Politics


Can it be saved? That is the question that should be asked instead.  Probably not, is the likely answer. Spending money on a bail-out of the US auto industry will be like pouring water in a bottomless bucket.

US auto makers have created a market for themselves that allowed them to comfortably deliver 1950’s technology while being resonably successful, up until a few years ago. If you have owned a Ford Explorer or Jeep Grand Cherokee in recent years, you will have noticed that, except for some superficial design changes, these cars today are largely built on the same platform that has been in use for decades.

The US auto industry has been selling cars and trucks using “tough”, “rugged”, and other similarly silly attributes for half a century. All the while, the world has moved on. European and Asian car makers have invested in markets that value refined engineering, efficiency, and fuel economy. Europan and Asian auto makers are 20 to 30 years ahead of their US competition.

In the United States, once a successful company has gone public, shareholders and executives will squeeze the hell out of it until nothing is left. This is why there is not enough investment in R&D and technological advancement at large. Advancement comes only in the form of new innovative companies, and once these companies have become successful, the cycle starts over again.

(Chart by Kenneth L. Hess)

The chances that any US car maker will be able to become competitive in a time of rapid change and innovation in the market place is small. Let’s not waste money on GM and Co. These companies will never be what they once were - the engines of the US economy. Pouring money into US auto makers today will prolong their certain demise and prolong the economic crisis. The money should be spent on companies that drive innovation. Only innovation will fuel economic growth. Suggesting that the US auto industry should be saved today is like suggesting that the US horse carriage industry needed to be saved in the early 1900’s.

As the mortgage mess unravels and takes down more and more of the players, bits and pieces of information become available about who played central roles, and who benefited the most from unscrupulous lending schemes. One suprising conclusion that I drew is that much of this was in the making during the Clinton years, and that Bush, while he did nothing to prevent the system from collapsing, cannot be blamed for having caused it. Some of the players that I found mentioned over and over again in the news coverage are in the sphere of influence of the democratic party.

Allen Greenspan

Role Chairman of the Federal Reserve 1987 to 2006
Political Affiliation Republican
Responsibilities Failed to realize that the asset bubble was at least in part caused by his “easy money” low-interest rate policy. Many experts believe that he was directly responsible for the housing bubble and many earlier bubbles during his tenure (e.g. MSN Money columnist William A. Fleckenstein).
Quote “The housing boom will inevitably simmer down.”
 

Daniel H. Mudd

Role CEO of Fanny Mae since 2004
Political Affiliation Republican
Responsibilities Failed to understand Fannie’s risk exposure and possible consequences from a collapse of the housing market; caved to pressure from politicians, investment firms, and mortgage companies to increase risky sub-prime mortgage lending. Operated his Fannie for 2 years without a chief risk officer, then hired Enrico Dallavecchia, only to fire him when he begin to warn about the overheated market. Judging from quotes in this New York Times article, he seems to still not realize that, as the person in charge, it would have been his responsibility to see the obvious. Others did, and he ignored their warnings. As a result, Fannie Mae became unable to honor its guarantees to lenders.
Quote “The market was changing, and it’s our job to buy loans, so we had to change as well.”
 

Franklin D. Raines and J. Timothy Howard

Role Former CEO and CFO of Fannie Mae (until 2004)
Political Affiliation Democrat
Responsibilities Expanded Fannie Mae by opening up the firm for riskier mortgages. Mr. Raines made about $90 million between 1998 and 2004, while Mr. Howard was paid about $30.8 million. Both resigned in 2004 amidst allegations of accounting fraud, arguably motivated by the prospect of reaching bonus payout triggers with their reported profits. Fannie’s earnings over 3 years had to be restated by a mere $9 billion. The Office of Federal Housing Enterprise Oversight declared that the $9 billion earnings hit had left the company “significantly undercapitalized.”(Business Week)
Quote “Don’t bail out Fannie Mae and Freddie Mac. They have more than enough capital to meet their cash obligations [...]” (Raines in the Washington Post on 7/16/2008)
 

