At the 100 day mark of President Obama’s Administration, he is getting high marks from the American people as measured by approval ratings. As someone who historically votes Republican but voted for him, I’m not surprised to see the President’s approval ratings well above those of his policies.

While Mr. Obama speaks about bipartisanship politics, the fact is he has boldly staked out a Democratic vision for the government which is very involved in the interactions of the economy. He has done this more over the heads of Republican lawmakers than with them.

While the media class talks incessantly about the need for working together, I personally see nothing wrong with the party in power doing its best to achieve those goals it believes in…….even if that means not compromising their values for the sake of bipartisanship.

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I’m 49 years old and most of my friends are guys I’ve know since grade school. I think of buddies I met at college or from my first job as being more recent friends. One of my standard jokes is that I either have lots of long time friends because I’m pretty good at relationships…..or because nobody else will have me.

Like so many boys, my life as a kid revolved around sports. While I played in various leagues, the most fun I had playing sports was with the guys from school. Back in 4th, 5th, or 6th grade, whether it was before Collier Elementary School started, at recess or during lunch hour, there was always a game to be played.

A couple months ago I was talking on the phone to my friend Steve. When I was in 4th grade, Steve used to sit on the seat of my bike while I peddled us from place to place. “Let’s go to Duggan’s” he’d say.  Or “hey, you think anybody is over at Mutter’s house?”  Or “come on, let’s go to Taft High and play basketball.”

During the course of the conversation we had an inspired idea. Since we’d both be turning 50 soon, we should host a sports reunion with our elementary school mates.

Thus began 2 months of searching and preparing for the day when guys from our elementary school grade would once again hang out.

As I thought of the reunion, I realized that to me, the early 1970’s were a special and unique time. Muhammad Ali fought Joe Frazier. Billy Jean King played and beat Bobby Riggs. The Miami Dolphins had a perfect season and won the Super Bowl. Richard Nixon opened the door to China and the Watergate building was broken into. I believe that to a great extent, the early 1970’s closed the chapter on the post war period and laid the foundation for America as it is today.

The days rapidly passed and the reunion was set for the next day. Would guys really show? What would people look like? Would anybody care about revisiting a time that no longer existed?

Although half a dozen guys couldn’t make the reunion due to scheduling conflicts, at 12:00 on the anointed Saturday, twenty men arrived at Rochin’s private Malibu beach club . A couple guys flew in from San Francisco. Several drove up from San Diego. The prize went to Eric who came down from Seattle.

As soon as we began talking, we started to laugh. We looked at old class pictures. We ate burgers, drank wine from 1972 brought by Andy, and listened to music from that era Doug had burned onto CD’s. Three hours went by as if it were a moment.

Two of the guys, great friends for decades, spoke privately and buried the hatchet regarding a ten year old disagreement that caused an estrangement.

Okay, time to get active. Cones were placed on the beach and an advanced version of Dodgeball was begun. Yikes, Neil is going to throw at my ankles. Darn, Woody just got nailed. Yippie, we just took out Richard. On it went, as if 49 year old guys could pick up a game of Socko as if it were yesterday.

Next came the stories of how times have changed. We spoke of a childhood unlike that of kids growing up today. Jim mentioned how he used to walk himself to kindergarden. The rest of us were appalled. Afterall, I didn’t walk the mile to school by myself until I was 8 years old.

Tom remembered the story of a game we called car chase. One of the dads drove his car around the large culdesac trying to hit the kids of the neighborhood. The kids tried diving out of the way to avoid being killed.

One of the guys recounted when, on the first day of school, his teacher told him he’d receive no higher than a C- in the class due to the terrible behavior of his older sibling. Another of the guys said “you think that’s bad, I got taken into the back and paddled my first day of school because the teacher so hated my three older brothers.”

Finally Grant told the story of when he had a bet with a PE teacher who was a fond of paddling kids for the slightest infraction. My friend bet this teacher he could beat him one-on-one in basketball. The student’s victory gave him two paddles upon the teacher’s backside.

As I laughed myself silly, the call went out to hit the beach and play football. While guys rotated in and out we played 8 men to a side. Most of the guys hadn’t played football for over 30 years. Katz scored the only touchdown.

