Monday, April 30, 2007

Pressure Maliki, for Heaven's Sakes!

Today, there was a story about how Iraqi President Maliki has been sacking senior officers who have been too aggressive on the Shiite militia's like al-Sadr's Mahdi army. This is starting to get old, and it's high time the US started to put more pressure on him. Not just pressure that US forces will leave if there is little political progress, which is useful to a point, but also maybe we need to start talking partition. Democratic presidential Joe Biden is the only one who has seriously pushed this idea, and there certainly are numerous challenges, but as the alternatives dry, it might be a good option to keep pushing if for no reason that to keep Maliki on his toes.

A few thoughts on partition, by the way. The common response is Turkey would never allow an independent Kurdistan, and the rest of the Iraqis wouldn't accept a breakway republic with most of the oil. Maybe so, but as I see it, Turkey has little leverage in this debate - the US could "accept" a Kurdish offer for permanent bases that would deter any Turkish aggression. The oil is trickier, but is precisely why the US needs to start considering this option more seriously - it sends a message to Shiites and Sunnis that a prolonged stalemate could be the equivalent of singing sayanora to their oil riches.

Our Dishonest Gun Debate

It has been two weeks since the brutal murder of several Hokies by a deranged student, and now I finally post on the issue. My silence was not based on a lack of interest, but rather on a desire to avoid pronouncements during an emotional state. (Living but a few hours from Blacksburg, and almost having gone to VT, having actually met one of the professors who was killed, it certainly was a bit overwhelming!)

No, I'm not going to delve into Cho or his history. Nor will I talk about what Tech officials could or couldn't have done, beyond saying that the criticism of the administration soon after the incident was somewhat misplaced. What matters most to me is the longer structural question of gun control. I have tried to form an opinion on just where I stand on the issue, but that effort has been frustrated by the phenomenal dishonesty by both sides of the debate, seeking to prop their interests by skewing or outright lying.

The most prominent example of that dishonesty was a column by former Senator and presidential hopeful, Fred Thompson, of Law & Order where he argued that gun-control reduces violence. A well argued point, except he used as an example the fact that Great Britian, with the strictest gun-control laws in the planet, had higher gun-related deaths per-capita than the US. I knew that wasn't true, so I turned to peer-reviewed literature (the advantage of being in academia). Hmm, at least this one paper showed it not to be true....

I first thought Thompson had used a clever trick - by lumping terrorism-ridden Northern Ireland with England & Wales, the number of gun deaths would be artificially inflated (of course, you could add American soldiers who died in Iraq in the US toll to skew American numbers!) But an analysis by Dr Martin Killias at the University of Lausanne in Switzerland reveals the per-million gun homicides rates in England & Wales was 0.8, Scotland 1.1, Northern Ireland 21.3 ... and the US 44.6. So it's possible Fred Thompson just flat out lied.

And yet the claims that gun control works are just as dishonest. Cook and Ludwig found in a study published in the Journal of the American Medical Association in 2000, little impact of the gun-control law, the Brady Act in reducing gun violence. This is something much of the mainstream media doesn't seem to acknowledge. Gun control doesn't really always work - it appears to have in tiny UK, but in a country as large as the US, there seem to be ways around it.

What then to make of a gun policy? If the statistics are inconclusive, we need to turn to moral arguments. Here too, I'm torn between the two sides. I do believe every person needs the right to own a gun and defend him- or herself - if I lived in a big city, I do not want to rely on the police when travelling through a violent neighborhood. And yet, I don't find the need to undergo a background check or register my weapon unnecessarily intrusive - after all, I do have to jump some hoops before I can operate a vehicle - why should a killing weapon be any different?

And then there are philosophical questions to answer. What happens when there is a military coup, or we have an government that is unresponsive to the people? As ridiculous as it sounds, this would hardly be the first time. Or what if we have a Holocaust-style effort at ethnic cleansing. Private militias would protect the interests of the people when existing systems break down (yes, it's true that right now, private militias are a bunch of crazy zealots who want to cause anarchy even if it means killing innocent civilians)

And then the talk of guns used as a deterrent in situations such as VT. Do we really want untrained members of the police trying to handle a situation when police officers undergo hours of hostage training for this purpose?

