AIG The Sacrifice: The Reflection Of America’s Political Risk
I agree quite a few points of this article in regard to the AIG episode.
Of course, nothing is perfect. I would change a word here:
“It will certainly make Mr. Obama’s task much more difficult when he tries to sell the public [my version would be: investors] on his administration’s ability to manage the rest of the bailout, and when he tries to sell private firms on the public-private partnership that will be needed to make the recovery work.”
Obama will have more difficulty to convince investors his future plans work (already stated in the article). Also, Obama will have more difficulty to get troubled entities to take the bailout. Look at AIG. This bailout actually bites!
AIG was politically insensitive. This story alone will make firms in the future to invest more to mitigate political risk or at least reputation risk (branding), which is not a good news.
In addition, a good portion of the reason for these companies to require a bailout is that their valuation (capitalization) fluctuated so greatly they were literally worthless. So, some companies may realize taking themselves off the exchange is not a bad idea, at least they can insulate themselves from the volatility. Is that what we want: fewer choices for mutual fund managers and pension fund managers? If they have fewer options and social security is running out, then what are to do?
Fewer choices on the exchange also means quicker wealth concentration. Gini coefficient will spike up very quickly. Is that what Obama wants?
Lessons Learned? What About Tibet?
The latest toll from CNN is more than 20k deaths, 160k injured, 15k still missing, 5 mil homeless, 4400 aftershocks, and unspecified number of dams are in danger, what can we learn from this natural disaster? China has successfully minimized, thus far, the domestic political fall out of this natural disaster, can China turn this natural disaster into a contribution to the rest of us? Will China use this event to let the Tibetan issues drop off the radar? This could be one event that China can score some points before the Olympics starts.
First of all, China finally learnt to take the initiative to release information themselves. On the contrary, Myanmar is reluctant to release any information. Although the freedom of the press is still very limited, by taking the initiative to release the news, even the bad news, China has now become a reliable source of information. The threat of rumor (of disease, of higher death toll, of dam damage, of corruption in the local areas, inefficiency of government led relief effort) has been starved off. This leads to a government of higher mandate, rubbing the next round of unrest off to appreciate the governance of the Beijing government.
Secondly, accepting foreign experts to help eases the diplomatic tensions with Japan and leads a more peaceful atmosphere with Taiwan. It also shows the confidence of Beijing government.
Thirdly, China used different military units to assist the relief effort. This earned a lot of credit among the overseas Chinese for the Chinese military due to Tiananmen Massacre back in 1989.
The west will see if China will use this event to divert all international media attention away from Tibet and quietly cancel all the Tibetan talks that have been in progress. Is China using this as a pretext to their advantage? If China can honor the promise of another round of talk with Dalai Lama’s representatives, then China can show some positive outcome in this issue, China may be able to weaken the international pressure on this front.
A painful lesson China may have to learn is big infrastructure project are not only costly to build and maintain, but also risky to sustain over a long period of time. Man is infinitely small before any kind of natural disaster. Although no nuclear energy facility has been damaged, the stati of different nuclear related production facilities remain unknown to the outside world. Many dams in the region are still under threat. Now millions of residents are now under threat. If China can share the lessons with the rest of world, China can now truly make a tragic disaster into a lesson for all to benefit.
What kind of dam designs is more stable? What kind of fault line makes an ideal dam location unsustainable? Once we factor in the risks involved, are these dams still as financial viable as the electricity they generate? Even though Japan may have the best expertise in earthquake, Japan never has that kind of experience in dams. Netherland probably is the expert in dams, but they never experience with dams on fault lines. Can China overcome this event and share the experience? This will convince the hawks in the west that China is truly a peaceful stakeholder.
Double Standard On Myanmar vs China?
Updated information about China Earthquake And Your Money is edited into the same link. Myanmar is not accepting aid staff. What about China? There is no news about China accept to date. China still has 26,000 people under debris. However, we do not see any media response to this refusal.
In fact Thailand got a very firm answer that Myanmar will not be accepting aid either. There was an international outcry. Robert D. Kaplan, a national correspondent for The Atlantic and a fellow at the Center for a New American Security even used Albright’s argument that human rights trumps state rights to justify unilateral aid assistance.
Myanmar’s worried about these aid staff. Myanmar suspects the aid staff will facilitate some covert operations of the west, or some sort of color (Orange in Ukraine) revolution will come out of these aid staff.
Currently, China only accepted civilian, non-governmental organizations’ (NGO) aid.
