Truth is Stranger than Fiction

From Yahoo’s “Top Stories” in Finance a few minutes ago….
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---* U.S. Economy Shrinks More Than Expected in Q1- Reuters
---* Stock futures point up- AP
---* World markets rally as swine flu fears diminish- AP
---* US confirms first death from swine flu- AP
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Bank Stress Test Obfuscation

The highly anticipated “bank stress test results” were announced a few minutes ago, a non-announcement that had so little detail about the health of the banking system it left me wondering the same way I did when I received the following letter from my bank a while ago. The names have been changed to protect the guilty. Why can’t the taxpayer and the consumer have some straight talk?

Gobbledygook National Bank
123 Main Street
Everywhere, USA 99999

Dear Gobbledygook Customer:

We are writing to advise you of important changes to the recurring automatic payment program in which are currently enrolled.

Through the end of the year, your scheduled automatic payment will not be processed if, up to three days prior to your payment due date, you make other payments which satisfy the total minimum payment due. If we cancel any scheduled payment-in-full of your new balance we will automatically adjust any finance charges that accrue as a result of the cancellation.

Effective with your automatic payment schedule to be processed at the beginning of the year, the monthly automatic payment amount you have authorized will be processed even if you have made additional payment(s) satisfying the total minimum payment due for that month. However, the automatic payment will not be processed during any month in which your account does not have an outstanding balance on the payment due date.

If you would like to make any changes to your automatic payment plan, please contact us.

If you prefer, you can call Customer Service at the phone number indicated on the back of your Gobbledygook credit card.

Thank you for your business. We look forward to serving you now and in the future.

Sincerely,


Oliver Obfuscation
Senior VP, Gobbledygook National Bank

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PS For an amusing follow up article on the so called “stress test” see Zero Hedge’s The Stress Test Cliff Notes.

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Danny

Most of this entry is a “guest post” by my long-time colleague and friend, Danny, who is responding to When a man is tired of London. Our family became close to Danny, his wife, Pat, and his two beautiful daughters, Lisa and Claire. We visited them while we were in London and they stayed with us on a few occasions at our home in Weston, Connecticut.

While Danny was the head of finance at Eurospan, he brought a special gentle demeanor to the position, always so approachable, and with a wonderful droll sense of humor. The two other principals in the business, Peter and his son Michael, were about twenty five years apart in age and I was smack in the middle, along with Danny, so it was not surprising that our two families connected so closely.

Soon after my father died in 1984 I had to go to London on business. Ann and Jonathan accompanied me on that trip. I asked Danny whether we could plant a peace rose bush in my father’s memory in his backyard, something we could see kaleidoscopically grow over the years when we visited. I thought such a gesture particularly appropriate as my father was briefly stationed in the UK during WWII and the Pinner section of London so closely resembled the area of Queens where he lived all his life.

Ann and I flew to Paris for a celebration to mark Eurospan’s 35th anniversary in 2000 and to commemorate Danny’s association with the firm from the beginning (photo to the left is of Danny and Pat at the anniversary). I was asked to say a few words, which of course I was happy to do: “35 years is an eternity for many firms in the publishing business. Eurospan must be doing something right to not only survive in the competitive world of book distribution, but to prosper – even in this dot.com era. The genius of Peter, carried on by his son Michael has much to do with this success story but there is another person who bridges those two generations, someone who has done a lot of the heavy lifting. You might say he is the bulwark of Eurospan. Indeed much of Eurospan’s success is due to his hard work and dedication. So congratulations to you, Danny.”


