Traps: Maximalism and Underperformance

I understand the frustration of progressives as they see moderate after centrist trotted out. Where is our bone? they cry plaintively--if indeed they are willing to settle for bones. Some are so bold as to think they can set President-elect Obama's priorities for the first 100 days or first 10 days or whatever.

They can "set" the controls, as long as they set them to the desired specifications: focus like a laser on the economy while the foreign policy team gets rapidly up to speed.



Reach out to most every country with meetings at appropriate levels. Meet first with closest allies, and set up Presidential face time by mid-year for the most important ones with which we are less closely allied (Pakistan, Afghanistan, Iraq (when they're ready), India, China, and--I'd argue they belong in this category, though they are allied with us--Turkey). With Russia, a more subtle approach aimed at defusing tensions on NATO expansion, missile defense, and Russia's energy bullying of Europe, with the payoff being active cooperation on Iran.

The grand strategy should be to bring all nations out of "failing state" status. This is a progressive objective of the first order. First term, Obama should focus on Asia; in the second term, Latin America and Africa. "Security, Health, and Livelihood" should be the objectives of a program to get the one billion or so people in nations on the edge away from the abyss.

HOF: From the Yahoo! Bballgroup

Re: Hall of Fame Ballot/vets

"A little bit soft" is understating it: apart from Rickey (the
exclusion that proves the rule, as we now see the wisdom of his last,
barnstormin' days) this is a cast of newcomers for which I can find no
one even to make a case.

The secondary drama of the balloting (Rickey first year? Yes We Can!)
will be Jim Rice's last-ditch effort to make it, having come so close.
I bet yes, but withhold my endorsement of it.

Bert By 'Eleven? Stay tuned. Maybe next year he could be the Jim
Rice of '10. Which might be one year early for the slogan, but
otherwise OK by me.

My ardor for some of the other returning heroes has cooled. I am
tempted by Tim Raines in this year in which stealing bases gets a
little respect. Perhaps Henderson's first-year landslide will edge
the Grey Ink regression slightly in Raines' favor next year.

From the active ballot, I vote for Henderson, Blyleven, Raines and Lee
Smith.

I'm one who doesn't feel Trevor Hoffman's numbers diminish Smith's
candidacy, though all are mere prologue to the thunderous election a
few years hence of Mariano Rivera, the Rickey Henderson of Saves.

I'll fill out my ballot with Veterans: Dick Allen, Luis Tiant, Joe
Torre (pre-emptive induction as player), Maury Wills (in the Year of
Rickey), Jim "Mudd" Kaat, and, a personal favorite--Bucky Walters.



As a minor public service,

Here's the info on the Veterans Committee, from Baseball reference:

Veteran's Committee Results Announced Dec. 8
Post-1943 Ballot: All are on the ballot as players:

* Dick Allen, 1B-3B, RoY, 1972 MVP, 7 A-S, 351 HR, .292 BA, 156 OPS+
* Gil Hodges, 1B, 8 A-S, 3 GG, 370 HR, .273 BA, 120 OPS+
* Jim Kaat, P, 283-237, 3 A-S, 16 GG, 1966 TSN AL Pitcher of Year
* Tony Oliva, RF-DH, RoY,2x 2nd in MVP, 8 A-S, 1 GG, 3 BA Titles,
.304 BA, 220 HR, 131 OPS+
* Al Oliver, CF-1B, 7 A-S, .303 BA, 219 HR, 121 OPS+
* Vada Pinson, CF, 2 A-S, 1 GG, .286 BA, 256 HR, 110 OPS+
* Ron Santo, 3B, 9 A-S, .277 BA, 342 HR, 125 OPS+
* Luis Tiant, P, 229-172, 3 A-S, 2 ERA Titles
* Joe Torre, C-1B-3B, 9 A-S, 1 GG, 1971 MVP & BA title, .297 BA,
252 HR, 128 OPS+
* Maury Wills, SS, 1962 MVP, 5 A-S, 2 GG, 20 HR, .281 BA, 586 SB,
88 OPS+

Living Hall of Famers may vote for up to four. 75% required for
induction.

Pre-1943 Ballot: All are on the ballot as players:

* Bill Dahlen, SS, 1891-1911, 2457 H, 547 SB, .272 BA, 109 OPS+
* Wes Ferrell, P, 1927-1941, 193-128, 2 A-S, 1935 2nd in MVP, 116 ERA+
* Joe Gordon, 2B, 1938-1943&1946-1950, 1942 MVP, 9 A-S, 1530 H,
.268 BA, 120 OPS+
* Sherry Magee, LF, 1904-1919, 2169 H, 441 SB, .291 BA, 136 OPS+
* Carl Mays, P, 1915-1929, 207-126, 120 ERA+
* Allie Reynolds, P, 1942-1954, 182-107, 110 ERA+, 6 A-S
* Vern Stephens, SS, 1941-1955, 1859 H, .286 BA, 119 OPS+, 8 A-S
* Mickey Vernon, 1B, 1939-1943&1946-1960, 2495 H, 172 HR, .286 BA,
116 OPS+, 7 A-S, 2x BA Title
* Bucky Walters, P, 1931-1950, 6 A-S, 1939 MVP and TrplCrwn, 2x
ERA title, 3.30 ERA, 115 ERA+
* Deacon White, 3B-C, 1871-1890, 2066 H, .312 BA, 127 OPS+, 2x BA
Title

Committee of writers, execs and HOFers (12 total) may vote for up to
four. Nine votes required for induction.








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No Mas--this time, for sure

In February, 2006, I cited the famous quote from boxer Roberto Duran (when he quit in the 8th round of his rematch with Sugar Ray Leonard in 1980), suggesting that our mayor, Bobby Duran, give it a rest.

Duran failed to heed my advice and won a 20-vote victory that month over Gene Sanchez, giving him his first full term as Taos mayor.

Now Bobby has taken up the notion and announced he is quitting. "No mas!"

He has enjoyed being quoted saying that he always said he would stay in politics here as long as it was "fun, challenging, and I enjoy the people I'm working with--now two out of three are missing". I guess he's still challenged.

Obama Leadership--Early Impressions

There have been a number of editorials about whether Obama should lead our country to the center, the center-left, the left, or even the center-right. I think all those arguments are directionally challenged.

If we look at what Obama is doing in terms of his selections for Cabinet positions, his involvement in the Senate deliberations on punishing rogue Senator Joe Lieberman, and his policy positions and their more detailed elaborations, I would say that Obama is trying to get the largest amount of support possible, to lead the country where he wants to go, which is FORWARD.

This may not seem a very specifc azimuth, but compared to the direction of Bushite Misrule, which could be characterized as leading us backwards, multi-directionally confused, or just plain unrealistically (into Spaceland?), it is refreshing.

In terms of specific Cabinet appointments and who's been named (albeit through news reports only), the only one I've gotten right so far is today's news that Timothy Geithner is for Treasury. I think it's a great choice: after Hillary Clinton has been confirmed as destined for State, I wanted to say (but didn't) "basta!" with the Clintonistas. I preferred Bill Richardson for State, but I can live with HRC, as long as she promises to toe the Administration line (i.e., no "going rogue"), and I know she can if she wants, and that she will, as long as Obama's leadership is popular. If that condition no longer obtains, she will split and start preparing to run in a mindless, futile challenge in '12.

Bill Richardson for Commerce (I've also heard Penny Pritzker for it--perhaps Trade Rep?) seems a bit disappointing to me (perhaps to him, too) in terms of being one of the less critical and central positions, but it is one that this expert schmoozer should handle well. We should review his history of policy statements on trade; once again, he should be expected to follow Administration policy, unclear as it may be on this particular issue.

A few other comments on the selections: I very much buy the argument that Obama should get exactly the people he wants, as long as they can survive the vetting-and-confirmation gauntlet, and we should swallow our narrow criticism. I think Janet Napolitano was a very good choice for Homeland Security, Robert Gates (in the short-run) superb for Defense--he has really impressed with his willingness to be his own man in the unitary Bushite executive, and he should have whoever he trusts most as Attorney General (so, I guess that's Eric Holder). Chris Dodd should be near-disqualified for resigning and taking a Cabinet position because there's a Republican Governor in Connecticut.

Last Bits
My position on Joe Lieberman has been consistent for years: I don't mind Lieberman being considered a Democrat, as long as I don't have to listen to his boring speeches. Chairman of Homeland Security is probably a good place for him toward that purpose.

Obama needs to put forward his policy on exactly what type of auto bailout (from what I've seen, it's one heavily oriented toward demanding commitment from the automakers that they will move to a new paradigm of autos produced, featuring plug-in hybrids). If he does, he can still get it, sooner than his new Adminsitration, and it will help rally the markets. That is, of course, unless Dubya digs in his bootheels and vetoes it, to his everlasting shame.

Palin in '12!

We be Palin'.

In the increasingly hostile internecine battle in the Republican Party--they look almost like Democrats, these days!--we have to side with the base purists who look to Sarah Palin as their standard-bearer for 2012.

A Palin-Huckabee ticket would be a very pure expression of social conservatism, and it would be a voter-friendly, not an angry, expression. It won't play well with the Bushite party Establishment, but they've earned their ticket to nowhere. As in, who cares what they think? Karl Rove, this means you.

Yes, it should lose--big time, 45-47% national vote kind of support, kind of Bob Dole-ish--unless the Obama Administration falls flat (and I see only one reason why it would: the impossible nature of the combined domestic and international challenges it will face).

I suppose there is some sort of moderate, 21st-century expression of opposition to the rampaging Democratic majority that could emerge, though I can't imagine why people of that persuasion would choose the Republican party as its vehicle. Nor do I see them taking on Obama & Co. in 2012; if they were really smart they'd wait until 2016.

Bailout: FAQ Revisited

I thought I was done ranting about Bushite Misrule, but there's at least one more bone I have to pick and bonk them with.

Before (Sept. 23, the day after Secy. Paulson announced the outlines of the original bailout plan), we addressed these questions:

1) Who is to blame for this mess?--Answer: Originators, RATING AGENCIES (thoroughly confirmed through the hearings), Investment houses, Consumers of the securitized mortgage products, and all us folks chasing those extra 20 basis points of return.

2) What should be done to keep from blowing the taxpayers' huge investment? I argued that Treasury should spearhead a revolutionary change in the risk management of the practice of mortgage securitization, and that "what we can and should expect from this exercise is that there will be a functioning market for this stuff, that it will be priced properly for its risk and that the risk will be better understood. We can expect that the most egregious actions will be punished, and that our initiatives will make a recurrence impossible and that the Bile Bubble will not simply be pushed onto the next weak spot in the financial industry." More on this later.

3) What legislation should be passed right now? OK, I advocated for the bailout, and in the terms requested, though the amount of money to be spent by the Bushites needed to be severely limited.

Now, Hank comes back to us to say that actually buying the mortgage-backed security assets, the "toxic sludge", in order to build a market for them and allow the banks to eventually pass them through their constipated systems, was "too slow". Or too hard (as in, constipated hard and it would take too long to figure out the appropriate laxative).

Instead, Paulson listened to those who said the banks simply needed an infusion of capital. It's true that there were many leading economists (including our new Nobel Prize winner, Paul Krugman) who said this would do the job. I didn't get it, but I'm not expert on banks' capital structures (as I am on toxic sludge). The way I saw it, giving the banks more capital just meant they weren't so badly under-capitalized for the assets they had. Whatever; clearly--as we are seeing--it didn't clear out the hardened sludge blockage and get the banks' bowels moving again.

So, here we are. Paulson & Co. have picked their winners and losers--the winners get assistance, the losers are swallowed up. $300 billion later, and it's time to come back and note that their mission has changed. At least--I think--they won't be given license to spend the rest of it.

It will be left to Paulson's successors to apply the power of the federal government to force out the information and bring to bear the discipline necessary to crack this problem. It's still needed.

The Bile bubble hasn't moved on, but it has expanded--to the auto industry, to credit cards, and now it's moving to high-tech investment.

Note for the proposed auto bailout: I'm in favor of allocating $15 billion or so. It should have one--very thick--string attached: the money should be used, exclusively, for development and rollout of workable plug-in hybrid vehicles. If the auto companies don't want it, they don't have to (though they do have to make their fuel efficiency targets). We saw earlier this decade the huge bump Toyota and Honda got from coming out with improved fuel-efficient cars; this next bump could belong to one or more of the Big Three, if they've got the brains and guts. If they make satisfactory progress, the cash flow will take care of itself.

Getting it Right on Missile Defense

CNN has just reported that Obama has rebuffed the argument that the rightist Polish PM made that he (Obama) will continue the missile defense system deployment in Poland.

Obama's spokesman stated that he has not changed his position: that he may deploy it once the technology is workable.

This is a good start toward defusing a ridiculous tempest about nothing that was developing with respect to Russia and this missile defense question.

I've posted on this before (http://chinshihtang.blogspot.com/2008/10/who-will-defend-us-from-star-wars.html): the argument about protecting Europe from Iran is phony; it's a provocation to Russia, and an unnecessary one because everyone knows the damn thing don't work. And, even if it worked, it wouldn't work.

I suppose someone will criticize Obama for "letting the cat out of the bag" that it doesn't work. Unfortunately, the bag is wide open and the cat can get out anytime it wants. Poland shouldn't depend on it--for anything--Russia will no longer be able to use it as an excuse for provocations of its own, and--hopefully--we'll save a few billion a year that we'd otherwise totally waste.

Thank you, Mr. President-elect!

Nebraska Pitches In One EV

I saw this tonight--click on title for link to the daily kos article.

One of Nebraska's Congressional Districts has been declared for Obama, which will earn him one additional electoral vote and bring him to 365.

Nebraska and Maine are the two states that allocate electoral votes to the winner of each Congressional district, with two going to the statewide winner.

I advocate this change for all states, particularly those that are not swing states, as an attempt to make Presidential elections a bit more democratic and less subject to manipulation by state election administration authorities. It's a small reform compared to what I really advocate, which is the abolition of the institution of the Electoral College in its entirety.

I posted on this previously--see "Anxious in NM", and a more lengthy discussion last month on 538.com: http://www.fivethirtyeight.com/2008/10/omaha-nebraskas-one-electoral-vote-is.html

State of Play

To start, here is an extract (I did my best to edit) from the Rasmussen Markets web site, showing the most actively traded issues today:

Issue Bid Ask Last Change

08.SENATE.DEM.51-55 32.0 40.0 32.0 0
AK.SENATE08.DEM 42.0 52.0 49.9 +4.9
08.SENATE.DEM.56-60 60.2 65.0 60.2 -7.7
MN.SENATE08.DEM 30.1 35.8 35.8 +0.9
08.VOTER.TURNOUT.>60% 10.4 11.4 10.4 0
MISSOURI.REP 95.1 98.0 95.2 -0.8

I will now interpret these.

The most interesting question is whether the number of Democrats in the new Senate will be between 51-55, or between 56-60. My interpretation of the status of the "independents"--Lieberman and Bernie Sanders--for this purpose is that they are not counted as Democrats, though there doesn't appear to be anything on the site that officially says, one way or the other. However, if either were considered a Democrat, they would definitely have 56 or more, what with the decision for Merkley in the Oregon race.

The quotes suggest that more people feel the probability is with 56-60 Dems, meaning that one of the remaining races (Georgia, Alaska, or Minnesota) will go to them.

In terms of my bets, I went with both in the stretch run to the election, about evenly, as I saw that 55-56 (as defined here) was right at the cusp of where things should come out. On Wednesday, I upped my stake on 51-55, and overall sentiment was shooting up on that one. It has since corrected downward, so I'm now in a slightly losing position on that one. I got whipsawed, a bit.

Turning to one of the cases, Minnesota Senate Dem at 35.8 (bid 30.1; ask 35.8; last trade 35.8) means that Al Franken is currently given about a one-third chance of winning. The large gap means that sentiment in his favor isn't that strong, though the last trade was on the high end of the gap--probably someone closing out his position against Al. On the other side of the fence, the less-traded one, the bid for Coleman's winning is 63.2 and the ask 69.9, last trade 69.8, which means roughly the same thing: there isn't a strong reason to take a position either way, because it's so close it's hard to be sure how it's going to come out.

I really sat on the fence on this one, on Rasmussen. I had a small position on each side (I bought a few shares of Coleman a week or two before the election, when sentiment was running very strong Franken would win--I didn't believe it), and was looking to perhaps make a buck by trying to buy low and trading off at some point. As far as guilt about "buying Coleman", frankly he isn't that awful, just kind of phony, and I thought Minnesotans would go for the guy they thought "more serious" in the end.

Voter turnout >60% was one that I did bet on, not too heavily, and looks like a loser. It's close enough to that total, or at least is perceived to be so, that the number is at 10, not way down at 0. I could close out my position and take my loss, but it's not significant for me. My expectations for a high turnout were not fully met.

Missouri Rep.--"the market" gives about 95% likelihood to the Republicans' winning that state. With about a 6000-vote margin right now, presumably just waiting to complete absentee ballots and so forth, that seems reasonable. I never had any skin in this game, at least since July or so, as I expected a Republican win and didn't want to profit from it.

As for the other two races of significance that could be bet upon--Alaska and Georgia--I never had any position. I didn't trust the Alaska voters to throw Stevens out--correctly--nor did I expect Georgia voters to throw out the nearly-as-infamous Saxbe Chambliss.

For the record, there's a huge bid-ask gap on Alaska Dem, 42 to 60 (except for one lonely seller at 52)--not much betting support for Begich at present, and there's some support on the Stevens side at 50-55% (and some resistance at 70% or so). It's close to 50-50, but the market is unstable. Georgia's a very different situation--stable at about 80-20 in favor of the Republican, but a runoff seems near-certain, so this one will not be resolved for a month or so.

If Alaska ends up with Stevens and Minnesota with Coleman, then the probabilities on the Dem 51-55/Dem 56-60 question will end up riding on the outcome of the Georgia runoff (and should switch toward 80-20 in favor of the lower number of Dem seats). Based on that expectation, I'm holding on to my longer position for the lower number.

The House may have several seats yet to be decided, but 95% of the probability on Rasmussen lies with the range 251-260 Democratic seats. That's the one I had bet on, actually.

Rasmussen will go on beyond the election and its aftermath, I think, though it may need to find some other items for people to bet on to maintain interest. My initial stake of $10k was halved back on Super Tuesday (poorly-timed bets by this newbie on the California and New Mexico primaries, as I recall), and I've gradually worked it back to near where I started. I had small wagers that won on states like Ohio, Indiana, and North Carolina--I didn't believe but wanted to profit if Obama could pull them out--and a much larger, more successful one on Nevada, where I did believe. I made a bunch on Obama--mostly from early days, when I "bought him" at 30% or so, and betting against McCain--I was short on him averaging about 30-40% (I increased my stake in September when he briefly got up to 50% or so), but most of those gains were "marked to market" and showed up in my account a month or so ago.

My success on CNN's market game has been much greater--my $5k is up to $12k, and I'm in the top 3% of traders--but the interest level is lower. The markets there always had a heavy Democratic bias, so I was mostly reduced to shopping here and there for bargains (again, I did well betting on Nevada). I did OK on some of the individual House races, but missed a few as well. There are no open markets, so I suspect CNN may shut it down (rather than open betting on, say, who will get Cabinet posts).

What Now, My Love?

Now that the election is over, my blog will need to find a new focus (and I, for it).

I'm thinking about starting to rant on a regular basis about our litigious society. Forty years after George Wallace's third-party run and Nixon's own rants, we've got plenty of "Law and Order" (even a TV show by that name), but not much effort being expended toward justice.

Legal types typically confound the two (or three), and the government even has a Cabinet department by that name, but they are not the same thing. Justice is when equity prevails. What is prevailing now is the power of money and job security for lawyers. Also for correction officials, construction of jails, judges of various levels of seriousness and specializations, and, worst of all, TV programming about all this wasted effort.

