Friday, October 31, 2008

Michigan and Purdue Meet in an Epic Battle in the Bottom Ten

Number 4 plays number 9 in West Lafayette, Indiana on Saturday. Yes, you read it right; 4 plays 9 for the bottom of the Big Ten. Number 4 Michigan in the Bottom Ten plays at Purdue, Number 9 in the Bottom Ten. This classic game may never be played again.

By NCAA rules, someone’s got to win

Saturday at Purdue either the Purdue Boilermakers or the Michigan Wolverines will have to win.

Joe Tiller has coached Purdue for since 1997 with a wonderful record of 83-54 through last year with 4 wins in 6 bowl games.

This is his final year. The goal was to retire in glory.

Unfortunately, the football fates have spoken. Purdue is 2-6, having lost 5 games in a row. Not how Joe intended to finish his great career. He deserves better.

Rick Rodriquez has an equally great coaching record. This is his first year at Michigan, looking forward to carrying on the great tradition of the University of Michigan football program, joining Fielding Yost, Fritz Crisler, and Bo Schembecher in the Michigan pantheon of football greats. Unfortunately, the football fates have spoken. Michigan is 2-6, having lost 4 in a row.

From the salad days of Top Ten teams, Michigan is now in The Bottom Ten. Not how Rick intended to start his Wolverine career. He will do better.

Michigan must run the string of the remaining 4 games, Purdue, Northwestern, Minnesota, and Ohio State to be bowl eligible. Anything’s possible this year, but don’t bet the Big House on it.

Michigan showed signs of life last week against Michigan State, but 5 fumbles and 2 interceptions were par for the course.

The defense still has a propensity to give up big plays, but the killer is, consistently on third and long, to allow completion of a longer pass. Third and 15 become 20 yard receptions. Teams watch the films and know where Michigan’s pass defense is mediocre (Think the corner backs who couldn’t get the job done last year). The pass defense has let many an opposing QB play like an All-American this year. Fortunately for Michigan, Purdue’s QB Matt Painter is banged up and may not start. The backup was a running back last year.

Purdue’s offense is more anemic than Michigan’s. It has scored in single digits in three of the last four games, and didn’t reach the endzone in two of the games.

If true to form, Purdue’s offense will have a breakout game.

The last four games at Purdue have been split 2-2, with a total of 11 points deciding the four games.

Did I mention that Joe must really want this game bad. Shortly before the National Letter of Intent Day last February, Rick signed Roy Roundtree, who had previously orally committed himself to Purdue. Tiller complained about the violation of a gentlemen’s agreement not to poach. Funny, no other Big Ten coach professed to know anything about it.

Tiller called Rodriquez “a guy in a wizard hat selling snake oil.”

Apparently, they have kissed and made up, because both laugh about and profess true friendship.

Let’s cancel the game, have the coaches and teams meet at a sports bar, and then engage in a boilermaker drinking contest.

Go Blue.

Wednesday, October 29, 2008

Obama and Biden Will Not Change the Culture of Corruption in Washington

Senator Barack Obama stands for change. If you missed it the first time, change, change, change! The mantra of his campaign is that he will bring needed change to Washington

The public wants change in the economy, change in the Presidency, and change in politics as normal.

The most critical change should be in the culture of Washington, the culture of corruption, the culture that brings us scandal after scandal, disaster after disaster, Fannie Mae and Freddie Mac. Unless we change the culture of Washington, the more things seem to change, the more they will remain the same.

There will be no change because Obama and Biden are of the corrupt class of political favoritism.

Corruption is an equal opportunity, non-partisan vice. Incumbent parties have more opportunity for corruption, and hence are likely to fall prey to it, and then get the onus when caught.

The Republicans, as the majority party from 2000-2006, certainly have their share of corrupt bums: Jack Abramoff, Randy “Duke” Cunningham, Robert Nye, readily come to mind, with others under investigation. Ted Stevens was just convicted as I write this post.

Let us not neglect the Democrats, who gave us the two bankrupt and corrupt mortgage lenders.

Senator Obama’s Record

While still in the Illinois Senate, Senator Obama received a sweetheart deal on a Chicago house, saving $300,000 on the asking price, courtesy of Tony Rezko, a principal fundraiser and cog of the Chicago machine, and now a convicted felon.

Obama’s campaigns received large contributions from Rezko such that earlier this year his Campaign Committee donated $150,000 to charity in campaign contributions linked to the felon.

Senator Obama never once in his years in Chicago politics took on the political machine. Not one line on his CV suggests “reformer.”

When Illinois Senator Obama was elected to the US Senate in 2004, the University of Chicago Medical School promoted his wife from Executive Director for Community Affairs to Vice President for Community and External Affairs and nearly tripled her salary from $121,910 in 2004 to $316,962 in 2005.

Her husband, now the United States Senator, returned the favor by earmarking $1 million in 2006 for a new hospital pavilion at the University of Chicago Hospital.

To be fair to the Senator, he earmarked sums, often larger than $1 million, to the University of Illinois, Illinois State University, Chicago State University, Northwestern Memorial Hospital, Loyola, City Colleges of Chicago, and Southern Illinois.

Indeed, he was so generous with taxpayers’ money that in less than four years, he delivered almost $1 billion in earmarks throughout Illinois. He was on pace to quickly catch up to the kings of pork, Senators Ted Stevens of Alaska and Robert Byrd of West Virginia.

From 1998-2008 the largest receiver of campaign contributions from Fannie Mae and Freddie Mac was Senator Chris Dodd of Connecticut with $165,400. The third largest recipient was Senator John Kerry of Massachusetts with $111,000.

The second largest, having only been in the Senate for less than 4 years, was Senator Barack Obama with $126,349.

Freddie Mac doled out $10.2 million in campaign contributions to politicians, Fannie Mae $9.4 million, and AIG $9.7 million.

Senator Obama drank deeply from the Washington trough.

Senator Joe Biden

Biden’s son, Hunter, graduated from law school, and immediately received a 5 year consulting contract from MBNA, the large Wilmington, Delaware credit card company, since acquired by the Bank of America. The contract was rumored to be for $100,000 annually. Hunter was promoted to Senior Vice President of MBNA in 1998, and later left the company.

Senator Biden, against the wishes of his Democratic colleagues, fought hard in Congress for an anti-consumer bill pushed by the credit card industry. The Bill was enacted in 2005.

We know, because the Senator keeps reminding us, that he is for the little guy. Not though when it comes to carrying the water for the credit card industry. The late MBNA has been one of the largest campaign contributors to the Senator, giving $214,050. Bank of America has carried on the tradition of donating heavily to Joe.

SimmonsCooper is a Madison County, Illinois law firm specializing in asbestos litigation. Madison County was a toxic hell hole for defendants until tort reform essentially shut it down a few years ago.

The firm then moved much of its caseload to the suddenly friendly State of Delaware. Biden’s other son, Beau, handled many of the cases in Delaware. Beau has since been elected Attorney General of Delaware, funded in part by $35,000 in campaign contributions by SimmonsCooper.

The firm also invested $1 million in the purchase of a hedge fund by Hunter Biden and Joe Biden’s brother, James.

The Illinois law firm has contributed $196,050 to Biden’s campaigns since 2003. It also spent over $6.5 million in Washington lobbying expenses.

Biden has successfully repaid SimmonsCooper’s largess by blocking adoption of an asbestos reform bill.

Friends of Angelo

Angelo Mozillo was the Chair of Countrywide, the largest mortgage issuer in the United States. Countrywide was also the biggest supplier of mortgages to Fannie Mae.

As it went under a few months ago and was acquired by the ubiquitous Bank of America, we discovered that Angelo had his friends, who received special consideration from Countrywide on mortgages. The list was bipartisan, but Democratic names mostly spring to the top.

Senator Chris Dodd is the Chair of the Senate Banking Committee. Countrywide shaved points off his mortgage on a D.C. townhouse and Haddam, Connecticut residence. The bank also waived those miscellaneous “garbage” transaction fees that often add up to thousands of dollars.

The Bush Administration tried to impose toughened standards on Fannie and Freddie in 2004. Dodd blocked reforms, stating the mortgage market is “one of the great success stories of all time.” .

Senator Kent Conrad of North Dakota, Chair of the Senate Budget Committee, had points waived on the purchase of an 8 unit apartment building, when Countrywide would not normally issue mortgages for more than 4 units, and on beachfront property, a million dollar home, in Delaware.

Both Senator Conrad and Dodd claimed they were ignorant of any special favors.

Former Fannie Mae Chief Executive Jim Johnson received over $10 million in preferential loans from Countrywide. Johnson was originally scheduled to head Senator Obama’s Vice Presidential Search Committee, but was dropped when the Countrywide scandals emerged. Johnson earned $21 million in 1998, his last year at Fannie Mae. Johnson had been campaign manager for Walter Mondale’s 1984 Presidential campaign.

Other Friends of Angelo included Donna Shalala and Richard Holbrooke from the Clinton Administration and Alphonso Johnson, who was Secretary of Housing and Urban Development in the Bush Administration.

Friends of Fannie Mae and Freddie Mac

Prominent Democratic politicos received plush jobs with the two bankrupt mortgage companies.

