That last post sucked

And it did.

The main point is that possible options for power are constrained by the particular structure of power that exists. In an autocracy that path to power is total agreement in public with the autocrat. In an Oligarchy the path to power is to agree with the objectives of the oligarchs. In a system that constrains power to two groups the path to power is to align yourself and your views with one of those two parties.

Our system constrains us to two parties because of how we elect people. First of all we elect individuals rather than representatives of a party. Though of course we also do that. The old joke about yellow dog democrats is a testament to the power of voting for party rather than individual, but as William Jefferson found sometimes it is not enough to just be part of the right party.

The other reason that we are constrained to two parties is that we have a plurality voting system. That is probably the worst form of voting if you want to accurately reflect majoritarian (this word is misspelled) interest.


Does anyone care part II

Looking back at the previous post I think one thing I haven't really made clear is the extent to which the shape of the governing regime impacts thinking. It is always natural for people to pick a side because it gives a sense of social acceptability and power. If your side is up then you have some kind of reflected power from the fact that your group is in power. The fact that you agree with the views of your group makes you an insider in that group. Of course it doesn't necessarily have to be that you agree with your group you just have to be a part of it.

In the United States we vote for individuals with whoever gets the most votes even if they aren't in the majority wins. This necessitates a system where two people face off. If you have three and all three get somewhere around 33 percent then you have a problem in terms of legitimacy. So in general a race will have two people.

Its also true that it costs money to run for office. One of the main reasons is that you have to brand yourself. Tom Jode is a working class guy who gets your problems. It doesn't matter if its true it just has to sell. If you get to put a letter next to your name like an R or a D then a lot of symbolic branding gets to occur without the candidate ever spending a dime. It also gives the candidate a ready made platform of issues. Some of those issues the candidate will care about, others, he or she will not care about. But if you really got them down and asked them they would tell you they cared and they probably would agree that that position on that issue is the correct on. Not because they care or because they have thought about it much but because they have decided that they exist within a group and want to be as much a part of that group as possible.

Most people do this. Most people when they join a group do not merely sign their name on the dotted line. They really invest themselves. There is also the contrary action that when someone finds themselves in full agreement on one issue with a group, even if they previously disliked that group, they will become more likely to agree with the other issues that group holds. Group identity becomes a kind of feedback loop. When that loop is stable then there isn't much chance for another group of grab members of other groups.

When that loop gets cut though interesting things can happen. Why is it that the Republican party became Anti-Abortion. When Roe v. Wade happened there were anti abortion members of both parties. There are two groups though that could most be swayed by this issue that were in the democratic column. Catholics, particularly Irish Catholics in the north. And Evangelicals in the south. There were votes to be had by going anti abortion. And this worked very well for a while. The problem is that having a solid south as part of your voting base is a double edged sword. Over time taking the Anti Abortion issue did nothing for Catholics, they still tend to vote overwhelmingly for democrats, but it did help, along with a number of other issues, take the south.

The reason that the South is a Double edged sword is because the political culture of the south is different from the north in particularly antithetical ways. The South and North have defined themselves so much off of each other that even though most of the issues that once animated that defining no longer exist they still reflexively do so. Some of this has to do with an urban rural split where the south is much more rural than the north and therefore has a lot of very different interests.

If the United States had a different voting system or even a different constitution that did not devolve so much power to the states and localities we would have very different parties. There is nothing that links pro-choice policy with protectionism or free trade.

If the United states had a proportional voting system where people voted for parties rather than people and if a party got 5 percent of the vote then they got a person in the parliament, we would have a radically different split between the right and left. You would have a trade union party that would join with whoever gave them control over trade union policy and the feminist party that would join with whoever if it gave them control over women's issues and so on. More people would have much more idiosyncratic views of issues then exists now in the United States.

So in the United states where we vote for individuals who represent one of two parties the range of opinions represented in the political system is going to be much smaller in general than in another type of system. Issues that rise up on the radar screen can be liked or disliked but will have unclear relationships to actual voting behavior. Polls then don't mean much and never will.


Does anyone care about the bailouts

Poll have always been weird for me because they exist as a kind of pseudo information. People love to say that the American People care about the environment because polls show that most people will say that the environment is one of their big issues. But have you ever seen an exit poll where the environment was the big issue in how people voted. Does the more environmental candidate do better at the polls as a matter of course?

Why have republican made a fetish out rhetorical denunciations of Abortion and describe the dirty whores who kill the poor, desperate children. Because in a national election a good percentage people will vote on that issue over every other issue. I have a friend who may be more liberal than me but will tend to vote for republicans because they are as she says it "pro life".

