Rossputin.com: Rational Thinking About Our World

The Rocky Mountain News is taking a survey of how readers would vote on particular issues and then telling participants how Schaffer and Udall voted on those same issues.

I voted with Schaffer on 15/20, though it could easily have been 17/20 as I was unsure on two of the ones where I voted differently.

I encourage you all (especially those who support principled leaders like Schaffer to participate in the survey).

My results are below, along with how Schaffer and Udall voted. If you don't have an opinion on an issue, may I suggest you vote the same way Schaffer did?

The survey can be found at:
http://cfapp2.rockymountainnews.com/udall_and_schaffer_vote/

1
In October 2002, did you support a resolution authorizing the use of force against Iraq?

Uduall voted: No

Schaffer voted: Yes

You voted: Yes

2
Did you support passage of the anti-terrorism law, the USA Patriot Act?

Uduall voted: No

Schaffer voted: Yes

You voted: No

3
Do you support legislation declaring it the policy of the United States to deploy a National Missile Defense System?

Uduall voted: No

Schaffer voted: Yes

You voted: Yes

4
Do you support creation of the Great Sand Dunes National Park in Colorado?

Uduall voted: Yes

Schaffer voted: No

You voted: No

5
Do you support legislation overturning an executive order that required government materials to be printed in languages other than English?

Uduall voted: No

Schaffer voted: Yes

You voted: Yes

6
Do you support creation of a nuclear waste repository at Yucca Mountain, Nevada?

Uduall voted: No

Schaffer voted: Yes

You voted: Yes

7
Do you support a ban on new energy leasing within boundaries of designated National Monuments?

Uduall voted: Yes

Schaffer voted: No

You voted: No

8
Do you support ending funding for the International Space Station?

Uduall voted: No

Schaffer voted: Yes

You voted: Yes

9
Do you support legislation to allow churches or other houses of worship to engage directly in political campaigns?

Uduall voted: No

Schaffer voted: Yes

You voted: No

10
Do you support a ban on "partial-birth" or "late-term" abortions?

Uduall voted: No

Schaffer voted: Yes

You voted: No

11
Do you support an amendment preventing the District of Columbia from using federal funds to process same-sex adoptions?

Uduall voted: No

Schaffer voted: Yes

You voted: Yes

12
Do you support a proposed constitutional amendment requiring two-thirds majorities to approve new tax increases?

Uduall voted: No

Schaffer voted: Yes

You voted: Yes

13
Do you support increasing fuel-efficiency standards for automobiles and light trucks?

Uduall voted: Yes

Schaffer voted: No

You voted: No

14
Do you support keeping the Arctic National Wildlife Refuge off-limits to energy development?

Uduall voted: Yes

Schaffer voted: No

You voted: No

15
Do you support passage of the "No Child Left Behind" education reforms?

Uduall voted: Yes

Schaffer voted: No

You voted: No

16
Do you support a law giving airline pilots the right to carry guns in the cockpit?

Uduall voted: No

Schaffer voted: Yes

You voted: Yes

17
Do you support adding $1 billion for rural development programs over 10 years?

Uduall voted: Yes

Schaffer voted: No

You voted: No

18
Do you support an amendment that would prevent federal funds from being used to kill wild animals (predators) for the purpose of protecting livestock?

Uduall voted: Yes

Schaffer voted: No

You voted: Yes

19
Do you support a constitutional amendment that would ban desecration of the American flag?

Uduall voted: No

Schaffer voted: Yes

You voted: No

20
Do you support ending all U.S. financial contributions to the United Nations?

Uduall voted: No

Schaffer voted: Yes

You voted: Yes

Thanks to Jeff Dircksen at the National Taxpayers Union for posting this excellent and hilarious economics lesson, in which "Standup Economist" Yoram Bauman takes apart (very good economist) Greg Mankiw's 10 Principles of Economics.

Bauman also has a funny bit of standup economics at:

Thanks to Don Boudreaux for writing this tremendous article:

My mom, Don Boudreaux, Pittsburgh Tribune-Review, 3/28/08
http://www.pittsburghlive.com/x/pittsburghtrib/opinion/columnists/boudreaux/s_559399.html

New Mexico Governor Bill Richardson’s endorsement of Barack Obama on Friday leaves one wondering whether an “audacity of hope” has infected his brain. The main points on which Richardson based his decision not to endorse the wife of his former boss seem based more on wishful thinking than on fact or history, and expose more weaknesses than strengths of Obama’s candidacy.

In his endorsement (transcript available HERE), Richardson said that Obama, in his Philadelphia speech about race and Reverend Jeremiah Wright, “showed us…what kind of leader he is” and that “he spoke to us as adults”, leading Richardson somehow to the conclusion that Obama can “bring people together…by bridging our differences.”

Yet except for the liberal elite in Manhattan, Los Angeles, and inside the beltway, Obama’s speech received widespread criticism for doing just the opposite, not only repeatedly emphasizing differences between races, but doing so in a way that many swing voters, especially Reagan Democrats such as in Indiana and Pennsylvania (which have upcoming primaries), might find explicitly racist.

Much has been made of Obama’s throwing his grandmother under the bus in his speech. Less widely noted was his then backing the bus over her repeatedly the next day re-emphasizing that as a “typical white person” she was somewhat afraid of blacks (even though she’s “not in any way racist”.)

Without rehashing the tremendous hash that has already been made by and of Obama and the issue of race, one thing is certain: Richardson’s suggestion that Obama is the candidate most likely to unite the country is much more questionable than it might have been a few weeks ago.