Jamie Gorelick, the former Deputy Attorney General in the Clinton Administration, was appointed Vice Chair of Fannie Mae and served from 1997-2003, earning over $26 million in the six years. Prior to the appointment, she had no training or experience in finance. She received a $960,149 refinancing at 5% interest from Countrywide in 2003, 40 days after Franklin Raines refinanced $982,253 at 5.125%. The prevailing rate at that time was around 6%.

Franklin Raines, White House Budget Director in the Clinton Administration, was Chair of Fannie Mae for 4 years, earning over $50 million. He resigned in December 2004 because of $10.6 billion in “accounting irregularities” under his and Jamie’s reign. He settled the subsequent lawsuit for $3 million, paid for not out of his pocket but by insurance.

The Democrats, led by Chris Dodd and Barney Frank, blocked substantial reforms of Freddie and Fannie.

Franklin received over $3 million in sweetheart loans from Countrywide.

Obama had sought advice from Raines.

Fannie Mae Chief Operating Officer Daniel Mudd was fired when Fannie Mae went under. He refinanced a $2,965,000 mortgage at 4.25% in August 2003, replacing a 6.5% mortgage from Countrywide.

The House Members

Congressman Barney Frank of Massachusetts heads the House Banking Committee. He vigorously, and successfully, opposed measures by President Bush, Senator McCain and even President Clinton to increase regulation of Fannie Mae and Freddie Mac. Herb Moses, Frank’s partner and roommate, was an exec at Fannie Mae from 1991-1998, which raises questions of conflicts of interest on the part of the Congressman, who also received large campaign contributions by the two companies. Barney and Herb broke up in 1998.

Congressman Frank stated in 2003 that he wanted “to roll the dice” on the two companies.

Congressman Charles Rangel, Chairman of the House ways and Means Committee, has a number of ethical issues. The Committee writes the tax laws of the United States.

For the past 20 years Rangel failed to report $75,000 in rental income from a property in the Dominican Republic. He blamed “cultural and language barriers” for the mistake, even though half his district is Hispanic.

The developer also waived the mortgage interest for at least half of the 20 year mortgage.

The Congressman leased 4 apartments in a rent controlled building. New York City and state law limit rent controlled units to only one per person, and in any event, it must be used as the principal place of residence. One of the units was used as his office. The monthly rent for the apartments was $3,864, substantially less than the prevailing market price of $7,465-8,125.

Rangel has received over $700,000 in campaign contributions from real estate developers since the 2004 election cycle.

Congressman Alan Mollohan of West Virginia was elected to congress in 1983. His law firm was losing money at the time. By the end of 2007 he was worth between $6 and $24 million. Indeed, from 2000 to 2004 his worth grew from $565,000 to over $6 million.

We also have the legendary, indicted Congressman William Jefferson of New Orleans, who had $90,000 in cash in a freezer, and was caught on a video camera receiving $100,000 in bribes.

Elsewhere in the Senate

Senate Majority Leader Harry Reid of Nevada was poor, literally dirt poor, when he graduated from college. Now he’s made a lot of money in real estate, including property in Las Vegas that he had not previously reported owning. He paid $750,000 cash for a D.C. condo in 2001. Senator Stevens was convicted for non-disclosures on his ethics statement.

Reid paid $400,000 in 1998 for a parcel of land outside Vegas. It was zoned residential at the time, but after getting it rezoned commercial, he resold it for $1.1 million in 2004.

The Los Angeles Times reported on January 31, 2007 that the Senator paid less than 1/10th of the assessed value on a tract of Arizona land. It had been owned by a pension plan controlled by a long time friend.

The story is often said that the most dangerous place to be in New York is between Senator Charles Schumer and a camera. The Senator has been very quiet lately.

IndyMac Bank failed because of a run on the bank. The run was caused by a letter Senator Schumer released to the press stating IndyMac was in trouble.

The Wall Street Journal reported two weekends ago that a few major donors to the Democratic Senate Campaign Committee, chaired by the Senator, had looked over the books of IndyMac as a possible investment. They decided against investing, but expressed an interest in acquiring individual pieces of IndyMac. In other words, they were acting as vultures willing to cherry pick.

That’s when Senator Schumer released the letter. It may simply have been a coincidence.

The question for the incoming Obama Administration is if the Obama Justice department will pursue Democratic corruption as assiduously as the Bush Administration prosecuted Republican corruption. Reports are that attorneys in the Justice Department have contributed $150,000 to the Obama campaign. That is their right, but it should not cloud their judgment.

We should have a grand jury empanelled to investigate the relationship between the mortgage companies, investors, and legislators, as well as any sweetheart deals between Countrywide, legislators, and the Freddie/Fannie officers.

Monday, October 27, 2008

Lessons From the 2008 campaign

America has come a long way on the road to equality with gender and race

Government funding of elections is on life-support, if not terminal, as Senator McCain was hoisted on his own petard

Organization is the key

Organization in caucuses trumps name recognition

A disciplined, focused campaign can beat an unfocused, undisciplined campaign (Clinton 1992 v. George H. W. Bush)

Do not bypass Iowa or New Hampshire (Giuliani)

As usual, the pre-primary frontrunners failed to win the nominations

A tsunami drowns out all other issues

External events, the totally unexpected, often control campaigns

October surprises may have increasingly less significance in light of early voting

The mainstream media is still more powerful than talk radio, but talk radio can level the playing field

The New York Times does what it does because it can

Money doesn’t always buy electoral success (Giuliani, Connally, Forbes)

Open primaries can give a party a nominee unwanted by the party faithful

Polls are still bunk

Anger trumps reason

Snake oil sells, and voters may be seduced, even for relatively few dollars

Never underestimate the power of a free lunch offered voters in taxing economic times

Vice Presidential candidates can make a difference

It’s difficult to run with the aura of an unpopular incumbent draped around your neck (Gore 2000, McCain 2008, and partially Ford 1976)

Whether McCain or Obama wins, Governor Sarah Palin is the future of the Republican Party, just as Ronald Reagan emerged from the ashes of the 1964 Goldwater campaign

Why the Hatred for Palin

Why the intense, often visceral and perhaps pathological, hatred for Governor Sarah Palin?

She is a woman

Latent sexism

Pro Life

A mother’s place is in the home

She’s a Pentecostal

Governor Palin is telegenic

She’s attractive, a former beauty contestant

She’s a refreshing change from politicians as usual

The Governor is a threat to politics as usual

A natural

She connects

Sarah Palin is the voice of the future for the Republican Party

She was not educated at an elite university

Sarah is not of the elite

The nominee is from a small town

The Governor is the mother of 5, including a child with autism

They’re scared

She’s a threat

Take your pick!

Saturday, October 25, 2008

Does Sparty Have it in Him?

Does Sparty Have What it Takes?

Michael Hart, Michigan’s great running back, referred to the Michigan State Spartans last year as Michigan’s “Little Brother.”

Michigan has won one national championship in the last half century. Little Brother has won 3 under two great coaches, Biggie Munn and Duffy Daugherty. It also received success with two other coaches, George Perles and Nick Saban (Yes, that Nick Saban).

And yet its most famous, or infamous, hero is Bob Stehlin, aka “Spartan Bob,” the clock keeper in East Lansing for the November 3, 2001 game in which he froze the clock at the end of the game to give Michigan State just that little extra time it needed to score the post last second, winning touchdown, 26-24.

Sparty needed that edge for he has lost the last 8 games in Ann Arbor, and has run out of gas in numerous games and seasons in recent years.

Even MSU’s last win in Ann Arbor, 28-27 in 1990, is tainted. Michigan scored a touchdown at the end of the game and went for two for the victory. The Spartan’s defensive back, Eddie Brown, tripped Michigan’s great Desmond Howard in the end zone, and the pass bounced off Desmond’s chest. The referee did not call a penalty and the Spartans won.

One of the greatest wins in the Big House came four years ago when MSU was up 27-10 with 8.43 minutes left in the game. Michigan won in triple overtime, 45-37.

The indomitable Mark Dantonio was hired a year ago to change the status quo in East Lansing. The Spartans last season led by 10 points with 7 minutes left in the game. Someone forgot to tell Sparty that he was supposed to win, as once again defeat was snatched from the jaws of victory, losing 28-24. The more things change, the more they stay the same.

The game means more for Michigan State than Michigan, since the Wolverines’ greater rival is Ohio State. Bragging and recruiting rights are at play in Michigan though, as Bo discovered in 1969. He may have beaten Ohio State in 1969, the greatest win in the history of The Big House, but he lost to Michigan State. It was a cold Michigan winter that year for Bo.

MSU’s biggest football loss did not even involve their team. Michigan and Ohio State played to an epic 10-10 tie in 1973. Michigan was expected to receive the Rose Bowl bid since Ohio State had gone the previous year.

To everyone’ surprise, and to the dismay of the Wolverine Nation, the Big Ten athletic directors voted 6-4 to send the Buckeyes to Pasadena. The deciding vote for Ohio State was by the MSU Athletic Director.

The problem for MSU is that it was trying to convince the state legislature to approve a law school for the University. Opposition existed with proposals to establish two new law schools at other universities located outside the Detroit-Ann Arbor-Lansing Triangle.

