Oh, the Symbolism

On my walk along the Victoria Embankment to campus yesterday, I couldn't help but notice the somewhat chunky runner in short shorts running toward me. He was running east, toward the City of London, where the UK's financial center is located. I could hear him panting in exhaustion from several yards, his lips parched. The guy looked like he was going to keel over and explode. The veins in his forehead looked like tree stumps.

The best part, was not his evident lack of athletic ability, but his shirt, which proudly advertised:

"BEAR STEARNS"

I love irony. Kinda' like that magazine ad I read on exactly that weekend when Lehman Brothers and a certain insurance company kicked the can:

"The AIG companies have the strength to be there when you retire, so you'll never outlive your money. Ask your financial advisor about AIG or call 877 AIG 0993.

"live longer. retire stronger. AIG: The Strength to Be There."

"Vote for Me" Brought to you by...

Sen. Barack Obama will soon deliver a 30-minute address on television - it's technically an advertisement ($150 million in new campaign money can buy a heck of a lot), but it is clearly Obama's last big campaign push before the election (FINALLY).

Notwithstanding your political views, do you think this is ethical? Should John McCain be given a similar opportunity to provide his own life story and offer his own campaign message, uninterrupted for one half hour?

http://www.thrfeed.com/2008/10/obama-ad-may-ha.html

My pro-1st Amendment stance tells me it should be OK, but at the same time, Obama will likely reach a broad collction of voters/TV viewers with this ad. Should McCain have the same opportunity even though he lacks the cash?

A Solution for Public Education?

I'm not one to profess any expertise on public education, but here's a new program in my hometown, Pittsburgh Pa. (the Steel City), that may prove effective in improving student performance in inner city public schools.

The Pittsburgh Promise is a college fund that provides college tuition incentives for city school kids who stay in school and commit to going to college in the Pittsburgh area and possibly staying there to work. The program received a sizable endowment recently, and could give hope that if the private and non-profit sectors play a role, they can improve student performance by incentivizing it. I would hope, though, that the benefactors maintain a hands-off approach on changing curriculum or dictating how a public school system must manage itself.

The current of state of public finance on all levels is a mess, with a massive federal deficit and many states looking at fiscal issues of their own. Thus, the solution to public education's problems in inner cities cannot be found in increased funding. Creating new incentives for students to pursue college (and get a big tuition bonus) is a pretty good way to motivate.

Fly me to the moon

Today was historic for India -- it joined a very exclusive club of nations to send a spacecraft to the moon (unlike the NASA Apollo missions, India's was unmanned). It is a tremendous accomplishment for a country that has always produced top-notch scientists but never seemed to get recognition for it. But the usual skeptics are bound to surface and ask, "why is India looking to the moon when it has plenty of its own problems?"

I think both sides of this argument have some merit; India has issues of disease, poverty, environmental degradation, population growth and a growing rich-poor gap (all of which are interrelated), but has decided to divert a significant cut of the resource pie to sending a rocket to take pictures of the moon.

I disagree with these contentions. Space exploration in 1960's was one the greatest symbols of the Cold War, but most importantly for friendly, international competition. No one was maliciously killed in the Space Race; yet, it accelerated innovation in the United States and inspired a generation to think that, yes, the sky is no longer the limit. India is smart to foster the same ambitions, that accomplishing something as sending a rocket to the moon is symbolic. India is a friendly competitor in the field of science, and needed to send a message that it is able to compete on the global stage. That increased competition, I hope, will stimulate American innovation and get the United States to once again renew a mass-culture of innovation, ambition and drive.

God Bless America...

...and guys like this, who remind us that if the sickle and hummer represent the evil of Communism, that the toilet plunger represent the everyday average American guy workin' for the meal in a free, democratic America.

http://www.post-gazette.com/images4/20081017brk_ap_joeplumber_hp500.jpg

To recap this week:
* The EU, US and Switzerland each moved to stabilise their banking systems. In the US and UK, these were necessary but also politically sensitive considering the low public approval of the incumbent parties in both countries.

* North Korea was removed from the US' list of state-sponsors of terror. I guess no more 2-for-1 double coupon discounts for nuclear centrifuges "brought to you by North Korea."

* Friday was my first day as an intern in the United Kingdom Parliament, House of Commons. I had a chance to walk through the hallowed 1000-year-old Westminster Hall and other houses of Parliament that are more than 700 years old. The legacy of Britain's once unrivaled power was palpable. Amazing place. I then got to attend a going-away party for another Parliamentary staffer in the corner office of one MP in Portcullis House along Victoria Embankment...across the street? The River Thames, and Big Ben, right there.

Revisiting Alex Hamilton, Bretton Woods

Here is an interesting take on the redistribution of economic power - is a meeting of just the G-7 industrialized nations enough to find a solution to the financial crisis? At this juncture, and certainly down the road, the G-20 (which includes Australia, Saudi Arabia, and some developing but nevertheless powerful nations such as China and India) will play a significant and imperative role in resolving financial crises.

