s Law, i.e., bad money dri­ves out good money, and gov­ern­ment man­dates make the anal­ogy rather com­plete. (As you may recall, Gresham’s Law states that when both pure and debased coins must be accepted as legal ten­der, the debased ones are cir­cu­lated. It’s not much dif­fer­ent than keep­ing the crispy new bills in your wal­let and pay­ing with the greasy, dirty old ones, except in Pitts­burgh where it is rare to find crispy new ones.) By the way, the late Scholas­tics also knew and wrote about such cur­rency debase­ments and viewed them as theft by the rulers and vio­la­tions of the sacred­ness of the per­son, too. (There’s not much that is new.)

Finally, we’d argue that the dif­fer­ence in qual­ity of ser­vice can be addressed with a sim­ple ques­tion: who would you pre­fer to treat you: a mem­ber or employee of a char­i­ta­ble, reli­gious orga­ni­za­tion or a mem­ber of the fed­eral bureau­cracy? Where’s the love, man? Yeah, it seems rather rhetor­i­cal, doesn’t it?

We tend to be pes­simistic; so, per­haps the news isn’t as bad as it seems, but con­sider these two facts, which were both reported in today’s The Wall Street Jour­nal:

1. A sur­vey by the Mort­gage Bankers Asso­ci­a­tion found that 13.2% of mort­gages on homes with one to four units were at least one-​month over­due or in the fore­clo­sure process in the sec­ond quar­ter. That’s almost 50% higher than at the same time last year, and much of that increase is due to prob­lems with prime loans, not sub­prime loans. (See Sour­ing Prime Loans Com­pound Mort­gage Woes.)
2. A June sur­vey by Inside Mort­gage Finance of real-​estate agents found that 36% of all sales involve “nondis­tressed” prop­er­ties. Of those sales, only 31% were what the sur­vey described as “unforced or optional.” Mul­ti­ply 0.36 by 0.31, and you’ll dis­cover that only 11% of sales – about one-​out-​of-​nine were “unforced or optional.” That means that nearly 90% of sales by home­own­ers involve some­thing unpleas­ant. (Improv­ing Home Sales Belie Mar­ket Real­ity.)

Now, both sur­veys may be ter­ri­bly unrep­re­sen­ta­tive of actual mar­ket con­di­tions and facts, and con­di­tions could actu­ally be much bet­ter (or much worse). How­ever, if both are accu­rate, it seems that we are fac­ing a very slow and grad­ual recov­ery. Of course, that’s IF the econ­omy is, in fact, begin­ning to recover. More­over, this can’t be good news for hold­ers of mortgage-​backed securities.

We rarely try to “time” the mar­ket and rarely make spe­cific invest­ment rec­om­men­da­tions, but we think that today was a fine day to sell a few of our mutual funds, and we did.

The Nuclear Option

As usual, James Taranto’s daily col­umn ‘Best of the Web’ is both infor­ma­tive and entertaining.

In today’s col­umn, Ardent Par­ti­san­ship, we are par­tic­u­larly inter­ested in the sec­tion, Split­ting the Bath Water. In it, Mr. Taranto notes that (1) it seems unlikely that all sixty (60) Demo­c­ra­tic Sen­a­tors would vote to end a Repub­li­can attempt to fil­i­buster the health-​care bill, and (2) Democ­rats may attempt to change Sen­ate tra­di­tion to get a sim­ple major­ity (rather than a 60-​vote super-​majority) to close debate and vote on the bill (or oth­er­wise re-​jigger the bill and the process to get what they want).

Mr. Taranto states, “If they suc­ceed, they will have imposed an unpop­u­lar, hugely expen­sive, pos­si­bly deadly new law – and they will bear total respon­si­bil­ity for it. It’s a bril­liant plan for restor­ing the GOP’s squan­dered polit­i­cal fortunes.”

Strength in Num­bers & the Converse

We agree with Mr. Taranto but want to also con­sider the pos­si­bil­ity that Mr. Obama and his fel­low Democ­rats won’t suc­ceed. In other words, we won­der whether the Democ­rats have fifty (50) reli­able votes if they choose to do some­thing as con­tro­ver­sial as avoid a clo­ture vote.

They cer­tainly have a sub­stan­tial num­ber of lib­er­als (from lib­eral states) who will vote for the bill, regard­less of the process that is fol­lowed, but what of more mod­er­ate Democ­rats and Democ­rats from con­ser­v­a­tive or neu­tral states? (Yeah, we know that states aren’t mono­lithic, but we’re try­ing to be brief.)

Let D be the num­ber of Demo­c­ra­tic sen­a­tors who will vote for the bill regard­less of the impli­ca­tions. Let’s assume that D is less than 50.

Pre­sum­ably, not all of the 60 Democ­rats sup­port clos­ing dis­cus­sion, which means that it is unlikely that all 60 sup­port the bill. It is pos­si­ble – but unlikely – that only one Demo­c­ra­tic sen­a­tor will vote against the bill. How­ever, if that were the case, one would expect that he or she could be bought off by his or her col­leagues, i.e., you would hear some­thing like: “My fel­lows cit­i­zens, I know that you are angry about my vote, but I did get X bil­lions in new appro­pri­a­tions for the state.”