Danny is now retired, as am I. Our children are now fully grown as the photo to the left attests, one of Ann with Lisa and Claire when we visited London after the anniversary. But we will always feel a profound connection, although an ocean away. If my blog does nothing else but to stir the memories of close friends and colleagues I will consider the effort worthwhile. Here was Danny’s email reaction to When a man is tired of London:

What a wonderful blog entry! It really did bring back memories of happy times, and we of course have copies of several of the photos that you have shown. Yes, what memories Number 3(Henrietta Street) carries. Overlooking a busy fruit and vegetable market when we moved in, where we often bought top grade fruit to take home. Certainly the filming of Frenzy before we moved in is fact, as a number of shots in and outside the building are totally recognisable. There was the author/photographer who planned to publish ''Alfred Hitchcock's London'', and took great delight in taking a photo of me 'strangling' one of our staff in the office that Barry Foster performed some of his evil deeds. Also, looking down from my window and seeing Jack Lemmon, who was appearing in a play here, looking up at the building, and me not thinking to simply invite him in before he wandered off. The apparent truth in the story that The Duke of Wellington's mother lived at No. 3, though I think we could not establish absolute confirmation of this when we had the building researched.

The parties at No. 3, and you playing the piano, I think with Howard on the squeeze box (if not on the same occasion then certainly on others). Finally the ghost, that I am as certain as I can be that I saw at the top of the stairs to the basement when closing up the building late one night. Memories, and particularly of you, Ann, Jonathan and Chris when you visited. As mentioned, we do have copies of several of the photos you have shown. I know I have those of the girls skipping along with Jonathan (at the time I think we threw an American football between us in the road outside the house), and the cabbage patch dolls, though I think I would need to dig around among so many others from The UK and The US that we have to find them. Those I do have are the pair you took of the girls in the garden when quite young, to include the one of Lisa that you captured with the sun shining onto her cheeks through the trees, that are both still on our fireplace.

Then there was the fabulous family visit with you, and the memories we all cherish. This to include the night we spent on your boat with the children, being woken because you found the anchor had slipped, and then the wonderful show that the balloons made as they rose into the sky as we made our way back. Also the bay we visited, when the wind whipped up to what I think you described as 'washing machine water', and gave us a bit of a rocky ride in what seemed such lovely weather. Our introduction to Japanese food, with I think a conjuror providing some entertainment as we ate.

Discussing the night on your boat with the girls, Lisa reminded me that there was also an incredible display of 'shooting stars' before we went to bed, followed by the balloons next morning. (Not sure if you use the phrase, but shooting stars is 'English' for meteorites). And when you were at our house, as well as throwing the football, you tried to teach me the finer points of pitching a baseball – by throwing our home-grown apples at a tree trunk. I remember you being a rather talented pitcher!

Claire just mentioned the restaurant you took us to that Paul Newman regularly ate in, and I recall the story of his having been with Robert Redford when they left a car in the Greenwood car park. Another photo we have is of the four Mahers on your boat, that you had mounted on card, and which still sits on our sideboard in the lounge.

We also recall your call when the armed police were crawling over the roofs opposite your hotel bedroom, how nervous you were about getting to your flight the next day, and how we had a taxi driver we knew collect you. Also I recall the story of you alighting from a boat and kissing the ground, though I can not remember what had happened. Many experiences, adventures, and good memories - of both London and Connecticut. (Not forgetting Frankfurt, and among other things standing in front of Colonel Gadaffi's picture at the Libyan stand and falling about laughing, perhaps as retaliation to your experience in the Cavendish Hotel).

Having looked back, let us hope President Obama and the initiatives being shown around the world will indeed lead us to a brighter future than we seem to be currently facing.

Thanks for the memories Bob!

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Swimming against the deflationary tide

There was a small, unobtrusive article in today’s Wall Street Journal: “A Deflated Fed Battles to Keep Prices Up”

Here are the bullet points:

* “In March the consumer-price index slipped 0.4% below its year-earlier level, the first decline in over 50 years”

* “It is hard to imagine [consumers] returning to their spendthrift ways anytime soon”

* “Falling prices would make it tougher for borrowers to pay off debt, leading to even more defaults and even tougher lending standards”

* To fight back… “the Fed could buy the Treasuries issued to finance such moves. In practice, that is like printing money and handing it out to households, and it is pretty much what is happening now.”

* “When the fight is between falling prices and the Fed, it is hard to predict which will prevail.”

