Sunday, March 30, 2014

"Unionizing College Athletes!"

                       Sydney M. Williams

Thought of the Day
“Unionizing College Athletes!”
March 31, 2014

I find myself increasingly out of sync, not only in cultural terms like being mystified by Gwyneth Paltrow’s and Chris Martin’s “conscious uncoupling” (a consequence of an unconscious coupling perhaps?), but in behavior. Unionizing student-athletes is totally foreign to my understanding of college and athletics. It is well known that college athletes in sports like basketball and football generate significant revenue for their universities. It is equally well known that those revenues allow colleges to offer non money-making athletics like squash or rowing. All athletes put in long hours, because of the love of the sport, their joy in being a team-member or, in the case of a small number, because it may lead to professional contracts.

Schools bear part of the responsibility that led former Northwestern quarterback Kain Colter, with backing from the College Athletes Players Association, to get NLRB regional director Peter Ohr to rule that student-athletes at private colleges have the right to unionize. For years, colleges have turned a blind eye toward the hours required of students to play sports like football, especially knowing that only a small percent will make it to the pros. They have paid too little attention to the long-lasting nature of injuries. Many show little concern as to whether their student-athletes get an education, not to mention a degree. They covet the money with little regard to the human consequences. Northwestern’s football program raised an estimated $30 million last year against expenses of $22 million. The latter includes $2.2 million paid to head coach Pat Fitzgerald. In their quest for dollars, these universities created the problem. As it says in Hosea 8:7 – “They sow the wind and reap the whirlwind.”    

What is most important for any student is education. There are 125 college and universities in NCAA Division 1 Football Bowl Subdivision. Combined, they include 10,625 team members. A September 2012 study, conducted by the NCAA, found that only 253 were drafted, or 2.4%. So, if they are not there for an education, either the students are wasting their time or the college is abusing that of the students. Obviously there are a few who see college as a time to refine one’s craft, to make one’s self more attractive to recruiters and who succeed in the pros. But 97.6% of Division 1 college football players have to find other means of making a living.

The decision to unionize was approved by Peter Ohr, regional director of the NLRB’s Chicago office. Mr. Ohr was appointed to his position in 2011. He has spent most of his career at the NLRB, first for eight years as a Field Attorney in Honolulu and then, beginning in 2005, as Deputy Assistant General Counsel in Washington, D.C. In essence, Mr. Ohr’s decision says that football players at Northwestern are employees and can be represented by unions; in this case it would be the United Steelworkers. The decision will certainly be challenged by Northwestern and the NCAA, and could ultimately make its way to the Supreme Court.

The decision, besides being an anathema to the concept of the student-athlete, poses other questions. Most college sports programs are governed by the NCAA, which issues rules meant to protect a school’s reputation, keep the athletes out of trouble and maintain a competitive balance among sports programs. Will the NCAA survive? Unionization, per this ruling, would only apply to private institutions, as public universities’ employment conditions are governed by states. However, would college athletic contests be considered interstate commerce? If so, will federal law apply, allowing students at state universities to unionize? How much will unionization cost colleges in five or ten years? Athletes who play on big-money sports teams, like football and basketball, already live lives separate from ordinary students. We are told that income and wealth gaps are already too wide. Won’t this decision widen the gap further?

But the real question is: what is the purpose of athletics in college? Most students who are involved in college athletics do so for the love of the sport and for the camaraderie of being a member of a team.  Lessons learned are life-long and are valuable to success, in everything from marriage to business. Sportsmanship teaches empathy, fair play and distinguishing right from wrong. Sportsmanship says that players should be sensitive to the fact that the thrill of victory comes at the expense of the loser’s agony. Sports breed competitiveness and fellowship, along with loyalty among undergraduates and alumni. Sports foster life-long friendships.

Unionization would create an adversarial relationship between employee and management, between student-athlete and his or her college. While raising the athlete’s sense of self worth, it diminishes the attachment to the university. As unionized workers, why couldn’t Northwestern trade a quarterback to Stanford, in return for a point guard and a call on next year’s draft?

College football and basketball, especially at big conference schools have become a big money programs. TV and ticket sales generate millions of dollars. Star coaches make multi-million dollar salaries. Players are recruited more for their athleticism than their academic abilities and/or aspirations. They become pawns in the game universities play to raise money.

Sorting the wheat from the chaff is not easy, but Mr. Ohr’s ruling was obviously based on money and politics. There is a lot of money involved, which unions would like to tap. And private-sector union membership is shrinking. Tim Waters the national political director of the United Steelworkers, which is backing the efforts of Northwestern football players to unionize and that has advised the College Players Association, has claimed that the March Madness college basketball tournament now underway brings in $800 million to the NCAA. That’s a purse worth defending and that whets the appetite.

What is at stake in this effort to unionize players is the damage that would be caused to the principles of a university and its students. The purpose of a university is education, to prepare young bodies and minds for the world they will enter. College provides a chance to broaden the mind. It is an opportunity for friendship with like-minded people, and to discover what it is like to belong. A university experience provides students the means by which to live productively and happily in society. And the emphasis should be on education first, sports second.

We live in a world dominated by a culture of “me,” be it in politics, on Wall Street, in the fields of entertainment, talk-radio, among TV hosts, college professors, or athletes. “Selfies” are its most visible manifestation. College sports, especially those that are of the non-money variety, teach the importance and meaning of team work and team spirit. They are a lesson in giving – of one’s self for one’s college. It is a message, amidst a world of egoists, that should not be lost.


Friday, March 28, 2014

"Russia - A Regional Power?"

     Sydney M. Williams

Thought of the Day
Russia – A Regional Power?”
March 28, 2014

Watching Mr. Obama, at Tuesday’s news conference in Brussels, as he characterized Russia as a “regional” power, one could not help wonder: Was the dig aimed at Mr. Putin, Mitt Romney, or at the American people, to assure them they have nothing to fear from the Russian bear? More important, though, was it accurate?

In terms of acreage, Russia is the largest country in the world, with almost twice the square miles of the next three largest countries – the U.S., Canada and China. But using other measures, Russia seems less formidable. With 144 million people, it ranks 9th in population, behind countries like Pakistan, Nigeria and Bangladesh. Its economy is the 8th largest, just behind Brazil’s. Russia’s army, with about a million men and women on active duty, ranks 5th in the world, behind China, the U.S., India and North Korea. Russia’s numbers, however, exclude reserves of approximately two million.

In some respects, Mr. Obama was right; Russia is a regional power and a weak one at that. The country is plagued with high unemployment, a weak economy and a life expectancy for men that is twenty-years less than ours. On the other hand, Russia’s territory is massive; it stretches from Vladivostok, less than 500 miles from the west coast of Japan to St. Petersburg, a few miles east of the Finnish border, a distance of 4070 miles. The Country encompasses nine time zones. Their southern border touches both China and North Korea, homes to the world’s largest and fourth largest armies. When Rudyard Kipling wrote “The Ballad of East and West,” he could not have been thinking of Russia; for there, in fact, the “twain” does meet; though not always peacefully.

As history instructs, military effectiveness is not just numbers, but the willingness to use the military one has. In acting like a 19th Century wannabe empire builder, Mr. Putin has shown no interest in abiding by the rules of Mr. Obama’s “globalized 21st Century.” What Mr. Obama may have missed in charm school is that it makes no difference in what century we live, bullies have always responded most aggressively to those who sweet-talk them. They respect strength, not coddling. It is the display of might – carriers, fighter planes and tanks – that gets their attention. A hundred years ago, in the first few years of the 20th Century, there were many who saw that age as a time that would usher in a golden, global period of prosperity and civility. For a few short years, it seemed that might be so. But the assassination of Archduke Franz Ferdinand of Austria and his wife in Sarajevo on June 28, 1914 thrust the world into war, which lasted, with a brief but tenuous interlude, for thirty years and cost at least 100 million lives.