Using that logic, it seems that one could extend the argu­ment to another two or three or four senators.

So, let’s say that 55-​or-​so Democ­rats would vote for clo­ture, but (55 — D) sen­a­tors aren’t reli­able votes for the actual bill. The Democ­rats would need (50 — D) of those unre­li­able Democ­rats to vote for the bill. (Percentage-​wise, they need (50 — D)/(55 — D) on the unre­li­able ones.)

Now, if all 60 would vote for the bill, it would seem to pro­vide cover for the mar­ginal sen­a­tors. How­ever, when other Democ­rats vote “No,” then it seems that con­stituents who oppose the bill can point to the inde­pen­dence of those other sen­a­tors as an appeal for their own sen­a­tor or sen­a­tors to vote “No.”

We think that sit­u­a­tion would bring addi­tional atten­tion and put addi­tional pres­sure on the uncom­mit­ted sen­a­tors. In fact, one would expect the atten­tion to increase dis­pro­por­tion­ately if the num­ber isn’t 55 but is some­thing smaller and closer to fifty.

So, it’s counter-​intuitive, but we won­der – given Mr. Taranto’s assess­ment – whether enough Demo­c­ra­tic sen­a­tors will reach the same con­clu­sion that he did and choose not to face those con­se­quences. (Not every sen­a­tor is as prin­ci­pled as our own sen­a­tor, Arlen Specter. Hah!)

Finally, we liked our own con­nec­tion of nation­al­ized health-​care with PA’s state stores, but we like Mr. Taranto’s pithy “postal­iz­ing the med­ical sys­tem” more.

The Wall Street Journal’s web site has an arti­cle, Drunken-​Driving Arrests Jump Among Women. The study cov­ers the years between 1998 and 2007 and finds that arrests of women were about 29% per­cent higher in 2007 than in 1998.

Accord­ing to the arti­cle, when asked, here is what Laura Dean-​Mooney, pres­i­dent of Moth­ers Against Drunk Dri­ving, had to say, “There’s no hard data on that. What you’re hear­ing more is that women are under more pres­sure, they’re now per­haps the bread­win­ner because of the unem­ploy­ment rate.”

Indeed, the unem­ploy­ment rate is over nine per­cent this year, but it was about 4.6% in 2007, which was the last year of the study. Accord­ing this report, the over­all rate was 4.5% in 1998, but because dif­fer­ent method­olo­gies were used, the two rates aren’t strictly com­pa­ra­ble. The rate for women was 4.5% in 2007 – not much of a dif­fer­ence from 1998.

Sorry Ms. Dean-​Mooney, but unless the quote was taken out-​of-​context, it’s non­sen­si­cal and stupid.

Here’s a great sports– and science-​related arti­cle in today’s edi­tion of The Wall Street Jour­nal: The Africans Are Hear­ing Foot­steps. We think it’s great because it exposes what claims to be a “sci­en­tific” approach to long-​distance train­ing as some­thing that seems to be quite the oppo­site, i.e., some­thing that seems to be quite non-​empirical.

The arti­cle describes how Amer­i­can long-​distance, Kara Goucher, is suc­cess­fully using “African” meth­ods – which were, in fact, used by most Amer­i­cans prior to the 1980’s – to train for marathons. As described, her method seems to focus more on run­ning than on the mea­sure­ment of var­i­ous aspects of run­ning. (We under­stand that one might argue that today she is in posi­tion to dis­card the meth­ods that put her in that posi­tion, but we”ll ignore that point-​of-​view for the sake of argument.)

Any­way, the arti­cle reminds of of our favorite Ein­stein quotes: “Not every­thing that counts can be counted, and not every­thing that can be counted counts.”

Now, to be able to say any­thing about the sub­ject in less than many, many pages, requires us to keep much con­stant and gen­eral. So, we’ll ignore issues like whether African run­ners are genet­i­cally supe­rior as well as whether they are bet­ter moti­vated because, they’re, well, from Africa. (That seems to be the argu­ment.) More­over, we know that Ms. Goucher is a very small sam­ple size of one, and we don’t fol­low run­ning care­fully enough to know about other run­ners who have switched train­ing meth­ods and have failed miserably.

How­ever, given the lit­tle that we do know, it does seem that – at least at world-​class, élite lev­els – there isn’t much empir­i­cal sup­port for the rather tech­ni­cal approach that most Amer­i­can run­ners and run­ning pro­grams adopted in the 1980s and con­tinue to use today.

More pre­cisely, if the hypoth­e­sis is that com­pre­hen­sive record-​keeping, etc., improves run­ning per­for­mance – as mea­sured by world cham­pi­onships – then it seems that such a con­jec­ture should be rejected. Again, there are any num­ber of rea­sons why our crit­i­cism may be incor­rect: per­haps the for­eign­ers have been able to mask their use of per­for­mance enhanc­ing drugs.

Regard­less, our point is that mak­ing a process overly-​quantitative and struc­tured doesn’t make it the least bit “sci­en­tific.” It may make it abstruse and bureau­cratic and, there­fore, may obscure the real dri­vers of suc­cess and rea­sons for losses, espe­cially when one (or many) take com­fort in those cal­cu­la­tions rather than actual performance.