China has declined aid offered from Taiwan, not responded the offer of rescue dogs from Czech, among many others. Is China embarrassed about accepting aid? Is China also worried about foreign governmental staff? Is this a double standard of the media? Or does it actually expose some special interests of the countries offering aid staff to Myanmar? This uneven media/international response toward China may only make Myanmar more suspicious.
*The Institute for Radiological Protection and Nuclear Safety said China’s governmental research nuclear reactors and reactor fuel production facilities in China could be damaged. They are within 44 miles to the center. Nuclear generation sites are 600 miles away and should be fine.
Obama vs Clinton: A Lesson on Advocacy / Non-Profit
This 2008 election proves to be a textbook material for advocacy, fundraising and electioneering, even better than 2000 election. Clinton’s victory will certainly encourage her to continue her race. What Clinton shows this time in Pennsylvania is similar to what Obama showed when he was the underdog: money does not buy election victory all the time. Clinton won by 10%, CNN reports.
http://edition.cnn.com/2008/POLITICS/04/23/us.primary.intl/index.html?iref=hpmostpop
An indecisive Obama Super Tuesday victory brought this “lengthening, torturous” race because, as always, an indecisive result invites the loser for a re-match. And Clinton gladly took on the challenge of a re-match.
Obama out spent Clinton by 2 to 1. Obama enjoyed the positive media attention. And he had the momentum, the most important thing of all. And he yet he was behind by 10%. A lot of people may expect him to win and would not be surprised by a loss. But 10% probably is the threshold for “failure”.
The real loss of this race so far is Ralph Nader. He and/or his party have not improved their platform, i.e. the product, much since 2000. Neither did they improve their election techniques. Ralph Nader does not have the charm Obama has. However, the electioneering could have been improved when in fact Obama took the great leap.
Clinton won by canvassing, the most important virtue of a politician. Politics is a service industry. Responsiveness to voters, not leadership, is the virtue promoted by democracy. She canvassed hard in every county, in every city hall. And she mobilized her daughter and husband in the state. The air war of TV and Radio ads rained down by Obama did not bring him a victory just like money did not the Iowa victory for Clinton. Obama won Iowa by the activists. Clinton won by her hard work and her organization’s (or Governor Ed Rendall’s organization) hard work.
This race broadened the voter base of Democrats in Pennsylvania. And this is what advocacy / non-profit groups want. The organization itself need not lend its name in the campaign in order to reap the benefit of it. It’s the board members responsibility to participate in individual campaigns in order to gain the political access to the politicians, even though they may be the city council politicians. It is this type of occasion that the cause focused groups can cultivate the next group of volunteers, big ticket donors, board members, fundraisers. A broadening base means a longer list of “concerned citizens”.
When an election gets voters excited, voters are more willing to increase their level of civic participation, be it scrutineer, dropping flyer for an advocacy group, phone bank caller for a fundraising campaign of MADD, or even better attendance for the local recycling organization. Although this race is dragging on, this serves as an opportunity for all non-profit groups to enlarge their voice and base.
Leadership is wanted when voters are unable to specify their needs. When change is wanted without a laundry list is change for the sake of change. A victory by promoting leadership shows people want to be led, people expect someone who knows better than they do.
Meeting Dalai Lama = Rooting Out Violence
Many compare the Tibetan riot to the protests in 1989. The protest back then did not involve riot. This riot involved organization: targeted location, date; weapons were transported and were unavailable in the city. Violence has also spurred to the Hui people, in addition to Han. This is also a new turn of history. Clean up is finally there for the Hui quarter. When will Mainland China start to clean up this Tibet question?
http://edition.cnn.com/2008/WORLD/asiapcf/04/01/china.tibet/index.html
Dalai Lama is over 70 years old. His influence is determined to wear out. New generation of Tibetans demand more power from the Tibetan elites in exiles. What is to gain for Mainland China from meeting Dalai Lama?
Dalai Lama continues to be the spiritual leader of all Tibetan causes, be it independence, cultural preservation, environmentalism, human rights, etc. Meeting with him will turn Mainland China from being defensive to a proactive stand.
The younger generation of Tibetans is getting frustrated with Dalai Lama’s approach to their goal. The riot is a good example. This generation of activists does not have the baggage of Tibetan Bhuddism, they are willing and able to carry out indigenously organized violence. It will only be a matter of time for these activists to be funded by other state institutions. When that occurs, Tibet will be the Palestine in the East.
