Thursday, February 26, 2009

The Brave New World and the Economy Converge

Once in a while our local paper, The Palm Beach Post, gets a leg up on the rest of the newspaper media, covering a South Florida story that is probably gaining traction in other parts of the country. It is certainly a sign of our times, bioethical issues colliding with the consequences of financial hardship. The headline says it all: More people choosing to turn their bodies into money-makers. Besides selling mundane body components such as blood, plasma or one’s hair, eggs and “womb rental” are in demand and pay big bucks.

Donating eggs can fetch $5,000 while rent-a-womb surrogacy can “net from $18,000 to $70,000, whatever the couple and the carrier agree to.”

Interestingly, there is a Catch 22: “not everyone qualifies as a donor, and women whose only reason to volunteer is that they're broke are often rejected.” So, if you really need the money, don’t bother to apply.

Furthermore, egg donors must be non-smokers, which is understandable, but they must also agree to take injections of fertility drugs, hopefully not to the degree to produce a litter as the Californian octuplet mother.

The Boca Fertility IVF Center “once had only one catalog of donors. Now there are two binders with a total of 100 donors. They include blondes, brunettes, whites, blacks, Asians, even Jewish women, who used to be difficult to find.” As the economy deteriorates, genetic engineering or selective breeding could be on the rise.

"O wonder!
How many goodly creatures are there here!
How beauteous mankind is!
O brave new world!
That has such people in't!"

(Shakespeare's The Tempest from which Aldous Huxley derived the title of his famous novel).

Economists, meet the Bioethicists.

Monday, February 23, 2009

Taking a Break in Key West

I need a break from the constant drumbeat of downbeat news, Russian and American satellites colliding in space, British and French nuclear submarines colliding deep under the Atlantic, and the spiraling economic Armageddon, chasing an unknown vortex. I hark back to the happier times of the recent holidays when we visited Key West with our son.

Jonathan and I shared a camera. We apparently have a similar eye, as I can no longer remember exactly who took what picture. My father was a professional photographer and I would like to think a little of it rubbed off on me, but Jonathan has the advantage of being born into the digital generation and manipulates the features of a digital camera as second nature. Here he is “working” on my first computer, an Apple II, almost thirty years ago.

We walked through Key West’s less frequented side streets. It was a beautiful December day, not humid, temperatures in the 80s. Some of the photos illustrate Key West’s iconoclastic nature, some its beauty, and others the passage of time and disrepair.

Attitude Free Zone

Sliver Moon Fence

It Don’t Come Off

Roof Shadows

Tropical Leaf


Balcony Beer Bottle

A Sailor’s Delight

Friday, February 20, 2009

Moral Hazard of Loan Modification

One can empathize with Ric Santelli’s widely heard rant and the reaction in the Blogosphere: No doubt the people who played by the book have the short stick in the $75 billion Homeowner Stability Initiative (“HSI”), but unless some way can be found to deal with the twin time bomb of mortgage foreclosures and more importantly, jobs and the threat of further job loss, the economy will continue to disintegrate.

There are people in homes who are employed but who borrowed too much or at terms that they can no longer afford, and who now may be motivated to simply walk away from their home and rent down the block and save a bundle. Hopefully, this group will be the plan’s focus. Yes, if they walk their credit rating will become impaired, but outside of that it becomes a simple business decision. How the HSI deals with principal reduction has a weighty bearing on the moral hazard issue.

Proposals that involve reducing the mortgage principal balance have called for banks or the taxpayer (whoever takes the hit for the lowered principal) having a “call” on the appreciated value of the home (over the new principal amount) if the home is sold in the future. So, if the home’s original mortgage was based on, say, a principal of $300k and the new principal is $200k, the bank/taxpayer would be entitled to the appreciated (assuming there is any) difference between $200k and the selling price in the future up to the original principal value. The problem with that approach is why would the seller bother to hold out for a price above $200k – there is no incentive (unless in the unlikely event the home can be sold for more than the original principal amount) – or would the bank then take it over as a foreclosure? Seems to me the bank/taxpayer needs a phased in participation in the selling price to avoid foreclosure down the road, or to provide incentive for the homeowner to get the best possible price, keeping government and/or the bank out of those logistics.