Also, here's an interesting (if superficial) article on one woman's effort to move her bank savings from a large bank, Wachovia, to a smaller community bank that has been operating since before the American Civil War. Could we be returning to those 19th century days when Americans didn't trust centralized financial authorities (i.e. a national bank) or large banks (sorry Alex Hamilton)? After the Riegle-Neal Act, we became accustomed to widespread bank mergers, and the current economic crisis has accelerated them. Our assets increasingly were held under large entities. But the backlash could be a return to depositors preferring their local banks, where they can get to know the management and have a better sense of what's in those community banks' loan portfolios - thus great security for their assets.

Making something out of nothing: A turning point for Europe's standing in the world?

It was Europe's time to shine, and shine it did.

Europe's leaders should be lauded for their joint efforts to infuse banking systems with cash by nationalising important and responsible financial intermediaries - and without the tired partisan – albeit pre-election - bickering exhibited in Washington. Europe's response to the still-unfolding financial crisis is not only a vindication of sorts of Europe's steady financial acumen, it illustrates the strength of common purpose borne out of a common market. Interdependence, in this case, brought all parties to their best. And it was Gordon Brown's and Chancellor Angela Merkel’s schemes, not President George W. Bush's, that are setting an example.

Still, questions remain for whether the efforts to recapitalise banks address the underlying problem that created the mess. Flooding cash into a banking system that did not behave the last time money was cheap is like giving a drug addict even more of a fix. Still, leaders also understand the reality that, for the sake of households and businesses, the economy can't quit cheap cash “cold turkey.” Now, there is but one certainty: it's the risk analysts and credit rating agencies who will have any kind of job security in the credit-crunched months ahead.

Post mortem of Greenspan's legacy

Aptly timed of course to my previous post, The New York Times' Thursday edition contains a really good write-up of Alan Greenspan's tenure, and its contributions to creating an environment where a housing bubble could form under a weakly regulated financial system. Check it out here.

Greenspan and Bernanke: Did they have a choice?

Much has been said about the lack of an evolved regulatory system to keep up with the evolution in financial markets, namely with investment banks and other non-depository lenders.

From my view as a layman, the biggest threat I see to the economy of the future is one in which the central bank has no effective control, a subject I hope to study further here in London. And I fear that while liberalized financial markets have allowed the United States and other countries to finance debt spending at low rates and encourage economic growth with freely flowing capital, central bankers may be losing the ability to predict and stop a collapse. Now, they are effective only when they mobilize in a reactive, not proactive, response.

For example, former Federal Reserve Chairman Alan Greenspan was forced to cut rates precipitously following September 11, 2001 and the concurrent recession. Greenspan was widely lauded as being an economic mastermind for his stewardship of the dot-com economy and the response to 9/11.

But it's now clear that his successor, Ben Bernanke, is dealing with the lagged impact of Greenspan's policies of loose credit in the waning years of Greenspan's term. Historically low interest rates contributed to the housing bubble that, in case you missed it, is blowing up.

To Greenspan's credit, he frequently criticized President Bush's deficit spending, the cause of the expansion of the United States' national debt and widening current account shortfall (and thus reliance on debt to sustain economic growth). But I don't think it is fair to blame Bernanke for the current crisis. He is simply dealing with the lagging effects of his predecessor's policies.

The key is -- did either Greenspan or Bernanke have a choice to make the interest rate decisions they made? Greenspan had no choice but to loosen credit after 9/11, and also to finance a growing debt that was rooted in a reckless fiscal policy. Bernanke has experienced much of the same; he has no choice but to offer this or that bailout, or extend credit to banks or companies, even if their executives still indulge in California resort retreats, to keep the system solvent. And now we have a power-in-waiting in China, which holds half a trillion dollars in American debt. What options do central bankers have? Are they merely guiding a system that is already on auto-pilot and out of their control?

The wheel keeps on spinning...

Some more news today:

On the heels of Germany's announcement over the weekend to guarantee all private savings, and potentially based on the bailout precedent set by the United States last week, the British government announced a massive bailout to help the banking system.

Meanwhile, the Nikkei average in Japan experienced its biggest drop since 1987, and Iceland is approaching bankruptcy. I guess that means no more Bjork...

Credit Crunch: The world's new soggy cereal

OK - I have some catching up to do. Like many of my self-initiated assignments, this blog started off with a momentous roar and then retreated with a whimper. Maybe it's that while I try to adjust to a new school and new city, the world is encountering new challenges each day that a word written about it in one minute is outdated the next.

We now know that the financial crisis is cascading to Europe, like a massive fan "wave" at a college football game. This really is the test of our time, perhaps more devastating than 9/11 in both its real economic and psychological impacts -- and the numbers are starting to come out as to what the impact on households will look like. It took America a couple of years to recover from 9/11, and it will likely take a lot longer when all the dust settles and the Congress settles on permanent legislation to regulate the evolving financial sector.

In one hour, the American presidential candidates will spar for the second of three times before Nov. 4, and for the first time since Gov. Sarah Palin accused Sen. Barack Obama of "palling with terrorists." It's an outrageous but certainly answerable claim, considering her source was The New York Times, which, undoubtedly to the dismay of the Obama campaign, Gov. Palin (or her speechwriters) most likely was reading for the first time when the article appeared.

Those are my "brain droppings" (RIP George Carlin) for now. Check back for a couple write-ups soon on recent lectures I attended here at the LSE. This truly is an amazing place; 160 countries represented, and lectures and professors that cover almost everything under the sun.