When all is said and done, it appears there is still a lot to think about when we talk guns.

Postscript You probably have thought a bit about Columbine in the last couple of weeks, and probably Michael Moore's interesting movie, Bowling for Columbine. James Tucker wrote a fascinating (and non-political) critique of the movie in the journal Global Crime, that you can read here.

Quote of the Day: Thomas Jefferson

First up, sorry for not blogging more often. Personal circumstances have prevented me from being as active as I'd like, and it's likely my blogging might remain spotty for the better part of the next month.

I was in Washington, DC with my parents last weekend, and was really struck by the following quote by Thomas Jefferson. At a time when we seem to obsess about what the Founding Fathers had in mind, it's interesting that one of those men certainly hadn't intended the stubborn dedication to their thoughts and views. This inscription is on the Jefferson memorial, along with more famous quotes:
I am not an advocate for frequent changes in laws and constitutions, but laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy as civilized society to remain ever under the regimen of their barbarous ancestors.

Thursday, April 05, 2007

Coming Clean ...

NPR's Opinion Page had a recent piece on how bloggers need to come clean just as professional journos do. While I certainly don't have the audience to have companies send me free products to review (although I am available for anything free!), I thought I'd take a couple of minutes to review any conflicts of interest I may have.

First off, politics. I was a Communist growing up, and it's only when possibilities arose when India opened up did I realize how screwed up leftist ideologies are, and the potential markets have to unleash individual creativity. I have definitely moved far to the right, but I'm still a tree-hugging, pro-immigration (duh!) conservative who tends to be a social moderate who wants government out of people's lives, except when they need to be there. Hmm, this isn't going so good...

I think the real estate market is due for a crash, and worry about the common man and about friends. At the same time, I have recommended home ownership to some people based on their particular circumstances, and I myself wouldn't mind finding a bargain.

I think the stock market is overvalued, but I own my share of stocks and mutual funds. I have recently exited positions in mutual funds in small caps, emerging markets and some fixed-income, but I still have investments in the market.

I am not sure global warming is a crisis, but I think we can't afford to wait to find out. But I still drive a car (it's a fuel-friendly Honda Accord!) I invest in companies that are proactive in global warming such as Duke Energy, but also in those that aren't, including Ford and oil & gas companies.

I think people eat too much crap, and I sure rant about nutrition, but I eat a bowl of ice-cream every day. And if something is free, I'll eat it. Unless it's a doughnut ... I don't do doughnuts!

I'm sure there are others I can't think of now, but let's just say, my disclaimer policy is ... "do as I say, not as I do!"

Pelosi Alert!!

Always watch out for a politician who has too exaggerated an opinion of him or herself! The latest victim to this self-indulgent think is Speaker Nancy Pelosi, who seems to think that just because she's the first speaker of the House, she needs to try and be a pseudo-president. Her latest escapade was a damaging trip to Syria, where she conveyed a peace message from Olmert and "determined the road to Damascus is a road of peace". Except that Olmert's office denies it ever sent a peace message, and Syria is hardly a peaceful country, implicated in the assasination of the former Lebanese prime minister and supporters of the malicious Hizbollah.

What Ms Pelosi did achieve was to perpetuate a sense of American weakness - the idea that the insurgents in Iraq have used to egg each other on - that democracy weakens the spirit and that when the going gets tough, America gets going. I'm all for negotiations with all parties, but when a speaker of the House choses to subvert the elected leader of the free world, it makes you shake your head in disgust. But forget me, even that liberal bastion, the Washington Post had a damning editorial on Pelosi's foolish shuttle diplomacy.

Wednesday, April 04, 2007

Start the Cuts!

A day after the Supreme Court ruled that it was within the EPA's jurisdiction and responsibility to regulate greenhouse gas emissions, President Bush assured the public that he takes climate change very seriously. A sign of change? I was hoping so until I saw this:
... anything that happens cannot hurt economic growth. I care about the working people of the country but also because in order to solve the greenhouse gas issue over a longer period of time, it's going to require new technologies, which tend to be expensive.

