Slouching Towards Wall Street… Notes for the Week Ending Friday 9 September 2011
I’m mad as hell, and I’m not going to take this anymore!
What will it take to rouse this once-great people from its lethargy?
The Arab Spring has blossomed into a regional protest-fest, even infecting Israel where hundreds of thousands turned out to call for a more just and equal society. We report below on two other nations where inchoate citizen rage has morphed into organized action. But here in the Land of the Free, we look in vain for The Brave.
After wracking our brains in the run-up to Thursday’s Bernanke-Obama-Green Bay Packers trifecta, we thought we had hit on what it takes to get Americans to come out onto the streets in their thousands: a Labor Day Sale. But a call to our standout Retail sector brought early indications that Labor Day figures are coming in about flat year over year — though with the caveat that the week includes residual Hurricane Irene effect.
Our Director of Research, Daryl Jones, took America’s politicians to task in a cheerful Early Look on Friday, likening the week’s performances to Hollywood movies. Continuing the theme, we took a look at Labor Day’s box office, figuring that people who lost their home in a hurricane no longer have a closet to keep their new shoes in, but still go to the movies when things get really bad.
The Hollywood Reporter writes (29 July, “Movie Ticket Price Hits All-Time High”) the $8.06 average ticket price in the second quarter of 2011 is 2.15% above the $7.89 average for 2010 and is an all-time high, according to the National Association of Theater Owners. The Reporter attributes much of this increase to “the premium charge for 3D movies,” but notes that in the second quarter “attendance at 3D pictures has been softer than expected.”
Drawing on figures from several websites, we came up with the following: Labor Day Weekend 2010, the ten top-grossing movies took a total of $80,716,196. This year Labor Day Weekend saw the top ten films take in $76,554,062, a decline of over five percent. Dividing total take by average ticket price, we find 732,167 fewer people attended the movies over this year’s Labor Day Weekend than did last year. Invoking societies’ traditional reliance on Bread and Circuses (or Beer and Football), one should be brought up short at a drop of over 7% in movie attendance. One thing we are sure of — this does not point to an economy that is doing substantially better than most of us believe.
It would be an excess of generosity to characterize President Obama’s contribution to this week’s box office as “a hit,” but we disagree with those who say infrastructure projects will not translate into long-term jobs. We recently revisited the Bronx after a ten year absence and marveled that the Bruckner Expressway is still under repair — as it was continuously during the ten years we lived there. The combination of government funding and union representation has resulted in multi-generational permanent employment. This is what we at Hedgeye call a repeatable process.
As to the cinematic side of politics, we thought the Republican feature had the makings of a romantic comedy — the line-up across the brightly lit stage evoked alternating slamming bedroom doors in a French farce. But we soon realized we were trapped in a Surrealist movie — “The Discreet Charm of the Republiquoisie” — in which we are repeatedly lured to a delectable bit of policy, only to find there is neither meat nor bone.
Mercifully, after the Bernanke docu-drama and the Obama yawn-fest, the Green Bay Packers took the field in a masterful performance against a most worthy opponent. It was all we could have wanted in a football game, and more, as Randall Cobb — the first NFL player born in the 1990’s — ran back a kickoff for one of the most thrilling touchdowns in the history of the game, watched at Lambeau Field by New Orleans quarterbacks’ coach Joe Lombardi, Vince’s grandson. (Note that your Scrivener’s father grew up in Green Bay. No front runners here!) Needless to say, we found the game a thoroughly satisfying close to an otherwise dismal week.
The award for Best Line goes to Bernanke (“I saw the original,”) but Most Commentable has to be Rick Perry on Social Security: “It is a Ponzi scheme to tell our kids that are 25 or 30 years old today, you’re paying into a program that’s going to be out there.”
The arithmetic is unchallengeable, but Governor Perry seems to be straddling this fence. Let’s hope for his sake it’s not made of barbed wire. If you believe programs such as Social Security are absolute entitlements, you will be devastated when you actually find the safety net has caught everyone it’s going to catch and is now beyond capacity.