Given our back­ground and skills, we’re cer­tainly not den­i­grat­ing quan­tifi­ca­tion, esti­ma­tion, and the use of data or the advanced appli­ca­tion of math, but – per our motto – we are say­ing that there should be thought before cal­cu­la­tion and after­wards, too. In that respect, there is no dif­fer­ence between train­ing for marathon run­ning and val­u­a­tion or risk management.

It is ironic that so much infra­struc­ture is devoted to mon­i­tor daily per­for­mance and results, but there seems to be so lit­tle mea­sure­ment and feed­back (eval­u­a­tion) of the effi­cacy of the infra­struc­ture. Expen­sive train­ing reg­i­mens that lead to decades of fail­ure aren’t much dif­fer­ent than “risk” man­age­ment report­ing processes that record ter­abytes of daily data and sense­lessly extrap­o­late things like daily volatil­i­ties and cor­re­la­tions to deter­mine worst-​case sce­nar­ios, yet left so many unpre­pared for the finan­cial crisis.

In both cases, the system-​wide feed­back loops seem to be dis­con­nected and dan­gling in the ether.

This is one of the most novel essays about health-​care that we’ve read in quite some time: We Don’t Spend Enough on Health Care. It’s by Craig S. Karpel, and it’s in today’s edi­tion of The Wall Street Jour­nal.

His point: once basic, mate­r­ial needs and wants are met, expen­di­tures on health-​care become an increas­ingly larger per­cent­age of a person’s bud­get and the over­all econ­omy. Here’s another way to think of it: there prob­a­bly isn’t much cos­metic surgery in Haiti. Or, do you really want the same per­cent­age as, say, any place in Africa or Cen­tral America?

So, like Mr. Karpel we ask: what exactly is the allure of less health-​care – or less spend­ing on health-​care? We’re not talk­ing about the elim­i­na­tion of waste, which we think privately-​motivated indi­vid­u­als are more likely to elim­i­nate than the fed­eral gov­ern­ment. We’re talk­ing about inven­tions, dis­cov­er­ies, and pro­ce­dural improve­ments that arise and are avail­able in the USA but not elsewhere.

Why should health-​spending be tar­geted to be any per­cent­age of GDP?

What unstated cri­te­rion is used to jus­tify that 17% or 18% or 19% or 20% of GDP is “too” large or “too” small? What’s the rea­son­ing, and can we have some of it – rather than just the rhetoric?

In our mind, the most vex­ing issue in the entire debate – and the one that Mr. Obama seems to most often refer to – is the insur­a­bil­ity of those indi­vid­u­als with pre-​existing con­di­tions. More pre­cisely, the lack of afford­able insur­ance for those with expensive-​to-​treat pre-​existing conditions.

How­ever, many of those prob­lems now exist because fed­eral gov­ern­ment rules and reg­u­la­tions exist that limit the avail­abil­ity of plans to within a state’s bor­ders and (tax-​) favor employer-​sponsored plans com­pared to indi­vid­ual plans.

We find it very trou­bling that Mr. Obama and his allies would pre­fer to attempt to change the entire health-​care sys­tem in ways they can’t ima­gine rather than attempt to solve or mit­i­gate what they con­sider to be the sin­gle most vex­ing prob­lem. Yeah, it’s auda­cious, but not par­tic­u­larly wise.

Regard­less, Mr. Karpel’s col­umn is well worth reading.

Per­haps it’s a non-​sequitur, and per­haps it’s non­sen­si­cal, but can any­one explain why mem­bers of the Obama admin­is­tra­tion – and it seems the Pres­i­dent if he could get away with it – want to nation­al­ize health-​care (with all of its size, diver­sity, per­for­mance, and com­plex­i­ties) but wouldn’t nation­al­ize, liq­ui­date, or place into receiver­ship firms like Cit­i­group, which failed it pub­lic mis­sion far worse than the health-​care indus­try has its?

Finally, as we’ve often writ­ten in other con­texts, we’d pre­fer our politi­cians take the Hip­po­cratic Oath along with physi­cians: first, do no harm!

Spe­cial Treat­ment for Vol­un­teers and Donors

We like the new tele­vi­sion show Royal Pains because much of the pilot episode rang so true with us.

If you haven’t seen it, we’ll explain why.

Dur­ing the episode, a for­mer emergency-​room physi­cian, Dr. Hank, serendip­i­tously becomes a concierge physi­cian in the Hamptons. He is a for­mer emergency-​room physi­cian because dur­ing the first few min­utes of the show he was fired by the admin­is­tra­tor of a New York City hospital.

He was fired by the admin­is­tra­tor because he fol­lowed pro­to­col – i.e., did the right thing – and treated a young man who was in more des­per­ate need of care than one of the hospital’s largest donors, who hap­pened to be in the emer­gency room at the same time. As luck would have it, the wealthy donor had an unex­pected set­back and died and Hank was fired. Again, it seems that both morally and accord­ing to the hospital’s estab­lished pro­to­col, Hank did the right thing (for hoi pol­loi, at least).

It’s not clear whether the donor would have sur­vived had Hank devoted his atten­tion to the man, but clearly Hank was fired for not giv­ing spe­cial atten­tion to him, which, it seems, would have been at the expense of the younger man.