History did not end with the collapse of the Soviet Union, nor has human behavior improved. Men and women are still both good and bad. To believe otherwise is delusional. It is far safer to be principled and definitive, and to let friends and foes know it. Despite this being a global world, the United States, because of geography and economic and military strength, has always been isolated from the territorial ambitions of other nations. It is all fine and good to suggest that, as did Tom Friedman in Wednesday’s New York Times in that Pecksniffian way he has, Europe and Ukraine’s dependency on Russian oil and gas should be countered by Europe and America emphasizing renewable sources of energy, wind and solar. But that does not address immediate concerns, which is how to heat homes and run factories today and tomorrow.

Russian revanchism has been obvious since 2008, when Russian troops moved into the South Ossetia and Abkhazian regions of Georgia, purportedly in support of peoples who claimed Georgian troops had taken over their local governments. (Revanchism is a fancy word of French derivation that describes the political manifestations of the will to reverse territorial losses. Its origin stems from France’s loss of Alsace-Lorraine in 1870 to the Germans following the Franco-Prussian War. Ominously, it is a word that was widely used to describe events in the Balkans in the years leading up to World War I.)

The collapse of the Soviet Union in 1989 brought forth a sense that democracies would prevail, and that independent states could and would align themselves politically and do business with whomever they chose. Such thinking did not take into consideration any sense of revanchism on the part of the new Russia, nor did it allow for the fact that many newly formed countries themselves had complicated histories. The people of many of these countries descend from myriad heritages and religions. Turks, Mongols, Tatars and Russians had, at different times, occupied these regions, bringing with them their own customs, religions and languages and leaving behind deep-rooted passions that emphasized differences, rather than similarities. Different parts of Ukraine had been subject, at different times, to the Ottoman, Polish, Russian and Austro-Hungarian Empires. The Crimean War, in the 1850s, saw the British Army side with the Turks to expel the Russians from the Peninsula. Given his response to events in Egypt, Libya, Syria, Iran, North Korea and Ukraine, one would never have known that Mr. Obama was “comfortable with complexity” had he not told us, as he did in a recent “New Yorker” interview. If the Middle East seems complex today, it will only compound once Iran gets nuclear weapons.

The story of Eastern Europe is a history alien to the experience of most Americans. Many who came to this country from that part of Europe in the mid and late 19th Century were eager to leave homes consumed by constant war. Poland, which once had an empire that encompassed part of Ukraine, disappeared from all 19th Century European maps. Towns, cities and countries were gobbled up and treated like chips to be bartered away and later reclaimed. The culture and religious feelings of the people were of little interest to those who conquered and governed them.

In Brussels, Mr. Obama attempted to allay the matter, resorting to lawyerly logic to reject Russia’s invasion of Crimea as a violation of “21st Century” thinking: “The borders of Europe cannot be redrawn with force…international law matters.” It was an argument that might have won plaudits in a college debate, but one that failed to recognize the challenge of the gauntlet thrown down by Mr. Putin. Far better would be what Robert Gates proposed in an op-ed in Wednesday’s Wall Street Journal: “The aggressive, arrogant actions of Vladimir Putin require from Western leaders strategic thinking, bold leadership and steely resolve – now.”

Our response should include a reversal of the recent decision to downsize our military; it should include bolstering the missile defense system along Poland’s eastern border; it should include war games with the Baltic nations; it should have the 7th Fleet focused on the Mediterranean region, rather than searching the southern Indian Ocean for remnants of Malaysia Airline Flight 370. The latter is an act of compassion, the former one of necessity. It should include building a missile defense shield in Japan and South Korea. The United States should never publically utter promises or threats it cannot carry out, like “red lines” not to be crossed. We should learn from President Theodore Roosevelt: “Speak softly and carry a big stick. You will go far.”

At the same time, Europe should try to integrate former Soviet satellite nations more closely into their economic spheres of influence. The United States should fast-track LNG exporting facilities, increase oil and gas drilling on federal lands and (finally) approve the Keystone XL Pipeline.

What must be avoided is a situation that deteriorates to a point where war becomes inevitable. Everyone in the Administration should (as should all European leaders, including Mr. Putin) read Christopher Clark’s book, The Sleepwalkers: How Europe Went to War in 1914. Mr. Obama was right about Russia in the most simplistic sense. They are no longer a great power. But he was wrong to be dismissive, as Mr. Putin threatens what is a delicate balance of peace. Russia may no longer be the beast that was the Soviet Union, but its interest is global, as can be seen in Latin America – with their involvement with Cuba, Venezuela and Nicaragua. It is startling to realize that it was less than six months ago that Secretary of State John Kerry declared, “The era of the Monroe Doctrine is over.” It is over because the Obama Administration has seen fit not to enforce its provisions. In acting in self-interest, Mr. Putin is simply doing what national leaders have done since time immemorial. The world Mr. Obama appears to envision is an Arcadian world where talk and reason change minds and overcome evil; it is a trivial and reckless world, in which a woman’s right to free birth control takes precedence over defense spending.

In contrast, Mr. Putin’s world is Realpolitik. In that sense, there is nothing “regional” about Mr. Putin or Russia. It makes no difference if Russia and Mr. Putin are acting out of weakness or strength, just that they are acting. At this point, Mr. Putin played a “King” and Mr. Obama threw out a “Jack.” It’s not good enough.


Wednesday, March 26, 2014

"Pot, Yes - Cigarettes, No"

     Sydney M. Williams

Thought of the Day
“Pot, Yes – Cigarettes, No”
March 26, 2014

There is a delicious irony in that the same people who would ban the sale of a legal smoking product in drug stores, for health reasons, would promote the sale of an illegal smoking product, for health reasons. It has become non-pc to accept money from lobbyists for tobacco companies, but it is okay to take dollars from those promoting the legalization of marijuana. In fact, once Democratic politicos realized how much money they could get from trial lawyers for encouraging plaintiffs to sue tobacco companies, there was no need to help tobacco companies that had kept Southern Democrats in pocket change and in office for generations. Let it never be said that politicians do not know on which side of the bread butter has been spread. Politicians, who can bob and weave with the best, move in a straight line when it comes to money. 

In February, CVS Caremark announced they would stop selling cigarettes and other tobacco products, a decision our smoker-in-chief Barack Obama characterized as a “powerful example.” The decision will cost CVS about $2 billion in annual sales, not really significant in a company that generates $126.7 billion in annual revenues, but still enough, possibly, to cost a few jobs. Of course, CVS may simply have anticipated what appears will become a “fait accompli.” San Francisco and Boston banned the sale of cigarettes in drug stores five years ago. And now Attorney Generals from 28 states are urging pharmacies in their states to follow CVS’s example.

Forgotten in the rush to cleanse the American consumer from the hazards of smoking is that it is not incidental to our economy. World-wide, tobacco sales are about $600 billion. If tobacco were a country, it would be a little larger than Sweden.  Somewhere between 1.8 and 3.1 million jobs are in fields related to tobacco. The lower number is provided by the American Economics Group and the higher – not surprisingly – by the Tobacco Merchants Association. In the U.S., tobacco is grown on 10,000 farms in 16 states and, in 2011, contributed $17.8 billion to the coffers of states and the federal government. In 2011, they spent $8.4 billion in advertising and generated about $35 billion in profits. On the other side of the ledger – or perhaps not, depending on whose ledger one is reviewing – it is alleged that the annual economic cost of tobacco runs about $70 billion, in direct medical care and lost productivity. The former, of course, adds to the income of doctors and hospitals, while the latter is at best a guess. And tobacco has kept trial lawyers flush for decades.