But it is America’s social contract that citizens are challenged every day to re-shoulder the burden of keeping America running and keeping the society strong. In this regard, Governor Perry’s statement is as misleading as the argument that “Hitler was democratically elected.” The test of a democracy is not that the one with the most votes wins the election — remember Stalin’s chilling remark that “those who cast the votes control nothing, those who count the votes control everything” — but whether the rights of the losers are protected. America’s commitment to protecting the weak finds a basic expression in the Social Security system. The job of the government is not to pull the wool over its citizens’ eyes — but neither is the job of the citizen to abdicate their individual responsibility to the polity and blame “The Gummint.” Every generation gets the government it deserves. Or votes for. Or fails to campaign against ardently enough. If Governor Perry promised his children that Social Security will be there when they need it, he has indeed lied to them. We have always told our children that it is their responsibility as citizens to contribute to the good of the nation, which often requires sacrifice, and which always requires respecting opinions and ways of life that differ from our own.
As to keeping his spurs spinning while straddling a fence-post, Bloomberg Business Week (9 September, “Rick Perry’s Social Security Problem”) quotes Karl Rove calling the Ponzi remark “toxic” to Perry’s candidacy. Not to worry. Rick Perry may be a hard-bitten Texas idealist, but he’s also a politician. The Business Week piece quotes Perry advisers that he (a) “hadn’t changed his position on Social Security,” but also that he (b) “would not end the program or mess with the benefits of anyone about to retire.” Indeed, look at the new life this remark breathed into the Romney candidacy. Just when it looked like “Romney-Care” rhymed with “Jimmy Carter,” the former governor came out swinging on Social Security. As the credits rolled at week end, Governor Perry had yet to articulate a workable replacement for Social Security. And Governor Romney had yet to articulate a credible replacement for Governor Perry.
There are those who believe America’s social contract is out of date. While we view this with trepidation, we recognize the right of We the People to change the terms of our nation’s covenant. Instead of addressing this head-on, our politicians appeal to the very worst in our nature, our basest lowest-common-denominator urges, fears and hatreds. This is a highly questionable tactic for selling beer or sports team branded apparel. For the governing of this land, it is positively terrifying.
This screenplay needs an extensive rewrite. Listening to what passes for political discourse in America today, we feel like we are sitting alone in a dark theater watching a movie in Albanian, with Tibetan subtitles. Even when the movie is over, we fear we will not know how it turned out. Someone in the darkness shouts a word in a language we can not identify. Were they calling for a lost child? Asking for popcorn? Shouting “Fire!”? Will we ever know?
Observers are hailing the creation of a “movement of the apolitical” as Brazil’s 7 September independence day celebrations were marked by tens of thousands of protestors protesting government corruption in cities across the country.
Their faces painted with Brazil’s green, yellow and blue colors, the protesters organized spontaneously using social networking sites. The core group were young people and students, many wearing clown noses as a way of saying the politicians are all clowns.
Brazil actually has a clown in Congress. Its most famous clown, Francisco Everardo Oliveira Silva — Tiririca (Chee-ree-REE-ca, meaning “Grumpy”) — was elected last year in one of the biggest electoral victories in Brazil’s history. During the campaign he was accused of being illiterate. Early in the legislative session he sheepishly admitted to pushing the wrong button in his first vote, thus becoming the only member of the ruling party to vote against President Rousseff’s first major initiative. “I got so flustered,” he said. We find this candor refreshing in a politician.
Tiririca. A clown out of costume. Or is he…?
Tiririca did not have a comment on this week’s clowning, but other groups voiced their support including Brazil’s lawyers, the National Council of Bishops, and the press. Press freedom is a dicey issue in Brazil, where many reporters are in physical danger and major newspapers are slapped with gag orders around investigative reporting on government corruption. Many demonstrators shouted support for President Rousseff, who has fired three cabinet ministers over allegations of corruption and continues her “Clean Sweep” policy. Is the Coffee Party the next big thing? Already politicians and interest groups are tryingto co-opt this doggedly non-aligned movement of the fed-up. They should be careful what they wish for. It’s hard to harness the water once the dam bursts.
Tiny Iceland, a mini-continent that sprang from the ocean floor in a buildup of volcanic activity, as we learned in junior high school earth science class. A land of green pastures and mountains — which, as we learned in junior high school geography class, was named “Iceland” to deter settlers, while its frozen glacier-capped giant neighbor was named “Greenland” to trick folks into settling there instead. Iceland has approximately 100% literacy among its population of 320,000, as we learned in junior high school social studies class, and many Icelanders write as a hobby. Lately they have been writing in earnest.
You might remember Iceland’s starring role in the movie “Inside Job,” which recounts the nation’s slide from island paradise to financial Ragnarok — which, as we learned in junior high school literature class, is the cataclysmic battle in which all the gods will die, and quite a lot of humanity as well. Now one of our Broad Street Irregulars has brought the Screed up to speed on the democratic process unfolding in — as we learned in junior high school civics class — the world’s oldest democracy.
Iceland’s parliament was formed in the year 930 when a group of Vikings took a respite from seafaring and established a permanent community. Iceland’s Althingi is generally acknowledged to be the world’s oldest continuously operating national assembly.
“Inside Job” director Charles Ferguson told the NY Times last year he was amazed at the havoc wrought by a financial elite “so small you could practically fit them into a restaurant.” The two main culprits appear to be Icelandic politicians Geir Haarde and David Oddsson, who reportedly treated the central bank as their private bauble. Among their activities on behalf of the Icelandic people Oddsson, as central banker, pegged the currency at its pre-crisis rate on the eve of the nation’s economic collapse, without advising the central bank staff, but presumably telling his protégé, then Prime Minister Haarde. This move supposedly allowed the inner circle to move their krona into more stable currencies in the final hours before the nation was declared bankrupt. This Inner Circle may include folks referenced in a document produced by WikiLeaks purporting to be an internal memo from Kaupthing bank, one of the banks whose failure led to Iceland’s collapse. According to Wikipedia, “suspiciously large sums of money were loaned to various owners of the bank, and large debts written off.” Former Kaupthing CEO Hreidar Mar Sigurdsson was arrested last year, a former finance ministry official has been convicted for insider trading of shares in Landesbanki, one of the other failed banks. Iceland’s special prosecutor has named some 200 additional suspects, and criminal proceedings look to run through 2014. Former PM Haarde was tried this week on charges of “failures of ministerial responsibility” (BBC 5 September, “Former Iceland PM Geir Haarde Goes On Trial”). A decision is expected by October.
A man’s home is his kastalanum.
Whatever the outcome of all this, Americans should pay attention to a nation that is throwing not just its bankers, but its Central Banker in the slammer. We agree wholeheartedly with Rolling Stone’s Matt Taibbi — though without the luscious imagery employed in his musings — on what it would take to really change our financial markets. Treating Wall Street executives to a night in New York’s “Tombs” would be more effective than billions of dollars in consent decree settlements.
Meanwhile, far from merely venting their spleen, the people of Iceland have gone into democratic overdrive. While sicking Interpol on the trail of their evanescing bankers, the Icelandic people clamored for legal protections to ensure such disasters could not happen again. What they needed was a new constitution. The old one was adopted in 1944 when Iceland was granted independence from Denmark. (We hear Iceland’s original document was the Danish constitution with “Icelandic” substituted for “Danish” and “president” for “king.”)
The draft of the new constitution, unveiled in July, is a team-built document created by 25 representatives chosen by Icelanders. The document was created on-line, with input not just from Icelanders, but from the whole world. It is the first crowdsourced national document ever — the logical next step after social media launched successful protest movements in places like Colombia, Iran and Brazil.
Iceland did the unthinkable when it repudiated its debt in the aftermath of its spectacular bank failures. Unthinkable, that is, to the government of England, whose citizens found it easier to mob up outside Number 10 Downing Street than to make their way to Reykjavik’s Austurvoeller Square to demand that the Althingi fork over their kronur.
We recall the resurgence of John Meriwether, who oversaw the near-Icelandisation of the US economy as his Long-Term Capital Management imploded. Meriwether emerged to start a new hedge fund the following year, which he ran successfully. Until he didn’t. Not to be deterred, he opened a third fund which attracted investors, although by now he is viewed as “just another hedge fund manager.” Not, in other words, anathema to the investing community. Not quite the Michael Vick comeback, but he has not been forced to sell his mansion.