Dona­tions or Transactions?

The episode is too sketchy to deter­mine whether the dead donor would have expected spe­cial treat­ment or whether he would have demanded it had he been con­scious, but in real life, many want some­thing for their donations.

That quid pro quo is okay – and some­times under­stand­able – how­ever, such con­tri­bu­tions should not be con­fused with charity.

We’re not par­tic­u­larly naïve about the fallen nature of man, but in cer­tain set­tings we’re still shocked when we see egre­gious, self-​serving behav­ior thinly dis­guised in a veil of char­ity and philanthropy.

As such, although we don’t like much about income taxes, we do like the fact that to deter­mine the deductible por­tion of the con­tri­bu­tion, the IRS requires that the value of din­ners, ser­vices, or prod­ucts pro­vided be sub­tracted from the contribution.

We wish there were a way to cal­cu­late the option value of such con­tri­bu­tions so that the expected value of a pos­si­ble future request could also be sub­tracted from the con­tri­bu­tion (to deter­mine the net, expected value that could be attrib­uted to good inten­tions.) We won­der whether that amount is usu­ally pos­i­tive or neg­a­tive. Whether the sac­ri­fice involves cash, time, or effort, it’s not self­less char­ity if you expect some­thing in return. More­over, whether good deeds count or not depends upon your par­tic­u­lar beliefs; how­ever, we think that motives mat­ter, too.

Spe­cial Accom­mo­da­tions for Me, not Thee

Slightly – but only slightly – less egre­gious than those seek­ing quid pro quo for their “dona­tions” are those who vol­un­teer thier time and effort but seek spe­cial accom­mo­da­tions and arrange­ments and favors not granted to other volunteers.

Again, we’re shocked – but no longer sur­prised – by such behavior.

It cer­tainly behooves char­i­ta­ble and other not-​for-​profit orga­ni­za­tions to min­i­mize the bur­den placed upon vol­un­teers, espe­cially if there are no sub­sti­tutes for the time and effort (and, say, blood). How­ever, the admin­is­tra­tors of most not-​for-​profits under­stand that fact, and already attempt to mit­i­gate that bur­den in the opti­mal, sys­tem­atic fash­ion. (We’re not argu­ing that they always get it right.)

You should note that not grant­ing a spe­cial priv­i­lege to you – despite all that you do – may be the best way to main­tain the long-​term effi­ciency of the orga­ni­za­tion. (There are few secrets.) So, don’t take it per­son­ally. Rec­og­nize the poten­tial dam­age or cost if other vol­un­teers were given the same priv­i­lege. (You know how others are fallen and would want or demand what you got if they knew about it.)

Also, please note the sub­jec­tive nature of the assess­ment if you con­clude that your time, efforts, and inter­est are more valu­able than sim­i­lar con­tri­bu­tions made by oth­ers (so that only you deserve spe­cial con­sid­er­a­tion). It’s prob­a­bly the case that oth­ers have drawn the same con­clu­sion about their own efforts.

Penul­ti­mately real­ize that, per Clare Boothe Luce, “No good deed goes unpun­ished.” So, why should you expect more than the sat­is­fac­tion of know­ing that you did the right thing.

Finally, please note that we con­sider this post’s title to be an excel­lent dou­ble entendre.

The quote below – cour­tesy of a tran­script pro­vided by The Wall Street Jour­nal–was stated by Pres­i­dent Obama at his health-​care reform rally in Grand Junc­tion, CO.

What you can’t do — or you can, but you shouldn’t do — is start say­ing things like, we want to set up death pan­els to pull the plug on grandma. I mean, come on. (Applause.) I mean, I just — first of all, when you make a com­ment like that — I just lost my grand­mother last year. I know what it’s like to watch some­body you love, who’s aging, dete­ri­o­rate, and have to strug­gle with that. So the notion that some­how I ran for pub­lic office, or mem­bers of Con­gress are in this so that they can go around pulling the plug on grandma? I mean, when you start mak­ing argu­ments like that, that’s sim­ply dis­hon­est, espe­cially when I hear the argu­ments com­ing from mem­bers of Con­gress in the other party who, turns out, spon­sored sim­i­lar provisions.

So, let’s take the Pres­i­dent at his word – that he didn’t run for office to specif­i­cally imple­ment national poli­cies in favor of euthanansia.

Unfor­tu­nately, by them­selves, good inten­tions alone are insuf­fi­cient and can lead to more harm than good. (We do love that quote about the road to hell by St. Fran­cis de Sales.) Is there a bet­ter place than the mas­sive, inef­fi­cient, and intru­sive fed­eral gov­ern­ment to find sup­port­ing evidence?

What Pres­i­dent Obama needs to real­ize – and what we wish he and his leg­isla­tive allies would con­sider – is that his pro­pos­als could very well lead to such “care-​giving” poli­cies and other such “unin­tended con­se­quences.” (Yes, scare quotes are aptly named.)

That is, we wish he would live by a motto of some­thing like “thought before action.”

At a min­i­mum, we wish that Mr. Obama would push for a small-​scale exper­i­ment of his plans, in, say, a will­ing state or region, before propos­ing it for the nation as a whole. Oh that’s right, it’s been tried in a few states like Mass­a­chu­setts and doesn’t seem to be work­ing out very well.

