Hubris everywhere

I can’t get the word hubris out of my mind. O’er-weening pride. In a rising market, CEOs convince themselves that their genius accounts for the vast profits washing through their companies. Citigroup, Lehman Brothers, Bear Stearns, and on and on.

Oops! Turns out it wasn’t genius; it was gambling. Oh well, which of these current and former CEOs isn’t sitting on tens or hundreds of millions of dollars? If pay was related to performance, these guys would be in the stocks and the villagers would be practicing their egg and tomato hurling skills. How about a quick amendment to the tax code raising CEO personal tax rates to 95%. And let’s make it retroactive for ten years. Only applies to executives earning $5 million or more per year. That should spare the little guys and gals.

Then there’s the (Not So) Big Three. Hubris T-shirts for their management! Fly down to DC in their private jets to beg for a handout. How about starting by taking a pay cut right down to zero. Then give back 90% of all compensation received since they became bosses. Somehow I think they would still have a lot more money than the rest of us. No? Well, let’s say that you were paid sixteen million dollars last year. If we claw back 95% of it, you’ll still wind up with $800,000 which for most of us would be a huge pile of money. (Like: twenty years’ wages for the person earning $40,000 per year...).

Have they no shame?

Silly question.

So along with all the other changes we need, perhaps big salaries should come with big delays. When Mr. Big accepts his $10 million per year salary, he also accepts that his actual salary will be $250,000 per year and the balance will be delayed for five years and then spread out over some lengthy period, during which time he will be paid only during profitable years. And in years the company loses money, his salary balance scheduled for that year goes poof.

So it will be very much in his interest that the company grow and stay healthy over the long term, because if it founders, bye bye big bucks.

Now that I’ve vented, let’s be serious. The auto industry situation is a terrible conundrum. On the one hand, adding a couple of million workers to the ranks of unemployed Americans sure sounds like a formula for economic disaster. On the other hand, no matter how much we give to the US car makers, until they offer us products worth owning, they are doomed to fail. Gas prices are low for the moment because demand has plummeted, but everyone knows that sooner rather than later, the prices will climb again. I do not see any chance that Americans will return to buying SUVs. Asking for money without a plan for spending it wisely is pathetic. Asking for money without first accepting responsibility for their own poor leadership is disgusting. Flying to DC in private jets to ask for money? That starts at ‘out of touch’ and lands on Neptune, or maybe in another universe. Give us a break.

I don’t have a solution, and I’m not even sure the US auto industry can be saved regardless of what we do. What if we’re on the edge of a total transformation in how we travel? Maybe the Age of Cars is about to morph into something else. Anyone who thinks they can predict the future is lying or suffering from, well, hubris, by golly.

And a final note, about which I will write more in the future. Diversification is something we should, as a nation, be thinking about as we plan for putting our national house in order. Having a third of the jobs in Michigan, for example, in the auto industry is fine till the auto industry collapses. (I don’t know if it’s a third; I do know that Michigan is in terrible shape.) We need to diversify our sources of energy, our food production, and lots more. It’s not always ‘efficient’ to diversify, but it’s a helluva lot safer than putting all the proverbial eggs in one basket.

Clear and Simple

For months I’ve been reading articles about how we got into our current financial mess, and listening to really smart economists discuss its origins. One common theme is that even the smart people who created these derivatives and CDOs etc. didn’t really understand them. Clearly they didn’t understand the potential risks.

So to prevent this happening again I suggest that all such deals in the future must pass CAST, the Clear and Simple Test.

Some ideas for how it might work:

CAST would limit documents to a few pages in length.
CAST would clearly state potential risks.
CAST documents would be written in plain English. Documents which can only be understood by lawyers and accountants fail the CAST.

You get the idea.

Requiring that financial deals pass CAST would certainly take a lot of the creativity out of Wall Street. (This doesn’t sound like a bad idea.)

Deals might sound more like this:

I’ll loan you $500 for a year. At the end of the year, you’ll owe me $550. If you don’t pay me, you give me permission to come over to your house and take $750 worth of your stuff (snowblower, bicycles, whatever).

Now imagine your town or school district wants to borrow 30 million dollars to invest in some complex financial instruments which are described in a 300 page closing document. The broker offering you this deal tells you that you’ll get a 2% return (which you hope to use for pensions, or local infrastructure, or whatever) and assures you that it is a very safe investment.

I don’t know about you, but I can, if I have to, plow through 2-3 pages of legalese and, just maybe, have a general idea of what I’m being asked to sign. 300 pages? Not a chance—life is too short.

