Ponzi Redux

“What we mostly learn from history is that people are unable to learn from history.”

Warren Buffett

Back in the 1920s, Carlo (Charles) Ponzi got an entire class of financial fraud named after him, when he convinced greedy investors that he had a mechanism to double their money in a short period by buying international postal coupons at a discount and redeeming them at face value. Hundreds lost their life’s savings in his scheme.

A Ponzi scheme, also called a pyramid scheme, offers apparently superior returns through some kind of financial legerdemain, but actually pays early investors with the funds of later investors. Pyramid schemes inevitably collapse when there are too many early investors expecting cash flow, or demanding their money back, and not enough new money flowing in to keep the illusion going.

The financial press has just broken the story of the collapse of a Ponzi scheme based in New York City, in which investors were promised high returns from buying up blocks of theater tickets for hot shows, which would then be re-sold at higher prices. The big draw for many was the understanding that they’d be capitalizing on the success of Hamilton, one of the most popular musicals in Broadway history, with the highest ticket prices ever.

Of course, there was no actual buying of theater tickets. A money manager cooked up the scheme to reimburse investors whose money he had misappropriated in his investment firm. Three guys were arrested, one is pleading, and the other two will go to trial.

Who was taken in by this nonsense? Surely only credulous old ladies on Long Island or the equivalent?

Actually, not. Among the victims were billionaire computer titan Michael Dell, billionaire hedge fund manager Paul Tudor Jones, an executive at Och-Ziff Management Group (an investment firm) and 125 others.

The moral of the story is that simply following the crowd, even the famous and supposedly sophisticated crowd, is no guarantee of good results. Often it is precisely the richest and most sophisticated who are the victims of scam artists. (See Madoff, Bernie.) If it sounds too-good-to-be-true, it very probably isn’t, you know, true.

After the Deluge


 

I went to bed last night at 2 a.m. I’d been sure of the outcome since about 11 p.m., and got tired of waiting for one network or another to announce it. I woke up this morning to Donald J. Trump as the President-elect. Not what I expected yesterday morning when I went to vote, though I had discussed the specific scenario by which he won several times in the days before the election.

So how do we find sound footing after being swept away in this historic flood? We don’t. Because there was no flood.

Donald Trump secured one of the most unlikely victories, in one of the most amazing upsets, in American political history. This is bigger than when “Dewey beats Truman” was wrong in 1948, because Trump won against the projections of a massive apparatus of scientific polling. He confounded the doubters and the critics. He has swept away one of the most powerful American political dynasties. (And good riddance.)

But astonishing does not equal overwhelming. Right now, Donald Trump trails Hillary Clinton by less than 200,000 votes. Yes, you read that right, he trails. Depending on which website I consult, he has a confirmed total of between 276 or 289 Electoral votes. (The most likely final count adds 30 Electoral votes to the lower of Trump’s totals.)

This is a huge upset. Trump won, Clinton lost, absolutely certain, almost entirely unexpected. But it is no kind of landslide, no kind of mandate. It is, for the fifth time in American history, an Electoral College victory combined with a loss in the popular vote.

President-elect Trump savors his victory amid the most bitter partisan divide since Abraham Lincoln took office at the beginning of the Civil War. Public anxiety is the highest since December 8, 1941, the day after Pearl Harbor. Confidence in government and our public institutions is at the lowest level ever. And over 60% of American voters believe that Trump lacks the temperament to be President.

Sounds like we have nowhere to go but up.

Eight years ago, Obama took office with high expectations that he would lead us into a bright, prosperous and post-racial future. That hope went unfulfilled, with the blame fairly shared between President Obama and Congressional Republicans.

Trump will take office with the lowest possible expectations, with Republican majorities in the House and Senate, but with Senate Democrats retaining the power of the filibuster. He’ll have the opportunity to replace a deceased, very conservative Supreme Court Justice with a new judge unlikely to be any more conservative.

Last night his victory speech hit all of the right conciliatory notes. Let us all hope that Trump governs effectively and inclusively, that he surrounds himself with capable men and women, and that America’s future is bigger than its past.

May God bless, protect, and strengthen the United States of America.

 

 

A Choice, Not an Echo

Spoiler alert! This post will disclose my political affiliation, not that I believe most long term readers will find it a surprise.