It should surprise no one that Iceland, after repudiating the debt of its failed banks, managed to attract foreign investment, even as it imposed capital controls — you know, those policies that “stifle growth” — including on current sovereign bondholders. At the same time, they devalued the currency about 50% versus the euro, dramatically boosting their exports. After being warned that repudiating their debt would make them a pariah nation, Iceland went on to issue new government debt — its US$1 billion offering in June was twice oversubscribed. Nations contemplating bailouts should note that violent financial disasters, such as Iceland’s implosion and its sharp response, hurt a lot of people, but they flush the uncertainty out of the system. Money doesn’t care who owns it. Perhaps more to the point: money doesn’t care a damn about anyone, whether they own it or not.
The lesson from the Icelandic experience is that taking all the pain at once is the only way to flush the system. Our government doesn’t do pain — it will cost votes and politicians don’t know how to explain it. Our citizenry can’t do pain. Whether on the Right or the Left — whether through Free Market Trickle-Down Winner Take All-ism or through Patronizing Treacled-Down Welfarism — we’ve been promised we will be all right.
America has become a moral Ponzi society, forever living on the pain of others. Our politics could use some input from the land of the Vikings. Rick Perry, what’s in your wallet?
In the days leading up to this Sunday anniversary I caught myself weeping from time to time as the media showered us with images from a day we lived through ten years ago. That day, I was working on a trading floor that took up the 40th floor of a midtown Manhattan office building. We had a pristine view as two airplanes sailed through a clear sky into the dreadful record of history. The sky was so clear, our view unobstructed, and we watched from the moment the first plane hit until the towers collapsed. From her office on top of the Chrysler building, my wife photographed the serene horizontal band of smoke after the first plane hit, then again after the second one. I found this anniversary especially affecting — whether as a result of the Zeitgeist, or as its media promoters intended, who can say.
I wish I could pay homage — even as I feel I really can’t — to those who died on that day. Who died because they lived and worked in America. Who died because they would not abandon their post because their job was to help others. Who died because they would not leave behind a friend or a loved one, or because they turned to point others to safety. Or who stopped — or even went back up a flight of stairs to try to rescue a stranger.
The cynic in me says all violent death is in vain and kept anticipating commercials for beer and luxury automobiles throughout the televised day of mourning. Humanity experiences periods of peace and tranquility, but not because we learn from the past. Wars die down at harvest time when fighting men go home to lay up stores of food. Fighting trails off in winter when maneuvering is tough, and armies do not choose to fight in difficult terrains. But given half a chance, people again look for ways to kill one another or create new technologies — from Hannibal’s elephants, to drones, to IEDs. Historian Will Durant, quoted in Chris Hedges’ chilling War Is A Force That Gives Us Meaning, calculates there have been only twenty-nine years in recorded history when there was not a war going on somewhere in the world.
Everywhere we went today we heard the background murmur of names being read on the plaza at what is still called the World Trade Center. In the afternoon we met a woman from Riga, Latvia. Ninety-one years old, she escaped the Holocaust and ultimately made her way to America. She smiled as she spoke about her successful children. “I’ve had a good life,” she said. “God bless America,” she said. “People who are born here don’t know how good it is to live in America,” she said.
A man born in the forests of Poland during World War II called me weeping. The images flooding our culture all week kept bringing him back to his own memories. Of siblings he never knew, of the many times he encountered violent death in so many forms. “I keep thinking,” he said through his tears, “every time something terrible happens, that we will learn from it. But we never do.”
I can not speak of death not being in vain, but I pray that our lives not be in vain. If the deaths of the thousands who perished on 9/11 mean anything, it is because their lives meant so much as they did their jobs and raised their families and strove to fill each day with all that is best in being American, in being human. I can only bid sad farewell to those who died that day and offer a heartbroken nod to those who continue to suffer. We will meet again next year. Let us make the time count.
Email me when ComplianceEdge publishes or recommends stories