UM-MSU may be bitter rivals on the playing fields, but it’s still the state of Michigan against the state of Ohio. The vote for Ohio State cost MSU a law school at that time, and the AD was fired within a year. MSU had to purchase an existing law school, the Detroit College of Law, two decades later and move it to East Lansing.

This year Little Brother is 6-2 and Big Brother 2-5. Michigan has an inconsistent offense and a solid, but unspectacular, defensive line and a porous secondary. Fortunately for Michigan, the Spartans have a one dimensional offense, Jevon Ringer. Javon, a Buckeye born and bred, tried and true, was academically denied admission to Ohio State. He clearly qualified for Michigan State. Speaking of Ohio State, MSU never got up to speed last week as the Buckeyes blew them away 45-7.

The Wolverines showed signs of life last week as they played a wonderful first half, leading at the half. But just as the Spartans would collapse in the second half of the season, the Michigan team we have unfortunately come to know this season came out after halftime. No interceptions, but five fumbles, a blocked punt, a safety, and no points as Penn State won 46-17.

Nor does this year’s team have the great receiving corps of four years ago: Braylon Edwards, Jason Avant, and Steve Breaston. It also lacks explosiveness on the line and with the linebackers. Alan Branch, Prescott Burgess, Shawn Grable, Chris Graham, David Harris, Lamarr Woodley, and Pierre Woods have moved up to the next level.

So does Sparty have what it takes? If not this year, then when?

Go Blue

Monday, October 20, 2008

Joe the Plumber is a Metaphor for the American dream

Joe the Plumber is a Metaphor for the American Dream; entrepreneurs will be encouraged and rewarded. As the Populist Era told us, average persons should become capitalists in their own right. Samuel Joseph Wurzelbacher’s goal is to work hard and achieve the American Dream.

Senator Obama’s view: “I think when you spread the wealth around, it’s good for everybody.”

The response to Joe the plumber is a metaphor for the rise of statism, income redistribution, and high taxation, all in the name of fairness.

Joe’s sin was to bring to the fore, indeed to put a face on, the core tenet of Senator Obama’s campaign - income redistribution that penalizes the achiever, the doer. The state knows better than you how your income, your hard-earned income, your wealth earned by the sweat of your brow, should be spent, and who your wealth, small as it may be, should be distributed to. That is statism, echoing the failed writings of John Kenneth Galbraith and Charles Wright from the 1960’s.

Fairness is really another name for envy, and class warfare.

Joe’s reward is the standard Clinton-Obama trashing the challenger with the help of the mainstream media. 30 journalists and four satellite trucks showed up on Shrewsbury Street in Holland, Ohio, a suburb of Toledo. Neighbors complained about the spotlights switching on at 5:30 in the morning. No such attention was given to Bill Ayres, Reverent Wright, Father Phleger, or Tony Rezko.

We are told that Joe is only his middle name, that he’s not a plumber, that he owes $1182.98 in back taxes to Ohio, and that his ambition is a fantasy. The 34 year old Joe is divorced, has custody of a 13 year old son, and drives a Dodge Durango. They live in a small beige ranch house on a tree lined street.

What difference does any of this make to the central question of the role of the individual versus that of the state?

Many go by their middle name, but Senator Obama does not want his used.

Joe is training to be a plumber, as many pursue similar dreams through education and vocational training.

Let’s talk about the back taxes owed by Congressman Charles Rangel, Chair of the House Ways and Means Committee.

Joe’s is the dream of the entrepreneur, the builder, the creator of wealth. Joe is the American Dream personified, right out of Senator Obama’s own mouth.

Ambition and dreams are fantasies that come true through hard work, the essence of being an entrepreneur. Henry Ford, the Wright Brothers, David Packard and William Hewlett, and Bill Gates all started their fantasies in a garage, and look at what they achieved.

Senator Clinton told us in the primaries that the young Barack Obama once wrote a paper in the third grade in Indonesia, in which he said he wanted to become President of the United States. That’s quite a fantasy, and yet he most likely will be our next President. That is the American Dream.

Yes, we have a metaphor and a paradox: The American Dreamer versus the State.

Americans want change, and chump change is what they will get.

It’s time to dust off Atlas Shrugged.

McCain and Obama: MIA

McCain and Obama: MIA’s

Rome is burning; the stock market crashed, credit has dried up, and 401K’s are in the tank. America is crying out for leadership, and neither McCain nor Obama is stepping up.

Where is the leadership we need in a critical time in the nation’s history? Where is the leadership that will provide confidence in Washington, confidence in our government? President Bush’s approval ratings are in the mid 20’s, but Congress consistently polls about 15% lower than the President. That’s not a good omen for the next President.

Leadership is an intangible; it can be based on presence, demeanor, style, voice, heredity, conduct, proposals, or acts. Neither Presidential candidate has shown leadership in this election cycle. Where are the proposed solutions to our critical problems?

Trashing Wall Street is following the crowd, and yet Wall Street will have to be a major player in the economic solution.

Both candidates are offering short term pabulums to win/buy votes to win in November.

Neither has looked America in the eye and soberly, reassuringly told Americans everything will be all right; we may have to suck it up for the short term, but we will be fine. Both are willing to sit back and watch the Bush Administration act. If it works, they will be the beneficiary. If the Bush attempts are unsuccessful, then they will blame Bush for our travails.

Senator McCain proposed a $300 billion restructuring of troubled mortgages. That tells the 97.5% of us paying our mortgages on time that we are foolish. He also proposed additional tax cuts, which are a start, but much more is needed.

If the contest is between who will spend the most, then the Republican will always lose to the Democrat.

Senator Obama is running the classic frontrunner campaign of killing the clock, and will probably hold the lead unless he does something stupid. Hence, he’s doorbelling in Toledo, Ohio next to foreclosed homes, and Joe the Plumber.

He’s offering tax cuts to 95% of the taxpayers, including the 40% who don’t pay income taxes, but will penalize with high taxes those who actually create jobs. We know that his middle class tax cuts are as illusionary as were those of President Clinton. The exchange with Joe the Plumber makes clear Obama’s belief in income redistribution, a killer for an ailing economy.

Senator McCain is still running an undisciplined campaign trying to make Obama the issue. Good strategy, but poor tactics. While the market plunged, and the economy is facing a recession, McCain attacked Obama’s character. Bad timing; what the public needs is reassurance that the economy will work out. The economy was seemingly falling off the cliff, and McCain was off on personal attacks against Obama’s character and judgment – all perfectly legitimate, but a month late.

Neither McCain nor Obama has given us a FDR reassurance, although Senator Biden
stated President Roosevelt gave a TV address, ignoring the facts that Roosevelt was
not yet President, and TV did not yet exist, but Senator Biden is on to something though. In his inauguration speech, in the midst of a bank panic, President Roosevelt uttered these reassuring words: “The only thing we have to fear is fear itself.”

Neither McCain nor Biden have said anything of the kind.

Maybe Obama’s ½ hour primetime buy on the major networks shortly before the election will provide the comfort zone.

Roosevelt’s policies did not end the Great Depression, perhaps even prolonged it. Some of his programs failed, and many have become lasting legacies to America. The people believed in FDR because he was leading us through uncharted, perilous waters. If something worked, that’s great. If not, move on to the next program, but always, especially through his Fireside Addresses, reassure the people.

We expect little from Obama, and have not been disappointed. His whole career has been
spent in community organizing, personal contacts, charisma, and assiduously avoiding
controversy. He never stepped up in the Illinois Senate, and has spent most of the past 4
years in the U. S. Senate campaigning for President. No leadership there.

His position against the Iraq war was a no-brainer. Congress voted for the war, not the
Illinois Legislature. Hence, he could speak out against the war and campaign to the far left
of the Democratic Party, the voters in the Democratic primaries, but especially in the early caucuses, especially Iowa.

Where is the leadership?

Why Obama/McCain Will Win



Change, change, change

It’s the economy, stupid!

Incumbent parties are usually voted out of office during economic turmoil

The Great Crash of 2008

The mainstream Media

Tina Fey and Saturday Night Live


Minority voters

The Youth Vote

Early voters


Governor Palin will soon learn, as Senator Clinton discovered in Iowa, what a
community organizer does

Voter fraud

The most extensive voter fraud since 1960




Unified party


Joe the Plumber

If McCain wins, Joe’s the reason

Sarah Palin

Talk Radio

Inherent conservatism of the American electorate




Racism/The Bradley Effect (cf. Congressman John Murtha)

McCain closes well

Obama has trouble closing; he lost 11 of the last 13 Democratic primary contests to
Senator Clinton

Obama should be ahead by 25 points at this stage, but has trouble polling above 50%

The vote often tightens as the election draws near

Money doesn’t always buy votes, unless it’s street or walking around money


Fear of Obama

Fear of the inexperienced

Fear of the unknown

Fear of the untested

Too many of these are negative reasons to win, but the American people are looking for assurance in this time of uncertainty

Sunday, October 19, 2008

Wall Street Doesn't Like What It Sees In an Obama Presidency

The Dow Jones is looking at the November Election and Doesn’t Like What It Sees.

The Market often looks to the future. Last Tuesday’s plunge reflected the global collapse of the credit market and the fear of additional large financial failures. The rapid collapse of WaMu, Bear Stearns, Lehman Brothers, the Royal Bank of Scotland, AIG, Fortis, and near misses with Merrill Lynch and Wachovia, is unprecedented in the economic history of the United States. ING Barings is now in trouble. These failures go to the jugular of the world’s financial system.

As of two weeks ago, a recession was inevitable. Everyone knew it was coming. The report of declining retail sales is also not unexpected. It merely confirmed what we already know.

If fears of a recession and the decline in retail sales are not a surprise, the banking system has been saved, and credit markets are beginning to show signs of life, then something else must be at work.

And that is fear of an Obama Presidency, coupled with overwhelming Democratic majorities in Congress. This apprehension, based upon Obama’s past, public statements and position papers, economic ignorance, the track record of the Democratic Senators and Representatives, and their leadership, is of the quasi-socializing of the American economy into a stagnant at best, European economy, a disease called Euroscelorosis.

The tremendous generator of new jobs over the past three decades will come to an end. The United States added 20 million jobs in the 1980’s, an additional 6 million from 1990-1996, and 7.4 million jobs between August 2003 and February 2007. Indeed, from 2002 to 2006 America created more jobs than Europe in the preceding 20 years.

All is at risk. The combined city, state, and new federal tax rates in cities like New York, may exceed 64%, effectively destroying job creation.

That’s if we’re lucky. If we’re unlucky then a depression is possible, complete with inflation. The three possibilities, all unpalatable, are depression, recession, or inflation. The next President will play a large, probably decisive, role in deciding which outcome will ensue.

Mortgage rates are already reflecting these realities. Creditors do not like to loan money if a substantial possibility exists that the loan either will not be repaid or repayments will not cover rising interest costs. Threats of government intervention to change the terms of existing mortgages are spooking mortgage lenders.

Senator Obama’s economic ignorance is shown by looking at one of his economic proposals, To help create jobs, he will provide a 2 year $3,000 credit and no capital gains for small (albeit undefined) small business. When the cost of health insurance alone may be $12,000, and FICA, Medicaid, and other employer taxes and mandates are figured in, a $3,000 tax credit does not justify hiring new employees. The elimination of capital gains for small business sounds great, but is essentially illusory because small businesses normally do not have capital gains.

The forced investments in 8 banks last week send a negative message about the future of capitalism in the United States. The Democrats are promising high taxes, high regulations, large indirect labor costs, protectionism, and forced unionization of the work force. Welcome to Europe

That’s not the change the voters need.

Friday, October 17, 2008

Into the Happy Valley of Death Ride the Michigan Wolverines

Into the Valley of Death charged The Light Brigade, and into Happy Valley will limp the clawless Wolverines.

Anyone who believes that the once, and future, mighty Michigan Wolverines will defeat the Penn State Nittany Lions tomorrow, please stand up, sing the Victors, and tell us what you’re inhaling.

This is the year that Joseph Vincent Paterno must get off the snider and proves he can win.

So what if he is the winningest coach in college football history with 379 victories out of 507 games?

So what if he’s had five perfect seasons and two national championships?

So what if JoePa beat Bobby Bowden three years ago in the Geezer/Orange Bowl?

So what if Paterno is the only coach to win all five major bowls: Rose, Orange, Sugar, Fiesta, and Cotton?

So what if Penn State is currently ranked third on the country with a 7-0 record and Michigan is 2-4?

So what if Penn State is in the Top Ten and Michigan in the Bottom Ten?

So what if Penn State is favored by 23 ½ points?

So what if the Pennsylvania State University named its library for him?

Penn State is snake bit in this game. The tabbies have not won since 1996, losing 9 straight to Michigan. Penn state was the favorite in 5 of those games.

Three years ago Mario Manningham, the phenom freshman, caught a last second pass to steal the victory. Coach Lloyd Carr had successfully lobbied the officials to add a few seconds to the game clock.

Two years ago Michigan’s ferocious defense knocked Penn State’s first and second team quarterbacks out of the game and held on to a 17-10 win. Michigan squeezed out a 14-9 victory last year because Penn State’s QB fumbled on his own 10 yard line.

42years of coaching and Michigan has his number.

This year Penn State has a great offense, alternating between traditional and spread offenses, an outstanding defense, and exciting special teams – all of which Michigan is lacking this year.

We don’t even know which Michigan team will show up on Saturday – the team with the starting QB, who from the Toledo 5 yard line last week threw a 100 yard touchdown pass to a wide open defensive back, or the second string QB who runs better, but can’t hit the side of a barn with a blunderbuss?

Michigan is improving. Against Notre dame four weeks ago, the Wolverines committed 8 fumbles and interceptions. They lowered the number to 5 the following week against Wisconsin, stayed at 5 in a blowout loss to Illinois two weeks ago, and then only committed 4 against Toledo last week.

In short, Michigan has Penn State right where it wants it – ripe for an upset as the Nittany Lions look past Michigan to Columbus, Ohio next weekend.

Did I mention that from 2002 to the present, over 40 Penn State football players had 163 criminal charges filed against them?

And did I mention that Penn State’s President and Athletic Director want to put Joe Pa out to pasture at season’s end, when he turns 82? Happy Birthday, Merry Christmas, and don’t let the door hit you on the way out.

Hail to the Victors.

Monday, October 13, 2008

It's the Credit Markets, Stupid

To Paraphrase Bill Clinton, “It’s the credit markets, stupid!”

We are in uncharted waters. Never before has there been a total global collapse of the credit markets. Past crashes, such as 1929 and 1907, did not involve instantaneous responses by computer programs and the instant flow of information over the global internet.

It’s always darker better the sun comes out, but we haven’t reached bottom yet. Don’t watch the Dow Jones; watch the credit markets. Credit is the lifeblood our economy. The current crisis is one of confidence, or more precisely, a lack of confidence by creditors.

Creditors lack confidence not in the underlying economy, which is still strong, but in the ability of debtors to repay their debts. Too much leverage, inadequately secured by mortgages is the catalyst. If Bear Stearns, Lehman Brothers and AIG can fail, any company can. Government’s no better off. Indeed, the Country of Iceland is apparently bankrupt as is Vallejo, California. Jefferson County, Alabama (Birmingham) just experienced a near bankruptcy death experience. They are but the first.

European, Russian, and South American markets are in chaos. Banks are failing around the world. Russia, flush with petro dollars, is watching the collapse of its banks, which are already owned by the government

Car purchasers have defaulted on $25 billion in auto loans. Holders of debt issued by Bear Stearns, Lehman Brothers, and WaMu have incurred large losses. Some courts won’t approve mortgage foreclosures and sheriffs won’t enforce evictions. Governments are talking about cramming down mortgages.

Keep in mind that Bear Stearns and Lehman both had liabilities of over $30 for every dollar of capital. Leverage is great on the upside, but devastating on the decline. Lehman further made the mistake of investing long in non-liquid real estate, while borrowing short.

Deleveraging will be painful.

We have lived off cheap credit since the 1990 S&L failures. The Fed partially bailed out banks by driving interest rates down to almost zero. Remember when your passbook savings accounts paid 5%? Now what does your savings account pay?


9% was historically a good rate for mortgages, but after 1990 rates dropped substantially. Cheap money allowed for 0% down, interest only loans as well as subprime loans. 9% will return shortly.

Wall Street may determine our IRA’s, 401K’s and other retirement plans, but the credit market defines our quality of life. No credit, no economy! It's that simple. No mortgages, no home equity loans, no car loans, no inventory financing, no lines of credit, no bridge loans, no bonds, no commercial paper, no payroll loans, no student loans, no credit cards, no factoring, no nothing.

Large lenders, such as insurance companies were willing to purchase somewhat risky bonds and other debt instruments as long as they received insurance for the debts, often in the form of credit default swaps. Thus, if the debtor defaulted, another party would pay off the loans. AIG was one of the large debt insurers. Derivatives jumped from $106 trillion in 2002 to $531 trillion today, a tremendous leap of blind faith in a novel debt instrument.

We don’t even know who the counter parties are to these deals as lobbyists, Alan Greenspan, Robert Rubin, Lawrence Summers and others successfully convinced Congress to bar the SEC from regulating these instruments.

Now that it’s clear that these insurers, including AIG, lacked sufficient reserves to cover defaulting loans, creditors face a double whammy. First, they will lose billions on outstanding loans, crippling their ability to make new loans. Indeed, some large insurers, including Allstate, Metropolitan Life and the Hartford, are rumored to be in cash flow difficulty, and are raising capital. They will not be the last.

Potential lenders, with ample case holdings, are also unwilling, to loan any additional funds to any but the highest credit worthy applicants.

Thus, even governments, such as the State of California, which had little difficulty in the past obtaining bridge loans, can’t find any. It’s looking for $7 billion in revenue anticipation loans until tax receipts come in. That California has been living beyond its fiscal means for years, and just passed another budget held together by smoke and mirrors, does not help its cause.

