President Obama opened his first “State of the Nation” speech (transcript here) to a joint session of Congress on February 24, 2009 by telling the nation “we will rebuild, we will recover, and the United States of America will emerge stronger than before.” The tone is optimistic as expected, and provided some references to changes in behavior necessary, as expected. The latter may or may not have gone far enough, depending on who you ask.
One of the reasons to listen is to understand in what order the newly minted Chief Executive will tackle the list of pressing problems. I figure applying one of social media’s most common analysis tools may provide us insight into what President Obama’s priorities may be relative to each other. As expected, words like “American”, “now” (to create urgency no doubt) and “economy” were high in frequency in the speech, but there were some surprises also. The word “health” showed up more frequently than did “education”, which in turn was more frequent than “energy”, maybe suggesting priorities. The word “responsibility” was frequently used as well — a nod to the popular feeling that government hasn’t been accountable in years.
I’ve been alive long enough to watch 5 transitions from former President to newly elected President, and I can’t help feeling pride and gratitude for the world’s largest democratic transition of power. Much has been made of Americans held breathless by President Obama’s message of hope. Now as we collectively exhale and the hard work begins: the transition from hope to meaningful change.
But change is already here. That meaningful change is evident in the manner in the visuals streaming out of both the old and new media. Watching former swear-in ceremonies – Reagan Bushes, Clinton – all were events shared with a few people at most. Like many recent events, watching President Obama was something I shared with people across our nation and the globe via Current.tv and CNN/Facebook. “With whom did you the President become President?” elicits an entirely different answer than it would have four years ago. Some shared their emotions, others pointed out slips by Chief Justice Roberts during the swear-in. Some noticed that the former President Bush did not flank President Obama, breaking with tradition (some say a final snub to the country). Others pointed to the changes in the White House’s channels ofcommunication.
Regardless of the particulars, one thing is unmistakable: today we Americans felt connected in conversation and in purpose. We felt connected both through our technological wizardry and our sense that the next few years will be pivotal as a nation. I was also proud to see the world to join our conversation and celebration. It was just plain cool to watch several “congrats America” tweets splash across my screen from friends in faraway places like China and France. With one historic election, America has become cool across the world again.
There are many hopes I carry into a new Presidency – an economy based on real growth and not paper assets; a serious push into renewable energy; a sense that America is beloved around the world again. One of my hopes which I haven’t written about on this blog is that Emergent Pluralism’s time has come. I’m not hoping that the voices empowered by the web become a new form of bully pulpit, but rather gives a voice to a new civic-minded American generation. As President Obama has put it, “we are the change we seek”.
As we head towards the final election countdown (a few hours to close as I write this), I figured it would be fun to share some of the available election resources on the web. Now you too can be a CNN-style, magic-map election tracker.. the web makes it easy.
A number of election news coverage sites are available catering to both “left” and “right” points of view, as well as the global microblog conversations on Twitter. However if you prefer to avoid the chatter and draw up your own “what if” scenarios, you’ll likely enjoy using the web electoral collage maps tracking tools available. In particular, 270 to Win, Electoral Vote, and CNN’s Electoral calculator allow you to draw up your own. Below are two possible “what if scenarios:
An Electoral College Split (269 Obama, 269 McCain)
My Guess (Obama 317, McCain 221)
Update 8:06 PM PST: The major news networks are calling Obama the new President elect. An old Chinese proverb comes to mind: “may you live in interesting times”. Congratulations to our new President.
If you’ve traveled in China, you’ve likely heard about the Harmonious Society (“和谐社会”). It serves as the ultimate goal for the ruling Communist Party of China (CCP) along with Xiaokang society, which aims for a balanced middle-class oriented society, as first proposed under the Hu administration during the 2005 National People’s Congress.
