Monday, October 20, 2008

The Good, The Bad, & The Ugly

As the old saying goes if you’re not a socialist in your youth you have no heart when you’re old. A recent New Yorker Magazine issue carried a series of letters by the late literary lion Norman Mailer dating back to his time in the U.S. Army during World War II. In the early letters Mailer admits to being an avowed Marxist and socialist, but one with a deep dislike for the Russians. As time passed he became less an atheist and a Marxist, but never lost his fervor for the fight for justice and equality.

One of Mailer’s 1960’s era letters saw him concerned by racism in the USA which he felt could well blow apart the fragile experiment in democracy. Today, with Barak Obama a Presidential candidate, and by all indications, the next U.S. president, Mailer’s causes for concerns are over.

Of course, someone may shoot him. It has happened before. Four presidents have been killed in office: Abraham Lincoln, James A. Garfield, William McKinley and John F. Kennedy, even presidential candidate Bobby Kennedy. But the benchmark will have been reached. Racism will have been dealt a severe blow.

Will Obama make a good president? Who knows? The current leadership, headed by George W. Bush, backed by Dick Cheney, and advised by Rumsfeld, has been accused of being rudderless. Others say that they had a firm direction in mind, but it was just the wrong direction. Still others claim that they tried to institute missionary-like democracy but the local tribes weren’t prepared for it.

Whatever the truth, pundits believe the experiment didn’t work. But these Conservatives deserve credit for trying. But now, even Republican poster-boy Collin Powell has endorsed Mr. Obama. So have prestigious Republican newspapers like the Chicago Tribune. Obama, analysts say, must be doing something right, or is simply the lesser of two bad choices.

So another experiment appears on the horizon.. Mr. Obama may try to talk America’s enemies out of their antagonism, and may just succeed. And may not, but as the peace camp in Israel is fond of saying, it’s worth a chance.

Israel worries about Mr. Obama. His early supporters were liberal Jews from Chicago’s wealthy Gold Coast, however many of these people were ex-60’s activists, vocal anti-Israeli Jews. One Jerusalemite wondered if those anti-Israeli radicals would have a persuasive voice. The issue is still open. Obama is, his critics admit, very smart. And very smart will help handling a world adrift.

Bill Clinton was very smart. Under his leadership HUD Secretary Henry Cisneros instituted the legislation that allowed low-income families to buy homes using cheap mortgages. Both Clinton and Cisneros meant well. Both wanted poor people to have a piece of the American dream. Today, in an article in the International Herald Tribune, ( )Mr. Cisneros admitted he was wrong. Many of those who took out mortgages should have stuck to trying to pay tent. Eviction for lack of payment of rent is easier on the economy than foreclosure on a piece of property that must be sold to another buyer. Another buyer who needs a now hard-to-get mortgage. Both Mr. Cs deserve a C for that plan.

Cisneros, according to the article, left Washington under a cloud of sexual scandal, and using his contacts went into the construction business. He built one San Antonio, Texas subdivision of nearly 500 low-income homes, using brokers who secured ‘sub-prime’ loans for the lower-income minorities. A noble experiment. It too failed.

According to Christopher Cox, Chairman of the U.S. Securities and Exchange Commission, ( ) the lenders benefited by unregulated ‘derivative’ markets, a new financial tool that came on the scene in 2000. These were bonds wholesaled by lenders to financial institutions with no regard for the ability of the original mortgagee to pay back the loan. The assumption was that the financial institutions would be careful what investments they made.

”In 1999 a report by the President's Working Group on Financial Markets envisioned no systemic risk from such derivatives since "private counterparty discipline" - investors' natural desire to keep their own risks to a minimum - would work to protect the broader financial system,” wrote Cox. .They weren’t, as the world now knows. The blame is put on the original lender, the local banks. According to the SEC article, lenders didn’t even need to meet the person taking out the mortgage. And the assessor of the borrower’s ability to pay back the loan worked for the mortgage company, not the government.

Cisneros, who also joined the board of Countrywide, the company that went belly-up over sub-prime mortgages, maintains he meant well. But not only was he involved with Countrywide, KB Home. his housing development company in partnership with American City Vista Partnerships, was involved with James Johnson, former CEO of Fannie Mae, who was also on the board of Countrywide. Fannie Mae was one of the leading culprits of the sub-prime fiasco.

Cisneros says he wanted to help the minority community. And he did, up until they couldn’t pay the monthly mortgage. Now many of the homes he built and sold are in foreclosure. He is still in the building business, with a new company valued at hundreds of millions of dollars. Some cynics ask if he was noble or greedy?. His buyers say they were told to ‘buy, buy,buy.” One asks, in the article, “How in the hell did I ever think I would be able to pay?”

Years ago, when this writer was employed by the EOE, the U.S. Government’s Office of Economic Opportunity, better known as the Poverty Program, putting out a newsletter for the Cook County branch, the man in charge of housing initiatives and alternatives, had a sign on his wall. “You can rent a man a palace and he’ll turn it into a slum, you can sell a man a slum and he’ll turn it into a palace.”