Being a hard-core capitalist myself, I appreciate not affecting the economy, but I think there has been enough done by companies such as Duke Energy and Toyota, to suggest that a proactive approach to global warming could be an opportunity rather than an obstacle to greater growth. The US, with its technological prowess, is uniquely capable of leveraging its assets to be the climate change solution provider of choice for much of the world.

But waiting for technology is a mistake! The reality is that the solution is conservation and energy efficiency, not in supporting ludicrous ideas like embracing ethanol (about which I have ranted before). A good start would be a fuel tax or some increase in CAFE standards. Indeed, transportation is the one of the most inefficient segments of our energy market. The chart is from the Department of Energy, and shows that the transportation segment accounts for under 30 quadrillion BTUs of energy consumption, but produces about 500 million MT carbon equivalent! A progressive taxation system, where gas sippers are exempt while guzzlers are heavily taxed would encourage energy efficiency.

It does seem strange for a market-solution lover to be embracing taxes, but that is the only situation when markets don't reflect the true costs of doing business.

Tuesday, April 03, 2007

Quote of the Day: John Mackey

John Mackey, CEO of Whole Foods Market in a conversation with Kai Ryssdal in the program Marketplace on American Public Media:
Well, in the United States, the average individual in America, we spend about 8 percent of our income on food. They spend about 15 percent in Europe, and about 20 pecent in Japan. So if you've been to Europe and you've been to Japan the quality of their food on average, in my opinion, is higher than it is in the United States. Americans make a tradeoff; we trade off less expensive food and it's not as good and we're also if you look around we're suffering an obesity crisis in the United States; we eat a lot of crappy food in the United States.

And we could afford to eat better. But we are . . . we have come to believe that we're entitled to cheap food, not understanding that there's a direct relationship between quality and how much something costs. We don't make that . . . if you think about the other parts of our lives, we know that automobiles vary tremendously in quality as does computers, as does stereo equipment as does cameras as does every other part of our lives, but in food we somehow or another think God, we really need to buy the cheapest stuff possible and we kind of treat our bodies not very respectfully.

It is an extraordinary interview with a man who dropped out of college 6 times, studied philosophy, not business, lost half of the seed capital of $45,000 in his first year operating an organic food store, and came on to build the nation's largest organic food store. Listen to the interview or read a transcript.

They Have Their Models!

I was watching a very interesting interview with Mr James Grant, editor of the Grant's Interest Rate Observer and a truly brilliant forecaster, and was stunned by some of what I heard. For all we have heard on the subprime mortgage market risks, most articles have focussed on the revenues of individual subprime mortgage providers. We have never really heard just how significant the subprime market is, and many articles have alluded to the subprime being a small fraction of the overall mortgage market.

Sub-prime and Alt-A [better than subprime, but below prime] represent 40% of the $8 trillion mortgage market. Hundreds of billions of dollars of CDOs were sold... You take 70% of a pile of BBB- (marginal)... 70% of this junk, is AAA. [How do they do that?] They have their models!

What is a CDO? CDO is a collaterized debt obligation - basically a package of mortgage loans that has been studied by credit rating agencies and assigned a certain risk. So basically agencies have used mathematical models to study recent correlations between the securities in that portfolio to classify the collection of junk as equivalent grade to a US Treasury. The problem, as Mr Grant points out, is that these models are based on what can be considered an anomalous recent period of lax lending, and the model predictions will turn out to be wrong. Indeed, a caption during the story pointed out that about 10% of subprime mortgages are delinquent by 90 days as of December 2006.

Mr Barry Ritzhold takes the focus to the effects on the economy, and the effect of the reset of interest rates on $2 trillion dollars worth of mortgage debt, that will result in monthly payments rising 10-50%. He cites a study by a title insurer, First American Corp., that projects that one in eight ARMs (adjustable rate mortgage) will end up in default. That's a stunning number, and in an economy that's already a little overstretched, may well cause a recession, in his opinion.

The risks associated with computer modeling though stretch further than the mortgage market. A bevy of hedge funds and "quant" investors have increasingly been relying on mathematics for investing. As one of my professors who teaches a water quality modeling course keeps reiterating, creating a model without the right data to support it is an exercise in academic gymnastics ... and foolhardiness.