Tobacco has already become less a factor in our lives. Per capita consumption of cigarettes in the U.S. peaked in 1963 (the year I stopped smoking) and has since fallen by half, while the population has increased by 68%. Nevertheless, 293 billion cigarettes were sold in the United States in 2011 – about 900 cigarettes for every man, woman and child.

What makes this of particular interest is that the same pharmacies that are getting out of the tobacco business are now lobbying for permission to sell medical marijuana – the substitution of one inhalant for another. Under current laws, drug stores are prevented from selling a product that is labeled a Schedule 1 substance under the Controlled Substance Act, which marijuana is. The Justice Department has defined Schedule 1 drugs as having “no currently accepted medical use and high potential for abuse.” Since all doctors and pharmacists must be licensed by the Drug Enforcement Administration, they could lose that registration if they were found selling pot under its more euphemistically acceptable term, cannabis. Should drug stores lose their license, they would be prohibited from selling any controlled substance, like prescription drugs. Adding to the confusion that only a Dr. Seuss could unravel and explain, twenty states have now approved marijuana, a substance banned by the federal government. Does anybody, apart from lawyers who make a living disentangling the innocent from mazes they create, appreciate the befuddlement that is the DEA?

While ether was first used as an anesthetic in 1846, it wasn’t available widely enough for the demand created by the Civil War; so that field surgeries and amputations were often done with nothing more than getting the unfortunate patient drunk. Wisely or not, whiskey could usually be found among soldiers at the front. Could it be that the medical uses of cannabis serve a similar purpose by doctors, as one of its oft touted properties is as a pain reliever? (Some of the promoters of the purported benefits of marijuana give it the elements of a magic elixir, claiming it will cure everything from Alzheimer’s to ADHD.) I have nothing against the casual use of marijuana anymore than I do against having a glass of bourbon or wine. But these are intoxicants and they can and do affect behavior. To pretend that they don’t is to deny empirical evidence.

It has been the two or three million dollars a week being received by Colorado that has caught the attention of those like New Jersey State Senator Nicholas Scutari who recently introduced a bill permitting the sale, possession and use of marijuana for recreational purposes. He described the taxes from the sale as a “financial windfall” for the state. (What is needed is financial responsibility, not windfalls!) Anybody want to bet whether funds related to pot sales, after expenses, will be used to reduce existing pension and debt costs? Taxing “sin” does not really work. Exhibit A is cigarettes. New York City has the highest cigarette taxes in the country. A report from the Tax Foundation says that nearly 57% of all cigarettes consumed in New York are brought in illegally. When costs are out of kilter, consumers look for alternatives. Exhibit B is casinos. Gambling is so lucrative governments now operate the world’s biggest lotteries. The risks are long-tailed, involving forfeited homes and broken families, ultimately extracting a social cost. Besides, lottery ticket sales, like cigarette taxes, are regressive, as promises of riches attract those who can least afford to lose. Smoking offers moments of pleasure, while lotteries encourage one to dream unrealistic dreams.

We are a peculiarly mercurial people. In 1919 the Volstead Act, banning the sale of “spirits,” was passed, a piece of enabling legislation that allowed the 18th Amendment to the Constitution to go into effect. It was vetoed by President Wilson, but overridden by a Congress as dense then as they are today. It didn’t take long for the people to realize what a colossal mistake they had made. In 1925, H.L. Mencken wrote: “There is not less drunkenness in the Republic, but more. There is not less crime, but more. There is not less insanity, but more. The cost of government is not less, but vastly greater. Respect for law has not increased, but diminished.” Prohibition was only in effect for 14 years, repealed in 1933 by a three to one popular vote. Banning bad habits is not easy. If you leaf through old Life Magazines, or Saturday Evening Posts you will come across numerous ads for cigarettes, many with doctors talking about the health advantages of, say Camels over Lucky Strikes. Isn’t it possible that pot sold today as a health product won’t seem just as ridiculous in a few decades?

Alcohol, likewise, is a substance, the abuse of which we are frequently warned. Now we have government beginning to speak positively of marijuana, not just as something that can give pleasure, but as a product that might improve one’s health. Count me as skeptical. Jay Leno humorously noted: “But doctors warn pot smoking impairs young people’s thinking, which of course makes them more likely to sign up for ObamaCare.”

Personally, I am not a fan of smoking anything, but I see no reason for our habits to be dictated by government, and that includes soft drinks and fatty foods. If there is anyone alive who does not understand the risks of eating fast food three or four times a week or smoking tobacco, they must have been living under a rock; so I assume all soft-drink consumers and smokers are conscious of the risks they incur. Sadly, as an article in yesterday’s New York Times made clear, smoking is far more prevalent among the rural poor than it is in wealthy urban enclaves, especially along the two coasts. In part, taxes, which are heaviest in New York City, play a role, but I suspect the biggest culprit is education, which has been held hostage by teacher’s unions in too many places, and a concomitant lack of good jobs.

Education and a lack of jobs represent our most serious domestic challenges. Non-competitive Congressional districts and too many years in office have created a supercilious attitude in Washington. The unintended consequences of restricting fossil fuels has little effect on the wealthy, to whom energy costs are relatively minor, but have major impact on those who, for example, depend on coal mining for a living and to whom energy costs are a major part of their budget. It is easy to sit back in Washington, New York, San Francisco and Hollywood and complain about dirty energy; it is another to suffer the lack of opportunity and costs such arrogance breeds. Opportunity breeds optimism. Combined, they permit one to look into the future with aspiration. Absent, they create a sense of hopelessness.

Cigarettes, alcohol, and marijuana can all give pleasure and, in moderation, do no or little harm. Alcohol, when taken in moderation, according to some, may actually extend life. But all three can be addictive and all three can be harmful when abused. Learning why should be one of life’s earliest lessons. There is an element of truth in the saying, “live fast, die young!” (The words come from rapper Rick Ross’s song, but they are also the title of a chapter in a short book I highly recommend, The Long and the Short of It, The Science of Life Span & Aging, by Jonathon Silvertown.) As Silvertown notes, Jimi Hendrix, Janis Joplin and Amy Winehouse all lived fast and died young, all three at age 27.

While I am not against legalizing pot, I wouldn’t recommend smoking it. But the decision to do so should be personal. Just because I think it is unhealthy, if someone wants to abuse their body by smoking cigarettes, inhaling pot, or drinking too much alcohol, or even downing 24-ounce cans of soda, or 16-ounce cheeseburgers that should be their right. Do we really want an increasingly ubiquitous government, one that is inconsistent in so much of what they do, to step in when common sense steps out? Have we become so dependent and personally irresponsible that we need to have government hover over us like a mother hen? Death comes to everything that lives. Personally, I see no reason to hasten its arrival, but I also see no reason not to enjoy life’s pleasures…in moderation.  


Monday, March 24, 2014

"Schneiderman Takes On High-Frequency Trading"

     Sydney M. Williams

Thought of the Day
“Schneiderman Takes On High-Frequency Trading”
March 24, 2014

From 2008 through 2011, high-frequency trading, or HFT, as it is known, dominated equity trading in the U.S., garnering about 66% of all shares traded on various exchanges. In 2009, according to Rosenblatt Securities, HFT traders moved about 3.25 billion shares a day. In 2012, they estimate it was closer to 1.6 billion shares a day. Annual profits, which had been about $5 billion, fell to $1 billion in 2012. Volume and volatility, both friends to high-frequency traders, have been, in their recent relative tranquility, unfriendly as of late. Just as conditions have become less favorable for fast traders, Eric Schneiderman, New York’s Attorney General, decided it’s time to pounce. He would be taking, he proclaimed, a deeper look at the “unfair advantages“ HFTs have over regular investors. Mr. Schneiderman went on using one of those “au courant” terms that are popular today, but which I find grating: In referring to traders who allegedly gain early access to market-moving information at the expense of the market, he said, “We call it Insider Trading 2.0.”