Thus, as far as principal reduction is concerned, the devil is in the detail, and it is here that the core moral hazard issue seems to lie. Other approaches of lowering the mortgage interest rate or converting adjustable rates to an affordable fixed rate or increasing the loan term are more straightforward and quantifiable and would seem to be easier to deal with – from a moral hazard perspective -- than principal reduction. It certainly makes sense to find a way to help people who are employed and can afford a reasonable monthly payment to stay in their homes.

Monday, February 16, 2009

Another Shoe to Drop

Turn the bailout hose this way. Here is one waiting for a future one of unknown proportions: “Government pension agency braces for recession”

The magnitude of the potential problem is best understood by going to The Pension Benefit Guaranty Corporation’s web site for a description of its mission. The PBGC “is a federal corporation created by the Employee Retirement Income Security Act of 1974. It currently protects the pensions of nearly 44 million American workers….PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans. PBGC pays monthly retirement benefits, up to a guaranteed maximum, to more than 631,000 retirees in 3,860 pension plans that ended. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, PBGC is responsible for the current and future pensions of about 1,274,000 people.”

The PBGC already has an $11 billion deficit but the astounding part of the article cited above is the former Director, Charles Millard’s contention that “a new investment strategy, which allows the PBGC to invest more aggressively in stocks and alternative investments, makes it less likely that it will need a multibillion-dollar congressional bailout.”

That is the “strategy” to “protect” current and future pensions? Here is yet another government “safety net” that is not only vulnerable to the economic downturn but also has hitched it’s star to the future prospects of the stocks and alternative investments.

Plastics and Publishing

The commoditization of publishing due to the convergence of trade publishing and other forms of entertainment in a digital age is just but one nail in the coffin of the industry. Even non-trade segments of the industry, such as professional and educational publishing, are struggling with issues of digital delivery, and they have also been caught up in the same financial contagion sweeping Wall Street. These publishers have reacted by cutting their lists, reducing staff, and delaying the signing of new contracts and product development, the same kind of short-term thinking prevalent in American business.

The publishing industry seems to be at an inflection point, with the “trade” part shrinking, fighting all other forms of entertainment proliferating on line, via the Ipod, even the cell phone, cable TV, Netflix, etc. and, now, the emergence of Amazon as a publisher in its own right via its Kindle e-book reader, and educational publishing changing slower than it needs to in order to make the Web more of an opportunity than a threat. Somewhere between the space of the large media publishing organization and the small on demand publisher there would seem to be an opportunity for the strong independent publisher.

Here a just some of the recent developments to consider:

▪ HarperCollins, Houghton Mifflin Harcourt, Penguin Group, Random House and Simon & Schuster have all announced salary freezes or layoffs, or both.

▪ As of October book sales fell 7 percent compared with the same period the previous year.

▪ Houghton Mifflin Harcourt has put a freeze on acquiring most new titles for its trade division while HarperCollins has closed its nonfiction division.

▪ Even the venerable Oxford University Press, the largest university press, laid off 60 people from its US operation, almost a tenth of its staff.

▪ Amazon has ramped up the manufacturing of a new version of its Kindle reader and acquired a new work by Stephen King that will be published exclusively (initially at least) on the Kindle.

The last event is particularly significant. Amazon’s first version is estimated to have sold 500,000 copies. Kindle 2.0 is sleeker, easier to use and even will read the text aloud, still another issue for publishers. While intellectual content is now routinely delivered on the Web, mass-market fiction to date has been the exclusive stronghold of the printed book and therefore the publishing industry. Now best-selling authors can bypass the publisher.

But many publishers are also exposed to the subrogation of internal financing to private equity and the leveraged buyout. By 2006 private equity firms were flocking to the industry:

A former colleague of mine wrote me: “I’ve always been jealous of those of you who were in publishing during the days when it was different from other corporations. I've become quite disillusioned with the business as a whole, basically because it seems every other day you hear that some great long-time member of the publishing community is being pushed out, and someone who was the CEO of a deodorant company or something is coming in to run things. Next thing you know, that company goes under.”

But mergers and acquisitions and the pursuit of the holy grail of synergy are not new. I was involved in several during my career. The most ludicrous one was early in my publishing days. A small publicly owned conglomerate owned the company I worked for at the time. This firm also had a consumer plastics company. The accountants discovered the "process" of making consumer plastic products was similar to books as you make a master (camera ready copy for photo offset or a mold for plastic products) and from the master you make duplicates. Perfect accounting synergy as you capitalize the cost of the master and write it off during the lifespan of the product. So, we became part of the "Plastics and Publishing" division and in their 1971 annual report our books were displayed along side plastic hangers, dishes, and jewelry cases!