Angelo R. Mozilo

Role Founder & Former Chairman and CEO of Countrywide Financial, Founder of IndyMac Bank
Political Affiliation Democrat
Responsibilities Mozilo appears to have been at the center of the sub-prime mortgage boom. He grew his business to the nation’s largest mortgage lender by playing his political ties to democratic Senators and his friends at Fannie Mae. Some sources claim that Countrywide accounted for a quarter of the Fannie Mae’s business at one point.
Since Countrywide was listed on the NYSE in 1984, Mozilo has sold $406 million worth of its stock, mostly obtained through stock option grants. $129 million of this was realized in the 12 months ending August 2007. James Johnson and Franklin Raines, both former Fannie Mae CEOs, are said to repeatedly have received preferential loans from Countrywide. Barack Obama recruited both of them as financial advisors for his campaign - the optics is anything but helpful.
Interesting side note: Mozila also founded IndyMac, which was one of the earlier casualties of the crisis. North Dakota senator Kent Conrad (D) and Connecticut senator Chris Dodd also received preferential loans from Countrywide.
Quote “You need us more than we need you, and if you don’t take these loans, you’ll find you can lose much more.” (Mozilo to Fannie Mae CEO Mudd)
 

Chris Dodd

Role US Senator, Chairman of the Senate Banking Committee
Political Affiliation Democrat
Responsibilities Dodd was one of the many beneficiaries of Mozilo’s preferential loans. He is the politician who received the most campaign contributions from Fannie Mae and Freddie Mac. He also received from Countrywide. Several of the statements that he made during the months leading up to the Fed’s Fannie Mae and Freddie Mac takeover make his judgement appear somewhat questionable.
On the other hand, Dodd seems to have been instrumental to the engineering of the bail-out plan, which received substantial input from BofA and Countrywide (if you believe this). This whole thing gets scarier - now the banks write their own bailout plan?
Quote “I don’t believe I did anything wrong.” (Dodd to the Danbury News-Times)
 

Barney Frank

Role Massachusetts Congressman, Chairman of the House Financial Services Committee
Political Affiliation Democrat
Responsibilities Frank has a long-standing involvement with Fannie and Freddie. He was romantically involved with Herb Moses, an executive at Fannie Mae, in the 90s. He has received campaign contributions from both firms, and he has supported them in many ways. Most notably, he has been lobbying for reducing the amount of regulation, and he has been pushing for loosening lending standards. Some believe that Barney Frank created the preconditions for the lending crisis through his policies in the early 90’s (see this interview of Rupert Murdoch on Fox - where else?).
Surprisingly, Frank as recently as today (10/7) said in an interview on WBUR that he is very much in favor of more regulation in the financial system.
Quote “I’m not worried about Fannie and Freddie’s health, I’m worried that they won’t do enough to help out the economy”
 

James B. Lockhart

Role Director of the Office of Federal Housing Enterprise Oversight
Political Affiliation Republican
Responsibilities The Office of Federal Housing Enterprise Oversight (OFHEO) is a federal regulator with oversight authority of Fannie Mae and Freddie Mac. Lockhart, thrown in by the Bush administration in the last minute to salvage Fannie and Freddie, did too little too late. He adjusted the companies’ lending standards so they could purchase as much as $40 billion in new subprime loans did not help, either. Lockhart is Director of the new Federal Housing Finance Agency (FHFA) and effectively runs Fannie and Freddie since the take-over.
 

Martin Sullivan

Role Former CEO of American International Group (AIG)
Political Affiliation Republican
Responsibilities Unbelievable what we read about this guy in various news reports. Sullivan joined AIG in ‘71 and replaced Executives Hank Greenberg as CEO in 2005.
Under his tenure, AIG increased the sale of Credit Default Swaps, taking on risks that ultimately brought the company down. Sullivan urged exclusion of the money-losing AIG financial products unit when calculating executives’ bonuses, dumped an auditor who warned about things going on in their products division, while netting millions in salaries and bonuses. Some sources report a $47 million severance package, not counting another $17 million in pensions and deferred compensation.
 

