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Wednesday, October 16, 2013

Up-Ending the Dramatic U.S. Debt-Ceiling-Limit Cliff-Hanger: Pay No Attention to the Man Behind the Curtain

It can be said that the media's currency is credibility. If so, the American media may have outdid itself yet again in characterizing the federal government's sequester in 2013 as an imminent disaster of Congressional design. Countdown clocks going back days only escalated the orchestrated yet subterranean calculus of attention-getting and fear-mongering by the usual suspects. Not only did the actual sequester not turn out to be a train wreck; the enforced budget discipline brought the spending line significantly more into line with the revenue line. 
 
Later in the same year, the clocks were back for the government partial shutdown and a default deadline. CNN outdid itself. Not only did the network sport a clock counting down to the partial shutdown; the countdown clock turned into a precise indicator of the ongoing duration of the partial shutdown down to the second, even after eleven days!  The unnecessary, dogmatic inclusion of minutes and seconds could only have been intended to deliberately stretch out the manufactured sense of alarm or crisis beyond its unnatural life. The mendacity and manipulation are of course unethical, yet the novel practice had already become the industry's norm so the viewers naturally assumed it must be proper and well-proportioned.

Even as the days, hours, minutes and seconds mounted, CNN added a second clock just below the first in order to countdown the upcoming default deadline. Fortunately, after a day or two of numbers galore, someone at the network made the momentous decision to simplify the "shutdown" clock into a count of days. Unlike the excessive day-count by the networks as the hostage situation in Iran went on and on in 1979, CNN's "Government Shutdown" day-count and "Debt Ceiling Deadline" clock were seemingly etched onto the screen (except during commercials, of course). Although the advent of the 24/7 news-channel eased this shift appreciably, the trajectory itself can be graphed as a curve evincing a sort of cancerous decadence spreading through the body politic. I want to unpack the very nature of that pathogen by placing a slice of the media on a microscope slide.
 
A look at the catastrophic partial government shutdown.  Wikimedia Commons.

Is what we have here one artificial "catastrophe" on top of another? That the first had never really gotten off the ground as catastrophic was apparently beside the point as the media began crying wolf yet again. Perhaps imminent catastrophe as a sort of continuing resolution had already become the primary strategy of television news editors, who were at least outwardly impervious to whether or not the last crisis had actually turned out to be catastrophic as they had thought and pronounced. No learning curve extraneous to what sells was allowed by those who refuse to look in the rear-view mirror. The new "reality" (or reality show) premised on a permanent adrenaline-rush (coffee no longer being required) had been found to be cheap to produce, and thus it had become the default. For added fun, the viewers could look forward to a  cacophony of puffed-up talking mouths forming a cavalcade of exaggerated metaphors with no curtain call in sight.
 
The confluence of the government's partial shutdown and the prospect of a default fueled a confluence in turn of journalists and politicians around a storyline to which only they and Wall Street were privy. Meanwhile, the usual suspects treated the public to an exaggerated roller-coaster ride over the supposition that the cars really could suddenly fall to the ground. The manufacturers were even considerate enough to supply a countdown clock! 
 
Source: NPR.org
 
Besides magnifying the significance of each public statement and meeting by labeling almost every twist and turn "BREAKING NEWS," broadcast and online/print journalists as well as the ubiquitous pundits happily joined members of Congress in misappropriating war terminology even to someone's refusal to talk to someone else on Capitol Hill. 

For example, former U.S. House Speaker Newt Gingrich said at one point on CNN, "It is a nasty, bloody fight." Meanwhile, U.S. House representatives were referring to the difficulty in reaching a deal as a terrible battle. Had any of them been to the real battlefields at Gettysburg in Pennsylvania? Had the former Speaker, perhaps when he was studying for the doctorate in American history? Lest the thick, humid air of the odious irony cause anyone difficulty in breathing, I can supply a bayonet to cut through the miasma of soupy air.

To correct the squalid, sensationalizing habit of militarizing the "sausage making" in Congress, an actual military veteran gives us a needed reality-check in an ad sponsored by a vet group and aired on CNN just before the former Speaker over-reached. The veteran declares with an obvious note of disgust and disbelief, "It is not an epic battle. I've been in an epic battle and running the government is not one of them." I was instantly reminded of Sen. Lloyd Benson's clever response to Sen. Dan Quayle in the vice-presidential debate in 1988.

 
As if recalling faded images of soil tainted with the blood of those who had sacrificed their lives does not go over the top, the Huffington Post ran the following headline: "[U.S. Senator] Joe Manchin: Democrats May Consider 'Nuclear Option' On Debt Ceiling." Was it really necessary to stir the old fears of those Americans who could still remember the corrosive taste of the Cold War? Selfish and inconsiderate, or perhaps the old sin of pride overlaid with whipped presumptuous, may aptly describe the underlying mentality. Yet even sickness can be found in the nucleus of the interlarding pathogen.

