Thursday, January 12, 2012

Mitt and the fire eaters


The famously Unionist South Carolina native James Petigru once opined to a visitor that his home state was too small to be a republic, but too large to be an insane asylum. The notion that South Carolina is kind of wacky persists, but its reputation for wackiness depends less on outright corruption and more on the defiant, unreconstructed nastiness of the prevailing ideologies. South Carolina tends toward extremes, and tempers can get hot quickly.

So when correspondent Jim Rutenberg of the New York Times writes that South Carolina is “a place famous for surfacing the dark undercurrents of American politics,” there is some historical validity to the assertion, although Mr. Rutenberg’s construction of things strikes me as little more than a dog whistle for the average Manhattanite who might happen on to his news analysis. After gently touching on the things that make South Carolina what it is, at least, in his telling of it, Mr. Rutenberg does end up defaulting to the economy as the most likely driver of sentiment. After all, the state is an economic mess with no obvious catalyst for growth. It has one of the highest unemployment rates in the U.S., and despite some recent good news, like the establishment of a new Boeing facility in North Charleston, large swathes of the state are poor and getting poorer.

Despite Mr. Rutenberg’s “dark undercurrents,” South Carolina’s Republican primary will turn on perceptions concerning the economy and the unusually focused concentration that Republicans in the state have on putting forth someone “electable.” The fire eaters are willing to swill Mitt’s tonic for fear of having four more years of taking Mr. Obama’s medicine, and those who prefer a different flavor aren't sure which bottle to pull down from the shelf, thus dividing the remaining vote among three or four candidates.

Given that the average man on the street in Columbia or Charleston would be hard pressed to describe what it is that a private equity firm does, I suspect Mitt is all but assured of winning the election in South Carolina. It won’t be as sweeping a victory as New Hampshire, but he will avoid the fate that befell John McCain in 2000, when the state’s party machinery smashed his front-running campaign to bits in favor of a candidate (George W. Bush) whose conservative Republican bona fides were purportedly more established. Mitt is not a shoo-in for the nomination yet, but South Carolina won't be the undoing of his campaign.

Tuesday, January 03, 2012

The Divagator's brush with cybercrime

Over the Christmas holiday, business news and intelligence website Stratfor joined the ranks of a club no company wishes to be a part of – those who have been hacked. In Stratfor’s case, the deed was carried out (reportedly) by hacker group Anonymous, which infiltrated the company’s servers and then publicized sensitive customer information on the internet. I should know. My credit card number was among those stolen, and I have already experienced the fallout. I was contacted last night by a scam artist cleverly disguised as an India-based call center for Amazon.com.

Luckily, my habit is not to answer any phone call from a number I don’t recognize. The call went to voicemail, and I was somewhat skeptical of the ostensible purpose of the call (to query me about “suspicious” card activity). I called Amazon (not the number given to me over the phone) and quickly ascertained that the previous call was a phishing expedition. Needless to say, I canceled the card.

The reason provided by Anonymous for hacking Stratfor had nothing to do with taking credit card information but rather to gain access to Stratfor’s emails. It seems my credit card account and the $200 already charged in illicit purchases were but collateral damage due to Stratfor’s carelessness in placing such information in relatively open areas of their server environment. As Bloomberg’s Michael Riley reported at the end of the year, such thievery is big business. In totaling up the value of the cyberheists, Riley cited a figure from Symantec: $118 billion per year.

The hacker group Anonymous fancies itself as something of a cross between Robin Hood, whistleblower, and anarchist. I’m not sure what Anonymous – or those operating in its name – believes is so cool and secretive that Stratfor might have in its emails. I’ve always imagined Stratfor as something like the Council on Foreign Relations but with a small publishing function for news and views and a security consulting business mixed in. Yes, they probably know a lot about the way the world works, but so do a lot of people.

Besides, who believes that the world is screwed up due to a lack of information? Corporate thieves – the ones Anonymous claims to target – have the audacity to do their work in broad daylight. I fail to see how a few emails squirreled away on Stratfor’s servers will motivate people to seek out political change to end corruption and self-dealing. If the financial crisis and its unsatisfactory wind-down weren’t enough to wake folks up, I doubt Anonymous’s daring heists will do much in that respect. Unless, of course, Anonymous is merely using political rectitude or activism as a cover to grab a slice of that $118 billion pie for itself.

