Monday, August 8, 2011

S&P Chutzpah - School for Scandal (Dartmouth Not Oxford)

(If throwing a contribution Pottersville2's way won't break your budget in these difficult financial times, I really need it, and would wholeheartedly appreciate it. Anything you can afford will make a huge difference in this blog's lifetime.)

[Desperately seeking donations (even as little as $5.00, please) for gas for this blog's continuation!]

Have you started to miss educated people making our national financial/economic decisions yet? (Meaning decisions that actually benefit the whole country's progress, of course.) (And noo, not speaking of Geithner, et al., who are bound to the Rubinesque school of thievery as a first principle.) I'm speaking of reasonable, well-versed people possessing the ability to do complex as well as simple math and looking out for the well-being of the whole country instead of just their own backyard. Politics rules the day and we're paying the bar tab.

Credibility, Chutzpah and Debt
Paul Krugman
August 7, 2011

To understand the furor over the decision by Standard & Poor’s, the rating agency, to downgrade U.S. government debt, you have to hold in your mind two seemingly (but not actually) contradictory ideas. The first is that America is indeed no longer the stable, reliable country it once was. The second is that S.& P. itself has even lower credibility; it’s the last place anyone should turn for judgments about our nation’s prospects.

Let’s start with S.& P.’s lack of credibility. If there’s a single word that best describes the rating agency’s decision to downgrade America, it’s chutzpah — traditionally defined by the example of the young man who kills his parents, then pleads for mercy because he’s an orphan.
America’s large budget deficit is, after all, primarily the result of the economic slump that followed the 2008 financial crisis. And S.& P., along with its sister rating agencies, played a major role in causing that crisis, by giving AAA ratings to mortgage-backed assets that have since turned into toxic waste.

Nor did the bad judgment stop there. Notoriously, S.& P. gave Lehman Brothers, whose collapse triggered a global panic, an A rating right up to the month of its demise. And how did the rating agency react after this A-rated firm went bankrupt? By issuing a report denying that it had done anything wrong.

So these people are now pronouncing on the creditworthiness of the United States of America?

Wait, it gets better. Before downgrading U.S. debt, S.& P. sent a preliminary draft of its press release to the U.S. Treasury. Officials there quickly spotted a $2 trillion error in S.& P.’s calculations. And the error was the kind of thing any budget expert should have gotten right. After discussion, S.& P. conceded that it was wrong — and downgraded America anyway, after removing some of the economic analysis from its report.

As I’ll explain in a minute, such budget estimates shouldn’t be given much weight in any case. But the episode hardly inspires confidence in S.& P.’s judgment.

More broadly, the rating agencies have never given us any reason to take their judgments about national solvency seriously. It’s true that defaulting nations were generally downgraded before the event. But in such cases the rating agencies were just following the markets, which had already turned on these problem debtors.

And in those rare cases where rating agencies have downgraded countries that, like America now, still had the confidence of investors, they have consistently been wrong. Consider, in particular, the case of Japan, which S.& P. downgraded back in 2002. Well, nine years later Japan is still able to borrow freely and cheaply. As of Friday, in fact, the interest rate on Japanese 10-year bonds was just 1 percent.

So there is no reason to take Friday’s downgrade of America seriously. These are the last people whose judgment we should trust.

And yet America does have big problems.

These problems have very little to do with short-term or even medium-term budget arithmetic. The U.S. government is having no trouble borrowing to cover its current deficit. It’s true that we’re building up debt, on which we’ll eventually have to pay interest. But if you actually do the math, instead of intoning big numbers in your best Dr. Evil voice, you discover that even very large deficits over the next few years will have remarkably little impact on U.S. fiscal sustainability.

No, what makes America look unreliable isn’t budget math, it’s politics. And please, let’s not have the usual declarations that both sides are at fault. Our problems are almost entirely one-sided — specifically, they’re caused by the rise of an extremist right that is prepared to create repeated crises rather than give an inch on its demands.

The truth is that as far as the straight economics goes, America’s long-run fiscal problems shouldn’t be all that hard to fix. It’s true that an aging population and rising health care costs will, under current policies, push spending up faster than tax receipts. But the United States has far higher health costs than any other advanced country, and very low taxes by international standards. If we could move even part way toward international norms on both these fronts, our budget problems would be solved.

So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.

The real question facing America, even in purely fiscal terms, isn’t whether we’ll trim a trillion here or a trillion there from deficits. It is whether the extremists now blocking any kind of responsible policy can be defeated and marginalized.

