General NBA
In my last post, I threw out my NBA thoughts for the year. It's definitely still too early to make some definitive calls, but there are a few developments from the first few games that I think are set to develop into season-long themes. There were a few teams I mentioned that I thought had aged their way out of contention. A few games in, some of those teams have surprised me, while others have had problems similar to the ones I've expected. In the East, I thought the Celtics were that team-- their core of Pierce, Allen and Garnett is old (34, 36 and 35, respectively), Rajon Rondo has been more of a distributor than a scorer, and the depth isn't good enough to let them coast to the playoffs. While everything related to the Celtics has to be taken with a grain of salt (Pierce still has yet to play this season, and all 3 games they've played have been on the road), they haven't exactly looked good so far. Today they got blown out by the Hornets (who aren't exactly an elite squad), and the Heat and Knicks both beat them (albeit in pretty close games). Though I only watched the first game, I think the biggest positive to take away is Rondo's improved jumper (he's knocked down 2 of 5 threes so far and shot over 50% from the field), while the most worrying part is that the depth, frankly, stinks. KG and Ray Allen, just like they have for a few years, look a tad slower and older, and the Celtics aren't going to be able to ride them through the season the way they've been able to in the past. Today, they only played 27 (Garnett) and 30 (Allen) minutes, but in each of the first two games, they averaged 35 and 39 minutes, respectively. For two guys in their mid-thirties, that's not a sustainable pace, especially in a compressed season.
And the problem isn't going to get any better. To get to the playoffs at full strength, they're going to need to have the big three pace themselves, and that'll be hard given that Allen and KG have been playing heavy minutes already, and they're still losing. Brandon Bass has been better than I've expected, but the rest of their supporting cast stinks. Jermaine O'Neal is way over the hill, Marquis Daniels is an 8-minute a game player for a championship team, Keyon Dooling is no good, and the less said about Chris Wilcox, the better. Even with Pierce back, these aren't guys I can see the Celtics riding into the playoffs. At this point, ideally, they need the big 3 to be hovering around 30 minutes most nights in order to get to the playoffs at full strength. I think they'll be good enough, with Pierce healthy, to get back to the playoffs, but, 3 games in, I still think this team isn't a contender.
In the West, there were three squads I thought were done as contenders-- the Spurs, the Mavs, and the Lakers. Two of those three have looked like decent predictions, while one has looked way off. I'll start with the first two. The Lakers haven't exactly looked like the same contender they have been the last few years. They blew out the Jazz at home the other night to improve to 1-2 (the Jazz stink), but they lost to the Bulls at home in the opener, and lost at Sacramento too (Sacramento is pretty talented, but definitely not a contender). But they've definitely had some trouble in these first few games. On the one hand, Kobe looks less old than he has the past few seasons, at least so far. He's not elevating the way he did in his twenties to get his jumper, but he's putting up 25-30 a night with ease. On the other hand, the rest of the squad is struggling. Pau Gasol is putting up numbers in line with what he's put up in the past-- 17 and 9 so far, compared to an average of around 19 and 10 in his Laker career. But, with Lamar Odom gone and Andrew Bynum out so far, they need bona fide #2 star numbers out of him, and 17 and 9 out of Gasol isn't getting it done. And the rest of the roster's been worse. Steve Blake is a nice backup point, but Derek Fisher is 37-- he's not a guy you want on the floor for heavy minutes against the Chris Pauls and Derrick Roses of the league. Josh McRoberts and Troy Murphy have been getting 25+ minutes a game. For a championship team, they play 15-18 apiece. Probably less in Murphy's case. And Metta World Peace isn't young anymore either- at one point, he was a guy you could count on to slow down the best wings in the league. Now, at 32, I think he's a 25-30 minute a night guy. But, with the loss of Odom to Dallas, they need more out of Artest on the offensive end, and I don't think that's a good thing for this team. Devin Ebanks was a piece I really liked coming out of WVU, but I think at this point he's a young Trevor Ariza-- long and athletic, but with an unrefined offensive game. I think once Andrew Bynum gets back, this is still very much a solid playoff team-- a starting 5 of Fisher, Kobe, Ebanks, Gasol and Bynum, with World Peace, McRoberts, Blake, Murphy and Jason Kapono coming off the bench is still enough to make the playoffs. I think it's probably enough to win a playoff series too. But this is a team without a legit scoring option off the bench-- Artest was that once, but I don't think he is that anymore: he's not quick enough to beat his man off the dribble anymore, and he's not a guy who comes off screens and creates offense. Andrew Bynum has good hands-- he'll grab an offensive board and put it back, and occasionally he'll even make a move and score, but his post game is still pretty raw. The rest of the rotation... the less said the better. Right now, the Lakers are averaging 91 points a night. They've got three guys averaging double figures, and one of them is a 33 year old Kobe (and make no mistake-- he's an old 33; at 33, Jordan had been in the league for 11 years, and had taken time off to play baseball in the middle. Kobe's been in the league for 15 years now) averaging 28 a game. If you need Kobe to keep dropping 28 a night for your team to get to the playoffs, you're going to be in trouble once you get there. To stay a contender, I think they need Bynum to come back 100%, Gasol to step up his play, and probably another good scorer off the bench. But I can't really think of another guy who's as perfect a fit on this team as Odom. I think, as a contender, they're finished.
The Mavs are, I think, in even worse shape. I argued that the Lakers are done as a contender, but that's very debatable, and I think it's absurd to argue that they're not a playoff team. I see the Mavs struggling to make the playoffs. Dirk Nowitzki is still a star, but he's 33. Not as old a 33 as Kobe, but he's not young. He's struggled early this season, but I think he'll rebound and put up his usual 22-24 points a night. The rest of the team, though, is problematic. While they got through the playoffs without Caron Butler, having him there to take the load off of the Mavs older pieces during the season helped them peak in the playoffs. This year, they don't have Butler. Shawn Marion is a year older (also 33), Jason Kidd is on his last legs at 38 and, I think, shouldn't be playing more than 22 minutes a night or so, on average. Lamar Odom is a nice piece off the bench, but he still hasn't integrated himself into the squad. And Vince Carter is no longer the athletic scoring machine he was at 26 years old-- he's a going-on-35 jump shooter who still doesn't play D. Worst of all, without Tyson Chandler, they don't have the single piece to organize their defense and make them a decent defensive squad. And, with Chandler, Butler and JJ Barea gone, they don't have the depth to run teams off the floor anymore. Last year, they could afford to throw a defensive stopper (Deshawn Stevenson) out at the off-guard in the playoffs because Barea and Jason Terry could give them explosive offense off the bench, while Chandler gave them a constant rim protector at the 5. Now, they've got Brendan Haywood (who can spell Chandler for 10-15 minutes a night, but can't sniff his jock full time) at the 5, with Odom and Terry their only viable options off the bench. With Barea gone, Delonte West is Kidd's top backup (and West isn't much of a playmaker). And the rest of the problems fall into place after that. I actually think Barea is overrated at this point (he's a nice energy guy off the bench, but he's a liability playing more than 20-25 minutes a night), but the Mavs still need an energetic backup who can initiate the offense and spell Kidd for those 20-25 minutes a night, and, with Barea gone, they don't have that anymore. For me, this is a team without an identity. Nowitzki is still a top scorer, but there's no real #2 (Marion, for me, is a #3. Terry is a #3 off the bench). Worse, there's no defensive identity without Chandler-- Dirk is a guy who became above average on D with Chandler there. With him gone, he's average to below average. This isn't just a pretty mediocre defensive team, they're not much good on offense either. And, for me, that's a big problem that makes them not just a team that's out of contention, but one that will struggle to make the playoffs.
Now, the team I think I was wrong about is the Spurs. This is a team that's been able to change its supporting cast for years, but has been a contender for almost a decade and a half because they've been able to put very good pieces around Tim Duncan. At this point, Duncan is well into the downside of his career. Last season, the team unexpectedly came together and had a great regular season, but, once the playoffs came around, the Grizzlies were younger, bigger inside, and more energetic. The Grizzlies won the series in 6, and it wasn't really close. This year, I think the Spurs have the depth to be able to pace themselves through the regular season. I still think Duncan is a guy who can give them 20 and 10 on his day. But the key is that, to contend, they want to minimize the nights where Duncan goes 30+ minutes and maximize the number of nights where he can go 20-25 minutes, put up 10 and 6... and they can still win. The first two games have made that look like a real possibility. In their first game, they beat those same Grizzlies by 13, and today they blew out a talented Clippers squad by 25. Duncan's played about half of each game and dropped 10 apiece on those nights. Manu Ginobili (who isn't young himself at 34) has put up 24 each night... but in only 29 minutes of work a night. And even Tony Parker (the youngest of the group at 29) has averaged less than 30 minutes in the first two games. The key has been the Spurs' ability to throw numbers at other teams. Their best lineup still features Duncan, Ginobili and Parker (along with Richard Jefferson and either DeJuan Blair or Tiago Splitter)... but right now, they've got quality backups at every spot. Rookie Kawhi Leonard looks like a terrific pick-- he'll be able to give them defense and rebounding in 15-20 minutes a night. Blair and Splitter are in the big man rotation with Duncan, along with Matt Bonner (who plays decent D and shoots well), while James Anderson and TJ Ford are also good pieces to have on the bench. This is a team with 10 guys who aren't liabilities going 20 minutes in a given night. With all those quality pieces, this is a team that I still think can contend if everyone stays healthy-- so long as Duncan's averaged 25 minutes a night for the season, he may still have another playoff run in him. And, even in the West, with 4 minutes to go in the 4th, I don't know that any team other than Oklahoma City and maybe the Lakers and Clips have a 5 that can contend with the Parker-Ginobili-Jefferson-Blair-Duncan fivesome.
Wizards Outlook
Last, I'm gonna talk a bit about the Wizards who, through two games, look a lot like the same garbage that we've seen on the floor since the Arenas-Jamison-Butler trio was broken up. I think personnel is an issue, but right now, I think coaching is too. John Wall has a lot of upside and a skill set (rumor is he even developed something that looks like a jumper, though I haven't seen it yet this season), but I don't think Flip Saunders is putting him in position to do well. Wall can beat anyone in the league off the dribble. Problem is, as we've seen even against the Nets and the Hawks, he's not going to elevate over shot-blockers to score. And he also hasn't developed a mid-range pull up game the way Derrick Rose has, meaning that he needs guys around him who can hit the three if he drives and kicks, plus bigs who can catch the ball and finish if he dishes on the drive. Wall can drive and dish, but Andray Blatche still isn't getting his hands dirty on the inside, while Javale McGee's offensive game involves trying to dunk everything. And Rashard Lewis's offensive game right now involves spotting up and missing jumpers, and getting in the post and missing off-balance fadeaways. Nick Young can create some offense off the dribble, and he's actually got a pretty good mid-range jumper, but that's about all.
For me, this is a squad that needs to be pick-and-rolling others to death, but I think I could count the number of pick and rolls I saw them run the first two games on one hand. Part of the problem may be that Wall won't hit the 18-foot jumper if his defender goes over the screen, but I think it wouldn't hurt to run it anyway, if anything to open up space for Wall on the perimeter. But right now, the offense still looks like Wall driving all the way to the hoop and missing a contested shot, kicking it to Lewis to miss a contested jumper, Andray Blatche standing 15 feet from the hoop and forcing up garbage, and Nick Young/Jordan Crawford going one on one. As a result, the team hasn't been good on offense. But that's not the entire problem. This also isn't a good defensive team (New Jersey put up 90 in the first game, but New Jersey started Kris Humphries, Johan Petro and Anthony Morrow in that game and played Damion James for 40 minutes; none of those guys would be in a contender's rotation. Kris Humphries is Popeye Jones if Popeye Jones had been married to a Kardashian)-- Andray Blatche stands around and watches the ball, Rashard Lewis is too soft to guard 4s and too slow to guard 3s at this point in his career, and Nick Young and Jordan Crawford aren't interested enough to be better than average defenders on their best nights. Wall stays in front of his guy, is athletic, and has a great wingspan, but having one plus defender in your starting 5 isn't going to make your team good defensively. Add to that Javale McGee's desire to block every shot and allergy to moving his feet, and you've got a defensive squad that isn't exactly built to succeed either.
