Wednesday, April 29, 2009

One Hundred Days

The absurd “First One Hundred Day” ritual is underway: in the spirit of mindless, artificial milestones, here are a few comments.

1. We have a highly intelligent, gifted, African American president. We have an articulate, thoughtful, internationally respected president. We have a president aware of the complexities of the economy, of geo-politics, of the environment. We have an open-minded president, not spewing ideology for its own sake. We are very fortunate, in this period, to have Barack Obama as the president of the United States.

2. President Obama has an impossibly difficult set of problems to deal with. Events and issues are coming at him so fast and from so many directions that it is inevitable that he will do some lurching and make some major mistakes.

3. Obama has committed much to saving the financial institutions that have been so irresponsible and damaging. This has been his biggest and most risky decision. He has decided, at the expense of much political capital with his base, and with absolutely no Republican support, that the consequence of letting the major banks fail is not acceptable. This is a courageous decision, clearly based on what he sees as best for the country. It would be much easier to rail against the greedy Wall Street thieves, let the banks collapse under their own weight, and just pick up the pieces of the collapsed banking and investing system. He has decided to try to prevent that, and we shall see if he made the right call.

4. By releasing the torture memo's he has opened up a Pandora’s box, one that needed to be opened, but one that he cannot control. I am not of the belief that this is bad for him. The conversation about torture needs to happen. There are many military and intelligence experts, who decry torture as immoral and ineffective. To hear Newt Gingrich and his allies defend torture after spending a generation making the argument that what separated us from the Soviets and the Maoists was our decency, our rule of law, our constitutional protections, is very telling. It does appear that Cheney decided to use torture to get someone to link 9/11 to Iraq. This is criminal behavior. If this is true, it ranks with the great crimes committed by any administration. We need to continue to discuss and investigate this. It may be a hot seat for the President, but he can take it.

5. Obama is serious about passing health care reform. I think he will do it, hopefully in an effective way. The Arlen Specter surprise certainly helps. He does not seem to fear a broad, complicated and ambitious agenda.

6. On foreign policy, he has an enlightened, internationalist perspective. He understands that the United States cannot dictate to the world how to live, and that we actually have limited military and diplomatic capacity. The railing against his handshake with Chavez and his so called bowing to the Saudi king by Hannity and company is a laughable critique. But he is president in a very dangerous world, and Al Queda is not going to stop its program of violence for him. Iraq is not going to be pacified easily. Afghanistan and Pakistan are dangerous and difficult problems. Israel is moving far to the right. Obama understands the nature of these problems and has as good a chance of making progress as we could hope for. But there is every chance that any of the hot spots, or some unforeseen situation will create enormous and messy challenges for him.

7. President Obama will face an increasingly desperate right wing attack machine. Creating false expectations for him, and then accusing him of not meeting them will be the rights main strategy. It is important to set realistic expectations for his presidency. He is not going to bring peace and prosperity by the force of his personality. He will need effective assistance from skilled policy makers. And there may be structural problems that are beyond fixing. The journey of his presidency is just beginning. If he ends up completing two terms, I have not doubt that he will be one of the most influential presidents in our history.

Wednesday, April 8, 2009

Quote of The Week

Rough Fractals will be going acoustic for 2 - 3 weeks - still playing but unplugged. One of the principals is finalizing a thesis, the other finalizing a movie and the other pretending to work for a few weeks in Guatemala where he will not have ready access to his computer. Accordingly, the posts will be lite.

We wish all the Rough Fractals mishbrucha a happy Pesach. If you find any sub prime afikomen that you want to remove from your balance sheet - we suggest you sell it back to your Seder leader under the same loan terms as being offered under the Geithner plan. "Leverage the Matzoh!" If we can collectively accumulate enough afikomen we can start a hedge fund and sell matzoh brie particpations to the public. The no-load fund is served with applesauce - for a slight fee you can have sour cream. Just remember FASB has changed the rules - it's no longer "mark to market" for this night it's "mark to matzoh".

Speaking of Passover, it is sort of wierd to wonder what Bernie Madoff is doing this year? Do they serve unleavened bread in jail? Ending the Seder with "next year in Jerusalem" while facing life in prison does not make much sense. Ironic (?) that tonight most Jews celebrate hard and long sought freedom while Madoff contemplates his own opposite. Not that anyone will be asking at his prison Seder (if there is one?), but the four questions should be easy for him - Manish tana halilah hazeh - Why is this night different from all others?

