The Rabid Independent, Nonpartisan solutions, independent policy ideas

Every Man for Himself

When the world goes into a recession or even when an individual country or region gets hit with an economic storm, free trade, aid, and coordinated policy all go out the window.  It becomes every nation for itself.

After Obama’s recent trip to Europe everyone wants to know whether he succeeded.  I think that means – Did he get all the countries of the world to agree to work together to get us out of this economic mess? 

That was never going to happen.

In fact the reactions to the crisis are all over the map but they have one thing in common: their first priority is their own economic welfare, not anyone else’s.  Europe (ex UK) doesn’t want to stimulate fiscally for a variety of local reasons, so they aren’t.  China is, but not in a way that will help anyone else (through increased imports) and their anti-US dollar rhetoric is becoming more acrimonious. Third world countries are increasing tariffs.

Has anyone noticed that the USA is the only country cancelling a “buy America” clause so it doesn’t behave in a protectionist manner.  We have completely lost our feeling for national economic welfare in favor of economic efficiency and being a good global economic partner.  No one else has.

The old paradigm was to gut our manufacturing base by exporting it to China.  This was great for multinational profits.  It was horrendous for the US economy.  All we have left are the parts we couldn’t export like housing and finance.  These are both way too big relative to the population. 

We need some selfish stimulus that rebalances our economy.  If it doesn’t help the rest of the world at the same time – so be it.

In The Defense Department, Every Day is Christmas

Last year the Defense Department’s budget was $515bn without including expenditures for Iraq and Afghanistan.  This year they are looking for an increase to something around $575bn.  President Obama seems prepared to cut it to around $535bn (for a 4% increase). 

The press seems to be discussing these “cuts” with fascination.  The question posed is always: “Where are the cuts coming from?”.  A $535bn figure is 81% greater than the 2001 budget. If I add in a figure for the occupation of Iraq, say $50bn, then the number is a rise of


It’s a good thing the economy is healthy and the Federal government is running a surplus.

It’s Geitner Vs. FASB

My money is on FASB.

One week ago Tim Geitner announced his partnership program to finance private sector purchases of "toxic assets with nonrecourse repo using only a 3% haircut.  The sludge market would be born again and banks would have a real bid they could hit if they had to sell some of their worst junk.  The question remaining was – would they sell at the deep discount price and deliver the bottom feeding funds the bargains they can now afford (with government money).

Yesterday we got the answer.  The Federal Accounting Standards Board severely weakened its “mark-to-market” rule so banks don’t have to recognize market prices for assets. They can permanently live in a fantasy world of “fair value”.  We have seen all this before – in Japan in the 1990’s.  Banks were allowed to carry all their assets (loans) at book (cost) and so never recognized losses.  They stayed in business but were actually bankrupt.  They made no new loans and the assets became frozen so no “creative destruction” occurred in the bankruptcy courts – which is the only way you get out of a mess like this.  They were nicknamed Zombie Banks. 

What possible motivation do US banks have now to liquidate their bad loans?  The Geitner plan will not be offered any product at the market.  It will all just sit at their 20-50 points above the bid.  We’ll have fewer bank bankruptcies but the recession will be far more drawn out.

Advice for Crazy Talk Show Polemicists

Don’t use up your best lines early in the game.  If you say Obama is a modern Nazi fascist then you’ll need some good evidence soon or else your listeners will tune out.  You’ve now used up the biggest pejorative you could think of.  If there are no storm troopers marching in Washington very soon then your listeners will lose interest.



The only thing you have left is to predict the imminent end of the world, but it better happen soon.  If you have to fall back to weaker predictions then you’ll look humbled and humility is definitely not your thing.

The ratings will be highest when the predictions are the most extreme.  Enjoy it while it lasts.

Tom Friedman’s Flat Earth

I have a lot of respect for Thomas Friedman’s views on the Middle East but not much for his efforts to be an economist or environmentalist.

In his biggest book about global trade he argues that we need to fight foreign competition by becoming more educated.  I’m all in favor of education but if a third world country has no  trade barriers to your economy then they will undercut you relentlessly no matter what you do and they can become just as educated (as he has figured out).  Their vastly cheaper labor costs will drive your wages down to their levels unless you work in a non-tradable goods sector. This is called factor price equalization.  The solution to his problem (for an individual) is to hide out in sales, law  or construction.  The problem is fixed over time by either a huge appreciation in the 3rd world country’s currency or a huge transfer of wealth to them from us.

His latest book about about global warming is doom and gloom about a problem that is so expensive to fix that no one (especially the 3rd world he admires so much in the first book) will ever do anything about it.  The most important service he could have provided to his cause was an air tight case proving that all or most global warming (or “wierding” as he prefers) is man made.  He made no effort at this at all.  He simply points to melting glaciers and thinks the job is done. It’s NOT.  Here’s the Princeton math genius featured in the NY Times magazine this weekend:


To get the world to give up enormous amounts of GDP to reduce emissions takes a huge amount of political unity, probably produced by overwhelming fear.  TF needs to PROVE his case.

History TV Channels

I read and study history – a lot.  I also frequently look to see what the History Channel and History International have on.  Why is it that I am constantly seeing shows like History’s Mysteries where they discuss Voodoo, Decoding the Past  where they explain the text of the Koran, and Beyond the Da Vinci Code ?. 