By the way, any plan that requires simul­ta­ne­ous adop­tion through­out the nation is a bit trou­bling to us. The claimed neces­sity for such a tac­tic reminds us of those amor­phous and gos­samery and poorly-​understood, explained, and real­ized syn­er­gies that have been so often used to ratio­nal­ize large cor­po­rate acquisitions.

There’s a worth­while, syn­di­cated col­umn in today’s edi­tion of the Pitts­burgh Tribune-​Review. It’s by the econ­o­mist, Don­ald J. Boudreaux, and it is enti­tled, Can’t buy me love.

In the col­umn, Mr. Boudreaux describes his affec­tion for Paul McCart­ney and the Beatles.

More impor­tantly, he dis­tin­guishes between Mr. McCartney’s worth or value and Mr. McCartney’s net, finan­cial resources, which are esti­mated to be $1 bil­lion. For exam­ple, he writes, “When I read of McCartney’s for­tune, I am struck by how puny it is com­pared with the amount of plea­sure he has con­tributed to humankind.” He later adds, “I’ll cer­tainly not argue that McCart­ney is under­com­pen­sated. But I do insist that his net worth of $1 bil­lion is pal­try, puny, insignif­i­cant com­pared with his contributions.”

We think it is worth men­tion­ing Mr. Boudreaux’s col­umn because last Novem­ber, we wrote about a sim­i­lar notion in War­ren Buf­fett, Jimmy Buf­fett and Luck.

We rec­om­mend that you read both – although we’re not pre­sump­tu­ous enough to think that the lat­ter is the least bit valuable.

We occa­sion­ally write about CMBS or Com­mer­cial Mortgage-​backed Secu­ri­ties and the CMBX index. For exam­ple, last Novem­ber, we wrote CMBS Is Like Lumpy MBS and That’s Not Good. We tend to get more hits on our tongue-​in-​cheek post, How to Trade CMBS? and find that a bit scary.

What should truly frighten both CMBS hold­ers and banks with large commercial-​mortgage loan port­fo­lios more than our dis­cus­sion of our page rank­ings is this arti­cle in Saturday’s edi­tion of The Wall Street Jour­nal: Hotels Deliver Some ‘Jin­gle Mail.’ The arti­cle details how hotel own­ers are walk­ing away from highly-​mortgaged prop­er­ties and how delin­quency rates for secu­ri­tized hotel loans are almost ten times higher than they were one year ago – about 4.75%.

We sus­pect that banks that were erst­while struc­tur­ers and had accu­mu­lated an inven­tory of such loans (for later bundling that has not yet mate­ri­al­ized) may face even larger problems.

Using the logic that the last loans made before the bub­ble burst are likely to be less cred­it­wor­thy than ear­lier ones, we sus­pect that the delin­quency rates for those loans that didn’t make it into a CMBS pool before the mar­ket col­lapsed could be even higher than the nearly five-​percent rate men­tioned above.

More­over, while we’d argue that any claimed diver­si­fi­ca­tion ben­e­fit of CMBS was grossly over­stated, there is absolutely no diver­si­fi­ca­tion ben­e­fit from hold­ing the entire loan. Those banks and struc­tur­ers that are stuck hold­ing those loans bear the entire risk of default. In some ways, it reminds us of a very expen­sive adap­ta­tion of the game, musi­cal chairs. (CDOs and CDOs squared, etc., are rem­i­nis­cent of “hot potato” or blind folks toss­ing raw eggs back-​and-​forth.)

Finally, we would be sur­prised if for­mer struc­tur­ers and banks with clogged pipelines didn’t report higher credit losses in the sec­ond half of this year. If they don’t, we will won­der whether reg­u­la­tors are being par­tic­u­larly loose in super­vis­ing how those banks cal­cu­late their loan reserves.(At this point, we sus­pect those loans are no longer “held-​for-​sale,” but have been reclas­si­fied into the reg­u­lar loan portfolio.)

We hope that the finan­cial cri­sis, which seems to have sub­sided, has actu­ally sub­sided. How­ever, we have a sneak­ing sus­pi­cion that it may be per­son­i­fied by Mark Twain’s famous quote about how the report of his death was greatly exag­ger­ated. This is one indi­ca­tion that it’s not over.

Talkin’ ’bout the Older Generation

No, this isn’t about the low level of clean­li­ness in Eng­lish hos­pi­tals although we have a post script about that.

It’s about an excel­lent edi­to­r­ial in the The Wall Street Jour­nal, By Squalor Pos­sessed, and what it has to do with Obama’s pro­posed health-​care leg­is­la­tion. Unfor­tu­nately, it is only avail­able as a PDF or in the paper edi­tion because it is from the August 28, 1969, edi­tion of The Wall Street Journal.

Yes, by the editorial’s title and date you should be able to tell it is about Wood­stock, the con­cert. Do read it if you have the time.