Barney Frank: Military spending behind credit downgrade

Report: Rebekah Brooks still on Murdoch payroll

Second U.S. recession may be worse than the first
And if you were wondering about what is going on in the halls of learning, er . . . college . . . calm yourself and wonder no more. It's not exactly the same place. Thank goodness. (Or badness?)
School for Scandal What do you mean you don't like The Who?  How can any intelligent person not like The Who?  Philistine! "Give up, just quit, because in this life, you can't win. Yeah, you can try, but in the end you're just gonna lose, big time, because the world is run by the Man. The Man... Oh, you don't know the Man? He's everywhere. In the White House... down the hall... Ms Mullins, she's the Man. And the Man ruined the ozone, he's burning down the Amazon, and he kidnapped Shamu and put her in a chlorine tank! And there used to be a way to stick it to the Man. It was called rock 'n roll, but guess what, oh no, the Man ruined that, too, with a little thing called MTV! So don't waste your time trying to make anything cool or pure or awesome 'cause the Man is just gonna call you a fat washed up loser and crush your soul. So do yourselves a favor and just GIVE UP!"
— The School of Rock

Dartmouth College senior Andrew Lohse kicked up a bit of a stink earlier this week, with a column in the school rag bemoaning the pervasiveness and corrupting influence of corporate and financial recruiting on his campus. I will not quibble with Mr. Lohse's characterization of my industry, although based on this aperçu—

what is essentially a vulgar and extortionate system of lending and predatory capitalism which is increasingly underwritten by what remains of the public’s coffers, as large banks and investment groups fail left and right

—his perception strikes me in equal parts as supercilious ("vulgar"? Really?), fact-free ("extortionate"), and dated. Really, I cannot be too harsh, because one should not expect a mere 21- or 22-year-old whose sheltered perception of the global finance industry has probably been limited to jeremiads in Rolling Stone and The New York Times to know what the hell he is talking about. Nevertheless, this incident only confirms my conviction that Intellectual Humility and Defense Against the Hubristic Arts remain firmly off the core curriculum at Hogwart's Ivy League Schools of Arrogance and Sophistry. No, more to the point, I was brought up short reading his tirade when I encountered this:

We came to this school to probe big questions about why the world is the way it is — not to conform to a withering ideal of wealth and virtual power that we have been manufactured to hold dear. There are a few paradoxes about Dartmouth culture that I have always found deeply troubling, chief among them the cognitive dissonance between the brilliance of my peers and their complete lack of intellectual curiosity. Most of them are ambivalent at best, and at worst antagonistic, to the very concept of posing the hard questions about power, equality and history that we should be examining as undergraduates of a liberal arts college. They seem aware that doing so will not help them land a prestigious 16-hour-a-day job at some faceless hedge fund, where they’ll learn about manipulating capital instead of imagining a freer and more just world. To think about inequalities would be a distraction from their manufactured task of perpetuating, rather than questioning, class-based systems of power and dominance. Is this what it means to be ambitious in our culture? Should this be the goal of the valedictorians of Ivy League institutions? No matter how hard I try, I cannot think of more pathetic ambitions.

There are so many things wrong with this statement, that I hesitate to even know where to begin.

* * *

I know. Let me propose my own mini-curriculum for the edification and clarification of Mr. Lohse and his fellow discontents in the rapidly waning days of their academic sinecures. You may call it a Minor in Disillusionment, or perhaps a Certificate in Learning How the World Really Works. Grading will be pass-fail, and these cross-disciplinary courses will show up on your résumé. (In the interest of not prejudicing future non-professional graduate school applications, however, you may elect to exclude them from your undergraduate transcript.)