Ironically, Wolf Blitzer of CNN turned away after only a minute or so from Sen. Rubio speaking live in the U.S. Senate chamber on the Iranian nuclear talks then going on only days after Sen. Manchin made his infamous "nuclear option" threat. In spite of the fact that getting Iran to the negotiating table had just been a significant step toward a solution and the media around the world was covering the talks, the veteran news anchor in America relegated the issue as soon as he discerned that the topic was not the upcoming debt-ceiling. As though an infant missing his thumb for two seconds, Blitzer quickly said (paraphrasing), "Senator Rubio on the Senate floor is just talking about Iran. I want to turn to . . . on what is going on right now on Capitol Hill." Nothing was going on.

I was astonished that the folks at CNN could be so obsessed with microscopic, minute reports of this and that meeting of lawmakers, a brief public statement of no substance (e.g., "We want fairness."), and various trial-balloons seemingly meant to preempt running up against the debt-ceiling at "ZERO HOUR." In hindsight, few people would notice that President Obama signed the bill after midnight, hence past the zero hour. the Apocalypse. Put another way, the timing of the bill finally becoming law early on October 17th invalidates all the clocks counting down the minutes and seconds, as well as the USA Today newspaper front-page headline on October 16th proclaiming "ZERO HOUR" as if the world as we know it would end at midnight without the debt-ceiling having been extended. As conflict is the stuff of a good show, the paper's editors flanked the "ZERO HOUR" (in a flaming red square) with photos the Speaker of the U.S. House and the U.S. President, seemingly staring each other down. Conflict sells, as do even artificial, arbitrary deadlines invented and then fed to a beguiled public. After the fact, few people even think to look in the rear-view mirror, and so we can expect the manipulation to go on.

Why is the application of zero hour to the debt ceiling fake? It is important for us to realize the severity of our lapse so we won't be taken so easily in the future. The U.S. Government would not go into default the minute, or even necessarily days, after the debt ceiling has been reached unless cash on hand is not sufficient to pay the bills due immediately. That is, not being able to borrow more does not preclude the government from using its cash on hand and incoming revenue from taxes and other sources to pay the bills as they come due. Regarding the October 17th "deadline" at 12:01 a.m., the big bills (e.g., Social Security and interest payments) were not to come due until October 21 and then again on November 1st. Even though Treasury's software may not have been able to "pick and choose" what to pay in order to stave off actual default (i.e., missing an interest payment to U.S. bond-holders), presumably a law passed by Congress and signed by the president would override such logistical matters. Furthermore, because no interest payments were due on October 17th, not to mention exactly at 12:01 a.m., actual default would not have occurred at the end of "zero hour" or even the next day! Nevertheless, the media, Congressional lawmakers, and the self-anointed pundits qua experts easily foisted the lie on a gullible public eager to believe anything said on television or in print.  

Given the government's cash on hand and strong revenue stream coming in, I suspect that the feared trade-off between paying interest on the debt or issuing Social Security checks is a false dichotomy.  To be sure, the ethics of paying wealthy bond-holders while retirees, the sick, and the hungry go without sustenance is daunting, if not prohibitory. Such a breach of ethics would be on top of the media's  hidden agenda or biased discretion to maximize "me, me, me" and profits at the expense of the journalist mission to report the news let the viewers make up their own minds. Moreover, to deliberately foment fear excessively violates Kant's "Kingdom of Ends," wherein beings having a rational nature are treated not just as means, but also as ends in themselves.

The real crunch point would have come with the first of the huge pay-outs, which would not be until October 21st. Even putting off non-interest bills coming due before that date would not be an actual default, which is defined as missing a payment of interest and/or principal to creditors. The "ZERO HOUR" was a hoax, which, unfortunately, could have become a self-fulfilling prophesy. Fortunately, Wall Street wasn't buying into the stunt. Had the drama been allowed to play out until October 20th, the continuing financial uncertainty alone might have caused a "run on the bank" even if the traders and major investors were privy to the end-game already worked out in Washington. Smoke and mirrors can spur someone into starting an actual fire.
 

Another casualty from the media's obsession based on the assumed validity of a "zero hour" is what I would call the monopoly of the story crowding out virtually all other news. As if creating the countdown clocks in the first place is not bizarre enough, the refusal to break away even for five minutes has all the earmarks of a pathology or dysfunctional mindset even if the intent of the network executives and anchors was to maximize the audience-share for the first half of October. Even if the viewers had already been suckered into the purported significance of the "breaking news" flashes regarding trivial "developments" in line with profitability, gaining from lying violates journalistic ethics and the mentality involved is sordid. At the very least, that journalistic strategy enables a personality disorder. 