Phil Gramm

Role former Texas Senator (until 2002)
Political Affiliation Republican
Responsibilities Gramm pushed the Commodity Futures Modernization Act through the legislature in 2000, which deregulated the Credit Default Swaps and other derivatives. Most economists agree that the risks of mortgage derivatives were not well understood and their wide-spread use was a major contributor to the financial markets meltdown of 2008.
Gramm, an executive at UBS bank, is an advisor to the McCain campaign and is being touted as his candidate for the treasury secretary. Wow - scary!
Quote “You’ve heard of mental depression. This is a mental recession. We have sort of become a nation of whiners.” (Gramm to the Washington Times)
 

Also entering the stage at the last minute: Henry Paulson, Ben Bernanke

To sum it up in one sentence (two, actually)

What we see is a pattern of greedy executives who were enabled and helped by self-serving lawmakers on both sides of the political spectrum, and a failure of government oversight due to poorly qualified, unwilling, unskilled, and unmotivated regulators. Let this go on for 20 years, and the mess is perfect.

Boston.com ran this story today about a researcher suing Woods Hole. He claims he was fired because he believes in Creationism and not in Evolution.
What strikes me as so odd about the article, the quotes presented, and other discussions of similar events in the media is that they so often miss the key point that would allow us to dismiss the notion right away that Creationism is just another theory that is in competition with the Evolution theory. And move on with our lives.

The issue is not whether there are two competing theories or not. Evolution is a theory and there is no ultimate proof, but is was established a long time ago, generations of scientists have been trying to chip away on it, and it has pretty much held up against all these attempts. It is a good theory, and chances are that it is a correct theory. One can believe in it or not, but that is not the point. The point is - there is no place for beliefs in science. The point is that in order to establish and work on a theory, one must use scientific methods, and Creationists are trying to replace scientific methods with religious beliefs and pseudo-science, which, if allowed into the world of science, would quickly undermine and invalidate everything we know today. It would no longer be required to use sound scientific methods to establish a hypothesis, and then work on proving it. Any dimwit could come along and establish new theories as he pleases, and instead of conducting scientifically sound experiements and using mathematical and statistical methods as proof, could claim some pseudo-scientific enlightenment. With the methods of science compromised, we would soon not be able to distinguish between truth and fairytale anymore. Science would become what the media is today - untrustable, and a preferred tool for political and religious manipulators.

I consider myself more an engineer than a scientist and this subject is particularly troubling to me because many engineering disciplines rest on scientific foundations. It is not difficult to imagine that someone will soon come along and rewrite engineering text books based on religious beliefs. I can think of very specific examples that sound funny today, but is this really so far out there?

God created the world, and Jesus walked over water, hence we don’t need to be quite as careful when we do bridge calculations anymore. I believe that people can walk on water if they only believe in it, too.

The attempt of establishing Creationism, or Intelligent Design, as it is sometimes called now, as an alternative theory to Evolution must be dismissed because Creationism is not, by definition, a scientific theory. There is no scientific evidence in its support and we cannot conduct experiments that would support it. One cannot allow any conceivable idea into the house of science, just because it is thinkable and it cannot be proved wrong. Most religious ideas cannot be proved wrong - they are transcendent. A theory requires more than just that to be a scientific theory. Scientists should not have to spend time defending the theory of science. Such cultish attempts to undermine science should be ignored, dismissed, and not even discussed in mainstream media. Anybody who does not agree with this is, by definition, not a scientist, but a religious quacksalver who’s firing is perfectly fine and necessary.

But is the solution really that trivial? Creationism is not simply a misguided idea propagated by a small group of naive conservatives. As it has been previously established (e.g. see Kitzmiller v. Dover Area School District) , Creationism is much rather the vehicle of a well-organized, well-funded, and nationwide attempt to introduce hard-core right-wing doctrin (mind you, this is not religious doctrin) into areas of our lives previously not deemed possible.
The Dover school board claimed that

there are gaps in the Evolution theory, which is a theory rather than an established fact, and that students have a right to consider other views on the origins of life.

Did you notice the subtle difference - theory vs view? Here lies the answer, which is NO! The students do not have a right to learn about other views, but certainly a right to learn about other scientific theories (if there were any). If it was so, then I could claim that my view is that the universe is really the excrement of a giant who pooped into space a very long time ago, and that students need to learn about my view.
The Catholic church has been teaching the concept of theistic evolution, and certain vatican officials are being quoted as saying that Creationism is paganism. It is clear to me that the underlying motive of propagating Creationism in the US is not religous, but deeply political. Good save us all!

in this country is probably just one indicator of a much larger problem, namely that the cost of services is going up while the value is going down.

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