And, to add insult to injury, the rebounding is terrible. This is a team with size (McGee, Blatche and Lewis are all 6'10"+), but none of them likes to box out, and when McGee goes all out to block a shot, opposing forwards have a field day crashing the glass and getting second-chance buckets. Which is why the Nets out-rebounded them 58-38 (with unathletic, 6'9" Kris Humphries grabbing 16 boards, including SEVEN offensive and 6'7" Damion James adding 14, including 10 offensive), while the Hawks came out with a 45-32 advantage. So this isn't a team that rebounds either. In fact, I don't really know what this team does well.
So where to improve? Well, first I think Saunders has to go. He's not putting the team in a place where it can succeed. But I really think the next step is to dump Blatche. I really don't care what you take for him. Take a second rounder for him. Give him up for a bag of potato chips, I don't care, just get him off the team. Blatche is a talented player-- he's long, he's got good hands, and he's got a solid skill set, range out to 15 feet, and decent passing skills when he wants to give it up. But he makes your team worse. He doesn't play D. He doesn't care enough to be a good rebounder (boxing out isn't his thing). He's a ball stopper on offense (he gets it 15 feet out and then doesn't know what to do with it). And his attitude is a killer. Plus, as much as pundits love to say he's athletic, he's really not very athletic. Blatche is 6'11" and COORDINATED, for sure. He can catch the ball, he can make moves without stumbling over himself, and his footwork is OK. He's not a guy who looks like he's never touched a ball before when he gets a pass. But he's also in no way a particularly good athlete. He doesn't jump exceptionally high, he's not explosive, and he's not quick. Javale McGee IS a terrific athlete, but he's also uncoordinated. Half the time, he looks like he doesn't know what his limbs are doing. But that's beside the point. If I were building this team, I'd dump Blatche, throw Chris Singleton into the lineup at the 3, and maybe even introduce Jan Vesely into the starting lineup once he gets healthy (or, if not, throw in Rony Turiaf). Wall's strength is his blazing quickness in the open floor-- this is a team whose offense needs to be built around that. Nick Young is a decent half-court scorer, but I think he can also run. Singleton can do the same (and occasionally hit a three). Vesely is a 6'11" horse who can run the floor as well as any guy his size. And McGee can get up and down the floor, too. So long as this team stinks, you might as well turn it into an entertaining circus. The instant anyone grabs a board, they should be looking to outlet the ball to Wall and take off. A break with Wall leading and Young (or Singleton) and Vesely on the flanks, with McGee trailing is scary. Especially since there aren't many 5s in the league who can beat McGee down the floor. I think, if you're building a team around Wall, that's the way to do it. And the first step is dumping Blatche.
Wednesday, December 28, 2011
Sunday, December 25, 2011
NBA is back
It's Christmas which, for me, means the return of NBA basketball. This past season was, for me, the best I can remember. The league is exciting to watch, the stars are great, and, while you can narrow the list of title contenders to 5 or 6 before the season begins, you can't say with 90% certainty which of 2 or 3 teams will win the title (for most of the 90's, you knew on day 1 that, unless Jordan or Pippen tore an ACL, the Bulls were gonna be champs; in the 80's, the question was whether it was gonna be the Lakers or the Celtics winning the title (with the Sixers and then the Pistons occasionally sprinkled in). Last season, you had a list of candidates, but there really wasn't a team that you KNEW was going to be on top on day 1. The Lakers were definitely a slight favorite to repeat, but the Heat were always a possibility, the Spurs (my personal pick at the start...) were in the mix, the Celtics were still a strong contender, and teams like the Mavs, the Thunder and even the Magic and Blazers (if everything went right) were a possibility.
This year, I think the picture's a little different. Brandon Roy's sad retirement puts the Blazers out of the picture in the short run (and Greg Oden's 25th straight season-ending injury throws their medium-term future into doubt), and I think the Spurs, and probably even the Celtics and Lakers (unless they pick up Dwight Howard) have been aged out of contention. I'm in a minority here (I think), but I also think losing Tyson Chandler instantly takes the Mavs out of contention to repeat. So who can I imagine winning it? Well, the Heat are obvious favorites. Another year together for the big three (I refuse to capitalize that...), and they added a really solid outside shooter/perimeter defender in Shane Battier. Also, they have Eddy Curry and Juwan Howard. While I think the Heat should be a better team, I think the biggest problem for them still hasn't been addressed-- they're pretty weak in the middle. The best candidates to beat them are teams that do have that interior presence. Their main challengers in the East are the Bulls. They've got the league's reigning MVP in Derrick Rose; they've still got one of the more intriguing frontcourts in the league with Joakim Noah, Carlos Boozer and Luol Deng backed up by Omer Asik and Taj Gibson. They've got solid three-point shooters in Deng and Kyle Korver, and they addressed what I thought was their biggest need by adding a scoring two with a solid mid-range game in Rip Hamilton (though he's definitely on the downside of his career, I think he'll thrive next to Rose). But while the Bulls have a superstar and some nice pieces, they've really only got a single star player. If Rose isn't on his game, no one else can really step up and take over. Boozer's a solid piece and a good scorer, but you don't go into a game thinking about how to stop Carlos Boozer. On a big day, he'll give you 22 and 10. On an off day, it'll be 12 and 6. But you'll never come out of a game thinking that you were killed by Carlos Boozer. Luol Deng's the wing version of Boozer. Joakim Noah's a terrific piece, but he's a defense and rebounding guy-- he's very good at those things, but I get the impression Noah is a solid individual defender, but not a dominant one in the Tyson Chandler mold-- I don't think he has Chandler's defensive communication ability and basketball IQ (though he's better on the offensive end), and I don't think he makes his teammates better on that end in the same way Chandler does. But I think their quality and depth make them a threat.
The other team I see as a threat to the Heat in the East is a dark horse-- the Knicks. This was a good team last year, but not a serious threat in May. The reason for that was obvious-- they couldn't stop anyone. They've got two of the five or six best scorers in the league in Amar'e and Melo. Each of those guys is... average at best on D. And Amar'e's also an indifferent rebounder (he'll put up the numbers there, but that's largely been just because over the course of a game someone will get boards, and the Knicks have been awful at center for a long time). Landry Fields is a nice piece (good defender, and probably the best rebounding 2 in the game) when he isn't asked to do too much on offense (and he's not in New York, with the two headliners dominating the ball on offense). Point guard is a question mark-- I never thought Chauncey Billups was the answer, but Iman Shumpert and Toney Douglas are both rotation players for me. If Baron Davis decides he wants to play ball this year and doesn't look like a beached whale on the court, I'm not entirely sure he can still turn it on anymore even if he wants to. But I think what makes the Knicks a contender is Chandler. He instantly takes a below-average defensive team and makes it potentially very good. Chandler protects the rim better than any center in the league not named Dwight Howard, is one of the best positional big men (if not THE best) in the game today, and is great at putting his perimeter guys into position. In short, he's just what the Knicks need on that end. Melo and Amar'e aren't the awful defenders some people like to paint them as, I think, but having a guy behind them who can erase their mistakes (Amar'e is a great athlete, but he's out of position frequently enough that guys like Boozer and David West, not to mention Zach Randolph, can eat him for lunch on the offensive end). With two guys who, on a given night, are capable of going off for 40, and a center who, if he stays healthy, changes the game defensively, this is a team that can be a threat. I also think they match up exceptionally well with the Heat-- Chandler made life hell for the Big Three in the Finals, and, while LeBron and DWade are terrific at closing down top scoring points and wings, neither of them, and especially not Bosh, can really match up with Stoudemire on that end. The Knicks' biggest problems are point guard and depth inside. The two bigs in their rotation after Chandler and Stoudemire are Jared Jeffries (ew) and Josh Harrellson (somehow even worse). That's BAD. They really need to shore that up to be a real contender. I also think they need at least a league-average point guard-- Douglas and Shumpert are solid combo/rotation types, but I don't think either is a starting point on a championship team. Beyond that, I think the East doesn't really have any more real contenders: the Celtics are too old, the Magic have Jameer Nelson and a bunch of garbage next to Dwight Howard, and the Hawks are a group of role players looking for a piece to build around.
In the West, I think the Thunder are the favorites. They've got a guy who I honestly think is already one of the league's greatest ever scorers in Kevin Durant (and he's getting better; today, he was finishing at the rim- scary). Russell Westbrook is dynamic off the dribble and a handful for any team (including his own when he's not in control). Serge Ibaka is an athletic shot-blocker who can hit the 18 footer. Kendrick Perkins gives them a big body who can battle inside and make life hard for traditional bigs. James Harden gives them offense off the bench, while Thabo Sefolosha and Eric Maynor are plus defenders. I think they're a complete squad, and they're another squad that matches up well with the Heat. The biggest challengers, for me, are another dark horse-- the Clippers. Lamar Odom or not, the Mavs just aren't good enough defensively without Chandler, while the Lakers, without Odom and with Kobe aging, don't have the depth to compete anymore. The Spurs aren't getting any younger, and the Nuggets don't have a superstar (and half their squad is stuck in China). Which leaves the Clips. To me, this is the most intriguing roster in the league. Chris Paul, if he's health, is the best point in the league (yes, better than Rose). No one can contain him off the dribble, and he makes guys around him better in a way that no other point in the league does (for me only Deron Williams comes close). Blake Griffin is an exciting talent who's a top-5 athlete in the league (though, watching him, it really doesn't look like he's taken his game to the next level; he still can't hit the 15 footer with any consistency, doesn't have a go-to post move, and doesn't look comfortable off the dribble if he can't jump over the guy manning him) who should look even better running the pick-and-roll with Paul and catching his alley-oops. DeAndre Jordan is a terrific shot blocker who makes life hard on driving wings (though he's a horrible free throw shooter). The rest of the roster is bizarrely constructed, though, which is what makes this such an intriguing squad. If Caron Butler is back and healthy, he's a solid wing scorer who can defend most 2/3s, while Ryan Gomes is a big body. But the quality depth is almost entirely at one position: the point. Mo Williams is an above-average starting point on a good team, but at 6-1, he can't guard the 2, and you can't really play him and the 6-0 Paul together without giving up a whole lot of size defensively, so I have a hard time imagining him giving them more than 15 quality minutes a night. Then, if that's not enough, they've also got a promising backup point prospect in Eric Bledsoe (who's injured right now) AND a good vet (who I think is best used as a backup) in Chauncey Billups. Not to mention Randy Foye is still on the roster. Which, by my count, gives the Clips four point guards... zero of whom can guard the 2. All of which makes me interested to see what their rotation looks like.
Either way, I'm excited to see how this season unwinds. Shortened or not, it's gonna be a great season.