Add to this mix, 30-day T-Bills now yield nearly zero (0.02%). Soon, one may have to pay the Treasury to hold short-term deposits, but nonetheless if deflation persists or worsens, equities and bonds will not be able to compete with cash. Everyone is expecting inflation as a consequence of government spending, but prolonged deflation would be a Black Swan with potentially serious consequences. Gold fell more than $13 an ounce today, below a technical support level, another indication that inflation may not be the main worry.

A Bridge For the Ages

Perhaps there is a time and place for every book. Some are instant successes while others are discovered and appreciated or even become classics long after the author is deceased. Similarly, there is a time or place for a particular book in a reader’s life. For me, I should have read the one I recently finished, David McCullough’s “biography” of the Brooklyn Bridge (The Great Bridge, 1972) when I lived in Brooklyn during the 1960’s. I say “biography” rather than history as after reading his work, it feels like a living, breathing bulwark, a creation for the ages, one that was built while New York was just beginning to become a vertical city. When it was built, its 275-foot towers dwarfed everything in New York and Brooklyn, except Trinity Church, the tallest structure in Manhattan when it was built in 1846, at 281 feet. But the bridge’s two towers are massive as well.

Over the years, New York, and Brooklyn, grew around the bridge, and by the time I lived in Brooklyn, to most New Yorkers it was just part of the skyline. Although I appreciated its architecture, particularly the few times I had crossed the bridge on its walkways, I confess I was somewhat oblivious to its extraordinary engineering (particularly for the time) and its intricate history. After college in Brooklyn, I lived mostly in downtown Brooklyn, at 175 Willoughby Street and also at 234 Lincoln Place in the Park Slope section. After Chris was born in 1965, a favorite destination for a Sunday walk was the Brooklyn Heights Promenade, the Brooklyn Bridge rising majestically at the north end.

Oh, had McCullough’s magnificent history been written before then. I might have had a greater appreciation for how the bridge transformed the city and the engineering genius and architectural greatness of the structure. McCullough writes a biography as a novel, putting the reader into the times and the minds of the main characters. It is his later work, such as his Pulitzer Prize winning biography of John Adams that is leading me to his earlier histories. Here is his finely crafted description of the completed bridge, prose worthy of any novel: “The very shabbiness and stunted scale of the old neighborhood beneath the tower worked to the advantage of the bridge, which by contrast seemed an embodiment of the noblest aspirations, majestic, heaven-directed, lifting into the light above the racket, the shabbiness, and the confusion of the waterfront, the way a great cathedral rises over the hovels of the faithful. And the twin archways in the tower, seen from the street level, looked like vast vacant windows to the sky. For a child seeing it at night, the tower could have been the dark and mighty work of medieval giants. Where on earth could one see so many stars framed in granite?”


The building of the bridge is a microcosm of everything that is great and deplorable about mankind. John Roebling, a German born engineer and builder of The Roebling Suspension Bridge, spanning the Ohio at Cincinnati, completed plans for the Brooklyn Bridge but an accident led to his death before work commenced in 1869. His son, Washington Roebling, also an engineer, took over the plans and the responsibilities of the bridge, but during the construction of the massive foundations – to the depth of almost 45 feet on the Brooklyn side and 78 feet on the New York side – he suffered the effects of the bends from being in one of the huge caissons that had to be constructed and sunk for that purpose. As a consequence, he had a nervous condition and supervised the remaining construction from home on Brooklyn Heights. He did not even have the strength to attend the opening (his wife, Emily, was his steadfast emissary for such occasions). Meanwhile he had to contend with charges of kickbacks (his family owned one of the suppliers of steel cables) and a changing political scene ranging from Boss Tweed to various showdowns with politicians trying to grab headlines for themselves. He was even asked to resign at one point; he refused and insisted they (the Directors of the New York Bridge Company) fire him, which he knew they dared not. Throughout it all, he survived to build a bridge for the ages. It enjoyed its one-hundredth birthday anniversary in 1983. Engineers have estimated it could last another one hundred before the cables have to be replaced and if they are, perhaps the bridge will go on forever.