And, publishers managed during other dire economic times. There were serious downturns in the mid 1970’s when the prime rate rose for the first time to double digits, in the early 1980s when Paul Volker ratcheted interest rates to unprecedented levels in response to the CPI reaching almost 15 percent, and a recession in 1991 that resembled the present one (although not as severe) as it was a liquidity crisis. At that time the excesses of the 1980s were in the process of self-correcting. Individuals and state and local governments who leveraged their finances found they were without the funds to even carry on day-to-day operations. Many of these loans were underwritten by real estate values that had simply disappeared.

Today’s debt has now been magnified by a huge multiple thanks to exotic financial instruments, resulting in an even more serious liquidity crisis. My mantra was a publisher should be able to operate “out of a tent,” making the investment in talented people and buying services rather than investing capital in plant and equipment, or, even worse, in unrealistic print runs and pricing, everything to keep financing costs to the minimum. Leveraged finance and publishing are a bad mix.

Long-term thinking is needed in the industry. Or, as another colleague of mine noted: “These publishers are like a group in the desert that decides to camp in place and stop expending energy so their limited water will keep them alive longer. By this strategy they will live a little longer but die they surely will.” This is the time for stronger independent publishers to expand their lists while leveraged corporate behemoths are contracting, if necessary practicing attrition rather than layoffs, seeking new authors while competitors caught in the financial mess are not publishing them. By swimming against the tide, rethinking their role in a digital world, independent publishers can help bring the publishing industry back from stagnation. “Camping in place” is not an option.

Thursday, February 12, 2009

Our Financial Crucible

I was watching some of the House Financial Services Committee’s hearings yesterday with the chief executives of Goldman Sachs, JPMorgan Chase, Bank of America, Citigroup, Morgan Stanley, State Street Bank, Wells Fargo Bank, and Bank of New York sitting there like a bunch of guilty school boys, being berated by their elders. These firms were the lucky recipients of the $700 billion banking bailout.

A number questions were posed to score points for our lawmakers, questions that were expected to be answered by a show of the hands so we all can see the scarlet letter of guilt. Questions along the lines of “how many of you have received government money but have changed your credit card terms?” The perplexed guilty parties sort of looked at each other (obviously wondering what is meant by the question), and as one would timidly raise his hand, the others would slowly follow. These questions went on and on, an embarrassment to those who posed them, those who were forced to answer, and those of us who are relying on this “system” to fix the problem. (Although they did manage to get John Mack of Morgan Stanley to say, “We are sorry.”)

Most of these lawmakers are the very ones who once pressured financial institutions to make loans available to everyone no matter what their creditworthiness so they could boast their beneficence to their constituency. And the bankers are the same financial wizards who created leveraged products that passed off tremendous risk to investors, and, now, to us. We also had a Federal Reserve that fed the fire with practically free money, leaving Alan Greenspan recently wondering, “I still don't fully understand how it happened or why it happened.”

One can empathize with the feelings of outrage, especially now that we learn that some seven hundred Merrill Lynch employees “earned” bonuses of more than one million dollars in 2008 as the firm lost $27 billion. Yesterday the apologists on CNBC generally defended Wall Street bonuses because even when a financial firm overall loses money there are individual “producers” who make pockets of money. The CNBC cheerleaders went on to say that these “producers” need to be “incentified” – otherwise they will be left only with their base salaries. Most people might be content with the latter and isn’t this the kind of “incentive” which motivated “producers” to take excessive risk in the first place?

The questions posed at the witch-hunt hearings centered on why banks are not lending out all the money they received. What planet do our representatives live on? You can’t force banks to lend money if people do not have jobs or are worried about losing jobs, and that is the central element in the crucible of today’s financial times. Just a cursory look at the chart Job losses in Recent Recessions prepared by Barry Ritholtz dramatically goes to the heart of the matter:

Saturday, February 7, 2009

West Palm Beach Hosts Sondheim

As Stephen Sondheim would say, “life is Company!” A few days ago we saw the great man himself at the Kravis Center in “A Conversation with Stephen Sondheim” with musical examples. As Updike is to contemporary American literature, Sondheim is to contemporary American music. When he walked onto the stage, Ann and I held our breath: a living legend before us. We’ve seen many Sondheim shows and revivals and even have a small “connection” with him through our old hometown of Westport, Ct. where Sondheim served as an apprentice at the Westport Country Playhouse in 1950. But this was such a different experience.