That the Treasury is considering following London’s lead in acquiring equity stakes in our banks is a revolutionary idea, but truly remarkable is that no one, not even dyed in the wool conservative Republicans, have expressed outrage- so desperate is the crisis.

Sunday, October 12, 2008

Expectations From an Obama Prsidency

What can we expect from an Obama Presidency if, as seems increasingly likely, Senator Obama wins with increased Democratic majorities in the House and Senate?

We may be clueless because we still do not know the man. Is he representative of the extreme left wing of the Democratic Party, as seems likely from his years in the Illinois Senate and U.S. Senate?

Or was this past just a matter of blatent political opportunism?

Does he have any leadership abilities? We understand his charisma and rhetorical skills, but he never exercised leadership in his legislative career, and always dodged, whenever possible, difficult issues, either by voting present or skipping the vote.Maybe he is more than talk, but then again?

His leadership past is a tabula raza, and his political past is somewhat murky.

Even if he is more conciliatory than his record indicates, the left wing Democrats in Congress will veer him to the left as they did in the first two years of President Clinton’s first term. They are salivating, and will strike while the fire is hot.

If we are to assume under these circumstances that Barack will take us to the extreme left, then this is what we can expect:

High taxes, especially on those who work for a living


Say hello possibly to the Great Depression II since high taxes and protectionism
were causes of the Great Depression

Large “stimulus” packages for the usual Democratic favorites

Universal health insurance and quasi-nationalism of medical care in the United States.

Tennessee earlier tried, and backed away, from universal coverage and Romney’s
Massachusetts health plan is costing the state dearly, Even California rejected
universal health insurance earlier this year because of the costs.

Never underestimate the seductive power of a compelling, but economically
bankrupt, idea.

Open borders and amnesty.

Appeasement, pacifism, and gutting of the military.

Enactment of The Employee Fair Choice Act, which substitutes card checks for secret ballots in representation elections.

This oxymoron may ironically further reduce union membership in the private work
force as employers will cut jobs rather than unionize..

Judicial Activism

Depending upon which Justices die or retire first, a potential radicalization of the
United States Supreme Court, and in any event, turning many of the Circuit Courts
and District Court judges into versions of the Ninth Circuit.

Reinstatement of the Fairness Doctrine

Environmental Zealotry

Large misallocation of limited resources to alternative fuels, carbon offsets, and ethanol, with great potential for fraud.

Discouragement of increased production of our offshore and Arctic reserves

Increased regulation of the capital markets and society in general, perhaps even nationalization

Incidentally, many if these will also occur if Senator McCain is elected President

High inflation or stagflation

Continuation of the corruption of Congress

What Goes in Vegas Stays in Vegas With OJ

Justice delayed is not justice denied in the case of OJ Simpson. 13 years to the day that a Los Angeles jury acquitted The Juice of two violent homicides, a Las Vegas jury convicted him of 12 counts of armed robbery and conspiracy. Hopefully the judge will squeeze the juice out of OJ.

LA couldn’t convict him. Neither could Florida in a road rage incident. But Vegas nailed him. Even OJ’s LA Dream Team of Johnny Cochran, F. Lee Bailey, Barry Scheck, Robert Shapiro, Robert Kardashian, and Gerald Uelman with the help of Alan Dershowitz would have had difficulty obtaining an acquittal when four of the five confederates testify against OJ as part of a plea deal, and hours of secret audio tapes point directly to guilt.

Yale Galanter, OJ’s attorney, stated that he thought the case was lost when the jury of 11 whites and one Hispanic was selected. If so, then that is poetic justice for 13 years ago when OJ won because of the jury selection.

To some extent the LA acquittal was an example of celebrity status, jock justice and double standards, mostly but not exclusively in Los Angeles. OJ, Michael Jackson, Robert Blake and initial hung juries in the cases of Phil Spector and the Melendez Brothers follow the path forged by Fatty Arbuckle in San Francisco in 1921, continuing through Errol Flynn (1943 –statutory rape), R. Kelly (child pornography – Chicago), and Sean “Puff Daddy” P. Diddy Combs (weapons violation in New York).

The acquittal more properly represents the Golden Rule of Law. The one with the Gold makes the rules. In other words, a defendant with ample resources can afford the best trial lawyers and expert witnesses to defeat the prosecution’s case. The Dream Team squeezed $4 million out of The Juice.

In addition, the LA jury sent a message of contempt to the LAPD. The community views itself as victimized for decades by the LAPD. They hold against it in police brutality cases, and now, through OJ, who rediscovered his Black heritage during the trail, against the LAPD. The jurors thought OJ’s history of spousal abuse was irrelevant.

While my limited perspective is infinitesimally small compared to the residents of South Central and Watts who constantly felt the brunt of LAPD Billy clubs, I saw a small example of the petty harassment that was common in the Hood.

Three of us from USF attended an ABA-LSD (American Bar Association Law Student Division) Ninth Circuit Meeting in 1968 at USC Law School. During a break, we walked along Figueroa Avenue for a short stretch. We witnessed two LAPD officers in a squad car pull over a black male in an older vehicle. They ordered the driver out of his car. One of the Officers hung back, cradling his three foot Billy club while the other frisked the driver with one hand with the other on his gun. They looked into the car, saw nothing, and then apologized to the driver because ‘the left rear tire was a little low.” I still remember it 4 decades later.

Johnny Cochran started his great career as a prosecutor with the LA District Attorney’s Office. He learnt where the skeletons were buried with the LAPD. Thus, the cross examination of Detective Mark Furman regarding Mark’s alleged racist conduct and remarks in the past, reminded the jury of their hatred towards the LAPD.

Three causes led to the debacle of the OJ Trial. First, Judge Lance Ito early lost control of the trial.

Second, LA’s District Attorney, Gil Garcetti, was concerned about the potential repeat of riots so soon after the Rodney King acquittals of four officers accused of police brutality, that he had OJ booked at the Central Jail rather than in Santa Monica, which would be the normal venue for crimes in Brentwood. The result was that the jury would inevitably be comprised of a large number of minorities from South Central LA. Indeeed, ten women and two men were selected for the jury. 8 of the 12 jurors were African Americans, one was half Native American and half white, and the 12th juror was a white female. No minorities were on the Las Vegas jury, although one was an alternate.

A subsequent jury pool in a civil trial in Santa Monica awarded $33.5 million in wrongful death damages against OJ in favor of the Goldman and Brown families.

Third, the ADA, William Hodgman, who was to be the strategist behind the prosecution, became ill before the trial. The remaining prosecutors, Marcia Clark and especially Chris Darden, were overmatched by the defense attorneys. Remember, “If the glove doesn’t fit, you must acquit.”

OJ is not a rocket scientist, but he has street smarts. OJ won the Heisman at USC because of his great football skills. He only played football for 2 years as a Trojan. He was a great high school player at Galileo High in San Francisco, but played two years at San Francisco City College before transferring to USC. Why CCSF? Even by the lax admissions standards of USC in the mid 1960’s, OJ could not get directly admitted to the Trojans.

OJ placed his house in his mom’s name, and then moved to Florida. The state has no income tax, but more significantly does not allow the primary residence to be seized by creditors. His NFL pension is untouchable.

We know that Nicole and Ron’s killer was a poor golfer because OJ pledged after his acquittal to search the globe for the real killer, at which point OJ engaged in relentless golf matches, usually at low green fees public courses. OJ now gets to play miniature golf in a small cell.

Saturday, October 11, 2008

Blame the Hedge Funds

The catalyst for the worldwide collapse in credit markets was the plunge in housing prices in the United States.

However, the decline in stock prices represents the economic power and inherent weaknesses of the hedge funds and mutual funds.

Black Thursday’s plunge in the Dow Jones in 1929 was exacerbated by margin calls. Too many purchased stock on credit, often with no money down. A rising stock market, as with the recent housing bubble, hid many sins. When share prices dropped, margin calls went out. Fail to cover meant the brokers sold the stock at whatever price they could, setting up cascading declines.

Margin calls aren’t as great a problem today because of the large amount of capital that has to be posted to buy on margin. In other words, the stock would have to drop precipitously today, as has happened, before the calls go out. Some margin calls have gone out recently, including to Summer Redstone, who is now only three quarters of a billionaire he once was.

However, the modern versions of margin calls are the hedge and mutual funds. When the market started dropping, they were inundated by clients and customers who wished to redeem their investments. After exhausting their cash on hand, the funds had to sell, blindly sell, securities to meet the demands to cash out.

More declines resulted in more panicked calls to cash out.

As it is, the unregulated hedge funds add tremendously to the volatility in the Market, especially in the last ½ to 1 hour of trading. That’s when they assess their portfolios in light of trading earlier in the day, and decide how to profit accordingly, driven by computer programs.

Hedge funds profited greatly in recent years, adding to the net worth of their clients, including university endowment funds and other institutional investors.

The universities will survive. Many, if not most, hedge funds will be history once the markets settle down.

