I haven't posted in more than five weeks, having submitted myself to an alternative form of torture - the "wayward son college application ordeal".
I applied to colleges in the 1970s. And wow. I am not in Kansas any longer.
Talk about a meat grinder, a cellulose processor, a proctology exam, a test of faith, a deal with the devil, a flirtation with death. All rolled into one. Working with my son to submit applications to 10 schools (more shortly on why we applied to 10, and nearly considered to applying to 310) consumed every second of my spare time between November 1 and January 1.
And that does not include the remaining hours (days? weeks?) necessary to submit to his colleges the scores of financial aid forms (CSS, FAFSA, Business/Farm Supplement, copies of W-2's, 1040's, K-1's), and presumably the hours that will also be spent prostrating myself before brooding, punitive financial aid enforcers (hooded, shirtless, broadsword-wielding, teeth-blackened, breath-putrescent).
In the old days, applying to college was a low-key affair. Even the most competitive schools had yet to amp up their application process. We filled out a simple form, wrote a short (laughably bad) essay, sent in our SAT's and perhaps one or two pathetic scores from AP classes, asked our teachers to submit desultory letters of recommendation (I think desultory was the expectation), and all was well.
I grew up in Princeton, New Jersey, where, because of the influence of Princeton University, all of students at Princeton High School - except for me - were good-looking, brilliant, and sexually active. And even I had a positive, low-stress college application experience. I applied to five schools, visited them all (by myself) by train or plane, stayed overnight in the dorms with students, was introduced to the most "on" alcohol and drugs of choice at that school, possibly attended a class (but possibly didn't), and generally learned as little as I could about the school's academics during the time on campus.
Oberlin offered to admit me during my interview. Of course, that immediately destroyed any interest I might have had in going there. Yale and Swarthmore wait-listed me. For somewhat unclear reasons, I preferred Swarthmore (small, nerdy, a place where I was destined to feel lonely and isolated) from Yale (which even then was the coolest school in the world, made even cooler at the time by the omnipresent, titillating threat of being mugged or murdered whenever one stepped three feet beyond the 60-foot high, machine-gun-manned, razor wire walls of the campus).
Because I preferred Swarthmore, I wrote an insincere, ingratiating letter to the Dean of Admissions about how I had wanted to attend Swarthmore ever since I'd learned as a young lad that the college's former president had, heroically and melodramatically, dropped dead of a heart attack in his office during a days-long blockade by gun-wielding black militant students in the late 1960s (trust me, the idea of "black militant students" at Swarthmore would not be so different from casting David Spade as rapper Biggie Smalls in the newly released biopic). I also thought it was cool that the school straddled railroad tracks where depressed students routinely rested their heads just before the Media Local commuter train rattled around the bend, always on schedule with death.
So of course, Swarthmore admitted me. And I lived unhappily ever after. But the point is that college applications back then - for baby boomers - were simply not that big a deal. The parents were not involved. The cost was not outrageous (I think Swarthmore cost about $4,000 for tuition, room, and board my first year). It wasn't very hard to get into a good school. I had one friend with good grades and SAT's, but absolutely no extracurricular activities or awards. He applied (late, if I remember) to only Yale and Harvard. And he got into Yale.
Ahh, times have changed. Let's consider my son. Let's call him "Daniel". Let's consider my son's high school and friends. And let's also consider their infinitesimally small chances of getting into college. And then their even smaller chances of paying for college. And the ensuing acrobatics and pyrotechnics that ensue between November and January to provide our offspring with the slightest extra edge in the battle to bankrupt ourselves so we can plant a sticker on our car window that names some tiny college no one has ever heard of.
"Daniel" attends Garfield High School in Seattle, an urban, predominantly African-American high school of about 1,600 students with deep historic roots in the black community of Seattle. Students attending Garfield include Quincy Jones, Jimi Hendrix, Bruce Lee, and, most recently, NBA Rookie of the Year and All-Star, Brandon Roy.
Garfield is also a feeder school for students in the Seattle Public Schools Accelerated Progress Program, a separate (highly controversial) learning environment for academically gifted students, most of whom are white or Asian. Daniel has been in this program since 1st grade. He has always been very bright, with significant talents in music and writing, but never been the least bit ambitious, driven, or passionate about his schoolwork. He's only done the minimum amount of work necessary to get the grades he wanted, generally at the last minute, and sometimes even then falling short.
What I respect about Daniel is that he is not at all like his father. Daniel places a high value on being happy, and works hard at defining moments of happiness for himself. Everyone at Garfield knows "Danny". He is well-regarded for his kind and unpretentious manner, his generosity of spirit, his loyalty, his great sense of humor, and the delight he takes in just goofing around with friends. In short, he is just the sort of student who has almost no chance of getting into the schools where he would thrive, grow, and achieve the happiness toward which he strives.
So this was our predicament heading into the school year. Ironically, I knew (although no one else possibly could) that Daniel would be more at risk at the less competitive colleges than at the most competitive colleges because he would inevitably float in the middle - contributing in many small and significant ways to the well-being of the school, but only challenging himself to achieve in the classroom in ways that made sense to him. I knew he could handle the work at the top schools (even though his grades might not indicate it) and that he would grow enormously as a person and as a student at one of these schools. I also knew that he would be bored at the lesser colleges (where it might seem he would more easily outperform his peers).
But try laying this argument on the more elite colleges and universities in the country: If you admit me, you can expect me to provide the glue that all communities of young people need to thrive and flourish, but can also expect me to drift a bit academically, particularly at first, not because I cannot handle the work, but because more than anything, I care about the glowing moments of happiness that a life in balance will produce, poking holes in the umbra of campus existence, flooding it with warmth and illumination that transcends and makes palatable the often-dry, exhausting work of studying and learning from books.
So Daniel, surrounded by peers who achieve at superhuman levels (and mindful that he was, first and foremost competing against his superhero high school friends because they were all applying to the same schools), crafted a strategy that involved applying to lots of very good schools, knowing that his odds of getting in were relatively low, but realizing that nonetheless these truly were the schools where he belonged.
Enter his father. The same "in-the-moment" spontaneous approach to life that makes Daniel at once so charming and so infuriating meant that there was no way he would be able to manage the herculean organizational tasks involved with applying to 10 schools on his own At the age of 17, when happiness, spontaneity, and living in-the-moment mean, above all, not spending time with his parents, neither Daniel nor I relished the interactions my efforts to assist him in assembling, thinking about, writing, editing, and submitting the materials for each school's application would require. Would my relationship with Daniel - already a bit like hugging a cactus - survive?
We did one thing right. Daniel decided to apply to Yale Early Action. This was a delusional decision in the sense that he really had no chance. With Harvard and Princeton eliminating their Early Decision programs, every talented kid in the country was instead applying to Yale. Their Early Action numbers soared by 60 percent in two years. This year, the school admitted only 13 percent of these applicants. And after tracking the College Confidential message board like a stalker in the days before the November 15 announcement - where every student waved like flashing badges of glory their 2400 SAT's, 4.0 GPA's, and Perfect 5's on the 10 or 12 AP exams they had taken - I welcomed Daniel's rejection. I think he cared more about going to school where people were smart and happy, not perfect and plastic.
Daniel's rejection from Yale did provide some good news. Yale had removed from play a very large pool of perfectly plastic applicants, who would no longer trouble Daniel and and his friends at the other schools where he was applying. Another piece of good news was that by applying early to Yale, Daniel had gotten his ducks in a row for the Common Application, the allegedly "streamlined" approach to submitting applications to multiple schools. All ten of Daniel's schools relied upon the Common Application, so preparing it for Yale meant that Daniel could focus only on the "supplements" to the Common Application that all schools require.
In truth, these "supplements" were often as daunting as the Common Application. With the nearly ubiquitous January 1 deadline bearing down us during the holiday break, getting each of these applications in order generated enormous stress. The fault lines of our world had already been cracking. My company, which serves legal and financial professionals, faced an uncertain future as the country disintegrated financially. I also had made the mistake of taking on responsibility for my son's high school band jazz website (on the misguided assumption that, after a lifetime of avoiding any commitment to volunteering in any way at all, it was time for me to "give back" to the musical organization that had given so much to my son). Finally, we had no money but were doing our best to create a "festive" holiday mood for our children. Amidst this confusion and stress, I also had to apply pressure on Daniel every day, every hour, to make sure he was focused on his essays and his mind had not drifted off to Facebook or YouTube or The Wire or Madden or a game of Fugitive with his friends.
Daniel did not appreciate this pressure. He understood rationally the importance of these applications, but some, supremely healthy part of himself rebelled against the idea that they should take so much from him, that they should warp his life, distract him from his studies, his music, his own writing, his athletics and his friends (perhaps not so much from his family). And so we drew our hammer and our tongs and went to war for three weeks. Not pervasively and consistently, but intermittently and with savage intent. He swore. I yelled. He slammed doors. I stomped out of the house. We both glowered. As my wife likes to put it, we battled like dinosaurs, the most primal and survival-oriented parts of our brains activated and firing like Gatling Guns.
In the end, Daniel submitted his applications on time. The outcome is now out of his hands. He still needs to nail his grades for this semester, so he and I still posture and bellow from time to time. But the moment of surcease is at hand for him, that point in time when he can relax because his destiny is now with others to determine. Maye this the way someone feels when they walk to the gallows and they realize that all is now with God. Is it a sensation of peace? Or grace? Of fear? I do not know. But at least one can let go. And for a 17-year old who needs to get on with the great adventure of taking on life with both hands and riding it raw, letting go of the college decision-making process must feel pretty damned good.
As for me, I continue to fret and obsess. Beyond the financial aid hurdles, I have taken to crunching numbers and building models to predict various probabilities for admission. A certain, soothing fascination accompanies this mechanical absorption in abstraction because it offers illusions of rationality, understanding, and control in a decision-making universe that is very much not about those things.
I've learned a lot about the empirics of admission, too. For example, at many schools, girls have nearly a 50-percent smaller chance of gaining admission than boys (they apply in much greater numbers). On the other hand, it also helps immensely to apply as a racial minority or as an athlete or as the child of a parent who attended that school. The hot "hook" these days is to be the first person from one's family to attend college. Daniel falls short in all respects. His parents are embarrassingly over-educated. Daniel is so white he is almost translucent. And while he loves sports, his cross-over dribble might not gain him admission to the local middle school.
I have created admissions models that allow me to project the chances that any child will gain admission to a particular school from within a universe of schools to which they've applied (after all, only one school needs to step up and say "I choose you!"). They generally verify the obvious - make sure you have a safety or two. But they also indicate that applying to many fine schools is also not a bad approach.
Whether my models apply in the real world - whether they matter in Daniel's case - remains to be seen. We will know by April 1. Perhaps I will report what happens on that date ... if my mind and body can survive our efforts to figure out how to pay for whatever school does admit Daniel.
Saturday, January 17, 2009
Monday, December 8, 2008
Facebook's Face Plant: The Poverty of Social Networks and the Death of Web 2.0
It is safe now to say that "Web 2.0" is dead. The evidence is irrefutable and it exposes the twin fallacies the concept of Web 2.0 has depended upon: 1) that people can build their worlds around - indeed, will want to build their worlds around - social networking; and 2) that social networking offers a viable, massively scalable business model.
Let's begin with Facebook, the most popular social networking website in the world. With more than 120 million members, and 60 billion monthly page views, the website is expanding at a white-hot rate. At any given time, students are facebooking each other around the world - in more than 30 languages (with user-created translated editions of the site) - thousands of time per second. While not yet profitable, Facebook has achieved in only four years the signifier of a premium brand - it is now a verb.
A recipient of almost $350 million in equity funding (and another $240 million in debt funding), Facebook charmed the technocracy in 2007 when Microsoft purchased a 1.6 percent stake for $246 million, valuing the company at more than $15 billion. Now, as we close the books on 2008, one might wonder if Facebook is actually worth anything.
The company has grown rapidly by any measure, with estimated 2008 revenues of nearly $300 million. From zero to $300 million in four years is nothing to sneeze at. But the company is burning through cash much more quickly than it can replenish its coffers. Its electricity, bandwidth, data storage, and personnel costs are immense. The company needs to buy 50,000 servers alone in 2008 and 2009 to manage its traffic and storage needs.
At the same time, the economy - and advertising rates for banner ads - have fallen off a cliff. Facebook has grown overly dependent on international growth - with 3 out of 4 users from outside the United States. Foreign use is expensive to support and generates little revenue. And so the rumor mill churns with stories of the company's financial quandary. Will Facebook run out of cash? Has it grown too large for US corporations, private equity funds, and venture funds to finance? Can it go public? Why is Facebook CFO Gideon Yu in Dubai? Is a sovereign wealth fund the only cash option for Facebook at this point? Is Facebook itself staring into the gun barrel of the largest financing down-round in history?
Facebook's problem is not simply that it cannot grow revenues rapidly enough. Facebook confronts the challenge that aggrieves any social network creating a virtual reality for building and sustaining human relationships. That challenge is Burnout, the acrid smell of neurons frying, and eventually a longing to return to the wholeness of the physical world.
Some examples. My 17-year old son uses Facebook 2-3 hours a day, switching back and forth between FB, ESPN, YouTube, Gmail, Google Docs, and iTunes with the smooth, liquid lightning of a boy who has manipulated game controllers for more than a decade. He loves Facebook. He depends on it for a vast amount of communication, self-expression, entertainment, and bonding with his peers. But I asked him if he would be willing to pay any amount of money for an annual subscription to Facebook. He paused, and then finally said, "I dunno. Maybe $50. Max."
Kids are turning off to Facebook. Two of my son's friends have deactivated their accounts. They realized that they had too many "friends" whom they did not actually know. They found themselves clicking aimlessly from page to page for too many hours at a time. They got bored. They missed books and movies and the peaceful white space in their lives that Facebook (not to mention MySpace) is so bent on filling in with user-generated "content".
They grew up.
And one day, my son will, too. As Facebook has percolated down to kids in high school (and now even to middle school) and bubbled up to parents who are now themselves "friends" with the friends of their children and spread to every corner of the globe, it has become less exclusive, less interesting, more overwhelming, and ultimately more annoying.
The problem with Facebook is that it feeds on trivia, and in the process has become trivial itself.
What, in the end, will people pay for trivia? Very little. At my behest, my son polled his friends and asked them what they would pay for an annual subscription to Facebook. He asked 9 boys and 6 girls. Remember, these are high school juniors and seniors, the sweet spot of the Facebook market. In this sample, 5 kids said they would not pay anything. Another 6 said they would not pay more than a dollar a month. The most anyone would say Facebook was worth to them was $50 annually. Wanting, as always, to fit in, my son reduced his own payment limit to $25 as he reported these results.
This creates a major problem for Facebook, and for other Web 2.0 social networks. The problem is commitment. Facebook has created loyalty without value, quanitity that drowns quality. Who can say that MySpace or adult versions of Facebook such as Linked In are any different?
During the election, the addictive and massively popular political site, Pollster.com, disabled its comments feature. Mark Blumenthal simply could no longer accept the assault of abusive, insulting, and profane comments of anonymous posters to the website. And this is the problem with Web 2.0. There is no filter for quality. Websites built around or dependent upon user-generated content all too often resemble online versions of talk radio.
Web 2.0 will die. The universal social networks that are its public face cannot survive because they cannot propagate a sustainable user base willing to pay for its services. Remember America Online? Netscape killed it (and so AOL killed Netscape). Facebook is nothing more than a new version of America Online, with lots of calories but not much nutrition.
If Web 2.0 dies, it will nonetheless leave a remarkable legacy. Social information and knowledge sharing technologies such as those one finds on Wikipedia, Amazon, Flickr, and even the New York Times website are incredibly efficient ways to harvest useful opinion and knowledge. Product reviews on Amazon pool valuable user experiences with specific products (although typically not with books, where Amazon book reviews can suffer from the same oversaturation as Facebook - consider this reflection on the mixed reception from Amazon readers of Jonthan Franzen's best-selling literary novel, The Corrections).
Flickr lets anyone travel the world while sitting in bed with a laptop computer (want to see 666,000 photos of Iceland?). And Manhola Dargis's November 21 review of the creepily chaste vampire movie, Twilight, elicited more than 1,000 reader responses when she solicited their opinions about the scariest movie of all time.
The lesson is clear. Social information and communication requires targeted aim, meaningful purpose, and self-correcting standards of quality. Universal social networks such as Facebook, almost by definition, cannot maintain this focus. For this reason, they cannot survive in their current form.
Let's begin with Facebook, the most popular social networking website in the world. With more than 120 million members, and 60 billion monthly page views, the website is expanding at a white-hot rate. At any given time, students are facebooking each other around the world - in more than 30 languages (with user-created translated editions of the site) - thousands of time per second. While not yet profitable, Facebook has achieved in only four years the signifier of a premium brand - it is now a verb.
A recipient of almost $350 million in equity funding (and another $240 million in debt funding), Facebook charmed the technocracy in 2007 when Microsoft purchased a 1.6 percent stake for $246 million, valuing the company at more than $15 billion. Now, as we close the books on 2008, one might wonder if Facebook is actually worth anything.