For example, twelve hours before the declared zero hour ending at midnight, voices presumably screaming in Blitzer's ear-piece would not tolerate even five or ten minutes on the Iran talks then concluding, even though similar voices had saturated the entire morning with hours of unrestrained verbal diarrhea ad nauseam zooming in on every little twist and turn. The refusal to break away from a dearth of real news to briefly cover a story being heavily reported on that day by news networks around the world is a huge red flag begging to be examined. The pathogen goes far deeper than merely a tunneled perspective and even a lack of judgment (in one's own field!). At the subterranean level at CNN must lie a dysfunctional organizational culture enabled by the obsessive-compulsive personality disorder.
 
To be sure, an actual default by the U.S. Government would have serious economic implications. Sen. John McCain reported that the likely impact on the market, according to Wall Street bankers and stock analysts, would be "very, very negative." That the media used "Armageddon" rather than "very, very negative" and referred to October 17th as "the magic day" and to midnight there of as "Zero Hour" is a red flag. Even if most of us are color-blind, the choices that were made in the (misuse of) discretion say something about the mentality underneath the carefully-cropped haircuts.

Meanwhile, the continuing partisan remarks by members of Congress belie their artful shrieks that the sky would soon fall unless the other party caves.  For days, the public had been blanketed with baleful warnings of imminent catastrophe. In other words, if the lawmakers really did think a financial meltdown might occur, they would not be prioritizing political points unless risking their own wealth, not to mention the U.S. economy (and thus their jobs), was of no concern.

Days before the public new that a deal was in the works in the Senate, Sen. Reid's "Don't screw it up" comment was caught by a microphone as the mayor of Washington, D.C. stopped the majority leader on the Capitol steps to ask for enough money to operate the city (including trash pick up). What is the it? A grammar detective would point to the missing antecedent as being very suspicious.

Also suspicious, with even just 12 hours to go before the global financial system could turn into a pumpkin at midnight, the Dow Industrials was up more than 100 points. Had the traders and major investors believed that an actual default was possible, the dire consequences coming with even low probability would have been factored into the market. The Wall Street elite must have known that even a House vote well after zero hour would not trigger a default. In short, the countdown clocks and word of a zero hour were both a ruse perpetrated on an beguiled public (you and me). Feels nice, doesn't it? Yet we continue right along in the matrix.

 I submit for your consideration the possibility that Congressional lawmakers, the president, Wall Streeters, and even perhaps the media already knew that Act 3 would end with a dramatic (i.e., attention-grabbing) climax and a favorable ending. With the "it" set, the incumbents could enact various displays like peacocks to give themselves political cover or simply look good amid all the manufactured attention. Meanwhile, the American people were being manipulated into believing in the existence of an epic bloody battle ending on time, as planned, just before "ZERO HOUR." If I am correct with this scenario, the players on the mighty stage do not deserve a standing ovation for having saved the day. Least of all are we to permit them an encore, even if one has already been pre-determined and thus inevitable.

 

Tuesday, October 15, 2013

Human Weakness Enables Market Bubbles: A Nietzschean Perspective

As a young idealist in business school, I believed in the efficient market hypothesis; an efficient market based on perfect competition would obviate excess profits (e.g., monopoly rents) while keeping prices as low as possible. I assisted a professor with his article on the NASD (National Association of Securities Dealers) as a stellar example of industry self-regulation. The ideology cutting off the far left of my peripheral vision, I dismissed the possibility that an industry would look the other way on a miscreant firm as executives of other companies fear accountability from the industry association. Moreover, the business practitioners may profit, at least in the short term, from foisting on the general public the illusion of industry self-regulation, which can serve as a front protecting a squalid underbelly.
Fast-forward to 2013, to the Nobel Prize in economic science (a science?). Fama, Hansen, and Shiller shared the award for their respective work on the efficient market hypothesis. Specifically, they demonstrated theoretically how markets can be inefficient in the short term but highly accurate in the long term in pricing assets such as stocks and houses. The high tech bubble in the 1990s and the housing bubble in the 2000s were therefore not aberrations. By implication, government regulation oriented to forestalling bubbles received a sense of vindication while the free-market hypothesis applied to asset-pricing over the long term was left standing. 

 The proportion of sub-prime (borrowers ordinarily not qualifying) mortgages clearly leaped during the worst years of the housing bubble. Was this a case of many people over-reaching?
 
