The View From Here

Although we are some 140 miles from Cape Canaveral, the view of yesterday’s shuttle launch into the twilight sky was spectacular. The shuttle program is one of our nation’s greatest accomplishments. To the left and below are some photographs of the launch, the view from here but beginning with CNN's.

There were other developments over the weekend impacting another sort of “view from here.” One story that grabbed some headlines, but then quietly went into the night was China’s prime minister’s concern about their holding some $1 trillion investment in American debt. Clearly there is some anxiety about the long-term safety of their investment, a remarkable public admission by such a large holder of US debt, one that is symbiotically attached to our hip -- something akin to yelling fire in a theatre while sitting far from the exits. But in Barack We Trust, President Obama saying that our debt is safe in spite of our record deficits, bailouts, and our national debt about to pass the $11 trillion mark. I mentioned this “Black Swan” before, that is confidence in the ability of the US to meet its financial obligations, without hyperinflating its currency.

The other story that will not go quietly into the night, because of the measure of outrage, is the $165 million in bonuses that are being handed out to the same executives that had a hand in creating the alchemy of credit default swaps. We’ve heard this song before, when Congressional Hearings revealed the extent that bonuses were handed out to the banks.

Then there is also outrage that foreign counterparties profited by receiving some money through AIG’s $170 billion bailout, but the main focus will continue to be the bonuses, although its size is but a pimple on the ass of the bailout vista.

The irony is the performance criterion of the bonuses is probably the very short-term thinking that encouraged leverage creation, AIG superimposing a hedge fund business on top of its, then, AAA rating. So why pay these bonuses? We’re told they are “retention bonuses” to keep the “best and the brightest” in the AIG stable -- as if there are not hundreds of unemployed qualified financial professionals who could immediately replace each of the AIG financial wizards. We are also told that these people will sue if they are not paid. Let them sue. Do they really want their names and reputations to go down in the annals of financial infamy?

But on to the happier news of the successful, although delayed, shuttle launch. Here are a series of photographs, only three minutes apart, from the launch as televised on CNN to the shuttle’s appearance only one minute later over our home, to the vapor tail just three minutes after the launch: beautiful and breathtaking.

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Ambushed

Jim Cramer walked into Jon Stewart’s studio last night and instead of his trademark rolled-up sleeves, he might as well have been dressed like a clown, ready to take a big cream pie in the face, intended for CNBC rather than Cramer personally, although he is emblematic of his “news’ organization deserting its traditional 4th estate role for that of an “infotainmentmercial.” Cramer at least is somewhat honest about his role. Some other CNBC “reporters” have become clandestine right-wing cheerleaders.

I deserted CNBC as a serious source for financial news the day that Lehman went under last fall as I was watching CNBC’s “Squawk Box” and the show’s Cheerleader-in-Chief, Joe Kernan, made some sort of a statement criticizing the critics of Lehman’s leader, Dick Fuld, reminding them that poor Mr. Fuld had lost a fortune in the value of Lehman stock, conveniently neglecting he had extracted $484 million in salary, bonuses and stock options since 2000, failing to mention the equity value of Lehman had been built on spurious leverage. “Squawk Box” itself has turned into quick sound bites and chatty banter, and when they do have a serious interview, they superimpose sound effects, whooshing noises of charts, stock quotes, inundating the senses akin to watching a video game. Some of CNBCs confrontational interviews border on a financial version of the Jerry Springer show.

What a reversal of roles, the host of a comedy show becoming a spokesman for the questions the supposedly serious financial station failed to ask. Stewart was unrelenting in his probing and Cramer, to his credit, simply ate humble pie. I think he knows Stewart is right asking such questions as: Who is CNBCs audience, the Wall Street traders or us stooges trying to keep our 401ks afloat in a “fast trading” environment promoted by CNBCs endless litany of buy, sell, buy, etc.? How does this help us? Shouldn’t CNBC be asking the tough questions of Wall Street instead of gaming our pensions? Wasn’t CNBC, supposedly knowledgeable about financial matters, remiss in not recognizing that consequences of infinite leveraging would surely end in calamity? Isn’t there a measure of responsibility that goes with reporting, and the freedom of the press, especially for a news platform that purports to be serious? “Let’s face it, we’re both snake oil salesman, but at least we [the Comedy Channel] label our product as such.”
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Hope

Two stories today. This first one is from the New York Times Timeless Lincoln Memento Is Revealed describes the very careful opening of the back of Lincoln’s first watch -- by the National Museum of American History -- as it was thought a secret message was inscribed therein. Indeed, there was “a message secretly engraved by a watchmaker who repaired it in 1861” which read as follows: Jonathan Dillon April 13- 1861 Fort Sumpter was attacked by the rebels on the above date. J Dillon April 13- 1861 Washington thank God we have a government Jonth Dillon.