The company has grown rapidly by any measure, with estimated 2008 revenues of nearly $300 million. From zero to $300 million in four years is nothing to sneeze at. But the company is burning through cash much more quickly than it can replenish its coffers. Its electricity, bandwidth, data storage, and personnel costs are immense. The company needs to buy 50,000 servers alone in 2008 and 2009 to manage its traffic and storage needs.
At the same time, the economy - and advertising rates for banner ads - have fallen off a cliff. Facebook has grown overly dependent on international growth - with 3 out of 4 users from outside the United States. Foreign use is expensive to support and generates little revenue. And so the rumor mill churns with stories of the company's financial quandary. Will Facebook run out of cash? Has it grown too large for US corporations, private equity funds, and venture funds to finance? Can it go public? Why is Facebook CFO Gideon Yu in Dubai? Is a sovereign wealth fund the only cash option for Facebook at this point? Is Facebook itself staring into the gun barrel of the largest financing down-round in history?
Facebook's problem is not simply that it cannot grow revenues rapidly enough. Facebook confronts the challenge that aggrieves any social network creating a virtual reality for building and sustaining human relationships. That challenge is Burnout, the acrid smell of neurons frying, and eventually a longing to return to the wholeness of the physical world.
Some examples. My 17-year old son uses Facebook 2-3 hours a day, switching back and forth between FB, ESPN, YouTube, Gmail, Google Docs, and iTunes with the smooth, liquid lightning of a boy who has manipulated game controllers for more than a decade. He loves Facebook. He depends on it for a vast amount of communication, self-expression, entertainment, and bonding with his peers. But I asked him if he would be willing to pay any amount of money for an annual subscription to Facebook. He paused, and then finally said, "I dunno. Maybe $50. Max."
Kids are turning off to Facebook. Two of my son's friends have deactivated their accounts. They realized that they had too many "friends" whom they did not actually know. They found themselves clicking aimlessly from page to page for too many hours at a time. They got bored. They missed books and movies and the peaceful white space in their lives that Facebook (not to mention MySpace) is so bent on filling in with user-generated "content".
They grew up.
And one day, my son will, too. As Facebook has percolated down to kids in high school (and now even to middle school) and bubbled up to parents who are now themselves "friends" with the friends of their children and spread to every corner of the globe, it has become less exclusive, less interesting, more overwhelming, and ultimately more annoying.
The problem with Facebook is that it feeds on trivia, and in the process has become trivial itself.
What, in the end, will people pay for trivia? Very little. At my behest, my son polled his friends and asked them what they would pay for an annual subscription to Facebook. He asked 9 boys and 6 girls. Remember, these are high school juniors and seniors, the sweet spot of the Facebook market. In this sample, 5 kids said they would not pay anything. Another 6 said they would not pay more than a dollar a month. The most anyone would say Facebook was worth to them was $50 annually. Wanting, as always, to fit in, my son reduced his own payment limit to $25 as he reported these results.
This creates a major problem for Facebook, and for other Web 2.0 social networks. The problem is commitment. Facebook has created loyalty without value, quanitity that drowns quality. Who can say that MySpace or adult versions of Facebook such as Linked In are any different?
During the election, the addictive and massively popular political site, Pollster.com, disabled its comments feature. Mark Blumenthal simply could no longer accept the assault of abusive, insulting, and profane comments of anonymous posters to the website. And this is the problem with Web 2.0. There is no filter for quality. Websites built around or dependent upon user-generated content all too often resemble online versions of talk radio.
Web 2.0 will die. The universal social networks that are its public face cannot survive because they cannot propagate a sustainable user base willing to pay for its services. Remember America Online? Netscape killed it (and so AOL killed Netscape). Facebook is nothing more than a new version of America Online, with lots of calories but not much nutrition.
If Web 2.0 dies, it will nonetheless leave a remarkable legacy. Social information and knowledge sharing technologies such as those one finds on Wikipedia, Amazon, Flickr, and even the New York Times website are incredibly efficient ways to harvest useful opinion and knowledge. Product reviews on Amazon pool valuable user experiences with specific products (although typically not with books, where Amazon book reviews can suffer from the same oversaturation as Facebook - consider this reflection on the mixed reception from Amazon readers of Jonthan Franzen's best-selling literary novel, The Corrections).
Flickr lets anyone travel the world while sitting in bed with a laptop computer (want to see 666,000 photos of Iceland?). And Manhola Dargis's November 21 review of the creepily chaste vampire movie, Twilight, elicited more than 1,000 reader responses when she solicited their opinions about the scariest movie of all time.
The lesson is clear. Social information and communication requires targeted aim, meaningful purpose, and self-correcting standards of quality. Universal social networks such as Facebook, almost by definition, cannot maintain this focus. For this reason, they cannot survive in their current form.
Mortgage Re-Default Rates. Be Scared. Be Very Scared.
Comptroller of the Currency John C. Dugan spoke before the 3rd Annual National Housing Forum of the Treasury's Office of Thrift Supervision today. He didn't waste any time getting to the point.
Dugan provided the bad news first. The third quarter OCC Mortgage Metrics report - on mortgages serviced by the largest banks and thrifts - reinforces the unnerving trends we already know about: declining credit quality, increasing delinquencies (especially for prime mortgages), increased foreclosures, and accelerating foreclosure sales.
And then he provided the badder news.
For the first time, the OCC tracked "re-default rates", the percentage of borrowers who re-defaulted on their mortgages following restructuring or other modifications designed to allow them to retain possession and ownership of their homes. The data is not pretty.
Consider the first quarter of 2008. After three months, 36 percent of borrowers with mortgages modified in this quarter had re-defaulted (with payments more than 30 days past due). At six months, this re-default rate had risen to 53 percent. And after eight months, it had reached 58 percent. The data is almost identical for mortgages modified in the second quarter of 2008. For those arguing that 60 days past due is a better predictor of ultimate default and foreclosure, the numbers are hardly better, with re-defaults in excess of 35 percent after six months.
Dugan asks the right questions about the cause of these high re-default rates, but admits the OCC - and probably no one else - yet has any answers. The deep structure to this problem may lie with the vicious cycle into which the housing credit meltdown has spun the nation - with rising unemployment, loss of health insurance, mounting credit claims, and an underlying psyche of despair - limiting the positive scope of simply restructuring mortgages to make them more "affordable".
Part of the problem, of course, is also that lame ducks can only quack. They cannot walk. We will need to await the launch of the Obama Administration and the policies of incoming Treasury Secretary Timothy Geithner to see what impact a more mobile, systematic, and full-bore attack on this complex set of economic problems can achieve. Reversing the rising rate of unemployment via stimulus may be the key. Until then, our response can only be one of shock and awe.
Dugan provided the bad news first. The third quarter OCC Mortgage Metrics report - on mortgages serviced by the largest banks and thrifts - reinforces the unnerving trends we already know about: declining credit quality, increasing delinquencies (especially for prime mortgages), increased foreclosures, and accelerating foreclosure sales.
And then he provided the badder news.
For the first time, the OCC tracked "re-default rates", the percentage of borrowers who re-defaulted on their mortgages following restructuring or other modifications designed to allow them to retain possession and ownership of their homes. The data is not pretty.
Consider the first quarter of 2008. After three months, 36 percent of borrowers with mortgages modified in this quarter had re-defaulted (with payments more than 30 days past due). At six months, this re-default rate had risen to 53 percent. And after eight months, it had reached 58 percent. The data is almost identical for mortgages modified in the second quarter of 2008. For those arguing that 60 days past due is a better predictor of ultimate default and foreclosure, the numbers are hardly better, with re-defaults in excess of 35 percent after six months.
Dugan asks the right questions about the cause of these high re-default rates, but admits the OCC - and probably no one else - yet has any answers. The deep structure to this problem may lie with the vicious cycle into which the housing credit meltdown has spun the nation - with rising unemployment, loss of health insurance, mounting credit claims, and an underlying psyche of despair - limiting the positive scope of simply restructuring mortgages to make them more "affordable".
Part of the problem, of course, is also that lame ducks can only quack. They cannot walk. We will need to await the launch of the Obama Administration and the policies of incoming Treasury Secretary Timothy Geithner to see what impact a more mobile, systematic, and full-bore attack on this complex set of economic problems can achieve. Reversing the rising rate of unemployment via stimulus may be the key. Until then, our response can only be one of shock and awe.
Friday, November 21, 2008
His Keyboard versus the Climate
Eric de Place published a fabulous post in Sightline on November 20 entitled "My Keyboard Versus the Climate". In the spirit of Think Globally, Act Locally, Eric points out that the handy little air blasters from Office Depot that we use to clean our keyboards and spray down the pants of our co-workers are miniature greenhouse gas bombs. Emptying one of the canisters onto a co-worker can release greenhouse gas equivalent to driving a smallish car across the country and halfway back again.