And as for showing us what kind of leader he is, and speaking to us like adults, it is hard to imagine that Obama would want the voters reminded of those points. He showed us that he’s a leader who believes that whites (like me) think we should feel privileged due to our race (which I believe is patently false) simply because it is, in the mind of people who have been infected by racist vitriol such as from Reverend Wright, an analogue to what Obama called “black resentments”. He may have spoken to us as adults in the sense that he used polysyllabic words, but he spoke to us as adults who he believes are either inherently racist or stupid.

The other inconvenient fact for those who call Obama a “uniter” is his record as one of the least likely Senators to vote for any bill sponsored by a Republican. It is hard to imagine someone rated by the most liberal Senator…to the left of Ted Kennedy and Bernie Sanders…by National Journal somehow being considered as a source of bipartisan bliss.

A second claim made by Richardson is that Obama “will be an outstanding Commander in Chief.” As usual, 100% of Obama’s claimed qualification for the foreign policy part of the job comes from his opposition to the Iraq war. I believe Obama’s sincerity in his opposition to the war, and his speech in October, 2002 was a reasonably rational explanation of his position.

However, in recent years, Obama has become the “just say no” candidate regarding the war. In 2005, 2006, and 2007, he either called for or introduced legislation to pull our troops out of Iraq (in phased but rapid withdrawals). In January, 2007 he argued that the Iraq surge “makes absolutely no sense” and still refuses to acknowledge that it has been successful to a substantial degree.

Having opposed the war, something many Americans might say looks wise in retrospect, does not give Obama a free pass to be wrong prospectively. Had he been in the Senate and believed what Senator Clinton, Colin Powell, and others believed at the time of the Iraq war vote, he may or may not have voted against the war. But allowing Obama to skate on later errors, such as his opposition to the surge, reminds me (as a trader) of believing every recommendation of a stock analyst who once made a good sell recommendation on one stock despite having been sub-par since then.

Part of Richardson’s claim rests on his view that Obama “has shown courage, sound judgment and wisdom throughout (his) career.” But Obama’s Senate career is only three years old, prior to which he served in the Illinois State Senate, hardly relevant training to be the leader of a nation at war.

Although it is a question which reasonable people can disagree about, Obama’s desire to negotiate with people like the leaders of Iran, Cuba and North Korea “without preconditions” does not inspire confidence in many of us who have been studying politics and international relations for many years.

Overall, a claim that Obama would be an excellent Commander in Chief seems based on audacious hope rather than our actual experience with the candidate.

But perhaps the most troubling statement made by Bill Richardson on Friday was made addressing Obama, and was not in the official speech transcript: “Your candidacy is a once-in-a-lifetime opportunity for our country, and you are a once-in-a-lifetime leader.”

My first reaction upon hearing that line was “And I didn’t think that campaign could get any more racist….” Consider the critical difference between suggesting a “first in a lifetime” versus a “once in a lifetime” opportunity. The implication of Richardson’s line is that America is incapable of electing a black president if we don’t elect this black president. It is a profoundly racist claim. Does anyone doubt that Colin Powell or Condoleezza Rice would be highly credible candidates? Even J.C. Watts might have a chance.

I do notice one thing, however, about that list: They’re all Republicans, and it’s not because I’m not trying to think of another Democratic African-American likely to be electable to our highest office. Maybe what Richardson meant is that the Democrats — who market themselves as the party of diversity and the party that “cares” about blacks and Hispanics — is unlikely during any 75 year span to select more than one minority as their party’s nominee for the presidency.

Maybe Richardson’s point wasn’t inherently racist. Instead, maybe the rare opportunity is for America to elect our least experienced president since Chester Alan Arthur. Or maybe it is the only opportunity during our lifetimes to see Bill Richardson as Vice-President.

In other words, Richardson’s exhortation of Obama as “once in a lifetime” is either stupid, self-serving, or profoundly, though subtly, racist. Actually, I’ll take all of the above.

Just as Obama’s Philadelphia speech was seen as successful only in places and by people who were already strong supporters, Richardson’s endorsement of Obama did far more to highlight everything that is wrong with Obama’s candidacy than the precious little that is right (or Wright) with it.

Please read my article at Human Events today about the battle over pork barrel spending by Congress:

see "Earmarxists Win a Big Round", Ross Kaminsky, HumanEvents.com, 3/26/08
http://www.humanevents.com/article.php?id=25701

For today's reading, I offer you this thought-provoking guest article by Mike R.

The Media is agitated and exercised over another three zero number (4000) in the death toll in the Iraq War and of course the presidential candidates are making great hay over it as well trying to out-somber each other in front of audiences and the cameras.

A few observations occur to me as I watch the carnival over carnage and all the huffing and puffing.

The first is that the media and the left (as if they were separate entities) have been cheering on the number for the last six months with a macabre sort of finger pointing glee. We have been treated to the line “nearly four thousand dead” for quite some time as if we were watching the fund raising thermometer in the town square rise toward the desired goal. The breathlessness of the anticipatory reporting seems to me to blunt the actual fact when it finally arises; “nearly four thousand dead” IS four thousand dead in our minds and has been since they began reporting it this way.

Another thing that occurs to me as I watch and am bombarded by the headline and the opining around it is the sense of the odd sort of importance placed on the four thousandth death as if it were the four thousandth customer to come through the store doorway complete with confetti and coupons. I keep wondering when the press is going to give us the name, a photo, family background, point of origin and time of death of Mr. or Ms. four thousand, like the first baby of the new year. Maybe we can be treated to a weeping family member interview as well, with a reporter jamming a microphone in the family member’s face and asking something like “how does it feel to be the relative of number four thousand and do you have anything to say to President Bush and Dick Cheney?”