We par­tic­u­larly like this two-​sentence excerpt from three para­graphs of a speech that are quoted in the col­umn.¹ “It is not mawk­ish to love one’s coun­try. The coun­try, with all of its agony and all of its faults, is still the most gen­er­ous and the most open soci­ety on earth.” (Com­pare those sen­ti­ments to those of our Pres­i­dent, who on many recent occa­sions has felt com­pelled to ap0logize for our coun­try. See our post Read It and Weep.)

The speaker of those lines, Lawrence Lee, then pleads for those old enough to be grown-​up to, well, actu­ally grow-​up. “Ours (gen­er­a­tion) is ask­ing yours to be men rather than chil­dren, before some fright­ened tyrant with the aid of other fright­ened and igno­rant men seeks to make all of us slaves in reac­tion to your irresponsibility.”

Well, it hasn’t played out exactly that way because – more often than not – it has been the government’s own social poli­cies that have fos­tered and fed the irre­spon­si­bil­ity. But, unfor­tu­nately, it’s not THAT dif­fer­ent than where we stand today, and more impor­tantly the end result may be exactly what Mr. Lee pre­dicted if respon­si­ble cit­i­zens remain pas­sive and ret­i­cent. Now is the time to remind your elected rep­re­sen­ta­tives and sen­a­tors that they are pub­lic ser­vants–your pub­lic ser­vants–with heavy empha­sis on the ser­vant part.

Before con­tin­u­ing, how­ever, let’s take a very short tour through a few of the irre­spon­si­bil­i­ties that we have observed?

• Too fat? Must be some fast food chain’s fault.
• Spilled hot cof­fee on your­self? Must have been the restaurant’s fault? The hot cof­fee is too hot.
• Don’t have health insur­ance? Can’t afford both insur­ance and smokes; can’t get free cig­a­rettes from any­one, but can get many types of free health-​care. Some­thing has got to give, and, you know, nico­tine is an addiction.
• Got a mort­gage that can’t be paid unless the house dou­bles in value and you can sell? Blame the “greedy” banks who funded the loan.
• Lost hun­dreds of bil­lions of out­ra­geous bets? Not the board’s or management’s fault. Every­one else was doing it.
• Spent thirty years and untold bil­lions and can’t design an auto­mo­bile that cus­tomers want? Not your fault. Those clever, bad for­eign­ers have bet­ter stuff, you deserve a “do-​over.”
• Can’t behave. It’s not a lack of dis­ci­pline. It must be some dis­ease! It’s not your fault.
• Can’t grow crops effi­ciently. Don’t worry, here’s some cash.
• Dri­ving while drunk? It’s the bar­tenders fault.
• Can’t run Medicare and Med­ic­aid or pre­vent bil­lions in fraud? Blame the “greedy, mis­an­thropic” insur­ance com­pa­nies, drug com­pa­nies, for-​profit hos­pi­tals, char­i­ta­ble hos­pi­tals, and physicians.

Ad nau­seum – until we are left with our nearly infan­tilized and sis­si­fied cul­ture.²

It is not a fright­ened tyrant and his min­ions that seek to con­trol more of the econ­omy and more of our lives.³

Instead, they are seem­ingly benev­o­lent (though still quite igno­rant) men and women who want to exer­cise con­trol over another sixth of the econ­omy – mainly because so many of our fel­low cit­i­zens don’t seem to be able to han­dle the respon­si­bil­ity of their own lives.⁴

If one lis­tens to Mr. Obama and his sup­port­ers, the solu­tion to “the health-​care prob­lem” is nearly free and cost­less. Bet­ter care, lower costs. What’s not to like?⁵

Why, to lis­ten to them you would think that their plan is pure arbi­trage. The gov­ern­ment will exploit “mar­ket” inef­fi­cien­cies caused by the “demonic” insur­ance com­pa­nies, the “greedy” drug com­pa­nies, the “inef­fi­cient” hos­pi­tals, and the “par­a­sitic, self-​serving” physi­cians who rip healthy ton­sils from the throats of chil­dren all for a few more dol­lars. Once they are tamed and con­trolled, cen­tral­ized bureau­crats will solve the prob­lem bet­ter than decen­tral­ized, self-​motivated indi­vid­u­als. Good grief! ((See Like the State Liquor Stores? You’ll Love Obama’s Health­care! and When Dupli­ca­tion of Effort Saves Money, which is sub­ti­tled, “The High Cost of Cen­tral­iza­tion at the Defense Depart­ment,” for sim­i­lar notions. If you live in states with­out liquor con­trol boards, think of the DMV.)

Yes, it’s pos­si­ble that Mr. Lee’s feared dystopia could still come to pass, but we are encour­aged by the reac­tions of our fel­low cit­i­zens at the var­i­ous town-​hall meet­ings dur­ing the past few weeks. The strong, silent types are los­ing their ret­i­cence. (See We Like Her, but She Is Wrong and The Cost of Insu­lar­ity for related posts.)

More­over, as we have writ­ten before, we sus­pect that Obama’s four years – like Carter’s – will prove to be an excel­lent incu­ba­tion period for the next gen­er­a­tion of con­ser­v­a­tives. (We wrote about that on July 1^st in Pro­hi­bi­tion, “Black Liquor,” and Free­dom. See the last half.)

