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31 August 2003

Commodity Fetishism, Revisited

By now, unless you spent August 2003 lying under some rock, you have heard about the Pentagon's failed plan to have a wagering pool on terrorism and political turmoil. The Pentagon planned to allow qualified traders to place actual monetary bets, with actual monetary winnings to go to those traders who bet correctly. Media reports accurately, and correctly, mentioned the moral hazard involved: it might not prove too difficult for bad actors to profit from their bad deeds.

Press reports noted that the Pentagon had, somehow, already spent some $600,000 on this "Terrorism Futures Market." The idea for such a market apparently came from current projects like the Iowa Electronic Markets, which have allowed academic and other traders to place (relatively small) bets on American elections and similar events for almost a decade. (I would think that Iowa could have saved the Pentagon at least a few thousand bucks.) American elections are something that a market could theoretically predict fairly well. But how such a market would predict terrorism or other events with any sort of alacrity seems a bit farfetched.

In the Washington Post recently, Justin Wolfers and Eric Zitzewitz tried to explain why such a market was not such a bad idea after all:

Financial markets are incredibly powerful aggregators of information, and are often better predictors than traditional methods. The examples are numerous. The futures market in orange juice concentrate is a better predictor of Florida weather than the National Weather Service. The Iowa Electronic Markets outperform the opinion polls in predicting presidential election vote shares.

I cannot personally vouch for the first example (although I can report that Wolfers and Zitzewitz appear to have dramatically overstated the power of the orange juice futures market), but I can speak to the second. I have had a modest stake in the Iowa Electronic Markets since 1996, and I cannot fathom how one would equate the IEM with prescience.

The 2000 Congressional Control Market: The market has no clue that Republicans will control the House but not the Senate (control being 51 or more Senators). (In fact, exactly the opposite shares had higher prices for much of the period that the market was open.)

The 2000 Presidential Election Vote Share Market: The actual election yielded final prices shares of 0.499 Dem, 0.497 Rep, and 0.004 Reform this market never contained a Green party vote). This market concerned shares of the overall popular vote for president. The market consistently overestimated the Reform vote and, in the days leading up to the election overestimated the Republican vote as well. On 1 November, the Republican shares traded in the range of 0.504 to 0.519. On 4 November, those shares traded in the range of 0.500 to 0.515. On 6 November, the day before the election, they traded in the range of 0.496 to 0.530, and ended the day at 0.520. These figures are certainly interesting, but they didn't predict squat.

The 2000 Presidential Election Winner-Take-All Market: In this market, Gore shares were worth $1 after the election, because he won the nationwide popular vote. Yet Bush shares were worth more than Gore shares from 16 October, through 7 November, the day of the election. Even though Gore had a substantial lead in the popular vote, the "outperform[ing]" market still had traders selling Bush shares for nontrivial amounts some three days after the election.

The 2002 Congressional Control Market: This market predicted with consistency that Republicans would not control the Senate.

I suspect that the IEM does a decent job of assembling publicly available information such as polls, but it hardly provides any deep insights into the future. In markets like public stock markets, the volatility of many issues speaks volumes about how unreliable markets can be about predicting the future. Why should it be any different in any other market?

Posted by Tim W at 8/31/2003 01:08:00 AM

29 August 2003

Pumping Irony

Well, our brilliant idea for drafting Warren Buffett for president are probably delegated to the dustbin of blogtopia now that Buffett is advising Arnold Schwarzenegger on economic issues. But the question remains: why did Buffett sign on with the Schwarzenegger campaign?

  • Is it that Buffett sees the Schwarzenegger campaign as an opportunity to air some progressive views on taxation in a state that could use them? Perhaps.
  • Is it that Schwarzenegger is a closet liberal? Perhaps: but then the revanchist wing of the Republican Party would be right.
  • Is it that Buffett, seeing a potentially winning team, decided to subvert it from within? Perhaps, but that might be asking a bit too much from Dame Fortune.
  • Is it that Buffett is not really the left-leaning image of Croesus that he appears to be? Probably not: that would mean that we were in error! For shame!
  • We think it happened because Arnold found Warren some truly righteous chronic.
Posted by Tim W at 8/29/2003 04:47:00 PM

24 August 2003

Remember These Weapons of Mass Destruction?