The fiendish chemical used in air blasters is tetrafluoroethane, a hydrofluorocarbon (HFC) developed to avoid the ozone-depleting effects of chlorofluorocarbons, the more traditional referigerant and propellant chemical compounds. So air blaster fans may notice that canisters advertise that they are "ozone safe", without equivalent disclosure that they are "greenhouse-gas castrophic". HFCs can be up to 20,000 times more powerful in their effects on global warming than a similar amount of carbon dioxide, with an atmospheric lifetime of 260 years, and have been targeted for elimination by the Kyoto Protocol.
Many economically developed nations - Australia and European nations, but not the United States or Japan - have initiated efforts to substitute use of compressed CO2 (believe it or not) for HFCs in refrigerant and propellant applications. Other Asian nations - notably Thailand - have also begun to use CO2 as refrigerant. However, China has long been gaming the carbon trading rules under the Kyoto Protocol, amassing billions of dollars of carbon credits by catching and destroying HFCs they have needlessly produced.
Greenpeace has been at the forefront of efforts to curb use of destructive refrigerant and propellant chemicals through its Greenfreeze effort. By 2004, this initiative had led some major multinational corporations, such as McDonalds, Coca-Cola, and Unilever, to incorporate more environmentally friendly refrigerants into their operations. However, the United States and Japan, along with China, have remained obstacles to reform. The U.S. Environmental Protection Agency, the Japanese Ministry of Economy, Trade, and Industry, and industry stalwarts such as Honeywell, DuPont, Ford, General Motors, Fujitsu, and Hitachi all oppose regulation.
The Alliance for Atmospheric Policy is the major trade group representing manufacturers and consumers of HFCs. Their focus is on gas containment and recovery based on voluntary industry efforts, rather than regulations limiting or banning manufacture altogether. Critics suggest that containment and recovery efforts are failing, with HFC leakage rates from automotive air conditioning approaching 30 percent.
So - throw out those cool little air blasters. In the Obama era, these will be as cool as a fist bump in Wasilla.
Since I publish for the Huffington Post, I also need to mention that huffing air blasters - which apparently some kids do - is a deadly game. Manufacturers now add a "bitterant" to discourage huffing, something Matt Drudge may consider doing to the Huffington Post.
The fiendish chemical used in air blasters is tetrafluoroethane, a hydrofluorocarbon (HFC) developed to avoid the ozone-depleting effects of chlorofluorocarbons, the more traditional referigerant and propellant chemical compounds. So air blaster fans may notice that canisters advertise that they are "ozone safe", without equivalent disclosure that they are "greenhouse-gas castrophic". HFCs can be up to 20,000 times more powerful in their effects on global warming than a similar amount of carbon dioxide, with an atmospheric lifetime of 260 years, and have been targeted for elimination by the Kyoto Protocol.
Many economically developed nations - Australia and European nations, but not the United States or Japan - have initiated efforts to substitute use of compressed CO2 (believe it or not) for HFCs in refrigerant and propellant applications. Other Asian nations - notably Thailand - have also begun to use CO2 as refrigerant. However, China has long been gaming the carbon trading rules under the Kyoto Protocol, amassing billions of dollars of carbon credits by catching and destroying HFCs they have needlessly produced.
Greenpeace has been at the forefront of efforts to curb use of destructive refrigerant and propellant chemicals through its Greenfreeze effort. By 2004, this initiative had led some major multinational corporations, such as McDonalds, Coca-Cola, and Unilever, to incorporate more environmentally friendly refrigerants into their operations. However, the United States and Japan, along with China, have remained obstacles to reform. The U.S. Environmental Protection Agency, the Japanese Ministry of Economy, Trade, and Industry, and industry stalwarts such as Honeywell, DuPont, Ford, General Motors, Fujitsu, and Hitachi all oppose regulation.
The Alliance for Atmospheric Policy is the major trade group representing manufacturers and consumers of HFCs. Their focus is on gas containment and recovery based on voluntary industry efforts, rather than regulations limiting or banning manufacture altogether. Critics suggest that containment and recovery efforts are failing, with HFC leakage rates from automotive air conditioning approaching 30 percent.
So - throw out those cool little air blasters. In the Obama era, these will be as cool as a fist bump in Wasilla.
Since I publish for the Huffington Post, I also need to mention that huffing air blasters - which apparently some kids do - is a deadly game. Manufacturers now add a "bitterant" to discourage huffing, something Matt Drudge may consider doing to the Huffington Post.
Wednesday, November 19, 2008
Risking Our Best Talent? Send Them All to Double-A Birmingham!
Serial entrepreneur Penny Hersher worries about a talent-retention challenge if Wall Street eschews bonuses this year. In response to a Bloomberg article on public objections to mega-bonus payouts to Wall Street executives, Hersher says that "talent" follows money, and if the money goes, then the "talent" that financial institutions need to flourish will likewise disappear. OMG, she writes! "Our best deal-makers will go where the money is and that better be in the Untied States and at the institutions that make our financial systems work."
Excuse me? "Make our financial systems work?" The compensation structure on Wall Street is the major reason our financial systems don't work!
Hersher assumes that without proper compensation an active, dynamic, international labor market will lure away an impressive cadre of Wall Street talent that has for years juiced revenue and earnings precisely so it can inflate its year-end bonuses. But this market has collapsed. To what new suckling breast will the securitizers and traders and analysts flee as markets and banks crumble around the world? And in the new world of highly regulated bank holding companies that will emerge from this wreckage, who will want their skills, their rancid flesh aboiling with the mortal sins of gluttony, avarice, fraud, theft, and cheating.
But that labor market reality is a trifle. No one suffering in middle America - because they have lost their job, cannot afford health care for their children, cannot make payments on their homes, cannot send their children to college, or cannot pay taxes to fund public schools, pave roads, and pay for police protection - believes that our most urgent need at this moment in time (or any moment in time) is to dispense obscenely outsized bonuses to Wall Street plunderers and pirates.
For this reason, the deep and abiding issue is whether Hersher is correct in her belief that money alone motivates talented people. Let's push her vague definition of "talent" aside for the moment so we can be very clear. There is a huge amount at stake in the validity of Hersher's belief, because the entire Wall Street economy has for years rested upon its shaky, misbegotten foundations.
There are three problems with the "talent follows money" equation. The first is the assumption that organizations are simply collections of self-seeking individuals. The second is that idea that the most talented people will invariably follow the money (as opposed to merely the greediest people). The third problem is the belief, prima facie, that because someone has been paid a lot in the past, they deserve even more in the future.
Let's attack all three problems at once by looking at everyone's favorite behavioral laboratory - major league baseball! In 1989, Michael Lewis published Liar's Poker, in which he nailed the go-go years on Wall Street in their infancy. Fifteen years later, he published Moneyball, which cracked open the science of sabermetrics, but which even more profoundly laid bare the truth about the delicate relationship between talent and money. Moneyball is a filigreed, layered sequel to Liar's Poker, justly regarded not simply as one of the better baseball books of all time, but as one of the most interesting depictions of organizational and managerial behavior ever written.
What we know about major league baseball, from watching the Yankees implode year after year, is that compensation often rewards past performance, but does not predict future performance. In 2008, with a payroll of $43 million, the Tampa Bay Rays won 97 games while the Yankees, with a payroll of $207 million, won only 89 games. The best general managers in baseball, starting with Oakland's Billy Beane, know that success is about creating highly functioning, cohesive organizations out of 25 gifted, competitive, volatile, young athletes ever at risk of being led astray - as Honest John leads Pinnochio astray - by temptation (here, substitute Scott Boras for Honest John).
What young general managers around the league have grasped, partly with the guidance of sabermetrics, but just as surely with insights about human behavior, is that talent is not static. Talent is developed. Teams take advantage of developing individual talent tactically and situationally A player who performs well in a National League park favoring left-handed hitters may lose 50 points in his average in an American League park favoring right-handed hitters.
Moreover, talent ripens like a fruit. In an expensive labor market, one wants to pay while the fruit is still green and mysterious, take advantage of its ripening, and then discard it at the peak of of its freshness, preferably for new fruit that is newly awakening to its own promise. How often have we seen players such as hypo-performing slugger Richie Sexson take advantage of favorable circumstances to post outrageous numbers, sign an equally outrageous contract on the free agent market, and then implode? Sexson received nearly $16 million from the Mariners in 2008 to bat .218 and hit 11 home runs.
