Recent Posts

'Disgusting': A Workplace Conversation

Posted on Thursday, November 17, 2016 No comments

Thursday, November 17, 2016

Like most, I usually avoid religion and politics at work.  But today a co-worker and I were waiting for a computer system to be scanned for cyber-security risks and got to talking about the economy.  He mentioned that he had watched the movie "The Big Short" (which I highly recommend) but got caught up in trying to grasp the underlying explanations - which seemed too arcane to get his head wrapped around.

As I tried to explain them, he shook his head and used the word "disgusting" - which is exactly how people feel after they see the movie.  I used that as an opportunity to explain Donald Trump's win: People held him up in front of the status quo so they could see themselves in all of their disgusting glory.

My friend said he planned to watch the movie again, but this time not worry about understanding the underlying economics.  So I tried to explain the dynamics the movie tries to expose. I'll try here as well.  And once you do understand, maybe - just maybe - you'll understand why people like me are tickled pink watching the status quo establishment retching over "President Trump."

When you buy a share of a company's stock you are buying an ownership stake in the company.  This means you will enjoy a share in the appreciation of the company's value as it competes successfully in its market.  It also means you are exposed to the company's liabilities, and can end up losing money if the company fails to compete successfully.  That success is supposed to be based on the ability to make a better product at a lower cost than its competition.  Part of those costs is the cost of money.  If money comes at a cost (interest rates), then the higher those rates are, the more important it is that the company have a genuinely better product than its competitors.

But what happens when money is free?  Or all but free?

A whole raft of companies emerge who base revenues on financial engineering rather than actually "making a better mousetrap" (as my parents would say) or by "brewing a better beer" (my preferred metaphor here in San Diego).

That financial engineering uses Big Data in much the same way as hurricane forecasters do.  Data is brought into context with other data to create 'information'.  This information is then run through statistical models validated against past data to predict the future.  With hurricanes this means the path and intensity of the center of the storm predicted out about five to seven days.  With financial engineering it means the movement of prices in things like real estate and commodities.

When the models show prices increasing, a company might sign futures contracts.  When the price rises, they sell the contract at a profit.  They are not actually interested in taking delivery of the underlying commodity and turning it into useful products.  So their revenue is based on making winning "bets" - and using Big Data for something that is essentially the same as "card counting."

Now imagine someone decides to set up a company to invest in companies whose revenue is based on winning bets like these.  That company issues stock.  Again, that stock reflects a share in revenue - but that revenue is just an aggregation of winning bets made by other companies.  Theoretically, there is no limit to the number of "links" in a "chain" like this.  So if one company makes a $10,000 bet, and a second company makes a bet on that bet, and so on and so forth, that $10,000 bet can balloon exponentially into a multi-billion dollar exposure.

When get your head wrapped around this, there really are only two options.  You either deny what is actually right in front of you because you think "that can't possibly be legal" (it is - but wasn't in the past) or "that sounds like a conspiracy theory" (this is what Wall Street wants you think).  Or you come to terms with it and are left utterly disgusted and outraged.  It is that disgust and outrage that has propelled Trump into the White House.

But it is not enough to be disgusted and outraged because if that is all there is, then we have no idea of what to expect of what our government and economy should like after the "draining of the swamp."  This is where understanding the math of all of this is essential.

When placing bets on things like commodities or real estate, it is crucial that we understand how the cost of money affects the odds.  Imagine the chips are free at the Blackjack table.  The odds in Blackjack are well-understood.  The only question is long you can remain at the table.  The cheaper the chips, the longer you can play.  It is the same with money in the financial sector.  Cheap - or free - money allows those who understand the math and have Big Data resources to do the math to gamble more and longer.  With essentially free money it is almost impossible not to be lured in by that math - it seems you cannot possibly lose.

Until you do.

And when your bets are chained together in a hierarchy of derivatives, a $10,000 bet gone bad can collapse an entire bank.  And when an entire sector of banks are making these kinds of bets, an entire economy is at risk.

The answer is a properly restrained money supply and an eventual elimination of derivatives as a legal financial product.  What this will do is end the "financialization" of the economy where this kind of completely unproductive economic activity competes with the Main Street economy for capital which it (Main Street) could actually deploy toward brewing that better beer, creating wealth, and with it decent, middle class jobs.

Draining the swamp thus needs to start with the Federal Reserve.  Returning Wall Street to the simplicity of Glass-Steagall and making securitization of futures contracts illegal will end the gambling and allow capital to flow back to Main Street wealth creators.

Michael Gerson's Final Appeal: More Beltway Blather

Posted on Monday, November 7, 2016 No comments

Monday, November 7, 2016

I don't know Michael Gerson.  But I do know that he and I share a common educational path.  Gerson has a Master of Divnity (M.Div.) from Wheaton College.  I have the same degree from Bethel University, both established Evangelical schools.  Gerson is an especially gifted writer, and I appreciated how his gifts help President Bush steer the country after 9/11.

But over the course of this political season it has become increasingly frustrating to read what seems to be a deliberate effort on his part (as well as writers like George Will and Charles Krauthammer) to speak past the voters who will be casting their ballot for Donald Trump.  This election is a lot like a dynamic I see every day as an information technology professional - where the single most challenging problem has nothing to do with technology, but with business people and technology professionals talking past each other because neither understands the other's perspective.