Now the only reason that that is a tenable position is because a large percentage of people who are pro-choice are either only going to vote for democrats or won't vote on the issue because they don't think that their access to abortion will be compromised.

So when you see this poll

and then you see this one.

It makes you think that the denunciations of AIG may not be that important politically.

Of course its also true that no one thinks that repubs will handle it any better.


What the Hell is Going on With AIG

I have talked to a couple of people recently who have expressed surprise at all of the new information coming out about the counter parties that AIG is paying money out to. I was actually surprised that people where surprised since I had understood that the entire point of bailing out AIG was to actually bail out all of the banks. For example, normally in an insurance agreement, say when you get insurance on your car, the insurance company does not specifically need to have the money that could be paid out to you tied to your policy. What they do have to have is enough money so that if a certain number of policies came due at the same time then they could pay them all off. Normally there is not much chance of this happening but the government regulates the process so that there is enough cash on hand so that there normally isn't a problem.

What actually happens though, most of the time, is rather than have that much free cash lying around, an insurance company will buy insurance on its own policies so that if a huge catastrophe did happen one insurance company wouldn't be on the hook for all of the policies. This was a problem after 9/11. Many insurance companies called reinsurers came calling to the government to be bailed out because they had never considered that there was the chance that that catastrophic of an event could happen. The actuary tables don't normally consider suicide bombers, though I'm sure they do now.

Well AIG's Financial Products division had a lot of fun selling insurance to multiple other companies to cover their loans. The reason that all of the banks wanted this insurance was to make sure that the capital requirements set up in their countries regulations where covered. A capitol requirement is basically a requirement that you have enough liquid assets i.e. an asset you can sell easily on hand in a particular ratio to your liabilities or whatever money you owe to someone else. Basically you need have half the value of your liabilities in liquid assets. Or some other ratio it depends on the country.

Normally they wouldn't be allowed to do this because any old insurance on a bond or loan doesn't necessarily mean that it will be paid out. AIG, though, at the time had a Triple A rating from Moodys, the rating company. How Moodys calculates their ratings is unknown to me but there are normally very few companies that have a Triple A rating, having one means that you can borrow money at extremely low rates because everyone believes that you will always be able to pay it off. It also means that if you offer insurance on something it is considered to no longer be a risk and instead can be considered capital.

The insurance contracts that AIG was offering also, because this was all a way for the banks to get around normal capitol requirements, had clauses in them that said that if AIG lost its triple A rating then it would have to begin paying out in order to satisfy the capitol requirements that had been satisfied by the very fact that AIG had a Triple A rating. Right before the United States took over AIG, AIG lost its triple A rating.

Remember how when a company normally sells insurance on something it is supposed to have the money on hand to pay off a certain number of the contracts in case of catastrophe? Well these insurance contracts where called Credit Default Swaps. In the Financial Services Modernization Act of 1999 there was language in the bill that said essentially that there would be no regulation of CDS's. This means that there was no regulation of, well capital requirements on CDS's. Thus, there was no money to pay off these contracts when they came due. The ironic thing is that AIG's credit rating was lowered in large part because of all of these CDS's and because their credit rating was lowered they didn't have the money to pay out all of the CDS contracts.

The ENTIRE REASON WE BAILED OUT AIG was because of the other banks. If they all of a sudden lost all of their capitol because AIG died then they would flood the market with assets in order to recapitalize. If they did that then banks not even involved with this stuff would see their own asset pools fall in value, possibly making the entire banking sector insolvent.

And all of this is why even though I believe that the people who ran AIG into the ground need to drawn and quartered, and by that I mean that need to have their limbs pulled in all different directions until their joints all snap and then they need to be cut into four different pieces, it was neccessary to bail out AIG.

For Elliot Spitzer to be walking around saying that it is horrible that banks are getting money from the AIG bailout, well that was the damn point of the whole bailout. To be upset about it now seems odd.

The Bonuses on the other hand, that is a different story.



There's something

I've been reading recently about the bonuses being paid out to some of the people at AIG. And I read this.

American International Group Inc. will pay $450 million in bonuses to employees in its financial products unit. That division was at the heart of AIG's collapse last fall, which compelled the U.S. government to provide $173.3 billion in aid to keep it running.

Now theoretically you could argue that you need these people to fix the mess that they caused. But I'm actually getting tired of the idea that the only people on earth who understand this stuff are the people who work on wall street. This isn't the creation of Quantum Mechanics where even though the initial math wasn't particularly hard, you have to get over non deterministic causality. This is math, particular math, but math non the less. Give some damn good math people some books, tell them that they have a couple of weeks and then let them go at it. I can't imagine that its that difficult. Lots of people do this stuff they are not magical unicorns prancing through the fucking liquor forest.