In reality, the "best" players are the ones that help a team win. They may not be, and in fact likely will not be, the most expensive players on the market. They are the ones with "upside", the ones with passion, the ones who want to grow and learn, the ones who understand that if the team wins, the individual rewards will follow. The money is not unimportant to these players, but they possess the capacity to absorb the financial incentives within a larger and more complex array of motivations that are primarily non-monetary. Who, with a straight face, can claim that Wall Street plays by these rules, and that the rules by which Wall Street instead does play have truly served well both its institutions and its far-flung web of dependents?
Excuse me? "Make our financial systems work?" The compensation structure on Wall Street is the major reason our financial systems don't work!
Hersher assumes that without proper compensation an active, dynamic, international labor market will lure away an impressive cadre of Wall Street talent that has for years juiced revenue and earnings precisely so it can inflate its year-end bonuses. But this market has collapsed. To what new suckling breast will the securitizers and traders and analysts flee as markets and banks crumble around the world? And in the new world of highly regulated bank holding companies that will emerge from this wreckage, who will want their skills, their rancid flesh aboiling with the mortal sins of gluttony, avarice, fraud, theft, and cheating.
But that labor market reality is a trifle. No one suffering in middle America - because they have lost their job, cannot afford health care for their children, cannot make payments on their homes, cannot send their children to college, or cannot pay taxes to fund public schools, pave roads, and pay for police protection - believes that our most urgent need at this moment in time (or any moment in time) is to dispense obscenely outsized bonuses to Wall Street plunderers and pirates.
For this reason, the deep and abiding issue is whether Hersher is correct in her belief that money alone motivates talented people. Let's push her vague definition of "talent" aside for the moment so we can be very clear. There is a huge amount at stake in the validity of Hersher's belief, because the entire Wall Street economy has for years rested upon its shaky, misbegotten foundations.
There are three problems with the "talent follows money" equation. The first is the assumption that organizations are simply collections of self-seeking individuals. The second is that idea that the most talented people will invariably follow the money (as opposed to merely the greediest people). The third problem is the belief, prima facie, that because someone has been paid a lot in the past, they deserve even more in the future.
Let's attack all three problems at once by looking at everyone's favorite behavioral laboratory - major league baseball! In 1989, Michael Lewis published Liar's Poker, in which he nailed the go-go years on Wall Street in their infancy. Fifteen years later, he published Moneyball, which cracked open the science of sabermetrics, but which even more profoundly laid bare the truth about the delicate relationship between talent and money. Moneyball is a filigreed, layered sequel to Liar's Poker, justly regarded not simply as one of the better baseball books of all time, but as one of the most interesting depictions of organizational and managerial behavior ever written.
What we know about major league baseball, from watching the Yankees implode year after year, is that compensation often rewards past performance, but does not predict future performance. In 2008, with a payroll of $43 million, the Tampa Bay Rays won 97 games while the Yankees, with a payroll of $207 million, won only 89 games. The best general managers in baseball, starting with Oakland's Billy Beane, know that success is about creating highly functioning, cohesive organizations out of 25 gifted, competitive, volatile, young athletes ever at risk of being led astray - as Honest John leads Pinnochio astray - by temptation (here, substitute Scott Boras for Honest John).
What young general managers around the league have grasped, partly with the guidance of sabermetrics, but just as surely with insights about human behavior, is that talent is not static. Talent is developed. Teams take advantage of developing individual talent tactically and situationally A player who performs well in a National League park favoring left-handed hitters may lose 50 points in his average in an American League park favoring right-handed hitters.
Moreover, talent ripens like a fruit. In an expensive labor market, one wants to pay while the fruit is still green and mysterious, take advantage of its ripening, and then discard it at the peak of of its freshness, preferably for new fruit that is newly awakening to its own promise. How often have we seen players such as hypo-performing slugger Richie Sexson take advantage of favorable circumstances to post outrageous numbers, sign an equally outrageous contract on the free agent market, and then implode? Sexson received nearly $16 million from the Mariners in 2008 to bat .218 and hit 11 home runs.
In reality, the "best" players are the ones that help a team win. They may not be, and in fact likely will not be, the most expensive players on the market. They are the ones with "upside", the ones with passion, the ones who want to grow and learn, the ones who understand that if the team wins, the individual rewards will follow. The money is not unimportant to these players, but they possess the capacity to absorb the financial incentives within a larger and more complex array of motivations that are primarily non-monetary. Who, with a straight face, can claim that Wall Street plays by these rules, and that the rules by which Wall Street instead does play have truly served well both its institutions and its far-flung web of dependents?
Tuesday, November 11, 2008
Why I Don't Like Economists
Actually, I do like economists. One of my long-time friends is Jeff Frankel, who teaches economics at the Kennedy School of Government at Harvard and who served on President Clinton's Council of Economic Advisers. I rented a room at Jeff's house in Berkeley 25 years ago, when he was a young professor and I was an even younger graduate student. There I was able to meet many famous economists, including future Treasury Secretary and Harvard President Larry Summers and future Nobel Prize winner George Akerlof.
At Knowledge Mosaic, one of my jobs is to publish the Securities Mosaic Blogwatch, which includes licensed content from more than 25 of the leading legal and financial bloggers in the country. Among them, I count a number of professors from the Law and Economics movement, lawyers with a background in economics (some, such as Josh Wright, a rising star at George Mason University, have both a law degree and a PhD in economics).
They're all great guys, smart and amusing and passionate about their work. So what's not to like about economists? In a word, hubris. Economists fly too close to the sun of science. Their wings melt.
Consider Greg Mankiw, the famed Harvard economist and CEA chair under President G.W. Bush, now author of a popular blog. On November 5, he printed a table ranking GRE scores by graduate field, with graduate students in physics, mathematics, and computer science alone ranking higher than economics. Political science, sociology, and psychology trailed far behind, in 17th, 23rd, and 24th place, respectively.
Mankiw titled this post, "Larry, Vindicated," a reference to a conversation in which then-Harvard president Larry Summers asked Peter Ellison, a professor of biological anthropology, whether he didn't "agree that, in general, economists are smarter than political scientists, and political scientists are smarter than sociologists?” In his subsequent recommendation that Summer resign, Ellison condemned the "intellectual arrogance" of Summers' question and emphasized the generally polarizing and demoralizing impact of his attitudes on the Harvard faculty.
For now, let's not even consider that Mankiw's post, with its sneer of "neener-neener", is remarkably juvenile and significantly beneath his professional station. The underlying logic of the post itself - that economists are "smarter" and therefore more "worthy" than other social scientists - is silly. Mankiw adopts a similarly patronizing (and silly) tone in his November 8 "Memo to the POTUS-Elect," which tosses out recommendations that Obama listen to his economists on various and sundry matters, like garnishes upon a wilted bed of lettuce.
The contempt of economists for other social science disciplines is legendary, associated with their view that economists practice "real" science while political scientists and sociologists and psychologists practice, at best, a kind of crude guessing game. As someone who holds a PhD in political science, far be it from me to defend that discipline, or to claim that it in any way resembles the natural science disciplines. I plead guilty to the crude guessing game charge.
The problem with economists is that they possess no similarly ironic distance from their own discipline. The mathematical orientation of modern economics is the foundation of the view within the discipline that they practice real science. In truth, this resemblance constitutes a false positive (reinforced by the false Nobel Prize the Bank of Sweden awards to an economist each year).
In the GRE table, economists rank 8th in quantitative skills and 4th in analytical reasoning. However, mathematical, logical, and reasoning aptitudes alone do not translate into wisdom, judgment, or intelligence. Financial engineering systems failed to successfully model risk, for example, because they did not accurately assess the behavioral dimension of risk, the "hierarchies of belief" that underpin human preference-ranking and decision-making.
In retrospect, of course, many economists have analyzed and criticized the failure of these models, and more specifically, the failure of the analysts who misused these models. Some have belatedly acquired the religion of regulation. Save James Galbraith, however (who believes the financial meltdown constitutes "an enormous blot on the reputation of the profession"), economists themselves, have not used this misapplication of mathematical modeling as a teaching opportunity for their own discipline.
By the way, if one looks more closely once more at the scores in the GRE table, economics ranks only 10th in the verbal component, behind philosophy, English language and literature, history, religion and theology, art history, anthropology and archeology, physics, political science, and earth sciences. Neener-neener, indeed.
At Knowledge Mosaic, one of my jobs is to publish the Securities Mosaic Blogwatch, which includes licensed content from more than 25 of the leading legal and financial bloggers in the country. Among them, I count a number of professors from the Law and Economics movement, lawyers with a background in economics (some, such as Josh Wright, a rising star at George Mason University, have both a law degree and a PhD in economics).
They're all great guys, smart and amusing and passionate about their work. So what's not to like about economists? In a word, hubris. Economists fly too close to the sun of science. Their wings melt.