This year, I think the picture's a little different. Brandon Roy's sad retirement puts the Blazers out of the picture in the short run (and Greg Oden's 25th straight season-ending injury throws their medium-term future into doubt), and I think the Spurs, and probably even the Celtics and Lakers (unless they pick up Dwight Howard) have been aged out of contention. I'm in a minority here (I think), but I also think losing Tyson Chandler instantly takes the Mavs out of contention to repeat. So who can I imagine winning it? Well, the Heat are obvious favorites. Another year together for the big three (I refuse to capitalize that...), and they added a really solid outside shooter/perimeter defender in Shane Battier. Also, they have Eddy Curry and Juwan Howard. While I think the Heat should be a better team, I think the biggest problem for them still hasn't been addressed-- they're pretty weak in the middle. The best candidates to beat them are teams that do have that interior presence. Their main challengers in the East are the Bulls. They've got the league's reigning MVP in Derrick Rose; they've still got one of the more intriguing frontcourts in the league with Joakim Noah, Carlos Boozer and Luol Deng backed up by Omer Asik and Taj Gibson. They've got solid three-point shooters in Deng and Kyle Korver, and they addressed what I thought was their biggest need by adding a scoring two with a solid mid-range game in Rip Hamilton (though he's definitely on the downside of his career, I think he'll thrive next to Rose). But while the Bulls have a superstar and some nice pieces, they've really only got a single star player. If Rose isn't on his game, no one else can really step up and take over. Boozer's a solid piece and a good scorer, but you don't go into a game thinking about how to stop Carlos Boozer. On a big day, he'll give you 22 and 10. On an off day, it'll be 12 and 6. But you'll never come out of a game thinking that you were killed by Carlos Boozer. Luol Deng's the wing version of Boozer. Joakim Noah's a terrific piece, but he's a defense and rebounding guy-- he's very good at those things, but I get the impression Noah is a solid individual defender, but not a dominant one in the Tyson Chandler mold-- I don't think he has Chandler's defensive communication ability and basketball IQ (though he's better on the offensive end), and I don't think he makes his teammates better on that end in the same way Chandler does. But I think their quality and depth make them a threat.
The other team I see as a threat to the Heat in the East is a dark horse-- the Knicks. This was a good team last year, but not a serious threat in May. The reason for that was obvious-- they couldn't stop anyone. They've got two of the five or six best scorers in the league in Amar'e and Melo. Each of those guys is... average at best on D. And Amar'e's also an indifferent rebounder (he'll put up the numbers there, but that's largely been just because over the course of a game someone will get boards, and the Knicks have been awful at center for a long time). Landry Fields is a nice piece (good defender, and probably the best rebounding 2 in the game) when he isn't asked to do too much on offense (and he's not in New York, with the two headliners dominating the ball on offense). Point guard is a question mark-- I never thought Chauncey Billups was the answer, but Iman Shumpert and Toney Douglas are both rotation players for me. If Baron Davis decides he wants to play ball this year and doesn't look like a beached whale on the court, I'm not entirely sure he can still turn it on anymore even if he wants to. But I think what makes the Knicks a contender is Chandler. He instantly takes a below-average defensive team and makes it potentially very good. Chandler protects the rim better than any center in the league not named Dwight Howard, is one of the best positional big men (if not THE best) in the game today, and is great at putting his perimeter guys into position. In short, he's just what the Knicks need on that end. Melo and Amar'e aren't the awful defenders some people like to paint them as, I think, but having a guy behind them who can erase their mistakes (Amar'e is a great athlete, but he's out of position frequently enough that guys like Boozer and David West, not to mention Zach Randolph, can eat him for lunch on the offensive end). With two guys who, on a given night, are capable of going off for 40, and a center who, if he stays healthy, changes the game defensively, this is a team that can be a threat. I also think they match up exceptionally well with the Heat-- Chandler made life hell for the Big Three in the Finals, and, while LeBron and DWade are terrific at closing down top scoring points and wings, neither of them, and especially not Bosh, can really match up with Stoudemire on that end. The Knicks' biggest problems are point guard and depth inside. The two bigs in their rotation after Chandler and Stoudemire are Jared Jeffries (ew) and Josh Harrellson (somehow even worse). That's BAD. They really need to shore that up to be a real contender. I also think they need at least a league-average point guard-- Douglas and Shumpert are solid combo/rotation types, but I don't think either is a starting point on a championship team. Beyond that, I think the East doesn't really have any more real contenders: the Celtics are too old, the Magic have Jameer Nelson and a bunch of garbage next to Dwight Howard, and the Hawks are a group of role players looking for a piece to build around.
In the West, I think the Thunder are the favorites. They've got a guy who I honestly think is already one of the league's greatest ever scorers in Kevin Durant (and he's getting better; today, he was finishing at the rim- scary). Russell Westbrook is dynamic off the dribble and a handful for any team (including his own when he's not in control). Serge Ibaka is an athletic shot-blocker who can hit the 18 footer. Kendrick Perkins gives them a big body who can battle inside and make life hard for traditional bigs. James Harden gives them offense off the bench, while Thabo Sefolosha and Eric Maynor are plus defenders. I think they're a complete squad, and they're another squad that matches up well with the Heat. The biggest challengers, for me, are another dark horse-- the Clippers. Lamar Odom or not, the Mavs just aren't good enough defensively without Chandler, while the Lakers, without Odom and with Kobe aging, don't have the depth to compete anymore. The Spurs aren't getting any younger, and the Nuggets don't have a superstar (and half their squad is stuck in China). Which leaves the Clips. To me, this is the most intriguing roster in the league. Chris Paul, if he's health, is the best point in the league (yes, better than Rose). No one can contain him off the dribble, and he makes guys around him better in a way that no other point in the league does (for me only Deron Williams comes close). Blake Griffin is an exciting talent who's a top-5 athlete in the league (though, watching him, it really doesn't look like he's taken his game to the next level; he still can't hit the 15 footer with any consistency, doesn't have a go-to post move, and doesn't look comfortable off the dribble if he can't jump over the guy manning him) who should look even better running the pick-and-roll with Paul and catching his alley-oops. DeAndre Jordan is a terrific shot blocker who makes life hard on driving wings (though he's a horrible free throw shooter). The rest of the roster is bizarrely constructed, though, which is what makes this such an intriguing squad. If Caron Butler is back and healthy, he's a solid wing scorer who can defend most 2/3s, while Ryan Gomes is a big body. But the quality depth is almost entirely at one position: the point. Mo Williams is an above-average starting point on a good team, but at 6-1, he can't guard the 2, and you can't really play him and the 6-0 Paul together without giving up a whole lot of size defensively, so I have a hard time imagining him giving them more than 15 quality minutes a night. Then, if that's not enough, they've also got a promising backup point prospect in Eric Bledsoe (who's injured right now) AND a good vet (who I think is best used as a backup) in Chauncey Billups. Not to mention Randy Foye is still on the roster. Which, by my count, gives the Clips four point guards... zero of whom can guard the 2. All of which makes me interested to see what their rotation looks like.
Either way, I'm excited to see how this season unwinds. Shortened or not, it's gonna be a great season.
Wednesday, December 14, 2011
Biggest Move in the NBA this Offseason
After playing what were, in my view, the most entertaining playoffs in at least 15 years, the NBA almost locked itself out of a season. Luckily, the league is back, and, with the offseason shortened, player movement has to happen in a hurry. There have been plenty of minor developments already-- Ronny Turiaf joined the Wizards, half of the Nuggets rotation is stuck in China, and the Nuggets snatched Rudy Fernandez and Ronnie Brewer. Also the Lakers signed Josh McRoberts, but no one cares. There have also been some bigger stories that I should mention, but which don't really change the title or playoff races. Brandon Roy, one of my favorite players in the league, sadly had to retire because of his knee condition (read this great tribute to him over at Huffington Post). The Nuggets, in a big move for them, re-signed Nene. And the Lakers dumped Lamar Odom to the Mavs for a trade exception (a bizarre move from a personnel standpoint, but my guess is they're looking to dump salary so they can bring in someone like Dwight Howard, or maybe even resurrect the Chris Paul deal). But I'm not going to discuss those deals, or other potential deals, like Howard moving to the Lakers or the Nets (which would also definitely change the title picture) or David Stern vetoing the initial Paul deal (which I don't want to beat to death).
Instead, I want to focus on the Tyson Chandler trade to the Knicks. This one has surprisingly flown under the radar-- Knicks fans I've talked to think it helps, but only moderately. Others lament that the Knicks haven't really made a move for Paul or another elite point. But in all honesty, I think this is a HUGE pickup for the Knicks. It takes them from a 5-7 seed in the East that would struggle to win a playoff series to a legitimate contender to win the conference. Here's why. In my eyes, Chandler is a major impact player. For my money, the only center I'd take over him for this coming season is Dwight Howard (I count Pau Gasol as a power forward, but I think I'd take Chandler over him too). Now, the league is definitely probably as thin as it's ever been at the center spot. Howard is a bona fide superstar, but right now, he's the only one at the position. When I started watching the league, it was filled to the brim with top-notch pivots: Hakeem Olajuwon was an incredible low-post presence, David Robinson was great, Patrick Ewing was a legitimate superstar, Shaq was a beast, and even guys like Alonzo Mourning, Dikembe Mutombo and Rik Smits were terrific pivot men. Also, Gheorge Muresan.
But today, only Howard fits into that category. But Chandler, for me, was the most important piece of the Mavericks championship team last season besides Dirk Nowitzki. Chandler obviously isn't much of a scorer, and he does little more on offense but set screens, crash the offensive glass and throw down alley-oops (though that still places him squarely in the middle among the NBA's offensive centers). But where Chandler really changes the game is on defense. As a defensive center, Chandler is the complete package. He's the closest thing there is in the league right now to a guy who can stand up to Howard in the low post. He plugs the lane, stifling penetration. And, most importantly, he's always in position and a terrific communicator, which are traits that often go unnoticed (Javale McGee, for example, isn't a good defensive player right now; he blocks a lot of shots, but he gets the opportunities to do it in large part because he's chronically out of position. He also leaves his feet far too much looking for the big block.).
Chandler instantly changes the Knicks. Last season, when they were trotting out Ronny Turiaf, Timofey Mozgov, and occasionally Amar'e at center, they couldn't stop anyone. Sure, they could score-- everyone up and down the roster could shoot even at the start of the season, and adding Melo in the middle of the season gave them another superstar scorer to pair with Amar'e. But they won games mostly by outscoring their opponents. Amar'e is a terrific player, but he's never been more than an average defender (and even average is a recent development). Same with Melo (though he's shown glimpses when he's tried). Chauncey Billups, now in his mid-thirties, can't guard his own shadow. Only Landry Fields, out of the starting perimeter players, was better than average on D. And with only Turiaf (who tried hard, but wasn't scaring anyone) at center, when those guys got beat, there was no one to challenge shots at the basket.
Now add Chandler. Instantly, he changes the game. As a leader, he's one of the few guys who can demand effort from stars like Amar'e and Melo on the defensive end. And if those guys do get beat off the dribble, he can still change shots at the rim. He also provides a body to man up with the East's better post centers (Howard in particular, but even guys like Roy Hibbert and Joakim Noah have the ability to give the Knicks trouble defensively on their day), and a guy who will crash the glass relentlessly (something they didn't have when they often played Amar'e at the 5-- Amar'e isn't just 6-10, but he's also not the best rebounder at his size either). Like before, they'll need Amar'e and Melo to carry them offensively, but adding Chandler instantly makes them respectable on defense. And it gives them a bona fide chance in the East, I think.
Instead, I want to focus on the Tyson Chandler trade to the Knicks. This one has surprisingly flown under the radar-- Knicks fans I've talked to think it helps, but only moderately. Others lament that the Knicks haven't really made a move for Paul or another elite point. But in all honesty, I think this is a HUGE pickup for the Knicks. It takes them from a 5-7 seed in the East that would struggle to win a playoff series to a legitimate contender to win the conference. Here's why. In my eyes, Chandler is a major impact player. For my money, the only center I'd take over him for this coming season is Dwight Howard (I count Pau Gasol as a power forward, but I think I'd take Chandler over him too). Now, the league is definitely probably as thin as it's ever been at the center spot. Howard is a bona fide superstar, but right now, he's the only one at the position. When I started watching the league, it was filled to the brim with top-notch pivots: Hakeem Olajuwon was an incredible low-post presence, David Robinson was great, Patrick Ewing was a legitimate superstar, Shaq was a beast, and even guys like Alonzo Mourning, Dikembe Mutombo and Rik Smits were terrific pivot men. Also, Gheorge Muresan.
But today, only Howard fits into that category. But Chandler, for me, was the most important piece of the Mavericks championship team last season besides Dirk Nowitzki. Chandler obviously isn't much of a scorer, and he does little more on offense but set screens, crash the offensive glass and throw down alley-oops (though that still places him squarely in the middle among the NBA's offensive centers). But where Chandler really changes the game is on defense. As a defensive center, Chandler is the complete package. He's the closest thing there is in the league right now to a guy who can stand up to Howard in the low post. He plugs the lane, stifling penetration. And, most importantly, he's always in position and a terrific communicator, which are traits that often go unnoticed (Javale McGee, for example, isn't a good defensive player right now; he blocks a lot of shots, but he gets the opportunities to do it in large part because he's chronically out of position. He also leaves his feet far too much looking for the big block.).
Chandler instantly changes the Knicks. Last season, when they were trotting out Ronny Turiaf, Timofey Mozgov, and occasionally Amar'e at center, they couldn't stop anyone. Sure, they could score-- everyone up and down the roster could shoot even at the start of the season, and adding Melo in the middle of the season gave them another superstar scorer to pair with Amar'e. But they won games mostly by outscoring their opponents. Amar'e is a terrific player, but he's never been more than an average defender (and even average is a recent development). Same with Melo (though he's shown glimpses when he's tried). Chauncey Billups, now in his mid-thirties, can't guard his own shadow. Only Landry Fields, out of the starting perimeter players, was better than average on D. And with only Turiaf (who tried hard, but wasn't scaring anyone) at center, when those guys got beat, there was no one to challenge shots at the basket.
Now add Chandler. Instantly, he changes the game. As a leader, he's one of the few guys who can demand effort from stars like Amar'e and Melo on the defensive end. And if those guys do get beat off the dribble, he can still change shots at the rim. He also provides a body to man up with the East's better post centers (Howard in particular, but even guys like Roy Hibbert and Joakim Noah have the ability to give the Knicks trouble defensively on their day), and a guy who will crash the glass relentlessly (something they didn't have when they often played Amar'e at the 5-- Amar'e isn't just 6-10, but he's also not the best rebounder at his size either). Like before, they'll need Amar'e and Melo to carry them offensively, but adding Chandler instantly makes them respectable on defense. And it gives them a bona fide chance in the East, I think.
Tuesday, November 29, 2011
Why Tim Tebow Stinks
Ever since he's been starting for the Broncos, I've been insisting that Tim Tebow is a horrible quarterback. Now, the media is all over how great Tebow is now, since the Broncos are 5-1 since he became the starter, compared to 1-4 before he became their guy. But let's be clear-- the Broncos are winning despite Tebow, not because of him. To figure out why, all you have to do is watch Tebow play. And it's not unfair to say that the guy is awful. The job of the quarterback is to complete passes and move his team down the field. And Tim Tebow is in the discussion for the worst in the league at doing that. He's had one game in which he's completed half of his passes. For the season, he's completed 45%. In the NFL, 55% is a bad completion percentage for your quarterback. JaMarcus Russell is widely recognized as a massive bust. For his career, he's completed 52% of his passes. Tebow hasn't completed more than 50% of his passes in a single GAME. But, you might say, Tebow can run. Doesn't that have value? Well sure. But this isn't college, where you can run the option. Vince Young can run, too. He was benched by the Titans and let go because the team wasn't moving the ball. But Vince Young's completed 58% of his passes for his career.
Now, the nicest thing you can say about Tebow is that he doesn't throw interceptions. And it's true-- he's only thrown 1 pick in 143 attempts. But it goes a little deeper than that if you watch the games. Tebow's only thrown 1 pick largely because he's so inaccurate, he doesn't just put the ball where his receiver can't get it-- he puts it where NO ONE can catch it. Tebow's the quarterback who's not allowed to throw. Which is a completely absurd concept-- it's the equivalent of an NBA point guard who isn't allowed to dribble. Against the Chiefs, he completed TWO passes. And they won. They're second to last in the league in passing yards (to the Jags, who threw an overmatched rookie QB into the fire on a team with no line). They lead the league in rushing, but are STILL 25th in the league in offense because Tebow's such a terrible passer.
Tebow defenders say two things. First, that he's winning games. And yeah, that's true. But football's a team sport. And he's actually got pretty good pieces around him. The Broncos' offensive line is terrific (as I mentioned, they're leading the league in rushing). Their defense, led by rookie stud Von Miller (who wears sweet hipster glasses; see pic below) has really stepped it up lately. And the teams they've been playing just aren't particularly good (the only good team they played was the Lions; they got run out of the building). The offense, since Tebow took over, is actually playing worse. We can exclude the first Chargers game (since both QBs played). The 4 games before that, the Broncos scored 20 or more points 3 times. Since then, they've scored more than 20 points once. And that included a one-play drive that was a touchdown run and a punt return for a touchdown. The defense has also been much better. In the first 5 games, they allowed fewer than 20 points once. In the last 6, they've allowed more than 20 twice (and one of those wouldn't have gotten to 20 if it hadn't been for a Denver turnover handing Oakland the ball on the Denver 15). In the last 3 games, they've allowed 10, 13, and 13. So the defense has really stepped it up.
Von Miller, Superstud
The other defense Tebow loyalists have is that he just "wills his team to victory." Well that's stupid. By that standard, Rudy was a great player because he made everyone else at Notre Dame work harder. At the end of the day, being "inspiring" is great if you're a good player. If you stink, it doesn't go very far. And if guys aren't giving 100% when someone else is playing quarterback, when those guys are professional athletes, well, they're not earning their paychecks. So let's be clear-- Tim Tebow is a terrible football player. If the Broncos want to be a player, they should be pushing to replace him. Of course, it's possible to win despite your quarterback-- the Bears went to the Super Bowl with Rex Grossman under center (though it's unfair to compare Grossman to Tebow; Rex might be a turnover machine, but, unlike Tebow, he can move the ball); the Ravens won it with Trent Dilfer as their starter. But no one in their right mind thinks those teams were winning because of their QBs.
So let's be real-- Tim Tebow is a terrible QB who the media is making a big deal of because he was a Boy Scout and is on a team that's winning despite him stinking it up.
Now, the nicest thing you can say about Tebow is that he doesn't throw interceptions. And it's true-- he's only thrown 1 pick in 143 attempts. But it goes a little deeper than that if you watch the games. Tebow's only thrown 1 pick largely because he's so inaccurate, he doesn't just put the ball where his receiver can't get it-- he puts it where NO ONE can catch it. Tebow's the quarterback who's not allowed to throw. Which is a completely absurd concept-- it's the equivalent of an NBA point guard who isn't allowed to dribble. Against the Chiefs, he completed TWO passes. And they won. They're second to last in the league in passing yards (to the Jags, who threw an overmatched rookie QB into the fire on a team with no line). They lead the league in rushing, but are STILL 25th in the league in offense because Tebow's such a terrible passer.
Tebow defenders say two things. First, that he's winning games. And yeah, that's true. But football's a team sport. And he's actually got pretty good pieces around him. The Broncos' offensive line is terrific (as I mentioned, they're leading the league in rushing). Their defense, led by rookie stud Von Miller (who wears sweet hipster glasses; see pic below) has really stepped it up lately. And the teams they've been playing just aren't particularly good (the only good team they played was the Lions; they got run out of the building). The offense, since Tebow took over, is actually playing worse. We can exclude the first Chargers game (since both QBs played). The 4 games before that, the Broncos scored 20 or more points 3 times. Since then, they've scored more than 20 points once. And that included a one-play drive that was a touchdown run and a punt return for a touchdown. The defense has also been much better. In the first 5 games, they allowed fewer than 20 points once. In the last 6, they've allowed more than 20 twice (and one of those wouldn't have gotten to 20 if it hadn't been for a Denver turnover handing Oakland the ball on the Denver 15). In the last 3 games, they've allowed 10, 13, and 13. So the defense has really stepped it up.
The other defense Tebow loyalists have is that he just "wills his team to victory." Well that's stupid. By that standard, Rudy was a great player because he made everyone else at Notre Dame work harder. At the end of the day, being "inspiring" is great if you're a good player. If you stink, it doesn't go very far. And if guys aren't giving 100% when someone else is playing quarterback, when those guys are professional athletes, well, they're not earning their paychecks. So let's be clear-- Tim Tebow is a terrible football player. If the Broncos want to be a player, they should be pushing to replace him. Of course, it's possible to win despite your quarterback-- the Bears went to the Super Bowl with Rex Grossman under center (though it's unfair to compare Grossman to Tebow; Rex might be a turnover machine, but, unlike Tebow, he can move the ball); the Ravens won it with Trent Dilfer as their starter. But no one in their right mind thinks those teams were winning because of their QBs.
So let's be real-- Tim Tebow is a terrible QB who the media is making a big deal of because he was a Boy Scout and is on a team that's winning despite him stinking it up.
Wednesday, November 23, 2011
Bringing your fire extinguisher to Noah's Flood
In a development that I definitely didn't expect, Germany had a disastrous debt auction today, driving its borrowing costs up over 2% for its 10-year notes. I think this reflects, above all else, an extreme vote of no confidence in the European Central Bank by the market. My mode of thinking about the European crisis had been of the ECB as an extremely deficit hawkish appendage of the Bundesbank. That is, it set monetary policy based exclusively on developments in Europe's biggest economy, Germany. I saw the crisis driven, in large part, by the ECB's stubborn refusal to accept marginally higher inflation in Germany in order to ease the burdens of deflation in the peripheral countries. In the case of an asymmetrical shock, like the one that struck when Greece went bust and Spain and Ireland's property bubbles burst, those countries needed wages and prices to fall relative to the rest of Europe's in order to restore export competitiveness and allow them to essentially export their way out of trouble. But, absent higher inflation in the core countries like Germany, this would mean lower nominal wages and prices in the periphery, which in turn would make those countries' real debt burdens higher (not to mention bring on a massive deflationary recession that would cause huge suffering).
In this model, I expected spreads between German and peripheral sovereign debt to widen until those countries were forced out of the Euro. The widening spreads make sense because, in the case of a Euro collapse, the new drachma and new peso would be revalued at substantially less than the deutschemark. However, that development in turn means that Germany's borrowing costs shouldn't rise, since investors would see their bonds appreciate rather than depreciate if they were revalued in deutschemarks, provided Germany doesn't default.
I think what the failed auction reflects, though, is one of two things. The first is the possibility that Germany might opt to take on the liabilities of the peripheral countries, which would put substantial fiscal pressure on the Germans. However, I think that's unlikely-- with a cooperative central bank, a one-time addition of debt could be alleviated with steady growth, provided it wasn't choked off by the central bank. Which is, I think where the heart of the problem lies. The ECB is hawkish to the extreme on inflation; if it sees a possibility of inflation, it raises rates. Which is a huge problem when economic growth Euro-wide is stagnant and there's mass unemployment. I think the fear is even contraction in Germany wouldn't lead the ECB to raise rates, out of its misguided inflationary fears. Then, in a collapse, their further misguided fear of inflation would keep them from acting. This still doesn't explain the German borrowing problem-- even in a Euro collapse, their debts would get paid off-- but I think it may just be markets' fear of anything having to do with the Euro that's driving them away from German bunds.
To use a metaphor I really like, the ECB is the fireman who shows up to Noah's flood with his fire extinguisher and gets swept away. To use Paul Krugman's (probably superior) characterization, the ECB is determined to cast itself as the highly credible defender of the value of a currency that no longer exists.
In this model, I expected spreads between German and peripheral sovereign debt to widen until those countries were forced out of the Euro. The widening spreads make sense because, in the case of a Euro collapse, the new drachma and new peso would be revalued at substantially less than the deutschemark. However, that development in turn means that Germany's borrowing costs shouldn't rise, since investors would see their bonds appreciate rather than depreciate if they were revalued in deutschemarks, provided Germany doesn't default.