  • History 324 / Sociology 339: The Role of Higher Education in Society – Mr. Lohse mentions twice how he and his peers have been "manufactured" to "perpetuate" and "hold dear" wealth- and "class-based systems of power and dominance." This course will evaluate the history of higher education in America, with a special emphasis on how this system has been designed at its core to justify, perpetuate, and staff the dominant existing power structures of a society which both supports it financially and fetishizes it as the pinnacle of socioeconomic achievement. If time permits, the class will review the peculiar features of secondary education systems and supporting social and economic structures which have been designed for no other purpose than to get students such as Mr. Lohse and his classmates accepted at elite institutions of higher learning such as Dartmouth, no matter the cost.
  • Psychology 201: Other Minds – Mr. Lohse expresses surprise and dismay that so many of his brilliant classmates display i) a lack of intellectual curiosity about and ii) a hostility toward the issues and ideals of socioeconomic justice which he holds dear. The class will discuss, in roundtable seminar form, how and why seemingly smart, articulate, and well-meaning individuals who come from similar or even identical socioeconomic backgrounds can reasonably and intelligently disagree on fundamental issues of fairness, efficiency, and equality in society, and demonstrate by example that it is a fool who thinks anyone who disagrees with him or her is a fool. Part two of the course will investigate the varied motivations of students for undertaking a rigorous undergraduate education at a prestigious university, using the example of the students enrolled in the course. Special attention will be paid to analyzing in an even-handed and non-judgmental manner the opinions of students who consciously view and value such an undertaking as advanced vocational training (q.v., History 324 / Sociology 339, above).
  • Political Science 278 / History 499 / Ethics 202: The Tyranny of IdeologuesThe class will study the tyranny and authoritarian behavior of true believers when they attain a position of power, with particular focus on numerous examples from revolutionary periods in history, as well as the pedagogical program proposed by Mr. Lohse, who believes "the hard questions about power, equality and history" should be the principal focus of a university. For their required term paper, students are free to argue either for or against Mr. Lohse's implied premise that his program is superior—morally? intellectually? aesthetically?—to any of Anthropology, Comparative Literature, Biophysics, Applied Mathematics, Classical Philosophy, or Remedial Basketweaving. If time permits, the class will evaluate the utopian claim that "imagining a freer and more just world" constitutes a valid and self-supporting alternative to gainful employment.
  • Independent Study – Each student is encouraged to develop an individually tailored program, in conjunction with a faculty advisor and registered therapist, which is designed to counteract psychological, intellectual, and emotional shortcomings which will prove to be deleterious to his or her productive insertion into society post graduation. Popular programs of study include How Not to Be a Hubristic Ass, How to Respect the Opinions and Choices of Others, and How Not to Bite the Hand that Feeds You. In the case of Mr. Lohse, the faculty would like to draw special attention to a newly-offered course, No-one Wants to Hear My Poorly-Thought-Out, Half-Assed Opinions Over a Beer at the Student Union on Saturday Night. It has been recommended for him by a number of his classmates and peers.
* * *
I mean really, Andrew, I remember being appalled by the staggering disinterest most of my classmates displayed toward the issues and ideas nearest and dearest to my heart, too, when I first got to college. But eventually I got over it, in part because I developed enough maturity to accept the well-reasoned choices of others even if I disagreed with them, and in part because I developed enough empathy to understand that I didn't give a shit about what most of them cared about, either. Chacun à son goût, you know. Look, if you don't like how powerful the evil forces of finance have become in our society—and you are not alone in this regard; I think my industry has become too big, too—I might suggest a fruitful line of inquiry for your admirable reformist energies would be to discover exactly how this situation came about. I don't think anyone has done full justice to the problem, and I agree with many that it is a problem worth understanding (and solving, if we can). Surely there is no oversupply of intelligent minds working on the problem to make it difficult for you to find a position. And that's another thing. How can you, a product of one of the most competitive secondary and higher education systems on the planet, be unhappy that your competitors and presumed equals in brilliance are being siphoned off to dead-end, 16-hour-a-day jobs typing Powerpoint presentations and pushing electronic ledger entries around the globe? Doesn't it occur to you that that leaves the field of social and economic justice wide open to you and those few noble souls who choose to join you? It will be much easier for you to make a mark, a real contribution there, without hundreds of brilliant Darmouth and Princeton grads all jostling for a slice of social reformist glory. Who knows, if you hit on something really revolutionary, you might even drive the real wages for do-gooding up. After all, you're probably gonna have a mortgage and childrens' college tuition to pay one day, too.
And what brought on this brou-ha-ha? Ah! Recruiters! On campus!
August 5, 2011 Bridgewater Fights Back in Dartmouth Flap By Kevin Roose Baker Hall on the campus of Dartmouth College in Hanover, N.H. (Cheryl Senter/Bloomberg NewsBaker Hall on the campus of Dartmouth College in Hanover, N.H.) Andrew Lohse, a student at Dartmouth College, raised controversy this week with a polemic op-ed article in Dartmouth’s campus newspaper that called for an end to on-campus finance recruiting, which he said resulted in a “tragedy of wasted minds.”

A particularly juicy detail in the column involved Bridgewater Associates, the Connecticut-based hedge fund whose founder, Ray Dalio, has become well known for “Principles,” his 110-page personal manifesto.

Mr. Lohse reported “vomiting in my mouth” after hearing that Bridgewater had paid one of his friends $100 for providing a statement on why she had not participated in the fund’s sophomore recruiting program.

Well, Bridgewater is fighting back. Greg Jensen, the firm’s co-chief investment officer and a member of Dartmouth’s class of 1996, wrote a letter to the editor of the campus paper on Friday.

“At Bridgewater Associates, we place a high value on accuracy and feel the need to correct even small inaccuracies so that misimpressions do not linger,” Mr. Jensen wrote.

Bridgewater had not paid students for written statements, he said, but instead had run a focus group to determine what students thought of the firm and its unique workplace culture, which emphasizes total, brutal honesty and a destruction of personal ego. He continued:

At Dartmouth, one of our senior recruiters ran three sessions. In total, we invited 152 students to participate and 33 elected to do so. No one at the sessions was asked to write out statements; instead the sessions were 90-minute conversations among the group. We value people’s time and so as a thank you for the time devoted and the opinions shared, we gave each student a gift card worth $100.

Mr. Jensen told DealBook on Friday that Bridgewater conducts similar focus group tests at each of its four core recruiting schools: Dartmouth, Harvard, Yale, and Princeton, and that the firm currently employs 42 graduates of Dartmouth. The sessions are new this year, but Mr. Jensen denied that they were part of the firm’s response to a recent wave of publicity that included less-than-flattering articles in New York magazine and The New Yorker.

“We’ve made an effort to allow some people a window into what we’re doing,” Mr. Jensen said. “We like to know what we don’t know about how people are looking at us and thinking about us.”

Whatever happened at Dartmouth, it’s clear that Mr. Lohse should have seen a response coming. One of the maxims listed by Mr. Dalio in “Principles” is: “Don’t pick your battles. Fight them all.”

And now you see how we got into all this trouble on Wall Street. Too many well-schooled fighting Ivy Leaguers? Fight! Fight! Fight! USA! USA! USA! ____________________

No comments: