davidbau.com

World's Toughest Job

John McCain has the toughest job in the world.

A few weeks out from the election, 538 handicaps the race 91% for Obama. The Bush administration is in a death spiral and the nation is entering a second great depression.

Meanwhile McCain's job is to lead the Republican party. He is under the microscope, on the front page of every newspaper, running a campaign that goes against the fiber of his conviction. Every political advisor believes that his only slim chance is to rip into Obama with the kind of character attacks that McCain despises. McCain is losing the election in a public, painful way.

But when times are tough, true character emerges. Even though it would be easy to encourage the hateful rhetoric of the right-wing, McCain has started standing up to say this: We Americans may disagree, but we must respect each other first.

By drawing the line and demanding that we treat each other as human beings - and by saying these things before November 4th - McCain really is putting his country first.

Quick, Get a Mortgage

The feds needs to move quickly to do whatever bailout they are going to do.

Here's why - whatever the form of the bailout, it is inevitable now that some form of debt is going to be written off, and the only way to get your slice of the $700b will be to have borrowed money.

This mostly appears to apply to banks right now, but if ideas like John Kemp's proposal to mark down all mortgages by 20% are taken seriously, then this dynamic affects consumers too: anybody without a mortgage will look like a chump when all mortgage lenders are forced to take a haircut. The only way to get a free $20k is to have borrowed $100k first. This logic even applies if the only form of haircut is dollar inflation and currency devaluation.

So if you want to act like an irresponsible bank and take advantage of the collapse, then - quick - get a mortgage.

It's insane, isn't it?

Where Is The Excess Capital?

Wall Street friends have been saying that in the last few years there has been a noticeable excess of global capital. Investors in Asia and oil-rich countries have had too much cash and have been looking for places to park their money. That demand drove the invention of exotic investment instruments vehicles. Mortgage derivatives were just one of many ways for investors to put their money in a wider range of assets.

The same observation is fingered by some (here, William Wheaton) a key cause of the U.S. mortgages and housing bubble.

My question is this: now we've had a crash. Is the excess of global capital still looking for a place to park? Where will it go next? Or has the money just evaporated?

What After November 4?

Treasury Secretary Paulson is stumbling - he has his thumb in the dike when he should be bringing in the bulldozers.

• He took too long to demand bank equity, and when he did, he made the mistake of taking only nonvoting shares. He is handing out methadone without rehab.
• He has not drawn a line around banks that should fail. It would be cheaper and better to shoot a few small losers than to reward a few big winners.
• He's not doing anything to address the homes. Instead of pushing the FDIC further out on a limb, he should be putting out the fire by setting down some rules for overextended borrowers.

Paulson should be on his way out. The real question for me, now, is transition.

Between November 4 and January 20, the financial hurricane continues while we have a new President-elect and an outgoing Treasury Secretary.

Will the new President assert his authority? Can he? Who will be in charge?

McCain and Obama at Al Smith

This is what makes America great.

The Al Smith Dinner is a charity fundraiser for Catholic Charities.

Pictoral Subtraction

A couple ways to learn subtraction with pictures.

My second-grader's school is using Everyday Math "triangle fact cards" like this to review subtraction facts. You cover one corner and ask an addition or subtraction question depending on whether the dot is covered. One card tests three facts, and picking corners at random gives you a nice 2/3 bias toward drilling the harder subtraction facts. The triangle shows how addition and subtraction are related, so it's a nice drill.

Of course, there is only so much you can drill, so this morning over breakfast, we have been practicing addition and subtraction in-disguise while learning some geometry. Here is what we've been doing:

Draw any connect-the dot picture. The only rules are that anywhere a line begins, ends, or crosses another line, you have to have a dot. Here's a picture I drew.

This picture has seven dots and nine lines. It divides the paper into five regions (if you cut along every line, you would have five pieces), and there are two separate islands (components) of dots connected by lines.

We add the dots and regions, and subtract the lines and islands.

The kids have been making crazier and crazier pictures all morning, adding up all the numbers. They are convinced that if they make a picture crazy enough, they can find one that doesn't come out to one.

They haven't found one yet, but they have practiced a lot of subtraction, and it is very easy for me to check their work, because if it doesn't come out to one, they have done something wrong, thanks to Euler's Law :-). Here are a couple more links on Euler's Law.

Republican Rebels

Back in the days of the Contras and the Sandinistas - remember that? I unsuccessfully tried to convince my school's very-liberal Third World Society to invite a member of the Reagan administration to speak about their support for war in Central America. Those were very shrill times, and everybody thought I was trying to invite Evil into the room.

Today what is left of Reagan is largely nostalgia, and that old Sandinista Ortega is back in power as a born-again capitalist millionaire (thanks to the Bush administration's clumsy diplomats). Ideology dissolves as history marches on.

At any rate, my point is that when the stakes are high and differences loom large, it is worth listening to the other side. In that spirit, I have only respect for Conservatives for Change and Republicans for Obama.

If you are a Republican for Obama, you are not alone.

Time for Japan to Buy

Move aside Bernanke. It is time for Japan to save us all.

I Blame Markowitz

The world is pouncing on Greenspan's mea culpa, marveling at how ridiculous it seems that he believed that banks would responsibly manage their own risk.

"I still do not fully understand why it happened," he says.

And the punditry is astounded: how could he be so naive as to be blind to the greed everywhere on Wall Street? How could we be so gullible? But when I look around, I don't really see Gordon-Gekko-style problems with greedy bankers. I see a bunch of bespectacled geeks that have been working hard to do what they think is the best thing. Somehow, to their collective amazement, they have all lead us into calamity.

If the issue is neither greed nor malice, what is the problem?

I have an idea where to place the blame.

The culprit is a powerful meme of intellectual laziness that has infected the financial community for the last half century: Modern Portfolio Theory, the mathematics of reducing risk through diversification.

The new alchemy of mixing investment portfolios has overtaken the old-fashioned discipline of evaluating fundamentals of individual investments. MPT is the dangerous meme that made this possible.

Klein on Obama

Nice audio essay from Time's Joe Klein about his interview with Obama.

Obama is mature indeed - and there is hope yet for this nation of ours.