Sunday, March 15, 2009

Old White Men Need To Chew Gum


Obama's Reform Agenda: Is He Trying to Do Too Much? TIME Mar 11, 2009‎ Buffett was — and is — an Obama supporter, but he took to the airwaves on March 9 to try to seize the young President's attention away from health care and education and energy and refocus it back onto the economy. Warning that Obama's agenda has become too sprawling and provocative, Buffett admonished, "Job 1 is to win the war, the economic war. Job 2 is to win the economic war — and Job 3." He added, "You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat." The oracle's verdict was quickly endorsed by Jack Welch and Andrew Grove, retired CEOs of General Electric and Intel, respectively. And from Federal Reserve Chairman Ben Bernanke came this measured nudge: "Until we stabilize the financial system, a sustainable economic recovery will remain out of reach." ........ Obama fired back the same day. "I know there are some who believe we can only handle one challenge at a time," he said, invoking Lincoln's launch of the transcontinental railroad in the midst of the Civil War. "We don't have the luxury of choosing between getting our economy moving now and rebuilding it over the long term." Is the Worm Beginning to Turn? Buffett Throws Obama Under Bus RushLimbaugh.com (subscription) ‎Mar 10, 2009‎
Barack Obama has to walk and chew gum at the same time. That is his challenge. I understand these are tough times and there is only so much you can shove down the throat of the political system. But imagine America saying in World War II, we can make tanks, but no planes, because we got to prioritize. The current global crisis is of a gigantic magnitude, and it asks for a gigantic response. I happen to think the stimulus package is not big enough. Krugman echoes that sentiment, and the dude has a Nobel.

When Obama ran for president, there were people who were saying, he is too young, he can and should wait his turn. And I am like, you are right. If it is about Obama, the dude can wait his turn. 10 years from then he would still be younger than most. So why now? Why the urgency? Guess what, it was not about Obama, it was about America and the world. Obama could have waited, but not America, not the world. The time was now.

So if we are concerned about too much grey hair ending up on Obama's scalp, I say take it easy. Deal with this crisis, leave the big programs for the next president who might have more room for it all in eight years. Like Reagan said, hard work never killed a man, but why take a chance!

Barack Obama can afford to tackle one thing at a time. But the country, the world can not. He has to fight the Civil War, and he has to lay down the train tracks at the same time. He has to walk and chew gum at the same time. And I recommend the same to the old white men. I mean, old wise men.







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Friday, March 06, 2009

Making Sense Of A Mega Mess


What Went Wrong?

A financial 9/11 happened. The unthinkable happened. The unpredicted happened. Banks stopped lending money. The bottom fell. This is about the fourth time it has happened. Something like this seems to happen every 70 years. So it's a cycle. After each such crisis, there is major renewal and resurgence, and things are better than ever before.

What Really Went Wrong?

China lent big money to an American president to wage a war it should never have waged. It was a big time deficit war. There was flush cash in the American banking system. Elites in the not America countries seem to think money is safer on Wall Street. What did they know? Instead of investing locally they stash it away in the safe havens of Wall Street. But taking in money is only a small part of what banks do. They also have to lend money. That is how they make money. So they came up with really complex financial instruments: mortgage backed securities. So more mortgages means more such securities, more fees, more commissions. Suddenly there was this market for securities. People who could not afford homes were sold homes, because if more homes got sold, there would be more mortgage backed securities. House prices went artificially up. So the mortgage backed securities at those high prices became toxic once the prices on those houses went down. Obviously you can't just revise the prices to get them in tune with the new market reality. Demand and supply went out the window a long time ago. And because every banker and their cousin were doing this mortgage backed securities thing, when the crisis hit, people simply froze. What are you saying, that my assets are not worth what it says on paper? No way.

Japan had its own real estate bubble and a lost decade. This quarter the Japanese economy shrunk at an annual rate of 12%. That is huge.

Money And Basic Demand And Supply

Money is a resource. And it has to go where the need is the greatest, where the return will be the greatest. That would be the market way. Obviously creating a real estate bubble is not the best use of that resource.

For a long time I have felt weird about people's outsize confidence in real estate as a safe and sound investment item. The physicality of a piece of real estate really gets them. If nothing else, you got the land, you got the house. That seems to be the thinking. But what if the market price on your house went down by half, and you are still paying mortgage at the original price? Then where is the safety?

Big Demand In The Global South

Roads, bridges and broadband are needed everywhere. The returns on such investments are routinely high. You do BOOT, Build, Own, Operate, Transfer.

Inventing New Jobs And New Industries

That is where Japan comes in. You end up with all this flush cash, but if you as a society are not invested in the jobs, companies and industries of tomorrow, you are not growing. But you still end up with all that flush cash. So what happens? A housing bubble happens.

Transparency, Accountability

Those will go a long way.

A New World Order

That is sorely needed. Global rules of finance have to be set that are fair globally. They are democratic, they are transparent, they are inclusive of all countries.

We have to set up a regime such that private capital flows to the areas of greatest need and greatest return. Microfinance is really good business. If it gives a 10% return, that is to compete with a S & P 500 indexed fund. And it does. Actually better. So the market has to obey, and microfinance has to grow like crazy.

Investments in human capital in this day and age are way better than pouring money to create a housing bubble.

Flush cash asks for a much sounder global financial order.

Startup companies should be leading the green tech, infotech, basic infrastructure, and lifelong education themes, and globally so.

Monopoly?

If a few big banks can hold a national, a global economy hostage, were those banks too big in the first place? I think so.

What will the next generation of banks look like? If there can be tech startups, why not startup banks?



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