Although I still visit New York occasionally, I have no reason to go downtown, other than, now, traveling on the East River by boat. We brought our own boat up from the Chesapeake some fifteen years ago, passing under the Brooklyn Bridge with the World Trade Towers rising in the background. It would have been inconceivable that either landmark could be gone during my lifetime. But they both go on in my mind’s eye, with wonder.


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When a man is tired of London…

...he is tired of life. Samuel Johnson uttered those famous words to his biographer James Bosewell some two hundred and thirty years ago. I’m still basking in the glow of President Obama’s and First Lady Michelle’s London visit to attend the G-20, replaying in my mind the images of London, our President’s news conference and Michelle’s moving visit to a girls school in Islington, north London.

If I could live in any place other than where we have, I would choose London. I often visited there during my career usually to confer with our distributor, Eurospan, run by my late dear friend, the charismatic Peter Geelan. I would also see numerous UK publishers with whom we traded copublications, or go to the London Bookfair, or stop by London on my way to the Frankfurt Bookfair.

Frequently Ann would accompany me for the London part of the trip so we managed some vacation time there as well. After staying at several London hotels, including the Dorchester where we had to nearly pole vault into our bed at night, we sort of settled at The Cavendish, which in the Edwardian era was run by Rosa Lewis, the infamous “Duchess of Duke St.” Located across from Fortnum and Mason on the corner of Duke and Jermyn Streets, it is ideally situated near Trafalgar Square, St. James and Piccadilly Circus, the heart of London’s great theatre district where we went as often as our schedule allowed. So it was at this hotel where I would meet Ann during my business travels, and later, we brought Jonathan as well, the first time as young as 14 months old. Here Ann is stepping out of a London taxi having just arrived for one of those visits.

We were at the Cavendish when a young British policewoman was killed in 1984, shot by someone from the nearby Libyan Embassy on St. James Place. Between the Irish Republican Army threats and other clouds of terrorism, traveling in London was sometimes filled with anxiety, but the British people take such adversity in stride. The Cavendish became an armed camp during the standoff with the Libyan Embassy and right outside our window, which had a view to the Embassy, there were police sharpshooters. We slept on a mattress on the floor that evening, along with 8-year-old Jonathan, all of us anxious to stay out of the line of fire. We were leaving the following morning and that standoff lasted at least a week longer.

I treasured going to Eurospan’s offices at 3 Henrietta Street facing the venerable Covent Garden. This area is rich in literary tradition. Number 3 had housed the publishing home of Gerald Duckworth, Virginia Woolf's stepbrother and no doubt Henry James and John Galsworthy had visited as well, as Duckworth published both. Jane Austen’s brother Henry, a banker, lived at 10 Henrietta Street and she had stayed there when in London, saying the house was “all dirt and confusion, but in a very interesting way.”

The scenes from My Fair Lady that were filmed in Covent Garden were right outside the door of 3 Henrietta Street and, according to Peter, a scene from Alfred Hitchcock's 1972 film Frenzy was made in the building itself. As per Wikipedia, “much of the location filming was done in and around Covent Garden and was an homage to the London of Hitchcock's childhood. The son of a Covent Garden merchant, Hitchcock filmed several key scenes showing the area as the working produce market that it was. Aware that the area's days as a market were numbered, Hitchcock wanted to record the area as he remembered it….The buildings seen in the film are now occupied by restaurants and nightclubs, and the laneways where merchants and workers once carried their produce are now occupied by tourists and street performers.”

Of course, I remember when Covent Garden was a public square mainly devoted to the fruit and vegetable market, but in its transformation to today’s tourist attraction, its character was mostly retained. Eliza Doolittle might still recognize it while selling flowers from the portico of St Paul's.