I grew up as a Democrat. My first vote was in the Presidential election of 1976. I was a registered Democrat and had spent the summer working in the office of a Democratic Congressman. I actually met candidate Jimmy Carter in my office building on Capitol Hill. But that fall I cast my vote for Republican Gerald Ford, and against the candidate of my own party. I thought Jimmy Carter was a fool, and his foreign policy positions a collection of self-righteous platitudes.

Events proved me correct. Carter won the 1976 election, announced that the United States was “at long last free of our unreasoning fear of Communism” and then pronounced himself astonished at the Soviet invasion of Afghanistan. At that point in Carter’s single Presidential term, I switched parties. By 1980, I was a Republican, because it was the party of free trade, a strong military, and robust leadership in the international struggle against totalitarian Communism.

In the 1990s, I watched as the Democratic Party tied its fortunes firmly to the coattails of the Clintons, nominating for President in 1992 and then re-nominating in 1996 a man who was clearly a sexual predator, who abused his office to suppress legal scrutiny, whose campaign took money from foreign interests including the Chinese military, and who lied carelessly and deliberately about both issues of public policy and personal transgressions. Since their Arkansas days, the Clintons have been unable to differentiate their personal political, financial, and legal interests from those of the nation. Indeed, by using the Clinton Global Foundation as a personal piggy bank, they have conflated their personal finances with those of global progress itself.

In the 1990s, I gave meaningful dollars to the Republican Party. I attended both the 1996 and 2000 conventions. I’ve met the last three Republican Presidents, all but one of the last four Vice Presidents, even every failed Republican candidate for President except Mitt Romney. Heck, my oldest child’s middle name is Reagan. So an election between any Republican nominee and Hillary Clinton should be a slam dunk decision for me. Easy and obvious.

Except it’s not. In 1996, I said the Democrats had made a deal with the Devil in re-nominating Bill Clinton, definitively decoupling the Democratic Party’s fortunes from historically progressive principles–that public service is a higher calling, requiring the highest standards of integrity to command the nation’s allegiance to our shared purposes.

Now the Republicans have done the same thing.

Donald Trump, like Bill Clinton before him, and like Hillary Clinton today, has personal qualities that clearly disqualify him from holding high office. He is an habitual liar. He is a gross, childish bully. He has been entirely unprincipled, both in his past business dealings and in his recent political campaign. He is less intelligent than any other major party Presidential candidate of at least the last half century. He has less impulse control than the typical adolescent male, and he appears to be impervious to advice, instruction, or any form of self-correction. And at age 70, none of this is remotely likely to change.

I spent the first year of Trump’s campaign in denial that he could secure the nomination. And then got stuck there, as he won primary after primary and walked out of Cleveland as the standard bearer of my party. Like so many of my conservative friends, I’ve been confused and conflicted about what to do. Time and again, I’ve watched Trump give another speech, or lead another rally, hoping against hope that he’ll somehow rise to the occasion, always disappointed.

It might be tempting to overlook Trump’s character flaws if he was sound on policy. After all, Lyndon Johnson was one mean SOB. Richard Nixon was a paranoid tough guy, surrounded by similarly ruthless partisans. FDR and John Kennedy were both notorious philanderers. If being a nice guy was the criteria for occupying the White House, Jimmy Carter and George W. Bush would be among the great Presidents.

But Trump’s policy positions are a confusing and incoherent mash-up. The defining principles of Republican domestic policy since Reagan has been an informed skepticism about the effectiveness of larger government, coupled with an understanding of the Constitutional limits on executive power. There is no indication that Trump even understands that we have a Constitution, and every indication that he believes the President has the same kind of autocratic power as the owner of a non-public company.

On foreign policy, Trump is a protectionist and a quasi-isolationist. He has aligned himself with Vladimir Putin, who has stolen tens of billions from the Russian treasury, murdered hundreds of journalists within Russia, assassinated his political opponents overseas, and invaded two neighboring countries. Putin has been clear about his desire to revive the Cold War, and his belief that the United States remains Russia’s principal enemy.

Trump is not qualified to be President.

I remember when the racist David Duke secured the Republican nomination for governor of Louisiana, and the national Republican party endorsed the candidacy of corrupt Democratic Governor Edwin Edwards, launching the slogan, “Do the right thing. Vote for the crook.” Edwards won, and later went to prison.

I’ve always said that I am a Republican third, a conservative second, and an American first. So must I vote for the crook, Hillary Clinton, to keep The Donald’s hands off the nuclear codes?

After months of struggle, I have decided that rejection of Trump in no wise justifies a vote for Hillary Clinton, an individual herself disqualified on personal character criteria from the Presidency, even if I agreed with her policies (whatever they actually turn out to be), which I do not. (I will note in passing that Hillary Clinton is smart, very hard-working, and supremely disciplined, all fine qualities. Plus it would actually be nice to see a woman occupy the highest elected office. Just not this one.)

Fortunately, the range of possible choices does not stop with two lying, unprincipled, self-centered, super-rich liberals from New York.

For the first time in my adult life, I will be supporting someone other than the Republican nominee for President. I will vote for the Libertarian candidates, Gary Johnson and William Weld, for President and Vice President. As soon as I get a chance, I plan to put a Johnson-Weld sign on my lawn.

For all of my conservative friends still struggling with the Hobson’s choice of Clinton or Trump, let me offer you some hope.  Once I made my choice, my despair and confusion vanished, replaced with relief, optimism, and even excitement. I believe this is much more than a lesser-of-three-evils choice or protest vote. It is, at a minimum, a vital next step in an overdue national conversation. More on this later.

On this post, more than any other I’ve ever written, I’d welcome your comments.

Hope Springs Eternal

“This is not the end, nor even the beginning of the end, but it might just be the end of the beginning.”

                                                                                                                           Winston Churchill


The runaway Trump train may have finally begun to run out of steam. More accurately, the Trump Express may have lost just enough momentum to roll to a steaming, trembling halt just short of enough votes to secure Trump a first-ballot victory in Cleveland, and the Republican nomination for President.

One can only hope. In every way that matters, Trump has shown himself to be intellectually and temperamentally unfit for high office.

Trump briefly lost momentum because of comments about women that were ill-considered and offensive even by his standards, as well as positions on foreign and defense policy revealing a comprehensive ignorance of the sources of international stability and prosperity after the Second World War. But in the last week, both in his home state of New York and elsewhere, he has achieved dominant victories.

Trump’s complaint is that the voting process is rigged, which is true, though not wholly in the ways he means. Each state party has its own rules. But the combination of all the various state-specific rules has resulted in Trump controlling a larger percentage of first-ballot delegates than he has received of the total primary vote. In this sense, the system is indeed rigged — for front-runners like Trump, and against second-tier candidates.

Polls suggest that most Republicans believe the candidate who arrives in Cleveland with the largest delegate count should receive the nomination, even if he fails of a majority. They misunderstand both the nature of the rules and the history of their own party. The Grand Old Party’s second nominating convention, in Chicago in 1860, began with no candidate near a first-ballot victory. The two front-runners were Senator William Seward of New York and Governor Salmon Chase of Ohio. Both had alienated key segments of the party. Seward carried a commanding lead on the first ballot, with Lincoln a distant second. But having failed of a first-ballot majority, the front-runner from New York saw his support began to erode as delegates sought a less-divisive and more broadly-appealing alternative. The Keystone State of Pennsylvania switched to Lincoln on the second ballot, and Honest Abe won the nomination on the third.

So the precedent exists for a bad-tempered jerk from New York to come close on the first ballot, and still be denied the nomination. And the precedent exists for my home state of Pennsylvania to have, every century or two, a consequential influence on the Republican nomination for President.

When I get home from work tonight, I’ll cast my Republican primary ballot against Trump, hoping to do my small part to save my party from intellectual and moral ruin. If you can, I urge you to do the same.

The Beginning and End of Big Europe?

The Second World War in Europe ended 70 years ago Friday before last. VE Day (Victory in Europe) preceded by three months VJ day when Japan surrendered, and humanity’s most destructive conflict finally ended. The end of the war was the beginning of the postwar project of European reconciliation and integration. A collection of brilliant statesmen began the planning of what ultimately became the European Union. Their purpose was to so completely integrate Europe’s major powers (Germany, France and Britain), in particular economically, that it would ultimately become impossible for them to go to war with each other.

Since 1945, the European project has faced many challenges, starting with the Soviet post-war domination of Eastern Europe, which led to the Cold War and the creation of NATO. Despite the East-West tensions and the Iron Curtain dividing Europe, European economic ties became ever-stronger, with Great Britain acting as the grumpy cousin who did not want to play nice with the rest of the family. The European Economic Community was formed in 1957, the Western powers won the Cold War and the Berlin Wall fell in 1989, the EEC became the European Community in 1992, the common currency of the Euro began to circulate in 2002, and the European Union was formed in 2007.

Around the turn of the 21st century, the project began to hit some bumpy patches in the road. First, several countries said “No” in various languages to steps toward closer integration. Much of their discomfort arose out of recognition of the fundamentally undemocratic character of the EU’s emerging super-bureaucracy. But the most significant challenge to the EU since the adoption of the common currency in 2002 has been the slow-motion disintegration of Greece.

We know now that Greece never qualified for its 2001 admission to the Eurozone, defined as those countries using the common currency for all transactions, because it did not meet the explicit “convergence criteria” defined by the EU in the Maastricht Treaty. The Greek government engaged in deliberate fraud, cooking the national books with the aid of American investment bank Goldman Sachs, in order to conceal current account deficits far beyond those permitted by the convergence standards. (Greece reported a 1.5% deficit in 2003, below the required 3% threshold, but the real deficit was over 8.5%.) Athens used the benefits of membership to borrow lots of money at preferentially low rates, which was spent largely on social benefits for Greek’s public sector workers and retirees, and also received a great deal of development aid.

In 2010, Greece’s financial manipulations were revealed. It became clear that large amounts of Greek debt, borrowed under fraudulent pretenses from European banks, would not be paid on time if at all. At the beginning of the crisis, there was a real risk of contagion. Banks are leveraged entities, and writing off billions in loans, even to tiny Greece, could have endangered the European financial system, in a manner similar to how bad mortgage loans substantially decapitalized the U.S. banking sector in 2008-2009.

That is no longer the case. A Greek exit from the Euro, either on purpose (“Grexit”) or by accident (“Grexident”) would be a disaster for Greece, but it seems likely it would be an economic non-event for the other members of the EU. So why is Europe, ably led by Germany’s Angela Merkel, going to so much trouble to try to keep Greece in the Union, if not for economic reasons?

The reasons for retaining Greece within the EU are geopolitical and ultimately spiritual. Having gone 70 years without any armed conflict between major European powers is a blessing almost beyond price. If any member of the EU leaves, even one as feckless and underdeveloped as Greece, it calls the entire European experiment into question. The fact that Greece is cozying up to brutal, expansionist Russia is an immediate reminder of past tensions and conflicts.

How long can Merkel’s desire to keep intact Europe’s experiment in peaceful coexistence continue to trump everyone’s frustration with Greece’s serial follies? (Not least that of German voters, few of whom relish the prospect of providing perpetual subsidies to Greek pensioners and civil servants.)

Not, I suspect, much longer. Either Greece will substantially roll over on its refusal to reform its dysfunctional statist economy, or they are likely to be outside looking in by midsummer.

Appomattox at 150

As an historian, I’ve been continuously surprised by the lack of attention to the series of 150th anniversaries of the events of the American Civil War, including yesterday’s sesquicentennial of Lee’s surrender at Appomattox. Perhaps this is because we no longer do real history in our colleges and universities. The past has become something we access, not for perspective or instruction, but as a source of raw material, to be shaped as needed to fit a contemporary narrative, in service to present-day political purposes. (Google ‘Michael Bellesiles’ for just one example.) The History Department at my alma mater is the center of unruly activism in pursuit of a radical anti-fossil fuel agenda. How those particular dots connect is a puzzlement to me.

I believe history matters. One of the most significant events in American history happened 150 years ago, at a farmhouse in the small Virginia town of Appomattox Courthouse, named after the nearby river itself named for a Powhatan Indian tribe. On Palm Sunday, April 9 1865, Robert E. Lee surrendered the Army of Northern Virginia to Ulysses S. Grant, General in charge of all the Union armies, including the Army of the Potomac and the Army of the James, to end our nation’s bloodiest war.

Lee, even in his late 50s and after four years of war, was a magnificent figure. At a time when the average man stood just over five and a half feet, Lee was six feet tall, but his trunk was long and his legs unusually short. With massive shoulders and huge hands, Robert E. Lee on a horse was an impressive sight. He was related by blood to five of Virginia’s seven signers of the Declaration of Independence. He owned two houses with names. He arrived at the McLean farmhouse before Grant, wearing an immaculate uniform with gilt buttons, armed with a ceremonial sword with a jeweled hilt.