Wouldn’t it be cool, man, if that gen­er­a­tion and the Wood­stock gen­er­a­tion matured at the same time? Oth­er­wise, “turn on, tune in, drop out” may refer to some type of government-​mandated euthana­sia just about the time that the health-​care-​related deficits explode, and the old­est boomers reach advanced old age.

P.S. Regard­ing the Eng­lish hos­pi­tals men­tioned in the very first line, we recently had a con­ver­sa­tion with a man who had retired from the British mil­i­tary and was in the States vis­it­ing rel­a­tives. He com­plained that the unsan­i­tary con­di­tions and high infec­tion rates in Great Britain were caused by ille­gal immi­grants per­form­ing the jan­i­to­r­ial tasks. We doubted that hypoth­e­sis, because we doubt that there are pro­por­tion­ally fewer ille­gals per­form­ing that work in the USA. More­over, we men­tioned that if our sup­po­si­tion were cor­rect, then the dif­fer­ence likely related to man­age­r­ial con­trol and incen­tive issues and the gen­eral supe­ri­or­ity of pri­vate solu­tions to government-​imposed ones.

Foot­notes:

It’s quite delightful.

There are two arti­cles in the left-​hand col­umn of the front page of our paper copy of today’s Pitts­burgh Tribune-​Review. (That’s a mouthful!)

The top one (in the paper) is enti­tled, Angry crowd jeers Specter.

The bot­tom one is Toomey ahead by 12 points.

The top one is justice.

The sec­ond one is what we hope to read after 8:00 PM on Tues­day, Novem­ber 2, 2010 – God will­ing. That would be jus­tice, too. How­ever, while twelve points would be nice, a half point vic­tory for Toomey might be bet­ter. That would stick in Mr. Specter’s craw a good, long, time. On sec­ond thought, let’s be gra­cious and not vin­dic­tive; twelve is good.

By the way, the sec­ond arti­cle men­tioned that “…a major­ity of Penn­syl­va­nia vot­ers view Specter unfa­vor­ably.” To our new friends we have a sim­ple ques­tion: what took you so long?

We recently received a brochure from a second-​tier busi­ness school describ­ing its one-​day exec­u­tive edu­ca­tion courses for the fall semester.

Given the brief descrip­tions, it is truly amaz­ing how much could be taught (and pre­sum­ably learned) in one day – prob­a­bly six hours of class. From lead­er­ship to man­age­ment to com­mu­ni­ca­tion to con­flict res­o­lu­tion – even val­u­a­tion – it was all there for the tak­ing and all designed to make the stu­dent and his or her orga­ni­za­tion “world class.”

As a pro­fes­sor, we would have been an abject fail­ure teach­ing those ses­sions. Given our lim­i­ta­tions, there is no way that stu­dents could have mas­tered such mate­r­ial in such a short period of time.

Now, of course, that made us wonder.

Let’s take for granted the effec­tive­ness of each of the courses. If the school could do it for oth­ers, why couldn’t fac­ulty mem­bers and the admin­is­tra­tion spend a few days in each oth­ers’ classes and turn their second-​tier school into a top-​tier one? Is it per­haps eas­ier to say than do?

Before we could come up with a sat­is­fac­tory answer on our own, we read the first para­graph from a book review in today’s edi­tion of The Wall Street Jour­nal: Leav­ing Mom and Dad. It seems a bit harsh, but not off-​target.

This is a rather amus­ing arti­cle from Thursday’s edi­tion of The Wall Street Jour­nal: ‘Fastest Dying Cities’ Meet for a Lively Talk. It’s about rep­re­sen­ta­tives of dying rust-​belt cities (DNR) com­plain­ing about the lack of pos­i­tive press coverage.

We have a two ques­tions: how many bil­lions or hun­dreds of bil­lions of local, state, and fed­eral dol­lars have already been spent attempt­ing to revi­tal­ize these cities? Does the reader think that reporters and blog­gers would den­i­grate those cities if the money had been well-​spent and past revi­tal­iza­tion efforts had suc­ceeded or cur­rent efforts were per­ceived to have a fair chance at success?

For a few years, we spent quite a bit of time and shoe rub­ber walk­ing the grimy streets and trails near Pittsburgh’s rivers. We often joked with a friend about the silly notion “indus­trial chic.” Usu­ally it involved liv­ing in a dirty, high-​crime area in a drafty ware­house or aging, mouldy, apart­ment build­ing. Much to the cha­grin of the 600,000 peo­ple who aban­doned Allegheny County in the past 35 years or so, many of the areas are no longer indus­trial and are quite the oppo­site of chic.

Despite the empir­i­cal evi­dence of their fail­ures, we sus­pect that the rede­vel­op­ers won’t wake-​up, but we do won­der why we – as a tax-​payer – must pay for their dreams?

P.S. For a related mate­r­ial, see our post from Jan­u­ary, The Pitts­burgh Dias­pora.

We’re a few days late, but in Wednesday’s edi­tion of The Wall Street Journal there was an arti­cle, Econ­o­mists Call for Bernanke to Stay, Say Reces­sion Is Over, and a col­umn, Fore­cast: Next Year Will Arrive in 2010-​ish. It’s prob­a­bly best to read the lat­ter one first.

The first reports that in a sur­vey, many “econ­o­mists” believe that the reces­sion is over. The lat­ter reports that folks are pretty bad at forecasting.