While meetings with Eurospan would easily last the entire day, there was always time for fun in the evenings, sometimes a party at the offices itself, or at Peter’s flat, typically ending in a crowd moving on to dinner at a nearby favorite restaurant. And in those days, and since, London has some of the best food in the world if you’re the guest of someone in the know. When I retired, Peter’s son, Michael who took over the business with his partner, Danny, who was in charge of finance, presented me with a montage of photos of those years, which I proudly display on my bookshelf next to my desk.

When Jonathan was along, Ann and I made it a point to journey by underground to Pinner in west London to visit Danny and his family. Over the years we became close to them and they visited us in the US as well. When my older son Chris, who was a superb high school soccer player, was invited to play in Europe, he stayed with their family and visited English football clubs with Danny, who played competitive amateur football.

Here we are with Mum (Danny’s mother), his wife, Pat, and their two beautiful daughters, Claire and Lisa. I can still see them all in my mind’s eye, as they were in the photograph here skipping down the streets of Pinner, so reminiscent of the streets of Kew Gardens near where I grew up, obviously modeled after these London environs. One year I hand carried Cabbage Patch dolls for his girls so they would be the first in the UK to have the “prestigious” dolls. When they were introduced in the early 1980’s around Christmas time in the US, there were long lines and even fistfights to get one. Ann was not to be messed with though when she waited on line for them at a local toy store before we journeyed to London.

So I watched the Obama news coverage with a mix of nostalgia and pride, reminded not only of the special kinship the United States has with the United Kingdom but also of my own close personal ties. It was my fervent hope that as President, because of his political views, his multicultural background, and his leadership abilities, Obama would help repair what, by any objective measure, was diminished respect for the United States abroad.

What better place to start than London town? I had not anticipated what First Lady Michelle would bring to the table. Her speech to the Elizabeth Garrett Anderson School, her genuine, heartfelt emotion, and the outpouring of love to her resonates with reciprocal devotion. And who could not be impressed by the arm in arm embrace with the Queen?

Repairing a tarnished reputation takes time, it takes mutual respect; and if the G-20 accomplished nothing else, it seems to have established the right direction. Perhaps a new sense of confidence begins to percolate the world economy as well because of agreements made at the G-20. So much remains to be seen on that score and I have been pessimistic by the accelerating debt that is being incurred. But as economics relates to trust, in the system, and between nations, this may be a start to break the vicious cycle of gloom and doom.

I was struck by President Obama’s news conference, where he seems so much at ease, affable, and his responses clearly belie the attacks by some of his critics as his being teleprompter dependent (as if his predecessor was not). I conclude with the question that was posed by Jonathan Weisman, the Washington Post Congressional reporter, about America’s standing in the world and our President’s reply. It’s the kind of truth that does inspire the “hope” that became a campaign mantra.

Q: Thank you, Mr. President. During the campaign you often spoke of a diminished power and authority of the United States over the last decade. This is your first time in an international summit like this, and I'm wondering what evidence you saw of what you spoke of during the campaign. And specifically, is the declaration of the end of the Washington consensus evidence of the diminished authority that you feared was out there?

OBAMA: Well, first of all, during the campaign I did not say that some of that loss of authority was inevitable. I said it was traced to very specific decisions that the previous administration had made that I believed had lowered our standing in the world. And that wasn't simply my opinion; that was, it turns out, the opinion of many people around the world.

I would like to think that with my election and the early decisions that we've made, that you're starting to see some restoration of America's standing in the world. And although, as you know, I always mistrust polls, international polls seem to indicate that you're seeing people more hopeful about America's leadership.

Now, we remain the largest economy in the world by a pretty significant margin. We remain the most powerful military on Earth. Our production of culture, our politics, our media still have — I didn't mean to say that with such scorn, guys ... you know I'm teasing — still has enormous influence. And so I do not buy into the notion that America can't lead in the world. I wouldn't be here if I didn't think that we had important things to contribute.

I just think in a world that is as complex as it is, that it is very important for us to be able to forge partnerships as opposed to simply dictating solutions. Just a — just to try to crystallize the example, there's been a lot of comparison here about Bretton Woods. "Oh, well, last time you saw the entire international architecture being remade." Well, if there's just Roosevelt and Churchill sitting in a room with a brandy, that's a — that's an easier negotiation. But that's not the world we live in, and it shouldn't be the world that we live in.

And so that's not a loss for America; it's an appreciation that Europe is now rebuilt and a powerhouse. Japan is rebuilt, is a powerhouse. China, India — these are all countries on the move. And that's good. That means there are millions of people — billions of people — who are working their way out of poverty. And over time, that potentially makes this a much more peaceful world.

And that's the kind of leadership we need to show — one that helps guide that process of orderly integration without taking our eyes off the fact that it's only as good as the benefits of individual families, individual children: Is it giving them more opportunity; is it giving them a better life? If we judge ourselves by those standards, then I think America can continue to show leadership for a very long time.

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Waiting for someone to explain it

The global financial crisis: life imitating art? It’s hard to see the connection, but as with any great work of music or literature, we could be smack in the development section, when themes or characters, introduced in an earlier time, are permanently changed and emerge as something very different. This period in the financial crisis is being played out with the dissonance of a Shostakovich, or the absurdity of postmodern literature. As Eugene Ionesco wrote in the program notes for his play The Chairs, “as the world is incomprehensible to me, I am waiting for someone to explain it.” Perhaps we all feel the same way about the global financial crisis. It would indeed be an absurdity to conclude that after these convulsions, it will be business as usual.

But the day-to-day machinations of the market, bailouts, and politics obfuscate the possible outcomes. Are the capitalistic underpinnings of the new world economy at an inflection point, to be changed for better or worse after this economic turmoil has passed? For some insight into a speculative, but well argued bigger picture I give a hat tip to my friend Bruce who put me onto the article After capitalism written by Geoff Mulgan and published in the UK Prospect Magazine.

Capitalism, in spite of several boom and bust cycles has survived, although the US economy has changed drastically, abandoning some of its manufacturing capabilities to cheaper overseas labor, focusing on intellectual capital, and becoming more of a service oriented consumer economy. It is now just a part of a highly interconnected world economy dominated by multinational corporations. With an insatiable appetite for goods and energy, however, we’ve become a nation of borrowers, living on leverage and the largess of countries willing (still) to buy our debt.

At the same time the nature of capitalism has changed. The financial institutions that once existed to solely support industry are now an industry onto itself, trading derivatives and exotic financial instruments and, with this fundamental change, perhaps we’ve arrived at another precipice of “creative destruction,” Joseph Schumpeter's term for the consequence of radical departures.

Mulgan argues that capitalism is sure to change but will not disappear. Instead, it will not dominate in our culture as it did in the “greed is good” era. Capitalism has been adaptable but in some ways has sown seeds of its own destruction. He cites the “collapse of the savings rate—to around zero by 2007 in the US when it needs to be closer to 30 per cent to cope with ageing…a stark symptom of a capitalism that has lost the ability to protect its own future.”

Then, in retrospect, the Great Depression can be seen as both “a disaster and an accelerator of reform. One implication of [Carlota] Perez’s work, and of Joseph Schumpeter’s before her, is that some of the old has to be swept away before the new can find its most successful forms. Propping up failing industries is in this light a risky policy. Perez suggests that we may be on the verge of another great period of institutional innovation and experiment that will lead to new compromises between the claims of capital and the claims of society and of nature.”

Mulgan postulates, “If another great accommodation is on its way, this one will be shaped by the triple pressures of ecology, globalisation and demographics.” This will lead to changes away from consumption to savings and will underscore capitalism’s need to come closer in balance with nature rather than its destruction. Capitalism, in effect will become the servant rather than the master. But “it remains to be seen what political visionary will seize upon ‘servant capitalism.’ (Obama should be ideally suited to offering a new vision, yet has surrounded himself with champions of the very system that now appears to be crumbling.)”

Where today’s seismic financial activity will settle is still a black hole of the unknowable, but for an interesting macro view on the future of capitalism, check out Mulgan’s piece.
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