The communist party’s dominant socio-economic vision defines policy around economic development, tax policy, and social conventions. In practice, vocal differences of opinion are considered misguided and citizens should place the “collective” over the individual. Diverging opinion with the popular party position are a sort of political apocrypha. That is, those parts of China which fall in line with the popular party position are patriotic and hence pro-China. This implies of course that some areas are somehow less pro-China.
Now I have a confession to make. This post, in fact, is not about China. This post is in fact a big mind-f**k.
Try re-reading second paragraph after replacing “China” with “America”, and “communist party” with “GOP”.
I’m not suggesting the GOP is as repressive as the CCP nor am I suggesting some sort of equivalency. I am however suggesting that the GOP is taking a page out of the one-party system’s playbook. And that’s something you should find unsettling…… if you are pro-American.
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Update: Ironically, some Republicans are running away from their own party in some parts of the country, going so far as to change ballots to “Grand Old Party”. Original photo here.
September 26, 2008, 6PM PST: Presidential candidates debate both domestic policy and foreign relations at the University of Mississippi (details available from the commission of Presidential Debate). Many of us were not simply passive listeners, but rather involved in active discussions (backstory here).
Like many other web socialites, I was glued to Twitter’s election portal. The portal created a large chatroom-like environment which allowed the debate audience connect with each other as they watch the would-be Presidents perform for their benefit. It’s particularly fun to watch the wise-crack tweeters:
including those with a suspiciously familiar alter-ego:
Several bloggers suggested using Twitter to score the debate on an ongoing basis rather than just interacting. The idea is simple: watching a presidential debate over the span of 1-2 hours can be difficult, so score as you go using Twitter by adding 1, 2, or 3 points for meaningful contributions. Here’s an example of tweetscoring:
Adding up the points recorded during the debate yields an numerical score of admittedly subjective impressions:
What’s important here is not that Obama performed three times better (drawing that conclusion would be incontrovertibly misleading). While impressions are of course subjective, it’s important to note tweetscoring eliminates the tendency to more heavily weight the last few moments of debate over the already-forgotten beginning moments. I noticed McCain scored more points towards the end than Obama, which might have otherwise left me with the impression that both candidates performed well. Indeed my subjective feeling influenced by McCain’s strong ending performance was at odds with the tweetscoring result.
Tweetscoring turned out to be a fun (if not to be taken too seriously) exercise for me as a voter. For campaign managers, this a previously unthinkable paradigm shift to say the least.
About five decades ago, General Motors’ CEO Charles Wilson infamously uttered what’s become the anti-Rand rallying point: “What’s Good For GM is Good for America”. The legions of Youtube bailout refusniks might rightfully wonder if our monetary policy is being driven by such self-serving drivel. After all, any national bailout of the entire banking system is never going to be popular.
So Hank Paulson went to congress donning a metaphorical bulletproof vest knowing there’s plenty to dislike in his prescription. And let’s be honest here: there’s plenty to dislike on both sides of the political circus. Democrats kept wailing about welfare for guys in $5,000 suits while Republicans barked about a shameful slide into socialism. These folks are well aware that an election is only 5 weeks away, so I’m willing to bet they’ll all bemoan some nefarious arm twisting by the President as they cast a “yea” for the bailout. He’s been a political leper for a while now anyway, so they might as well slap him with the politically expedient scapegoat to save their own hides, right?
The whole notion of a bailout has to give any self-respecting capitalist heartburn. I absolutely hate the idea. However, we can’t sit idly by either – some kind of bailout is necessary.
How We Got Here
The empty talking heads predictably blame “predatory lenders” courting “subprime borrowers”, but what’s really driving the crisis is profligate use of credit derivatives. Here’s how this game works: banks previously made loans backed by a home asset and held them. In the brave new world of financial innovation, issuing banks hedged against risk through “insurance” or selling those loans to investment banks (or both). Many mortgage backed loans were “cleansed of risk” through credit default swaps where an insurer (*cough* AIG *cough*) agreed to pay the face value of a the debt in case of a homeowner default. Other home loans were bundled into “collateralized debt obligations” (CDOs), broken up into shares, and sold on Wall Street. Because that insurance policy or a CDO has a value, it’s sitting on someone’s balance sheet as an asset.