So rather than struggling, the town manager or school board members tell the broker to come back with a CAST acceptable document. If the broker can’t do it, then clearly the deal was a bad one. Whew! If he does come back, they read the new description and see if it fits their needs.

And how about laws? Wouldn’t CAST eliminate a lot of the sneaky stuff that is hidden in 1,000 page bills passed by Congress?

I’ll end with this quote:

The price of clarity, of course, is that the clearer the document the more obvious its substantive deficiencies. For the lazy or dull, this price may be too high.

* Reed Dickerson, Professor of Law, Indiana University.

Quote Source

Voting in Maine

It’s almost 11pm and I’m beat—but what a day! I was at the Riverton School Community Center off Forest Ave in Portland, Maine from 6:45am till 8pm helping register voters. This was my first experience on the ‘other’ side of the table, and we were busy! Several of my co-workers were veterans of past Portland elections and by mid-morning they said we’d already seen more voters come through the doors than they’d seen in an entire day at past elections.

As far as registering voters, we got slammed. We didn’t keep track but there were hundreds of new voters, new-to-Portland voters (from as far off as Utah and Texas), lots and lots of new citizen voters from Cambodia, Viet Nam, Sudan, Somalia, Poland, and who knows where else. Also lots of 18-25 year olds registering and voting for the first time. Tremendous excitement and enthusiasm. One of my co-workers mentioned that she signed up a 54 year old woman who had never voted before in her life.

Final thoughts before I keel over from fatigue:

1) From the reports I’ve read and heard, what I saw today was repeated all over the country. The real winner of this election? Us—the voters of America. Well done!

2) And even though I’m dog-tired and stiff from sitting for so long, I’d do it again. The people I helped today were excited, appreciative of our help, eager to register, eager to vote, and just great to meet and be around.

Standing in line

Many decades ago, when I was an undergrad at UCLA, the campus switched to a computerized class registration system. This was in the era of mainframe computers and punch cards.

At the time, late 1960s, UCLA was a campus of roughly 30,000 students. I don’t know how many of us were standing in line, holding our registration cards, but it seemed like most of the student population. Fortunately it was a sunny day, and we were young, so spending hours in line waiting to register was not such a bad way to spend time. Shoot the breeze, flirt with the girls, soak up the sun.

Fast forward to the 2008 election. In many states voters are standing in line for three, four, five, six, even eight hours to vote. And those were the early voters. What will tomorrow be like? You’ve probably seen the images on television. Your fellow citizens standing in line are not, in general, young students with nothing else to do. They are parents, workers, the elderly—many of them probably taking unpaid time off from their jobs.

It makes me furious. How can we preach the benefits of democracy to other countries if we can’t practice it ourselves? Self-delusion and hypocrisy are not attractive attributes. We don’t torture people—except when we do. We have the greatest democracy in the world—except many voters find it difficult or impossible to vote and not everyone who votes is sure that his or her vote will be counted.

I am sure that there are lots of ways to solve the voting problem. Here’s one off the cuff pre-breakfast idea:

Figure out a way to reward (tax credits, financial assistance, something) every city which enables voters to cast their votes in one hour or less. Maybe $2.00 per voter. So in a city with 300,000 voters, this would be a huge incentive. And please, don’t tell me how expensive this would be. Seven hundred billion to bail out banks—we can come up with a few bucks for fair and efficient voting.

Or if you’re in a punitive mood, the opposite. In places where voters are forced to stand in line for hours, start the meter ticking and fine the responsible parties at the state and local level. Said officials might come up with creative solutions to this problem if they were being fined $1,000 per hour for every hour above one that voters had to wait in line.

Really, we can do better. No more excuses. Fish or cut bait,

Locker room election poll

Move over, Gallup and CNN.

This afternoon I was about to leave the locker room of the gym I attend, when a fellow I know by sight walked in. We exchanged greetings and I asked him if he was ready for the election to be over. He said yes, and then said this:

“I’ve been a Republican all my life. Always voted Republican. The last eight years, I feel like the Republican Party has left me. I can’t believe the mess they’ve made. I’ve always thought Joe Biden would make a good President. Obama is okay, but I really respect Joe Biden.”

He paused and shook his head as if he couldn’t believe what he was saying. He concluded:

“I’ve already voted. I voted yesterday. For Obama and Biden.”

Reporting from the locker room,
bk

PS A friend just emailed me this link. Wow.