We’re both­er­ing to write to men­tion that we’d like to see such sur­vey results reported with just a bit of skep­ti­cism and a qual­i­fi­ca­tion or two.

Of course, we’re more than just a bit skep­ti­cal; so, we’d attribute fore­cast­ing suc­cess – even over a long hori­zon – to good luck rather than to skill or clair­voy­ance. We sus­pect the the sen­si­ble “econ­o­mists” would agree but would never admit it publicly.

Our Pres­i­dent, the Bub­ble Boy

Dorothy Rabi­nowitz has an excel­lent opin­ion col­umn in today’s edi­tion of The Wall Street Jour­nal: Obama’s Tone-​Deaf Health Cam­paign.

The head­line aptly describes the con­tent, but it is well worth read­ing in its entirety. (By the way, one of our other favorite Jour­nal writ­ers, Peggy Noo­nan, had a related col­umn about health-​care in last weekend’s edi­tion: ‘You Are Ter­ri­fy­ing Us’, and William McGurn has a good one in today’s paper, too: The Health-​Care Grail.)

For what­ever rea­son, we doubt that through­out his adult life Mr. Obama has been chal­lenged to explain and defend his posi­tions very care­fully. He cer­tainly doesn’t act like he has had to do so. It’s at least par­tially due to the insu­lar­ity of acad­e­mia and Chicago pol­i­tics and the Sen­ate, but it’s not a very good way to be, espe­cially as Pres­i­dent of the United States – a posi­tion that arguably receives more crit­i­cism than any other in the world. (Until Ben Roethe­lis­berger suc­cess­fully replaced Terry Brad­shaw 21 years after the latter’s retire­ment, the other posi­tion to receive as much crit­i­cism as the Pres­i­dent was the start­ing quar­ter­back for the Pitts­burgh Steelers.)

We men­tion Ms. Rabinowitz’s col­umn because it reminds us of a few posts that we pub­lished dur­ing the past year, and we think are worth bring­ing to the atten­tion of new readers.

A year ago yes­ter­day, we wrote Mort­gage Losses, the Obama Cam­paign and Uncer­tainty Man­age­ment. At the end of that post, we equated many finan­cial mar­ket traders and struc­tur­ers and ana­lysts with – what was at that time – the Obama cam­paign. We wrote that nei­ther group knows what they don’t know, and that’s par­tially due to hubris and par­tially due to care­less­ness and pres­sure. It’s also due to the above-​mentioned insu­lar­ity. They could all learn from Don­ald Rums­feld and St. James the Lesser (and Socrates before him). Gen­er­ally, not know­ing that one doesn’t know every­thing – and believ­ing that one has all of the answers– makes folks more con­fi­dent, but in a dan­ger­ous, imma­ture, and destruc­tive way.

Early last Octo­ber, we wrote What Mon­ster Hath They Wrought? While we admit that post was a bit over-​the-​top, we do think that the ruckuses that ordi­nary cit­i­zens are cre­at­ing at health-​care-​related “town­hall” meet­ings are exam­ples of what we noticed and wrote about – what we’d now call the “we-​are-​mad-​as-​hell-​and-​not-​going-​to-​take-​it-​anymore” attitude.

By attack­ing the motives of ordi­nary and con­cerned cit­i­zens, Mr. Obama will con­tinue to lose cred­i­bil­ity (and seem like an inse­cure cry-​baby). More­over, the com­bi­na­tion of those over-​reactions, as well as his ini­tial reac­tion to attack the police offi­cer from Cam­bridge, has and will con­tinue to harm his pub­lic stand­ing. Ordi­nary cit­i­zens don’t like to see their actions and motives or their policemen’s actions and motives attacked with­out good cause. Again, there seems to be no grown-​up in the admin­is­tra­tion will­ing to say, “stop, why are you attack­ing the folks you should be try­ing to persuade?”

In regard to our fel­low cit­i­zens who are will­ing to go to meet­ings and com­plain, we point read­ers to a post from early April, in which we crit­i­cized Peggy Noo­nan: We Like Her, but She Is Wrong. She had men­tioned a divide between the polit­i­cal class that was crit­i­cal of Pres­i­dent Obama and what she con­sid­ered to be a more for­giv­ing and patient and accept­ing citizenry.

We didn’t see it then (or now). Based upon our sev­eral months of con­ver­sa­tions with friends and acquain­tances – the rel­a­tively quiet and unap­pre­ci­ated middle-​class that makes this nation what it is – we wrote that she con­fused the ret­i­cence of ordi­nary cit­i­zens to pub­licly com­plain and protest with accep­tance and approval of the new Pres­i­dent and his policies.

Noth­ing that we’ve observed in the last four months have changed our mind. How­ever, if you read her most recent col­umn – the title “You Are Ter­ri­fy­ing Us,” says it all – it seems that she has re-​evaluated the situation.

Thus, we think the Pres­i­dent and administration’s insu­lar­ity and lack of self-​criticism and will­ing­ness to impugn the motives of his pol­icy oppo­nents will harm Mr. Obama’s ini­tia­tives – many of which are poorly con­sid­ered – and that’s fine with us.

P.S. Is this “fishy” enough to qualify?