So -- Rough Fractals is signing off for a bit (except for the maybe few posts that may show up over then next few weeks) and leaves you with the following quote from David Foster Wallace:

"... our endless and impossible journey toward home is in fact our home ... imagine [Kafka's] art as a kind of door. To envision us readers coming up and pounding on this door, pounding and pounding, not just wanting admission but needing it, we don't know what it is but we can feel it, this total desperation to enter, pounding and pushing and kicking, etc. That, finally, the door opens ... and it opens outward: we've been inside what we wanted all along."


Monday, April 6, 2009

Best Quote of The Year - Maybe of The Decade...

"The first duty of everybody in life is to realize that you are a piece of shit. You are selfish, you are self centered and that you are willing to sacrifice 20,000 people in a foreign country just so that you can go to a Wings concert. Sacrifice like 100,000 Chinese female babies just so you can rent this fucking camera and do your stupid art project. No problem - you are a piece of shit. Once you realize you are a piece of shit it's not so hard to take because then you do not have this feeling that you're a good person all the time and let me tell you something - feeling like you are a good person all the time is like having a brand new car with no scratches on it. It's a real responsibility which is almost impossible to live up to. Being a piece of shit and then occasionally doing something that is good and true is a much easier place to be and I think that is really important and I always tried to make my kids understand that they are not so terrific and that not being so terrific - that's OK because most people who say they are terrific, Bill Clinton, Cardinal Egan, anybody you want to talk about - they are not so terrific. Martha Stewart - not so terrific either. There is nothing wrong with not being so terrific. It's what the whole ball game is about - not being so terrific and accepting it."

- Kenny Shopsin - owner of Shopsin's Restaurant in Greenwich Village in the documentary, "I Like Killing Flies".

Sunday, April 5, 2009

Thursday, April 2, 2009

Oracle On The Hudson

Today FASB has announced changes to the mark to market rules. Rough Fractals has long predicted and advocated for this change - see for example the post below dated February 24. Thank you.

Among many of its shortcomings, including what people have been calling the "proclivity" of the mark to market rules (meaning they exaggerate cyclical ups and downs), one of the odd things that mark to market did was ensure that balance sheets would be wrong by requiring balance sheets to mark to an illiquid market, ignore marks to value, and use an averaging methodology for many debt instruments that either pay $0 or $100 - thus $50 is necessarily incorrect (though it is the average outcome - a useless and misleading calculation). Critics suggest that value benchmarks used in the past were fiction (this was called mark to make believe). That may be true and is a valid concern but that is what audits are supposed to verify.

In Rough Fractals' view changing mark to market is the right thing to do and combined with increased accounting vigilance - balance sheets will be more, not less, accurate. (there are some other benefits as well which have to do with how bank capital is measured etc but those (while important) are beyond our expertise. Rough Fractals would be bullshitting if we claimed to understand how the bank capital rules really work (as are most people who speak about them).

Finally just a mention that the mark to market changes have an interesting correlation with and impact on the Geithner toxic asset purchase plan in terms of the pricing of those assets. However Rough Fractals is not going to say more about that now because its not all that interesting.


Economic Prediction

I have made this prediction before and have seen nothing at all to make me believe that I am correct. Nonetheless I continue to believe that it will happen (and will be a good thing in a very perverse way). We will suspend the mark to market rules (FASB 157 and FASB 105). I am not going to reiterate here why I think this will be done or why I think it should be - just want to reiterate the prediction.

Wednesday, April 1, 2009

Let Us Now Praise Famous Men - Raul Alfonsin...

Raul Alfonsin, died this week in Argentina. His impact on modern Argentina cannot be overestimated. He fought within the system to establish democracy and bring an end to a long tradition of military rule there. In addition he had to overcome the incredibly strong hold of the populist Peronism that has been such a dominant force in the Argentine political landscape since the 1950's. In the end, military rule was overcome in large part because of outrage over the reign of terror during the time of Los Desaparecidos and the ill fated Falkland/Malvinas Islands war instigated by the military leadership against England in a misguided attempt to curry popular nationalist feelings and support. Alfonsin then was elected President. His supporters showed their affiliation by wearing white berets. Alfonsin was brave and important.