The time went by as quickly as many of the years seemed to have come and gone. In retrospect, perhaps the thing that stands out the most is that nobody asked “what I did”. It wasn’t so much that a guy who might have been a brain surgeon didn’t want to embarrass someone who might be a janitor. It was more that it just didn’t matter. Not that people didn’t talk about their kids, or their families, or in many cases their divorce.  But the day was about the past, and how someone earned their living had no impact on the time Mrs. Cassidy got in a fight with that kid named Mark and put him into a headlock.

At one point I reminded my “homie” of the day our 7th grade teacher, sick of my friend’s misbehavior, tossed him into the small coat closet and wouldn’t let him out until the end of the period. He barely remembered that incident. However, when I refreshed his memory about the teacher, he recited a poem called Congo that he still remembered from that class. Wow I thought, poetry.

And so it was. Over seven hours passed before the first guy left. Finally, as the sun was going down we all shook hands and hugged….the world of 2009 awaited us. However for one brief magical afternoon, it was as if time stood still.

Excerpt from Splendor in the Grass by Walter Whitman

What though the radiance which was once so bright
Be now for ever taken from my sight,
Though nothing can bring back the hour
Of splendor in the grass, of glory in the flower;
We will grieve not, rather find
Strength in what remains behind;
In the primal sympathy
Which having been must ever be…”

The 1972 Collier Elementary School sports Reunion (minus Neil and Hugh)

Irena Sendler

There recently was a death of a 98 year-old lady named Irena Sendler. She was a small woman, only 4 foot 11 inches tall.  But she had a large impact on the lives of many.

During WWII Irena got permission to work in the Warsaw Ghetto as a plumbing/sewer specialist. She had an ulterior motive  … she knew what the Nazi’s plans were for the Jews. (Being German.)

Irena smuggled infants out in the bottom of the tool box she carried.  She also carried in the back of her truck a burlap sack for larger kids.  To quiet the sounds of the children, Irena trained her dog to bark when the Nazi soldiers let her in and out of the ghetto. The soldiers of course wanted nothing to do with the dog and the barking covered the kids/infants noises.

During her time of doing this, she managed to smuggle out and save 2,500 kids/infants. When she was caught, the Nazi’s broke both her legs, arms and beat her severely.

Irena kept a record of the names of all the kids she smuggled out.  She wrote the names down on a list and stored them in a glass jar buried under a tree in her back yard. After the war, she tried to locate any parents that may have survived and reunited the family. Most of course had been gassed. The majority of the kids she helped were placed into foster family homes or adopted.

In 2007 Irena was up for the Nobel Peace Prize. She did not win. She often said “I did nothing big, it was normal”.

The Noble Peace Prize went instead to Al Gore, for a slide show on Global Warming.

Unless you are a bit of a news junkie, you probably were unaware that on April 15th 2009 over a quarter of a million Americans protested against taxes and government spending policies. The idea for a Tea Party came from a spontaneous outburst by CNBC financial analyst Rick Santelli.

I’m talking about hundreds of protests that occurred in cities all throughout the United States. The protests were peaceful, and predominantly the result of taxpayers at the grass roots level wanting their voices to be heard.

While it is true that Fox News enthusiastically covered the tea parties once they began, the protests were ideological and not partisan per se.  In fact, more than one Republican politician was booed at various events.

The coverage by the main stream media, such as it was, seemed dismissive of American citizens petitioning their government not to borrow money we don’t have while raising taxes to pay for the debt. Sadly, the news outlets that bothered to cover the events sophomorically seemed to focus more on the word “tea” and it’s slang usage than on the issues at hand.

I believe there is potentially great significance that can be gleaned from the Tea Party protests.

One thing the tea parties signal is that grass roots political efforts in America are the domain all political persuasions.  Over the past 40 years the left has been far more likely to organize a protest rally than has the right.  To some extent, the right has enjoyed the notion of being an unseen “silent majority”.  Although some partisans are attempting to cast the tea parties as centrally organized by right of center political actors, the reality is that these events were predominately decentralized bottom up events. I believe the Tea Parties could signal conservative political protests becoming a more regular part of the political landscape in the years to come.

