Tuesday, February 24, 2009

When Timothy Met John

Check out this great post by my good friend Ed Lee. It's a one-act play about an encounter between two economists grappling with the parallels of their respective eras. Presenting "Timothy Geithner Talks It Out With J.M. Keynes" in one act.

When he's not imagining quant jock dialogue, Ed's hanging out in Brooklyn living off the millions he made writing about Korean gangsters.

Friday, February 20, 2009

With Respect to David Brooks

In previous posts I expressed my distaste for the hyperbole spewing out of the news media. Such was the case when I highlighted Rick Santelli's outrage about Obama's mortgage plan. His point: Why should responsible homeowners help their neighbors (he calls them "losers") who over-extended themselves and are now buried in debt? "This is America!" he screamed. Then made some odd reference to pre-Castro Cuba when people lived in mansions and drove nice cars.

Santelli joins thousands of voices from the left, right, center and far-out are passing judgment and wagging their fingers to everybody else. "Shame on you." "No, shame on YOU!"

Then, out of the echo chamber, comes a voice of moderation that people probably won't hear. That voice is David Brooks. He's the "conservative" member of the New York Times op-ed team, although he's too moderate to be considered conservative. He he stands on a foundation of morality that believes society thrives when government functions with an enlightened purpose. Government isn't the solution, but it has a moral obligation to become a safety net in hard times. So when our systems fail from their complexity, governments must fix the system if consumers and businesses can't. Sometimes that means helping out the schmucks who messed it up.

Check out his op-ed piece today titled, "Money for Idiots." Here's an excerpt:

"The nation’s economy is not just the sum of its individuals. It is an interwoven context that we all share. To stabilize that communal landscape, sometimes you have to shower money upon those who have been foolish or self-indulgent. The greedy idiots may be greedy idiots, but they are our countrymen. And at some level, we’re all in this together. If their lives don’t stabilize, then our lives don’t stabilize."

Thursday, February 19, 2009

Santelli Gets Angry. Do You Care?

CNNC's Rick Santelli gets nasty during his stand-up at the Chicago Board of Trade. His target: the $275 billion Homeowner Affordability and Stability Plan that Obama announced yesterday. His basic gist: Screw the struggling homeowners who can't pay their mortgages to prevent more foreclosures! Screw the government for turning our country into a socialist state! We're angry because we shouldn't be forced to give a dime to other peoples' irresponsibility!

I'm all for fiscal responsibility. I'm all for capitalism. But watching CNBC these days is quite an experience. The financial world seems happy to point fingers at everyone but themselves, and blaming the guy who defaulted on his NINA loan falls on deaf ears, especially coming from an industry that invented the Collateralized Debt Obligation.

Fine, Wall Street. Blame it on the defaulters. Blame it on the government. Blame it on the Federal Reserve. We can empathize with your suffering.

The Meltdown Visualized (Break Out The Popcorn)

G2B reader Oy Polloi (is that you Pei?) just sent me this brilliant video visualizing the credit crisis. Yet another way to use simplicity to explain complex, systemic issues.

Part 1:

Part 2:

For those of you seeing a longer, more journalistic narrative of the crisis, check out Inside the Meltdown, Frontline's hour-long report that aired earlier this week. It's a piece that explains the financial, political, and emotional forces that nearly brought down Wall Street.

Say what, Mr. Greenspan?

Alan Greenspan, a devout libertarian from the church of Ayn Rand (that's her posing), gets in touch with his socialist side in this article from the Financial Times:

”It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring,” (Greenspan) said. “I understand that once in a hundred years this is what you do.”


Here's a better quote from fellow Republican Sen. Lindsay Graham from South Carolina:

“We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalization is what works, then we should do it.”

I've been trying to keep up with this debate about nationalization. It means the government will take the leading role in identifying which of the big banks are insolvent and then stripping out their bad assets into a separate "bad bank". On the positive side, we can once and for all end the slow death spiral among these too-big-to-fail banks. On the negative side, shareholders of these banks will get hosed.

Wednesday, February 18, 2009

Washington and Silicon Valley Need Each Other

The Personal Democracy Forum, an organization that examines how technology and politics can work together for change, poses and interesting question. Can the government attract Silicon Valley talent? The piece references the use of technology during the 2008 campaign and the new Google office in Reston, Va. as a couple proof points for a cozier partnership. But the post misses a significant point. It's about infrastructure.

The latest stimulus package puts a huge emphasis on infrastructure, and politicians from both sides of the aisle have touted the benefits of "shovel-ready" projects to build roads and bridges. It goes beyond that. The real question to ask is whether Washington can reach out to Silicon Valley to help modernize our nation's systems. We are posed with a choice. We can build like we're in the 1930's or build like we're in the 21st century. If the answer the the latter, then Washington needs Silicon Valley, and it must come up with appealing ways to attract the Valley's spirit of innovation and creative problem solving.

Check out yesterday's piece in the Wall Street Journal called "Smart Roads. Smart Bridges. Smart Grids" (subscription required). Here's an excerpt:

It's time the U.S. got a lot smarter.

Federal, state and local governments are about to pour tens of billions of dollars into the nation's infrastructure. The big question: Will we simply spend the money the way we've been doing for decades -- on more concrete and steel? Or will we use it to make our roads, bridges and other assets much more intelligent?

Imagine highways that alert motorists of a traffic jam before it forms. Or bridges that report when they're at risk of collapse. Or an electric grid that fixes itself when blackouts hit.

This vision -- known as "smart" infrastructure -- promises to make the nation more productive and competitive, while helping the environment and saving lives. Not to mention saving money by making what we've got work better and break down less often.

But fail to upgrade, advocates warn, and the country may be locked into the old way of building for decades to come.

Friday, February 13, 2009

Why I Love "This American Life"

Leave it to great storytellers to educate us about the financial crisis. Ira Glass and his gang of radio reporters have done a stellar job explaining the crisis in plain English. Their first segment "The Giant Pool of Money" provided a vivid portrait of the people involved in and affected by the sub-prime mortgage meltdown. The sequel, called "Another Frightening Show About The Economy" jolted me to slash my budget by 25%.

Earlier this year, the team reported on a brief examination of how Keynesian economic theory is influencing the stimulus package (skip to about 40 mins into the program). A couple things stuck out:

First, today's economic conditions are so unique that monetary policy (aka the Fed raising or lowering interest rates) has run its course, leaving the government the only lifeline for human intervention.

Second, there's a school of thought that the recession itself is the cure to bring us back to normal. Left untouched, the crappy economy will lower prices and home values to the point of affordability again. Very Darwinian. I wonder if it would work. Doing nothing is suicidal for politicians, but is human intervention doing more harm than good?

Third, this is the first time that a major country like the U.S. will apply Keynesian theories to correct the economy. True, FDR increased spending on public projects, but he also raised taxes and tightened the economy (which apparently drove Keynes nuts). Obama will be known as the first president to truly use Keynesian principles to right the economy. It's never been tested, so buckle your seat belts.

Five Bad Habits for Unemployment

Last week I blogged about the Five Principles for Surviving Unemployment. Thanks for all the feedback! This week, I'd like to take the opposite angle and explore the five things you shouldn't do when you're unemployed. Let's return to the mantra that a crisis is a terrible thing to waste. Unemployment is an opportunity for reinvention, albeit a painful one. Free time has been forced upon you, so you have a choice. You can make the most of it, or you can squander it.

Here are some ideas if you'd like to choose the latter route:

1. Live like you're still employed
Wake up. You're no longer a banker making bank. You're a yuppie without the "P". You and the gentleman sleeping outside Port Authority have something in common. That's ok. We've been living in an age where we've over-extended and lost our sense of smart, frugal living. It doesn't mean you have to eat beans every day, nor does it mean you have to sacrifice the things that make you happy. It's time to make tough decisions to prioritize your spending so every dollar gives you the most bang for its buck (pun intended).

Here's my tip. First consider what expenses are most valuable to you. Then test your habits by maintaining your employed lifestyle for another two weeks. Where's your money going? Does spending $150 a week at bars and clubs make sense? If you're single and prowling, spending your cash on booze may be a worthwhile investment. But in this environment, maintaining the important elements of your lifestyle requires sacrifices. Cut back on frivolous stuff and invest in what matters.

(Plug: Try using Mint.com. It's a service that helps you track your expenses and calculate your net worth. It's free and easy to use.)

2. Obsess over job boards
Some reasons why surfing job boards causes depression:

a) Every job posting makes you feel unqualified
b) Job search engines are labor intensive
c) Sifting through pages of job results leads to insanity
d) Posting resumes feels as effective as setting them on fire

In my previous entry "Five Principles for Surviving Unemployment," the first principle is to reignite your human network. Job boards are important and they do yield results. But I find one-on-one conversations more valuable because you get feedback and you can develop relationships that pay-off down the road. You should spend some time uploading your resume and writing cover letters. But spend more time developing face-to-face relationships with people who will help and encourage you.