I wasn’t sure what such an evening might be like, although I suspected the venue would be a discussion prompted by a moderator, in this case Sean Patrick Flahaven the Associate Editor of The Sondheim Review with musical illustrations by Kate Baldwin who apparently was a last minute replacement for Christine Ebersole. Kate is a quintessential Sondheim singer, someone with a wonderful voice who articulates every word with the emotive intent of the song. The pianist, Scott Cady, was equally up to the task of communicating the subtleties and rhythms of the master’s music.

In fact, that is what Sondheim’s work is all about, the perfect marriage of lyric and music. As he explained in his “Conversation,” “I write for actors.” I watched him watch Kate sing the examples, wondering, exactly what was he thinking. Was he remembering how and when he wrote those pieces, or was he subliminally critiquing her performance, or was he just taking in the evening, as we were, a tribute to a legend?

I had hoped to hear more about the music itself, his comments on the particular pieces that were sung during the evening, but most of the night was about his reminiscences of his fabulous career. Having followed Sondheim, I was familiar with most of his musical works but was amused by some of the “inside information” he shared such as, in addition to Sweeny Todd, his musical Into the Woods had been prepared for film, although it never made it to the screen. This version was created with Jim Henson puppets alongside such luminaries as Robin Williams, Roseanne Barr and Steve Martin. With Henson’s death, this project ended.

I also learned he wrote a musical, Saturday Night, in 1954 when he was only 23, but it was not produced until about ten years ago. I think of it as a precursor to his portrayal of urban life in his breakthrough musical Company (the first Sondheim musical we saw when we lived in Manhattan in 1970). Saturday Night has a breathtakingly beautiful piece “What More do I Need?” which Kate Baldwin sung as the opening example. I was so taken with it I immediately bought an mp3 copy on Amazon (very competently sung by Dawn Upshaw but I like Kate’s version which is only accompanied by the piano) and then downloaded the sheet music from using the Solero Music Viewer (great service for musicians – allows you to buy just one piece, download it, even transpose it, and then print it). I’ve been sort of “consumed” playing the song since then. It can be seen on YouTube, sung by Anne Hathaway of all people (never knew she could sing so well).

Rodgers and Hammerstein brought the musical to a new plane making the songs intrinsic to the plot. (Hammerstein in fact was Sondheim’s mentor.) With Company Sondheim took the Broadway musical to the next level, and he has elevated it ever since. Sondheim is in a class of his own. As he explained in “Conversations” Company is not a plot driven musical. He thinks of it as it as a work of art you can look at from different perspectives and find different meanings.

Before seeing “Conversations” we rented the brilliant 2007 revival of the show, filmed for PBS and now available on DVD, staring Raul Esparza. Esparza’s interview on the DVD is worth the price alone – how it feels to play in a Sondheim musical. Company is chock full of Sondheim’s trademark conversational songs, works of art in their own right, looking at the foibles of relationships and what life means without them. Baldwin sang “Another Hundred People” from the show.

Most of my piano repertoire is focused on the great American Songbook, the work of Bill Evans, and the music of Stephen Sondheim. I regularly play his pieces; they are intricate, and while some are not necessarily melodic, many are beautiful, and all are memorable. His lyrics and music are so closely intertwined that just hearing the music is like looking at an impressionist painting without the brush stokes or reflections of light. But, I hear the lyrics in my mind as I play, and I am continually drawn to his work.

“Not a Day Goes By” is one of Sondheim’s more poignant ballads which is sung twice in his 1981 musical Merrily We Roll Along, first as a statement of a husband’s unequivocal love for a wife who now wants to divorce him, and then as a reprisal (in this musical time goes backward) on the day they were married. The ambiguous lyrics can be read at and my rendition of the song can be heard here:

[Sorry, but the link to this song was subsequently removed by Google Pages]

Life is Company. Thank you Stephen Sondheim!