I also wonder how the relatives of the Mr. or Ms. ‘almost four thousand’ feel, cheated, less important, almost but not quite a hero? I wonder how I am supposed to feel and properly emote now over the forgotten first victim, if at all

All the hand wringing and out-somber (ing) and moralizing and “is it worth it (ing)” started me wondering why, after five years of war, four thousand isn’t actually a pretty ‘good’ number as wars go. I don’t say this in any flippant disregard for the individuals or their families, they are all precious lives lost in a horrible extension of human inhumanity, whatever the right or wrong of, or justification or lack of justification for the war was in the first place.

It also got me to wondering how the number, four thousand in five years, stacked up against five years of another horrible statistic. While it is not quite the same, it doesn’t seem to be deserving of bold headlines and moralizing, and “what are we doing (ing)” and downcast low-talking in front of cameras as we mark “another grim milestone”, it is a bit sobering to contemplate. Namely, the murder rates over that same period in some of America’s largest cities.

With the help of my fiancée doing a little digging and totaling for me, we found that over the same period (2003 to the present), Chicago’s “grim milestone” is 2382, Los Angeles’ is 2524 and New York’s is 4112. No doubt all loved ones of someone with lives and families and hopes and dreams also.

I understand that many will take exception to this comparison because these were not patriotic volunteers acting as the extension of the nation’s will and policy, placed in harm’s way half way around the world with a debatable morality and purpose to the action but they are nonetheless, all lives lost to violence. They leave behind the same grief and no doubt suffered similarly in terror as their lives were extinguished.

I also wonder why the pundits and anchors and politicians don’t treat us to a running tally each night using terms like “grim milestone” as we cross another three zero threshold on our way to some final number which raises our consciousness and outrage to a level of intolerability and calls for action. Why are these deaths less significant, more tolerable?

As I watch the news on the “grim milestone” be reported, I am informed of ‘interesting’ additional statistics such as the study which shows that 97% of the casualties in Iraq have occurred since the president’s infamous speech about the end of major combat operations in Iraq (the “mission accomplished” speech) as if this had any meaning whatsoever. As any war historian can explain, the grinding work of war, ‘clearing and holding’ territory is far more dangerous than air strikes, the use of stand off weapons and other armored assault with heavy weapons, but that doesn’t make a headline or offer the opportunity for editorializing against the president on the grounds that we were somehow led to believe that the killing and the threat of being killed was over, a completely false interpretation of his words.

The “grim milestone” story is also accompanied by further ‘proof’ that the surge isn’t working either, because the killing and dieing has not ended. This is reported and otherwise commented on as if there were something formulaic, guaranteed and magically predictable about adding troops and employing a different strategy to fight the war. That this “grim milestone”, how ever arbitrary, was not supposed to have been reached, seems to be the reasoning that we are to follow and we are to be more outraged and somber today than yesterday. I find it remarkable that more people have been murdered in New York City over this same period without the recognition of a mile marker or a call for consciousness and moral examination.

The Australian (a newspaper from guess where) has one of the best articles I've ever read on the climate change debate, and I encourage you all to read it at:
"Climate facts to warm to", Christopher Pearson, The Australian, 3/22/08
http://www.theaustralian.news.com.au/story/0,25197,23411799-7583,00.html

One of the highlights of the article are its discussion of new data which seem to pour even more cold water on Al Gore's hot air. (Pun intended, of course) and how the enviro-alarmist industry is struggling to cope with the information.

Another highlight is the description of pro-alarmist media bias which obviously is not contained to the US. Author Ian McEwan wrote an article on the subject recently, as he tours Australia, in part promoting an upcoming novel dealing with climate change. While the article was not particularly skeptical of global warming, at least one paragraph of it would cause one to wonder whether McEwan is indeed a skeptic, as those of us who don't drink the Algore kool-aid are called. The Age left out that paragraph in their version of the article, without noting that they had edited the article.

According to the news story linked at the beginning of this note, here's the paragraph that was left out:

"Well-meaning intellectual movements, from communism to post-structuralism, have a poor history of absorbing inconvenient fact or challenges to fundamental precepts. We should not ignore or suppress good indicators on the environment, though they have become extremely rare now. It is tempting to the layman to embrace with enthusiasm the latest bleak scenario because it fits the darkness of our soul, the prevailing cultural pessimism. The imagination, as Wallace Stevens once said, is always at the end of an era. But we should be asking, or expecting others to ask, for the provenance of the data, the assumptions fed into the computer model, the response of the peer review community, and so on. Pessimism is intellectually delicious, even thrilling, but the matter before us is too serious for mere self-pleasuring. It would be self-defeating if the environmental movement degenerated into a religion of gloomy faith. (Faith, ungrounded certainty, is no virtue.)"

To be sure, Tasmania's Mercury News has a very valid question wondering why a best-selling fiction author should be given so much space on op-ed pages discussing science when he does not seem to have any qualifications to do so. (Well, neither does Al Gore.) Here's the Mercury's take...and it's something we could easily apply when we have to suffer through hearing Laurie David or Cheryl Crow:

Stick to the fiction, mate, Greg Barns, The Mercury, Tasmania, 3/10/08
http://www.news.com.au/mercury/story/0,22884,23348430-5006550,00.html

In any case, I sense a slow but sure turn away from the disastrous certainty of the media in accepting that CO2 is about to end the human race. The data is proving otherwise, and the behavior of those who are building careers by scaring people and government into giving them money is becoming too transparently self-serving to be ignored.

A reader named Dave offered a thoughtful comment to my posting about "peak oil theory" last week. Following is his comment, and then my response:

Rossputin,

In the arena of alternative energy, you run up against the constraints of ROI and EROEI.