Here was an immigrant watchmaker who grasped the significance of the moment and felt compelled to inscribe his observations for some future generation, inside the watch of the President of the United States, which, as fate would have it, he happened to be repairing.

I juxtapose this story to this magnificent NASA photograph of the Shuttle that was taken last night with the full moon. It is scheduled to blast off tonight. We visited the Kennedy Space Center a couple of years ago with our friends Beny and Maria who live in Sicily. Another Shuttle was on the launching pad at the time, almost an incomprehensible sight because of the scale of the Shuttle and its supporting structure.

From the near dissolution of the United States to the technology that can achieve such a scientific feat, in less than 150 years. Any country that can accomplish that should be able to find the resolve and the means to end the present financial crisis. We would all like to say: thank God we have a government.

Music For Our Times

Maybe it is merely a coincidence that directly or indirectly through professional musicians I recently received emails with the text of Karl Paulnack’s welcome address that was given to entering freshmen at the Boston Conservatory. Although this was made last September it is just making the rounds via email.

The timing of this address, at least the timing of it becoming well known at this particular moment in our economic malaise, is noteworthy. For the past decade we have “mortgaged” the country’s future for fast, easy gains, and government, corporate America, and consumers alike have been complicit in this unprecedented moral breakdown, perhaps similar to the roaring 20's, resulting in the depressed 30's which only WW II could rescind. Today we are left with the consequences of failing financial institutions, declining residential and commercial property, and other gathering storms, bad consumer loans and ultimately failing municipalities as their taxing power is dependent on a strong labor market and real estate values, and finally inflation. And the global nature of the crisis just makes it more frightening. This collapse is building a crescendo of anxiety.

It is easy to think of the arts being irrelevant in such an atmosphere. This is the very idea that Paulnack’s address contradicts. In fact, music is not only relevant but also essential to our survival. This address by the director of the Boston Conservatory music division who is also an accomplished pianist should be required reading during these tumultuous times.

Paulnack reminds as that even in WWII’s concentration camps there was music. “Art is part of survival; art is part of the human spirit, an unquenchable expression of who we are. Art is one of the ways in which we say, ‘I am alive, and my life has meaning.’”

Or after 9/11 the author remembers, “people sang around fire houses, people sang ‘We Shall Overcome.’ Lots of people sang America the Beautiful. The first organized public event…was the Brahms Requiem, later that week, at Lincoln Center, with the New York Philharmonic. The first organized public expression of grief, our first communal response to that historic event, was a concert. That was the beginning of a sense that life might go on. The US Military secured the airspace, but recovery was led by the arts, and by music in particular, that very night.”

The essence of his message is “music is one of the ways we make sense of our lives, one of the ways in which we express feelings when we have no words, a way for us to understand things with our hearts when we cannot with our minds.” He therefore charges the incoming freshman: “I expect you not only to master music; I expect you to save the planet. If there is a future wave of wellness on this planet, of harmony, of peace, of an end to war, of mutual understanding, of equality, of fairness, I don’t expect it will come from a government, a military force or a corporation. I no longer even expect it to come from the religions of the world, which together seem to have brought us as much war as they have peace. If there is a future of peace for humankind, if there is to be an understanding of how these invisible, internal things should fit together, I expect it will come from the artists, because that’s what we do. As in the concentration camp and the evening of 9/11, the artists are the ones who might be able to help us with our internal, invisible lives.”

The full address can be read here.

Perhaps this is one of those times when music “is needed to make sense of our lives.” Music is among the oldest of human activity (certainly predating economics!) and as Daniel Levitin states in his innovative work This is Your Brain on Music, an argument “in favor of music’s primacy in human (and proto-human) evolution is that music evolved because it promoted cognitive development. Music may be the activity that prepared our pre-human ancestors for speech communication and for the very cognitive, representational flexibility necessary to become humans.”