The experiment by Cisneros was tried. It was a good try. Hopefully, one day, it will work. Will Mr. Obama institute similar welfare experiments? Or will he turn his attention to world affairs? Make his mark on the pages of history as an innovator who changed the rules of the game? And will Israel be affected?

Things are changing today in the middle east.. A new Israeli prime minister is on the horizon. Tzipi Livni has won her Kadima party’s primary, and is scheduled to replace Ehud Olmert. But first she must form a coalition. Israel’s system of government requires at least 61 seats in the 120 members Knesset to allow the President to approve a government.

Coalition ‘talks’ are now ongoing. The give and take revolves around money. Which party will be able to get a bigger slice of the budget in exchange for joining the coalition? The ultra-Orthodox Sephardic Shas party’s spiritual leader, Ovadia Yosef is featured on the front page of the Jerusalem Post holding a round silver-plated Torah scroll. The story below the picture is how Rabbi Yosef has told the Shas leaders not to join the government if Shas doesn’t receive guarantees of a certain level of child allowances.

Another noble idea.

Each party will have its own demands. Some of the demands will be about money and power. Not only a budget allocation for a specific ministry, but also a fat sum to provide jobs to the party faithful and prestige to the party leaders. Labor party leader Ehud Barak, may want a top job as incentive to join the government, like the Finance Ministry or the Foreign Ministry. Whatever deals are made the government will be lucky that the Israeli economy is healthy enough to pay the bills. For now.

Yet that is a position Israel has always been in. Beset by unimaginable odds somehow Israel has managed to pull through. When driving around Jerusalem with visitors a host was asked, “What do the Israelis think of those guys,” they said, pointing to a group of Ultra-Orthodox Hassidim.

“Most Israelis resent them, because they don’t serve in the Army. The average kid goes to war, these guys stay in their Yeshivot, studying Torah. They live off the State. Since they’re impoverished, they also don’t have to pay property tax. So the average Israeli is envious.’ “Do they work?” asked the visitor. “They consider that the study of the Torah is their work. That by studying the Torah, the keep the world spinning, they keep Israel safe.”

Now, as the Jewish communities prepare to celebrate the festival of Simchat Torah, when the nation of Israel received the Torah on Mt. Sinai, perhaps there’s a chance that these Hassidim are right? Perhaps it is their study of the Torah that keeps the world spinning? Keeps Israel going? Since they’ll never stop studying we’ll never get a chance to prove the hypothesis the Hassidim believe in. And maybe that’s the best thing possible.

Even Mailer, in his later years, moved away from being an atheist. Maybe, after all, the noble experiments can exist side by side with the true believers. Meanwhile it’s up to the observers to figure out who are the good, the bad, and the ugly.

Sunday, October 12, 2008

A Brick At A Time

A pseudo news report making the rounds of the web claims authoritatively that “Jews” walked away with $400 Billion just before Lehman Brothers collapsed. This anti-Semitic tirade was in the same vein as those espoused by morons after the collapse of the Twin Towers following the attack by two jetliners on Sept 11, 2001. Then some websites claimed the “Jews” had already fled the building before the planes hit, because the real criminals who flew the planes, or manipulated those hapless Moslem fundamentalists into flying the plane were Jews.

Visitors to Israel report that there is a feeling of unease among American Jews, who fear a backlash. Readers of Jerusalem Magazine may recall a theory that there was indeed such as thing as a “survival gene,” which is very active in the Jewish population, because of the bloody history of the Jewish people. Jews, the theory goes, are very attuned to the slightest anti-Semitic ripple in the air. Their noses twitch, their ears stand up, eyes narrow, sniffing like deer in the forest, ready to bolt.

Unfortunately the history of the Jewish people is replete with instances where the non-Jewish population decided to make their Jewish neighbors the scapegoats for a calamity. During the Black Plague in the middle ages, millions of people were dying, but only a small number of Jews. Twisted logic dictated that the Jews were to blame for the plague.

In fact the Jews survived because of their traditions. Their rules. Their laws. Washing hands, and saying the appropriate prayer, after going to the toilet, and before eating bread, dunking in a mikvah, the ritual bath. In other words, staying clean. The bacteria carrying the plague washed away before it reached the Jewish mouth. (Anyone who has visited China appreciates how important clean hands are before eating.)

None of this is new. Neither anti-Semitism, nor making the Jews scapegoats. However, there may be some truth to the fact that the Jews were inadvertently responsible for the stock market crash on October 9, 2008. How? According to one analyst, the short-sellers starting their deeds early in the morning, when the market opened. This selling activity coincided with the expiration of the Federal Government’s time limit prohibiting short sales of nearly 800 stocks.