I think what the failed auction reflects, though, is one of two things. The first is the possibility that Germany might opt to take on the liabilities of the peripheral countries, which would put substantial fiscal pressure on the Germans. However, I think that's unlikely-- with a cooperative central bank, a one-time addition of debt could be alleviated with steady growth, provided it wasn't choked off by the central bank. Which is, I think where the heart of the problem lies. The ECB is hawkish to the extreme on inflation; if it sees a possibility of inflation, it raises rates. Which is a huge problem when economic growth Euro-wide is stagnant and there's mass unemployment. I think the fear is even contraction in Germany wouldn't lead the ECB to raise rates, out of its misguided inflationary fears. Then, in a collapse, their further misguided fear of inflation would keep them from acting. This still doesn't explain the German borrowing problem-- even in a Euro collapse, their debts would get paid off-- but I think it may just be markets' fear of anything having to do with the Euro that's driving them away from German bunds.
To use a metaphor I really like, the ECB is the fireman who shows up to Noah's flood with his fire extinguisher and gets swept away. To use Paul Krugman's (probably superior) characterization, the ECB is determined to cast itself as the highly credible defender of the value of a currency that no longer exists.
Sunday, November 20, 2011
On Inequality
Larry Summers has a very good piece in the Financial Times about inequality which is worth taking a look at. What it shows is that the Occupy Wall Street folks, if nothing else, started what will hopefully become a valuable discussion about the harm that comes from inequality. On the whole, my feelings about OWS are mixed. On the one hand, the more specific they get, the less coherent anything they say becomes. The people down there range from those who think giving Manhattan back to Native Americans is a great idea, to those who oppose wearing fur, to those who think we'd be better off with no financial system. Needless to say, when it comes to solutions to problems, or crafting a coherent message, they come up just a little bit short. Not to mention some of the protesters' aversion to showers and their love of conspiracy theories turns me off. On the other hand, broadly speaking, they've touched on a vitally important problem in America, and started a discussion that will hopefully lead to some tangible positive change. The reality is that we do have some serious problems-- for the last 30 years, the lives of the average American haven't improved-- wages have stagnated, resulting in an explosion in the level of debt, and, while Wall Street titans have pocketed fortunes while bringing the financial system (and the national economy) to its knees, average people have been left behind.
They've succeeded in sparking a counter-movement whose members have succeeded only in inadvertently underscoring the broader point of the OWS people. Typically, the counter-protestors have countered in two ways: 1) The "dirty hippies" need to go get a job, and 2) Something along the lines of, "Look at me! My life stinks, but I'm not complaining, so you shouldn't either." Any amount of thought on these responses just underscores two points. First, we've had unemployment averaging around 9% for 3 years now. Getting a job is tough, and not because twice as many people suddenly became really really lazy, or all the jobs found really good hiding places in the woods. Something's wrong, and it's not government suddenly getting in the way and regulating everything. Second, the people underscoring how bad things are for them, or how hard they had to work to earn modest success just begs a simple question-- do we really want to live in a society where finding a job, any job, is a triumph, and where a whole lot of previously middle class people have to fight day by day to meet their most basic needs?
Opponents of this view argue that it doesn't matter if we have inequality, so long as the possibility to get rich is available to anyone. Even if that were true (it isn't: studies show "socialist" Europe has more class mobility than the US), do we really want a society where 1% (or, more accurately in the US, 0.1%) of people get fantastically wealthy while the rest struggle? I think some people have the perplexing idea that what made the US great was the fact that any child could dream of growing up to be wealthy, regardless of their class. Which, when you think about it, is a really silly proposition. Sure, Andrew Carnegie grew up a poor immigrant and got rich, and Bill Clinton went from poverty to the presidency. But Saddam Hussein was born into a family of shepherds and got fantastically rich. Joseph Stalin was the son of a cobbler who couldn't afford to pay his tuition when he was in seminary. But we don't dream of being like Ba'athist Iraq or Soviet Russia. Upward mobility is possible in any society. What made the US special was that, for awhile, you could be pretty sure that if you finished school and worked hard, you'd be able to find a decent job. You would be able to afford a home, a car and a television, and you could put your kids through college and retire comfortably to Florida in your sixties. Plenty would shoot for the stars and most would miss, but, where missing in Soviet Russia, anywhere outside of Moscow and St. Petersburg, meant poverty, in the US, if you fell, instead of crashing to Earth, you could land comfortably on a cloud. Over the last thirty years, that America has been slipping away.
Summers forcefully argues that, as a society, we need to start doing better. And I agree wholeheartedly. I don't claim to know exactly how to solve our problems, but I do know that "Cut taxes--> Shrink Government --> Magic!" formula is a proven failure. And we have to start looking for a formula that can work.
They've succeeded in sparking a counter-movement whose members have succeeded only in inadvertently underscoring the broader point of the OWS people. Typically, the counter-protestors have countered in two ways: 1) The "dirty hippies" need to go get a job, and 2) Something along the lines of, "Look at me! My life stinks, but I'm not complaining, so you shouldn't either." Any amount of thought on these responses just underscores two points. First, we've had unemployment averaging around 9% for 3 years now. Getting a job is tough, and not because twice as many people suddenly became really really lazy, or all the jobs found really good hiding places in the woods. Something's wrong, and it's not government suddenly getting in the way and regulating everything. Second, the people underscoring how bad things are for them, or how hard they had to work to earn modest success just begs a simple question-- do we really want to live in a society where finding a job, any job, is a triumph, and where a whole lot of previously middle class people have to fight day by day to meet their most basic needs?
Opponents of this view argue that it doesn't matter if we have inequality, so long as the possibility to get rich is available to anyone. Even if that were true (it isn't: studies show "socialist" Europe has more class mobility than the US), do we really want a society where 1% (or, more accurately in the US, 0.1%) of people get fantastically wealthy while the rest struggle? I think some people have the perplexing idea that what made the US great was the fact that any child could dream of growing up to be wealthy, regardless of their class. Which, when you think about it, is a really silly proposition. Sure, Andrew Carnegie grew up a poor immigrant and got rich, and Bill Clinton went from poverty to the presidency. But Saddam Hussein was born into a family of shepherds and got fantastically rich. Joseph Stalin was the son of a cobbler who couldn't afford to pay his tuition when he was in seminary. But we don't dream of being like Ba'athist Iraq or Soviet Russia. Upward mobility is possible in any society. What made the US special was that, for awhile, you could be pretty sure that if you finished school and worked hard, you'd be able to find a decent job. You would be able to afford a home, a car and a television, and you could put your kids through college and retire comfortably to Florida in your sixties. Plenty would shoot for the stars and most would miss, but, where missing in Soviet Russia, anywhere outside of Moscow and St. Petersburg, meant poverty, in the US, if you fell, instead of crashing to Earth, you could land comfortably on a cloud. Over the last thirty years, that America has been slipping away.
Summers forcefully argues that, as a society, we need to start doing better. And I agree wholeheartedly. I don't claim to know exactly how to solve our problems, but I do know that "Cut taxes--> Shrink Government --> Magic!" formula is a proven failure. And we have to start looking for a formula that can work.
Saturday, November 12, 2011
"Confidence Men" and Obama's first three years
A few days ago, I finished up Ron Suskind's Confidence Men. It's a pretty entertaining story that the Pulitzer Prize-winning Suskind tells about the failures of the Obama Administration's economic policy through the administration's first two years. First, a few notes on Suskind. He won his Pulitzer for his remarkable account of DC Public Schools in A Hope in the Unseen. Since then, he's mostly moved on to political intrigue. He wrote two books on the Bush Administration, The Price of Loyalty and The One Percent Doctrine, which savaged the decision-making process in the Bush White House. He's written for the Wall Street Journal and Esqure, so he's very much a journalist in the way he writes.
So there's two things about this book that stick out to me. The first, hoisted from Amazon.com reviews, is the perspective from which Suskind writes. The assumption seems to be that Suskind is savaging the Obama Administration from the right. People who take that tack either didn't read the book, or didn't comprehend a thing. Suskind, despite his Wall Street Journal pedigree, is very much a conventional Democrat, and his perspective is that Obama brought back the same people who pushed the deregulatory agendat that took hold of the country over the past three decades to his Administration, leading him to push policies that have been proven failures instead of re-regulating (as an aside, this, unlike the "Obama is a super socialist who is dangerously growing our government" is at least semi-coherent; the "Kenyan socialist" nonsense is either the WSJ/National Review crowd either being intentionally dishonest, or showing how tremendously stupid they are) . In essence, he splits potential appointments Obama might have made into two teams-- an "A" team (that Suskind likes) headed by consumer rights advocate, Harvard Law professor and Senate candidate Elizabeth Warren and former Fed chairman Paul Volcker, and a "B" team led by former Treasury secretary and Harvard president Larry Summers and former New York Fed president Tim Geithner.
The problem with the division is that, even internally, it's incoherent. Start with Summers. It's very obvious that Suskind interviewed Summers and didn't like him. That's nothing new. Summers is famously prickly, and a bit (well, probably a lot) of a jerk. He's arrogant and dismissive of those he deems to be unworthy of his time. But anyone who's ever worked with Summers uniformly attests one thing-- he's also absolutely brilliant. Suskind gives that short shrift, dismissing Summers as "frequently wrong" (without getting into specifics beyond "he didn't want to regulate derivatives in '98") and "unable to accede intellectual ground that he can't defend." Those are pretty broad charges, and, if Suskind's going to make them, he better answer for them. But he doesn't. Instead, he makes them, then moves on to the next point. This is problematic because Suskind spends much of his discussion of Summers talking from on high about the ideas of a man whose views he, frankly, doesn't understand. That leads to a pretty odd literary style-- he makes grand accusations, doesn't bother to support them with much beyond bombastic rhetoric and anonymous one-liner quotes from "colleagues," and then moves on as if the initial point is self-evident. The whole exercise ends up being, even internally, utterly incoherent. One of his major points is that Summers has a remarkable ability to take two sides of an argument, choose one he thinks is correct, then marshal support for it even when it turns out to be wrong. Suskind uses that as his explanation for how Summers squeezed out the ideas of Christina Romer (then the chair of Obama's Council of Economic Advisers) in favor of his own regarding the size of the stimulus the Administration passed in early 2009. There are two problems with this account. First, as has been pretty well-documented, Summers and Romer were on the same side of the argument. So, somehow, Summers had a remarkable ability to marshal support for conclusions that turned out to be wrong... which explains why the Administration decided on a policy course that differed from the one which he advocated. Second, there's the personality issue. Suskind paints Christy Romer as something of a wallflower (a major theme of the book is that women were treated with hostility in the Obama Administration). This one REALLY doesn't pass muster. Anyone who's worked with Romer at Berkeley can testify that she is not one to back down. But the book portrays her as being swept aside by Summers and Geithner... and then complaining as if she's been victimized. This is deeply unfair to Romer... and pretty damning for Suskind's account.
But probably an even bigger problem with Suskind's book is that he wants to make qualitative claims about policy-- that some policies that the Administration pursued were wrong, and that others might have been better. That's a perfectly reasonable position. But if you're going to make claims about the rightness and wrongness of policy, you better have a really good explanation for why one policy is wrong and your preferred policy is right. Suskind doesn't just give this vital element short shrift-- he ignores it altogether. He treats it as self-evident that Warren and Volcker were right on the policy, while Geithner and Rahm Emanuel were dangerously wrong. And that might work if he were able to put together a powerful argument to that effect. That argument, frankly, isn't exceptionally difficult-- Paul Krugman and Joe Stiglitz frequently argue, very coherently and persuasively, about the inadequacy of the Administration's economic policy. But Suskind ignores this altogether. And this missing element becomes even more problematic when you go through the book and realize that, despite his WSJ pedigree, Suskind doesn't understand a lot of basic finance. Now, I'm not one to look down my nose at people who don't have some knowledge about a particular topic-- God knows, I'm ignorant about most things. But, if I don't know about something, I avoid taking a strong stance on it. Suskind does the opposite-- he treats things he has no knowledge of as self-evident, then goes on to eviscerate those he argues against as disingenuous or even stupid. That's, needless to say, a pretty absurd tactic. Now, because I don't want to be a hypocrite, here are some examples.