One of my favorite melodies is from a similar era, the depression years, the plaintive, ironical song, Smile, written by Charlie Chaplin, for the 1936 film Modern Times, in which he starred. In the film, Chaplin’s Little Tramp struggles to survive the Great Depression and the indifference of the modern industrialized world. The song’s melody captures the sadness of the times while the lyrics remind us to “smile and maybe tomorrow, you'll see the sun come shining through.” This is my own brief piano rendition of Smile in Windows Media format.
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The 177K

“I looked at my 401K and it’s now a 201K ba-dum-bum-CHING!" So, the joke goes today, but, don’t look now, it’s a 177K based on the S&P 500 as shown below. If you were able to buy the inverse of the change in the National Debt during the same period, your 401K would be a 485K. Interestingly, invested in gold it would be about the same, 498K, and with the 30 year Treasury bond you’d have a 544K for the same period. So much for hindsight, but much to be said about asset allocation.

The water torture nature of the decline in equity values, without the capitulation everyone has been waiting for, as well the disappearance of Bear Stearns, Lehman Brothers, Merrill Lynch, and the implosion of AIG, Bank of America, Citi, GM and, now, even GE, speaks worlds about the gravity of the situation. AIG has become a bottomless pit into which we have dumped $170 billion in taxpayer’s money and now have 79.9% ownership of an asset that seems destined to become a black hole of unknown proportions. While President Obama’s sincerity in following through on promises for health care reform and other social issues is applauded – and highly trumpeted on the government’s new web site http://www.recovery.gov/ -- if our financial institutions entirely fail, everything else becomes meaningless.

Paul Volcker gave one of the clearest explanations as to how we got to this point in a speech he gave in Canada a couple of weeks ago, saying “this phenomenon can be traced back at least five or six years. We had, at that time, a major underlying imbalance in the world economy. The American proclivity to consume was in full force. Our consumption rate was about 5% higher, relative to our GNP or what our production normally is. Our spending – consumption, investment, government — was running about 5% or more above our production, even though we were more or less at full employment. You had the opposite in China and Asia, generally, where the Chinese were consuming maybe 40% of their GNP – we consumed 70% of our GNP.”
Full text: http://www.ritholtz.com/blog/2009/02/paul-volcker/

He argued, “in the future, we are going to need a financial system which is not going to be so prone to crisis and certainly will not be prone to the severity of a crisis of this sort.” In effect the Glass-Steagall Act that had been enacted during Depression 1.0 separating commercial and investment banks -- and had been repealed in 1999 thanks to Phil Gramm and other deregulation zealots– needs to be reinstated during this Depression 2.0. Where is Paul Volcker to lead the way back to the 401K?

October-07 401K
November-07 383K
December-07 380K
January-08 357K
February-08 344K
March-08 342K
April-08 359K
May-08 362K
June-08 331K
July-08 328K
August-08 332K
September-08 301K
October-08 251K
November-08 232K
December-08 234K
January-09 214K
February-09 190K
March-09 177K
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Publishers Gone Wild

HarperCollins Puts Its Money on New ‘It Books’ Imprint
http://www.nytimes.com/2009/03/05/books/05harper.html.
“Tapping into the zeitgeist” with the “It Books” imprint? “The collected works of Twitterdom”? Please pass the barf bag.

Instead of recognizing that the publishing industry needs to set itself apart from the fierce competition of other media, doing what only it can do well – like discovering and publishing new fiction and meaningful non-fiction -- they run like a moth to the flame. They want people to turn from TV, movies and the Internet to books by publishing the very kind of content best suited for their competition, content aimed at those who are addicted to the competing media? “Escapism, fun, and style” in book form -- lots of luck with that kind of strategic thinking. Might as well send those titles directly to the remainder tables.

Makes publishing nothing sound like a more attractive strategy. http://lacunaemusing.blogspot.com/2009/02/plastics-and-publishing.html
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Brother, Can you Spare a Dime?

Only about $57 billion more to go until the Public Debt tops $11 trillion. Since I last wrote about this on January 12 http://lacunaemusing.blogspot.com/2009/01/bailout-math-and-implications.html it has soared by some $332 billion, so the $11 trillion mark is just around the corner. Something I failed to notice before: the government gratefully accepts “contributions” to reduce the debt (no kidding) so I include the appropriate information from the government’s web site:

How do you make a contribution to reduce the debt?

Make your check payable to the Bureau of the Public Debt, and in the memo section, notate that it is a Gift to reduce the Debt Held by the Public. Mail your check to:

Attn Dept G
Bureau Of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188
http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm#DebtOwner
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