ROI is a accountancy constraint - if your profit falls below a threshold, you curtail or cease the endeavor. Observe the stock by-backs the oil companies have undertaken in the past year alone (Conoco-Philips $15 billion, Exxon $29 billion). Exxon’s exploration budget?: Just 19 billion. The big oil companies see the writing on the wall and are not making sizable investments, regardless of the price of oil. They haven’t built a new refinery in the US for over 20 years. Extraction is getting too expensive and too difficult with the finds too small.

EROEI is the amount of energy gained, minus the expenditure of energy to acquire, transport, process, maintain, store, and utilize the energy source. As it gets harder to extract, the EROEI drops. Early oil was 100 to 1; today it’s 8 to 1. The EROEI ratio has been deteriorating at the rate of about 3.5% per year since the 1930's. We are reaching the limits of this constrai

The most difficult reality to comprehend and accept is that no combination of alternative energies can come even close to providing the energy density of oil, nor can any of them be used as the feed-stocks for our plastics, medicines, and over 500,000 other products and chemicals. Without oil, we cease to live the lives of comfort and convenience we have become accustomed to.

As I began my personal investigation of this issue, the single reality which took me by surprise, and a great deal of time to wrap my head around, is the almost unfathomable density of oil. There is nothing else like it, and no alternative can come remotely close. Review the concept of the Cubic Mile here: http://spectrum.ieee.org/jan07/4820/ncmo01 and here: http://www.theoildrum.com/node/2186 This work was done by the respected IEEE, the world's largest professional technology association.

To equal the energy output of one year’s worth of oil, one cubic mile, you would need to construct 52 nuclear power plants ...each year, for 50 years! That’s 2,600 installations total (there are just 429 worldwide presently). The sobering reality is that there is not enough time, uranium, or money to come within a fraction of our energy demands using nuclear, even with other sources in consort. The same applies to any other alternative energy source.

Thank you for your time and consideration.

Dave

And now my response:

Dave,

Thanks for the thoughtful comment.

Let me respond to a couple of your points.

First, it's true there have been large stock buy-backs in the past year or two, but that doesn't signify as much as you imply. The companies have a duty to their shareholders and if they believe stock repurchases are a better idea than dividend increases (a choice frequently made for tax considerations), they should do those buybacks.

Some interesting information is in this article:
http://www.usnews.com/articles/business/economy/2008/02/01/where-exxon-and-friends-spend-big-profits.html

It mentions that in 2007, the five biggest oil companies spend 37% of cash flow on stock repurchases and 20% on dividends.

However, their largest use of cash, 54%, was for "property, plant, and equipment" with only 6% between exploration and R&D combined.

Again, I don't read this as negatively as you do. The goal of a company is to much as much profit for the long term as possible for its owners. Stock buy-backs are an excellent occasional tool to do that.

I would also point out that there is a logistical limit to how much money a company can spend on exploration and R&D in a given year because of the constraints of personnel and management.

Just because they don't spend all their money on exploration doesn't mean they're doing anything wrong, nor does it have particularly interesting implications for long-term oil supplies.

Let me put it this way: If we knew every project you wanted do get done during the next 25 years and you were suddenly given the money needed to do all of them, would you or could you start them all at the same time and hope to do a decent job with them? You obviously couldn't do them all yourself, so you'd have to hire project managers, but at some point there will be too many project for you to manage those managers. So you spend what you need to in order to do what you can.

However, your comments and my response so far have been based on 2007 numbers. And, just like everything else in this world, things change:

Just two weeks ago Exxon has announced that their spending on exploration, refineries, and chemical plants will be 20% higher in 2008 than in 2007. According to Bloomberg news, "Exxon Mobil expects to spend $125 billion during the next 5 years on pipes, vessels, exploration leases and other items, a 25 percent increase from Tillerson's March 2007 forecast."

And, "Spending this year on exploration, production platforms and other so-called upstream operations will rise by about 21 percent to $19 billion, Tillerson said. The company will start 19 projects by the end of 2010 that will add the equivalent of 725,000 barrels of oil, enough to supply 10 percent of the refineries along the U.S. Gulf Coast."

It is certainly true that their costs of extraction increased a lot in percentage terms last year, rising to $7.14/barrel. That hardly seems like an impediment to incentives with oilat these levels. More from Bloomberg: "The return on the company's worldwide oil and natural-gas operations fell to 42 percent in 2007 from 45 percent a year earlier as costs increased faster than energy prices. For the company as a whole, return on capital employed was little changed last year at 32 percent."

Again, 42% is not as good as 45%, but it's still a great return. Returns lower than that would still easily justify being in business.

The issue of a lack of refineries is also not as simple as you imply. There are two main reasons we haven't built a refinery in a long time. First, refinery technology improved so much over the years that existing refineries were able to constantly increase their refining capacities. Second, there's a huge NIMBY (Not In My Back Yard) problem where citizens oppose the building of a refinery near them. The lack of new refineries has only become a problem recently, and is not an issue of lack of investment capital to build them.

You're absolutely right about the density of oil as an energy source. It's one of the great follies of the ethanol hoax that they try to make people think that ethanol could ever be a decent substitute for oil.

As far as small finds, there are also big ones like the recent huge find near Brazil. Also, there are existing huge supplies in oil shale and it's simply a matter of developing technology that makes extraction economically feasible, and that's happening.

We should certainly be building nuclear power plants.

Don't forget that there's absolutely no purpose in aiming to be totally oil-free. The key is to reduce marginal demand somewhat. Even lowering demand by a few percent would have a huge impact on the price of oil, and therefore other energy sources, over time.

At the end of the day, Dave, I believe that "peak oil theory" is used by the same people, or the same type of people, who support Al Gore's "global warming" hysterical idiocy. Putting it simply, what do peak oil people say? That since we're running out of oil, we need to use much much less energy.

It's not true in any relevant way that we're running out of oil.