“The free-market people have a point that the markets are efficient in the long term. That hasn’t been thrown out the window. What has been thrown out the window is the idea that the market is always efficient in the short term,” Nariman Behravesh, chief economist at IHS, provides as a summary. He points to “a strong herd effect in financial markets” to explain the hole in the efficient market hypothesis.[1]
Nietzsche uses the term “herd animals” to characterize the weak, whose sickness and related resentment of the strong makes natural a “pathos of distance” between the weak and the strong. The latter relish their self-confident strength, and thus have no reason to over-reach. Interestingly, the “dot.com” and housing bubbles both involved over-reaching, whether by entrepreneurs who presumed they were stronger than they actually were or home-buyers whose eyes were bigger than their stomachs. In other words, the “strong herd effect” is not simply following others as if humans were fish swimming in schools; the phenomenon involves the over-reaching instinct that can be found in human weakness.
For example, on the very day of the Nobel Prize announcement, the Pentagon’s inspector general released a report claiming that Boeing had charged the U.S. Army for new helicopter parts even as employees installed used parts instead. The “switch” had allegedly occurred four times over the previous five years. According to the report,” Boeing significantly overstated estimates” of new components needed for CH-47F Chinook helicopters and “primarily installed used parts instead” under a $4.4 billion contract awarded in 2008.[2]
That fraud can easily compromise the efficiency of a market in the short and even medium term is hardly surprising; that the presumptuousness of weakness as a sort of “brain sickness” is also in the mix might be. The managers at Boeing who swapped the parts presumed that the company (and the managers themselves) was strong enough to get away with short-changing the U.S. Army. Put another way, that the managers viewed the trick as necessary implies that they viewed the company as being in a weak condition, perhaps from over-reaching. Just in being oriented to such games and over-reaching in the process, the managers can be said to have been weak. Here, being a herd animal refers to sporting a small-mindedness rather than following one’s group. Therefore, we can enlarge the “strong herd-effect” to include Nietzsche’s notion of the “herd animal.” The hole in the efficient market hypothesis is consequently deeper than even the Nobel winners assume in their respective writings; a serious “brain sickness” possible in human nature (where it is weak or has been weakened) legitimates government (not “self”) regulation oriented to obviating the susceptibility of asset-pricing markets to bubbles and other inefficiencies. Markets, it turns out, are human, all too human, after all.


[1]Tim Mullaney and Mike Snider, “Americans Win Economics Nobel,” USA Today, October 15, 2013.
[2] Tony Capaccio, “Boeing’s Pentagon Charges Questioned in Audits Four Times,” Bloomberg News, October 14, 2013.

Monday, October 14, 2013

Wall Street Undercutting the U.S. Government When It Is Down

Irony can sting. During the week or so leading up October 17, 2013—“Armageddon” or “zero hour” for the default of the U.S. Government absent any increase in the debt-ceiling (even though the next big payment would not be due until October 21st)—Wall Street banks were already bailing on short-term treasury bonds even as governments around the world were holding on. Patriotism and corporate citizenship apparently collapse when money due may be delayed. Meanwhile, foreign governments—even big creditors like Japan and China—were taking a long-term view. “There’s no other way than for the U.S. government itself and the U.S. Congress to sort it out,” Japanese Finance Minister Taro Aso optimistically told Bloomberg Television.[1] Apparently Fidelity and JPMorgan Chase did not get the memo. In over-reacting out of an excessive desire to collect as stipulated, big American financial houses were not so subtly undercutting the U.S. Government’s waning credibility. It is ironic that Washington’s best supporters were foreign governments.

 The underlying debt-burden would again surpass 100% GDP in Obama's second term.  Image Source: Wikimedia Commons
Perhaps Wall Street’s bankers do not understand political theatrics whereas foreign government officials do. Maybe the bankers were privy to the real politics going on in Washington and the situation threw a beam of light on the bankers’ greed and selfish insistence that things go their way without exception. Either way, what is good for Wall Street is not necessarily good for America. Put another way, the Wall Street bankers who had been prospering so under the American hypertrophic value on economic freedom (e.g., no amount of wealth is too much) felt no gratitude or sense of obligation against even a chance that interest might be delayed a bit. In return, vast numbers of Americans strangely continued to defend the right of the super-rich bankers to pile on even more to their existing skyscrapers of wealth. If the bankers were merely being themselves in shedding short-term treasury bonds, the puzzling question may pertain not to them but to how a people could be so beguiled.  



[1] Mark Gongloff, “The Rest of The World Still Claims Faith In America (Even If Wall Street Doesn’t),” The Huffington Post, October 14, 2013.