And there are much bigger fish out there than the small fry of stealing credit card numbers from an online vendor. Writing for the Financial Times, Joseph Menn has a big page-long spread in today’s paper detailing the cybersecurity of U.S. banks and, more tellingly, their clients. He tells the story of Experi-Metal, a U.S.-based auto parts maker that lost $560,000 in a matter of hours once a skilled thief had ascertained the vital information needed via a fraudulent “customer service” email form. Experi-Metal was able to pin the losses on its bank, Comerica, whom it felt could have done more to stop the fraudulent transfer out of its accounts. Experi-Metal was lucky. Many companies that suffer fraud and lose a bundle lose, according to FT, lack the protections that individuals enjoy vis-à-vis cybercrime. As Menn writes:

“Individual Americans are protected by Regulation E of the federal banking code and are liable for a maximum $500 if a cyberthief strikes. Companies – even those owned by a single person – have no such guarantees.”

And:

“Most businesses are unaware that they do not have the same protection as consumers. Just 18 per cent of 1,000 small companies knew the truth in one recent survey by Actimize, a banking security company. Analysts say that those unaware of the risks are less likely to insist on precautions, such as mandatory phone calls to confirm every wire.
“Often, companies find out that they are liable only when they have been robbed.”

Being inconvenienced personally is always a consciousness-raising experience, but after doing some cursory reading and seeing the volume of recent news items detailing cybercrime, I think I’m not being a complete narcissist in saying that cybercrime will be a big trend line to watch in 2012. Data published by the Financial Times show that losses to the banking industry due to cybercrime (this includes identity theft, check-related fraud, credit card fraud, computer intrusion, and wire transfers) have fallen by over half since peaking in 2006. That’s the good news. The bad news is that the banks tend to cover a greater percentage of the losses for large corporate clients, leaving small businesses relatively exposed when it happens to them, and these are precisely the folks who feel such losses the most. For some, cybercrime can end up being an enterprise-changing event.

Sunday, January 01, 2012

Fifty years after Gann’s Fate


Who knows what prompts a programming director to air a seldom-seen movie from nearly half a century ago? In this case, it might have been the 50th anniversary of the publication of Ernest K. Gann’s Fate Is the Hunter that so moved Turner Classic Movies to screen the movie inspired by the book. How many times had this movie been screened on television in the last decade or so? Hard to know, but it can’t have been very often. Once upon a time, it must have been a staple of television programmers, at least, enough to make Mr. Gann regretful about disassociating himself from the movie. He was piqued at the final product and didn’t like it, but admitted in later years that he would have liked the royalties from the frequent airings on TV. But at some point, probably the 1980s, the movie receded into the mists of time, called forth less and less each year to take up space in a station schedule.

It was last spring or thereabouts, and I chanced upon the movie just as the opening credits were rolling. At that time, I had never heard of the book or the movie it inspired, and I say “inspired” because the book is an episodic memoir not especially reducible to the formula of a Hollywood screenplay. But there I was, watching some screenwriter’s best effort at transforming Gann’s book into a Hollywood production.

I found the film intriguing for a number of reasons, but it was most certainly not a great film and perhaps not even a good film. I always liked actor Glenn Ford, so seeing him in a dramatic role that wasn’t a western or film noir was enjoyable. In the middle of the movie, there is a weird flashback scene in which Jane Russell appears in a cameo as herself. Well into her 40s and semi-retirement when the movie was made, she still looked absolutely stunning and was totally believable as the World War II pin-up girl version of herself. The movie also featured young Suzanne Pleshette and Nancy Kwan in supporting roles.

Ultimately, the movie typifies some elements of Hollywood moviemaking in the early to mid-1960s. The Production Code was almost history, and films were already subverting it in ways large and small. Such a frank treatment of an airline disaster could be viewed from this forward-leaning perspective that embraced cinematic naturalism; however, the acting itself was fairly traditional and stiff, and it is not uncommon to see movies of the period host a curious collision of old and new in this manner. Such is the art of transitions. It was 1964, but the sixties were not yet The Sixties.

I’ve focused so much attention on a mediocre film from a mediocre era because it did me the service of introducing me to Mr. Gann and his book, if only in sideways fashion. The movie might be nickel-plated, but the book is pure gold, and I encourage one and all to give it a read.

I had never counted myself an aviation enthusiast…and still don’t. Luckily, one needn’t be to appreciate Mr. Gann’s memoir. There is so much clear thinking, wisdom, and humanity on each page – I found it ennobling to read.

Principally, the book serves as a great canvas on which Mr. Gann paints the particulars of his idiosyncratic view of the world. He is forever pondering the ineluctable workings of chance, or as he had it, “fate’s nefarious and beneficial doings.” He relates stories where his survival depended upon seemingly inconsequential occurrences – there was the icing incident where flying a DC-2 (a last-minute replacement for the scheduled DC-3) was the difference between life and death or where the need of a chart from the passenger compartment led to the discovery of a near-fatal oil leak. There are stories of colleagues whose demise, much to the consternation of the author, cannot be squared with the facts (or just as often, the lack of facts). Gann’s long career as a pilot, inevitably perhaps, leads him to consider: Why them and not me?

As to the art and craft of flying an airplane, Mr. Gann’s descriptive flourishes come rather like the sudden banks of air he describes. His prose is flat, laser sharp, and precise in its descriptions until, often, erupting into a pleasant and strange figuration often as jolting as the things he describes. For instance, a sudden and violent mid-air squall is unleashed thusly: “Some preposterous genie turns a fire hose on the windshield.” But just as often, Mr. Gann had a gift for description that didn’t rely on antics, and in any event, both his fidelity and ostentation was a pleasure.

He also had a gift for clear-headedness. For instance, in the chapter titled “Gypsies” (my favorite in the book), Gann describes where he was and what he was doing when he learned that Pearl Harbor had been attacked. He was in San Juan, refueling for the next leg of a trip to Brazil. In the next chapter (“Rule Books Are Paper”), his reflections on Pearl Harbor struck me as incredibly true and honest and rarer still for their lack of sentimentality. He wrote:

“The hysteria of Pearl Harbor had yet to evaporate and the echoing cry of indignation from the American people now sounded like a traumatic screech rather than a determined roar of anger. The true leaders did not yet have their bearings. The still-unyoked multitude milled in Babylonian turmoil as their pundits cast them adrift between selfish opportunism and impossible visions of nobility. The paradox affected every endeavor and it paraded in brash nudity through the erupting complex of aviation.”

So brilliant and rare is this passage, it reverberates even today and in no small manner could be applied to much of what we have just lived through after 9/11.

Clear-headed and unsentimental, yes, but Gann was also capable of tender musings on a number of beloved things. My last example is drawn from “Gypsies.” While surveying the pleasures of his aviator’s charts, Gann spares a few thoughts for art, reflecting:

“Someday we would chart the heavens for actual penetration. The positions of the stars and planets will be plotted within a fractional second of arc. But I pray that the representation of stellar bodies will be more than mere blobs signaling to the leanness of purely scientific minds. There are other hungers. Let there be true artists involved who will color a blue star blue, and one that is amber, amber, and pink, pink – accordingly.”

Indeed.

Thursday, December 29, 2011

Best of The Divagator, 2006-2011


Before I relaunch this blog, I thought I'd rummage through the hundreds of posts I've made over the past few years and try to put together a little anthology of posts that might provide some reading pleasure. My posting schedule was always erratic, even when the blog was more or less active, so the results of this exercise are a little clumpy, with several posts from some months and then long stretches of nothing. Such is life. When I resume posting next week, I don't foresee that changing. I'm aiming for one substantive, longer-form piece per week or ten days with some shorter, less demanding stuff sprinkled about.

What you'll find below is this site's Best Of list in reverse chron order; the contents are true to the blog's name, meaning, these essays are all over the place as to topic, theme, or what have you. I hope you choose to invest a little time to skim through a few of them and that you'll find the effort worthwhile. Here's to a prosperous and fruitful 2012!

“Why Personhood Matters,” January 28, 2010

“More on Google’s Chinese Buh-Bye,” January 15, 2010

“Tiger’s Fall and Race,” December 20, 2009

“A Different Kind of Market Polarization,” December 11, 2009

“Of Eggheads and Good Eggs,” November 24, 2009

 “Wall at Main: The Disconnect,” October 13, 2009

“Two Americas,” August 29, 2009

“From We to Wii,” July 29, 2009

“Of Tea Parties and Sunshine Patriots,” March 7, 2009

“The Great Stakeholder Society,” February 3, 2009

“Thirteen Ways of Looking at Philoktêtês,” January 9, 2009

“The Coming Monetary Mess,” December 20, 2008

“Toward Reconstituting the Republican Party,” November 6, 2008

“The End of Liberalization,” October 15, 2008

“The Free-Market Straw Man,” October 14, 2008

“Solzhenitsyn and the West,” August 6, 2008

“Look Away, Look Away, Look Away,” July 25, 2008

“Healer Heal Thyself,” March 11, 2008

“Who Lost Russia?” February 24, 2008

“The ‘post-war’ revival,” August 8, 2007

“Catholicism and Chinese Stability,” January 21, 2007

“Quiddity is Job One,” January 20, 2007

“Our Sad, Rich Anglosphere,” January 20, 2007

“The Rhetoric of Schism,” January 14, 2007

“Mirror, Mirror,” December 13, 2006

“Darkness, Darkness,” November 25, 2006

“Farewell, Mr. Friedman,” November 19, 2006

“Millions of Pepys,” August 21, 2006

“Apocalypse Now and Then,” August 18, 2006

“History’s Long Arc, “August 15, 2006

“Asymmetry and Jus In Bello,” August 6, 2006

“The Other Conservatism,” August 4, 2006

“What Centrism Is and Isn’t,” July 17, 2006

“Tenured Lapdogs,” May 21, 2006

“He Ain’t Heavy…He’s My Brother in Christ,” May 8, 2006

“Mutually Assured Proliferation,” March 31, 2006

“Gaming the System,” February 10, 2006



Thursday, March 11, 2010

How the sausage got made

The Federal Reserve Bank of New York’s Tobias Adrian and Hyun Song Shin have published a new report – “The Changing Nature of Financial Intermediation and the Financial Crisis of 2007-09” – in which there is a very clear explanation of the intermediary steps taken by market actors in creating many of the toxic mortgage securities that so palsied the financial system. The excerpt is below, but I’d encourage you to read the whole report, which is surprisingly accessible for a Fed Staff Report.

“In this illustration, mortgages are originated by financial institutions such as banks who sell individual mortgages into a mortgage pool such as a conduit. The mortgage pool is a passive firm (sometimes called a warehouse) whose only role is to hold mortgage assets. The mortgage is then packaged into another pool of mortgages to form mortgage-backed securities (MBSs), which are liabilities issued against the mortgage assets. The MBSs might then be owned by an asset-backed security (ABS) issuer who pools and tranches them into another layer of claims, such as collateralized debt obligations (CDOs). Then, a securities firm (e.g., a Wall Street investment bank) might hold CDOs on their own books for their yield, but finance such assets by collateralized borrowing through repurchase agreements (repos) with a larger commercial bank. In turn, the commercial bank would fund its lending to the securities firm by issuing short-term liabilities, such as financial commercial paper. Money market mutual funds would be natural buyers of such short-term paper, and, ultimately, the money market fund would complete the circle as household savers would own shares of these funds.”

Wednesday, March 10, 2010

Should fraud victims be made whole?

I read this morning from Bloomberg a report I find disturbing regarding a lobbying effort underway by Bernard Madoff and R. Allen Stanford fraud victims. It seems the victims have teamed up to request that Congress look into levying a tax on financial institutions in order to pay the victims back.

Talk about a bad precedent to set.

I don’t quite understand why these folks get a special hearing in the halls of Congress. We have laws on the books to deal with frauds like Madoff and Stanford, and much like FDIC, which protects bank depositors from losing everything, SIPC, or the Securities Investor Protection Corporation fund, is supposed to step in to protect investors from fraud, up to a $500,000 maximum per person. It’s a paltry amount when compared to the $65 billion that Madoff swindled from his clients, but that’s what the law states, and we should stick to it rather than retroactively applying a new standard.

It’s bad enough that the government’s inability to enforce its own laws led to this mess, but playing fast and loose with the law after the fact only compounds the problem. If we are going to levy a new tax on Wall Street to fund SIPC, the effort should be motivated by future funding considerations, not past frauds operating under past rules. And we certainly should not be playing around with the kinds of losses that SIPC will compensate. For instance, Bloomberg reports that the Madoff victims have already sued SIPC (and lost) in an attempt to compel the fund to base its payouts to victims on “fictional” statements issued by Madoff in his Ponzi scheme. And after all, why should SIPC pay investors phony profits?

If this is the direction we are going to go with SIPC, then we are creating large, unknowable exposure for the U.S. government in connection with securities fraud. Today’s fraud victims would have the banking industry pick up the tab, but as one professor noted in the Bloomberg story, this is just a back-door means of socializing the losses, because those bank taxes will get passed directly on to the consumer in the form of higher fees, and even then, it doesn’t help SIPC project future liabilities.

And just think, if the SEC had done its job, we wouldn’t be having this conversation. If anything, the revenues from any new bank tax should go to the SEC. It makes no sense to maintain a shitty securities law enforcement agency, yet lavishly fund the government “insurer” against fraud.