Here are some relevant articles:
http://www.nytimes.com/2007/03/05/business/05oil1.html?

http://www.huffingtonpost.com/raymond-j-learsy/peak-oil-rip-official-_b_42936.html

http://www.huffingtonpost.com/raymond-j-learsy/oil-is-not-scarce-the-_b_21550.html

Therefore, anything that follows from that premise is wrong.

You must keep in ind that the key with these people is not that they're concerned about saving energy. It's that they oppose development, globalization, and capitalism, just like the global warming alarmists. And, just as importantly, cries of an impending disaster also sell a lot more books than saying things are OK. (I still recommend the oldie-but-goodie "It's Getting Better All the Time: 100 Greatest Trends of the Last 100 years", by Steve Moore and Julian Simon, even though it's a bit dated, just because it's an example of the kind of research that we never hear about but which we need more of if only to let us know that the world is not in fact ending.)

Dave, I wasn't clear whether you were actually supporting Peak Oil Theory in your note. I'm simply suggesting that you go further than that and understand why it's almost certainly wrong.

The last point I want to make on the subject is that, just like the global warming alarmists, peak oil theorists assume that human behavior doesn't change. (They're the same liberals who believe that raising tax rates won't change people's economic behavior or entrepreneurial risk-taking.)

But if you look at, for example, heat-related deaths in the US over the past few decades when there has been a very slight warming trend, those deaths have decreased every decade (except for in Seattle, the coolest metropolitan area studied.) This is because people learn. We either don't stay outside so much, or we invent better and cheaper air conditioning systems, etc. Humans are very adaptable, which is why we're still here.

So, every time you hear someone say that the world will end because something's going to change, you must ask yourself "How stupid do they think we are?"

Tune in from 9 AM - 11 AM Mountain time at 1310 AM in northern Colorado, or listen online at http://1310kfka.com to hear me and Christopher Sanders talk politics, economics, movies and wine.

I've written more than once on these pages that I think the "peak oil theory", namely that we're running out of oil in a time frame that is relevant, is bulls**t.

Today, I offer you this interesting article in which an executive from Shell Oil (an employee of which started the "peak oil" concept some decades ago) questions the theory's assumptions.

But even if you like the theory, I'd point out that the facts don't agree with it, as proven reserves rise, not fall, almost every year, regardless of our consumption because of better technology to both find and extract oil.

see "Shell exec says world not running out of oil" (WND, 3/20/08)
http://wnd.com/index.php?fa=PAGE.view&pageId=59502

National Propaganda Radio, much to my amazement, ran a story yesterday discussing how a NASA study of ocean temperatures for about the last 5 years shows that the oceans have cooled slightly in that time.

Of course, they can't accept the possibility that climate change goes in cycles and that we might be in for a bout of global cooling...something that more than a couple serious scientists suggest may happen due to the lack of sunspot activity.

Instead they quote someone saying that global warming "may be on a brief hiatus".

They also make one very misleading statement when they discuss rising ocean levels when they talk about the rate of glaciers melting in Greenland and Antarctica. First, Greenland's ice loss is much slower than they'd like you to believe. But more importantly, Antarctica, which holds 90% of the world's sea ice, has been gaining mass overall fairly consistently for many years, especially in its eastern part, even though some parts of the much smaller western part are melting at the edges.

It's going to take a little longer, and they may cause a lot of damage first, but at some point global warming alarmists will be revealed for what they really are much in the same way that Barack Obama has been revealed in recent days.

You can listen to me on the radio (and call in if you like) from 9 AM to 11 AM Mountain Time (11 AM to 1 PM Eastern Time) today and Friday.

If you're not in the Greeley/Loveland/Fort Collins area, you can listen online by going to http://1310kfka.com/ and clicking on the "listen live" volume meter on the left side of the page.

And you can call in toll free at (877) 353-1310.

Wednesday will be mostly politics, with some financial market stuff and some global warming.

Friday I'll be joined by Christoper Sanders and we'll be talking more of that, but also doing a movie review and a wine review.

I hope to hear from you!

I'm not going to spend a lot of time on the Obama speech because you've probably heard too much about it already.

As I was driving down the interstate this morning, a friend asked me what I expected from the speech. I said "I think it will be a great speech in terms of presentation, but that it's more likely to keep the issue of race open than to close the issue, and I think it will be a net neutral, at best, for Obama".

Now that I've seen and read the speech, I think I was right.

The speech sounded like a sermon, flowery and charismatic, but not necessarily full of very important content.

Particularly troubling were Obama's continued pseudo-distancing from Reverend Jeremiah Wright and his repeated racist, anti-American rhetoric and his admission that he'd heard some of these statements in person whereas he had denied that in prior explanations.

Mitt Romney tried to explain his religion in a "major speech", which I believe did not do much to calm the worries of people who were uncomfortable with Mormonism (regardless of whether you think their discomfort was rational or acceptable.)

This speech was Obama's analogue...but far more important...because race is a much deeper source of tension in our country than religious difference is.

After about 25 minutes of the speech, I found it hard to keep paying attention. I felt like I was hearing a recital of a particular musical instrument, in this case Obama's voice, where all I could hear was the sound of the notes at the moment they were played rather than having any appreciation for the overall work of music. At least for me, Obama's rhetorical style, while admittedly better than either of the two other leading candidate's, is wearing thin.

Obama's speech was the type of thing that would appeal to Hollywood and Manhattan liberals. But I doubt it will move the needle much in Pittsburgh, PA or central Indiana. And those are the places where he most needs to regain his rock-star status. My guess is that he's permanently tarnished, even if still a brighter light than most other Democratic politicians.

My friend Mike, aka MUD, also a former CBOE options trader sent a comment to yesterday's article about Bear, Stearns which I thought deserved its own posting...and a response from me, because I don't really agree.