Usually when someone shorts a stock, (that means, sells a stock he doesn’t own in expectation that the price will drop, then buys it back at a lower price,) that person counts on someone stepping up and buying the stock as it drops. In this case the stocks went into free-fall. There were no buyers. The short-sellers could ride it all the way down, and then buy when they felt like it. Why? Because of Yom Kippur, the Jewish Day of Atonement.

On Yom Kippur most Jews, no matter how marginally religious, refrain from eating, and even working. Much as the Arab armies attacked Israel on Oct 6, 1973, when the country was deep in it’s Yom Kippur observance, the attack on the stock market caught the Jewish brokers, traders, investors, money managers, and corporate heads, unawares.

Contrary to the anti-Semitic conspiracy theory, the Jews were not involved because most were in synagogue. Perhaps some were at the office, selling short and reaping enormous profits, but most were sitting in synagogue losing fortunes, pensions, and life-savings.

Another analyst blames the Jewish financial expert Alan Greenspan, formally the head of the U.S. Federal Reserve, for the disaster. According to a recent article by Peter S. Goodman in the Oct 10, 2008 edition of the International Herald Tribune, Mr. Greenspan, a Libertarian, was a firm believer in no regulation on ‘derivatives,’ that confusing financial instrument which, according to the article, financiers like George Soros, Felix Rohatyn, and Warren Buffet, claimed not to understand, or trust. Buffet likened derivatives to a nuclear bomb waiting to explode.

Much as it would be easy to blame George W. Bush, just as it’s easy to blame the Jews, said one pundit, the fact is that Mr. Greenspan practiced his ardent non-regulation policy over the course of decades, including the time when Democrat Bill Clinton was in power, and, alas a Jewish Sec. Of the Treasury, Robert Rubin.

Greenspan, with Rubin’s support, according to the article, were so against regulation that they fought with a pro-regulation Washington bureaucrat, and managed to so defeat her initiative. She was gone from her job a year later.

Greenspan, according to the article, believed in the strength of the US financial institutions, and the integrity of their managers. Greenspan, the article claims, believed that financiers wouldn’t ruin the marketplace where they made their living. The article concludes, obviously, that he was wrong.

“What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Greenspan told the Senate Banking Committee in 2003. “We believe it would be a mistake,” he said, to more deeply regulate the contracts.

Mr. Greenspan trusted the bankers to regulate themselves, the article says. While the world is now scrutinizing his record only those like-minded individuals who favor no regulation, still support his theories that he still maintains are correct.

This brings us to Yom Kippur. Those who pay attention to such things can see clearly that religious Jewish people are highly regulated. The ultra-Orthodox have a rule for just about everything, and spend their days trying to keep the rules.

One observer said that the regulations imposed first by God on Mt. Sinai, then by the Prophets during the Temple Times, and the Rabbis prior to and during the expulsion, only underlined the basic fact that man is a dangerous, selfish, greedy animal. Without regulation man runs amok.

The Ten Commandments lay out the rules simply, the Mishnah, or Oral Law, transcribed by the Rabbis, probably with liberal interpretation, explained the depth of the commandments, and the Talmud went into a sixty-seven-volume discussion of how the laws apply and to what.

According to this view, left unfettered man would roam free, pillage, rape, murder, steal, insult, abuse. The laws of every country pose regulations. As a sociologist pointed out, if all men could control their base instincts, and self-regulate, there would be no need for laws, police, judges or prisons. But that is a utopian thought.

Some people, on a higher intellectual, and moral rung of the ladder of life, may not need these regulations. Mr. Greenspan probably didn’t need laws to hold him to an enviably just moral code. But Mr. Greenspan, called the oracle during his time in Washington, was clearly not most people.

Derivatives, as understood by the layman, relieved those who had a stake in the financial markets from any responsibility. Debts were rolled over, repacked, combined into packages, sold wholesale to a middle-man, who then rolled them over, combined them into bigger packages, and acted as a middle-man to yet another wholesaler. The debts were used as security on other loans. A house of cards was then built on a foundation of bad debts. The slightest wind, in this case reportedly the drop in housing prices, caused the house to collapse.

Had the original lender been more responsible, kept some of the individual debt on their books, rather than ‘sell the paper wholesale’ to someone else, they would have been more careful whom they lent their money to, and also in managing that debt. This according to the former CEO of one of the world’s largest restaurant chains.

Mr. Greenspan believed that those middlemen and wholesalers wouldn’t do what they did, mark up the mortgages, and pass them on up the ladder to an even bigger fish. Financial institutions, he kept repeating in the article, wouldn’t be so irresponsible as to create their own demise.

Mr. Greenspan, said one observer, overlooked the elements of greed, avarice, and envy. Overlooked the competition for a larger bonus, a bigger Mercedes, a grander house, a more expensive vacation, and of course, a more luxurious private plane. He overlooked the nature of man. He overlooked the need for regulation. For rules. Simply put he was, probably, too good a Jew. The kind who was trying to fix the world a brick at a time. Except this time, they fell in on him.