The bad news is that the Bush administration has found over 2,000 tons of weapons of "mass destruction," to wit, chemical weapons. The good news is that they're being destroyed. The ironic news is that those weapons are in Alabama.

Now that the Army has won a lawsuit that would have halted the incineration of this stuff, it now has to worry about what to go with the incinerator once it's doing its incinerating:

The Army has plans to clean agent and hazardous waste from facilities and equipment, leaving only miniscule amounts of each to a standard called 3X. That standard calls for only .0001 milligrams of GB nerve agent per cubic meter. VX would be cleaned to .00001 milligrams per cubic liter. Mustard agent would be cleaned until there is .003 milligrams per cubic liter.

Just remember the mantra. Horribly poisonous, lethal, crap is irredeemably bad when bad dictators have it, but it's ignorable when our friends have it, and it's a force for good when we have it.

Posted by Tim W at 8/24/2003 09:56:00 PM

21 August 2003

Willfully Blind Justice

Ray Moore, Chief Justice of the Alabama Supreme Court, is still fighting a federal court ruling that ordered him to remove a substantial stone rendering of the Ten Commandments from the lobby of the Alabama Supreme Court building. Moore made a couple of telkling comments early on Wednesday, before the United States Supreme Court denied his motion for an emergency stay.

"This case is not about a monument. It's not about politics or religion. It's about the acknowledgment of God," Moore said on CBS's "The Early Show." "We must acknowledge God, because our constitution says our justice system is established upon God."


The morning television news programs are generally chock full of garbage, but this is bad, even for them. First, putting the Ten Commandments on a 5,000-pound sculpture in the lobby of the State Supreme Court is indeed about religion. Merely accepting the Ten Commandments as received wisdom elevates religions that accept the Old Testament as de jure state religions. Worse yet, accepting a particular enumeration of the Ten Commandments means throwing one's lot in with Protestantism, Catholicism, or Judaism. These three religious groups effectively agree on the relevant text, but they disagree on which ten items are the actual commandments. Moore, true to form, decided that the most recent formulation, the Protestant one, was God's original plan.

Second, Moore's claim about the Constitution is either amazingly misinformed or stunningly disingenuous. He cannot mean the United States Constitution, which does not mention anything of the sort. Article III establishes a supreme court, allows Congress to establish other courts, defines the scopes of the courts' jurisdiction, then defines treason and limits the penalties against it. It does not mention God, let alone establish the courts upon God. In fact, the only mention of God is in the phrase "Year of Our Lord" in the signature block.

Perhaps Moore means the Alabama Constitution, which dates from 1901. It has fully three references to God in the entire 287 sections and 742 amendments. Two of the references are to "so help me God" in the oaths of office for executives and legislator. The other is in the preamble:

We, the people of the State of Alabama, in order to establish justice, insure domestic tranquillity, and secure the blessings of liberty to ourselves and our posterity, invoking the favor and guidance of Almighty God, do ordain and establish the following Constitution and form of government for the State of Alabama:

"Invoking the favor and guidance" of a deity is hardly basing the entire judicial system of a state on that deity's commandments.

But the 1901 Alabama Constitution is the sixth in that state's illustrious history. What is the provenance of that reference to "Almighty God" in the Preamble? It's not from the original 1819 Constitution, which refers to God only in a section about freedom of religion and in the text of the oath of office. It's from the Preamble to the 1861 Constitution, written so that the high-minded political solons of their day could secede in a proper fashion. Surely the Chief Justice of the Alabama Supreme Court knows from whence his godly judicial system comes.

Posted by Tim W at 8/21/2003 07:10:00 AM

18 August 2003

A Pessimistic View of the US Economy

Breaking tradition, the chairman of the Australian Stock Exchange warned Australian business owners today to take heed of a global decline. "I don't think one should underestimate the impact of a significant decline in the US economy and how that would cascade to Europe and Japan . . . we are, in my view, in unchartered waters." He described the US, European and Japanese markets as "fragile," pointing to increasing debt levels, decreased savings, and increased "spin" emerging from Wall Street.