First, Suskind repeatedly refers to Tim Geithner as the former "chair" of the New York Fed. For anyone who can look it up on Wikipedia, the New York Fed doesn't have a chair-- the Board of Governors in DC does. Ben Bernanke is the chairman of the Fed; Geither was the President of the New York Fed. That one is the most obvious, and it's just a factual error, but it's pretty indicative of Suskind's basic reporting failure. Another is his statement that a collapse of Merrill Lynch would be even more significant than Lehman Brothers' collapse because Merrill, Morgan Stanley and Goldman Sachs (the three investment banks that, at the time, were bigger than Lehman) were all about three times Lehman's size. This is complete baloney. I have no clue where Suskind gets the "three times the size" claim, but it's laughably off. A financial institution's size is normally measured by its assets. Lehman's assets were between $600 and $700 billion when it filed for bankruptcy. By all accounts, Morgan Stanley was between $800 and $900 billion, and Goldman was somewhere between $900 billion and $1 trillion. Bigger, yes. Three times bigger? Not even close. But then he makes less obvious mistakes that are, substantively, even worse. He refers to Collateralized Debt Obligations (CDOs) as "derivatives" (they're not; they're asset-backed securities), refers to swaps as a way that companies finance themselves, in a category with commercial paper and repos (that's laughably wrong; swaps are derivatives that are used either as hedging or speculative tools; you can't fund operations by buying a swap). Later, he talks about Bear Stearns dying because its counterparties were "shorting" their repo durations. This is incoherent. What Suskind meant was that they were shortening their repo durations (meaning that Bear was borrowing for a period of days instead of weeks or months in the repo market). Shorting refers to a transaction that earns a profit if the value of the referenced asset drops. While this was probably a simple typo, it leads me to think that Suskind wrote the financial sections of his book by stringing together terms he saw in the WSJ and the Financial Times without bothering to understand what they actually mean (like a little kid who hears her parents use big words and then uses them incorrectly).
While I think Suskind recognizes this shortcoming most of the time, and uses terms rarely enough that you could fill in the gaps in what he's saying enough to get to the right conclusion, when he does go for a full-length explanation, it shows just how clueless he is. There are two cases which are most egregious that I'll focus on here. First is from a conversation he has with Geithner about the rogue mortgage lender Countrywide's problems. I'll quote the whole thing, just to put it into context:
"That was really interesting," Geither later reflected, "because Countrywide had no idea what its exposure was, no understanding of what it had gotten into. And the fact that the market was unwilling to fund Treasuries if Countrywide was a counterparty was the best example of how fragile confidence was and how quickly it turned."
Translation: the market would not even lend Countrywide cash to buy Treasury bonds, the safest investment in the firmament. CDOs, MBSs, or similar types of mortgage-based collateral that Countrywide was using to roll over its repo loans were suddenly seen as impossible to value or sell in August 2007, meaning it was illiquid. The whole point of collateral is that it can be taken [...] and sold in liquid markets for cash. Countrywide's intended use for the borrowed funds -- to go out, like Sal Naro, and buy Treasuries and shore up its balance sheet or use them as collateral for emergency bank loans-- was irrelevant. Its collateral was no good.
Suskind then goes on to ridicule Geithner for thinking that Countrywide's problem was one of "confidence." The problem with this is that it is stunningly wrong. Not in a "that's not what they did" way, but in a "there's no coherent reason they would have done anything Suskind described them as doing" way. First, he misunderstands the most basic aspect of the repo market. Countrywide wasn't, as he says, trying to get the market to fund their Treasury purchases-- it was trying to borrow in the repo market with Treasuries it already held as collateral. This is a critically relevant distinction that Suskind completely butchers. Borrowing unsecured in order to buy Treasuries is completely absurd-- it's essentially giving away money, and no one would ever do it. No institution is going to have to pay a lower interest rate than the US Treasury for similar-duration bills. So if I borrow $100 from the bank to buy that amount in 10-year Treasury bills, I'll earn 2% interest, but I'll have to pay substantially more. If I can't pay, the bank will seize my Treasury bills as collateral. So, best case, I lose the spread between what I have to pay to the lender and the interest that I get on Treasury bills. Worst case, I default and the bank seizes the Treasury bills. It's a lose-lose proposition. And borrowing to buy Treasury bills doesn't "shore up the balance sheet" like Suskind says-- it weakens it even further by adding higher-yielding liabilities (the loans to buy Treasuries) while buying lower-yielding assets (Treasury bills). What Geithner's statement actually means is that lenders wouldn't even make loans to Countrywide that were secured by Treasuries already held on Countrywide's books. What this shows is that creditors had so little faith in Countrywide's credit that they wouldn't even lend when the collateral was the safest securities on the planet (Treasuries). This shows exactly what Geithner says it shows-- that the market had essentially no faith in Countrywide's creditworthiness, and didn't want to go through the hassle of fighting Countrywide to seize its collateral if the firm went belly-up the next day. The simple story here is that, if Suskind can't understand the practice Geithner is talking about, he has no grounds on which he can criticize Geithner's actions.
Even worse is Suskind's bungling of the difference between equity holders and debtors. Here's the relevant text:
The key to the equation was that, as in all bankruptcies, creditors would take a haircut [...] Geither, on this point, would not budge. Debt was sacrosanct. No creditor would suffer. [FDIC head Sheila] Bair was equally intransigent. Secured creditors, such as equity holders, of course, wouldn't be wiped out, but they had to face consequences for lending money to an institution whose recklessness had led to its demise.
This is stunningly bad. The underlined part (the underlines are mine) is where he strikes out. Secured creditors and equity holders are NOT the same thing. They're not even close to the same thing. In fact, they're not even related. Equity holders are those who own a portion of the company. They're stockholders. An equity is a stock. Secured creditors are lenders who lend against collateral that the company owns. So if I buy, say, GM bonds, I DON'T have an equity. I am an unsecured. If I give GM a line of credit that is secured by its factory (meaning that, if GM doesn't pay, I can seize the factory as collateral and sell it to get my principal back), then I am a secured creditor. Suskind conflates someone who lends against collateral with a stockholder. They're not even remotely close to being the same thing. What the discussion is about is whether unsecured creditors should have been paid in full. Geithner argued that they should be. Sheila Bair argued that the bank ought to be resolved in a procedure that looks like bankruptcy, where claimants are paid in order of their priority (secured creditors can seize collateral, then unsecured creditors are paid off to the extent possible, THEN equity holders might get some of the leftovers, though that's unlikely). Without taking a position on whether Bair or Geithner is right, Suskind simply doesn't understand the debate.
And, at heart, that's what makes the book and its conclusion so hard to take seriously. Geithner wants to cast heroes and villains. And in a narrative, that's all well and good. But if you're doing that, you sure as heck better make sure you've got firm ground to stand on intellectually. And Suskind just doesn't have it. So, even if reading the book is entertaining (and it mostly is; Suskind's a fine storyteller), one who does so should ignore any explanations and conclusions at the risk of becoming seriously misinformed.
So there's two things about this book that stick out to me. The first, hoisted from Amazon.com reviews, is the perspective from which Suskind writes. The assumption seems to be that Suskind is savaging the Obama Administration from the right. People who take that tack either didn't read the book, or didn't comprehend a thing. Suskind, despite his Wall Street Journal pedigree, is very much a conventional Democrat, and his perspective is that Obama brought back the same people who pushed the deregulatory agendat that took hold of the country over the past three decades to his Administration, leading him to push policies that have been proven failures instead of re-regulating (as an aside, this, unlike the "Obama is a super socialist who is dangerously growing our government" is at least semi-coherent; the "Kenyan socialist" nonsense is either the WSJ/National Review crowd either being intentionally dishonest, or showing how tremendously stupid they are) . In essence, he splits potential appointments Obama might have made into two teams-- an "A" team (that Suskind likes) headed by consumer rights advocate, Harvard Law professor and Senate candidate Elizabeth Warren and former Fed chairman Paul Volcker, and a "B" team led by former Treasury secretary and Harvard president Larry Summers and former New York Fed president Tim Geithner.
The problem with the division is that, even internally, it's incoherent. Start with Summers. It's very obvious that Suskind interviewed Summers and didn't like him. That's nothing new. Summers is famously prickly, and a bit (well, probably a lot) of a jerk. He's arrogant and dismissive of those he deems to be unworthy of his time. But anyone who's ever worked with Summers uniformly attests one thing-- he's also absolutely brilliant. Suskind gives that short shrift, dismissing Summers as "frequently wrong" (without getting into specifics beyond "he didn't want to regulate derivatives in '98") and "unable to accede intellectual ground that he can't defend." Those are pretty broad charges, and, if Suskind's going to make them, he better answer for them. But he doesn't. Instead, he makes them, then moves on to the next point. This is problematic because Suskind spends much of his discussion of Summers talking from on high about the ideas of a man whose views he, frankly, doesn't understand. That leads to a pretty odd literary style-- he makes grand accusations, doesn't bother to support them with much beyond bombastic rhetoric and anonymous one-liner quotes from "colleagues," and then moves on as if the initial point is self-evident. The whole exercise ends up being, even internally, utterly incoherent. One of his major points is that Summers has a remarkable ability to take two sides of an argument, choose one he thinks is correct, then marshal support for it even when it turns out to be wrong. Suskind uses that as his explanation for how Summers squeezed out the ideas of Christina Romer (then the chair of Obama's Council of Economic Advisers) in favor of his own regarding the size of the stimulus the Administration passed in early 2009. There are two problems with this account. First, as has been pretty well-documented, Summers and Romer were on the same side of the argument. So, somehow, Summers had a remarkable ability to marshal support for conclusions that turned out to be wrong... which explains why the Administration decided on a policy course that differed from the one which he advocated. Second, there's the personality issue. Suskind paints Christy Romer as something of a wallflower (a major theme of the book is that women were treated with hostility in the Obama Administration). This one REALLY doesn't pass muster. Anyone who's worked with Romer at Berkeley can testify that she is not one to back down. But the book portrays her as being swept aside by Summers and Geithner... and then complaining as if she's been victimized. This is deeply unfair to Romer... and pretty damning for Suskind's account.
But probably an even bigger problem with Suskind's book is that he wants to make qualitative claims about policy-- that some policies that the Administration pursued were wrong, and that others might have been better. That's a perfectly reasonable position. But if you're going to make claims about the rightness and wrongness of policy, you better have a really good explanation for why one policy is wrong and your preferred policy is right. Suskind doesn't just give this vital element short shrift-- he ignores it altogether. He treats it as self-evident that Warren and Volcker were right on the policy, while Geithner and Rahm Emanuel were dangerously wrong. And that might work if he were able to put together a powerful argument to that effect. That argument, frankly, isn't exceptionally difficult-- Paul Krugman and Joe Stiglitz frequently argue, very coherently and persuasively, about the inadequacy of the Administration's economic policy. But Suskind ignores this altogether. And this missing element becomes even more problematic when you go through the book and realize that, despite his WSJ pedigree, Suskind doesn't understand a lot of basic finance. Now, I'm not one to look down my nose at people who don't have some knowledge about a particular topic-- God knows, I'm ignorant about most things. But, if I don't know about something, I avoid taking a strong stance on it. Suskind does the opposite-- he treats things he has no knowledge of as self-evident, then goes on to eviscerate those he argues against as disingenuous or even stupid. That's, needless to say, a pretty absurd tactic. Now, because I don't want to be a hypocrite, here are some examples.