Basically MBAs take a real asset (the home), and create lots of paper assets deriving their value from that real asset – in effect we’ve created “wealth” out of thin air. Keep in mind those financial instruments are sitting on someone’s balance sheet at some calculated value, so the value of the home plus the financial asset on banks’ balance sheets exceeds (far exceeds) the value of the home itself. To put some actual numbers on this, the total value of mortgages in the U.S is roughly $14 trillion. The total “notational value” (or funny money value) of the an mortgages on the books? 168 trillion, or 12x in credit derivatives.
Now a highly leveraged position isn’t bad as long as the underlying assets keep growing. However..
The Ownership Society and the Big Gamble
President Bush walked into office championing something he called the “ownership society“. In essence, the idea involved promoting home ownership for everyone as a path to increased individual wealth. Noble but naive, he and the congress relaxed regulations and drove policies which lowered credit costs to make lending to the riskiest of home buyers financially feasible for banks. The result was a cheap-money fueled real estate boom which made many of us wealthy (at least on paper). I think you can see where this is headed: as attractive introductory rates gave way to higher market rates, risky borrowers defaulted bringing down the entire house of cards built on top of those mortgages.
Add together the cocktail of highly leveraged financial instruments and risky home loans they’re backed by, and you get the fiasco we’re now in.
We also from both liberals:
And free market types:
I Want Your Money
Hank Paulson’s prescription is best summed up by the economist’s lead story this week:
Mr Paulson’s plan relies on buying vast amounts of toxic securities. The theory is that in any auction a huge buyer like the federal government would end up paying more than today’s prices, temporarily depressed by the scarcity of buyers, and still buy the loans cheaply enough to reflect the high chance of a default….
Government support to the banking system can break the cycle of panic and pessimism that threatens to suck the economy into deep recession. Intervention may help taxpayers, because they are also employees and consumers. Although $700 billion is a lot—about 6% of GDP—some of it will be earned back…
In plain English, many of these financial instruments will be bought cheap by taxpayers, held for a while until the market hangover has run its course, then sold back to Wall Street. Investment bankers buying them on the cheap can ostensibly resell them at a profit, doubling down on commissions made from reselling the same securities the first time around.
The Catch-22
It seems like lunacy to throw our weight behind a bailout, but the alternatives are few and far between. One alternative is doing nothing, which we tried in 1929; That didn’t work out so well for most. Another alternative is direct government seizure and servicing of mortgages, which helps homeowners but does nothing to nurse a much needed credit market back to health. Two things are certain however. Firstly, passage of a bailout bill devoid of personal bankruptcy easement will be inerpreted as cronysm (and will meet with fierce rebuke during elections). I’d be surprised if bankruptcy isn’t easier to come by in the future. The other certainty is that if we want a continued healthy environment for startups and growth, we’ll need a liquid credit market in place. That means we’ll need to be proactive.
In a 1999 article that now looks absolutely insane, the New York Times reported on the easing of credit terms. Fannie Mae Chairman Franklin Raines, who’s quoted in the article, was all sunshine and roses as he threw away the financial future of millions of Americans. But at least one person. Peter Wallison, had a good idea of how this would all play out:
“In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.”
”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”
Here’s a good discussion form CNBC which sums up the situation nicely:
You might be wondering why a blogger about startups, cleantech, and China is writing about the socialization of the mortgage market. The reason is this move will affect not only the value of the dollar (and hence the valuation of startup businesses to would be foreign investors), but also will contract the amount of credit available to new business owners.