I am no fan of high-frequency traders, but I wonder at Mr. Schneiderman’s timing. While HFTs claim to provide liquidity to the trading process and tighten bid-ask spreads between exchanges, they contribute very little of economic or social value; at least that is my opinion. At the same time, their potential for harm interferes unnecessarily with the process of investing, a requirement for long term economic growth.

Three natural events/changes have made things more challenging for high-frequency trading in recent years. First, the race to be fastest is one which, arithmetically, ultimately reduces profits to close to zero. Competition among traders has shortened the time to trade from seconds to milliseconds to microseconds to nanoseconds. As one trader was quoted in Bloomberg, investments in technology today are “more about détente than an arms race.” It takes the eye about 0.4 seconds to blink. In that time, 1000 computer-driven stock trades can be executed on one of 13 U.S. exchanges. The second and third challenges have been affecting HFTs two most common strategies: market making and statistical arbitrage. Overall trading volume has declined from about 6 billion shares a day in the 2008-2010 time frame to around 4 billion shares in the past couple of years, reducing opportunities for market making. At the same time volatility, as measured by the VIX, has been cut in half, thereby decreasing opportunities to take advantage of price differences between exchanges. The latter has also been negatively impacted, as exchanges have become faster in updating their own prices.

A common complaint, which seems reasonable to this non-trader, has been the order of magnitude increase in messaging traffic. Messaging traffic includes transaction messages that direct the placement, cancellation and correction of orders. Since 2005, these order instructions sent through U.S. exchanges have, as Gary Cohn, president of Goldman Sachs, noted in the weekend Wall Street Journal, “increased by 1000%, yet trade volume has only increased by 50%.” The consequence is that, as Mr. Cohn noted, “increasingly, the quote that an investor sees isn’t the price he or she can transact, as orders often get cancelled at lightning fast speeds.” Messaging traffic adds irritation to a situation already beset by complexity.

Markets have their own ways of dealing with excess. They can be brutal, but direct, and far more effective than government bureaucrats trying to regulate something they do not understand. There is nothing like a substantial loss to get one’s attention. On August 1, 2012, Knight Capital almost self-destructed in a matter of minutes. At the time, it was considered the king of HFTs, garnering a reputed 17% of all volume on NYSE-listed stocks and a similar percentage of NASDAQ stocks. A piece of newly installed software went haywire that Wednesday morning. It caused the buying and selling of about $7 billion worth of stock in 45 minutes. By the time the trades were unwound, Knight Capital was out $440 million, or 40% of the firm’s value. Getco, a Chicago-based HFT and market-making firm that eventually acquired Knight, is now gone, the remnants now being held by KCG Securities in Jersey City. The “flash crash” two years earlier, on May 6, 2010 is more illustrative of the risks HFT traders pose. On a day in which the DJIA were already down 300 points, they dropped another 600 points in five minutes. Twenty minutes later they had recovered, but individuals and institutions were unduly effected either positively or negatively, depending on whether they had orders in to buy or sell.

The placid markets we are now experiencing will not last. Increased volatility and the trading volume that volatility generates will provide high-frequency traders the opportunity to make a lot of money, while aggravating the environment for investors. So perhaps this period of relative calm is the right time to address risks that have helped turn a stock market, whose basic purposes are to allocate capital and provide liquidity, into a casino. Ownership of businesses is of no interest to high-frequency traders. Shares are nothing more than casino chips. It is price spreads and momentum they find rewarding. If HFTs truly serve as an aid to fundamental investors by providing liquidity and aiding price discovery, they should be encouraged. If (and more likely, in my opinion) their purpose is to enrich themselves at the expense of real investors, they should be discouraged. The easiest, simplest and most effective way of doing so is by taxing very short term gains at very high rates. Complex regulations will only provide job security for lawyers. It may halt this particular practice, but something else will spring up in its stead.

We should not be deceived by the slowdown in HFT activity. The problem has simply gone dormant because of the complacency that blankets equity markets, which is manifested in the low level of the VIX and in the daily trading of stocks. Daily changes in the DJIA have only moved up or down more than 1.5% on two occasions this year and only six times in the past year. That would compare to 19 times in 2012 and 52 times in 2011. The VIX, which has averaged 14.36 this year, averaged 16.58 in 2012 and 25.15 in 2011.

As long as the economy perks along, our population expands and as long as government does not dispossess people of their capital, the long term trend for stocks should be higher. But markets do not move in straight lines. They are subject to the behavior and attitudinal changes of people. Human psychology can move quickly from irrational exuberance to unwarranted pessimism. Markets can be whimsical and seemingly irrational over short periods of time, even as they are rational over extended periods. High-frequency traders accentuate both momentum and emotions.

As long as government does not intercede unnecessarily and the tax code incentivizes creativity and investment, entrepreneurs will convert dreams of new and better products and services into profitable businesses. And as long as investors are willing to risk capital, the environment will favor markets. But the system is reliant on confidence, confidence that government regulation will protect them against fraudulent and unfair practices, but will not hamper investment and creativity; it is a system that relies on property rights and the rule of law. A tax policy that favors investors over traders would provide the confidence markets need and which excess regulation discourages.

People who work on Wall Street are smarter than regulators. Brains tend to go where the money is. Government’s response must be simple, not complex. There is no question that Mr. Schneiderman is a very intelligent man, but if he believes he is Mr. Fox, in smugly proclaiming this to be the era of Insider Trading 2.0, he will discover that high-frequency traders are “Brer Rabbits.” They will scamper away through the brambles, ready to play a different game on another day. Let much higher tax rates on very short term gains be the regulator.


Friday, March 21, 2014

"The Debacle that is de Blasio"

                        Sydney M. Williams

Thought of the Day
March 21, 2014

“We get what we deserve” is a common phrase that describes everything that happens to us, from the behavior of our children, to the money we make, to the political leaders we elect. The concept comes from Luke, writing in the New Testament, “…for we receive the due reward of our deeds.” That phrase – not the Biblical one, but that which has become common usage – should have special meaning for the 76% of New York City residents who did not bother to go to the polls last November 4th.  Recent polls suggest that even the few that did go to the polls may be having second thoughts.

The press declared Bill de Blasio’s victory a “landslide,” in that he won about 72% of the votes cast. The new Mayor took it as a mandate, just as did his fellow populist Democrat in the White House in 2008. The fact is, though, turnout in New York City was a record low, the lowest since “mid-20th Century,” according to the New York Times. His Republican opponent was the competent, but uninspiring Joseph Lhota. A 24% turnout meant that only 17% of New York’s eligible voters actually cast their ballots for him, hardly a mandate; though an early endorsement from President Obama made him comfortable in saying, “I won!”

The problem with ideologues, as we have learned from President Obama, is that their “hope and change” prevents then from focusing on practical problems. In their desire to see things as they wish them to be, they ignore the world as it is. People who walk with their heads in the clouds cannot avoid stepping into puddles. In his first few weeks, Mr. de Blasio has stepped into a lot of puddles. Early on, his SUV was seen speeding and failing to stop at two stop signs, when there was no emergency. A day or so later a NY Post photographer caught him jaywalking across a Brooklyn street. Neither offense was unduly serious, except that just days before he had proposed traffic safety initiatives. His attitude was typically elitist: ‘do as I say, not as I do.’

A promise of his campaign was universal pre-K and expanded afterschool programs. The plan was to pay for it by slapping an extra tax on all New Yorkers making more than $500,000 a year. It was described as a way to address income inequality, which has become the scourge of progressive Leftists. It was never explained why having three-year olds begin school a year earlier will eliminate income inequality. While pre-K polls well, raising taxes does not, especially in other parts of the state where taxpayers would be paying for something they are not receiving. As much as anything, pre-K is simply a means of adding to the roles of teachers’ unions.