Have they run out of programming?  There is a natural thrill to be had from grasping at straws that connect history to mythology.  It allows us to believe in dragons and Martians and ghosts. I understand the temptation.  Inconveniently, history requires facts, evidence, and corroboration.

All these shows should be moved to CBN or TBN.

Managing an Occupation Without Reprisals

Our invasion of Iraq in 2003 led to a small conflict which ended in a couple of weeks.  Then the occupation (“the seizure and control of an area by military forces, esp. foreign territory.”)began.  This is not a war because there is no opposing army,there are no campaigns, battles or active military operations.  Every poll shows that the people of Iraq do NOT want us there.

If we look back in history to see how other countries successfully managed occupations we find they all used reprisals to quell rebellions or insurgencies.   Napoleon was particularly vicious in Spain.  One of the most famous WW2 reprisals was in Prague after English trained guerrillas assassinated Reinhard Heydrich (one of my top ten most evil men in the history of the world), they destroyed the town of Lidice.  13000 people were arrested, deported or killed. The assassins killed themselves.

Alas reprisals no longer sit well with our modern day sensibilities and besides – we would look even more obviously like an evil occupying empire than the freedom deliverers we pretend to be.  Instead we do the more modern thing – we pay insurgents off.  The insurgents are the disenfranchised angry Sunnis who have virtually no say in the Iraq quasi government that takes its orders from Iran.  They have joined together, named themselves The Awakening” and have agreed to be quiet and not hang out with Al Qaeda as long as we keep giving them money and arms. That is why our “surge” has worked.  The Iraqi government is champing at the bit to get these guys (they arrested one of their leaders last week and all hell broke lose).

The moment we leave it will all become unstuck.

My Trip to Hades

In 1998 I was a manager of a small fund of funds that invested in managers that used ‘alternative” approaches that did not correlate to the stock market.  It was my (our) opinion that the bubbly tech-driven stock market was scary and people needed to diversify (my partners and I found few people who agreed with us). 

The most popular managers came in three categories: event driven managers, private equity investors and MBS traders.  We visited various candidates including Cerberus Capital – the huge and famous private equity manager.  My partner and I went to their magnificent offices in NY city.  We waited in their three story foyer while six foot tall models in miniskirts offered us Perrier.  Eventually we were shown into a managers office who explained their approach.  They bought private companies or illiquid assets that they believed to be undervalued and then waited patiently for them to appreciate.  Their latest venture was into illiquid Japanese bank loans that had been non-performing since the collapse of their economy in 1989.

We asked how they valued these assets after they were in their portfolio since there was no active market.  The manager said Cerberus set a price that they believed to be the “correct”value.  That gradually rising (never declining) value was the basis for them to charge ever greater management/performance fees.  We left shaking our heads.

If there were fund redemptions then they used new contributions to pay for them since there was no liquidity in their assets and they would have to be sold at far lower prices than the market value in the statements they were sending out.  If new money stopped flowing in and redemptions were requested (lock ups were often required for this very reason) then they would indeed have a Madoff style problem.

What a roach motel.  I wonder if they still serve Perrier.

What is an Ally?

When we grant MFN status to a country and open up our markets so they can prosper by selling us everything they make, shouldn’t they be an ally?  Shouldn’t there be a standard where a country is truly our “friend” before we give them aid? 

President Clinton began giving away MFN preference in 1994 like candy to every country he visited or every head of state he met.  It seemed like it had no cost and everyone loved him.  He could say he was a free trader, even if the other country maintained huge protectionist walls against our imports. 

On the weekend we learned that China has a massive computer espionage network.  As I have written in the past, China has always ONLY looked out for itself.  Maybe this news will make some people wake up to that fact.

I similarly struggle with the assertion that Israel is a great American ally.  How many times has Israel done something they would not have normally done because we asked them to in the name of international relations and peace?  How many times have we asked them to stop building new settlements in the West Bank?  For a complete list of all their spying on the US, go HERE.

England sent hundreds of thousands of men to their deaths in World War I because it stuck by a treaty commitment to help Belgium if it was attacked by Germany. 

That is an ally.

Language and Polemics

Divisive political rhetoric over the past eight years has brought us ridiculous terms like “war on terror” and “Axis of evil”.  A typical attack includes words like fascist, communist, tyrant and evil. I understand that polemicists are always looking for a strong pejorative to convey their disgust but they should all be required to have dictionaries at their desk to explain and defend their choice of words.

The latest ridiculous term that is being bandied about is Socialist – a supporter of Socialism.  Socialism is a “system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.”.(

It is said “Barack Obama and his administration are all socialists.”  That is to say they are – as we speak – taking control of the means of production and distribution of the US economy.  Do we have even one example – a company or an industry, where that is true  (leaving aside bankrupt financial companies)? If anything they are lending money to industries like banking and automobiles while taking very little equity and taking almost no control over their management after they have done so.

People seem to be searching for a word that is negative in tone that refers to a policy of bigger government spending as a per cent of GDP. 

The word for this is NOT Socialism. 

Fair and Unbalanced

Website Apps