Ten years ago, Long Term Capital, a multi-billion dollar hedge fund essentially failed and was bailed out by a consortium of banks and investment bankers (ironically not including Bear Stearns). Long Term Capital had two Nobel Prize winners in Economics and the most complex computer mathematical models. Like the Titanic, it could not fail. It listed capital of $4.72 billion, assets of $129 billion, and borrowings of $124.5 billion, which did not include off-balance sheet derivatives of $1.25 trillion. It was too highly leveraged with poor assets. It could not survive a drop in its investments.

The lessons went unheeded.

More recently, the collapse of Bear Stearns set off the crisis in the credit markets. Bear Stearns demise started with the failure of two of its hedge funds last June. The funds were heavily invested in collateralized debt instruments tied to the sub-prime mortgage market. On November 30, 2007 Bear Stearns listed $395 billion in assets and capital of $11.1 billion, a 35.5 to 1 ratio. Not included in these figures were $13.4 billion in derivatives. Just like déjà vu with Long term Capital.

No one at the time predicted the subsequent Wall Street plunge and drying up of credit.

Long Term Capital and Bear Stearns were the warnings, but like Cassandra, no one listened.

One of the greatest societal and economic failures of the hedge funds is that they do not add to the capital of America. They don’t invest in new companies and new technologies, unlike traditional investment bankers. Rather they use computer programs to squeeze profits out of trades and in sophisticated arbitrage. They play the futures market, not to hedge their fuel costs such as with Southwest, but simply to profit by the rise or fall in prices. This practice is certainly not new, but was at a scale never conceived of before, aided by computers and the web.

The early, high profit returns, ignoring Long Term Capital, seemingly attracted everyone and their uncle into establishing hedge funds without doing a proper risk-analysis study. Warren Buffet did such a study and avoided derivatives. Now he’s buying into Goldman Sachs and General Electric on the cheap.

Fear not, for on Monday the market will rise. Bottom feeders will jump in. But rather it will be the start of a sustained rally, or just the bounce of a dead cat, remains to be seen.

Holy Toledo

Holy Toledo! That’s what I exclaimed 3½ decades ago when the Toledo Rockets played Michigan in basketball at Crisler Arena in Ann Arbor. The University of Toledo’s mascot, a rocket, was a six foot tall phallic symbol. Seeing was believing, or disbelieving as the case may be.

Why Toledo “Rockets”? It doesn’t make sense. Logical alternatives could include the Toledo Jeepsters, Toledo Glass, Toledo Scales, Toledo Fallen Timbers, Toledo Blades, Toledo Tippiecanoes, Toledo Danas, or even the Toledo Strip. The Toledo Mud Hens have a nice ring, but that name’s taken. Thank God the Rocket did not strip.

Perhaps Toledo’s problem is one of identity crisis. It still, after almost two centuries, hasn’t figured out if it’s part of Michigan or Ohio. It roots for both the Buckeyes and Wolverines. That’s weird.

The University of Michigan and University of Toledo are 45 miles apart, but no matter how many times the mighty Wolverines have beaten up on Mid American Conference teams, Saturday marks the first football game between the two schools. Michigan does not lose to MAC teams, but then again it doesn’t lose to Appalachian State.

The 2-3 Wolverines are 17 point favorites over the 1-4 Rockets. The Rockets lost 31-0 last week to Ball Street, but only two weeks earlier showed an explosive offense in a double overtime 55-54 loss to Fresno State. Even Toledo doesn’t know which team will show up. But neither does Michigan.

The Wolverines, of course, showed both offensive and defensive promise in the first quarter last week against Illinois, and then reverted to earlier season form. Eight fumbles and interceptions against Notre Dame, 5 against Wisconsin, and another 5 last week is normally a recipe for disaster, as it was against the Illini. The much improved and quicker defense still seemed a step slow against a mobile QB. The offensive line looked better, but the phenon running back, Sam McGuffie, couldn’t get untracked, and the freshman receiver of the future, Martavious Odom, who reaped 129 yards on receptions and 183 on kickoff returns, may not play on Saturday or may play injured with shoulder problems.

A win and 3-3 record would be great, and a morale boost going into next week’s game at Penn State.

Even with new injuries, Michigan should win tomorrow, but don’t bet either the Big House or point spread on it.

Strike Up the Wisconsin Band

The Wisconsin Band was suspended last week for conduct unbecoming a band. Actually they’ve been on probation for two years for conduct unbecoming a band. Not shoplifting like some other bands, but much more sophomoric. The Band violated probation; something about booze, hazing, and sexual misconduct. They were apparently celebrating the 25th anniversary of Animal House.

What do you expect from a band whose mottos are “Eat a rock” and “Root, Hog or Die.”

The University imposed a written code of conduct on the Band in 2000, which is apparently as effective as laws against corruption by public officials. Forget codes of conduct and double secret probations. Simply subject the band members to the same drug and alcohol tests as the football players.

That the great band with its full plumage and regimented movements could be so undisciplined calls for a drink, or two, or better yet a pitcher of Milwaukee’s Best.

Imagine that; booze, sex, harassment, hazing at Wisconsin. The University of Wisconsin, one of the nation’s great academic universities and professional drinking schools with an otherwise outstanding band, has a drinking problem. Just shocking that the off-field activities of teenagers could spill over onto the band field simply because the bars run from the Capitol to the campus. Happy Hour was banned in the bars so now it’s served on the field and in the band busses.

President Charles Van Hise gave the nation the Wisconsin Idea a century ago, whereby the “beneficent influence of the university reaches into every home in the state,” one of the distinguishing hallmarks of public higher education. Today’s band represents the extra-curricular heritage of the Badgers.

Now we know how the Band soars to new highs. Pay close attention in the future to the high notes.

If you are going to be suspended anyway, why not emulate John Belushi and Delta House?

Present a new repertoire comprised of German drinking songs, Polish polkas, with occasional Irish drinking songs for variety. Convert empty kegs into steel drums, giving Wisconsin the most unique percussion section in the world. To signify harassment, perform the always classic folk tune, “Have Some Madeira My Dear.” The Band’s anthem should be “300 bottles of beer on the wall,” one for each band member.

The Wisconsin Band is not to be confused with the rag-tag, in-your-face Stanford Marching Band – a band of brilliant lost souls, who have repeatedly been suspended for political incorrectness, obscenities, and the standard alcohol issues. Banned in Palo Alto, banned at Notre Dame (anti-Catholic program), and banned in the entire state of Oregon (devotion to the Northern Spotted Owl). 1986, 1990, 1991, 1992, 1994, 2000, and 2006 are all years of infamy with the Stanford band. The band was suspended for the UCLA game in 1986 for public urination at the University of Washington game the week before. So far, the Wisconsin Band has only been suspended in Madison, but can still catch the Stanford Band.

My goal in life is to watch the battle of the two bands at the Rose Bowl. .

The Stanford Band’s most infamous moment, The Play, wasn’t even their fault. The Band stormed the field in the 1982 Big Game with 4 seconds left, but the play continued as Cal players weaved their way through the Stanford Band. Cal’s Kevin Moen ran over the Stanford trombone player, Gary Tyrell, to score the winning touchdown. Cal still drinks to that.

The Wisconsin Band should learn one vital lesson from the Stanford Band. The ritual pregame breakfast includes beer and doughnuts.

However, the Band was reinstated on Thursday, in time to perform against Penn State. The bandless Badgers lost at home to Ohio State last Saturday by 2 points. The Athletic Department does not wish a repeat failure.

Recently, the band director of the UC Davis band accused the band of sexual harassment, but that’s another story.

Wednesday, October 8, 2008

Republicans and the Bailout

Pity the poor Republican House members last Friday. Many had to vote to approve the bailout. It’s a turkey and they know it; so do most Americans, but the consequences of rejecting it would send the Republicans back to a half century of wandering the political wilderness. They’ve already been tagged with Hoover and The Great Depression. Bush and the second depression might be too much for the GOP to overcome.

The overwhelming Senate approval with its modifications gave the House no choice. The Senate’s response was great; it attached $120 billion in Christmas ornaments to the rejected $700 billion House bill and called it a substantial improvement. Even by Washington standards, that’s quite a rate of inflation.

The original proposal was three, I repeat three, pages long. The bill that left the Senate is 460 pages, nearing the size of the Manhattan phone book. Who says the Senate can’t get things done?

Whether or not the bailout will work remains to be seen, but any adverse economic consequences from not approving it would have attached to the Republicans. The Democrats control the House and Senate. Had the Democrats enforced party loyalty, no Republican votes would have been necessary, but 80 Democrats voted against it on Monday, joining the 2/3 of the Republicans who rejected it. A majority of both the Black and Hispanic caucuses voted it down. The Republicans got the onus.

The People’s House spoke; the plan was a loser, at least politically.

It does nothing directly for Main Street, forestalls no mortgage foreclosures, doesn’t loosen tight credit, and will give $700 billion to the fools who got us into this mess.

$700 billion, $810 billion – who knows? It may cost more; it might conceivably cost less.

It will not, cannot, cost the taxpayers less than $700 billion because it’s all front loaded. In theory the cost will be reduced, perhaps even show a profit over the long term as the debts are repaid.

The reality is that Congress just appropriated itself a blank check of at least $700 billion to spend as it sees fit in future years. The reason is simple. As loans are repaid, the proceeds are recorded as revenues by the Treasury, thereby providing Congress a windfall, the real windfall, to spend.