Tibetan cause may still not succeed. However, how much resources will be drained out to restrain Tibet? The goal of Mainland is to keep Tibet. Why wouldn’t Mainland China want to keep Tibet in the most cost effective manner? At least a more cost effective manner than fighting out an endless battle in the future Palestine in the East? That more cost effective manner is to prevent a peaceful Tibet to become a costly Palestine in the East.
Meet Dalai since he does not seek independence anyway. Take the Tibetan anti-government violence off the television not for a day, but for years to come. Turn it into screens of hand shakes. Dalai is old and wants to return home. Remove the unifying figure of all Tibetan causes. That will make these different organizations lose their focus. Out of sight, out of mind.
They different organizations will become a lot more manageable, be it the battle for TV coverage or outside of TV coverage. It is always difficult for organizations to win against state institutions.
Mainland China may think time is on their side in the international political arena. And time is not in favour of Dalai Lama. Every one and everything has its time. Time will run out on Dalai Lama. And when that happens, that option will forever be shut, for there probably be two Dalai Lama next time around and Mainland China cannot control them all.
Some Progress on Taiwan Strait
It seems like a match can finally begin. Hu may not be able concentrate on too many items. He is more inclined to deal with a positive opening (Taiwan) than a hot spot for now (Tibet).Important press releases by both US and China, below. Read the question started by the keyword “Olympics”. And follow all the subsequent questions by the keyword “China”. http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20080327005800&newsLang=en
http://news.xinhuanet.com/english/2008-03/27/content_7865209.htm
What Is Next In Residential Mortgage Regulation? It’s Election Year!
Nothing looks good. Today’s data are weak. US dollar falls against yen, reports CNN. In real time, US is bouncing up against Yen and Euro. GDP grew very little. Durable orders are down.
http://edition.cnn.com/2008/BUSINESS/03/27/asia.dollar.ap/index.html
Essentially, everything depends on this mortgage crisis. And politicians are offering all kinds of things. What for? To occupy your TV box so that you forget about the other ones.
Depending on your time horizon, all the political fuss about the mortgage crisis may or may not have an impact on you. This is the newest round of talk, from Wall Street Journal:
http://online.wsj.com/article/SB120658212569867477.html?mod=hpp_us_whats_news
The most visible talks related to mortgage crisis come from the presidential candidates. They make get you excited. However, you need to start align this temporal emotional development to TIME. It’s election year! All bets off!
The new president will take office next January. It takes a month of 2 to transition the administration. So, any work for such an important topic will be some time in Feb, almost a year for anything to be put on the table. So, don’t let Clinton’s auction talk, Obama’s credit card solution or McCain’s inaction be a factor on your today’s decision. If your horizon spans > 18 months, then I would say you need to pay attention to their talks. For instance, you are about to buy an existing internet foreclosure auction site, due diligence is about to complete and on to develop a term sheet.
What is really relevant is about what Treasury Secretary Paulson says. Below is not exactly news any more since it is almost 2 weeks old. However, it is relevant:
It may look inconsistent to this:
http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-24037412.htm
They are not inconsistent of each other. Paulson does not want a quick fix. He wants a “solution”. That translates to regulatory risk (not compliance risk. A lot of people mistake regulatory risk as compliance risk.). And if one looks at the Feb 7 press release of the Undersecretary Robert Steel, Paulson will definite create new regulations in a very short term.
Related industries will not only be FIs or mortgage insurance companies, but from suppliers to appraisal firms to ABC Papers packaging shops. Paulson seems to be undeterred by the election politics. Or Bush is not? Paulson is the real deal.
What is the next Taiwan surprise?
Taiwan is in the news lately. First off the election, then a great win and now a missile parts mis-shipment by Defense Department:
http://edition.cnn.com/2008/WORLD/asiapcf/03/26/china.taiwan.missiles/index.html?iref=mpstoryview
http://edition.cnn.com/2008/US/03/25/taiwan.missiles/index.html
(And the recipient had to call back “what is this?”)
(Pay helicopter batteries and get nose-cone fuses for nuclear warheads. Not a bad deal!)
What is next? Taiwan’s president faces the reality and finds out he cannot deliver? Taiwan’s president Ma has nicknamed “Mr. Clean” and “Mr. Teflon” since he has no scandal attached him and no accusation against him ever sticks. He was a well liked mayor of Taipei.
How will he fail? He got close to 60% of the votes!
Well, that is the start: He now has to face high expectation. And high expectation is not easy to match with high results.
It is said Taiwan, the island of 23 million, has 7,000 political appointments made by the president. Now, no wonder it was so easy for president Chen to get into financial scandals. Gasoline is sold by government owned monopoly. So is cigarette, alcohol, lottery ticket and even sugar. Boards of the banks got a seat for the president’s appointee since the government has a substantial portion of the stocks. Now how tempting is it for any president? Or his appointee? Will this newest president be able to stand against the temptations of his own but also his appointees? How will anyone manage the ethical conducts of his own 7,000 appointees?
Remember this following line from Bush after 2004 presidential election?
“I earned capital in the campaign, political capital, and now I intend to spend it. It is my style.”
It means the politician is able to accomplish objectives without fear of losing votes. If the initiative means well, then it is to offer something to the opposite. Of course, it could also mean initiatives that would be unpopular (say increasing taxes for Social Security or Medicare). This is the situation Taiwan now has. President Ma has a lot of capital. He may be mean well, but would it be unpopular?
President Ma got 60% of the votes and he advocates a closer tie with Mainland China and his party is the pro-unification party. Great. His every move in relations to Mainland can be viewed as a betrayal by the pro-independence voters and possibly by the voters who want to keep the status quo. There will be no easy way out of this corner. The best person to calm the separatist sentiment is a president of the DPP affiliation. In order to pacify the completely opposite side, he needs a name to join his camp. President Ma promises to invite talents of all affiliation to join his camp. But who from DPP has the talent in this Mainland-Taiwan relationship management? Tsai is unlikely to join since she still wants to pursue further in her political career. If Ma cannot find a respectable name to stand with him for Mainland relationship management, he can forever be haunted for this traitor status.
Taiwan has to deal with another Mainland China dilemma. If a closer tie with Mainland translates to more manufacturing migrating to Mainland, what will Taiwan be able to offer? What is the plan for industrial upgrade? If Taiwan is to become the bridge to China, similar to UK for the continental Europe when marketing itself to US, then Taiwan is to compete against Hong Kong, Singapore and Shanghai. What advantage does Taiwan have? Easy access to capital? HK got it. IPO centre? HK got it. Shipping? All these 3 cities are great shipping centres. Language advantage? HK and Singapore both speak English better than Taiwan. Judicial independence? HK and Singapore are better. Political stability?
Taiwan has a lot of work to do. Where is Taiwan going? President Ma has a very strong sense of historical responsibility. Is he accomplishing his ideals or delivering his voters wishes? Or his voters simply wanted to get rid of DPP without a clear goal in mind?
What options do they have for Social Security?
CNN has a summary of Social Security proposals among the three candidates here:
The problem with Social Security is similar to any pension plan, GM’s or Chrysler. The fixes are also similar to those too. They all revolve the following, like them or not:
1) Increase the quantity of contributors, i.e. workforce or taxfilers.
2) Increase the amount of each contributor, i.e. increase taxes or increase income (productivity)
If we only consider domestic options, then the increase in contributor can only be done through 5 things:
1) Optional retirement instead of mandatory;
2) Decrease minimum labour age.
3) Increase the amount of immigrants
4) Increase the birth rate
5) Increase the female labour force participation rate
The increase in contribution per contributor can only accomplished through 2 things:
1) Increase in taxes
2) Increase the income of the contributors, i.e. productivity
There are only 7 options. Some of them are not politically viable to any politician, even the Obama type. Some of them are not really political solutions.
US is not China. US is not playing a catch-up game. So, there is no growth of 8% / year to make up the needed funding for Social Security. So, this one is out. Increase birth rate takes too long. Well, it takes at least 16 years for one to join the workforce! Female labour participation has been around the same for years and probably is difficult to get any more lift. Decrease minimum labour age? Out of your mind.
That is why there are always the same options being talked about:
1) Optional retirement instead of mandatory;
2) Increase the amount of immigrants
3) Increase in taxes
4) Increase the income of the contributors, i.e. productivity
Increase productivity will have to involve technology improvement. This kind of things does not come out of a “technology factory”, a gadget / month kind of a deal. This is either about the mode of production so that each worker can produce more than before, or something others cannot produce.
We all know how increase in taxes is like politically. So, do you want immigrants or optional retirement?
Now look at the voter base.
Obama will have a huge black voter base. That may prevent him from enlarging the immigrant pool. That would leave him with either more taxes and/or optional retirement.
McCain will have more white voters, and more voters who will get the biggest impact by tax increase. As long as optional retirement is optional and not affecting their benefits (Go study Canada’s experience since they have a more acute problem), McCain will have to get that option or inaction. Clinton will have the largest Hispanic voter base of the three, she will be the most likely candidate to enlarge immigration pool. Then it will be optional retirement for her.