The portrayal of the Mayor shoveling snow off the stoop of his Brooklyn townhouse was not a spontaneous reaction. It had been preplanned and showed up on his schedule: “7:00 – 7:20AM: snow shoveling front of residence with Dante de Blasio,” according to a copy of his schedule obtained by the Post under a Freedom of Information Act request. Following the January 20th blizzard, which covered New York with six inches of snow, the Upper East Side (between 59th and 79th Streets) went unplowed for several days, creating cries of class warfare. On February 12, following a widely anticipated storm that dumped between six and ten inches of snow, the mayor made the executive decision to keep the schools open. While Mr. de Blasio blamed his lack of preparedness on the National Weather Service, it was a storm that had been anticipated by everyone except the Mayor and School Chancellor Carmen Fariña.  

Other peculiarities, such as eating pizza with a fork – a no-no for any New Yorker – and saying he wants to shut down horse-drawn carriage rides through Central Park are not critical enough to warrant anything other than wonder that a “man of the people” could be so out of touch with the people.

On the other hand, his attempt to muzzle charter schools indicates a man at odds with the very concept of freedom of choice and what it means in terms of education to the poor and minorities in our society. It shows an ideologue divide in the Democrat Party, with one side consisting of former New York City councilmember Eva Moskowitz, now the force behind the Success Academy network of schools, and Governor Cuomo, and with Bill de Blasio and teachers’ unions on the other. The City’s public schools have about 1.2 million students, with 94% in 1,700 traditional schools, and 70,000 students in 183 Charter schools. Another 840 private and religious schools serve about 210,000 students. There are 50,000 children on wait-lists for Charter schools in New York. Seats are assigned by lottery. Very wealthy families obviously have a choice as to where to send their children. But, given the cost of private schools, anyone making less than a six-figure income does not.

Charter schools, as mentioned, are public schools. Most operate in the City’s poorest sections. In New York City, they receive approximately $13,500 per student versus the roughly $19,000 per student received by traditional public schools. (The $19,000 does not include the huge liabilities the residents of New York are obligated for under union contracts.) Most Charters are not unionized, giving principals more discretion in terms of promoting good teachers and firing bad ones. They can keep the children in school for longer hours, as union work rules don’t apply to the teachers. Most receive some private support. And most have been very successful. Middle School children in Success Academy of Harlem, one of the schools Mr. de Blasio wanted to close, scored in the top 1% on city-wide test in overall achievement. Fifth graders in the school ranked first in New York State in math, placing them ahead of children in Rye, Bronxville and Scarsdale. Ninety-seven percent of the children at Harlem’s Success Academy are minorities and 80% qualify for lunch assistance. And the closing of this school is something supported by the Mayor, teacher’s unions and Hazel Dukes, the head of the state NAACP! Their attitude is incomprehensible. What would be worse for these children than denying them a quality education?

Public schools, especially in the poorer sections of urban areas, have been failing our children for years. Charter schools and voucher programs are a way of introducing competition into this otherwise monopolistic arena. Parents understand, which is why Charter schools have become so popular. Obviously, not all succeed. But, unlike regular public schools the effect of a free market is that Charters are allowed to fail when they don’t perform. Unions, which began with honorable motivations, have become sinecures for bad teachers, as well as good ones. Additionally, administration costs at public schools have sky-rocketed, another consequence of union influence.

In limiting “stop and frisk’, Mr. de Blasio has compromised security. There is no question that a police force untethered can be dangerous to the rights of individuals. It must be guarded against. But a principal role of government is to keep its people safe – that means law-abiding citizens, not criminals. So, like all agencies whose duty it is to keep us safe, they must balance the need for security against infringing on personal rights. The latest edition of al Qaeda’s English-language on-line magazine, “Inspire,” makes obvious that the War on Terror persists. The magazine urges its readers to attack the United States with car bombs. It includes photos of New York’s Times Square area. Those who take arms against the United States are not criminals to be treated in accord with criminal justice laws; they are enemy combatants and should be treated as such.

Because of the nature of man, there is always the risk of losing liberty. The threat can take many forms. The war against Nazism and Fascism seventy years ago conditioned people to expect that that peril would always come from the Right. But totalitarianism does not distinguish between the Right and Left. Western intellectuals, in the 1930s and 1940s chose to deny, or look the other way, even as evidence of Stalin’s slave labor camps and mass killings became increasingly too obvious to ignore. It was inconvenient to many on the Left at that time who believed in the innate fairness of Soviet Communism. We must not fall victim to such siren calls. We must be vigilant of despotism from whatever direction it might appear.

The best line of defense against threats of autocracy, no matter from whence it comes, is education. An informed citizenry is critical to the perpetuation of a democracy such as ours. It requires participation and the willingness to accept responsibility for one’s actions. Its strength is its people. It is fragile in that a populist may subvert it in the name of helping the oppressed. There is no form of government that is perfect. There never will be. But the government that has worked best throughout history is the one that operates under the rule of law, that protects property rights and defends the rights of the individual, and one that promotes equality of opportunity. Embedded in its essence is the belief that no one person or small claque of elites can make better decisions than people acting individually – in their own interest, as Adam Smith said – and markets operating freely.

The Mayor, like our President, is representative of a culture that believes people are incapable of deciding what is in their best interest. From the perspective of the elite, the people require leaders who are better educated and more intelligent. It is a supercilious attitude born of arrogance that creates dependency on the part of the governed. It is, in my opinion, the single biggest risk to democracy. The Left sees the future as it is portrayed in “The Life of Julia,” which is cradle-to-grave care for women. They see it in the “pajama boy,” the ad that urged the young to sign up for the Affordable Care Act. Like “Julia,” it, too, promotes and idealizes the concept of the young growing dependent on a benign government. It may seem comforting today, but is frightening for anyone who has read history.

There are those who claim that Mr. de Blasio means well, that he is interested in the poor and minorities and that the trappings of power mean nothing to him. But power is seductive and most people cannot avoid its potion-like effects. The Mayor’s attitude thus far indicates he has drunk the Kool-Aid. That he has stumbled is an indication that the people of New York are suspicious of a man who puts ideology ahead of the practical necessities for running America’s greatest city. The people of New York may have got what they deserved, but Bill de Blasio’s debacle is good for them, even as it is not for him.


Wednesday, March 19, 2014

"Humor -A Remedy for Tension, a Tonic for Victory"

     Sydney M. Williams

Thought of the Day
“Humor – A Remedy for Tension, a Tonic for Victory”
March 19, 2014

We live in a world addicted to twenty second sound bites. Nastiness consumes politics. Putting on a white tie for the annual Gridiron Club dinner, and then reading pre-set jokes that mock one’s self and others, cannot compensate for the arrogant disdain and avoidance of clear answers that is displayed at press conferences hosted by the President, the Speaker of the House, the President of the Senate, or, for that matter, virtually any other politician. Nor can it atone for the venality that too often passes for debates. It cannot be redeemed by “Slow-Jamming” with Jimmy Fallon or reading lines on Zach Galifianakis’s on-line comedy show.

With handlers pre-approving every statement a politician or candidate makes, the age of off-the-cuff, self-effacing remarks is rapidly becoming a relic of the past. With YouTube and the internet making available every gaffe a public figure makes, spontaneity has become a hazard. Well-meaning comments can be taken out of context. When we think of public figures, we almost always associate them with some statement, usually not flattering, that they made during mental lapses. (Joe Biden, of course, doesn’t require mental lapses!)