First, Suskind repeatedly refers to Tim Geithner as the former "chair" of the New York Fed. For anyone who can look it up on Wikipedia, the New York Fed doesn't have a chair-- the Board of Governors in DC does. Ben Bernanke is the chairman of the Fed; Geither was the President of the New York Fed. That one is the most obvious, and it's just a factual error, but it's pretty indicative of Suskind's basic reporting failure. Another is his statement that a collapse of Merrill Lynch would be even more significant than Lehman Brothers' collapse because Merrill, Morgan Stanley and Goldman Sachs (the three investment banks that, at the time, were bigger than Lehman) were all about three times Lehman's size. This is complete baloney. I have no clue where Suskind gets the "three times the size" claim, but it's laughably off. A financial institution's size is normally measured by its assets. Lehman's assets were between $600 and $700 billion when it filed for bankruptcy. By all accounts, Morgan Stanley was between $800 and $900 billion, and Goldman was somewhere between $900 billion and $1 trillion. Bigger, yes. Three times bigger? Not even close. But then he makes less obvious mistakes that are, substantively, even worse. He refers to Collateralized Debt Obligations (CDOs) as "derivatives" (they're not; they're asset-backed securities), refers to swaps as a way that companies finance themselves, in a category with commercial paper and repos (that's laughably wrong; swaps are derivatives that are used either as hedging or speculative tools; you can't fund operations by buying a swap). Later, he talks about Bear Stearns dying because its counterparties were "shorting" their repo durations. This is incoherent. What Suskind meant was that they were shortening their repo durations (meaning that Bear was borrowing for a period of days instead of weeks or months in the repo market). Shorting refers to a transaction that earns a profit if the value of the referenced asset drops. While this was probably a simple typo, it leads me to think that Suskind wrote the financial sections of his book by stringing together terms he saw in the WSJ and the Financial Times without bothering to understand what they actually mean (like a little kid who hears her parents use big words and then uses them incorrectly).
While I think Suskind recognizes this shortcoming most of the time, and uses terms rarely enough that you could fill in the gaps in what he's saying enough to get to the right conclusion, when he does go for a full-length explanation, it shows just how clueless he is. There are two cases which are most egregious that I'll focus on here. First is from a conversation he has with Geithner about the rogue mortgage lender Countrywide's problems. I'll quote the whole thing, just to put it into context:
"That was really interesting," Geither later reflected, "because Countrywide had no idea what its exposure was, no understanding of what it had gotten into. And the fact that the market was unwilling to fund Treasuries if Countrywide was a counterparty was the best example of how fragile confidence was and how quickly it turned."
Translation: the market would not even lend Countrywide cash to buy Treasury bonds, the safest investment in the firmament. CDOs, MBSs, or similar types of mortgage-based collateral that Countrywide was using to roll over its repo loans were suddenly seen as impossible to value or sell in August 2007, meaning it was illiquid. The whole point of collateral is that it can be taken [...] and sold in liquid markets for cash. Countrywide's intended use for the borrowed funds -- to go out, like Sal Naro, and buy Treasuries and shore up its balance sheet or use them as collateral for emergency bank loans-- was irrelevant. Its collateral was no good.
Suskind then goes on to ridicule Geithner for thinking that Countrywide's problem was one of "confidence." The problem with this is that it is stunningly wrong. Not in a "that's not what they did" way, but in a "there's no coherent reason they would have done anything Suskind described them as doing" way. First, he misunderstands the most basic aspect of the repo market. Countrywide wasn't, as he says, trying to get the market to fund their Treasury purchases-- it was trying to borrow in the repo market with Treasuries it already held as collateral. This is a critically relevant distinction that Suskind completely butchers. Borrowing unsecured in order to buy Treasuries is completely absurd-- it's essentially giving away money, and no one would ever do it. No institution is going to have to pay a lower interest rate than the US Treasury for similar-duration bills. So if I borrow $100 from the bank to buy that amount in 10-year Treasury bills, I'll earn 2% interest, but I'll have to pay substantially more. If I can't pay, the bank will seize my Treasury bills as collateral. So, best case, I lose the spread between what I have to pay to the lender and the interest that I get on Treasury bills. Worst case, I default and the bank seizes the Treasury bills. It's a lose-lose proposition. And borrowing to buy Treasury bills doesn't "shore up the balance sheet" like Suskind says-- it weakens it even further by adding higher-yielding liabilities (the loans to buy Treasuries) while buying lower-yielding assets (Treasury bills). What Geithner's statement actually means is that lenders wouldn't even make loans to Countrywide that were secured by Treasuries already held on Countrywide's books. What this shows is that creditors had so little faith in Countrywide's credit that they wouldn't even lend when the collateral was the safest securities on the planet (Treasuries). This shows exactly what Geithner says it shows-- that the market had essentially no faith in Countrywide's creditworthiness, and didn't want to go through the hassle of fighting Countrywide to seize its collateral if the firm went belly-up the next day. The simple story here is that, if Suskind can't understand the practice Geithner is talking about, he has no grounds on which he can criticize Geithner's actions.
Even worse is Suskind's bungling of the difference between equity holders and debtors. Here's the relevant text:
The key to the equation was that, as in all bankruptcies, creditors would take a haircut [...] Geither, on this point, would not budge. Debt was sacrosanct. No creditor would suffer. [FDIC head Sheila] Bair was equally intransigent. Secured creditors, such as equity holders, of course, wouldn't be wiped out, but they had to face consequences for lending money to an institution whose recklessness had led to its demise.
This is stunningly bad. The underlined part (the underlines are mine) is where he strikes out. Secured creditors and equity holders are NOT the same thing. They're not even close to the same thing. In fact, they're not even related. Equity holders are those who own a portion of the company. They're stockholders. An equity is a stock. Secured creditors are lenders who lend against collateral that the company owns. So if I buy, say, GM bonds, I DON'T have an equity. I am an unsecured. If I give GM a line of credit that is secured by its factory (meaning that, if GM doesn't pay, I can seize the factory as collateral and sell it to get my principal back), then I am a secured creditor. Suskind conflates someone who lends against collateral with a stockholder. They're not even remotely close to being the same thing. What the discussion is about is whether unsecured creditors should have been paid in full. Geithner argued that they should be. Sheila Bair argued that the bank ought to be resolved in a procedure that looks like bankruptcy, where claimants are paid in order of their priority (secured creditors can seize collateral, then unsecured creditors are paid off to the extent possible, THEN equity holders might get some of the leftovers, though that's unlikely). Without taking a position on whether Bair or Geithner is right, Suskind simply doesn't understand the debate.
And, at heart, that's what makes the book and its conclusion so hard to take seriously. Geithner wants to cast heroes and villains. And in a narrative, that's all well and good. But if you're doing that, you sure as heck better make sure you've got firm ground to stand on intellectually. And Suskind just doesn't have it. So, even if reading the book is entertaining (and it mostly is; Suskind's a fine storyteller), one who does so should ignore any explanations and conclusions at the risk of becoming seriously misinformed.
Wednesday, November 9, 2011
Hold EVERYONE at Penn State Accountable
I'll probably post something about the Euro later tonight, just because it looks like it's on the brink of collapse in the next week or so, but, on a personal level, I think this story is more pressing.
The Washington Post has two columns today on the unfolding pedophilia scandal involving former Penn State defensive coordinator Jerry Sandusly. Jason Reid basically has it right when he says that Joe Paterno needs to resign now. But I want to focus on Sally Jenkins's column, which is so off base it would be laughable if it wasn't so disturbing.
Ms. Jenkins argues that Joe Paterno shouldn't be assigned blame for allowing the Sandusky child rape go on for so long. The arguments she makes are... bizarre and nonsensical. She says that, because Paterno worked with Sandusky for so long and you can't recognize a pedophile just by looking at him (or her, I guess, but in this case, him), he wasn't in a position to be able to look objectively at Sandusky's behavior. That's absurd. Sure, if Sandusky was looming in the shadows, and somehow, implausibly, did this for decades without getting caught, that would be one thing. And, had this all just come to light, no one would be throwing Paterno under the bus. But the reality is that in 2002, Paterno got a specific report: that Sandusky was naked in the shower with a boy who looked to be about 10 years old. Whether he was told that Sandusky was having anal sex with the boy is unclear, but also completely irrelevant. If you get a report that your trusted assistant is naked with a pre-teen boy, your responsibility is NOT just to kick it up the chain of command-- it's to take IMMEDIATE action. That means confronting the assistant, reporting it to the police, and, in the interim, barring the assistant from your facilities. "I can't believe he would do that, he's my friend" is not an excuse when the reality is that, if you're wrong, no matter how low the odds, you're going to ruin the lives of innocent kids. If it turns out to be true... he'll be exonerated by the authorities. But if you turn out to be wrong, you've irrevocably ruined innocent lives.
Yes, the athletic director, the administration, and everyone else should also be punished for their failures in this case. Many of them are probably more guilty than Paterno. But, last I checked, someone else being more responsible doesn't alleviate one person's responsibility. Morally, this incident makes Paterno scum. The only course of action is for him to resign right now, and take real responsibility for his failure.
The Washington Post has two columns today on the unfolding pedophilia scandal involving former Penn State defensive coordinator Jerry Sandusly. Jason Reid basically has it right when he says that Joe Paterno needs to resign now. But I want to focus on Sally Jenkins's column, which is so off base it would be laughable if it wasn't so disturbing.
Ms. Jenkins argues that Joe Paterno shouldn't be assigned blame for allowing the Sandusky child rape go on for so long. The arguments she makes are... bizarre and nonsensical. She says that, because Paterno worked with Sandusky for so long and you can't recognize a pedophile just by looking at him (or her, I guess, but in this case, him), he wasn't in a position to be able to look objectively at Sandusky's behavior. That's absurd. Sure, if Sandusky was looming in the shadows, and somehow, implausibly, did this for decades without getting caught, that would be one thing. And, had this all just come to light, no one would be throwing Paterno under the bus. But the reality is that in 2002, Paterno got a specific report: that Sandusky was naked in the shower with a boy who looked to be about 10 years old. Whether he was told that Sandusky was having anal sex with the boy is unclear, but also completely irrelevant. If you get a report that your trusted assistant is naked with a pre-teen boy, your responsibility is NOT just to kick it up the chain of command-- it's to take IMMEDIATE action. That means confronting the assistant, reporting it to the police, and, in the interim, barring the assistant from your facilities. "I can't believe he would do that, he's my friend" is not an excuse when the reality is that, if you're wrong, no matter how low the odds, you're going to ruin the lives of innocent kids. If it turns out to be true... he'll be exonerated by the authorities. But if you turn out to be wrong, you've irrevocably ruined innocent lives.
Yes, the athletic director, the administration, and everyone else should also be punished for their failures in this case. Many of them are probably more guilty than Paterno. But, last I checked, someone else being more responsible doesn't alleviate one person's responsibility. Morally, this incident makes Paterno scum. The only course of action is for him to resign right now, and take real responsibility for his failure.
Sunday, November 6, 2011
How much longer for the Euro?
Looks like Greece's prime minister has to resign in order for them to accept the latest package. I still don't think it's going to make a difference. Sure, it includes some debt write-downs (definitely a good thing), but it also includes a bunch of immediate austerity (short-term, definitely not a good thing). For me, the key would be a commitment on the ECB's part to support the Euro-periphery's funding needs until their economies recover (an indefinite bond-buying program, for example). But, while Mario Draghi is infinitely more competent than Jean-Claude Trichet, he still doesn't seem to be willing to give the peripheral countries the kind of commitment they need to get them through the crisis.
While it's kind of hard to see the Europeans letting the Euro go, they are also committed to not doing enough to keep the Euro-zone together. Eventually, this will come to a head-- Greeks will get tired of counterproductive austerity, and the Euro will reach a point of crisis. Either the ECB will have to provide open-ended financing and delay austerity until the economy can recover, or Greece will have to shut down its banking sector, default on its debts, and exit the Euro-zone. That will inevitably cause massive bank runs-- assets on Greek banks' books are Euro-denominated, while the drachma would inevitably be worth substantially less than the Euro. Depending on the global financial system's exposure to Greek (and other peripheral European) debt, it could also have knock-on effects whose scale could range anywhere from seriously disruptive to catastrophic.