It's Over: Hurrah! and Hallelujah!

As often happens, the Electoral College magnified a narrow Popular Vote majority, so it looks like a landslide. Here are my predictions (posted as a comment for Huffington Post's competition) with the current state of affairs:

Obama 318 McCain 220
It looks as though Obama will end up winning 364-174. I missed on Ohio, for sure (was amazed it was called so early), Indiana (in the biggest surprise of the Presidential contest, a very narrow win) and, it looks like, North Carolina. The polls were surprisingly accurate, on the whole, and my discounting of them was punished a bit.

Popular Vote: Obama 51.3 McCain 46.7 (rounds to 51-47)
The number I'm seeing is rounded to 53-46. Approximately a five-percent shift--one in 20 voters--from 2004's 51-48 Republican edge, and it moved all these nine states: NM (15% win!), NV (12% win), IA (9%), CO (7%), VA (5%), OH (4%), FL (2%), IN (1%), and, if it holds, NC (0.4%).


Senate: 56-43-1 (Lieberman not counted as a Dem, Bernie Sanders yes)
The six-seat pickup for the Dems I predicted looks about as good as any estimate at this point. Definite wins were CO, NM, VA, NC (bigger win than expected!), and NH. Democrat Merkley has a microscopic lead in OR, but Franken trails by even a smaller margin in MN, GA will be a runoff but with Republican Chambliss the favorite, and AK somehow seems to be going for Stevens, very narrowly. It makes you wonder what a Republican has to do to lose in Alaska. Unfortunately, Mitch McConnell held on by a 52-48 margin in Kentucky, the sly dog.

House: 257-178
Right now, CNN has it 254-173, with 8 undecided, so that estimate also looks as good as any other. Our state of New Mexico went from 1 of 3 Democrats to all 3. The shocker was in the Southern district, heavily Republican, which had Democrat Harry Teague pull out a 10-point margin.

Minnesota Senate: Coleman 46 Franken 43 Barkley 11
It's likely, but not certain, that I at least picked the right winner. Current results round to 42-42-15.

Overall, a good night, in terms of results and of predictive accuracy. We are celebrating New Mexico's moving from a total swing state to a thoroughly blue state: Besides the 15-point win for Obama, we now have two Democratic Senators (Udall winning by 20+ percent), a Democratic Governor, and 3 of 3 Democratic Congressmen.

Locally, Taos County went 82-17 for Obama, 13,327 to 2,824, exceeding our expectations, and the highest percentage win for any county in the state. Yeah!

Alternative Futures, Echoes of Pasts

Some astute commentators have pointed out that McCain's campaign looks toward the past, while Obama's looks to the future; further, that the future-oriented Presidential campaigns win.

While all of that may be true, I'd like to look at the other side of the argument.

John McCain and Our Future

Beyond cutting pork out of our governmental diet, victory with honor in Iraq, and making permanent the Bushite tax cuts, what are the real proposals, and what is likely to happen if McCain wins?

There's the spending freeze, which I will give some credit to McCain for coming up with during the debate when both candidates were challenged to name something they would cut to deal with the economic crisis. The only two problems with that idea were that the exceptions (military, veterans, and a few other programs, not to mention the entitlements) pretty much cover all the major spending areas, and the second is that Congress is supposed to legislate expenditures. True, McCain could choose not to spend some money that was allocated on certain programs if their budget authorizations were not written such that the President was directed to spend all the money. Cosmetically, it's an attractive idea, but not one that is going to bring the budget into balance.

There's the health care initiative, which if I understand it right, would require a Congressional approval of a tax credit for purchase of health insurance, which would be offset for many by taxation of health care benefits received from employers. I can't see that one going anywhere.

Neither is there any chance for extending the Bushite tax cuts, barring some shocking reversal in 2010 putting the Republicans back in control in the House. My understanding is that legislative action would be required for them to persist, which is part of the beauty of Obama's promise to increase the taxes for the highest earners--he need do nothing for that part of the tax plan, and woe to those who oppose the tax cuts for the middle class.

In fact, there are hardly any initiatives John McCain would be able to get through a heavily-Democratic House or Senate. He would be in the position of reacting to legislation generated in Democratic-led committees. He could bring out that crusty old pen and veto everything, and most of those vetoes would stick--if, and it's a big if, he doesn't alienate his own party's Congressional caucus too much.

There might be a chance for a couple of bipartisan initiatives: a watered-down cap-and-trade system on greenhouse gases (in his version, polluters would be grandfathered to current levels), approval of defense budgets no one dares oppose, and supplemental appropriations for Iraq and Afghanistan (similar argument, a la Bushite Misrule), maybe even a new stab at funding Social Security and Medicare (if he doesn't alienate either party's caucus).

This scenario--governance through lack of action--actually does appeal to many Americans as a way to restrain our elected representatives from going overboard. In a time of strong growth, when inflation might loom large, this would make more sense. With deep recession all around, though, this negative vision hardly excites anyone.

Obama and the Past

On daily kos I posted a poll, way back on September 14, on the closest parallel in US election history to the current one. The clear winner was 1932: FDR's win over Herbert Hoover was the election readers of my diary selected as the one most like this one in its framing and result. I was somewhat surprised by that result, but as the days passed the group's wisdom has become more apparent--both the severity of the economic crisis as backdrop, and the possibility of a landslide.

1992 also recommends itself--a Bush goes down, "it's the economy, stupid"--and it's recent enough that most of us may actually remember the event. Both 1992 and 1932 were wins over Republican incumbents, not the case here.

I remember 1976, where Carter defeated Ford. Technically, Ford was the incumbent, but like this election, the hapless Republican candidate was really only the repository of the anger at the failures of his predecessor. As I've said before, Obama would do really well to speak at length with Jimmy Carter. I understand why he wouldn't have done it before the election, but (assuming he wins, of course) now would be the time.

In 1828, there was a call for vindication after a stolen previous election: John Q. Adams had taken it from Andrew Jackson in the House of Representatives (basically, due to the assistance of the 3rd-place candidate in the general election, Henry Clay). If/when Obama wins, there will be a similar feeling of redemption to Jackson's landslide in 1828. The difference being, of course, that it was really the 2000 election that was stolen, the vindication should've been in 2004, and it should've been Al Gore (or maybe Hillary Clinton) running.

One election I omitted from my list of 10 or so elections to consider for comparison in my poll (including a couple that Republicans won) was 1860, when a lanky, transplanted Illinoisan came from political nowhere to capture first, the nomination, then the general election, in a bitterly divided nation. This one, I hope, will be different in the follow-up: though I do expect some nasty sentiments to be expressed among the supporters of the losing candidate, I don't expect immediate calls for secession from the Union.

For those who expect Obama to parallel Lincoln's Team of Rivals, I'd point out that the only Democrat named to his cabinet was Navy Secretary Gideon Welles, that he was basically a token, and it was mainly his rivals for the nomination that Lincoln invited in (still a break from tradition). Biden he's already taken care of--look for Richardson, Dodd, and Hillary to get invites (also Kucinich, maybe?), and a variety of Republicans. Most of the Republicans and Hillary will decline; I'm thinking Richard Lugar may take a senior job.

Finally, for those who believe in the parallels with the Roman Empire (I'm one, for sure), I recommend consideration of the ascension to the royal toga of Emperor Hadrian, the first non-Italian-born ruler of the Empire. OK, Obama was born in the US (contrary to some stupid rumor-mongering I've seen on the Web), but it was Hawaii, and he is ethnically quite different from all the white European males who've preceded him (again, I've seen some pretty crazy Internet postings suggesting there have been three or four predecessors with African-American blood). Hadrian was actually the third of "the good Emperors", whereas, at best, Obama would be the first (Nerva was the first "good one", according to the history books). What I'm hoping is that he won't be the last.

Poised at The Edge of History

That is our guy, for sure. Obama is in a position to make history, and he sure is poised. I feel he is entirely worthy of the position he is in, but I'm not quite as sure about what will be the content of the history which is to follow.

We are going to be disappointed, that is for certain. It's best we accept that now and come to terms with that reality.

If he doesn't win, though, there is going to be major strife. The effort to dampen expectations on the size of his lead has largely failed; our hope is that no one dares meddle with the result, not that no one is able to do so.

Filling the Straight

Several pundits have suggested that McCain's attempt to win Pennsylvania, and thereby the election, is the electoral equivalent of the losing poker play, trying to "fill the inside straight".

It's actually worse than that: McCain is trying to get a straight in draw poker with the 4, 6, 7, drawing two cards. Getting the unlikely "5"--Pennsylvania--would still require him to get a 3 or 8 to win.

Here's why, and starting from our 291-200, with 47 (FL/OH) toss-up scenario. McCain would have to do all the following, starting from the most likely:
1) Win all those states like MT, GA, ND that he should be winning and is narrowly ahead.
2) Win those three big perennially-red states that I call "leaning McCain"--IN, NC, and MO--but are polling about even.
3) Win both Ohio and Florida, the two (large) states that look like true toss-ups to me still today. They are historically close, both parties have fully mobilized, and the polls are consistently close this time around, too. Both have shown narrow leads for Obama in recent days, Ohio's maybe a tad larger, but somewhat more unreliably.
4) Win Pennsylvania. The polling gap has closed from safe Obama to slightly nervous Obama--a lead of about 7 points, just about the margin of error in these polls.

All four of these successes would leave McCain at 268 Electoral Votes, to Obama's 270. McCain would still need:
5) To steal a state which has a lead for Obama larger than the margin of error. Most likely candidates would be NV, VA, CO, or NH.

If it were just 5), this would hardly be impossible--probably a 25% chance for one of them. However, winning Pennsylvania is about like drawing a '5'--a 1-in-13 chance. Combined, a 1-in-52 chance, about 2%--it makes the 9-10% odds for McCain on Rasmussen or CNN Markets look way overstated.

As for the cards, getting a '5' and a '3' or '8' (independent of the cards already dealt out) would be a 1/13 * 2/13 * 2 (cause the order could be either). That's 4-in-169, or about 2.4%.

Breaking News! It's Over, except for Measurement Error

We have to yield to consistent polling results and move VA and CO from our toss-up status to likely Obama states. This makes the projected result 291-200 Obama, with OH and FL (47 Electoral Votes) as toss-ups.

The more detailed assessment would be: Solid McCain 163, Leaning McCain 37 (NC, MO, and IN); Solid Obama 259, Leaning Obama 32 (NV, VA, CO, and, pending more polling results, NM, which I have been somewhat surprised Obama hasn't put away already).

Of the leaning McCain states, NC may be more of a toss-up than the others, but I am unconvinced.

Those who are showing Obama with 350 or more electoral votes are giving too much value to polling results that don't even show a margin greater than the quoted error of their samples.

There is still the question of polling measurement error, whether due to false answers from polled individuals, improper weighting, or voter suppression/turnout estimation errors. This is pretty much all that McPalin can rely on, as they aren't going to provide the winning surprise, either in October or November.

The popular vote estimate seems to be converging between 51-47 Obama and 52-46. Roughly, Obama and McCain are winning 90% of their party supporters (about 40-33 Democrat) and splitting the 27% of those thoroughly unafilliated with either major party about evenly (2% going to 3rd party candidates).

This compares favorably with the 51-48 result for Bush over Kerry in 2004, and the Electoral Vote margin should also be expected to be a little wider than the 286-252 margin Bush got.

This will be my final forecast before Election Day. I may adjust it that day if there's anything new.

Going Downmarket

After Colin Powell's endorsement surprised and cheered me on Sunday's Meet the Press, I heard something from Andrea Mitchell later on in the program that disturbed me. She reported that the Obama campaign is sinking $5 million into organizing West Virginia's Get Out the Vote (GOTV).

First, I am humbled by the brilliance of Obama's campaign, almost to the point where I realize I almost dare not criticize any move they make. Quite simply, it is the best-run campaign in the history of American national elections.

Almost, anyway. This decision sounds like an over-reach to me.

It's not that GOTV in WV, in principle, does not make sense. If WV's 5 electoral votes were competitively in the same situation as NM's 5, I would say, yes, rent 1000 vehicles and snake them through the state's treacherous roads, find those supporters in the hill and mill towns and the hollows and drive them in to the polls.

They aren't, though. One could make a theoretical argument that, because of its relatively small population, GOTV could turn the state and make the difference in case CO, FL, OH, VA, and NV all fail to come through (any one of them, given IA, NM, and loss of no states Kerry won, would be sufficient). Much more likely, though, if WV were truly in play, Obama would already have most of those, plus maybe MO or NC--with polling results better for Obama than WV--and what we'd be talking about is the difference between something like 360 EV and 365. Which is no difference at all worth talking about.

Yes, West Virginia is legitimately part of a 50-state strategy, and perhaps the polls have shown the state within the margin of error, now at the peak of Obama's margin (I expect it to contract 2-4 points from here). It's not worth $5 million of his contributors' money, and I don't believe for a minute he's going to win there.

I feel particularly strongly so since there is no doubt about the Senate race in WV, either--Jay Rockefeller's ahead by 20 points or so. I'd rather the Obama campaign slipped the $5 mil to Democrat Bruce Lunsford in KY, or even put it into NC, where Obama's got just as good a chance (better) of winning the state, and where his campaign's organizational capabilities could make a difference there in an extremely close Senate race of major importance to his ability to govern effectively. Even GA would be better (and I know Obama's put a lot of effort into it).

Obama's campaign may feel they have reached saturation in all the true battleground states, but somehow I doubt that, too.

Senate Races

How many seats will the Democrats get; will they make it to 60? This is the planned sideshow in the event that, on Election Night, Obama clinches victory early (which is exactly equivalent to VA, NC, and/or FL going clearly for Obama on exit polls and early results).

The question is very much like the one that dominated Election Night in 2006 once it became clear that the Democrats would take control of the House of Representatives: would they get to 50 in the Senate?

I have to admit I was wrong about that one, though I was right that it wouldn't make that much difference if they did. 51-49 wasn't enough to be able to get anything done; however 56-43-1 and a Democratic President (my prediction; counting Bernie Sanders but not Lieberman in the majority) should be, as a little compromise will bring a couple of liberal Republicans (and/or Lieberman) along to vote for cloture.

Here are my rankings of likelihood of pickup in the Senate seats where there's a chance:
1) New Mexico--practically a sure thing at this point;
2) Virginia--Mark will keep the seat Warner.
3) Colorado--Mark Udall has pulled away toward the end and looks as though he'll join cousin Tom.
4) Alaska--Stevens still has a chance if he gains acquittal before the election; looks dubious.
5) New Hampshire--Jeanne Shaheen is the most popular home-grown politician in the state; John Sununu isn't.
6) North Carolina--I'm expecting this to be the biggest win of the night.
7) Minnesota--it's a 50-50 proposition at this point; the third-party candidate is helping Franken's chances.
8) Oregon--ditto Minnesota.
9) Mississippi--this would be a very exciting win if it happens (I'd say about 33% chance)
10) Kentucky--this would be even more significant, defeating the Minority Leader Mitch McConnell would be a total disaster for the Republican Senate morale (25% chance)
11) Georgia--this would be a huge moral victory for the Democrats (beating the guy who slimed Max Cleland in 2002), but is unlikely.

The Democrats would need to win ten for a Lieberman-proof 60-vote majority, so it's a huge longshot. My guess is they will win 1-5, and one of 6, 7, or 8. Because third-party candidates usually lose support in the last few days as people get practical, I expect the Republicans' chance to be improving in MN and OR as we go into Election Day. A six-vote gain in the Senate campaign would be a major win, particularly since it appears once again the Democrats will not lose a seat they currently hold (and, a little-reported fact, this year the Democrats had the most seats to defend).

On Rasmussen, I've split my bets between 51-55 Democrats and 56-60. The latter is by far the more popular choice these days, but I don't think all bettors are considering that Sanders and Lieberman shouldn't count toward that total. A six-seat pickup should mean 55 Democrats (from the 49 "pure" ones they have today).

I will take a stab at a House prediction before Election Day.

Two Good Ones

I've been lucky enough to attend two excellent rock concerts in the past 30 days. What makes them unusual is that each was considerably better than my already-high expectations.

David Byrne (Kiva Auditorium of the Albuquerque Civic Center; Sept. 28) billed his concert as playing the "songs of David Byrne and Brian Eno". Although he did pull a chestnut or two from their old album of the '80's ("My Life in the Bush of Ghosts"), and there were a couple from a new release, called "Everything That Happens Will Happen Today" (and how can one dispute that argument?), the real thrust of the concert was re-creating some of the Talking Heads' supreme performances of the '80's, "Stop Making Sense" era.

"I Zimbra" came early, signaling that Byrne & Co. (good, sizable backing band) were bringing the good stuff. "Life During Wartime" and "Crosseyed and Painless" were two more selections from that period, both performed as brilliantly as one could hope. Byrne also played a couple earlier THeads numbers that were shown in Jonathan Demme's aforementioned classic concert film, "Heaven" (not the a capella duet, though) and the original big hit single, Al Green's "Take Me to the River".

For those who caught that classic tour (I'm thinking 1983), this brought back wonderful memories. For those who missed it, you may have another chance. Byrne has ruled out reunion with the other Heads, but this is a more-than-satisfactory alternative. I hope I haven't inappropriately spilled the beans about his somewhat false billing.

The Kiva Auditorium itself was a pleasant surprise as a venue to see a performance. Maybe 1500 seats, and all of them good ones. For intimacy, though, the Conor Oberst show at KTAO's performance tent here in Taos has it far beaten.

Oberst is also known as Bright Eyes, and he has shown himself to be a bit of a shape-shifter, taking on a variety of forms and an even greater variety of sidemen. With his last Bright Eyes album, he announced that the Bright Eyes membership was permanent. So, naturally, he's thrown it overboard and recorded with a whole new group, which is called the Mystic Valley Band.

Oberst is a native of Omaha, but he spent much of the last 10 years or so in New York, playing the indie clubs and making a great name for himself while writing and recording proficiently. In "Cassadaga", his last B.E. album, he hit the road and recorded folk-influenced songs of Americana. His newest album, titled simply "Conor Oberst", follows on that track.

Oberst is often compared to Dylan, and there are many reasons why. His upbringing in the midwest, his early emergence, his love of the road and performing, his incredibly profuse output, his stinging lyrics, mastery of a variety of modern musical formats, and the list goes on. I think he also shares that love-hate relationship with fame and the crowds (such as The Band described about Dylan in "Stage Fright") which could also be called Kurt Cobain Disease.

Oberst seems to have chosen the path Dylan walked, mid-70's Rolling Thunder Review. At KTAO, he even wore a very similar brightly-colored fedora-with-a-band-and-feather, which he messed with quite alot on stage.

The songs were mostly from the new Oberst album, though there was a mysterious EP release on sale at the concert (for $20 or so; I had to pass). He also played a Dylan song, "Corinna, Corinna", and the Paul Simon rocker "Kodachrome", which set up his rousing encore finale, "I Don't Want to Die in the Hospital".

Oberst's voice has matured and no longer wavers the way it did (or, perhaps, the way he chose to make it do) on past studio albums; it was potent and dynamic. His band was thoroughly committed--a heavy Southern rock influence, but with some quality keyboards. Oberst mostly played acoustic, focusing on enunciating his rapid lyrics, and let them perform the complex instrumentals, though keeping a close, "bright" eye on it all.

I won't say that every song killed, but by the end, everyone walked away thrilled, fulfilled, and amazed at the miracle of his coming to this little town to play for a few hundred souls, in a tent with insufficient acoustics, in the back of our town's solar-powered radio station.

Proposed Rasmussen Markets(TM) Contracts for Tonight's Debate

Over-under on the number of minutes into the debate when the first reference occurs to William Ayres--either by name, or directly to him.

Odds (0-100 scale) on a candidate showing his fist to the other: McCain/Obama/Both/Neither

Over-under on how many minutes before McCain allows some sort of eye contact (including never).

Warning: Extended Boxing Metaphor

Who will get in the nastiest hit? McCain/Obama/"Field" (includes moderator Schieffer)

This last one goes all the way from the rhetorical, through the psychological, all the way to actual fisticuffs. It is interesting and indeed possible to consider the hypothetical boxing matchup between Barack "Ali" Obama and "Smokin'" John McCain. I would think McCain is one of those guys who goes in with both arms flailing, not heeding the jab-jab-jab or even the telling combinations Obama might throw. Of course, McCain'd be set up for the right cross, Ali's famous hidden blow that felled Sonny Liston in their rematch in Maine.

The political version of a right cross would be.....

This is the third round of a three-rounder. In the first, Obama came out swinging, McPalin countering with some surprising footwork and a hard right. Round even.

In the second round, McPalin came out cocky but got hammered steadily. They feebly tried a few low blows but didn't throw Ali Obama off his stride. More than once, they were flat on their backs looking up at the bright lights. Another half-minute and the ref would surely have called it.

In the third round, Obama has a massive lead in points. He can easily dance and dodge, jabbing just enough to keep McCain from scoring any body blows. The temptation will be to put him down when he comes charging in, but he must resist a move that shows a vulnerability: so far McCain's barely laid a glove on him.

Let's Get the Jack of Diamonds

That would be Mitch McConnell. Apart from Condi, he's the only face card in the original Bushite deck still around and actually able to pull some weight.

I know it's a long-ish shot, but it would mean so much.

The big question is whether Obama should get actively involved, or whether to let the Democratic candidate, Bruce Lunsford, try to run it as a strictly local affair. Best probably would be if Obama campaign throws a little money his way but mostly keeps out of it.

In my favorite card game, Sadistic Whist, the J of D is the only card that gives "good points". McConnell is a wily, committed, pragmatic hardcore opponent that it will be essential to take out in order to fracture the Republican party into little bitty pieces. Which is what we are after.

Ranking Likelihood of Change: Rasmussen Markets

Here are the top 10 states, in terms of Rasmussen Markets' likelihood of a change in control vs. 2004:

IA	87	13
NM	85	16
CO	83	17
NV	74	31
VA	73	26
FL	72	27
OH	69	31
MO	61	39
NC	53	45
IN	46	55

Obama and the Past

Poll

Which Historical Presidential election does this one most resemble?

	1828: Jackson sweeps out the deadwood
4%	1 votes
	1876: Reform postponed and the Presidency brokered
4%	1 votes
	1960: A rising star breaks through after a stagnant decade
14%	3 votes
	1976: Revulsion at Republican failures ushers in a newcomer
9%	2 votes
	1988: Republicans hold on despite desperately bad administration as Dems fail to strike convincingly
4%	1 votes
	1992: It's the microeconomy, stupid!
4%	1 votes
	2000: McCain is trying to pretend the last eight years never happened, right?
9%	2 votes
	2004: Swift Boats are a-comin'; better hurry, hurry, hurry, home
0%	0 votes
	1932: Dubya will join Hoover as least appreciated Republican
47%	10 votes Although this Daily Kos poll--from September 14-- had few votes, I think it's right on target. Also, it was ahead of the polls and the trends (i.e., before the financial collapse had gone so far). The 1932 and 1960 references now predominate over those from the more recent elections. Clearly Obama is on the verge of a victory of historic proportions. With regard to '60, I disagree with those who say Obama is unworthy of being compared to the likes of John Kennedy. And the Hoover/FDR notion is quite exciting; those who look into it will realize how modest were many of the vaunted New Deal programs compared to what the government seems to be undertaking in these days with our involvement in the Insuro-Banking Complex. I also like some of the parallels with 1828 and 1976, though. Barack Obama, meet with Jimmy Carter. Please. Before January 20th.

Electoral Map Update

We project no change in the ultimate electoral college tally going into Election Day:
Obama 269, McCain 200, 69 up for grabs.
Those 69 are in only four states: FL, OH, CO, and VA.

163 Electoral Votes for McCain and 264 for Obama project to safe wins of 6 or more points (ranging 53-47 to 51-45 or better, depending on the third party votes). These today have margins a couple points better than the 95% confidence level today, or more, in most of the polls and thus would be difficult to reverse.

We get from those 427 to 538 with 69 tossups in four states, as above, three states with 37 votes leaning to McCain (IN, NC, and MO), and one state with five leaning to Obama (NV).

It looks to be a good night for watching and celebrating. The early focus will be on VA, FL, and OH--if any of them go early for Obama the game will be called soon. More likely, they will be close, and tense, which will bring the Western states' importance forward (as the late-night did in 2004, though they didn't ultimately fall for Kerry). Still, Obama should have a clear lead throughout.

None of the states with the 264 Electoral Votes clearly favoring Obama looks particularly weak. NH, PA, WI, MN, and MI have all firmed up. NM and IA are both on winning arcs for takeovers.

Correcting for DDE and Other Effects

Far as I can tell, the David Duke Effect is different from the alleged Bradley effect, in which white people would tell black pollsters they were undecided when they actually planned to vote against Tom Bradley (LA mayoral election, 198?). What I'm thinking of is people who say they will vote for Obama but will actually vote for McCain, minus those who say they will vote for McCain but will vote for Obama. My reference is to David Duke in the LA governor's race--a primary?

I would argue that the net effect in the national election is not zero, and that it is almost surely positive (DDE>0) in most states. I would suggest it is in the range of 1-3%, and 2% nationally.

3% is big. It turns a 51-47 Obama lead into a 50-48 loss. So states with margins like that and high potential for DDE can not be considered secure for Obama.

Another way to put it is inertia vs. demographic change. The Western states (the clear examples are NM, NV, and CO) are changing toward younger and more inter-racial societies, so we can expect progress over time toward the Democrats. Additionally, African-American populations in these states are relatively small, and not carrying so much historical baggage as in the East. Otherwise, you have to start with the edge to the side defending from the last two elections and make the challenger prove they can win.

Either way, at this point in time (Nixonite Ron Ziegler's memorable "atpit") I choose to disbelieve these small leads for states such as MO, NC, and even VA and FL, the last two of which, if you go purely by the polls, have close-to-statistically significant leads for Obama today.

I believe CO and OH to be states that are winnable for Obama going into Election Day, but he hasn't proved he's won them yet, as he is close to doing for ones like NM, NH and WI.

Ranking Likelihood of Change

The rank order statistic is one of the most stable measures out there. Excuse me, it is the most stable; for example, one can use it to do a much better job than trying to establish the center-point of an unknown distribution. So, it's very clear which states are the most likely to change over.

At one end, this is totally not interesting. Who cares whether Utah, Idaho, Massachusetts, or California is the least likely state to change over (after the territorial entity known as the District of Columbia, of course)?

The key point with regard to this election is not the most likely to change--clearly Iowa. The focus is after Iowa and New Mexico. My argument is that it is Nevada, followed by the quartet of FLOHCOVA (pick your order, but this one reads best). One could argue #8-15 of the Most Likely to Change (some of which are former Kerry states Obama must hold) until Nov. 3, but those are not the ones that will end up making the difference. It's 3-7, and how they fall.

Particularly because McPalin is challenging so little in the blue states, the difference among most electoral estimates for this election--whether the person is objective or partisan, or whether his/her model is sensitive to fluctuations or somehow "sticky"--boils down to how deeply we will go down the ranking of likelihood to change. If Obama only gets his top two, he's five short. His top three, he's got to survive white knuckles. Four or five, a clear win, and six or more, a decisive one (300+). If middle-range North Carolina or Indiana or Missouri go for Obama (I'm expecting each to end up for McCain by 1-5 points), it's a wipeout.

Who Will Defend Us from Star Wars?

There are not many policy issues on which I fundamentally disagree with Sen. Obama's positions, but one of them is missile defense. In the first debate, Obama agreed with Sen. McCain that he would go ahead and deploy missile defense in Poland or Czech Republic as an example of things to do to contain resurgent Russian militarist ambitions.

I understand the need to look tough for the voters, and that Russia needs to be confronted at times in order to make it refrain from aggressing against its neighbors. I am just hoping that, once the electoral circus folds its big tent and the near-impossible task of governing this mess begins, President Obama (and, of course, I pray that becomes so) will take a second look at this wasteful notion. And then go further.

The reaction of the Putinites to our plans to deploy missile defense in Poland/Czech lands to dissuade Russian aggression would be...barely concealed laughter. It may not be called the Red Army anymore, but the Russian military would seem to have plenty of ways to knock over those states without launching missiles at them. Like, perhaps, a military invasion, which we would certainly be unable to do anything about.

Back in still-recent days, but before the Georgia conflict, we tried what I'd call "crypto-containment". We had the same nonsensical missile defense program proposal, but with our rationale being to protect Western Europe from Iranian missile attacks, Poland and the Czech Republic didn't want any part of it. Russia suggested we deploy instead in a friendly (to Russia) state that actually does border on Iran, Azerbaijan (they were mocking us). We didn't get the joke.

That one might have made sense, if Iran had any serious deliverable warheads to load on serious missiles (no on both of those) or any reason to attack Western Europe (once again, no).

Or, most importantly, if our missile defense systems actually worked.

Reagan's quaint notion that "it would be nice if we had some defense against nuclear missiles" is really the only active though still driving this colossal boondoggle (except the self-sustaining logic of the expenses themselves). Yeah, maybe it would be. But we don't. It doesn't work.

Even if it did work (i.e., if we could somehow shoot down a missile in flight), it wouldn't work (against a large quantity of missiles, which would be the way Russia would do it). A missile defense system that shot down half of the missiles launched toward us would be a terrific technological achievement--and one that would be totally worthless. Even if our system could work flawlessly in the hugely complex mission of shooting down all the missiles launched, and if we could somehow prove it, deploying it wouldn't work strategically--that would just destabilize the global deterrent system.

So, it's a good thing--in a way--that it doesn't work. We can pretend that it's something serious, and the Russians can pretend they care. So far (since the Georgian affair), it looks as though the right-wing Polish government is willing to pretend it wants missile defense, which must mean it serves some obscure domestic political agenda of theirs.

Fine. Let's install something there that looks like a fancy laser or anti-ballistic missile launcher--we don't actually have to put anything inside the hollow shells that would gleam (verifiably for spy satellites) inside the secure facility. I presume that the whole thing will just be a cover for some covert program, one of actual importance, that requires funds and deniability. If that's what it is, Senator Obama (and I know you're now getting the secret briefings), O.K. Nudge, nudge, wink, wink--let's do it!

Our missile defense program is a government expense area which seems to have no purpose, yet no one blocks it. According to an excellent New York Times investigative report published today and written by Eric Lipton, the U.S. has spent $110 billion on Star Wars since President Reagan (zap!) started it, and today it is "the Pentagon's single biggest procurement program".

Lipton's article told a remarkable story. A couple of mid-level Defense engineers generated hundreds of millions of dollars of expenditure that the Pentagon actually didn't want. When generals tried to point that out, these operatives would sic home-state-pork-protecting Senators on them and resistance would melt away.

Generally, this is the kind of stuff that we need to stop doing. Specifically, this is one program that needs to be killed entirely. When we get some confirmed reports of UFO's with both interstellar capability and really slow missiles, I'll reconsider.

The Health Issue Is An Insurance Issue

When we consider the complaints about our health care system, they generally all get round to the point before long: it's our health insurance system that's the problem, not our health care system. Like our Congressperson, we all like our own doctor, if not the class of people in general.

Nobody is arguing that we need to radically change the standard of health care available in the U.S., though there is a lot of bickering about access to it (and there will always be so, at least until uniform immortality is available at no cost).

Instead, these are the problems we see and hear about: the uninsured because they have no choice, the uninsured by choice, the cost of insurance in general, and for specific groups of people and their families, the sharp upward movement in deductibles and disallowed expenses, the treatment of uninsured.

Some pundits have announced the death of health care reform due to the bailout expense. I say: wrong! The federal government has just acquired the necessary infrastructure to allow it to implement President Obama's health plan, and it did so at a bargain-basement price. It's called AIG.

I may be wrong, but I don't think AIG is a big name in medical insurance today. That doesn't matter, because it clearly has a superior distribution system (sales, licenses, correspondent relationships) for insurance products. If I'm right, the critical ingredient needed to be added to that is medical claims expertise. Certainly something they could hire, but a large part of what they would need to figure out in terms of coverage standards has been done already for the Congressional health plan, which is what Sen. Obama has promised us.

The key things that need to be accomplished in the time between now and Jan. 20 are the following:
1) don't break up AIG! Keep its assets together. Sure, the Board of Directors and such might want to sell off assets to get money to buy down the government share. The Feds should use the voting power of their 80% to make sure that don't happen. Just sell off "non-strategic" assets--and perhaps recover some cash from East Asia by selling those (huge) businesses to investors over there.
2) Transfer AIG's executive oversight from Treasury to Health and Human Services--actually, that can wait until Jan. 20. A good first-day executive order.

There is one more component needed, actually: a health insurance marketing division. AIG and HHS (and whoever is the government's advertising agency!?) will need to work together a lot on how to present the economic argument for their new product to the American people so it looks and feels like a real commercial health insurance product. Only better.

And you know what? It's going to make money. When that happens, a lot of people's long-term gloom-and-doom social models are going to look quite different. There will be a lot of complaining from the competition, but they will adapt or die, as they should.

There will also be some public payoff (utility, and earnings) in such things as flood insurance, and guarantees for infrastructure development projects. 21st-century Government has been forced to stick itself inside the tent (whether one or Glass-Steagalled into two) of the de-regulated insurance and banking industries, and they're in to stay, now.

Anxious in NM

Times are tough in this post-bailout universe, for me as for so many others on Main Street, which for me is just a quarter-mile away (here its formal name is "Paseo del Pueblo", but it's widely referred to as "the Main Drag").

I find consolation in consideration of the electoral map.

Probably the single most fascinating piece of analysis I've read out there on that specific topic was Sean Quinn's interview (to be found on 538.com) with the Obama field guy working Omaha, Nebraska, with its analysis of its implications.

Omaha is a serious part of Obama's 50-state strategy, though the argument for its utility is somewhat farfetched. It starts with a fact that it is not impossible for the Democrats to win the Presidential vote within the Congressional district centered on Omaha. This would actually garner Obama one Electoral Vote under Nebraska state law. (There is a similar, potentially-counteracting situation in Maine with one of its Congressional districts, which could go for McCain though the state as a whole might go for Obama).

The possibility that single vote could be decisive was sufficiently interesting to the thorough (to put it mildly) Obama campaign that the result of the triage analysis for each and every state came out clearly--if misspoken--from Chicago for this one: send someone to Ohama! That's "Omaha", not "Ohama", Obama. (sorry--I couldn't resist!)

In terms of secondary implications, one should note the increase in permutational complexity, and of difficulty in limiting oneself to a small set of plausible electoral vote tie outcomes. Aaugh!

We will now proceed to a review of whether various predictive Electoral Maps are Tootsie Pop, Epoxy, or two very different forms of terra non firma: Swamp Mud or Hot Pots.

I now praise those who recognize uncertainty, but also those willing to make a decision.

You: Rubber; Me: Epoxy!

The visualization of my electoral map is a huge structure which changes shape slowly, with some few discrete shifts in the building blocks but the overall picture resulting to be relatively inert. Think of a stone golem--a beast trampling all before it, with giant, unstoppable movements of mass. The structure holding it together is based on all the sludge: the state polls, pseudo-market indications, national polls, big picture, etc. Not so much on the latest news item, though; that mostly doesn't get through to the underlying infrastructure itself.

Rasmussen has, to his credit, a file one can access to view each change in state grouping since he started it at the beginning of the year. There's about forty of them. I can do better--here's the complete summary of changes up to now I've made in mine:

1) My initial detailed prediction and strategy analysis was on June 14 and I called it "The Wisdom of 245". Obama's strategy should be to find the shortest identifiable route (highest probability states) to 270--plus Ohio, as insurance. (It was Kerry + IA + NM+ CO=273 at the time). Ohio's a state we can win, and winning it would protect against a miscalculation in a smaller state. The Wisdom of 245? We need to contain Election-Day winnable states for McCain to the 245 which remain, or less. Challenge them everywhere and find weaknesses, keep them on defense.

The shocker of McCain pulling back in Michigan now is just the most recent confirmation that this strategy, or something like it, is working. Thanks be to Obama & Co.

2) September 6--McPalin and the Electoral Map--Palin gave the ticket a shot of youth, something like hope for the desperate and disaffected of the party's supporters. The number self-identifying as Republican shot up (but, alas, wound back down when the Economic Crisis burst).

The net effect of the McPalin Surge was to clarify the hold on most of the states for expected winners and narrow the plausible state winner changes to a few. Three shifts in my state assignments, defined as predictions for Election Day morning expectations: move CO and OH to toss-up; move NV to Obama. Now 269-240 with 29 toss-up.

3) Today--The Wisdom of 245, Pt. II--Obama wins the Issues debate, both domestically and from a subjective measure of leadership quality demonstrated. He firms up his claim on all states in which he's leading. As a bonus, Obama regains a favorable trend in several large states. I accept the reality of strong trend performance and move VA and FL from McCain states to toss-up (along with CO and OH, which I expect to remain that way until the end).

I expect the focus of Election Night to be on those four (usually combined as COVAFLOH), all of considerable star power, and not on the results in a variety of dinky states like NH and NM. At some point in the mid-to-late evening (depending on your time zone) Obama will be in a position to clinch the needed majority if he can win Ohio, Florida, Virginia, or Colorado, and likely to hit just about 269 if he ends up with none of them. At this point, I can't see how these four cards will fall--But still.

That's where Omaha comes in. If it looks at the end that they'll get just exactly 269. (Also Nevada could then figure, if the night is trending in McCain's favor.)

In our view, Obama-Biden is threatening to break it open but has clinched nothing yet. There have been so many rapid shifts through this election season, and one would expect some firming of Republican support between now and then end. But just this shift of those two states--FL and VA--makes it look pretty lopsided, though. The new call is 269-200, with 69 toss-up.

Have to look more at those two rogue CD--in NE and in ME.


CNN: Tootsie Pop

Jon King's wise approach is to have a fairly large set of states stuck in the middle--the caramel part (colored yellow on his map). If you have enough in there already, the shift in or out of one or two never draws much attention or controversy. He had 120+ in their before; he has slimmed down the goo to 99 Electoral votes now--the same 69 as I, but also WI, MO, NH, and NV. Interesting, though a bit wuss.

OK, maybe not a Tootsie Pop but some sort of candy-coated, sweet-and-gooey-in-the-center blob on a stick. You tell me.


Swamp Mud--Rasmussen's approach is like mine, only it's sticky toward the past election results. He's very slow to move any state from the status quo ante, version 2004. He's only moved two states across from one side to the other: Iowa in the medium-strong category for Obama and New Mexico in the leaning-Obama. Like 538, he's got three shades of blue and red (though he really only uses needs two, except as a hedge).

He calls it the "Balance of Power Calculator", and clearly he's calculated to keep it balanced (Oregon in the weak-Obama category? Connecticut in the moderately-strong one?)

CQ is like Rasmussen's--slow to change. IA and NM are both in the lightest of three Obama colors, with no other states changing from Kerry-Bush, unless to toss-up. He does come up with 260-200, with 78 on the fence, which is pretty impeccable (NV and NH to Toss-up; hard to argue).

Real Clear Politics, 538.com: Hot Pots

The numbers just bubble up and come out in the map, without much filtering. Very typical is that the tossup states for them were MO, IN, and NC when I started this post--now NC is over to Obama. Please!

Right now 538 has it 344-194 as the average (mean, I'd think) of their simulation results. In terms of straight calls, they've now got 269 (including CO!) for Obama in their deepest shade of blue, and 71 more in lighter shades (FL, NH, OH, NC, NV). 340 leaning or solid to Obama, and only 22--MO and IN--as toss-ups.

These guys will have to get out their palettes and change colors soon, I think, as their color schemes are too unstable. 538 had McCain up by 20 or so electoral votes just a couple weeks ago. I give it credit, though: 538's already changed its map to show NE and ME's individual CD's, after I razzed Nate Silver that he hadn't been including the probabilities of those unusual outcomes in his simulations. (For the record, he now says he has included them all along!)

Here's a poll I put out on kos: (I'll have to do better at calling attention to it to get more votes)

Poll

Which state will be the biggest surprise pickup for Obama (EV, current Rasmussen Markets win %)

	CO (9, 69%)
10%	5 votes
	NV (5, 53%)
2%	1 votes
	OH (20, 52%)
6%	3 votes
	VA (13, 55%)
16%	8 votes
	FL (27, 46%)
26%	13 votes
	MO (11, 34%)
2%	1 votes
	IN (11, 39%)
12%	6 votes
	NC (15, 44%)
14%	7 votes
	MT (3, 22%)
8%	4 votes
	Other (and please comment below)
2%	1 votes
	None of these
0%	0 votes

| 49 votes

I put them roughly in decreasing order of likelihood as I saw it (and didn't include IA and NM, which are not surprises, nor the possibility McCain could win a Kerry state--it's real, but wouldn't be popular on kos). The plurality for FL is reasonable--it would be a "big" surprise in terms of electoral votes, and impact--and current polls make it plausible, though I don't really buy it (or any of those below it). My vote was for OH, part of a win for Obama in the range of 285-298 electoral votes (depending on CO and NH).

As a bonus, note that on 538.com--click on title above--an O.F.O.--an Obama Field Operative--shared some rather confidential, accurate-seeming internal estimates of currently-projected electoral day margins in key states.

Cleanin' Up

Under cover of the bailout, there are huge transfers of wealth going on right now. Anyone sitting flush on a pile of cash is buying up distressed properties at enormously-discounted prices. Or should be--maybe they're holding out for opportunities coming in Phase IV of the Creative Destruction.

Basically, I go to the "Wall-E" metaphor: there are humongous mounds of valuable rubble out there just waiting to be processed and recycled. Our government, bless their minuscule little heart, is taking a foremost role among those opening their giant intake maws to gobble up this raw material. We little, mobile individual-types also have our opportunity to flit about, searching for tasty morsels which meet the criteria of our simple machine-programmed compatibility DNA.

Now, Warren Buffett is threatening to gobble up my father's contribution to his grandchildren's educational funds. Normally, the news that Warren-Gets-In is great for a company's shareholders: he tends to be a patient investor, and his stamp of approval is usually good for a couple bil in market cap right off the bat. In the case of the GE investment, though, I think not: Berkshire Hathaway is getting special rights and a guaranteed 10% dividend for his trouble. The shares which have been held since Jack Welch applied the Neutron Bomb to my father's plant back in the '80's are suddenly hurtling southward toward their cost basis.

The logical move would be to anticipate the flow of money from GE to Berkshire Hathaway: sell the GE stock, take the capital gains (who cares? I'm still carrying losses from the dot-com bust!) and buy some fraction of a share of Berkshire with the proceeds. Maybe I separate the two steps, if there's an optimal time to have both, or neither.

A Vote of No Confidence

Hey, hey, one of my stocks went up today!

That would be my play-money bet on Obama to win the election on Rasmussen Markets.com.

And, since that's the one I'm cashing in sooner (Nov. 4), I may end up ahead on the day.

As for the American people, we didn't invest $700 billion, but we did lose $1.2 trillion on the stock market.

If we were in a parliamentary democracy, the government would immediately have fallen, and the Head of State would have turned to the Democrats' head of party, Barack Obama, to form a government. Either that, or, if the HoS were a Republican, he might have given the first shot to the leader of the Republicans' dissident faction (Eric Cantor!?)

Sigh. At least we can be happy that this total fiasco occurs so close to the end of the current Administration, and not in, say, February, 2007.

This defeat was a very public repudiation of the Bush Administration, and essentially also of Boehner & Blunt (Republican leadership, who urged its passage), and finally of John McCain. I will give the House Repo Men credit for listening to their constituents, but that's about all. This "mark-to-market" red herring is just promoting squishy accounting, which, after their squishy records of fiscal responsibility, doesn't convince anyone. The Republican House members don't like this approach, wish it were something else, but it isn't. Same thoughts expressed as those who supported it.

Now, the game should be on. The target date should be Thursday, and the contest should be to see who can turn more Reps in favor of the bill (slightly modified), Obama or McCain.

The vote is not a real no-confidence result on Pelosi, Frank, and the House leadership, though it does put into question either their good faith or their strategic approach. If they really wanted the bailout to pass today, they would have put more effort into the count, and into manipulating the count a few votes toward ensuring a safe outcome. I get that the tactic was to put the bill out and then vote fast, before opinion out here could consolidate against it, but the impression was one of haste, which as we all think we know, makes waste.

I saw some of the debate, and I was struck by the number and identities of some of the Democratic Representatives who said they would vote against. It appears clear to me that many of them would vote for it if: they got minor concessions, or were properly "whipped" by their leadership, or Barack Obama asked them to do it for the good of the nation and of his administration.

McCain should feel equally challenged on his side. Minority leader Boehner was supposed to deliver 50% of his votes for the measure; 45% would have been enough. They got 34%. He's either got to convince his backbenchers to come around, or let them convince him to do something different (which, by the way, doesn't have a chance of happening, either now or in the next session of Congress).

I had to go to work on voter registration and so did not hear the results until an hour or so after the scheduled vote. I was shocked by that, and worried: I had thought they had thrown their best shot. On calmer reflection, though, close attention to some of the Reps who had a close call but voted against will turn up some minor adjustments to get the necessary votes.

The problem will be if the public opinion remains strongly against the bill and it sends some of the wavering supporters over the side. Otherwise, this should pass comfortably on Thursday, picking up 15-20 votes on each side of the aisle. The oversight provisions could be strengthened and FDIC insurance broadened (as marginal changes which will help with both sides), but this is not such a bad bill. People are just scared by the potential price tag, which pales in comparison with the real price tag they will pay if it all continues to slide downward.

Sealing the Deal

It's not over, but Barack Obama passed a critical hurdle tonight. In a debate centered on John McCain's area of strength, foreign policy, he fully held his own.

I tip my hat to both candidates for their preparation on the foreign policy questions. McCain scored more points on the foreign policy areas, especially toward the end, but Obama was never outclassed. I would say Obama won on style points (pleasant demeanor vs. crotchety and contemptuous). McCain's digs brought out the well-schooled debater in Obama, who got his points in consistently.

Although Obama frequently said, "You're absolutely right, John", and McCain often said, "You're mistaken, Senator Obama" (or the equivalent), that doesn't mean that John was always right and Sen. Obama was always mistaken, and I think the American people actually saw that. Obama's giving credit to his opponent is a debating tactic that sometimes throws them off, but it didn't particularly do so tonight. I think he should shift to a different, but similarly off-putting approach for the next one (like completely ignoring the last thing McCain says, whatever it is), whereas McCain will try a different style as well, one less confrontational (because the hard-edged style hurts more than it helps with undecided voters).

In the opening section on the bailout and on domestic priorities, Obama edged McCain also--basically because the whole discussion was tilted to his advantage--though neither candidate seemed fully prepared to argue the questions. In particular, Jim Lehrer's frustration with both on the parts of their plans they would be willing to defer was somewhat justified. To me, the correct answer that neither came up with is the following:

The bailout (or substitute your favorite euphemism) is a one-time event (I'll make sure of that!), possibly a one-year event from a budgetary perspective. Even a large budgetary deficit, if limited to a single year, would do relatively little harm to our economy. Therefore, the degree to which my long-term priorities should be permanently dislodged by it is limited. What would change the ability to achieve them would be if the crisis persisted: therefore we must move to complete the deal, change the confidence level in the financial markets, and contain the cost. Then we can move on all these areas which require changes more confidently.

No one approached the question that way at all. But, no matter. Maybe they'll come up it with when they think about it some more.

In terms of flash polls, Obama seems to have gained with undecided voters and in terms of the general public's perception of "who won". That remains to be seen, and seeing the result fully may take until the eve of the next "event"--the VP debate next week. (For which, I can announce, I've made my coverage plan: I will not watch it, but have my wife and 9-year-old daughter watch it and tell me what they think.) In terms of secondary, tertiary, and quarternary analysis, Rasmussen's market had moved from 51-49 a couple of weeks ago to 57-42 Obama going into the debate. I'd guess it's back to 60-40, where it's been most of the last five months. As for the CNN, from the usual 65-35 Obama, it had gone down to about 58-42; before the debate it was close to 70-30, beyond which I don't think it will go much further for the time being. I'll put actual updates on those two as comments.

Finally, two technical points that were not uncovered regarding the interminable discussion (during and after) of Iran and meeting with Ahmadinejad:
1) Obama correctly pointed out that Ahmadinejad would not be the most appropriate person for him to meet directly (as A. is not the most powerful political individual in Iran and thus a suitable counterpart--that would be Supreme Leader Khamenei); and
2) CNN showed the original question about meeting the leaders from an early Dem primary debate. The names of the leaders were not specifically given; the question was whether Obama would meet the leaders of certain named countries.

Bailout FAQ

I apologize if it seems false advertising, but there are really only three frequently asked questions so far:

1) Who is to blame for this mess?

2) What should be done to keep from blowing the taxpayers' huge investment?

3) What legislation should be passed right now?

I omit Question Zero: "Can't we just say 'no'"? I start from the premise that inaction (meaning, from the current session of Congress) is unacceptable . Those who argue otherwise simply don't perceive the scale of the current danger, or are totally unfeeling. Implications range from a total collapse of the dollar to rampant inflation to decimation of all savings, retirements, and current investments.

This is a true Black Swan (as coined by Nassim Nicholas Taleb for the title of his book)--an unexpected outcome which throws off all of our mundane calculations. This is not to say that no one saw this coming--I'm sure Taleb did, for example, that's probably why he wrote it--or even warned the world or tried to take action. It's just that the risk of this event did not filter down into the activities of our many marketplaces.

The current symptom of our Institutional Disease--the inability of our marketplace to value with confidence the masses of Collateralized Debt Obligations and derivatives thereof on the books of all the major financial institutions--can be remedied with Paulson's Bailout Elixir, but taking it straight would risk the "successful operation, but the patient died" outcome. Only more radical procedures can bring back some health to the patient, who, by the way, is completely willing and able to make major "co-payment".

1) Who is to blame for this mess?

The underlying problem for the mortgage-backed securities business that has emerged fully in these dire days is that the risk management was insufficiently robust. Mortgage risk models did not protect sufficiently from credit losses, because the mindset under which they were created was not one that considered the possibility of a widespread drop in domestic property values. Blame for this problem goes pretty wide.

Remember that in the classic mortgage--the one where the bank keeps the loan on its books--credit losses only result when both the borrower can't pay and the underlying asset value (the collateral) is insufficient. The provisions for these CDO's and their ilk were/are based on historical default rates and historical appreciation rates for property values, i.e., they were too low. This was basic greed on the part of the "originators" (institutions offering the mortgages), but one that was legitimized by the system that developed.

Originators had to follow a formulaic approach to packaging mortgages; if they checked all the boxes, they'd get Triple-A from the credit rating agencies (which was an absolute requirement for the buyers of the loans). For the most part, originators became just that, neither holding any of their loans nor, often, even servicing the ones they originated. They took their cut (front-end fees helped), pushed the product, and washed their hands. Instead of keeping low-return assets on their books, they got them off forthwith and pocketed their fees, allowing them to churn out vast quantities.

The rating agencies deserve a huge amount of the blame, because they failed to make the distinctions of risk within the mortgage packages. They all came out with the same rating, and not much background. For example: where were the audits of underwriting procedures reviewed critically for those downstream? How about some documentation going with the loans, showing their locations, the degree of equity present, especially when considering various appraisal methods (replacement value, market valuation sensitivity)? Rating agencies will now need to be instruments of government financial policy, or be abolished and replaced directly by a government agency. They'll probably choose the former if they can.

Originators ran their loans through impressively-complicated "legal vehicles"--money-laundering entities. The standard was a "conduit" to a Cayman Islands-incorporated Potemkin-village financial institution. The purpose was to put a stone wall between the originators and any dissatisfied buyers.

What came out the other side was a Triple-A rated debt instrument, suitable for purchase by the investment houses. They sliced and diced up the original loan packages--mixing institutions, loan vintages (time since booked), areas of origination, underwriting standards, etc.--in the interest of providing "diversification", but all oriented toward the goal of providing high yield at low risk (so, inherently, it was a cheat). The investment shops didn't give anything along the lines of direct guarantees on quality of cash flow or underlying credit in their offerings--they could, with some cynical justification, point to the rating. They also didn't reserve capital against this off-balance-sheet business, which also allowed them to churn out vast quantities. They didn't really want to know about the loans, and they made it as hard as possible for anyone further downstream to know, either.

Which brings us to the consumers of these instruments, which will be where most of us feel the pain. Our agents out there purchased these "bonds" in (cynical) good faith, and put them in the investment portfolios that all Americans have been encouraged to buy into, one way or the other. Even those who only save in FDIC-insured bank accounts (you losers!): when the banks can't churn vast quantities of mortgages anymore, they'll pay squat for your savings and live off service fees. Plenty of local banks already do that for you.

And all you folks chasing that extra 20 basis points (0.20%) of return should be able to share in the credit for the collapse of the investment principal you're currently experiencing ("my loss was only 24.8% while the S&P lost 25%!")

2) What should be done to keep from blowing the taxpayers' huge investment?

Let's work backward from the consumers and taxpayers. What we can and should expect from this exercise is that there will be a functioning market for this stuff, that it will be priced properly for its risk and that the risk will be better understood. We can expect that the most egregious actions will be punished, and that our initiatives will make a recurrence impossible and that the Bile Bubble will not simply be pushed onto the next weak spot in the financial industry. We can not expect the government to protect our investments in these dogs (and I've heard virtually no one argue otherwise).

We start by dumping the Triple-A ratings for all this stuff; this is really just recognizing the obvious--in the end, those ratings by themselves didn't protect anyone. An intense process to evaluate this industry and develop better risk ratings is the second step: the rating agency personnel, who know something about where the skeletons are buried (in spite of the seeming blindness of their agencies' ultimate rating values) would be drafted to work alongside the sharpest analytical minds the government can recruit, for high-pay, high-security jobs (these people will be needed for as long as they are willing to stay on). A three-part testing process--of knowledge, of ability to learn both quickly and thoroughly, and of ethics--should be required of all new hires. We're not going to be running any moles, here.

Rather than overpaying for these debt instruments, thus re-capitalizing the fallen industry giants, the emphasis will be on the government's buying low and selling high. The financial industry's capital will be enhanced by the fact that their stock valuations have been protected from becoming worthless through the government intervention, and that should be enough.

In terms of using their stake, the government agency should start with the most homogeneous, transparent CDO's--ones where they can actually figure out where the loans are from, how they were made, and how they are performing--paying the minimum amount possible for them, and then work down from there. The idea is to have a robust market for various types of securitized debt, and the financial houses will figure out the game very quickly (the ones that want to survive, anyway), doing their own research and analysis. We can offer them some bounty if they can expose upstream fraudulence.

Longer term policy considerations: In a market where opacity is punished, the recourse to legal vehicles will be more carefully considered, and it may ultimately wither and die. Originators must be held accountable--a start would be a requirement to increase the credit enhancement put into every one of these loan warehouses. This is something that even those other industrialized nations which don't want to fund this exercise can do. Similarly, healthy (i.e., painful) reserve requirements for these off-balance sheet businesses can be established internationally.

Finally, we get back to the originators. The initial response--of all the banks--to the housing/mortgage crisis which started 18 months ago was to make more precise cookies with our cookie-cutter approach. Documents multiplied, processes slowed, asses were attempted to be covered. Alas, we were still being mooned!

The mortgage industry's risk management needs to be thoroughly upgraded. For example, riddle me this: how important is the famous 38% ratio (mortgage payment to income) when job stability is so low? How does one weigh that against self-employment income (more dynamic, less secure), against credit bureau score, and against unpledged assets that borrowers have? How are we going to give seniors, young independents, and small businesses long-term credit in the new world that is emerging?

The biggest revolution in the industry's risk management will come from improved methods of property valuation. There are already a couple of values that come out of today's appraisals: the bank takes the lowest one (as they would the lowest credit bureau score from the three bureaus), uses that, and calls it "conservative". I don't see any evidence of real market sensitivity being considered: what is the property's potential for losing its value over the time horizon of the loan (and the upside, too, for that matter, when it comes to more marginal credit)?

If we make originators who pass on loans responsible for the credit quality, they might have to get more involved with how the property is maintained over time. That may sound too intrusive, but consider the fact that you don't really "own" your home until it's free and clear. At the end of the day, better (more robust) credit models are long overdue for the mortgage industry, and they must be forced to emerge from both the origination process and the loan servicing business.

The government has the opportunity, and the need, to stick its nose into all these tents--as long as originators don't intend to hold onto all their mortgages for their duration. If they want to do that, they would indeed be subject to less regulation.

3) What legislation should be passed right now?

I've heard a lot of talk about "$700 billion" but not about where that number came from, and what it will pay for. Let's proceed for argument's sake on the assumption--which should be studied closely for its merit--that it's a good figure for the total amount the government can and should be allowed either to spend, or to have at risk, at any one time.

Right now, Congress should allocate much less: enough to get the operation started. Hire the new people (credit agencies will have to provide assistance at their expense, or die), develop the initial models, create a facility to trade the stuff, and buy, at bargain-basement prices, some of the best stuff they can identify. Make sure it is clear they will stop buying if they don't have demand-side participation from the banks who provide the stuff in.

Congress should only authorize a portion of the funds for the period from now until Jan. 20, 2009. The appropriation should be: $100 billion (say) for setting up the agency and for its direct expenses for a year, and a $200 billion line as the initial stake. When the agency shows success in its initial tasks (establish initial risk categories, success with first, well-documented purchases, functioning market for the higher-quality CDO's), then it can get access to another $100 billion of the $600 billion credit line ultimately planned with Treasury (but not sooner than next year). The line will need to increase because, as they move down the pyramid from the peaks in quality toward the swamp, it gets wider and broader.

After a year or so, the program needs to pay for its own operations from its proceeds. Perhaps, if it needs to be expanded, it can be funded off the proceeds from the AIG steal (a great deal for the government, which bought a hugely-profitable business enterprise for the cost of a bridge loan).

The real bottom line, and we simply have to get partisan here: we can't let the Bushites have access to the whole pile, or they will simply bail out their buddies, they'll all walk away scot-free, and they'll consider it a done deal, regardless of whether the markets are preserved (the Reagan-Bush I escapade). By the time the tax increases come through, they'll be long gone with their ill-gotten gains. The short-term expectations for the CEO's (yes, control their packages!) and shareholders should be only loss of income.



Background and disclaimer: I worked on the "production" side for securitized receivables at the end of the last decade and beginning of this one--for mortgages peddled on through a Fannie Mae-like organization in Hong Kong (HKMA), and for credit card receivables produced and securitized domestically. In this sense, I came to the borders of the main event (already in progress), had to learn the rules and business framework quickly to survive, and was totally appalled at and admiring of the processes' leveraging powers. Then I left. I've been watching this Bushite Recovery (2003-2007) from the sidelines, never truly believing in the solidity of the growth which has allegedly been attained.

As a side note, the credit card securitizations I worked on should be better protected from variations in credit performance, because they considered credit losses to be a major part of the economic model, so the credit reserves (called "credit enhancements") were significant and, more importantly, dynamic. Only a generalized depression should bring them down.