And then I hear this.

Chief Executive Edward Liddy told Treasury Secretary Timothy Geithner in a letter dated Saturday that the next payments to employees of the financial products unit -- whose woes caused massive losses at the giant insurer -- are due on Sunday, and added "quite frankly, AIG's hands are tied."

There are people out there called lawyers who from my understanding can twist the law into all sorts of fun shapes. Use them. If you don't it indicates that you don't want to.

This stuff makes me so angry that the hair on the back of my head and arms stands up, rippling like the god damn African savanna. If I could I'd get these people chained and make them walk a fucking Gauntlet.


Fun Idea

Hell isn't other people, heaven isn't either, both, yourself.

By that I mean, imagine all eternity surrounded by yourself. Say 50 copies.

Wife Quote #1

We are not in a game show called "All logic, all the time".



And another thing

I'm curious as to why anyone would think that they could make it in the market? The idea is that the market prices information. There are enough people out there that understand what is going on to create arbitrages that should smooth out any differentials in information pricing. So the only way that you could make money in the market would be through dividends and not through price increases of the stock. A price increase in the stock would indicate new information coming into the market. New information means that no one had that information before hand because it wasn't already priced in. (This thinking works for any asset) So any expectation of a price increase in the stock is can't be based on actual information only on the expectation of future information.

Update: Obviously the stock market does go up but my question is how that happens particularly and how is it that anyone expects to make money from it?


Idea about markets

Why is that we have people who stand on the floor of a physical stock exchange in order to buy and sell things? Why do we call someone who physically houses the stock certificates in large filing cabinets to call someone else to buy or sell a stock or some other kind of asset? Furthermore, why do we get people who do not understand the market to invest in it?

Growing up everyone said that you needed to be invested in the stock market because that was the way that you created wealth. A stock is some type of nominal ownership in a company that actually confers no ownership of the company and furthermore protects you from any risk, if the company fails, except of course whatever money you put up. I have never looked at a company balance sheet. I'm sure if I ever did I might be able to make heads or tails of it but I've never actually looked at one. Why then should I own stock. I obviously have no knowledge of any individual company that would tell me if buying some nominal piece of it is a good idea.

Bonds are debt. If you buy a bond, then you have loaned someone money. Or actually you've bought the bond from someone who in a chain of ownership lent someone money. You didn't loan anyone money except in some metaphysical way. We'll say for accounting purposes that you loaned someone money. Again, when a company releases a bond at a particular interest rate, you need to know if the interest rate matches up with the risk that the company will not pay back the loan.

Once again, I've never looked at a balance sheet. There should be no reason for me ever to buy a particular bond. But we tell everyone that they should be invested, when they are older, in bonds because bonds are something.

I don't think that I'm unique. I don't think that most people who have invested in their 401(k)'s even know why a 401(k) is called a 401(k). (Has to do with the section of the tax code that allows you to put money away tax free until you take it out past a certain age). Why do should people put there money in something that they have no understanding of. Why should they pay someone else who claims to have knowledge of these things to invest for them. They can't exactly judge the correctness of the person they're paying's decision. So they look for proxies like how much money they are making. And if another person is making more money then they'll go to them even if the reason that the other person is making more money is because they are taking on more risk.

We have a cultural tale about bridges and the wisdom of jumping off of them visa vi that actions popularity but apparently when it comes to handing over your money with the promise made that you will get more back, we think bridges must not be very high up.

But really the whole point of this is to ask, if the money going into the system is only being judged on the basis of how much money it makes in so far as the average investor is not particularly good at judging risk, and in so far as that's the money's judge then that's the final judge. It doesn't matter that the people who make the particular decisions have better knowledge of the risks. They will ignore that because the thems that control the money control what information is most important. Lets also note that the people who we say have knowledge, don't appear to actually have pertinent knowledge. Which makes it seem, if the determining factor in where the money goes is who gives the biggest return within reason (and its amazing how elastic within reason can be) then the market is naturally bubbulicious. The rise of individual investor apart from profession doesn't lead to more information in the market, it leads to less because actual information gets swamped by one concern, who will make me the most money.


Rush Limbaugh

I think it is very interesting that the President has decided to make Rush Limbaugh the face of the republican party. Obama got it started when he said that the Republicans could not just listen to Limbaugh and expect to get things done. Emanuel comes out today on Meet the Press and says,
He's asked for President Obama and called for President Obama to fail. That's his view. And that's what he has enunciated. And whenever a Republican criticize him, they have to run back and apologize to him, and say they were misunderstood.