It also semi-nationalizes the financial and insurance industries – the antithesis of capitalism. Of course, conservative supporters of the free market are outraged.

They are further outraged that Senator Dodd and Congressman Frank, the Congressional protectors of Fannie Mae and Freddie Mac, and the recipients of hundreds of thousands in campaign contributions from the two, led the Congressional efforts for the bailout.

The time for the blame game is almost here. The odds are that the Democrats are not going to investigate themselves. Blame will be laid upon the greed of Wall Street and obscene compensation packages, calling for regulation of the capital industry and bankers, while simultaneously whitewashing the heavy, almost incestuous, Democratic entanglements in the debacle. Lehman Brothers and AIG are already receiving the full Congressional treatment, as Congress diverts attention to others.

Al Gore once lectured us about lock boxes; i.e. the proceeds will be locked into a closed box untouchable by the big spenders in Congress, in essence a trust. Saturday Night Live had as much fun with this patent absurdity as Tina Fay currently does portraying Governor Sarah Palin. Gore’s real inconvenient truth was the untrustworthiness of the assertion as we continue to search for a lock box in Washington. Not even an electron microscope can find one. No politician since Gore has talked of lock boxes.

No, this proposal had to pass. It was the only one on the table that had a chance of passage. Failure to act may have doomed Main Street and the economy. The plan is not to save Wall Street, but Main Street and Market Street for we are all at risk.

The financial turmoil of the past few weeks is a global financial tsunami unprecedented since Black Thursday and the Great Depression almost 7 decades ago.

Secretary of the Treasury Henry Paulson and Federal Reserve Chairman Ben Bernancke witnessed the near collapse of our banking system on Thursday, September 17, heralding perhaps a veritable global financial apocalypse. As I post this entry, an economic pandemic is sweeping the globe.

When the nation’s largest mortgage lender, Countrywide, and largest S&L, WaMu fail, and the 6th largest bank, Wachovia, essentially collapsed, that is not Wall Street. That is Main Street. When three of the five largest investment banking firms disappear, that’s not just Wall Street, that’s a hit on Main Street. The collapse of Fannie Mae and Freddy Mac could have destroyed what’s left of the mortgage industry in the country.

The Administration had to act rapidly to restore confidence to the market. If Wall Street collapses, then Main Street will not be far behind. No time for dithering; action had to be taken. Their responses included the bailout to restore confidence and trust in the financial system. Right now the Treasury is contemplating the purchase of unsecured, short term commercial paper.

The newly inaugurated President Roosevelt declared a banking holiday, shutting down all the nation’s banks. Many never reopened. A bank closure would be one step short of Armageddon today.

The failure of Bear Stearns six months ago was a harbinger of worse to come. Bear Stearns, Lehman Brothers, IndyMac Bank and WaMu all failed because of classic runs on the bank not witnessed since 1929. WaMu lost $16.7 billion in deposits in just 9 days, essentially emptying the till. Lehman Brothers had a day of cash on hand when it failed.

One of the ornaments is to increase FDIC insurance to $250,000 from the present $100,000, the effect of which hopefully is to reduce the chances of future runs on banks. The risk is now created, as with the S & L’s of 1990, that the cost to the taxpayers could well exceed the current bailout costs at a future date.

AIG is much more than the nation’s largest insurance company; its financial tentacles spread throughout America: Wall Street and Main Street; large cities and small towns, corporate and small business. It issued insurance on $441 billion in collateralized debt obligations, including$58 billion from Merrill Lynch. AIG couldn’t pay up as mortgages defaulted.

Our country, our economy, our local, state and federal governments run on credit, often financed by the trust and confidence of foreign investors. People mortgage homes, finance cars, borrow student loans for college, and owe thousands in credit card debt. Banks finance accounts receivable, inventories, and capital improvements. Small businesses finance their operations and large enterprises use commercial credit and letters of credit. Banks finance inventories, construction, and accounts receivable.

All is threatening to come to a dead stop as cash becomes king. I remember buying a house during Jimmy Carter’s Presidency. Mortgage rates hit 15 ½% with 4 points.

Credit markets dried up almost overnight a short two weeks ago. Banks wouldn’t loan to fellow banks, much less to customers. Money was being pulled out of uninsured money market accounts. The commercial paper market dried up. That’s what happens when billions in Lehman Brothers commercial paper is uncollectible. Dealerships and purchasers can not obtain financing for car purchases. Student loans are tight.

Any doubts about the need for action should be resolved by looking at the recent actions of General Electric. GE is among the bluest of the Blue Chips. It is also one of the nation’s largest providers of consumer credit. GE just turned to Warren Buffet for an expensive $3 billion handout and is seeking to raise additional capital by selling $12 billion in stock to investors at a discounted price.

All this is also happening in the global marketplace. Several major banks and mortgage lenders in England collapsed, including Northern Rock – the largest, HBOS, and Bradford & Bingley. Fortis, the Belgium-Dutch financial jugglenut, similar to AIG in the United States, collapsed last week. The Swiss giant, UBS, acquirer of Paine Webber and Dillon Read in the U.S., is choking on bad mortgage investments in the U.S.

Passage of the plan means we will probably only have a recession, although quite likely a severe recession. Failure probably meant a depression. More banks will fail. Will it work? Check your 401K not tomorrow, but in six months.

We still have to worry about a total implosion of the credit default swap market, of which AIG’s collapse is a warning, and perhaps even with Sallie Mae and student loans.

In addition, a concern is that with the lost of confidence and trust in the US banking system, foreign banks and other financial institutions might start withdrawing hundreds of billions from US banks.

One final conclusion: SarBox is a financial and regulatory nightmare for business, but did nothing to prevent this financial disaster. Part of the aftermath should be to repeal it.

Tuesday, October 7, 2008

Wall Street is a Living Museum

Wall Street is a metaphor for a historical past. It doesn’t exist anymore; indeed, it barely existed prior to the recent financial meltdown.

Most of the major investment banking firms left lower Manhattan decades ago. 9/11 drove others away. Goldman Sachs and the recently expired Bear Stearns and Lehman Brothers were in midtown.

Merrill Lynch, Pierce, Fenner & Smith was once the brokerage firm for the little investor. That role is now served by Charles Schwab in San Francisco - Montgomery Street not Wall Street.

Goldman Sachs and GE have turned to the sage of Omaha, Warren Buffet, for financing in these perilous times while Morgan Stanley beseeched a Japanese Bank.

Municipal bonds are dominated by PIMCO in Newport Beach, California. Fidelity, the mutual fund kingpin, is in Boston.

Two of the three remaining large banks in America are based in San Francisco and Charlotte.

Hedge funds are based everywhere today, but many are soon to be nowhere.

The legendary giants of investment banking have no modern equivalents with the exception of Feliz Rohaytn at Lazard Freres, but his prime was decades ago. J. P. Morgan, Jay Cooke, Charles Merrill, Jacob Schiff, Andre Meyer, Robert Lehman and Stanley Weinberg are historical figures. Michael Milken was a financial genius, bankrolling the telecom revolution, the cable industry, and Vegas, but the King of Junk Bonds pled guilty to 6 felonies in 1989.

The Wall Street Bull is but a historical sculpture since Merrill Lynch suddenly turned bearish and sold out to the Bank of America, a Charlotte, North Carolina bank.

The Exchange’s trading floor could just as easily be in Peoria or Omaha or anywhere on the internet. Most trading is computerized. Indeed, the New York Stock Exchange merged last year with Euronext, the European concern that owned the Paris, Brussels, and Amsterdam exchanges. The key to the merger is that Euronext is an EFT only exchange. The result is that the NYSE is moving away from the floor trader for its transactions. He too will be an historical anachronism.

Wall Street is the exemplar of Joseph Schumpeter’s theory of the creative destruction of capitalism. Old ways of doing business are replaced by new.

Wall Street has a Tiffany and BMW dealership where investment bankers once transacted business.

23 Wall Street, the fabled House of Morgan directly across from the Exchange, will become a store anchored to a condo development, if financing can be procured. 37 Wall Street, the home of Trust Company of America, is now apartments with small studios going for $2,000 per month. 55 Wall Street, the old Merchants Exchange, is a hotel, and 63 Wall Street, Brown Brothers Harriman’s former haunt, is now residential. 16 Wall Street is a health club. AIG moved its headquarters to near Wall Street, but AIG itself may soon be history.

The major firms have all merged, dissolved, or been acquired by German, Swiss, and Japanese banks. Only Goldman Sachs and Morgan Stanley remain, and that may be temporal.

We have great living museums in this country: Colonial Williamsburg, The Henry Ford & Greenfield Village, Old Sturbridge Village, Plimoth Plantation, LBJ’s ranch on the Pedernales, the Polynesian Cultural Center, and now Wall Street. We still have a few small orange groves here in Orange County. We put up a plaque and call them a museum.

Why not add the New York Stock Exchange, still on Wall Street, to the list. It’s a real time, living museum – more exciting than any Hollywood reality show. Have actors pretend to be floor traders. Have Disney design an audio-animatronic J.P Morgan, explaining the cost of his yacht. Bring back the ticker tape.