Equity markets around the world closed at year-to-date highs on Monday, indicating growing investor confidence in the global economy. Who's right, the market or the chairman of the ASX?


Posted by PAUL at 8/18/2003 11:01:00 PM

We're #1 But No One Is Cheering

The United States now has the highest incarceration rate in the world.

I read the trends with a profound sense of shame: "A black male in the United States would have about a 1 in 3 chance of going to prison during his lifetime; for a Hispanic male, it's 1 in 6; for a white male, 1 in 17."


Posted by PAUL at 8/18/2003 10:42:00 PM

While Bush Eats, Bloomberg Speaks

Why is it that the Financial Times can both see the truth and understand it is fit to print when major newspapers across the United States are doing an updated version of "Duck and Cover?" The Financial Times noted "once again New York needs its mayor to take charge" in a national crisis because "George W. Bush had other things on his mind when the nation's largest city plunged into darkness."

The Financial Times also made the obvious connection:

"In the role performed masterfully by Rudolph Giuliani after the September 11 terrorist attacks, Bloomberg took to the airwaves Thursday afternoon to tell New Yorkers to go home, open their windows, drink lots of water - even though few could hear him, being without electricity. On Friday, Bloomberg was up early to tell people to stay at home. 'There are worse things than taking a summer Friday off from work,' he said. And then he rang the opening bell at the New York Stock Exchange. None of this is remarkable, unless one considers what the president did."

The Financial Times went on to mock Bush:

"When Bush was first alerted, he kept eating lunch. Then he raised some more money for his re-election campaign. And when darkness had fallen on the north-east, he announced: 'One thing I think I can say for certain is that this was not a terrorist act.' After an air-conditioned night's sleep, Bush had some forward-looking thoughts: 'I view it as a wake-up call, an indication we need to modernise the electricity grid.' No kidding.".

Can you even imagine reading such simply-stated truth on the editorial pages of the New York Times, Washington Post or Wall Street Journal?


Posted by PAUL at 8/18/2003 07:15:00 AM

14 August 2003

Feeling France's Pain

In April, 2003, James Ryan, an American writer living in Istanbul, Turkey, wrote a piece for Bear Left. That column reminded Americans that our ideals of liberty and justice had origins in France. Now, at a time when Americans, including our politicians and leading editorial pages, mock the French and belittle their pain and loss of life in connection with unprecedented heat waves, Ryan's words are worth a second read.

Posted by PAUL at 8/14/2003 11:30:00 PM

13 August 2003

Strange Bedfellows

Politics certainly makes for strange bedfellows; none stranger than the "Sage of Omaha" and the "Terminator." I can't imagine two people more different, absent celebrity. According to Reuters, Warren Buffett is supporting the candidacy of Arnold Schwarzenegger. Buffett was quoted as stating that he has "known Arnold for years and know(s) he'll be a great governor . . . it is critical to the rest of the nation that California's economic crisis be solved, and I think Arnold will get that job done." These comments not only support Schwarzenegger, but they implicitly support a recall.

I hold Buffett in very high regard and admit a curiosity about what Warren finds attractive in a Schwarzenegger candidacy. Buffett clearly understands the negative impact of the huge budget deficits both in California and at the federal level. It is interesting that President Bush has publicly distanced himself somewhat from Schwarzenegger, no doubt to appease the right-wing of the GOP that finds Arnold's social libertarian streak threatening. The flip-side of attacking Gray Davis is that Bush, once stripped of the veneer of patriotism, has many of the same vulnerabilities. That fact cannot be lost on Buffett.

Posted by PAUL at 8/13/2003 07:03:00 PM

11 August 2003

Do Surging Bond Yields Spell Another Stock Market Meltdown

CBS Marketwatch poses an excellent question: Do surging bond yields spell another stock market meltdown? Treasury yields have increased 150 basis points (150 basis points equal one and one-half a percentage point) in 40 days. We have not seen such a rapid increase in bond yields since the 1987 stock market crash. Is another crash pending?