Humor, when used by someone with a natural gift, can disarm an opponent and defuse a tense situation. When we think of American Presidents and humor, the two that come most readily to mind are Abraham Lincoln and Ronald Reagan. However, there are others. James Garfield, who only served as President for 200 days in 1881 before being shot by an assassin, once said (appealing to my taste buds): “Man cannot live by bread alone. He must have peanut butter.” Franklin Roosevelt, in the midst of the Depression, curiously advised: “When you get to the end of your rope, tie a knot and hang on.” Harry Truman, when asked about his choice of careers, answered in his earthy manner: “My choice in life was either to be a piano player in a whorehouse or a politician. And, to tell the truth there’s hardly any difference.”

Political humor that is most effective flows naturally. It is not designed to elicit guffaws, but to make a point with the butt of the joke often being the teller. During the 1960 campaign, candidate Jack Kennedy, amid complaints about his wealth, once told reporters: “I just received the following wire from my generous Daddy, ‘Dear Jack. Don’t buy a single vote more than is necessary. I’ll be damned if I am going to pay for a landslide.’” Kennedy had an ability to be warm, self-effacing and authentic. On another occasion, amid calls of nepotism regarding the appointment of his younger brother to be Attorney General, he replied: “I see nothing wrong with giving Robert some legal experience as Attorney General before he goes out to practice law.”

Coolidge, with his famous dour expression – “looking like he had been weaned on a pickle,” as Alice Roosevelt Longworth allegedly once described him – is not remembered for his humor. While he could be funny, he was noted for being spare with both language and time. Once asked about dealing with unwanted guests, he explained he would let the visitors do all the talking. No matter what they said, in about three minutes they would hesitate, at which point he would say, “Thank you,” and the meeting would end. A story, told in Amity Shlaes illuminating biography of Coolidge, shows another side of the man. It tells of Mr. and Mrs. Coolidge taking separate tours of a government farm. Mrs. Coolidge expressed interest in a prize rooster. The farmer told the President’s wife (assuredly in response to a question) that the rooster was able to perform the sex act several times a day. “Tell that to Mr. Coolidge when he comes by,” said Mrs. Coolidge. When Coolidge approached the farmer and the rooster, he asked, “Is it with the same hen every time?” No, said the farmer. It is with a different hen each time. “Be sure to tell that to Mrs. Coolidge,” said the President.

Lincoln is generally considered the first American President with a sense of humor; though I am sure historians and Presidential scholars have other candidates. Robert Mankoff, writing in the New Yorker in November 2012 claimed that what we consider humor today in the 1840s and 1850s was called “the sense of the ridiculous.” Being funny and being cruel “went hand in hand.” But there is nothing cruel about humor when it is most effective. When accused by Stephen Douglas, in one of their famous debates, of being two-faced, Lincoln responded: “Honestly, if I were two-faced, would I be showing you this one?” When some officers were complaining about the drinking habits of General Grant, Lincoln noted: “Well, I wish some of you would tell me the brand of whiskey Grant drinks. I would like to send a barrel of it to my other generals.”

Lincoln used stories as parables to make points and deflect contentious questions. Walt Whitman thought it was “a weapon which he employ’d with great skill.” Richard Henry Dana, United States attorney for Massachusetts, complained that the President resorted to parables when principles were needed. “Storytelling was at the core of the president’s character,” explained Louis Masur, director of American studies at Trinity College, in the New York Times two years ago. Melancholy, according to Mark Twain, is the basis for humor. Certainly that was true in Lincoln’s case, as he suffered from depression made worse with the burden of the Civil War, and with the death of his young son Willie in February 1862.

In our generation, it has been Ronald Reagan who was the master of humor to disarm opponents. Being accused of not working hard, Reagan retorted: “I have left orders to be awakened at any time in case of a national emergency – even if I’m in a Cabinet meeting.” In response to a comment by Walter Mondale in a 1984 debate, Reagan replied, “There you go again!” Mondale’s point was forgotten in the laughter that ensued. In the same year, Reagan countered the claim that at 73 he was too old. He did so before Mr. Mondale could strike. “I am not going to make age an issue of this campaign,” he quipped. “I am not going to exploit, for political purposes, my opponent’s youth and inexperience.” Mondale, like everyone else, laughed. The issue of age was diffused.

Because we live in a time of instant replay and endless re-runs of all indiscretions, politicians have become reluctant to speak extemporaneously. We have all noted how uneasy Mr. Obama is when separated from his Teleprompter. The consequences are wooden speeches. We learn little about the responsiveness or the mental agility of candidates. When a politician goes on shows with Stephen Colbert, Conan O’Brien or Jimmy Kimmel their jokes are scripted and then read. The purpose is to humanize the robot-like figure we are supposed to endorse. It doesn’t work.

But reading jokes is not the same as having the easy self-confidence that allows some to laugh at themselves, to tell humorous stories to illustrate a story. Too many people today see humor in the discomfort of others – in racist or ethnic jokes – or in the use of language or actions designed to shock, not inform. Crony capitalism has become rampant. All politicians, but especially Democrats, have become dependent on organizations from public sector unions, to intransigent and intolerant environmentalists, to Washington bureaucrats, to big banks “too big to fail,” to PACs like George Soros’ Republicans are as well, but they are a more fractured lot. That the Left works in unity for these people can be seen in the results of Mr. Obama’s policies. Public sector unions were the prime beneficiaries of the Stimulus Bill; The EPA has denied people the benefits of cheaper, more abundant, clean fossil fuels; it has diverted needed water from California’s Central Valley; the FAA is impeding the development of Drones for private use; big banks have become larger and richer than before the crisis. And people have suffered. Average wages are lower than five years ago; food and energy prices are higher; regulation has stunted economic growth; fewer people are working and more people are on food stamps.

The proliferation of lobbyists and crony capitalism is reminiscent of the old Democrat political machines of 100 and more years ago – men like “Boss” Tweed of Tammany Hall in New York, Tom Pendergast in Missouri, Cook County in Chicago, the “Cracker Party” in Georgia and a host of other cities from Boston to Cleveland to Philadelphia – before Teddy Roosevelt arrived, bringing with him a new dawn of progressivism, which, as we know, brought its own problems.

Sweeping corruption aside will not be easy. Insensitive and supercilious declamations will not do the job. Republicans need a candidate who is intelligent and principled, but also easy going and disarming – a man or a woman who exudes confidence, yet has the ability to explain why the politics of the Right (smaller government, less dependency, an emphasis on moral values and the rule of law) are right for these times. Self-deprecating humor, personably expressed, is the best antidote. The individual must appeal to the citizens who see the Country as a land of opportunity where individuals respond to incentives and individual efforts are rewarded – people who understand that self-sufficiency trumps dependency. And the candidate must do so in a straight forward manner, with humor and without condescension. A good candidate should never impugn unpatriotic sentiments on the part of his or her opponent, but simply make clear, gently and pleasantly, that his or her judgment is simply impaired. And that individual must remember that success is more than winning; it is about governing. As well, they must have the skin of a Rhinoceros – one capable of deflecting the inevitable slings and arrows that will follow. For Leftists, whether in Washington, mainstream media, favored industries, or Hollywood will not relinquish their privileged positions lightly.

As long as democracy prevails, the downfall of the Left is inevitable. They no longer argue against positions taken by their opponents. They disabuse the person and ridicule the individual. Think Harry Reid and Nancy Pelosi. Think of the treatment accorded Sarah Palin. It is okay to disagree with her, but to belittle and mock her because of the way she speaks or dresses, or where she lived or how she raised her children is not debate; it is derision. Consider the way in which James Rosen of Fox News was treated by the Justice Department, or Tea Party organizations by the IRS. This has been elitism in its most destructive form. The American people deserve better.