Exhibits shall include:

A tombstone notice

A debenture

A prospectus

A proxy statement

A tender offer

One classic share of Playboy stock with its centerfold artwork

A classic share of an old blue chip stock with its seminude Greek or Roman Goddess

Copies of historic financial publications

Business Week

Financial Times



Wall Street Journal

Bawl Street Journal

Extant stock pages, such as the Los Angeles Times

A separate room will highlight traditional examples of securities fraud. A focus could be on the well-publicized activities of Joe Kennedy prior to the Great Crash.

Yet another room would be on the Roaring Twenties, followed by Black Thursday, Black Monday, and Black Tuesday. A picture of a broker jumping off a building would be a wonderful addition, even if is an urban myth.

The legal room will include

The Delaware Corporate Code

The Securities Exchange Act of 1933

The Securities Exchange Act of 1934

The Williams Act



Texas Gulf Sulphur & insider trading

Somewhere in this exhibit should be a description of the exploits of Tommy “the Cork” Corcoran.

All legal documents shall be accompanied by The Idiot’s Guide to that document

The final hall will commemorate the end of Wall Street, including samples of:

Adjustable rate mortgages (ARM)

Sub-prime mortgages

Collateralized debt obligations

Credit default swaps

Mark to mark regulations

Lehman Brother’s last Annual Report and Form 10K

The final exhibit on the exit from the museum will be a copy of Lehman Bothers bankruptcy petition, which signifies both the largest bankruptcy in American history, and the formal demise of Wall Street.

Let the NYSE join the Lower East Side Tenement Museum and the South Street Seaport as the major museum representative of Manhattan’s past at the foot of the island.

New York needs Wall Street, but Wall Street doesn’t need New York.

First Finley Crumbled and Now it's Heller Ehrman's Turn

Finley, Kumble, Wagner, Underberg, Manley, Myerson & Casey rose like a meteor and then flamed out even quicker in 1987 at a young 21 years of age. (Check out Shark Attack and Conduct Unbecoming: The Rise and Ruin of Finley, Kumble). Finley seemed like an anomaly because of its short life, but now we see it for what it is: a harbinger of the collapse of dozens of large, well established law firms. Many were pillars of the bar and community. The immediate cause for almost all of them is a disruption in cash flow, often manifested by the firms borrowing money to cover the partners’ draws.

The various causes of failures mirror those of partnerships in general:

Poor leadership

Conflicts in revenue distribution

Disputes over the culture of the firm

Large overhead, especially in lease agreements

Lack of loyalty

Partner defections



Incompatible mergers

Declining business; loss of clients

Failure to diversify

Failure to move into emerging areas of the law

Misallocation of resources

Liability issues, especially malpractice

Leadership is especially critical as enterproses grow in size. As in every other arena of human cooperation, including the political, we often do not know how someone will lead until they are in office. Exceptional leadership skills are necessary to manage the prima donnas otherwise known as lawyers and law professors.

Compensation disputes are common in professional partnerships, be they accounting, advertising, architecture, engineering, investment banking or medical. (As a side bar, disputes over faculty salaries can be pernicious.)

Disputes run the gamete from how much of the take should go to the senior partners past their prime, which areas of practice should receive more, such as traditional transactional or litigation, and workers versus rainmakers

Stodgy law firms decide to remake themselves to chase higher draws per partner – the new gold standard. The three piece suit is exchanged for the leisure suit. The staid becomes passé. The new suit often does not fit as the practice of law becomes the pursuit of business. Growth for growth sake becomes the mantra. Lawyers sometimes forget that the needs of the clients come first.

Loyalty is a two-way street. For half a century, associates would toil for 7-9 years and then, if they survive the Darwinian trials, make partner and spend the rest of their professional life at the firm. The firm would even be generous in retirement. The commitment by the firm and partner was a marriage for life, often outlasting the other marriage.

That is no longer the norm. Firms, in the pursuit of profits, will often unceremoniously terminate “underachieving” partners without warning, literally throwing them out into the street. Retired partners, “of counsel”, those who may have built the firm may be stripped of benefits and receive the same treatment as retired NFL football players in the quest for profits for the current partners.

Firms should no loner be surprised when partners put their interests first and pack up their practices and move to a new firm, taking their clientele with them. Defections can be fatal, but loyalty is no more.

Bad legal advice may doom a firm. Jenkens and Gilchrist set up too many tax shelters that neither sheltered their clients from the IRS nor the firm from malpractice litigation. All the partners suffered.

When growth becomes the mantra, a firm may pour too many resources into a field, such as stodgy Brobeck, Phleger & Harrison betting the firm on High Tech and IP. The bust doomed Brobeck.

The key is diversification and balance such that when one field becomes hot, it can offset the decline in another area of practice. For example, bankruptcy is hot now and Antitrust is cold. Energy law and regulated utilities are making a comeback. Health law and pension planning provide steady streams of billable hours as legislatures can’t keep their hands off these areas.

On the other hand, the seemingly sexy boomlet in real estate securitization doomed many Wall Street bankers and probably some of their law firms.

Some firms are the victim of bad luck or poor geography. Firms in old industrial cities in the Frost Belt face a steadily declining market for legal services as large clients close, move, or sell out without being replaced by new clients moving into the area. When the factories close and the largest remaining private employer is a hospital, the portends are not rosy.

Misfortune can doom a firm. The well established San Francisco firm of Pettit & Martin was in trouble before a disgruntled client entered the firm’s office on July 1, 1993 and started shooting, killing 8 and wounding 6. The firm hung on for two more years.

Some firms have been in a long decline, but seemingly get a second wind. The venerable Mudge Rose Guthrie & Alexander received new life when Richard Nixon and John Mitchell joined the firm to become Nixon, Mudge, Rose, Guthrie, Alexander & Mitchell. Of course, and perhaps ironically, a large part of the firm’s practice became sewer bonds.

This list is of firms, with over 100 lawyers, that failed; it does not include firms who merged to survive.

1987 Finley, Kumble, Wagner, Underberg, Manley, Myerson & Casey

1989 Myerson & Kuhn

1991 Gaston & Snow

1993 Pettit & Martin

1994 Lord Day & Lord

Shea & Gould,

1995 Mudge Rose Guthrie Alexander & Ferron

1998 Donovan, Newton, Leisure & Irvine

1999 Bogle and Gates

Troop Steuber Pasich Reddick & Tobey

2002 Hill & Barlow

Testa, Hurwitz & Thibeault

2003 Altheimer & Gray

Brobeck, Phleger & Harrison

Pennie & Edmonds

Arter & Hadden

2005 Coudert Brothers

2007 Jenkens & Gilchrist

2008 Heller Ehrman

Who’s next?

Will it be a San Francisco or Wall Street firm?

Thursday, October 2, 2008

The Fighting Illini are Coming to Ann Arbor

The Fighting Illini are coming to the Big House. As with the Wisconsin Badgers last Saturday, they should win. But don’t bet the farm or House on it. Michigan is a 2 1/2 point favorite. Who’d thunk it?

Will Michigan stop giving the opposing team a 5 handicap? Will the O-Line continue to block? Will Michigan rise above being the 104th out of 119 college teams in passing? These are still the metaphysical questions which must be resolved.

Illinois went to the Rose Bowl, their first Rose Bowl since 1984, last January and followed in the grand Michigan tradition of being blown out by USC 49-17.

Ron Zook is an excellent recruiter. Urban Myer won the national title two years ago with the players Zook recruited at Florida. However, Zook probably would not have won with them. He was a good, solid 8-4 coach at Florida, but lacks the proper judgment at critical stages of the game.

Illinois had a magical year last season. They beat Penn State, Wisconsin, and Ohio State in Columbus. They should have beaten Michigan in Urbana-Champaign, but clutched at the end – bad decision making by the coaching staff. They almost blew it against Ohio State.

Rashard Mendenhall, their great running back last year, is now playing in the pros and has little good to say about Zook. That's not good for recruiting.

Illinois and Michigan both have 2-2 records. Illinois beat up on Eastern Illinois and Louisiana Lafayette, but lost to Missouri 52-42 and Penn State 38-24.

Michigan showed flashes of brilliance in the 4th quarter last week; maybe they are back to being Michigan. The defense held, as it has all season. The defense will have to since Illinois has shown a strong offense in all 4 games. Illinois has an exceptional, multi threat quarterback, Juice Williams, the type of quarterback that has bedeviled Michigan in the past (Cf. Donovan McNabb, Troy Smith, and Vince Young).

Illinois has an identity problem. They don’t even know who their mascot is. Chief Illiniwelk, Illinois’ venerated mascot, on February 21, 2007, a day of infamy in Illinois, was terminated for the heinous crime of political incorrectness.

On the other hand, Michigan’s fabled mascot, the Wolverine, is spotted as often in the Michigan woods as Bigfoot.

This game will decide the course of the season for both teams. One will rise, perhaps slowly to the challenge, and the other will face a .500 season.

If Chief Illiniwelk were still fighting, I would go with the Illini, but with the choice between an irreplaceable, defrocked mascot and a wolverine chimera fighting to protect its home, I’ll choose the Wolverines.