One segment of the economy which is sure to be hurt by the increase in long-term treasury yields is the housing market. The increase in interest rates will have a dramatic impact on a housing market which has carried a weak economy over the last two years. For example, if you applied for a fixed-rate mortgage 45 days ago and did not lock the interest rate you would now be faced with paying over 25% more interest than when you applied for the loan. The impact of this increase in interest rates should be felt quickly resulting in a slowdown in home building, sales and refinancings. Add to this a stock market crash and Bush, like his father, will be a one-term president with a Democrat left to clean up the mess.

Posted by PAUL at 8/11/2003 07:26:00 AM

09 August 2003

Bush Failed History

The Boston Globe is reporting that US officials and terrorism specialists are worried that "Islamic militants sympathetic to and possibly allied with Osama bin Laden are flocking to Iraq in the same way they flooded into Afghanistan in the 1980s to fight the Soviet occupation there. That Afghan war became known as the Soviet Union's Vietnam and radicalized a generation of Arab fighters, including bin Laden and his Al Qaeda network. In Iraq, even before the United States invaded and occupied the country, fighters from several Arab and non-Arab countries had infiltrated in the hope of waging a guerrilla war against Western occupying forces."

Posted by PAUL at 8/09/2003 11:28:00 AM

Bush Administration Fines Human Shields, Threatens Prison

The Associated Press is reporting that U.S. citizens who went to Iraq to serve as human shields during the war face thousands of dollars in federal civil penalties. The U.S. Department of Treasury sent letters to these individuals telling them that they broke the law by crossing the Iraqi border, violating U.S. sanctions that prohibit American citizens from "virtually all direct or indirect commercial, financial or trade transactions with Iraq." Fines have been levied in excess of $10,000. The government has also threatened to garnish wages, retirement compensation, Social Security checks or other assets. Challenging the government action could result in drawn-out legal battles that could cost much more. The government is also threatening as much as 12 years in prison.

Posted by PAUL at 8/09/2003 08:25:00 AM

08 August 2003

Putting His Children First

In an interview on INSIDE POLITICS, former U.S. Congressman Michael Huffington acknowledged he had considered placing his name on the ballot as a gubernatorial candidate in California but reconsidered. What prompted this decision? Was it the unlikelihood of success? Don't be silly. The former congressman put the reason in simple terms: "I decided to put my children first and not to enter the race."

Harrington also had this to say in response to a question about his ex-wife's (Arianna Huffington) decision to place her name on the ballot:

Well, I'm going to be very frank with you. Our children didn't want either one of us to run. And frankly, they'd love their mother to reconsider and not run. The day she announced, on Wednesday, the children moved out of her house and came over to mine. I think, frankly, the biggest problems we have in America today are that parents are not being as responsible as they should to their children. So yes, I did make that statement because it was the truth. And our kids were hurt. And if I had run, it would have been a complete disaster.

I hope that sexist, self-serving comments like Harrington's will make every woman of voting age in California want to vote to make Arianna the first woman governor of California if the recall of Davis succeeds.

Posted by PAUL at 8/08/2003 10:09:00 PM

Friends of the Courtiers

Newsday reports that the Pentagon is trying to re-establish friendships that really should go the way of the dodo. If you were going to meet secretly with some Iranians, wouldn't you want to make sure that they weren't, literally, scandalous?

Pentagon hardliners pressing for regime change in Iran have held secret and unauthorized meetings in Paris with a controversial arms dealer who was a major figure in the Iran-contra scandal, according to administration officials....

The officials said at least two Pentagon officials working for Undersecretary of Defense for Policy Douglas Feith have held "several" meetings with Manucher Ghorbanifar, the Iranian middleman in U.S. arms-for-hostage shipments to Iran in the mid-1980s....

The senior administration official identified two of the Defense officials who met with Ghorbanifar as Harold Rhode, Feith's top Middle East specialist, and Larry Franklin, a Defense Intelligence Agency analyst on loan to the undersecretary's office.