We’ve been here before. Reagan, as governor, once met with a group of students, claiming his (Reagan’s) generation didn’t understand them. He didn’t “get it.” These young students were faced with growing up with nuclear weapons, jet planes and space travel. “You’re right,” replied Reagan, “We didn’t have any of those things. We invented them.” Exactly!


Monday, March 17, 2014

"Bush in Retirement - A Man of Character"

     Sydney M. Williams

Thought of the Day
“Bush in Retirement – A Man of Character”
March 17, 2014

Mothers are revealing. Most people my age lived in households where the father worked and mothers raised the children. Fathers were seen during evenings and on weekends, sometimes to punish their offspring for misdeeds performed during the day. Children were told: “Wait ‘til your father gets home!” Mothers were around all the time; so they had the stronger influence.

It was interesting, in that regard, to hear Fox News’ Steve Doocy interview Barbara Bush at her Houston home last week. As an independent-minded, long-time observer of the political scene, Mrs. Bush responded to a recent Maureen Dowd column on the possibility of another Clinton-Bush lineup in 2016: “It just seems ridiculous in a country this size that we don’t have other families!” Her dispassionate tone was soon overtaken by her motherly instincts: “Jeb [Bush] is the most qualified person in this country to run for President.”

There is no doubt that Mrs. Bush’s character and intelligence informed her eldest son, George. Controversy about him continues to swirl. Diehard Democrats still accuse him and the Republican Party of “stealing” the 2000 election. By the time he left office, his ennobling response to the horrific events of 9/11 had been swept away with the venality that fell on him for the invasion of Iraq, the “torturing” of prisoners and for allowing the credit crisis of 2007-2008 to unfold as it did. Mainstream media never liked him. When Mr. Bush left office, his poll numbers were the lowest of his Presidency. Schadenfreude was palpable among members of the press.

In his inaugural, Mr. Obama was quick to distance himself from George Bush. “Not since 1933,” David Sanger wrote in the New York Times the next day, “when Franklin D. Roosevelt called for a ‘restoration’ of American ethics and ‘action, and action now’…has a new president so publically rejected the essence of his predecessor’s path.” Mr. Obama’s desire was to “transform America” – to remake it in his image. Phrases like “Bush lied,” and “Blame Bush,” became common as parodies of themselves. And, certainly, ethical behavior has not been “restored.”

But, even those who find it difficult to say anything nice about the 43rd President generally agree he is a decent and considerate man. Those aspects, in another age, would have marked him as a man of “character;” but the importance of character is no longer considered relevant.

An insight into George Bush’s character (and unlike that of the current occupant) is that not once during his Presidency did he accuse his predecessor for what he [Bush] had inherited: he never blamed him for not killing Osama bin Laden when given the chance; Mr. Bush never assigned responsibility to Mr. Clinton for the run-up and later bursting of the tech-internet bubble that was still unwinding when he assumed office in January 2001. (It is largely forgotten, but by the time Mr. Bush was inaugurated, the NASDAQ Composite was down 50% from its peak 10 months earlier. It is never mentioned that George Bush inherited an economy that was headed into recession, which began two months after he took office and ended in November of 2001.)

George Bush left Washington on Tuesday, January 20, 2009 and flew to Midland, Texas with his wife and parents. In contrast to Bill Clinton, George Bush has stayed out of the limelight. “I don’t think it is good for the country to have a former president criticize his successor,” he told Jay Leno in an interview last November. He was right. We should not be a nation of celebratory or “rock-star”-like presidents and ex-presidents. Citizens serve as president and then should retire quietly. George Washington set the tone in March 1797 when, like Cincinnatus, he left the field to John Adams and fled to Mount Vernon. It is fascinating that the liberal media – the supposed supporters of the ‘common’ man – should crown their Democrat heroes with garlands of royalty, the most conspicuous of course being the Kennedys and Camelot. Clintons are glamorous. Obama is “The One.” Not so Republicans. The same press tells us that Gerry Ford was a bumbler, Reagan was senile and George Bush, the stupid scion of old wealth.

Nevertheless, and despite every derogatory epithet thrown at him, George Bush has lived since retirement at his home in Dallas and on his ranch in Crawford, Texas, doing good deeds, but outside the public’s eye. His home, ironically, is far more environmentally friendly than that of his former political opponents who rail against man-made causes of global warming (or climate change, as they now call it). Mr. Bush devotes himself not just to his library and painting landscapes and portraits, but, importantly, to women’s health issues in Africa and to veterans, especially those who returned home wounded. And he does this without seeking the publicity without which people like Bill Clinton would shrivel up like wilted flowers.

When George Bush left office he was considered a pariah by many in his own Party. Even four years later, at the Republican convention in Tampa that nominated Mitt Romney, his only appearance was via video, which quickly flipped to his father.  Yet he never lost his love and respect for the people he served, especially those in the military. His concern is real, not faked. In the 1992 election, Mr. Clinton once famously said, “I feel your pain!” But it has been Mr. Bush who truly found his way into the hearts of the nation’s servicemen and women. After hearing of the Fort Hood massacre by Islamic terrorist Major Nidal Hasan, who killed 13 and wounded 38 on the 5th of November 2009, Mr. Bush and his wife, without escort, drove the thirty miles to visit the wounded and comfort the bereaved. They did so without notifying the press. They were on the base for six hours, until the White House requested they leave.

President Obama showed up days later for a memorial, but never visited the hospital. Granted, Mr. Obama has a far busier schedule than does Mr. Bush, but, still, this was the largest terrorist act on American soil since 9/11. The problem may be that Mr. Obama and his Justice Department deny it was terrorism, referring instead to the shootings as “workplace violence,” despite the cries of “Al-Akhbar” called out by Major Hasan as he slew his fellow soldiers.

About a month ago, George Bush announced a new initiative to take the “Disorder” out of Post-Traumatic Stress Disorder. The problem, he noted, was that PTS is an injury, not a disorder. If it is called a disorder, “veterans don’t think they can be treated.” As President, Mr. Bush ordered these men into combat and today feels responsible for the injuries incurred. The Bush Institute focuses on veterans. Last May, Mr. Bush hosted and rode in his third annual 100K “Warrior Ride” – a three day mountain bike trek with wounded veterans, many of whom have lost limbs. He has continued his interest in golf, but in golf tournaments for wounded veterans.

As President, Mr. Bush founded the President’s Emergency Plan for Aids Relief (PEPFAR) in 2003. By the end of his term in office he had increased humanitarian aid to Africa by more than 640%, to more than $5 billion a year. Before PEPFAR, an estimated 100,000 people were on anti-retroviral drugs in sub-Saharan Africa. By 2008, that number had grown to two million. Since leaving office, George and Laura Bush have stayed active regarding health issues in Africa. Last year, on a visit to Zambia and Botswana, they launched the ‘Pink Ribbon Red Ribbon’ initiative to bring together public and private funds to fight cervical and breast cancer in Africa and Latin America. Polls indicate that Mr. Bush’s popularity in Africa exceeds that of Mr. Obama. All of this has been accomplished this with minimal news stories. It is the deed, not publicity that drives them.

Two major crises struck during Mr. Bush’s Presidency – 9/11, less than eight months into his first term, and the bankruptcy of Lehman, four months before the end of his second term, in September 2008. As the financial crisis occurred almost at the end of his time in office, he cannot, avoid some responsibility for the events that almost undid our financial system. In my opinion, though, the root cause lay with a feckless, political culture that encouraged the leveraging by consumers without adequate means to purchase houses they could not afford.