As it stands, the current administration and White House have decided that bailing out homeowners assuming irresponsible levels of debt is unwise. I mostly concur, but I’m flummoxed that the congress and president don’t hold the inverse to be true. This nationalization move will bail out lenders assuming irresponsible levels of lending. The sham cover story to the American people will be something to the effect of “stabilizing Fannie Mae and Freddie Mac will cost taxpayers less because it will dampen the damage to our economy”. Rubbish, I say; the move will achieve the exact opposite effect. To see why, simply follow the process through to its conclusion. Nationalization of Freddie and Fannie will have to be followed specifically by a write off and pairing down of all outstanding debt held by both organizations (we wouldn’t want taxpayers to assume even higher risk). So we’ll rehabilitate the mortgage giants by shrinking the total amount of mortgages outstanding. That in turn will drop the valuations of current homeowners, who will be hard pressed to sell without deep discounting when the easy mortgage money is gone. That’s why commentators are calling this socialism for the rich: the only net effect of this is a direct transfer of funds to Fannie and Freddie supported by borrowing by the taxpayer.
I have a funny feeling I know where the borrowing will come from, at least in part. I suspect the Federal Reserve print out dollars as fast as possible to pump liquidity into an already over-stimulated credit market. Those dollars will eventually have to deflate in value accordingly, and houses will become even more expensive relative to the dollar. When houses sit on the market unsold, the discounting begins. And voila, we have both a devalued dollar and a devalued housing market – we’ll go from a sub-prime mortgage system to a sub-prime financial system.
We created this problem by pumping too much easy money into our economy to hold up an unsustainable growth rate, but markets of course correct themselves in time (this isn’t a downturn as much as it is a return to where we should have been). Unfortunately the current congress and president seem content to patch up the situation and pass the stink bomb to the next congress and president. We’re headed for a mortgage market contraction either way – the only difference here is that taxpayers assume the cost of investment risk, instead of the investors by bailing out Fannie and Freddie. All of this makes investment in start ups and innovators less attractive (and more expensive for entrepreneurs) if real estate is now a zero-risk proposition, and angel investors burned on asset holdings pull back.
Well, It’s a good thing Web 2.0 economics provides a pretty quick path to ramen profitability.
Update: Quint Cobb has a good play-by-play primer on the secondary mortgage market and why the cost of mortgages is about to go up for everyone, as well as some good investment principles to follow in the wake of everything that’s happening now.
I’ve been hearing alot of “So.. um, what do you think of China?” lately, for obvious reasons. I don’t mind at all, but what strikes me is how much misinformation and emotional baggage there is out there. There’s the panda huggers, many of which are ethnic Chinese who understandably feel like they are being chastised for who they are when they hear critical analysis of Beijing’s policies. Then there’s the panda haters who understanably are concerned about suppression of freedom of speech and human rights and become frustrated with what they perceive to be an apathetic world. It’s virtually impossible to have a logical discussion about their place in the world and their relationship to the U.S.
Screw it, I’m going to try anyway.
One guy who gets the big picture is Thomas P.M. Barnett, a smart fellow who wrote The Pentagon’s New Map and Blueprint for Action. Having been both inside the Pentagon and leap years outside it in terms of his thinking, he has a rather rare perspective. He’s put together a list of 10 why China matters which should help readers dispel the misinformation out there. But having experienced “the panda” firsthand (and having it become part of my family), I think I’ve begun to understand their motivations. In short, China is NOT a mortal enemy. China is likewise NOT a cuddly friend nor America’s buddy.
China is an Economic Competitor.
This is actually a good thing, folks. If they’re competing to build economic wealth, why to burn up their windfall into a prolonged military conflict with the west? That means these war game scenarios the Pentagon is dreaming up against an unnamed large asian nation with an unhealthy interest in a small pacific island are overplayed. It also means the old timers in the PLA who want to build up a stockpile to hedge American influence are also way off. That doesn’t mean we should take our eye off the ball (as in, say, Africa). What this means is we need to be aware that China’s goal is to expand its influence and economic power, and that means competing with the existing U.S. Hegemony. Let me put it another way – they don’t despise us any more than the other 27 NFL Teams despite the Superbowl champions. We’ve been the economic, political, and military rock star of the 20th century, so we’re the guys to beat.