First, here's MUD:

Ross,

I think that there is fraud here on two insidious levels and I think Bear is only one of the many perpetrators.

The first way in which there is fraud is in the use of poorly understood and esoteric derivatives products to mask risk. (I'm not against derivatives at all, only their misuse)As long as the profits are rolling in no one bothers to peek at the true source of those profits and determine the real risk characteristics and profile of the instruments positions. Or to see if the risk/return is even properly compensatory, something truly grasped by too few.

Much like the LTC debacle, much of what Bear and others have been doing has been veiled in false notions of 'cross hedging' which in many cases is no real hedge at all but merely a temporary relationship between various instruments that has the appearance of a hedge. Every time apples go up oranges go down.... No one ever asks what happens if all fruit prices go up or down simultaneously and so the risk monitors never take that possibility into account and proper margins, reserve funding and position size as relates to global portfolio exposure is never questioned or maintained.
It always seems to be just another contrived way of over-booking the longshot and then it's always a BIG surprise when it comes in and the house of cards collapses. (excuse the mixed metaphors)

The second and even more insidious fraud lies in who ultimately pays the price for these failed practices. No "genius" trader is ever required to return the years of profits and bonuses he has received for betting other people's money. He, in most cases, receives a far larger compensation than the people who unknowingly are backing his trades. They are in fact not being adequately compensated for the risk they are being exposed to. This sort of cynicism goes even further when there is an implicit thought that if the shit ever does hit the fan Bear and companies like it will be bailed out partially or in total by taxpayer dollars because the aftermath of collapse is too far reaching for the rest of the economy.

I'm sure you remember the variations of this theme which we used to joke about back in the heyday of index trading. We called it the Paraguay spread or some such thing. Basically the idea was you had a plane ticket to Paraguay (or Hong Kong in one famous case) in your pocket and you sold the hell out of "worthless" puts. If nothing happened you cash in, if all hell broke lose you simply board the plane....

I'm no fan of over-regulation but how many times are we going to see this play out, in how many ways before someone takes the step of not allowing contrived derivatives to be used as way of masking true risk and forcing firms to value their risk properly such that they are not 'free rolling' everyone else?

And now my response:

Mike,

I think you make some valid points about bad behavior in financial markets, but with the possible exception of "The O'Hare Spread" I don't think they are accurately called fraud.

Let me take your points one at a time:

The use, even if misunderstood, of derivatives is not inherently fraudulent by any stretch. Poor risk management is exceptionally dangerous to a business, as Bear learned (although derivatives were not, as I understand, a big part of their problem). If "no one bothers to peek at the true source of those profits and determine the real risk characteristics", the business likely won't last long.

You're right that firms sometimes make bets based on models which can fall apart, like LTCM. It's not crazy to make bets like that, but it probably is crazy to make a bet big enough that the firm fails if the model fails. But again, it's only fraud if the firm or the trader hides the risk from managers or shareholders.

Usually, though clearly not always, it's the firm who "pays the price for these failed practices." Bailouts are rare. In the Bear situation, no Bear clients lost their money, but the firm and stockholders lost everything. Sure, traders are, in the opinion of many, overpaid. But so what? Aren't baseball players overpaid? No? Well, then aren't compensation levels simply a function of market forces? Competition for talent (maybe they're not as talented as they think, but the same applies to many athletes) drives the prices. If firms could get away with deals where some part of traders' pay would be held in escrow to be given back if the trader has a bad year, I'm sure they would try to implement those deals. Until one firm says they won't. You get the idea. Payment (or overpayment) of traders is not fraud.

Keep in mind that fraud has a very specific legal definition. It is, after all, a crime, a level which not all bad behavior rises to.

The Black's Law Dictionary definition of fraud includes this:

Fraud: "An intentional perversion of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right; a false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury."

And: "All multifarious means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth. It includes all surprises, tricks, cunning or dissembling, and any unfair way which another is cheated."

The O'Hare Spread is fraud in the sense that a trader has an at-least-implied promise to his clearing company not to risk more than he has in his account. The O'Hare Spread involved making big trades and not telling the clearing firm about them (presuming the firm would not permit the position if they knew about it.) If the trades clear and the firm's risk managers know about them and decide to allow the position, then the bet may be reckless but is not fraudulent.

I think the Bear, Stearns case is a bad example on which to make claims of fraud in financial markets. It was not fraud that took the firm down, but excessive leverage in their capital structure which did not allow them to meet a barrage of demands by clients for their capital to be returned. And Bear paid more-or-less the ultimate price, in a truly tragic way for thousands of employees other than (overpaid?) traders and executives.

And overall, fraud in financial markets, especially on a large scale, is rather rare because it is hard to get away with these days. The SocGen fiasco is the first real case of fraud in a few years, as far as I can remember. Even Amaranth wasn't fraud...and LTCM wasn't fraud either. Just bad bets.

The reason I object so much to calling such things "fraud" is that fraud is a criminal action, made with criminal intent, which should be punished by prison. In most cases including Bear, the market punishes bad decisions, and their is simply no legitimate argument to be made that those decisions rise to the level of criminality, even if you think them to have been excessively risky.

I'm taking a break from political writing for a moment as I decompress from the incredible day in the market on Monday. Even though we've seen bigger moves with some frequency in recent months, there was something about Monday which was truly frightening.

I've been trading a little bit of Bear, Stearns (BSC) which was 55 on Thursday, 30 on Friday, and under $5 now, after it agreed to be taken over at $2/share by J.P. Morgan Chase (with their alternative apparently being bankruptcy.)

I don't talk much trading here, but I have to mention how interesting it is (and, in my view a trading opportunity) that April calls in BSC are trading so high. Bear has agreed to the $2 price. It's unlikely that any other buyer could get permission from the Fed to intervene. It's unlikely that there are any interested buyers who have the financial strength to complete the deal. J.P. Morgan apparently got an option on the Bear, Stearns building in Manhattan which they would likely use if somehow the deal fell apart.

In other words, I just don't see how this deal gets broken up or the price gets changed. [Update: The WSJ makes a convincing case that simply the fact of BSC stock trading so far above the deal price may put enough pressure on JP Morgan that they may have to sweeten the deal, so my certainty about the $2 price looks like it may be wrong...]

But still there is so much anger out there from big BSC shareholders that some people seem to think JPM will be forced to pay a little more. And clearly the market thought JPM got a bargain, since the stock was up nearly $4/share on the news. (And traded over $7 for a time on Tuesday.)

But JPM has all the leverage (pun intended), and as BSC employees leave in droves over coming days, the enterprise value of Bear, Stearns will drop rapidly, especially in the trading area.

So I think BSC calls are a sale, especially on strikes over $15...I just don't see that high a price happening. [Note: I mean particularly in first and second-month options.]

I am not telling any of you what to trade...and if you trade anything based on any of this I accept no responsibility! I am already short BSC calls.

Trading opportunities like this are rare, but not as rare as they used to be in this time of tremendous market turmoil, especially in financial and commodity stocks.

And, it "bears" mentioning: What a sad story this is. So many BSC employees had taken a lot of salary in stock...money they were counting on for their retirements, their kids' colleges, etc. And unlike the perception of many who aren't in the financial industry, the vast majority of employees in investment banks are not hotshot traders who make millions of dollars a year. Most are just people with jobs, some good jobs, some not so great jobs, just like any other company. The difference is that investment banks tend to have more employees owning stock, and in larger quantities as a share of their total income or net worth, than in other businesses. And there is often a political stigma against selling the stock. These people are stuck...and financially ruined...much like people in Enron. This story is sadder than Enron, in my opinion, because there is no obvious fraud here. It was simply a run on a bank that hadn't prepared properly and had no choice but to sell out to the only available buyer at the only available price.

I hope this doesn't happen to any other of the large firms. There is absolutely nothing good about this story except for the few people who are shareholders of JPM. And, once again, Jamie Dimon has proven that he is the greatest banker in the world. He deserves true congratulations for getting this done, but I wish he had never had the opportunity.

In response to Bob's comment from yesterday about this being a "back-room" deal, and his question about the plunge in the stock price.

In a sense, Bob, the latter disproves the former in the sense of any sort of sweetheart deal for Bear shareholders.

Bear is being (ruthlessly) punished for management which remained over-leveraged in an environment which was taking no prisoners when it came to deleveraging.

As far as JP Morgan shareholders, they are being rewarded for some of the only management on Wall Street which basically avoided the mortgage and credit/leverage disaster we're going through right now.

One can argue that JPM got a good deal at $2/share for BSC, but there's a strong case to be made that the stock should be worthless. Furthermore, without JPM buying Bear, Bear wouldn't have been able to open its doors today, which would have lead to a massive collapse in financial markets and the banking system.

To the extent that it was a back-room deal, it's because you only need one room when there is only one possible buyer for a company that has no choice but to sell.

I suggest you read John Mauldin's piece on this subject:
http://www.investorsinsight.com/otb_va.aspx?EditionID=667

This is absolutely not an example of an economy being managed by a central authority. The Fed jumped in with some guarantees in order to facilitate the orderly takeover of Bear, Stearns rather than watch it collapse and take much of the American financial system down with it.

Here's my article addressing that question, and the implications of Obama's long-time association with Reverend Jeremiah Wright:

see "Pastor Halts Obama's Rise Above Identity Politics" (Ross Kaminsky, HumanEvents.com, 3/17/08)
http://www.humanevents.com/article.php?id=25543

Bob Ewegen, the reliably leftist and simple-minded columnist and editor of the Denver Post has written one of his sillier pieces, regarding prostitution laws. The link to his article, entitled "Law that trapped Spitzer was written in a racist fury" is:
http://www.denverpost.com/opinion/ci_8577587

And here is my response to Mr. Ewegen:

To the Editor:

Bob Ewegen misses the point about what brought down Eliot Spitzer. It’s not that he, a married man, had sex with a prostitute. It’s that he was the worst sort of hypocrite, venomously prosecuting prostitutes and moralizing at New York and the nation in pursuit of political power, then using those same services. It may also be that he was an idiot; if there’s anyone who knew how easy it is to get caught, it was Eliot Spitzer.

Mr. Ewegen misses a second point: The problem with laws against prostitution has nothing whatsoever to do with the mindset, racist or otherwise, of people who implemented them nearly a century ago. Instead the problem with laws against prostitution is that the act is a voluntary transaction between two people, each of whom are getting what they want. It is victimless in the sense that neither of the direct participants is hurt. (If you want to look at “collateral damage” such as Spitzer’s distraught wife, then there are lots of legal activities which you would also have to then criminalize to be consistent.)

Sorry, Mr. Ewegen, but the only racism to be found in the story is your claim that today’s prohibition against prostitution is somehow to be placed at the feet of whites (oppressing blacks) instead of where it belongs, at the feet of moralizers like Eliot Spitzer.