Cincinatti Tea Party

Secondly, new technology played a key role in “organizing” the events.  There is quite a buzz within the political world about the role of Twitter and other social media tools that helped get the word out and drive people to areas where the tea party protests were to be held.

The last couple of Presidential election cycles saw Democrats successfully use the “new technology” of the internet to raise huge amounts of money. Prior to that, Republicans were on the cutting edge of new technology when they used direct mail to raise money and grow their base. The ideology and party that best uses social media marketing could have a decisive political weapon at their disposal.

To me, the Tea Parties are a further example of the communications revolution and how new information technologies such as this blog are effecting the nation’s politics and policies.  Although most people don’t know the story of the Tea Parties, the ability of traditional media to choose what is deemed worthy of being “news” is weakening every day. Whether you agree or disagree with the protesters, the Tea Parties were an event that warranted greater coverage.  Traditional news outlets do themselves no favor by not covering important events simply because they disagree with the politics.

Here is a Youtube clip of Mr. Santelli’s “Rant of the Year”.

Scrub a dub dub, three pirates and our captain in a tub. Bing, Boom, Bang. The pirates got the rub.

While the United States has a vital national security interest in protecting the sea lanes, the most important ramification of American actions off the coast of Somalia were not directed towards piracy.

The eyes of Iran and  Korea in particular….and Al Qaeda, Syria, Russia, China etc were riveted on the hijacking and how the Obama Administration would handle an international “crisis”. I think they saw several clues as to how our President will deal with these types of issues.

First off, the administration wanted to control the story. In this instance, they wanted to give the event a very low public response. They did not want the compelling human interest story of the captain’s bravery to turn into a high profile hostage crisis like the one Jimmy Carter dealt with. (Obviously there are vast differences between state organized kidnappings and rogue pirates associated with a failed state)

As much as possible, our new President wants the media to be the tail and be wagged, and not have it the other way around. At one point, Obama was asked by a reporter to comment about the pirates during a talk on housing. Obama brushed aside the question because he wanted to control both the conversation and the timing of the discussion.

Secondly, Mr. Obama has consistently shown the ability to act both decisively and practically when the moment demands. View his ultimate dismissal of Reverend Wright, his going back on his pledge regarding campaign financing, his keeping most of Bush’s terrorist program intact despite rhetoric to the contrary, or his stance to leave a significant reserve force in Iraq (50,000 troops) while escalating the war in Afghanistan. Barrack Obama has shown repeatedly that he has the capacity to do what is necessary—when it is necessary.

I believe the biggest national security concern of the next several years will be nuclear proliferation, starting with Iran.

The President has dropped some preconditions so as to enter into dialogue with Iran over their nuclear ambitions.  I say fine, talk away. However, “everyone knows” that Iran is using diplomatic conversation to gobble up time while  moving towards going nuclear.

Obama’s Eruropean trip laid bare the absurd pretense that disagreements between nations need not exist if only there is more communication.  Obama failed at the G-20 talks to gain either coordinated worldwide stimulus programs or more troops for Afghanistan.  European nations saw things differently and acted in what they perceived to be their own best interests.  Remember, Obama was communicating with our friends in Europe, not our foes in distant lands.  Diplomacy and talking is important, but its reach is not unlimited.

Whether we like it or not, Iran and America view each other as rivals and enemies.  The reason is—-because we are rivals and enemies. Diplomacy and talking is essential.  However, when nations have very different goals, talk often becomes cheap in the face of vital interests.

An old saying in international relations theory is “a country’s geography is its history”. A corollary is that a nation’s national security interests are deeply rooted in its culture and capabilities. The government of Iran views itself as heir to the mantle of Middle East hegemon. No amount of talk is going to change that simple fact.  On the other hand, the United States has vital interests that transcend presidencies and the passing of time.

Just as when Nikita Khrushchev met John F Kennedy and wrongly sized him up to be weak, Iran and Korea are sizing up our new President. They are looking for clues to whether or not Mr. Obama has the internal fortitude to make the tough decision. They are looking to see if he recoils from international confrontation. They are trying to determine if he would authorize airstrikes or military force intended to thwart their ambitions. In short, they are searching for clues as to whether Obama is willing to “pull the trigger” when push comes to shove.

There are three Somalian pirates that know the answer. But then again, dead men tell no tales.

George Orwell said “he who controls the present controls the past. He who controls the past controls the future.”

The political fight over the history of what—and who—caused the Great Recession is being waged on all fronts.  To better understand the housing crisis,  you need to understand the politics involved.  Both political parties are looking to avoid paying an electoral price for actions that may have helped lead to the economic downturn.

The main stream media, with their enormous reach, powerfully tell how Bush Republicans eliminated key banking regulations to please the interests of business. Thus Republicans are painted as the party whose anti-regulation stance was essential in allowing the banks to destroy themselves……and therefore require huge amounts of bailout money.

The same media mostly portrays Democrats as regulation loving politicians who altruistically helped less fortunate Americans achieve the dream of home ownership by smartly using the power of government.

The reality is that Democrats were against many key regulations that would have kept FNMA/Freddie Mac’s books in order. Powerful Democratic politicians consistently shielded the Government Sponsored Entities (GSEs) from the oversight that would have lessened the bubble and might have prevented their needing to be bailed out.

As more “traditionally unqualified people” received mortgages, the bubble grew bigger and bigger.  Democrats pushed FNMA,  FHLB, and Freddie Mac to continuously lower loan criteria so more voters would qualify for subsidized mortgages.

It is not my intent to show one party in a lesser light than the other.  However, the “truth” of what happened is highly complex.  Both parties and many people can be faulted as villains or naive do-gooders. The issues, facts and politics are what my three explanatory posts have been intended to address.

This partisan video shockingly shows a Congressional Hearing that sheds a much needed light on the politics of government aided housing programs.  The video starts a little slow but gathers steam with every passing clip. Understanding the politics of regulation is one of the keys to knowing how/why housing was “allowed” to crash the economy.

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The economy has tanked and you’ve heard credit default swaps, subprime mortgages, and collateralized debt obligations are at the heart of the problem.  Yet you wonder, what the heck are those things?

This humerous and informative video by Jonathan Jarvis is called The Crisis of Credit Visualized.  He is a student at the Art Center of Design and this is his graduate thesis.  I found it on the blog Hidden in France.  I believe it is an excellent way to learn how/why the financial system acted as it did.

Although the video has two parts (seven minutes and three minutes) it is a quick and interesting watch.  It tells in easy to understand language the story of  what caused our financial system to crash.

The world economy is projected to contract for the first time in 60 years according to the International Monetary Fund. Much of the planet blames the United States.  Whether the incentive was greed, political opportunism, or the altruistic attempt to help citizens achieve the American Dream of home ownership, many different factors contributed to the crisis we are now in.

Here is my list of  “villains” and “do-gooders” whose actions, inactions and policies helped create the housing crisis.  Decide for yourself which camp the various politicians, companies and agencies belong in.

POLITICS & GOVERNMENT POLICIES: Congressman Barney Frank, Maxine Waters, Jesse Jackson’s Rainbow Coalition and other political actors incessantly pressed bankers to lower credit worthiness criteria so that more people would qualify to get subsidized home loans. FNMA and FREDDIE MAC were politically directed companies whose raison d’ entre partially became helping “previously non-qualifying people” receive home loans. Those kinds of loans have a nickname…..subprime mortgages.

Alan Greenspan and the Federal Reserve kept interest rates low for far too long after 9/11. This policy of easy money led to a potent recovery, but also gave institutional investors an arbitrage incentive to borrow and push the limits of risk taking.

Congressman Phil Gramm pushed through the repeal of Glass-Stegall, the Depression Era legislation that protected the economy from having different types of banking activities concentrated within one company. The repeal was supposed to create efficiencies and stabilize revenue flows.  However, once commercial banks, investment banks and insurers merged,  systemic risk greatly increased with the creation of the “too big to fail” institutions that are today receiving so much bail out money.

The Community Reinvestment Act was signed into law by President Clinton. It requires supervisory agencies to “encourage banks to meet the credit needs of its communities”.  Thus, government began down the path of using its power to push banks to make loans to lower income people who were poor credit risks.

When Franklin Roosevelt was elected in 1932 he enlisted Joe Kennedy to head the new Security and Exchange Commission. (SEC) It was thought that the best way to prevent fraud was to employ someone who knew all the dirty tricks from personal experience. The first thing JFK’s dad did was create the uptick rule. This rule prevented stocks from being shorted unless a stock’s last sale price was higher than the previous trade. This helped prevent short sellers from being able to drive a stock into the ground. Under Christopher Cox,  the SEC eliminated the uptick rule in 2007. The elimination of the uptick rule helped hedge funds and short sellers drive stocks lower, which led average investors to also sell those stocks. This created an environment that saw many shorted stocks lose over 80% of their value in less than six months.

Government regulators allowed banks to greatly increase the amount of leverage that they employed. By letting investment banks such as Lehman Brothers use leverage ratios that exceeded 30-1, small changes in circumstances led to large profits—-and ultimately huge losses.

Bank regulators use accounting rules such as “mark-to-market” to ensure that banks have sufficient capital reserves. However, when markets occasionally become illiquid, mark-to-market rules can force enormous write-downs and lead to a death spiral. By not suspending mark-to-market rules for illiquid assets, the accounting rules helped freeze lending and thus the entire financial system.

RATING AGENCIES:  Moody’s and Standard & Poors did an absolutely terrible job of assessing the risk of the various financial instruments created by Wall Street. Ultimately the rating agencies gave their highest AAA safety rating to investment vehicles that had significant amounts of risk. These high ratings led investors to buy massive amounts of paper that was wildly mispriced—and never would have gotten sold without the rating agency’s blessing of safety.  This in turn led to the creation of even more deals—-with their associated fees for the rating agencies of course.  Adding insult to injury, the high credit ratings of risky investments meant that adequate reserves were not set aside by insitututions to cover events of default.

BROKERS AND LOAN ORIGINATORS:  The historical relationship between a mortgage loan and its owner became decoupled with the development of complex financial arrangements. Previously, a bank loaned money to a borrower and owned the loan themselves. When instruments were developed so that the initiator of a loan no longer was its owner, it created a situation whereby loan originators had no stake in whether or not the loan paid or defaulted. This led mortgage brokers and their employers to authorize lending money to people who were not qualified. “Liar Loans” were given without verification of an applicant’s financial assertions. As far as the brokers were concerned, they got their commissions and that was all that mattered. Any risk associated with loaning money to people not traditionally qualified was another person’s problem.

BANKS AND THEIR CEO’s:  The officers running financial institutions did a pathetic job of protecting their organizations from taking on far more risk than was prudent. I discussed why the “best and brightest” were guilty of almost incomprehensible business incompetence in my March 3rd post titled “The Rational Reason CEO’s Acted Negligently”.

WALL STREET:  A culture of greed is what drives both Wall Street and capitalism. Adam Smith’s invisible hand says people acting in their own selfish interests will lead to overall communal good. However, without appropriate restraints on people and institutions, short term incentives allowed Wall Street to play a game of Russian roulette with the world’s economy. Think of Lenin’s saying “a capitalist will sell you the rope to hang himself”.  In retrospect, the CEO’s of Bear Stearns, Merrrill Lynch, Citigroup, etc all went way over the line in allowing their near term greed to fog long term judgement. When Gordon Gecko said “greed, for a lack of a better word, is good”, he did so prior to society imprisoning him for going over that line.

AIG:  Another major component in the layers of idiocy that allowed the housing market to implode the economy was the belief that inordinate risk could be laid off at the doorstep of others. The insurance company AIG was counterparty to hundreds of billions of dollars worth of credit default swaps. (CDS)   Banks and investors thought they had bought involutable insurance against their assets defaulting, and thus had eliminated the risk of their leveraged investments. For their part, AIG thought that it was making virtually “free” money by insuring investments that rarely defaulted.  AIG insured an amount of investments that dwarfed its ability to pay and put aside a laughably small amount of money as reserves should claims arise. Allowing AIG to insure so much paper was a terrible regulatory gaff.  According to George Soros,  “AIG thought it was selling insurance on bonds, and as such, they considered CDS outrageously overpriced. In fact, it was selling bear-market warrants and it severely underestimated the risk.”