3. Eat fast food
You're on a budget. Great. You're watching our expenses like a hawk. Smart. But your solution to cutting your food expenses by 50% is the McDonald's drive-thru? Hmmm. Sounds like a good idea until one night your date keeps complaining about that strange scent of McNugget. Oh, and that bike tire around your waist has become a radial. Look, you've got more time on your hands, so spend it on better habits such as cooking and buying healthier food. Saving money forces you to be creative, and there's nothing redeeming about munching on your fourth In-N-Out Double-Double in a week.

4. Succumb to your vices
I'm a sucker for video games. One Monday during my first month of unemployment I flipped on my dusty PS2 and popped in a video game I hadn't played in years. Time warp four days later and all I had to show that week was a body count of a couple hundred digital terrorists and a grouchy attitude from a lack of sleep.

With so much free time in your hands and the stress of unemployment, it's easy to turn bad habits into worse habits. Pay close attention to your vices. Sometimes they're necessary to blow off steam, but beware of the slippery slope.

5. Retreat into seclusion
Benjamin Franklin once drew a cartoon of a snake cut into pieces with the names of the colonies printed on them. The caption read, "UNITE or DIE." Franklin's wisdom rings true in these times, especially during these dark moments of unemployment, financial collapse, etc. The surest way to get whacked by this crisis is to believe you aren't good enough to emerge stronger. Being alone and at the mercy of your brain will keep you down.

We can learn a lot from Ben Franklin. He was a master at gathering people with similar interests. He started the first nation's library at the age of 27 by bringing his friends together to share their favorite books. If you have a lot of former colleagues in the same boat as you, get together with them over a meal or a beer. Earlier this week my roommate Alex kicked off a new series of boozing events called "Recession Doesn't Mean Depression Happy Hour." His tagline: "Yes we can!" I love that. Thumb your nose at the face of this crisis and celebrate for the sake of being alive.

Got some tips of your own? Feel free to comment below.

Thursday, February 12, 2009

Marx Predicted Our Crisis!!! (Or Did He?)

Fascinating buzz in on the blogosphere about a phony quote from Karl Marx that's making its rounds on Wall Street. In Nostradamus fashion, the ghost of communism portends an inevitable future:

"Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the State will have to take the road which will eventually lead to communism (Das Kapital, 1867)"

What's causing such a hissy? Some left-leaning bloggers think greedy capitalist bankers are using this as a rally cry against government regulation of their industry. Here are a couple posts if you're interested. You be the judge:

Faux Marx
By Meagan McArdle, The Atlantic

Did Marx predict the current economic crisis?
By Bryce Edwards, liberation

Wednesday, February 11, 2009

Feeding the Beast

I've been thinking about America's appetite for consumption. We love buying cheap goods from abroad. We're a country that runs a trade deficit that dwarfs the combined deficits of the next 9 countries ranked after us. But what does this mean for the developing countries that feed us?

Last night, my economics professor Jim Howell recalled an encounter with a Chinese official a few years back. He asked the official how long China could maintain selling low-priced goods to the West. The official replied, as long as Chinese workers are paid 42 cents a day.

My good friend Mo has been thinking about this too. Mo and I taught English to bored college students in Shanghai in the late-1990's. He went back a few years ago to finish his Stanford Ph.D., but discovered a different calling away from academia. He's now at the center of Chinese pop culture directing reality dating shows, and maintains a keen eye on Chinese-U.S. relations. Here's Mo's take on this subject:

"The fact is, people in the US and parts of Europe live in relative luxury because of the sickening exploitation of people in other parts of the world. The rich in every country benefit from this exploitation, and the US is the richest country in the world, per capita. As Philip K. Dick wrote, albeit entirely in a different context, the Empire never ended. In this case, I mean the British Empire which transitioned rather smoothly into the American Empire. How are the methods of companies like Halliburton different than the East India Company? Technology changed, faster than anyone could imagine, but infrastructures and economic behavior on a global scale hasn't yet matched that change.

And by the way, I'm not totally being down on the imperial system, I mean, it gives us great stuff like TiVo and iPhones and satellite radio and the NBA, etc etc etc. I like the stuff! I hate the system. It's a terrible moral quandary.

China is in a fascinating position because China has tried to position itself, in the post-Soviet world, as the alternative to American imperial power. China recognizes that the power of the British Empire, and that of the American Empire, is three-fold, and that the obvious element is the least actually important. 1. Military. 2. Economic. 3. Cultural. China tries to combat the US on all three points, but obviously lags far behind vis-a-vis American cultural supremacy. I mean, even the French, for all their great technical filmmaking personnel, have sort of given up to the Hollywood movie model in the past few years, because it makes money!"