Wednesday, February 4, 2009


It’s been called “draconian” by compensation “experts,” the same ones that are employed by the financial services industry – a proposed cap of $500,000 for the “top executives” of companies receiving the TARP funds. Pass the collection hat for the CEOs of Bank of America, Citigroup, and General Motors who pocketed more than $37 million in total compensation in 2007, probably the peak year of the chimerical financial derivative.

But what about the rouges gallery of financial wizards who misrepresented risks to investors and yet cumulatively pulled down hundreds of $millions from an unsuspecting public and fled the scene, such as John Thain, Stan O’Neal, Robert Rubin, Chuck Prince, Dick Fuld, et al.?

To the rescue, a grass roots “claw-back” movement is underway, orchestrated by Nouriel Roubini, the NYU economist who warned about the current crisis years ago and Nassim Taleb, author of “The Black Swan: The Impact of the Highly Improbable.”

Unless Rubin and others like him are made to mandatorily return their bonuses or are given some other punishment, the system that regrettably emerges is one "in which it’s the worst of capitalism and socialism, a situation in which profits were privatized and losses were socialized. We taxpayers have the worst."


Tuesday, February 3, 2009

Aging and Writing

Marking the passing of a great American novelist, The New York Times Weekend Review carried an outstanding essay "John Updike’s Mighty Pen" by Charles McGrath

Especially interesting was the Video A Conversation with John Updike, taped in October 2008, with Sam Tanenhaus, the editor of the Book Review, “about the craft of fiction and the art of writing.” Disquieting to think he died only a few months later, but listening to the interview I was struck how much he ruminated about aging and writing. He said that he was currently working on an historical novel set in the 1st century, but not knowing much about the period he was trying to educate himself, lamenting, though, that “maybe I’m too old to be educated.” He also said he was thrilled that the New Yorker had recently accepted two of his short stories as he was “trying to keep [his] name in the New Yorker after a long draught.” “It makes me feel like a real person to get a short story in the New Yorker.”

He went on to observe (and much of this is paraphrased here) that there comes a moment in a writer’s life when you are full of material untouched in your mind and seemingly urgent and it merges with enough skill to get it down, but this skill tends to peak in an American writer’s late 20s or early 30s. In those years I could bring a naiveté and therefore a sense of wonderment to my writing. “I’m not ashamed of my later work, but feel there is an unforced energy in the earlier work.” We never idolize anything beyond youth in this country. Consequently, we’re all failed youths, as we don’t believe in the wisdom of the ages especially now that so many people live forever in old age homes. Some of our greatest writers were Hemingway and Fitzgerald; “their idea of happiness is to be young.” And those words concluded the interview.

I closely identify. In Florida that sense of aging, a feeling of irrelevancy, is particularly pervasive. As Updike says in Rabbit at Rest, “There’s a lot of death in Florida, if you look. The palms grow by the lower branches dying and dropping off. The hot sun hurries the life cycles along….Even friendship has a thin, provisional quality, since people might at any minute buy another condominium and move to it, or else up and die.”

I thought my feelings might be confined to those of a retired businessperson living in the “sunshine state.” But my friend Bruce, a teacher and a writer living in Massachusetts, to whom I sent the New York Times link, seems to have had a similar reaction. This business of aging, still trying to stay productive, moving forward with learning as being the very essence of living, is something I would like to think we share with Updike. Here are Bruce’s comments on the Updike interview:

I listened to the interview and was, of course, attentive to his remarks about aging and youth. Naturally, I immediately applied what he said to myself to see if I thought it was true. My conclusion about me is that I am profoundly and forever naive. Thus, I'm surprised that because I am old I am invisible. I am surprised that my students don't realize that I am wise and learned. Oh, they do to a degree, but their best perceptions of me are ones that leave out my age. I'm surprised that young teachers with a few exceptions do not seek me out. I am surprised I am not valued because I have so much experience. Perhaps, I am, but it's not apparent to me. I like what Updike said about the unforced energy of youth. I think that's true, but an older man needs to seek to find what imparts an unforced energy to his own endeavors. I keep returning to Bronte's remark about being appreciated and expecting to get credit for what you do. Don't she says, or you will spend your life waiting. Then again in our own conception of ourselves we are never appreciated enough. Thus, we are back to Ecclesiastes and vanity. In any case, I liked the interview, especially the remarks about America and youth

See for more about Bruce.