THE BUSH ADMINISTRATION: People now question why the government didn’t step in and stop the madness.  As housing prices went ever higher, even lay people spoke about the unsustainable housing bubble. Alan Greenspan testified in Ocotber 2008 that “those of us who looked to the self-interest of lending institutions to protect shareholder equity (myself included) are in a state of shocked disbelief”.  I’m not quite sure how the President was supposed to better access risk than the Executive Committees at the investment banks themselves. Yet as Harry Truman said, “the buck stops here”.  The economy imploded on Bush’s watch, and thus the President must share blame for not using the levers of government to rein in excess that in retrospect was so obviously about to rip apart our financial system.

UNQUALIFIED HOME BUYERS:  People of very average means bought houses they knew they couldn’t afford. Taking advantage of ridiculously low standards, people bought houses with low adjustable rate mortgages in the hope prices would rise and allow them to refinance their debt.  These actions increased demand for housing and helped lead to even higher housing prices.  The game was good as long as the musical chairs of rising housing prices held up.  When the music stopped, houses went into foreclosure and the world’s economy began to crash.

When I was a kid I played sports from first light till dusk. Year after year I’d go onto a field, court or diamond and run, pass, hit, or shoot. Then one day in my early 20’s, not too long after I graduated college and got a job, I suffered a traumatic event. I was playing hoops when I threw my back out.

Oh sure, I didn’t stretch appropriately before I played, but then I never did. And ultimately, there I was on the ground in pain, suffering an injury that would haunt me from that day forward.

From then on, every 6 to 18 months, I would throw my back out. I went to doctors and chiropractors.  I went to a physical therapist and an acupuncturist. I went to a specialist and a surgeon. I had x-rays taken and learned appropriate exercises and stretches. I took baths in the morning to warm up my muscles and in the evening I slept on hard mattresses.

In my early 30’s I even gave up playing the sport I was most passionate about—basketball—because every morning after playing,  my back and I would be bent over.   No matter what I did I continued to have issues with my back.

Over the past 5 years I began to become optimistic that my back had strengthen and that I might be getting past this most horrible of debilitating injuries. I continued to play sports as always, and the length of time between episodes began to get longer. I went 18 months without my back going into spasm. And then the next time was 18 months again. And then I went another year and a half between episodes.

Sadly though, my back and I are in the worst situation of our life. Up until a couple of days ago—and for over two weeks, I’d wake up each morning unable to get out of bed without extreme pain. It took me over 30 minutes of slow walking and gentle stretching to get to a place where I could walk without discomfort.

“Coincidentally” with the Great Recession threatening to become the Second Great Depression, things have been quite stressful.  The economy has dealt a brutal blow to my company’s revenues, and I’ll admit to feeling the weight of responsibility on my shoulders. Almost everyone I know has spoken with me about feeling a bit more on edge lately.   On the home front, my teenagers are acting age appropriate if you know what I mean.

In addition, over the past couple of weeks the pool equipment broke and a toilet overflowed causing a giant leak—-which led to the dining room ceiling needing to be replaced.  My daughter had a mini car accident and the water heater died.  The Dow Jones Industrial Average plunged to 6,500 and we’re in the midst of remodeling so as to create an attached guest house which can be rented for extra income.

I recently spoke about the situation with my father, who in his day played a lot of basketball and still plays tennis a couple times a week.  Interestingly, he told me that he also suffered extreme back pain during long periods of his life. He told me how he had to stand during important work meetings because sitting in a chair meant he might not be able to stand up after the meeting ended. He told me how on client appointments, he’d often ask where the supply room was located—–so that he could lay on his back and stretch even though he was wearing a suit.

I asked him how long it had been since he had last thrown out his back. He replied, “It’s been about 15 years.  In fact, it hasn’t happened once since I retired”.  Hmm, I wonder if stress has anything to do with it?