Tuesday, February 10, 2009

How Barry Got His Groove Back

I'm watching President Obama's town hall meeting in Fort Myers, FL. He looks like Obama the campaigner. He's relaxed. He's joking around with the audience. He's walking with a swagger. He's in his element. In White House press conferences and photo-ops Obama looks dreary-eyed and sleep-deprived. I would too if I was forced to live in DC.

On one level he's being his usual long-winded self by trying to explain the macro-economic forces of our current crisis. But he succeeds by connecting the complex with the relevant.

While Obama isn't introducing anything new, this town hall meeting underscores his skill as a communicator. He boils down systemic issues such as energy grids and rural broadband access into singular outcomes such as jobs and commerce. He harnesses the winds of public opinion to power his message. He adds a level of accountability by asking his audience to judge him by his one success metric: job creation.

There's still a populist in him, and I worry he's just telling people what they want to hear. One woman named Henrietta Hughes could barely speak when she got up to the microphone. She begged him for help because she had no job and had lost her home. Obama walked down and hugged her. The crowd stood up and cheered. One woman in the audience looked like she was at the Kentucky Derby, shaking her fists as Obama walked towards Hughes.

Here's his most salient sound bite: "This is about turning crisis into opportunity." So true, given his set-backs since taking office (Republican rejection, Daschle tax evasion).

Friday, February 6, 2009

5 Principles for Surviving Unemployment

Take it from a guy who got whacked twice in 2008-- unemployment is scarier when you're employed. The threat of being let go, the insecurity of being below the cut-off line, the paranoia of every passing glance from your boss is paralyzing. But once the axe has fallen, the experience of unemployment can be liberating. It's pretty nice to wake up at 9:00 and blog in your sweats (ahem… cough).

Sure, unemployment can suck because the ego blow makes you feel like a schmuck. But this is no time to be a Debbie Downer. To quote our diminutive White House Chief of Staff Rahm Emanuel, "You never want a serious crisis to go to waste." Once you deal with the setbacks of unemployment, turn your attention to the opportunities because they're everywhere. Here's my list of the top 5 ways to make the most out of your unemployment.

1. Revive your human network
You've amassed a database of friends, acquaintances, business partners and former colleagues. Take some time to consolidate your phone lists, refresh your social networks and sift through your back-log of Facebook and Linkedin friend requests. Find any means to connect with the people you've been meaning to catch up with for years, but never had time. Then meet up over a meal or a beverage to to pick his or her brain for career guidance. Three things usually happen over a casual meal: 1) Your contact will chatter away because people love spreading career wisdom, 2) You get new ideas about your career, and 3) You get a free pity meal (especially if you talk about the experience of being unemployed).

2. Learn to manage your money
Throughout most of my career I thought budgeting was for those goodie-goodies who studied on Friday nights in college. Now I've become a number-crunching, Mint.com-obsessed nerd. After my first layoff, I poured my attention into learning the essentials of personal finance and disciplined budgeting. Keeping daily track of my spending opened up new and creative ways to save money and to prioritize the value of each dollar spent. It also revealed how much useless crap I was buying. Thanks to my change in behavior, I created a strong safety net to deal with my second layoff.

3. Feed your brain
A mind is a terrible thing to waste. Feed your brain new meals. After years of sitting in front of a computer for 10 hours a day stale offices, you'll fall in love with your brain's ability to absorb new information. Explore new ideas. Read books. Watch artsy films. Take a class in a topic that you wish you took in college to get your gears spinning.

4. Get fit
This is crucial. Stagnation is the greatest enemy of the unemployed. Yes, it's great to sleep 10 hours a day, but lunch shouldn't be your first meal. To keep your body moving you need to move it. If you're not an exerciser start with modest stretching and introduce a daily walk around the block. For me, exercise is a welcome hiatus to recalibrate and gain perspective on my day. My afternoon run helps remove clutter from my deluge of to-dos. You've got time on your hands, so you might as well improve your health before plugging into your next cubicle.

5. Serve others
There's no better way to gain unemployment enlightenment than pouring your energy into something selfless. It's an innate human quality to give without expecting something in return, and it brings perspective on what really matters in life. On a personal level, I volunteer at a homeless shelter a couple Saturdays a year (not much). Having a conversation with people who are down on their luck is humbling and I learn a lot from every conversation. Here are some good sites as a starting point: Hands On Bay Area, Volunteer Match, One Brick, USA Service.