Eliot Lear's Ramblings

Sarah Palin is NOT showing up

NPR’s Morning Edition today had a report on Governor Sarah Palin. Apparently she is taking a page from President Bush and carefully controlling media access. In other words: limited interviews, and no press access. What little press she has had has been bad. Between the ongoing investigation and her refusal to release her income tax records, one has to wonder if she really is ready for her current position of governor, much less that of vice president. One also has to wonder why the people of Alaska put up with this sort of behavior.

Say what you will about Senator Biden, either through intent or incompetence, he has a long history from which we can judge (and have). This leads to the first rule of governing: you have to show up, and Sarah Palin is not.

Worse, even when she makes statements they are plattitudes. Telling Americans not to question Israel is as destructive to the democratic process here at home as it is to Israel and her neighbors. We cannnot be an honest broker if we do not question all parties, and that is what the region needs most of all. Even the current administration recognizes the mistakes it has made. These were lessons that ought not to have been learned in office, and we certainly cannot afford for another administration to learn them again.

We need better.

Will the Bail-Out Help?

Today some of the questions many people wonder are precisely what has gone wrong, what is going wrong, and what will a bailout fix. What has gone wrong is that the credit default swapping market was not sufficiently capitalized to account for a heavy rate of defaults. Normally banks are required to meet a reserve ratio as part of their regulation. However, when debt is sold to non-bank entities, like Merrill Lynch, they no longer have to meet a particular reserve. One of the requirements for Goldman, now that they are a bank, will be to meet this reserve. This is why they needed to find a sugar daddy, like Warren Buffet.

What is going wrong still is that now that banks have been burned they have become increasingly more conservative, and have refused to loan not only home owners money, but also businesses money. Businesses, in turn, are being increasingly conservative with their precious dollars, for fear that they won’t be able to get more of them. Because of this the U.S. is likely to suffer a recession, and no place will suffer worse than the entrepeneurial capital, Silicon Valley.

There is also the matter of all the failed loans. We don’t know where all the debt is, because banks can take their sweet old time deciding when a loan has failed, and hence reporting it to their stockholders. The bailout will give creditors incentives to get rid of debt that is likely bad.

What the bailout may not fix is the confidence problem that creditors now have. Creditors may, however, be of two minds, one being that they could fail by taking on too much debt, and the other being that the U.S. government will provide a backstop to any serious failure. If the latter is true, even if unwsie, then those companies will make capital available.

Who wins in the current climate? Large companies that are their own banks can take advantage of their position, because there will be fewer smaller disruptive competitors. Venture capitalists will win because they will be able to drive better deals with startups. Employers on the whole will win because the job market will slacken.

The consumer, however, may not win. The cost of imported goods and services remains high in this environment, and is unlikely to change for some time, until capital markets open up again. This is because the dollar remains near all time lows. Worse, because other economies are beginning to faulter, we will not be able to export our way out of the hole (we’ve been doing that for some time).

Put another way, everyone is still in for a rough ride.

McCain Tactics Wrong

Americans measure both leaders and potential leaders against how they would handle problems of the day. The problem of the day is the crisis on Wall St., and Senator John McCain is violating the first rule of campaigning: he’s not. Now- if he were the chairman of the Federal Reserve, that might make sense on at least two levels, that he would have been central to having caused the mess, and central to clean it up. But he is neither.

He does not want to show up at a debate on Friday night in Mississippi if the crisis is not resolved. Question: what business gets conducted on a Friday night? Practically none. It’s not to say that people can’t work on Friday night, but very little need be done then. Especially by him.

John McCain made his mark on foreign policy and on generally conservative domestic policies. He is not now, nor has he ever been a banker, sat on a banking committee, or promoted policies relating to banks.

This very much reminds me of the time President Carter barricaded himself in the Whitehouse during the Iranian hostage crisis. McCain should expect the same results Carter got.

A (Brief) Letter from Singapore

This week I find myself in one of the chief Asian powerhouses: Singapore. I visited this tiny but hugely influential country fifteen years ago, just after having read another Letter From Singapore in the New Yorker magazine. Back then, the community seemed smaller and the businesses were lots more cozier. Today, the community seems larger, and businesses are still pretty cozy.

Singapore is a nation state of paradoxes. Its small size would not lead one to believe that it is one of the chief trading centers in the region, with container ships constantly waiting to unload. That, by the way, really does seem to be one of the lone constants between now and 1993. The hotel I stayed in then, the Pan Pacific, was one of the taller buildings. Today it is in the shadow of many others.

The city itself is difficult to evaluate this week because of an extraordinary event. They are hosting their first Grand Prix on the weekend, which will be held on the streets at night. It’s a first for Formula 1 and somewhat controversial. What is not in dispute is that when F1 comes to town to do a street race, everything gets turned upside down. Tonight, returning from dinner, with many street closures in order to form the racing circuit, my taxi took me through the connected substructure of many buildings to get me back to the Mandarin Oriental. We needed a residence pass just to do that.

The hotel prices on Thursday night will increase from a seasonal norm of $300SGD to $1800SGD. This means I will be out of here on Thursday.

Singapore sports a cross of many cultures, including Chinese, Malaysian, Bengal Indian, Japanese, British, and yes, some Americans. This intersection leads to a wealth of cuisine entertainment and education options. There is a disparity amongst some of the groups, and to be sure, not everyone here is wealthy, but for a tourist it represents an interesting stop in the middle of the Pacific rim, with Indonesia, Malaysia, Thailand, Vietnam, and Hong Kong, not far off at all, and Australia, an almost reasonable distance.

The people here are extremely gracious and the service has been nothing short of remarkable. More on Singapore in a future note.

Please do not applaud

The market had an “Up” day on Friday, now that Congress and the administration have decided that the crisis is so great that it requires what the Wall Street Journal described on Thursday as the biggest bailout since the 1930s. We are now seven years and eight months into the Bush administration, and the comparisons to Herbert Hoover seem most apt. As I mentioned in a previous blog, it was clear that the administration and this president lacked credibility to calm markets simply by words. Opening up the coffers of future tax payers, however, speaks volumes.

While many will applaud the deal that Congress and the administration have put together to stablize the financial industry we have to ask ourselves how we got here in the first place. While Democrats must take some blame for cowering in the face of anti-government rhetoric, it was the Republicans who clearly controlled the agenda. And now we have seen the results.

There are no good ways to manage a bailout- only bad and worse ways. The good way involves not requiring it in the first place. Oversight of the markets has clearly been lax, as we discussed in the oil and food market. Here now is the difference between a Republican and a Libertarian: a Libertarian’s principles dictate that he or she let the financial markets fail. A Republican wants to be re-elected.

So please, no applause for the government’s move. Our children will pay the bill for us.