I realize full well that the minions of Bush administration think that they can do no wrong. But can they admit that perhaps, just perhaps, our 1980s dealings with Iran and Iraq were just a bit unsavory?

Posted by Tim W at 8/08/2003 05:01:00 PM

07 August 2003

Exporting Pensioners Offshore

Capital has moved offshore to avoid taxes. Jobs have been moved offshore to cut costs. Is the next logical step to export pensioners offshore? Faced with an aging population, Masajuro Shiokawa, finance minister of Japan, is suggesting just such a policy. Can Republicans in the U.S. Congress be far behind?

Posted by PAUL at 8/07/2003 02:36:00 PM

06 August 2003

CBS Links Vatican to Abuse Cover-up

The cover-up of the sexual abuse of children by Catholic priests, first reported by The Boston Globe in connection with the Archdiocese of Boston, has now been linked directly to the Vatican. CBS News has uncovered a church document kept secret for 40 years. The confidential Vatican document lays out a church policy that calls for absolute secrecy when it comes to sexual abuse by priests. The policy was written in 1962 by Cardinal Alfredo Ottaviani.

As they say in the legal profession, the document speaks for itself. On a thumbnail, the document reveals a policy whereby Bishops were instructed to pursue cases of "sexual assault committed by a priest...or...attempted by him with youths of either sex...in the most secretive way...restrained by a perpetual silence... under the penalty of excommunication." The CBS story links to the document.



Posted by PAUL at 8/06/2003 07:51:00 PM

05 August 2003

Commodity Fetishism, or Just Greed?

The efficient market hypothesis holds that the stock markets will generally take all available information into account in determining the prices of the underlying shares. Apparently, the executives at Washington Mutual do not agree. They've taken out advertisements, big ones—nay, gaudily expensive ones—in the Wall Street Journal and the New York Times not to tout some great new deposit account, or to praise some innovative loan program, but to get investors to buy the stock. Tom Jacobs of the Motley Fool, who believes that corporations are supposed to benefit more than just their executives, complains:

This is not cheap. The New York Times open rate per column inch on Sundays is $1,342, with 126 column inches to a page. That's about $170,000. Of course Washington Mutual (NYSE: WM) gets a break for multiple insertions, but what kind of break is this for shareholders? I've seen at least 10 of these ads in the two publications. This is easily a seven-figure marketing campaign.

Tom, it's worse than you think. Washington Mutual, like a number of other companies, has a big share repurchase program that's supposed to help boost the price of the stock: when the price is low enough, the corporation buys back its own shares. This sort of plan assumes that the markets are not quire rational enough.

But If the Washington Mutual executives believed their own ad copy, wouldn't they just use the share repurchase plan to buy some shares? Or, better yet, buy some shares themselves? Or is it easier to spend a couple of million in the hopes that some of those 21 million or so stock options outstanding might go further above water?

Posted by Tim W at 8/05/2003 06:13:00 PM

Protecting Privilege

Joshua Micah Marshall, in Talking Points Memo, takes a dispassionate look at Clinton-hating and Bush-hating and draws some parallels. It is true that the hate expressed for both men is a sign of "a deeper volatility, instability and acrimony in our current politics." To Marshall's credit, in a follow-up piece, he concedes that the level of amicus towards Clinton far outweighs that expressed against Bush. Such a concession is an understatement. He also admits that the "hardcore partisans" who hated Clinton were tacitly accepted by a number of the respectable members of the Washington establishment because they also had a visceral dislike for Clinton. This fact is well documented in Sidney Blumenthal's book, The Clinton Wars.

I believe Marshall missed the central point behind the hatred directed at Bill Clinton. The hatred took the form of character assassination but its roots were always political. Clinton and his wife represented change. American political figures in the last forty years—John and Robert Kennedy, Malcolm X, Martin Luther King, Medgar Evers—were not targeted for assassination because they were hated. They were hated because they were agents of change. All of the above men also faced organized campaigns to assassinate their characters, as do Bill Clinton, Hillary Clinton, and Rev. V. Gene Robinson. Do people really loathe and detest these individuals or do the fear the change they represent?