Consider Greg Mankiw, the famed Harvard economist and CEA chair under President G.W. Bush, now author of a popular blog. On November 5, he printed a table ranking GRE scores by graduate field, with graduate students in physics, mathematics, and computer science alone ranking higher than economics. Political science, sociology, and psychology trailed far behind, in 17th, 23rd, and 24th place, respectively.
Mankiw titled this post, "Larry, Vindicated," a reference to a conversation in which then-Harvard president Larry Summers asked Peter Ellison, a professor of biological anthropology, whether he didn't "agree that, in general, economists are smarter than political scientists, and political scientists are smarter than sociologists?” In his subsequent recommendation that Summer resign, Ellison condemned the "intellectual arrogance" of Summers' question and emphasized the generally polarizing and demoralizing impact of his attitudes on the Harvard faculty.
For now, let's not even consider that Mankiw's post, with its sneer of "neener-neener", is remarkably juvenile and significantly beneath his professional station. The underlying logic of the post itself - that economists are "smarter" and therefore more "worthy" than other social scientists - is silly. Mankiw adopts a similarly patronizing (and silly) tone in his November 8 "Memo to the POTUS-Elect," which tosses out recommendations that Obama listen to his economists on various and sundry matters, like garnishes upon a wilted bed of lettuce.
The contempt of economists for other social science disciplines is legendary, associated with their view that economists practice "real" science while political scientists and sociologists and psychologists practice, at best, a kind of crude guessing game. As someone who holds a PhD in political science, far be it from me to defend that discipline, or to claim that it in any way resembles the natural science disciplines. I plead guilty to the crude guessing game charge.
The problem with economists is that they possess no similarly ironic distance from their own discipline. The mathematical orientation of modern economics is the foundation of the view within the discipline that they practice real science. In truth, this resemblance constitutes a false positive (reinforced by the false Nobel Prize the Bank of Sweden awards to an economist each year).
In the GRE table, economists rank 8th in quantitative skills and 4th in analytical reasoning. However, mathematical, logical, and reasoning aptitudes alone do not translate into wisdom, judgment, or intelligence. Financial engineering systems failed to successfully model risk, for example, because they did not accurately assess the behavioral dimension of risk, the "hierarchies of belief" that underpin human preference-ranking and decision-making.
In retrospect, of course, many economists have analyzed and criticized the failure of these models, and more specifically, the failure of the analysts who misused these models. Some have belatedly acquired the religion of regulation. Save James Galbraith, however (who believes the financial meltdown constitutes "an enormous blot on the reputation of the profession"), economists themselves, have not used this misapplication of mathematical modeling as a teaching opportunity for their own discipline.
By the way, if one looks more closely once more at the scores in the GRE table, economics ranks only 10th in the verbal component, behind philosophy, English language and literature, history, religion and theology, art history, anthropology and archeology, physics, political science, and earth sciences. Neener-neener, indeed.
Monday, November 10, 2008
Obama's Biggest Challenge: Foreign Policy Revanchism
I run a small technology company in Seattle, and will normally focus my HuffPosts on business, culture, and technology. As we absorb the meaning of Barack Obama's election, however, I cannot help but launch my inaugural post with some thoughts on his biggest challenge as president: which will be facing down the coming assault from the revanchist, hard-right base of the Republican Party.
Swept from power and nursing deep wounds, loosened from the responsibility of governing and free to attack without any consideration for coalition-building or compromise, the surviving Republican members of Congress, in alliance with their media allies and their geographically insulated bases of support in the nether regions of the nation, will do their best to make Obama's life miserable. And let's not fool ourselves. The politics of falsely righteous Republican anger and contempt we witnessed throughout the presidential campaign will increase in intensity in 2009.
The Republican base is like a three-legged stool, drawing support from social (values-driven) conservatives; economic (free-market) libertarians; and militaristic (nationalistic) neoconservatives. Let's focus on the foreign policy neocons, those who led us down the bloody road to Iraq and who, like Sauron separated from his ring of power, will seek with great urgency to undermine and weaken those who stand between them and a return to the uniliteralism of a hegemonic power.
Obama's foreign policy will begin with the assumption of a multilateral global arena in which the United States plays a leadership role based on alliances and diplomacy. Hardened, cynical views of international relationships - in China, Russia, Iran, and Venezuela, to name four examples - will challenge Obama's commitment to multilateral diplomacy. Nonetheless, in dealing with foreign leaders, Obama will have two assets on which to draw: his personal charm - which is so important in cultivating trusted relationships among leaders - and a willingness to leverage the influence of other countries, in Asia, Europe and elsewhere, in achieving tangible policy victories with respect to nuclear proliferation, global warming, and Islamic radicalism.
Obama's major challenges therefore will not come from abroad, but from home, where a steady drumbeat of revanchist criticism from the right, and blasted through media organs such as Fox News and the Wall Street Journal editorial page, as well as from Congressional firebrands in the Republican Party, will make his path from a military-first doctrine to a diplomacy-first approach like dancing across a bed of hot coals.
For now, Obama can bask in the glow of admiration from right-wing pundits such as William Kristol, George Will and Charles Krauthammer who respect his intelligence and political skills. For a sample of the savaging he can expect to receive in the days following his inauguration, we might do better to sample Daniel Henninger in the editorial pages of the Wall Street Journal, Oliver North on Fox News, and John Bolton at the American Enterprise Institute.
Neoconservatives voice an ideology based on two self-reinforcing principles. The first is their belief in American exceptionalism, the idea that the United States is not "like" other nations, that we are superior by virtue of our history and our values. The second is that with the end of the Cold War, the world will plunge into chaos without strong, active directives from the United States. Let's be clear. Directives are not leadership. They are more like military orders, in this case supported by the global projection of American military power throughout the world.
As Chalmers Johnson observed presciently in Blowback, first published in 2000, the territorial projection of US military power - with more than 700 US military installations housing nearly one million troops, dependants, contractors, spies, in more than 130 other nations around the world - creates local resentments and reinforces the self-fulfilling prophecy of "enemies at our doorstep." The obvious costs of these deployments aside - both financial and political - we are dancing with the the Devil for more troubling reasons that Obama may only with difficulty be able to address.
The policy of force projection and maintenance of a global military infrastructure depends upon: 1) a web of payments and quid pro quos with non-elected leaders of other nations; 2) a commitment to secrecy and the absence of meaningful oversight and transparency; and 3) a reliance upon covert activity, spying, secret missions, and subterfuge (note revelations of the order permitting secret raids on Al-Qaeda around the globe, in nations such as Pakistan, Syria, and Somalia).
We need a foreign policy for the 21st century. Obama's success in transforming US foreign policy into a tool of constructive, meaningful engagement with other nations depends upon his ability to rebuild shattered relationships upon a new foundation of open communication, outreach, trust, and accountability. To build a foreign policy for the 21st century, Obama can draw upon the success and methods of his own political campaign, which used new technologies and means of communication already widespread around the world to reach and speak directly to individual Americans.
The problem Obama will face is in dismantling the structural outposts of our dated 20th century foreign policy driven by the strategy of force projection and a global military infrastructure. Our economy in great measure depend on this stimulus - let's call it "military welfare". Our concept of national security - both psychological and physical - also depends upon this policy, with its insinuating values of strength and of a proactive, global state of military readiness to address threats that by definition this policy frames as "us" against "them".
Let's be absolutely clear. Obama will need to draw upon all the reassuring calm he inspires to shift our sense of the world from one in which threat predominates to one in which opportunities for constructive relationships abound. He must adopt his superhero identity of Ocalma and resist what will surely be a strong impulse from White House advisers and Congressional allies to not appear "weak" when tested, not simply by foreign foes but by shrieking adversaries from the Republican right. Above all, he must work, slowly perhaps, but also steadily and with determination, to dismantle the global military web of bases and policies that have themselves been the source of anger and resentment contributing to our national insecurity.
Swept from power and nursing deep wounds, loosened from the responsibility of governing and free to attack without any consideration for coalition-building or compromise, the surviving Republican members of Congress, in alliance with their media allies and their geographically insulated bases of support in the nether regions of the nation, will do their best to make Obama's life miserable. And let's not fool ourselves. The politics of falsely righteous Republican anger and contempt we witnessed throughout the presidential campaign will increase in intensity in 2009.
The Republican base is like a three-legged stool, drawing support from social (values-driven) conservatives; economic (free-market) libertarians; and militaristic (nationalistic) neoconservatives. Let's focus on the foreign policy neocons, those who led us down the bloody road to Iraq and who, like Sauron separated from his ring of power, will seek with great urgency to undermine and weaken those who stand between them and a return to the uniliteralism of a hegemonic power.
Obama's foreign policy will begin with the assumption of a multilateral global arena in which the United States plays a leadership role based on alliances and diplomacy. Hardened, cynical views of international relationships - in China, Russia, Iran, and Venezuela, to name four examples - will challenge Obama's commitment to multilateral diplomacy. Nonetheless, in dealing with foreign leaders, Obama will have two assets on which to draw: his personal charm - which is so important in cultivating trusted relationships among leaders - and a willingness to leverage the influence of other countries, in Asia, Europe and elsewhere, in achieving tangible policy victories with respect to nuclear proliferation, global warming, and Islamic radicalism.
Obama's major challenges therefore will not come from abroad, but from home, where a steady drumbeat of revanchist criticism from the right, and blasted through media organs such as Fox News and the Wall Street Journal editorial page, as well as from Congressional firebrands in the Republican Party, will make his path from a military-first doctrine to a diplomacy-first approach like dancing across a bed of hot coals.
For now, Obama can bask in the glow of admiration from right-wing pundits such as William Kristol, George Will and Charles Krauthammer who respect his intelligence and political skills. For a sample of the savaging he can expect to receive in the days following his inauguration, we might do better to sample Daniel Henninger in the editorial pages of the Wall Street Journal, Oliver North on Fox News, and John Bolton at the American Enterprise Institute.
Neoconservatives voice an ideology based on two self-reinforcing principles. The first is their belief in American exceptionalism, the idea that the United States is not "like" other nations, that we are superior by virtue of our history and our values. The second is that with the end of the Cold War, the world will plunge into chaos without strong, active directives from the United States. Let's be clear. Directives are not leadership. They are more like military orders, in this case supported by the global projection of American military power throughout the world.
As Chalmers Johnson observed presciently in Blowback, first published in 2000, the territorial projection of US military power - with more than 700 US military installations housing nearly one million troops, dependants, contractors, spies, in more than 130 other nations around the world - creates local resentments and reinforces the self-fulfilling prophecy of "enemies at our doorstep." The obvious costs of these deployments aside - both financial and political - we are dancing with the the Devil for more troubling reasons that Obama may only with difficulty be able to address.
The policy of force projection and maintenance of a global military infrastructure depends upon: 1) a web of payments and quid pro quos with non-elected leaders of other nations; 2) a commitment to secrecy and the absence of meaningful oversight and transparency; and 3) a reliance upon covert activity, spying, secret missions, and subterfuge (note revelations of the order permitting secret raids on Al-Qaeda around the globe, in nations such as Pakistan, Syria, and Somalia).
We need a foreign policy for the 21st century. Obama's success in transforming US foreign policy into a tool of constructive, meaningful engagement with other nations depends upon his ability to rebuild shattered relationships upon a new foundation of open communication, outreach, trust, and accountability. To build a foreign policy for the 21st century, Obama can draw upon the success and methods of his own political campaign, which used new technologies and means of communication already widespread around the world to reach and speak directly to individual Americans.
The problem Obama will face is in dismantling the structural outposts of our dated 20th century foreign policy driven by the strategy of force projection and a global military infrastructure. Our economy in great measure depend on this stimulus - let's call it "military welfare". Our concept of national security - both psychological and physical - also depends upon this policy, with its insinuating values of strength and of a proactive, global state of military readiness to address threats that by definition this policy frames as "us" against "them".
Let's be absolutely clear. Obama will need to draw upon all the reassuring calm he inspires to shift our sense of the world from one in which threat predominates to one in which opportunities for constructive relationships abound. He must adopt his superhero identity of Ocalma and resist what will surely be a strong impulse from White House advisers and Congressional allies to not appear "weak" when tested, not simply by foreign foes but by shrieking adversaries from the Republican right. Above all, he must work, slowly perhaps, but also steadily and with determination, to dismantle the global military web of bases and policies that have themselves been the source of anger and resentment contributing to our national insecurity.
Wednesday, October 29, 2008
Welcoming Carl Icahn to the Securities Mosaic Blogwatch
We are honored to welcome Carl Icahn to the Securities Mosaic Blogwatch. As most of our readers will know, Mr. Icahn is one of the most prominent, influential, and outspoken investors in the world.
We will let Mr. Icahn's introduce himself below, in the wonderful autobiographical sketch written for the Icahn Report website. For myself, I am thrilled to add his trenchant intelligence, biting wit, and fearless voice to the Blogwatch. You can read his inaugural post - 100 Million Reasons Why We Need Governance Changes Now: Join USA - in today's issue.
______________________
About Carl Icahn
We will let Mr. Icahn's introduce himself below, in the wonderful autobiographical sketch written for the Icahn Report website. For myself, I am thrilled to add his trenchant intelligence, biting wit, and fearless voice to the Blogwatch. You can read his inaugural post - 100 Million Reasons Why We Need Governance Changes Now: Join USA - in today's issue.
______________________
About Carl Icahn
I was born in Brooklyn and grew up in Far Rockaway, Queens. My father was a frustrated opera singer and settled on being a cantor in Cedarhurst, Long Island. The fact that he was a dogmatic atheist did not exactly help him to get ahead in this profession and after a number of years he became a substitute teacher. My mother also worked as a schoolteacher. I attended the local public school, Far Rockaway High, later heading to Princeton University. My mother wanted me to be a doctor, so after earning an A.B. in Philosophy in 1957, I went to medical school. I quickly realized the medical field was not for me. After two years, I joined the army and soon after eagerly returned to New York to start a career on Wall Street.
My career began in 1961, as a Registered Representative with Dreyfus & Company. I learned options and convertible arbitrage and built up a large business. By 1968 I bought a seat on the New York Stock Exchange and started Icahn & Co. Inc., a brokerage firm.
In 1978, I began taking control positions in individual companies. Over the years, I have taken positions in various corporations including: RJR Nabisco, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, American Can, USX, Marvel, Imclone, Federal-Mogul, Kerr-McGee, Medimmune, BEA Systems and Time Warner. I became Chairman of Bayswater Realty & Capital Corp. in 1979; and Chairman of ACF Industries, Inc. in 1984 among others.
Today, I am Chairman of Icahn Enterprises, a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate, and consumer goods. I have been the Chairman of American Railcar Industries since 1994 and a Director of Blockbuster since May 2005. I became Chairman of ImClone Systems in 2006. In January 2008, I became the Chairman of Federal-Mogul.
My wife Gail and I serve on the boards of my foundations. They include Icahn Charitable Foundation, Foundation for a Greater Opportunity, and Children’s Rescue Fund. Working with the Foundation for a Greater Opportunity, I founded three charter schools located in the South Bronx. The 2007 New York State English Language and Arts Exams show 80% of the kids at the Carl C. Icahn charter school passing the exam testing 36.7% higher than the neighborhood average and 97% passing the exam 37.5% higher in Math. In addition, we sponsor the Icahn Scholars Program at Choate Rosemary Hall. The Children’s Rescue Fund started the Icahn House in The Bronx, a 65-unit complex for homeless families housing single pregnant women and single women with children, and operates Icahn House East, a homeless shelter located in New York City.
Thursday, October 23, 2008
Hey Old White Guy, Get out of the Way
Hegel famously remarked that the owl of Minerva flies at dusk. As the presidential campaign nears its end, we finally see clearly what it is about. Not race. Not gender. But youth.
We be one tired country. And what the debates brought home was that a tired old man cannot revitalize us.
In his youth, John McCain was special. Watch the footage from his hospital in Vietnam in 1967, and visualize the torment that awaited him, knowing what he endured. Visualize also, the many passes he has subsequently received for "erratic behavior" (for infidelity, emotional coldness, a sharp temper), from his first wife and others, as a result of what he endured.
It is October 2008, though, and McCain is now old and what we have learned is that the only thing for which there may be no pass is age.
Earlier this summer, Jesse Jackson (67 years old) told the world that he wanted to cut off Barack Obama's nuts for "talking down to black people" about personal responsibility
Rapper Nas (35 years old) replied as follows: "I think Jesse Jackson, he's the biggest player hater. His time is up. All you old n---as, time is up. We heard your voice, we saw your marching, we heard your sermons. We don't wanna hear that sh-- no more. It's a new day. It's a new voice. I'm here now. We don't need Jesse; I'm here. I got this. We got Barack, we got David Banners and Young Jeezys. We're the voice now. It's no more Jesse. Sorry. Goodbye. You ain't helping nobody in the 'hood. That's the bottom line. Goodbye, Jesse. Bye!"
And that says it all. Young people are the voice now. As Colin Powell forcefully stated last weekend, generational change inexorably sweeps away all in its path. Sixteen years ago, we had a president - George H.W. Bush - who fought in World War II. We shortly may elect a president who can barely remember the Vietnam War.
And thank God for that, because Barack Obama is paired against a candidate whose defining experience was the five years he spent in a POW camp in Vietnam. Do you think someone can walk away from that prison? It's like the freaking Hotel California. John McCain carries that prison with him everywhere, and he will carry it into the White House.
What the past six weeks have made clear is that the United States - and the entire world - is sweeping Barack Obama up in their arms because they yearn - desperately - for a fresh start. The generation in power - the Baby Boomers - is not the Greatest Generation that fought World War II. It is a small-minded, unreflective, selfish generation - epitomized by our Commander in Chief - that has failed this nation.
The Neoconservative fixation on Vietnam, on the projection of American power overseas (try counting our bases in other countries - there are too many), on a paranoid grasp for military influence - all of this reflects nothing so much as the reality of true power slipping away in a multilateral world.
This worldview means nothing to younger Americans. Vietnam holds no lessons for them. What they know is 9/11. What they have seen in its aftermath is a nation that almost immediately used lies and subterfuge, torture and terror, to squander the good will and aching love of people around the world for Americans who had suffered grievously at the hands of Al-Qaeda. We had the world in the palm of our hands. Imagine the good that might have come from that influence.
We might have chosen love. Instead, we chose hate. We might have chosen principled action on behalf of reconstructed, unified alliances of nations. Instead we chose scandalous, scurrilous, cynical unilateralism. Within six months, we had turned most of the world against us.
Young Americans witnessed this. The Iraq war is the foundation of their political awakening. They still trust. They just don't trust the old white guys. The Bushes and Cheneys and Rumsfelds and McCains.
The enthusiasm of young people for Obama is beyond calculation. Estimates indicate that three-quarters of first time voters may cast their ballot for Barack. Race doesn't matter here. Young Americans have grown up in a post-racial world. They know that there is no black or white. Barack is half-black and half-white. Tiger Woods, Tony Gonzalez, Derek Jeter, Alicia Keys, and countless other well-known American defy racial categorization.
Nas doesn't just speak for young blacks in the hood. He speaks for all young Americans.
So race does not drive this election. Barack is our first 21st-century candidate. In a post-racial world, other barriers that are cognitive rather than real will also tumble down, including the barriers between nations. McCain will be a soldier-president. Obama will be a diplomat-president. McCain will falsely take us into wars on behalf of fabricated national interests and use fear and terror to justify military action. Obama will build alliances that will sustain us and marginalize those who truly wish to harm us.
Will the election of Barack Obama infuriate the ignorant rabble on the right, the "good people growing in small towns" who listen to Rush Limbaugh? Perhaps. But as the recent reports from Wasilla from the Daily Show show us, there is nothing special about small-town life. It can be tawdry, impoverished, and depressing. Relatively few people will live in small towns in America in the future. They are not relevant to the realities of America in the 21st century America. Young people, who flee small towns at their first opportunity, understand this.
For these reasons, John McCain cannot win. It is a law of nature. His tide is going out. He has nothing new to offer the United States but flotsam and jetsam. There is some evidence from the way he has managed his campaign that he understands this, that he truly does not want to be president, and that by some divine irony, his contribution is actually to usher in a new generation of leaders with a perspective on the world radically different from his own.
To reprise Nas, " We don't wanna hear that sh-- no more. It's a new day. It's a new voice."
We be one tired country. And what the debates brought home was that a tired old man cannot revitalize us.
In his youth, John McCain was special. Watch the footage from his hospital in Vietnam in 1967, and visualize the torment that awaited him, knowing what he endured. Visualize also, the many passes he has subsequently received for "erratic behavior" (for infidelity, emotional coldness, a sharp temper), from his first wife and others, as a result of what he endured.
It is October 2008, though, and McCain is now old and what we have learned is that the only thing for which there may be no pass is age.
Earlier this summer, Jesse Jackson (67 years old) told the world that he wanted to cut off Barack Obama's nuts for "talking down to black people" about personal responsibility
Rapper Nas (35 years old) replied as follows: "I think Jesse Jackson, he's the biggest player hater. His time is up. All you old n---as, time is up. We heard your voice, we saw your marching, we heard your sermons. We don't wanna hear that sh-- no more. It's a new day. It's a new voice. I'm here now. We don't need Jesse; I'm here. I got this. We got Barack, we got David Banners and Young Jeezys. We're the voice now. It's no more Jesse. Sorry. Goodbye. You ain't helping nobody in the 'hood. That's the bottom line. Goodbye, Jesse. Bye!"
And that says it all. Young people are the voice now. As Colin Powell forcefully stated last weekend, generational change inexorably sweeps away all in its path. Sixteen years ago, we had a president - George H.W. Bush - who fought in World War II. We shortly may elect a president who can barely remember the Vietnam War.
And thank God for that, because Barack Obama is paired against a candidate whose defining experience was the five years he spent in a POW camp in Vietnam. Do you think someone can walk away from that prison? It's like the freaking Hotel California. John McCain carries that prison with him everywhere, and he will carry it into the White House.
What the past six weeks have made clear is that the United States - and the entire world - is sweeping Barack Obama up in their arms because they yearn - desperately - for a fresh start. The generation in power - the Baby Boomers - is not the Greatest Generation that fought World War II. It is a small-minded, unreflective, selfish generation - epitomized by our Commander in Chief - that has failed this nation.
The Neoconservative fixation on Vietnam, on the projection of American power overseas (try counting our bases in other countries - there are too many), on a paranoid grasp for military influence - all of this reflects nothing so much as the reality of true power slipping away in a multilateral world.
This worldview means nothing to younger Americans. Vietnam holds no lessons for them. What they know is 9/11. What they have seen in its aftermath is a nation that almost immediately used lies and subterfuge, torture and terror, to squander the good will and aching love of people around the world for Americans who had suffered grievously at the hands of Al-Qaeda. We had the world in the palm of our hands. Imagine the good that might have come from that influence.
We might have chosen love. Instead, we chose hate. We might have chosen principled action on behalf of reconstructed, unified alliances of nations. Instead we chose scandalous, scurrilous, cynical unilateralism. Within six months, we had turned most of the world against us.
Young Americans witnessed this. The Iraq war is the foundation of their political awakening. They still trust. They just don't trust the old white guys. The Bushes and Cheneys and Rumsfelds and McCains.
The enthusiasm of young people for Obama is beyond calculation. Estimates indicate that three-quarters of first time voters may cast their ballot for Barack. Race doesn't matter here. Young Americans have grown up in a post-racial world. They know that there is no black or white. Barack is half-black and half-white. Tiger Woods, Tony Gonzalez, Derek Jeter, Alicia Keys, and countless other well-known American defy racial categorization.
Nas doesn't just speak for young blacks in the hood. He speaks for all young Americans.
So race does not drive this election. Barack is our first 21st-century candidate. In a post-racial world, other barriers that are cognitive rather than real will also tumble down, including the barriers between nations. McCain will be a soldier-president. Obama will be a diplomat-president. McCain will falsely take us into wars on behalf of fabricated national interests and use fear and terror to justify military action. Obama will build alliances that will sustain us and marginalize those who truly wish to harm us.
Will the election of Barack Obama infuriate the ignorant rabble on the right, the "good people growing in small towns" who listen to Rush Limbaugh? Perhaps. But as the recent reports from Wasilla from the Daily Show show us, there is nothing special about small-town life. It can be tawdry, impoverished, and depressing. Relatively few people will live in small towns in America in the future. They are not relevant to the realities of America in the 21st century America. Young people, who flee small towns at their first opportunity, understand this.
For these reasons, John McCain cannot win. It is a law of nature. His tide is going out. He has nothing new to offer the United States but flotsam and jetsam. There is some evidence from the way he has managed his campaign that he understands this, that he truly does not want to be president, and that by some divine irony, his contribution is actually to usher in a new generation of leaders with a perspective on the world radically different from his own.
To reprise Nas, " We don't wanna hear that sh-- no more. It's a new day. It's a new voice."
Friday, October 17, 2008
Andrew Lahde's Farewell Letter
Andrew Lahde, the (briefly) storied hedge fund manager who returned 870 percent to investors last year by betting against the credit markets, has retired. His farewell letter below communicates no fondness for his trading brethren, the markets that enriched him, and the government that enabled the craziness from which he profited. The missive ends with a plea for George Soros to convene a convention of Wise Men and Women, for an Open-Source Government, and, finally, for the legalization of hemp as a low-tech, low-cost alternative source of raw material for products that are petroleum-dependent.
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Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would been entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say good-bye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG,Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list of those deserving thanks know who they are.
I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile,their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.
So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.
I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.
On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eigh tyears, which would have reigned in the predatory lending practices of now mostly defunct institutions.These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government.Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher.My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.
Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant – marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So,why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.
With that I say good-bye and good luck.
All the best,
Andrew Lahde
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