Monday, February 23, 2009

My Prediction: Dow Jones bottom at 6,437.

Move over, Market Gurus and Wall Street Know-It-Alls. I have figured this out. The end is near.

This year's stock market, scene of gloom and doom, busted dreams and broken hopes, the worst since our grandparents were children, will soon hit bottom. It will end its dismal, sickening decline, and start its rousing dramatic recovery, precisely when the Dow Jones Average hits the following point: 6,437.

(By contrast, it opened today at 7,112. So it just needs to loose another 675 points and we can call it a day.)

How do I know this? Elementary. Contrary to popular belief, financial markets do not run on economics. They do not run on emotion, technics, quants, or any other human designs. They run on irony.

6,437 is precisely the point at which the Dow Jones Average stood on December 5, 1996, at dinner time -- just over twelve years ago. It was at that moment that Fed Chairman Alan Greenspan mounted the podium at the American Enterprise Institute in Washington, D.C., to deliver the annual Francis Boyer lecture. He then proceeded to place a curse on the market. He intimated, in memorably opaque prose, that stock prices in the 1990s represented a bubble about to burst:

"Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? ”

Greenspan's "irrational exuberance" phrase became an instant hit, an icon, perhaps the single most repeated two-word quote of the decade. But the Dow Jones Average laughed in his face. It proceeded to jolt above 7,000 in 1997, then 10,000 in 1999, and finally 14,000 in October 2007. After the 2000-2001 Dot-Com bust, Greenspan himself seemed to forget earlier caution, pumping mass dosses of liquidity into housing and preaching tax cuts and deregulation with abandon-- causing him last October to admit "mistakes" that helped spark the recent crisis.
But the irony was this: Greenspan had gotten it right the first time. The stock market in 1996 was a bubble ready to burst, as it was again in 2000, as it was again in 2007. The "exuberance" behind it was, in fact, "irrational."
Markets have a way of avenging themselves. And if irony is indeed its guiding principle, then this one today is not going to free us from its bear grip until it forces us to relive the lession of December 5, 1996. Only when the Dow Jones Average touches that magic number, 6,437, will the curse be broken. At that point, "irrational exuberance " officially dies, to be replaced by "irrational pessimism" -- time for the bulls to return.

The end is near. Science is science. Greenspan was right. Sorry if this is bad news. Have some coffee.

Sunday, February 22, 2009

Racist Cartoons

This week's now-notorious New York Post "monkey" cartoon -- the one showing two policemen standing over a dead monkey they've just shot and saying "They'll have to find someone else to write the next stimulus bill" -- has raised storms of protest. Whether the artist intended the monkey as Obama or not, the implication is hard to miss.

The controvercy raises a deeper fact. Political cartoons in America have a long history of treading into racism, zenophobia, and bigotry. And some of the worst have come from our most celebrated, main stream journals.

Thomas Nast (above right), for instance, is celebrated as the brilliant young 1870s artist for Harper's Weekly whose ridicule destroyed the regime of New York City's Boss William M. Tweed -- easily the era's most corrupt pol. Nast became the most famous, widely-read, and politically influential graphic artist of the Nineteenth Century, able to sway elections and make or break Senators. But his cartoons seethed with bigotry, against Catholics, against Irish, against immigrants, against Democrats.

Before closing the book on the current controversy, here are a few samples. The point is not to make excuses for the New York Post. Rather, to me, it's the opposite. These examples show how dangerously easy it is for artists and journalists to let passions over today's hot spot issues get in the way of good sense. Editors have a duty to to work hard, not to censor talented artists, but to make sure they express themselves clearly -- and not to allow what might have started as a simple satire against the Stimulus Bill (obvious fair game) cross the line into ugliness.

As for Thomas Nast:
He enjoyeed portraying Catholic clergy is vile creatures, in this case as crocodiles.

He consistently drew Irishmen as semi-human gorillas, never far from a whiskey bottle and shackled to political mahcines. (The fellow with the whip is Peter B. Sweeny, famed chieftain of New York's Tamman Hall from the Boss Tweed era.)

And for political enemies like Tweed, he considered capitol punushment just fine:

Saturday, February 21, 2009

A different view of FDR

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To cap off President's Week, I thought you might enjoy this rare photo of Franklin Delano Roosevelt, taken from the July 1920 Literary Digest.
Just 38 years old, two years before contracting polio, FDR is still the dashing young socialite, gracing Washington as Assistant Secretary of the Navy in Woodrow Wilson's cabinet. We see him standing in front of one of his favorite cars, a Stutz roadster, holding a hunting rifle trying to mimick is famous Bull Moose Uncle Theodore.
Roosevelt that summer had used his celebrity name to win the Democratic Party's nomination for Vice President on the ticket headed by Ohio Governor James Cox. They would lose in a landslide to Warren G. Harding and Calvin Coollidge.
There is an appealing innocence to this photo. Polio, the Depression, the strains in his marriage, the trials of returning to politics, restoring national confidence in tough times, facing Nazism and Facism in World War II -- these things all were in the unknown future.

For now, we just see an easy-going young man on a sunny afternoon. Life was good.

Thursday, February 19, 2009

Eric Holder: "Nation of Cowards"? Not Really.

Eric Holder, the new Attorney General, raised hackles in Washington, D.C. yesterday for calling Americans a "national of cowards" on race relations, pointing to failures to build inter-racial ties outside the workplace. I certainly respect Holder for raising a sensitive and important issue. But on the history, I think he's wrong.

The roster of heroes on this score is long and impressive and, to my mind, it deserves more attention than the cowards. Other countries have struggled with racism and zenophobia, but America is rare in addressing it so directly. Obviously, divisions and prejudice still exist. But we live in an tie of promise and good will, with Barack Obama in the White House and Holder himself making history at Justice.

As my brief contribution, I'd like to mention some heroes, specifically two relationships that crossed the divide during times when attitudes were ugly and simple handshakes required courage. Both helped lay groundwork for the civil rights successes to come later:

-- A friendship among two US Senators, Roscoe Conkling and Blanche Bruce; and
-- The work of a great lawyer, Clarence Darrow, for a ground-breaking client, Ossian Sweet.

Blanche Bruce (photo above) was the second African-American to reach the U.S. Senate (Riram Revels of Mississippi was the first), the first to serve a full term (1875-1881), and the only black senator during those years. Bruce had escaped slavery during the Civil War and gone north. He taught school in Hannibal, Missouri, and briefly attended Oberlin College. After the War, he returned to Mississippi to make money as a planter and rose in Reconstruction politics.

By 1875, when Bruce reached Washington, D.C., America had already lost its wartime idealism and grown tired of Reconstruction, spawning an attitude of resentment against freed slaves. Lynchings and other crackdowns were were on the rise. Bruce, as the only black Senator, confronted stark bigotry from colleagues -- particularly fellow Mississippi Senator Lucius Lamar. On the day of his swearing-in on the Senator floor, Bruce rose to step forward and take the oath, but both of his Mississippi colleagues (Lamar and out-going Senator James Alcorn) refused to escort him. For a moment, Bruce stood absolutely alone -- until one Senator finally saw his embarrassment, stood up, and walked over from across the chamber, took Bruce's arm, and announced himself Bruce's sponsor. It was Roscoe Conkling of New York.

Roscoe Conkling was one of Washington's most powerful figures in 1975, boss of the NY State Republican machine, leader of the Republican Stalwarts and intimate with President US Grant. Conkling took Bruce under his wing, made him a protege, coached him in Senate procedures and helped him win key committee seats. They became fast friends, and Bruce would go so far as to name his first-born son after Conkling. Young men named Roscoe would populate the family tree for generations.

Clarence Darrow had never met Ossian Sweet in 1925 when he agreed to take Sweet's case. Sweet, an African-American physician, had purchased a home in a white neighborhood in Detroit. A mob of neighbors tried to drive him out, but Sweet refused to be intimidated. Mobs started congregating around the Sweet home. One night, gunshots rang out, and Sweet fired back. A white man in the crowd was hit and died.
Local prosecutors quickly indicted Sweet for murder and set trial before an all-white jury.

The recently-formed NAACP had trouble at first finding a lawyer to take Sweet's case, until they asked Darrow. Darrow was already famous from a lifetime defending headline clients from labor leaders Eugene V. Debs and Bill Haywood to most recently John Scopes, the high school tachers accused in 1924 of teaching evolution in Dayton, Tennessee. Darrow quickly saw the importance of the case and agreed to lead the defense.

His appeal to the jury based on common humanity became an instant classic:

"You are facing a problem of two races, a problem that will take centuries to solve. If I felt none of you were prejudiced, I'd have no fear. I want you to be as unprejudiced as you can be.....Draw upon your imagination and think how you would feel if you fired at some black man in a black community, and then had to be tried by them.... The danger of a mob is not what it does, but what it might do. Mob psychology is the most dreadful thing with which man has to contend. Its action is like the starting of a prairie fire. A match in the stuble, and it spreads and spreads, devouring everything in its way....the mob was waiting to see the sacrifice of some helpless blacks. They came with malice in their hearts..."

It took two trials, but ultimately Darrow prevailed, presuading the jury to reach a unanimous verdict of not guilty on ground of self defense. Ossian Sweet went free, and a precedent against housing discrimination was set forty years before the Civil Rights Act.

We don't often think of Clarance Darrow and Roscoe Conkling as civil rights heroes, and Blanche Bruce and Ossian Sweet rarely get attention for their ground-breaking roles. But if today we are keeping score on heroes versus cowards on achieving racial justice in America, then I am happy to offer them as evidence on the good side. Thanks. --KenA
For more background, see my two book recommendations for today:

-- On Blanche Bruce, The Senator and the Socialite: The True Story of America's First Black Dynasty, by Lawrence Otis Graham.
-- On Darrow and the Sweet trials, Arc of Justice: A Saga of Race, Civil Rights, and Murder in the Jazz Age, by Kevin Boyle.

Wednesday, February 18, 2009

Louis Brandeis on "Too Big to Fail"

A quick thought this morning on reading the latest plea from Detroit for a $20 billion taxpayer handout to keep General Motors and Chrysler from bankruptcy:

Before joining the Supreme Court in 1916, Louis Brandeis, one of the true great minds of Twentieth Century America, wrote a wonderful rant against the big money powers of his time called Other People’s Money: And How the Bankers Use It. In it, Brandeis described what he called the “Curse of Bigness,” which was his way of describing the big monopolistic banks, railroads, and steel companies that threw their muscle around back then to intimidate Washington, Main Street, and the public. “Size, we are told, is not a crime,” Brandeis wrote. “But size may, at least, become noxious by reason of the means through which it is attained or the uses to which it is put.”

Brandeis’s book became a big seller in 1913. It earned him the lasting hatred of Wall Street tycoons like J. P. Morgan, but it also helped create public demand for a Federal Reserve System. Brandeis’s political hero was Theodore Roosevelt, who as President happily used the new Antitrust Laws to fight "bigness" by busting trusts when he saw fit.

Today, in our modern fiscal collapse, Brandeis’s “curse of bigness” has come back to haunt us under the guise of a new doctrine: Too Big to Fail. We now see a dizzying, growing list of malefactors hiding behind its skirts:

Wall Street banks are too big to fail;
Main Street banks are too big to fail;
Detroit automakers are too big to fail;
The $700 billion bailout package was too big to fail;
The drug-taking third baseman for the Yankees is too big to fail.

Who’s next? What’s next? What kind of monster have we created?

Louis Brandeis got it right back in 1913. Bigness can be a curse, and we are paying for it now. What ever happened to the Antitrust laws? They made perfect sense to Theodore Roosevelt. Maybe it’s time to bring them back.

Tuesday, February 17, 2009

Rating George W. Bush

Before leaving C-SPAN's poll of presidents, I need to get two more items off my chest. One is about Abraham Lincoln, the winner at #1. Can we please take off the rose-colored glasses and treat him like a real person? I will get to this in my next post.

The other is about George W. Bush. Let's talk about him right now.

When I first saw the final C-SPAN list two days ago, I quickly noticed the difference between me and the group over GWB, and I wrote this:

Finally, there is George W. Bush. The C-SPAN group places him in the bottom ten at #36. I rated him even lower, as third worst at #41. This rating obviously is the most speculative of the bunch. We still don't know the outcome of the wars Bush started and the economic cataclysms begun under his watch. But, to my mind, the potential long-term damage Bush has done to this country far out-paces the likes of a Warren Harding, Millard Fillmore, or Frankling Pierce. Unlike these other disappointments, George W. Bush was both bad AND consequential.

Let's be clear. I enjoy revisionist history. In my book BOSS TWEED, I was happy to restore the reputation of America's most corrupt pol ever, showing that Tweed, while stealing the City blind, was also a big-hearrted man who helped immigrants, built New York, and was victimized by unscrupulous "reformers." But that didn't mean be wasn't corrupt.

It is no Liberal fad to say that George W. Bush was one of the worst presidents ever. Facts are stubborn things. Bush might be a sincere nice man who loves his family, but that doesn't change the bottom line. How could the C-SPAN group rank him at #36? This son of priviledge is once again being let off the hook with a Gentleman's C?

True, a rank of 36 is no compliment. It places Bush in the bottom 10, and nobody argues that the bottom two, Andrew Johnson and James Buchanan, don't thoroughly deserve those spots.

The difference between 3rd worst (my rank) and 7th worst (the C-SPAN group's rank) may seem small, but at stake is the historical truth. The higher grade elevates Bush above four other Presidents who certainly had failures and fell far short of being role models, but who simply did too little in office to earn the bottom spots. Specifically:

  • Warren G. Harding (1921-1923), died in office from food poisoning, presided over the Teapot Dome scandal though not personally implicated. During his term, he stabilized the economy, pardoned Eugene V. Debs from prison, and started no wars.
  • William Henry Harrison (1841), died in office after 32 days. At 71 years old he gave a two-hour inaugural speech in a freezing snowstorm without a coat, possibly causing the cold that killed him -- not too smart. But he wasn't in office long enough to do harm;
  • Millard Fillmore (1850-1853), replaced President Zachary Taylor and filled the last 2 1/2 years of his term. He backed the Compromise of 1850 that delayed the Civil War by allowing enactment of the notorious Fugitive Slave Act;
  • Franklin Pierce (1853-1857), certainly no gem with a bad personality. He signed the Kansas-Nebraska Act allowing slavery to spread west. But he, too, was smaller than events arouond him.

George W. Bush was not a small President. He mattered. He was not mediocre. He was bad. The most important national challenge of our lifetimes, the attack of September 11, 2001, came on his watch. He made decisions that had consequences. The result was a string of disasters that is depressingly well known: two unfinished wars, a debt explosion, a financial collapse, a list of demoralized, ineffective Federal agencies, a sleazy re-election, inflamed wedge politics, the use of torture, the loss of global standing, and so on goes the list.

The C-SPAN group gave Bush bottom marks for Economic Management and International Relations, but it saved him from the cellar with C-level grades for three catch-all categories: "Crisis Leadership," "Vision/ Agenda Setting," and "Pursued Equal Justice for All." I don't buy it.
Ranking President Bush is speculative because the trail is still fresh. He just left office a few weeks ago, his wars are unfinished, his policies are still unfolding. Giving him a mediocre score may allow historians to keep their options open, to hedge their bets in case something in his legacy goes unexpectedly right. I think the record is clear enough to start him off at the near-bottom. If things go his way in the future, so be it.
Thanks for listening. --KenA

Monday, February 16, 2009

C-SPAN's Presidential Poll

Woodrow Wilson, 1916.
Yesterday, C-SPAN finally issued the full results of its 2009 Presidential Survey by some 150 historians. Here's the link to the full C-SPAN group results. As you know, I had the honor to participate and, for comparison. Here's the link to my own entry.

Not surprisingly, as soon as I saw the final C-SPAN list, I eagerly put their's and mine side by side, just to see how I stacked up. What I saw was a profile of my own prejudice staring back at me. Here's a sample:

Let's start with the top ten. We agreed on the top four (Washington, Lincoln, and the Roosevelts), though in slightly different order. But after that, we parted ways.

For instance, the C-SPAN group ranked both Woodrow Wilson and JFK in the top ten, at #9 and #6 respectively. I couldn't disagree more. I rated Wilson far lower, at #16, his dismal records on civil rights, wartime dissent, and the post-war Red Scare, as well as his failure to win acceptance of the Versailles treaty, all counting as significant demerits. Similarly, I rated JFK far lower at #17. Yes, he inspired the country, but his sparse legislative record hardly earned him a spot in the top tier. Yes, for glamour, celebrity, and style, JFK wins hands down. But is that really how we rate Presidents? Perhaps had he lived....

As for the bottom ten, I broke from the group on two notables. First, I included Richard Nixon at #36. The C-SPAN group rated him much higher, at #27. I admit to prejudice on this one: Living through the Vietnam War at draftable age could not help but affect my attitude toward Nixon. But even putting that aside, Congress had good reasons for impeaching Nixon in 1974. His temperament -- seen in his enemies list, wiretaps on his own staff, and conspiracies galore -- was perhaps the worst of any President, and it overshadowed any positive accomplishment.

Finally, there is George W. Bush. The C-SPAN group places him in the bottom ten at #36. I rated him even lower, as third worst at #41. This rating obviously is the most speculative of the bunch. We still don't know the outcome of the wars Bush started and the economic cataclysms begun under his watch. But, to my mind, the potential long-term damage Bush has done to this country far out-paces the likes of a Warren Harding, Millard Fillmore, or Frankling Pierce. Unlike these other disappointments, George W. Bush was both bad AND consequential.

So that's my first take on the final, official C-SPAN list, and I look forward to debating these points on many more Presidents Days to come. Hope you have a happy one --KenA