The New Cold War?
They don’t have any choice in the matter. They’re tasted the good life and want to continue doing so, despite rapidly aging as a nation-state. When the United States median age began creeping up, business and government policy shifted to scaling global economic systems and outsourcing some labor to compensate. It’s the same with the Chinese. To keep living standards afloat, they will have to scale the global production production chain faster than any country has in the past. Fortunately they have a legion of educated, entrepreneurially minded people scouring the globe for growth opportunities. We’re seeing the result dynamic expansion in the news as China trades industrial goods and infrastructure builds with Sudan for oil, signs a deal with Zimbabwe, receiving chrome in exchange for food and transport infrastructure, and trades debt relief and other diplomatic pleasantries in exchange for Eritrean granted gold exploration licences. Panic ensues as the news stories of China’s expanding activities provoke some folks call this another cold war. What follows next is obvious enough. The Pentagon starts funding AFRICOM in response out of an inscrutable sense that America might be missing out on an opportunity yet to be uncovered.
We’ve seen this game play out before. This is exactly what Europe did to America 300 years ago, and in turn is what America did to the asian tigers last century. Europe kept the bespoke tailors and farmed out the cotton production to the U.S. The U.S. spent the better part of two decades outsourcing low margin production to China while trying to keep technology and high margin services within our own borders. Now China is predictably outsourcing their low margin production activity and resource mining to Africa while building their own knowledge economy. This is history repeating itself, but hardly feels like a replay of Kennedy versus Khrushchev.
A New Operating Environment
The shared interest in a stable economic environment means we won’t see any military escalations with the PLA anytime soon, but will see trade wars from time to time. It means the U.S. will have the Chinese subsidize and support peacekeeping missions, because as much as three-fourths of China’s natural resources will have to come from politically unstable areas, funneling money towards security services. The overtures have already begun. It also means that the days of China only providing “white boxed” labor are gone, where China is now a source of local labor as well as local competitors of formidable caliber.
I also figure we’ll see bigger rise in nationalism in both China and the United States. Some of the nationalism will be unfocused and frankly ignorant, and as such it’ll be a source of friction. But looking at it on a different level, there’s likely some unease about the advance of globalization steamrolling local and national cultures. Intelligent (s opposed to brainwashed or ignorant) nationalistic feelings will probably stem from a rational fear of the loss of cultural identity. As a result, new product offerings need to be more, not less differentiated between different cultural markets. That’s not to say that entrants into their markets should be copycats – msn messenger I’m finding is considered far more “hip” by teens than the local instant messenger QQ. But cultural differentiation will almost surely become more important.
Hopefully this sparks discussion and thought around their motivations. The good news is despite human right issues and environmental concerns (which are important), there is a shared interest in making the world safe for economic growth. If we fail to manage the new operating environment to everyone’s benefit, China’s strategy will likely become to bog us down diplomatic debate while pursuing their own agenda. On the other hand, if we manage to create strategies which co-opt their own moves to support our own strategies, we’ll cooperate diplomatically and compete economically. The latter is what the British did with America, and it worked out pretty well for us both.
There are many reasons for transitioning out from a fossil fuels based economy (a conviction in climate change, foreign energy independence, etc) but nothing will happen until we’re able to identify what we can change.
Enter the The Vulcan Project. This joint NASA-Department of Energy project aims to provide detailed analysis of carbon emissions per each kilometer in the United States. According to Wired, the project has already drawn some controversy, since the northeast U.S. seems to be emitting less carbon than previously thought, while the coal-driven southeast produces more than previously thought. It would be pretty cool to map this to congressional districts, although we’d have to constantly adjust for gerrymandering, I’m sure.
