A Question I keep getting asked: What do you think of Obama?

President-elect Barack Obama As an American living abroad, very few people ever asked me what I thought of President Bush. They all have their opinions, it seems. And while few Swiss generally share their opinions with me, they are very intrigued about my own opinion of the incoming president. To this question, I’ve developed a pretty stock answer: “I don’t know. Ask me in a few years.”

President-elect Obama has demonstrated thoughtfulness in the few times I have heard him speak extemporaneuously. He also seems to have assembled a very competent cabinet with vast amounts of political experience. This can be put another way- it’s the same old faces we’ve come to know. Another young president did his best to put together a superstar team, and it led us to the war in Vietnam. All this says is that brain power isn’t everything.

President Carter is perhaps one of the smartest men in the world, and yet his presidency is generally views as a failure. It took President Bush to eclipse him in that department, showing that failure is not limited to one party or another.

Given the choice between having brain power and experience and not having it, clearly I’d rather have it. But something more is required: wisdom. While it’s easy to demonstrate a lack of wisdom, I’m not sure how easy it is to demonstrate that one has it. Again, the thoughtfulness that he has applied to complex issues leads me to hope, but that’s the best I can do for now.

By Request: A brief description of the leap second

Every day of every year nominally lasts 24 hours, or 1,440 minutes, or 86,400 seconds. This December 31st, as happens on irregular occasions, will actually last 86,401 seconds. You are of course familiar with leap days, which occur on leap years, which occur every four years, except on century boundaries unless the century boundary happens to be divisible by 400 (as was the case in 2000).

Leap seconds are not so easy to predict. They are based on irregularities in the Earth’s rotation, as measured by the International Earth Rotation Service, and can happen on either June 30 or December 31. When it happens, there is an official time that is December 31, 23:59:60. UTC is adjusted accordingly, which is what just about all local time is derived from.

As it turns out, we haven’t seen leap second in a while, and here is why:

This information shows deviation from 86,400 seconds in terms of the average time it took for Earth to rotate once for each day of the year. Since 1997, the world has actually slowed down, although there’s been a slight pickup in pace over the last two years.

How do we know that the Earth slowed down? You might think that the definition of time is based on the Earth’s rotation and its orbit around the sun, but in fact that definition is somewhere between disputed and obsolete. The actual definition is as follows:

the duration of 9,192,631,770 periods of the radiation corresponding to the transition between the two hyperfine levels of the ground state of the cesium 133 atom.

If we now take that really large number of periods, using a Cesium clock, we can mulitply it by the number of seconds in a day and compare against where we think the Earth should be. If it hasn’t quite gotten all the way around, then we note the difference, and add that to a cummulative difference. Eventually it is necessary to hold up clocks by a second to let the Earth catch up.

What the heck is a target price?

You often hear analysts say that they have a particular target price for a stock or a commodity. That means that in their heads they expect the value of that thing to hit that price over a certain period of time. But now we have OPEC saying that they have a target price of $75 per barrel of oil.

YEAH RIGHT.

One of two things is the case here. Either OPEC has no price control, or they are simply lying, and they really just want the price as high as it will go, as it did go in the summer. I tend to think both. For one thing, the statement may be a sap to Iran and Venezuela, who have been publicly pushing for a cut in order to get prices back up to stabilize their own oil-based economies.

What seems to have happened with oil is that the speculators had their day both ways. First they drove the price up, and then they drove it down. They were helped a little bit by demand having first climbed, and then fallen. Once prices were clearly dropping, they piled on and just drove them down further.

So where is OPEC’s role in setting the price? How many millions of barrels will they have to cut in order to have a significant impact on prices? The general economic answer would be that they would have to stop supplying the world with enough oil to meet current demand, a shrinking target, as we speak.

So why have prices stablized at $50 or so? Who can say? Perhaps traders believe that demand has leveled off and is now stable. Perhaps there is simply a consensus view as to what production and the econony will be 90 days from now, and it is reflected in that price.

Two things have happened this weekend that should make Monday trading very interesting. First, Black Friday has come and gone. This will give some indication as to the state of U.S. retail, and hence a good portion of the economy. Second, OPEC has said that they will not cut current production levels.

If Black Friday turns out to have run red, then we may well see yet a larger drop in demand, based on lower production. Butt his depends on whether or not producers have already anticipated a miserable Christmas season. Even so, Monday will be very interesting. When you see reports about this weekend’s retail sales, think of oil.

Parting shots from a depraved presidency

As we just discussed, we have plenty of reasons to not like or respect President Bush. With that in mind, let us introduce a new image, the duck representing a lame duck presidency. And here are two more reasons to dislike and disrespect this guy:

This past week the administration indicated that it was likely to auction leases to oil companies for land abutting national parks and monuments, particularly in Utah. Normally the Department of Interior gives a fairly long lead time for comments, but in this instance it was done at the last possible moment, so as to limit opposition.

Also this past week, President Bush indicated to Congress that he would not be opposed to another bailout bill, this one for the auto industry, if the Senate ratified a free trade agreement for Columbia. Although all of these bailout bills leave a bad taste in my mouth, it’s not clear we have a choice. But what really offends me is that President Bush is willing to anchor his negotiating position in a manner that may well be the wrong policy for the economy. Furthermore, there are policy matters relating to Colombia that need to be addressed, such as whether the government is sufficiently stable, and whether we would be importing goods that were profiting the FARC. These matters are both complex, but they are not inter-related, and so they should be dealt with separately.

Two more reasons to say good riddons to this president.

What Caused This Crisis?

I am sure I’m not that different from many others when I ask the simple question, what happened? How did the banks get into such a mess? What didn’t they see, and what regulation failed? Was the reserve ratio that the federal reserve demands too low? Did debt move from regulated to unregulated, and if so, why would that have caused a failure of regulated banks? How is it that the vast amount of debt went unrecorded until recently? And what are we doing wrong now?

The New York Times offers a new insight into what had happened. According to this article, a decision in 2004 by the SEC, headed by William Donaldson at the time, permitted banks to exceed the reserve ratio in their investment houses, and money seemingly flew freely between the two. There was meant to be oversight of the banks’ health at the time, but that oversight never happened.

Why did the banks seek this change in 2004? They did not believe they could compete against the large investment houses with so much money tied up in case of a credit crunch. Put another way, we forgot some of the lessons of the 1920s.

And so it’s now obvious to all. President Bush has not only presided over the worst financial debacle since the Great Depression, but he and his team failed to learn from the mistakes of that era, making him worse than President Hoover, in my book.

What do we need to do to fix the problems? Some of it has already happened. Banks have become very conservative, and perhaps are leaning too far: it’s very hard to tell when the country is teetering on a recession. Some of that conservative nature needs to be codified by reversing the 2004 decision or requiring investment houses to meet the reserve ratio. In order to figure out which we have to question whether or not we can let a large investment house fail. If we cannot, then more regulation is appropriate. One way to split the baby is to require regulation of total assets and debt above a certain number, say the $5 billion talked about in the article.