Grant arrived late after a hard ride. His boots and trousers were spattered with mud. He was unarmed. With his mouse-brown hair and short beard, he looked, as one of his aides commented, “like a fly on a shoulder of beef.” But Grant was the victor. The shopkeeper-general beat the grand-nephew of two of the Founders. More, the system of which Grant was a representative was the victor. Free men prevailed over the slave masters. Capitalist productivity prevailed over agrarian virtue. Immigrants and the children of immigrants swelled the ranks of the Union armies.

The South lost a war whose essential purpose was to keep human beings in bondage. Lee’s skill and courage, and that of the under-fed, under-equipped army he led, excite our admiration to this day. Yet if the Army of Northern Virginia surely fought bravely and well, the cause for which they fought was just as surely, to borrow Grant’s words, “one of the worst for which a people ever fought.”

What is the duty we owe to the past? If nothing else, perhaps simply the memory and understanding of just how large a price we paid to expiate our nation’s original sin of slavery — over 620,000 dead in a nation of thirty millions, equivalent to an unfathomable 6.2 million deaths as a similar proportion of our current population. As Abraham Lincoln said in his Second Inaugural: “If God wills that [the war] continue until all the wealth piled by the bondsman’s two hundred and fifty years of unrequited toil shall be sunk, and until every drop of blood drawn with the lash shall be paid by another drawn with the sword, as was said three thousand years ago, so still it must be said ‘the judgments of the Lord are true and righteous altogether.’ “

Whose High Horse?

The sin of doing nothing is the deadliest of all the seven sins. It has been said that for evil men to accomplish their purpose it is only necessary that good men should do nothing.”

Reverend Charles F. Aked[1]

“God always rides a lame horse and carves on rotten wood.”     

                                  Martin Luther

His comments at the National Prayer Breakfast offered two elements at which Obama excels – first, some statements of general principle, designed to demonstrate his generosity and reasonableness, followed by a brief but shocking aside to signal his true feelings to his base. In the aftermath, critics on the right have been predictably outraged at the peek behind the curtain, while useful idiots on the left have defended President Obama’s historical perspective.

The President’s request to Congress for an Authorization of Military Force resolution was also vintage Obama, beginning with a strongly-stated case of the dangers posed by ISIL, followed by a specific non-authorization of “enduring offensive ground combat operations,” proceeding to a three-year hard deadline, and ending by repealing the 2002 authorization of force against Iraq, thus in effect more constraining the actions of this and future Presidents than enabling them. Unclear ends to be achieved by limited and probably insufficient means, with an exit timetable in place regardless of the future facts on the ground.

Think for a moment about what Obama would have said had he been President at the time of Pearl Harbor. I imagine it might have been something like this:

‘Yesterday, December 7, 1941, a date that should serve as a prompt to reflect upon our own past offences against persons of color at home and abroad, naval and air forces associated with the Greater East Asia Co-Prosperity Sphere made an unscheduled visit to our installations at Pearl Harbor, Oahu, facilities that must remind us of our own shameful history of neo-colonial aggression. Lest we get up on our high horse, it will be recorded that the distance from the administrative center of the Co-Prosperity Sphere to the Hawaiian Islands is actually less than that to the center of our own capital of Washington, DC. This makes it obvious that we must ask the question, whose interests stop where? Let’s not confuse our own narrow self interest with some sort of moral crusade, especially against a nation with which we have such a special history of positive engagement, going back to an earlier act of outreach by a great leader of the other party. If Teddy Roosevelt could so generously reach out to Japan in 1908, sending our brave sailors on a mission of peace, not conquest, surely we can find common ground in 1941, especially when we ourselves have, perhaps unwisely, contributed greatly to tensions by imposing a needless embargo on the steel and oil that our neighbors across the Pacific need to grow their own economy and provide opportunities for their own young people. We are better that that.’

Fighting a war requires clarity of purpose, determination and mobilization of popular sentiment, all on display in President Franklin Roosevelt’s actual Pearl Harbor address to Congress. It does not require prior moral perfection or a national history free of blemish. Indeed, if those were required prior to any exertion of military force, we would never have fought the Civil War or intervened in Europe during the Great War, and we must surely have allowed the Nazi and Japanese military expansionist regimes to run unchecked, and surrendered the rest of the world to Communism instead of fighting the Cold War.

[1] The classic statement of this principle, “All that is necessary for the triumph of evil is that good men should do nothing,” is attributed to the great Irish parliamentarian Edmund Burke. It is impossible to exaggerate Burke’s contribution to Western thought and modern conservatism. Unfortunately, there is no evidence he ever said or wrote this precise construction of this sentiment.