On Monday, September 15, 2008 Lehman filed for bankruptcy. That evening, the government agreed to an $85 billion bailout plan for AIG. The next day Morgan Stanley’s shares fell 30%, as it looked as though it would be the next victim. On Wednesday, Treasury Secretary Henry Paulson announced a $700 billion “bad bank” plan. On the 22nd, Goldman Sachs and Morgan Stanley gave up their status as investment banks, allowing them to access the Fed’s window as commercial banks. Without recounting the litany of daily events, the Administration did respond and, as I have written in the past, Henry Paulson, Fed Chairman Ben Bernanke and NY Fed President Timothy Geithner deserve credit, along with President Bush, for not permitting financial Armageddon. In fact, as I have also noted, by the end of November the High-Yield market had bottomed and by the end of December the TED spread (the difference between 30-Day Treasuries and 30-Day Libor) had narrowed by over 300 basis points. The patient was still sick, but the crisis had passed its peak.

The high point of Mr. Bush’s Presidency, in terms of popular support, came with his inspirational response to the horrific events of 9/11. No one who heard his words will ever forget his bullhorn speech from the rubble that had been New York’s World Trade Center: “I can hear you! I can hear you, the rest of the world hears you, and the people who knocked these buildings down will hear all of us soon.” The wars that ensued became divisive. My point is not to defend them, but Mr. Bush made it clear that the enemy we were combating was different from anything we had seen before, and he did succeed to the extent that no subsequent attack on U.S. soil occurred during his Presidency.

The Presidency of a democracy is a continuum, with a beginning, but (we hope) with no immediate end. When the President leaves office he should walk off the field, as Mr. Bush did. He should not worry as to how history will treat him, for that is out of his control. As George Bush has noted, historians are still writing about and analyzing George Washington.

There are many who disagreed with Mr. Bush’s policies, especially in regard to the war in Iraq. Disagreement is fine; it is what allows a democracy function. But no one should suspect his motives, which always put the country and those who served her first. Mr. Bush is comfortable in his accomplishments and has no need for the limelight that others seek. He is an honorable man, with deep respect for the office he held and for the traditions that have made the United States the exceptional nation it is. In retirement, as in his Presidency, George Bush has shown character.


Wednesday, March 12, 2014

"Obama & Energy - Ideology before Growth"

                         Sydney M. Williams

Thought of the Day
“Obama & Energy – Ideology before Growth”
March 12, 2014

The best antidote for economic doldrums is more rapid growth. President Obama was handed a unique opportunity, in terms of an explosion in the production of oil and gas that was just getting underway when he was inaugurated in January 2009. Unfortunately, he let ideology dictate his response. Nevertheless, in spite of Mr. Obama’s reluctance toward fossil fuels and his preference for renewables, the U.S. oil and gas industries are experiencing a boom. Last year, the U.S. surpassed Russia as the world’s leading energy producer and in two years, according to the International Energy Agency (IEA), it will overtake Saudi Arabia as the world’s top oil producer.

In October 1970, oil production in the U.S. peaked at 10.01 million barrels per day (BPD). Production declined for the next thirty-eight years, reaching its nadir in September 2008 at 3.98 million BPD, less than two months before Mr. Obama won election. By 2013 oil production had risen to 7.45 million BPD. The United States Energy Information Administration (USEIA) expects production to be 8.39 million BPD in 2014 and 9.16 million BPD in 2015. Yet, despite that tail wind, the U.S. economy has compounded at a measly 1.8% under Mr. Obama’s leadership. In contrast, the thirty-eight years during which oil production was declining, U.S. GDP was compounding at 3.2%. This surge in U.S. oil and gas production is taking place, despite an Administration that has successfully prevented hydraulic fracking on federal lands and which has banned most drilling in coastal waters.

While U.S. crude shale production is expected to be short-lived – in five or six years, the IEA expects U.S. production of shale oil to begin declining – the same would not be true for oil in coastal waters, or for natural gas. U.S. natural gas production peaked in 1973 and declined into the 1990s, whence it leveled off for about ten years. In 2011, it surpassed 1973, and production today is now 15% above where it was forty years ago. More important, the “technically recoverable” reserves of natural gas in the U.S. suggest a hundred-year life, based on 2013 production levels.

Two technologies are responsible for this revolution in the extraction of oil and gas locked in shale formations: horizontal drilling, which allows access to bands of shale buried deep underground, and hydraulic fracking, which injects high-pressure fluid to release oil and gas from rock formations.

While oil is a global commodity and is priced in world markets, natural gas, which must be liquefied in order to be shipped, is priced locally. Thus, the United States has a competitive price advantage. In the March-April edition of Foreign Affairs, authors Robert Blackwill and Meghan O’Sullivan note: “In 2012, for example, U.S. [natural] gas prices stood at $3 per million BTU, whereas Germans paid $11 and Japanese $13.” This advantage has helped revive U.S. domestic, energy-intensive manufacturing and the downstream-derived chemical industry.

While everyone would agree that both business and government should give thought to the future, the Obama administration has been remiss in not taking advantage of the spurt in fossil fuel technology. The McKinsey Global Institute estimates that by 2020, unconventional oil and gas production could boost the United States’ annual GDP by roughly $380-$690 billion and create up to 1.7 million jobs. Keep in mind that annual GDP in 2013 was $15.7 trillion and is expected to grow by about 2% this year, or roughly $320 billion. In other words, they are suggesting that GDP growth could be closer to 4% or higher – a far cry from the anemic growth that has come to characterize the Obama years. Another 2% per annum GDP growth over the past five years would have added over $1 trillion to the economy and would have created millions of jobs.

Despite never signing the Kyoto Treaties, the United States has met its climate goals – not because of windmills or solar farms, but because of natural gas, which emits 40% less carbon than coal. It is doing so, as the writers in Foreign Affairs point out, “…not thanks to bold decision making in Washington but because the economics of gas have proved so much more favorable than coal.” It is of course inconvenient to those that hold that government is wiser than the people to be told that dynamic free markets prove the latter to be more efficient than the former.

Beyond climate change and what the boom in shale is doing for manufacturing and for energy independence, the United States could use its new-found increases in energy to be a help in the geo-political arena. Europe depends on Russian gas for 38.7% of their needs, but the Baltic nations, Finland and Ukraine derive 100% of their gas consumption from Russia. Exports of liquefied natural gas should be an easy decision to our energy-challenged allies in Europe. Being less reliant on Middle East oil would boost our independence and confidence.

But the biggest beneficiary to increasing oil and gas production would be the American consumer. The subsequent economic growth would provide government the wherewithal to reduce deficits. Federal spending is rapidly becoming simply a redistribution of money. While very few want to go back to the days when government ignored the plights of the indigent, the sick and the elderly, we cannot afford to continue down the path we are on. In the 2015 budget, just released by the Obama administration, 70% of all spending will be in the form of direct payments to individuals. More than a third will go to pay health bills and about a third will go to pay Social Security. Mr. Obama has railed against the one percent and against widening income gaps, yet a substantial portion of federal spending is handed out to the wealthy through Social Security and Medicare payments. Investor’s Business Daily estimates that the richest one percent of Americans receives roughly $10 billion each year, while the amount going to poverty programs will amount to 21% in 2015 versus an average of 25.4% from 1980 to 2008.

Mr. Obama came to office as the financial crisis was peaking. Instead of focusing on economic growth, he addressed his ideological wants. By jumping on the energy boom in its early stages, he could have engineered faster economic growth that would have alleviated unemployment and, in fact, added to government coffers. Is it too late for him to change? I don’t know. I suspect that while he preaches “hope and change,” he is stuck with the ideology he brought to Washington. But, if he is interested in faster economic growth, a new energy policy is a good place to start. It is not that all research into alternative forms of fuel should be dropped, but that the emphasis should be on providing the economy cheaper sources of energy today and making the U.S, energy self-sufficient tomorrow. The results would be a stronger economy, higher employment and greater security domestically and abroad, for us and our allies. It should be a no-brainer.