This is a deliberate strategy. I remember back in 94 when everyone seemed to think that the Republicans were the greatest force on earth. Rush was held up as part of a movement of very very angry white men. Falling Down was discussed as an important movie. A movie where a bespectacled flat topped middle manager in his too short tie finally snapping deciding that because he couldn't get what he wanted at the fast food joint, well he just needed to shoot some shit. Or something like that.

Then, this was all seen as part of the zeitgeist, we were rushing with a wave. Now? Well the world is a little different. Not as liberal as I'd like. Not as pulled back from the time when the nightly news talked about a rising men's rights movement as if it were something that included all men rather than really a bunch of middle class white men who just didn't feel that they had enough power in this world. Not as far from the necessity of pleasing the bankers, traders, and other masters of universe who "create the wealth of the world". But this isn't an era when the Democratic Speaker of the House loses his race because people are afraid that their guns are going to get taken away.

But Rush Limbaugh is nothing if not consistent.

The most curious part of his speech is when he says that "a couple of prominent conservative but Beltway establishment media types . . . [have begun] to write on the concept that the era of Reagan is over" and the crowd booed.

You can take that statement to mean a couple different things. The best way, in my mind, is that the political coalition that Reagan built does not exist anymore. Union workers tired of people telling them how the live are not a large enough cohort to decide elections. The movement of white southerners into the Republican column has been completed and the movement of white northerners in the Democratic column has begun. The rise of Hispanics as an election deciding cohort is rising. Just as the there is no reason to believe that FDR's coalition could exist for 30 years, Union members, southerners and urban workers, there is no reason to think that a coalition that Reagan built in 1984 would continue to be relevant in 2008.

Or you could take it mean that the timeless wisdom of cartoon Reagan will never die. Which is what Limbaugh and the crowd decided. That is what I find fascinating. Generally a political movement is built on two things. Solutions to temporal problems and a large enough group of people who think that those solutions fit their view of the problems. Reagan beat Carter because the democratic party was split and because Reagan promised that the world would be better if government got off of everyone's backs. What that meant to people, I think is this, taxes where indexed to inflation and so had risen by a bit during the seventies in nominal terms even though their real burden probably hadn't. The economy sucked because Paul Volcker killed it. There is a very good argument to be made that he needed to in order to kill inflation but that doesn't help the average person who lost their job.

Second the social order was changing. Black people were not being kept from sight and mind. Median wages hadn't increased since 1973; all of a sudden there were all of these women in the work place who you couldn't hit on; and horror of horrors some of them made more money. Wives came home and said that maybe they shouldn't do all the work around the house after coming home from work, and even worse some of them said that maybe they should go their separate ways. Who had infected the world and made this topsy turvy mileu? Liberals, damn liberals. They kept saying this and that. Them and the damn lawyers always suing good people.

Then, the economy improved, somewhat. Tax cuts worked. (This irrespective of the fact that Volcker lowered the interest rates and that that had a much more profound influence on the economy.) The temporal problem was solved. Women and Black people kept being visible but it didn't hurt as much.

But really, this was only a portion of the electorate who felt this way and feels that way. Most people just try and muddle through. They don't hold very strong political views, and will vote for whoever they feel will make things better. I don't believe that we can say that the totality of Reagan's victory or the republican's victory in 94 can be generated from this view. But we can about the base.

The people who man the phone banks and show up every election including the primaries. These people believe. Tax cuts solves all. Smaller government, which can't have a root other than "God damn civil rights act" is the key. (It may for particular individuals, idea's can become unmoored from their root, but the genesis, if we are to believe conservatives themselves, who root their movement in Barry Goldwater's 1964 election, was anti civil rights. Of course it could also be said that the true root of small government is 19th century robber barons, but I'm not sure that has as much salience to the electoral cohort that elected Reagan and the modern Republicans.) But that is madness for a political party to act this way. A group, if it wants, can languish, writing in obscure journals hoping that someday the world will return to them but they guarantee then that their views will have only a mild chance to gain actual influence. Hell, look at the libertarians.

This is now not the time when the body politic views tax cuts as the solution to a problem. People are not so stupid as to not remember the last round of tax cuts. That sure didn't seem to help. There has actually never been a large cohort for genuinely smaller government. People might say that they agree with the phrase "smaller government is good" but they don't mean it. If there has never been a large voting cohort for getting rid of the army, getting rid of medicare, getting rid of medicaid and social security, then there has never been a large voting cohort in support of smaller government. There was a cohort for that message at a particular time but no actual cohort for that reality.

So for the folks at CPAC and Limbaugh to believe that the solution to today's problems are the same as the solutions to yesterdays problems, I say have fun. And please Limbaugh embrace your role as leader of the Republican Party. It'll be a good day for the Democrats.