An ugly truth in America is that people who identify with privileged segments of the population loathe the idea that they will lose that privilege. Blumenthal does an excellent job of tying the initial character assassination of Bill Clinton to Southern racists. No one with an ounce of perception should be surprised that the Sally Quinns and David Broders of the Washington establishment were more than a little put out by the son of Southern working-class woman using an intellect and social skills far superior to theirs to ascend to the presidency of the United States. These people don't hate Clinton half as much as they fear and envy him.

Posted by PAUL at 8/05/2003 12:15:00 AM

03 August 2003

Declaring Victory

The mantra that President Bush has continuously repeated since the United States entered Baghdad is that Saddam Hussein is finished. For political purposes, Bush reduced the complexity of war and global imperialism to its simplest terms, good versus evil. Saddam became the personification of evil for marketing purposes. This was especially helpful given Osama bin Laden's ability to evade the long-arm of American justice. In the U.S., where the Bush administration leads the media by the nose, it was out with bin Laden and in with Saddam as Public Enemy #1.

Surprised that Saddam had also eluded capture the administration fell back on Hollywood vernacular to assure the world that their mission was accomplished: "Dead or alive, this man is finished in Iraq." But was it? Questions about the justification for war are not soon to go away. The Bush administration seems ill-prepared to reconstruct Iraq and the nations whose opinions Bush dismissed as irrelevant prior to the start of the war appear disinclined to bail the Bush administration out now.

In a thoughtful piece, Immanuel Wallerstein points out the Bush administration may lose, despite winning, and that Saddam may win, despite losing. "The image of Saddam, the torturer, may give way to the image of Saddam, the nationalist resister. Even if the U.S. were to find and kill Saddam, his image might survive. And in any case, the image of the U.S., the liberator, would disintegrate."

Posted by PAUL at 8/03/2003 08:58:00 PM

02 August 2003

Dean Campaign to Run Anti-Bush Ads in Texas

The wire services are reporting that Democrat Howard Dean will begin running an in-your-face anti-Bush television commercial Monday. The ad will run in Austin, less than 100 miles away from where Bush is vacationing in Crawford.

The text of the ad is reported to include the following: "I want to change George Bush's reckless foreign policy, stand up for affordable healthcare, and create new jobs... Has anybody really stood up against George Bush and his policies? Don't you think it's time somebody did?" Dean is showing an uncanny ability to leverage his assets. Challenging Bush in his backyard should get noticed by the large number of media people that followed Bush to Crawford. He pits himself against the president, not the other Democratic contenders. Money well spent.

Thank you, Howard Dean.

Posted by PAUL at 8/02/2003 10:23:00 AM

01 August 2003

Like Voting Republican

Major League Baseball's trading deadline has passed and the Red Sox, for the first time since they bought Rollie Fingers and Joe Rudi from Charlie Finley (later to be voided by commissioner Bowie Kuhn), have out-maneuvered the Yankees. The Red Sox repaired a broken bullpen by trading for three excellent relief pitchers—Byung-Hyun Kim, Scott Williamson, and Scott Sauerbeck—and solidified their rotation by adding a third starting pitcher in Jeff Suppan. Trading for pitching instead of a right-handed bat is a novel concept on Yawkey Way. Boston's 29-year general manager, Theo Epstein, is credited with both Boston's conversion and execution.

It remains to be seen if Boston can overtake George Steinbrenner and his Evil Empire but I love the "story-behind-the-story" reported by Adrian Wojnarowki on ESPN. Theo grew up a Red Sox fan. Leslie Epstein, Theo's dad, left Manhattan's Upper West Side to for the Boston suburb of Brookline just after the Red Sox lost the one-day playoff game to the Yankees in 1978. Despite his time in New York, Leslie claims that he has "always been a Red Sox fan. I hated the Yankees so much. To me, rooting for them would be like voting Republican." My sentiments, exactly.

Posted by PAUL at 8/01/2003 12:22:00 PM

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