Below is Alfonsin's well written and informative obituary carried in the N.Y. Times.

April 1, 2009
Raúl Alfonsín, 82, Former Argentine Leader, Dies


Raúl Alfonsín, whose presidency in the 1980s symbolized the return of democracy in Argentina and other Latin American nations after an era of military dictatorships, died Tuesday at his home in Buenos Aires. He was 82.

The cause was lung cancer, said Dr. Alberto Sadler, who had been treating Mr. Alfonsín.

A passionate spokesman for human rights, Mr. Alfonsín governed Argentina from 1983 to 1989, a time of upheaval that included three failed military coup attempts, hyperinflation and food riots. He won wide praise for prosecuting the military dictators who had preceded him in office.

His government’s inability to manage a sinking economy forced him to step down several months before his term was to end, but he remained a respected and influential political figure. When he handed over power to Carlos Saúl Menem, it was the first time in 61 years that an elected Argentine president had passed the presidential sash to an elected president from a different political party.

“My inspiration comes from an ethic, rather than an ideology,” Mr. Alfonsín once said in an interview, “an ethic that believes in the freedom of man.” He liked to call himself “the most humble Argentine,” and his rumpled suits and shabby trench coat became his trademarks.

Raúl Ricardo Alfonsín Foulkes was born to a family of shopkeepers in Chascomús on March 12, 1927. His father, an immigrant from Spain, was a passionate supporter of the Loyalists in the Spanish Civil War and a foe of Franco. “I came from a home atmosphere where liberty was not only learned from books,” Mr. Alfonsín said.

He graduated from a military academy with a bachelor’s degree and the rank of second lieutenant, but he said he “became fed up with the military.” He studied law at the National University of La Plata, and while there became active in the centrist Radical Civic Union party, attracted by its populist programs.

He held local and provincial offices as political power seesawed between military and civilian authorities after the overthrow and exile of Gen. Juan Domingo Perón in 1955. He was elected to the national Parliament in 1963.

Developing a reputation as a maverick, Mr. Alfonsín founded an insurgent faction within the Radical Civic Union party. He and his supporters stressed social reforms and hoped that they could loosen the Peronists’ hold over the masses.

Mr. Alfonsín’s political star rose in the late 1970s when he became one of the few politicians to criticize Argentina’s military dictatorships. He helped create a private organization called the Permanent Assembly for Human Rights, and he lashed out at the military governments and their paramilitary henchmen, who were responsible for the killing and torture of more than 10,000 political dissidents. As a lawyer, he defended many political prisoners.

The Argentine military was forced to relinquish power after the failed invasion of the British-administered Falkland Islands in 1982. A ban on political parties was lifted as a step toward returning the nation to civilian rule. Mr. Alfonsín won the Radical Civic Union’s nomination for president in 1983. A decided underdog, he won election.

His inauguration ushered in a time of excitement and hope. Mr. Alfonsín’s government prosecuted many of the military leaders who had ruled the country in the 1970s. Several generals were sentenced to long prison terms. Similar abuses came to light in Chile, El Salvador and Guatemala. Human rights organizations praised Mr. Alfonsín as a beacon of enlightened leadership.

But he paid a price for prosecuting officials who still had the power to overthrow him. After one failed rebellion in 1987, Mr. Alfonsín and congressional leaders were forced to enact legislation halting most of the investigations and trials. A de facto amnesty became law, most of the military leaders were eventually freed from prison and Mr. Alfonsín never recovered his political footing.

Over the next two years he switched economic plans every few months as the currency collapsed, inflation soared and the government fell behind in its debt payments. By the middle of 1989, Mr. Alfonsín decided he had no choice but to step down.

He eventually assumed the role of elder statesman in his party, frequently writing opinion articles in the newspapers and granting long, thoughtful interviews on television. He suffered serious injuries in an automobile accident in June 1999 while campaigning for a political ally.

He is survived by his wife, María Lorenza Barrenechea, and six children.

Mr. Alfonsín made his final public appearance last October, when President Cristina Fernández de Kirchner unveiled a bust of him. “Ideas go on, men don’t go on,” he said. “Men succeed or fail, but it is the ideas that transform themselves into torches that keep democracy alive.”

Vinod Sreeharsha contributed reporting from Buenos Aires.


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