Perhaps Gerson, Will, Krauthammer, et. al. have become so conversant in the ideas that circulate within the Beltway that they have completely lost touch with the ideas of those who have not participated in the financial joys of proximity to the political/financial complex.  If this is the case, it is likely because they are grasping for a Beltway rationale - a reason to support one candidate over another, or not not support a candidate.  They are confounded by the fact that the rest of us are not interested in their reasons for not supporting Donald Trump.  We are not grasping for anything, but punching back at a political/financial complex who has sentenced our children, grand children, and great grand children to a life picking the Progressive cotton on the Establishment's debt plantation.

And so the more rhetorical skill writers like Gerson devote to their Beltway rationales for not voting for Trump, the more perfect they make him for our purposes.  As I have said throughout in numerous fora, the more tawdry and disgusting the reports of Trump's past behavior become, the more perfect a candidate he becomes.

Trump is a mirror.

He is a mirror we are holding up in front of writers like Gerson, Will, and Krauthammer especially, because as supposed conservatives, we think they ought to know better.  Trump is disgusting.  So now we have the opportunity to ensure they get a 3D, high def, full color look at their utterly disgusting selves.  The more disgusting Trump becomes, the better reflection is provided by him as a mirror.  To illustrate, I'll touch on a number of things Gerson says in his "final appeal."

Gerson seems to point to Teddy Roosevelt as the embodiment of the reform that George W. Bush sought to bring to Republican ideology.  To conservatives who know their history, this is ridiculous.  TR was a Bull Moose Progressive; he was not a conservative.  Here in San Diego I chided the local Republican Party for having a banner with Roosevelt on it, with this as the quote: "We are the government.  The government is us."  This is nothing short of a Progressive manifesto designed to tear down the wall between the people and their government.  That wall is called the Constitution.

The local party also had a banner with Reagan on it.  The quote was different, but I imagined what Reagan said about the government.  If government is not the solution to our problems, but is itself the problem - and if we are the government and the government is us, then does that not mean we are the problem?  But I digress...

Gerson has completely forgotten that freedom precedes government, and our Constitution was not written to enshrine government at the center of American life, but to protect freedom from it.  Each and every decree of government is necessarily a subtraction from freedom.  We have to have some form of government because human history shows we have to subtract from freedom in order for civil society to thrive.  But the essence of Progressive political philosophy is to flip these two and place government - not human freedom - at the center of American life.  I am shocked that a writer as gifted a Gerson does not seem to understand this.

Hearkening back to the Bush (W) years, he wants us to suspend our view of the efficacy of "No Child Left Behind" and consider the intention to win a mandate for "a certain model of government."  I am left speechless hearing a supposedly conservative writer appeal to a disregard of results in favor of a celebration of good intentions.  I thought Liberals had a monopoly on that kind of sentimental laziness.

The rest of Gerson's article repeats a litany of distortions of much of what Trump has been reported as saying.  To illustrate, I'll flip sides for a moment.  The one topic on which I have always appreciated President Obama is that of race.  Each time he has spoken on it, he has called for a mutual clarification of our own perspectives rather than a suspicion towards others' motives.  And each time, after listening to him speak live, I have then been disgusted by how the conservative media reported on the speech - making him out to say things he clearly did not say.

This is an artifact of what journalism has become in this country.  Take something someone says, interpret it in the most controversial light possible, find someone on the other side to be outraged by that interpretation, report the outrage like it is 'breaking news', and then spend a week talking about something which was never said to begin with.  With Trump being completely unschooled on political rhetoric, he becomes a target-rich environment for this kind of lazy, irresponsible excuse for journalism.

Along these lines, Gerson thinks Trump's idea of government is authoritarian and says he "...never imagined that Republican leaders... would fall in line with such dangerous delusions, on the theory that anything is better than Hillary Clinton.  What Gerson has really "never imagined" is that Republican voters would utterly repudiate the interpretations of Beltway writers like himself, in favor of a mandate to overturn their status quo buffeted by a legislature which would actually do its job for once.  Personally, I am excited by the idea that a President Trump will owe nothing to the Republican Establishment - because it will mean the Republican Congress will owe nothing to Donald Trump.  Imagine! A Republican Congress whose first debt is to its oath to uphold and defend the Constitution!

Gerson cannot comprehend how voters would "normalize" the things Trump seems to stand for.  Again, Gerson has chosen to listen to Trump from within his apparently Progressive Beltway echo chamber where ink is spilled by the gallon on something that no longer even resembles journalism.  What Gerson manifestly has not done is what his M.Div. was supposed to have trained him to do - question what has become of his own traditions and listen honestly to other voices.

A Trump victory will normalize only those things the Trump voters wish to see return: A preference for civil society over political society and its big government; a return to fiscal sanity and monetary policy which actually rewards thrift, innovation, and productivity, an immigration system which faithfully executes the laws of the country - facilitating legal immigration instead of the bureaucracy's next budget demands, and a table which is set to equitably benefit both the consumer and the worker.
Don't Miss