I heard about this story on the radio. It's too good not to pass on.

see "NZ dolphin rescues beached whales" (BBC News, 3/12/08)
http://news.bbc.co.uk/2/hi/asia-pacific/7291501.stm

And an interesting follow-up story about animal communication in general:
see "Can different species 'talk'?" (BBC News, 3/13/08)
http://news.bbc.co.uk/2/hi/uk_news/magazine/7294051.stm

Two days ago, I offered some required reading for career politicians. Today, I suggest the following excellent article by playwright, author, and director David Mamet, entitled "Why I Am No Longer a 'Brain-Dead Liberal'", printed in the Village Voice (where it should get a good reading by many who have not left that camp.)

http://www.villagevoice.com/news/0811,374064,374064,1.html/full

If you take a look at the movies (and plays) that he's written or directed, I think you'll find some you've seen...and maybe didn't know were Mamet's work. He (along with Shawn Ryan and Mamet's sister, Lynn) are the brains behind one of my favorite TV series, "The Unit".

I'm pleased to say that my article about Senator Wayne Allard's "Obama Spendorama" bill is the headliner on HumanEvents.com today:

http://www.humanevents.com/article.php?id=25496

Here's an interesting article by Paul Chesser about the muddled thinking and misinterpretation of the bible underlying the Southern Baptist Convention's acceptance of Algoreism and their playing into global warming alarmism.

The Southern Baptist Capitulation
By Paul Chesser, American Spectator, 3/12/08

http://www.spectator.org/dsp_article.asp?art_id=12880

It's almost surreal to watch organizations which should know better, i.e. many major corporations and major religious organizations, jump into the global warming fray. For each group, there is an explanation, of course, but at the end of the day they are going to appear to be stupid at best, and corruptable at worst, when the alarmists turn out to be wrong.

In the meantime, they represent an aggregation of anti-rational forces which will be increasingly difficult to fend off (from damaging or destroying economies) unless and until the climate pattern proves them wrong, something which could take at least a few more years.

Here's a great article from the one-time Democratic nominee for the presidency, George McGovern. The article is all the more stunning because of McGovern's truly socialist platform, including a guaranteed minimum income for all Americans and a $1,000 "demogrant" for all Americans (worth close to $5,000 in today's dollars).

see "Freedom Means Responsibility", By George McGovern, WSJ, 3/7/08
http://online.wsj.com/article/SB120485275086518279.html?

And here is my letter to the editor in response to McGovern's article:

To the Editor:

From my experiences in the trading pits of Chicago to watching the implosion of Long Term Capital Management, I know that traders whose only prior experience is in ivory tower academic theory, rather than real-world experience, are likely to fail, sometimes spectacularly. George McGovern's important late-in-life realization that "Freedom Means Responsibility" demonstrates the same is true of politicians. In much the same way that many people support term limits so that politicians don't become corrupt and stale, maybe we should require them to have had a real job (i.e. outside government or a university) before being eligible for higher office.

FDR showed the world how disastrous a presidency could be when the president had no understanding of economics or appreciation of the Constitution. Voters, especially Democrats, seem not to have learned the lesson. But if George McGovern, a man who once proposed a "guaranteed minimum income" for every American can, through the experience of living outside government and academia, see the folly of such policies, it might be a good thing to require candidates to live in the real world for a time before running for our highest offices, or at least to urge voters only to support candidates who have. After all, if they can't survive in a free market, are they qualified to regulate it?

------------------

In case you can't access the McGovern article at the link above, here is its text:

Nearly 16 years ago in these very pages, I wrote that "'one-size-fits all' rules for business ignore the reality of the market place." Today I'm watching some broad rules evolve on individual decisions that are even worse.

Under the guise of protecting us from ourselves, the right and the left are becoming ever more aggressive in regulating behavior. Much paternalist scrutiny has recently centered on personal economics, including calls to regulate subprime mortgages.

With liberalized credit rules, many people with limited income could access a mortgage and choose, for the first time, if they wanted to own a home. And most of those who chose to do so are hanging on to their mortgages. According to the national delinquency survey released yesterday, the vast majority of subprime, adjustable-rate mortgages are in good condition,their holders neither delinquent nor in default.

There's no question, however, that delinquency and default rates are far too high. But some of this is due to bad investment decisions by real-estate speculators. These losses are not unlike the risks taken every day in the stock market.

The real question for policy makers is how to protect those worthy borrowers who are struggling, without throwing out a system that works fine for the majority of its users (all of whom have freely chosen to use it). If the tub is more baby than bathwater, we should think twice about dumping everything out.

Health-care paternalism creates another problem that's rarely mentioned: Many people can't afford the gold-plated health plans that are the only options available in their states.

Buying health insurance on the Internet and across state lines, where less expensive plans may be available, is prohibited by many state insurance commissions. Despite being able to buy car or home insurance with a mouse click, some state governments require their approved plans for purchase or none at all. It's as if states dictated that you had to buy a Mercedes or no car at all.

Economic paternalism takes its newest form with the campaign against short-term small loans, commonly known as "payday lending."

With payday lending, people in need of immediate money can borrow against their future paychecks, allowing emergency purchases or bill payments they could not otherwise make. The service comes at the cost of a significant fee -- usually $15 for every $100 borrowed for two weeks. But the cost seems reasonable when all your other options, such as bounced checks or skipped credit-card payments, are obviously more expensive and play havoc with your credit rating.

Anguished at the fact that payday lending isn't perfect, some people would outlaw the service entirely, or cap fees at such low levels that no lender will provide the service. Anyone who's familiar with the law of unintended consequences should be able to guess what happens next.

Researchers from the Federal Reserve Bank of New York went one step further and laid the data out: Payday lending bans simply push low-income borrowers into less pleasant options, including increased rates of bankruptcy. Net result: After a lending ban, the consumer has the same amount of debt but fewer ways to manage it.

Since leaving office I've written about public policy from a new perspective: outside looking in. I've come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.

Why do we think we are helping adult consumers by taking away their options? We don't take away cars because we don't like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don't operate mindlessly in trying to smooth out every theore