I tend to think that a Greek default would cause a cascading effect, at the least to Spain, Italy, and Portugal, but potentially even further. In that case, I think we'd be facing a global Lehman moment. Lehman's disorderly collapse in 2008 shook global financial markets so much that the Congress was immediately scared into passing TARP and bailing out the rest of the big American banks, while the Fed flooded the US financial system with trillions of dollars of emergency liquidity to prevent an imminent failure. A failure of any one of Greece, Spain, Italy or Portugal, never mind all four, would be a few orders of magnitude worse. And the US alone probably wouldn't be equipped to rescue them. I think at that point we'd need a concentrated global effort to avert global economic collapse, with not just Germany and France, but also China and the US pitching in funds to stabilize the global financial system. Now, the ECB could choke off that kind of disaster by taking aggressive steps to create higher inflation in the Euro-zone and buy up peripheral Euro-zone debt, but it's looking more and more like the ECB is a useless institution, which in turn could well mean that the global economy would have to be on the verge of collapse before it was induced to act.
While it's kind of hard to see the Europeans letting the Euro go, they are also committed to not doing enough to keep the Euro-zone together. Eventually, this will come to a head-- Greeks will get tired of counterproductive austerity, and the Euro will reach a point of crisis. Either the ECB will have to provide open-ended financing and delay austerity until the economy can recover, or Greece will have to shut down its banking sector, default on its debts, and exit the Euro-zone. That will inevitably cause massive bank runs-- assets on Greek banks' books are Euro-denominated, while the drachma would inevitably be worth substantially less than the Euro. Depending on the global financial system's exposure to Greek (and other peripheral European) debt, it could also have knock-on effects whose scale could range anywhere from seriously disruptive to catastrophic.
I tend to think that a Greek default would cause a cascading effect, at the least to Spain, Italy, and Portugal, but potentially even further. In that case, I think we'd be facing a global Lehman moment. Lehman's disorderly collapse in 2008 shook global financial markets so much that the Congress was immediately scared into passing TARP and bailing out the rest of the big American banks, while the Fed flooded the US financial system with trillions of dollars of emergency liquidity to prevent an imminent failure. A failure of any one of Greece, Spain, Italy or Portugal, never mind all four, would be a few orders of magnitude worse. And the US alone probably wouldn't be equipped to rescue them. I think at that point we'd need a concentrated global effort to avert global economic collapse, with not just Germany and France, but also China and the US pitching in funds to stabilize the global financial system. Now, the ECB could choke off that kind of disaster by taking aggressive steps to create higher inflation in the Euro-zone and buy up peripheral Euro-zone debt, but it's looking more and more like the ECB is a useless institution, which in turn could well mean that the global economy would have to be on the verge of collapse before it was induced to act.
Wednesday, November 2, 2011
Are they really printing this?
I opened CNN's website today to see what might be the worst political column ever from Ruben Navarette. Admittedly, I don't know much about the Herman Cain sexual harassment allegations-- but what this story suggests is that it's "time to stop accusing black conservatives of sexual harassment" and that Cain and Clarence Thomas (in the context of the Anita Hill allegations during his confirmation to the Supreme Court) came under attack for was... daring to "think outside the box" and "be black conservatives." I think these two paragraphs sum it up.
Many Americans look back at Thomas' confirmation hearings and think they were mainly about accusations that Thomas directed sexually blunt language at Hill. But for me, what they were really about wasn't dirty talk as much as dirty politics. Black conservatives ask us to think outside the box, and so -- as some people see it -- they're asking for trouble.
The hearings were also about freedom -- the freedom to indulge in independent thought, even if it means biting the hands of liberal benefactors. You heard that criticism leveled at Thomas, who opposes affirmative action even though -- according to his critics -- he benefited from it. And the public humiliation that Thomas suffered remains a prime example of the liberal establishment trying to put someone in his place.
Really...? The reason Anita Hill accused Clarence Thomas of sexual harassment was his race and his political party...? Shouldn't the first question be, you know, whether Clarence Thomas and Herman Cain actually sexually abused anyone?? Is that a radical idea? Now, if both of these men were demonstrably falsely accused, we might be on to something. But that's hardly the case. In Cain's case, he paid a settlement, and in Thomas's case, while the truth hasn't necessarily been discovered, Hill passed a polygraph test while Thomas refused to take one.
And sexual harassment allegations, just in case they forgot, are hardly unique to black conservatives. Anyone remember Bill Clinton? He spent years publicly fighting Paula Jones's sexual harassment allegation (one which had no more basis than it appears the one against Cain, and less than the one against Thomas), and was ultimately, you know, impeached (though not for that). No one's suggesting that Bill Clinton was a great husband, or a model of good behavior. It's well known that he was (and probably still is) a notorious skirt chaser who regularly cheated on his wife. But, at the end of the day, the only thing he probably did that was illegal was lie to a grand jury about a consensual sexual relationship... and he almost got booted from office for that one.
The first thing we need to be looking at isn't whether people are accusing black conservatives like Herman Cain and Clarence Thomas of sexual harassment because they're black conservatives... we need to be looking at whether those accusations are, you know, true or false. If they're false, that's one thing. If they're true, well, the author seems to suggest that it's somehow OK because, um, the accused are black and conservative?
Many Americans look back at Thomas' confirmation hearings and think they were mainly about accusations that Thomas directed sexually blunt language at Hill. But for me, what they were really about wasn't dirty talk as much as dirty politics. Black conservatives ask us to think outside the box, and so -- as some people see it -- they're asking for trouble.
The hearings were also about freedom -- the freedom to indulge in independent thought, even if it means biting the hands of liberal benefactors. You heard that criticism leveled at Thomas, who opposes affirmative action even though -- according to his critics -- he benefited from it. And the public humiliation that Thomas suffered remains a prime example of the liberal establishment trying to put someone in his place.
Really...? The reason Anita Hill accused Clarence Thomas of sexual harassment was his race and his political party...? Shouldn't the first question be, you know, whether Clarence Thomas and Herman Cain actually sexually abused anyone?? Is that a radical idea? Now, if both of these men were demonstrably falsely accused, we might be on to something. But that's hardly the case. In Cain's case, he paid a settlement, and in Thomas's case, while the truth hasn't necessarily been discovered, Hill passed a polygraph test while Thomas refused to take one.
And sexual harassment allegations, just in case they forgot, are hardly unique to black conservatives. Anyone remember Bill Clinton? He spent years publicly fighting Paula Jones's sexual harassment allegation (one which had no more basis than it appears the one against Cain, and less than the one against Thomas), and was ultimately, you know, impeached (though not for that). No one's suggesting that Bill Clinton was a great husband, or a model of good behavior. It's well known that he was (and probably still is) a notorious skirt chaser who regularly cheated on his wife. But, at the end of the day, the only thing he probably did that was illegal was lie to a grand jury about a consensual sexual relationship... and he almost got booted from office for that one.
The first thing we need to be looking at isn't whether people are accusing black conservatives like Herman Cain and Clarence Thomas of sexual harassment because they're black conservatives... we need to be looking at whether those accusations are, you know, true or false. If they're false, that's one thing. If they're true, well, the author seems to suggest that it's somehow OK because, um, the accused are black and conservative?
Tuesday, November 1, 2011
William Cohan is Stealing My Thunder
Yesterday, I posted this. Then I picked up today's New York Times, and Andrew Ross Sorkin quoted William Cohan saying... pretty much the same thing I posted. Guess everyone thinks the same thing at the same time...
Monday, October 31, 2011
Adios, MF Global
The mid-size broker-dealer MF Global filed for Chapter 11 bankruptcy this morning. In the big picture, this isn't huge news. MF Global had a $42.5 billion balance sheet-- not tiny, but about 1/15th the size of Lehman Brothers' when they filed three years ago. Clearly, the financial system isn't going over a cliff because of this one. But what's interesting about this is what it means for the Titans of Wall Street, whose biggest names are seeing their reputations continue to take a hit in the aftermath of the global economic meltdown.
MF Global is probably most famous for the guy in charge-- Jon Corzine. In his last life, he was governor of New Jersey. Before that, he was the senator from New Jersey. And before that, he was a senior partner at Goldman Sachs, succeeding Steve Friedman before Hank Paulson pushed him out in 1999. It's a bit of a stunning fall from grace for Corzine-- he goes from being run out of Goldman to losing a re-election campaign to Chris Christie to presiding over MF Global for 18 months before it collapsed. Corzine took over the sleepy broker-dealer and hoped to turn it into another Goldman Sachs-- a bold risk-taking firm that could make big returns on equity by placing bets with its own money. The perception was that he was succeeding-- in August, MF Global floated bonds whose yield would jump 1% (they'd have to pay more interest) if Corzine left the firm to serve in the Obama Administration before 2013. Instead, Corzine's strategy imploded. The firm found itself with about $185 million in losses last quarter (compared to just under $1.5 billion in equity) after taking an over $6 billion position in distressed European debt. As if that wasn't bad enough, it looks like almost $700 million in customer funds is unaccounted for after the bankruptcy filing. While it's unlikely that it was stolen, it does look like MF Global was mingling its customers' funds with its own capital, which is a big regulatory no-no.
But the big story, to me, is how Corzine's fall from grace continues a proud line of big names from Goldman who just haven't done particularly well in other places. First, it was Bob Rubin, who left with a glittering reputation to join the Clinton Administration, was hailed as a great Treasury secretary... and then left to become Chairman of the Executive Committee at Citigroup. There, he pushed Citi to take bigger risks, Goldman-style, saw his deregulatory policies as Treasury Secretary fall into heavy disfavor, then watched Citi drive itself to the brink of collapse after taking his advice. But Rubin and Corzine aren't the only ones who have fallen out of favor: Chris Flowers, who left Goldman to open his own private equity shop, lost almost $50 million betting on MF Global, and keeps appearing at the scene of financial disaster after financial disaster.
So it seems like Goldman execs don't exactly have a great track record of replicating Goldman's success after leaving the firm. But it's not just leaving Goldman that seems to be a recipe for disaster-- Goldman itself isn't exactly flying high right about now either. Last quarter, they posted their second quarterly loss since going public in 1999 (the first was in 2008). Their stock price is off by about 60% from its 2007 peak, and it had to cut 1000 more employees recently (in addition to the typical performance-related layoffs). What this looks like to me is that it's not Goldman's traders that turned it into the best-performing big investment bank of the last two decades-- it was their risk management people, who kept them afloat through rough market conditions even as other firms teetered on the brink. Take the risk takers like Corzine and Rubin away from the risk managers, and they're no better than anyone else in the industry.
Now, I might be wrong in my diagnosis, but, at least perception-wise, the old superstars of Goldman's past have pretty much all lost their luster over the last few years. Corzine wasn't the first, and I kind of doubt he'll be the last...
MF Global is probably most famous for the guy in charge-- Jon Corzine. In his last life, he was governor of New Jersey. Before that, he was the senator from New Jersey. And before that, he was a senior partner at Goldman Sachs, succeeding Steve Friedman before Hank Paulson pushed him out in 1999. It's a bit of a stunning fall from grace for Corzine-- he goes from being run out of Goldman to losing a re-election campaign to Chris Christie to presiding over MF Global for 18 months before it collapsed. Corzine took over the sleepy broker-dealer and hoped to turn it into another Goldman Sachs-- a bold risk-taking firm that could make big returns on equity by placing bets with its own money. The perception was that he was succeeding-- in August, MF Global floated bonds whose yield would jump 1% (they'd have to pay more interest) if Corzine left the firm to serve in the Obama Administration before 2013. Instead, Corzine's strategy imploded. The firm found itself with about $185 million in losses last quarter (compared to just under $1.5 billion in equity) after taking an over $6 billion position in distressed European debt. As if that wasn't bad enough, it looks like almost $700 million in customer funds is unaccounted for after the bankruptcy filing. While it's unlikely that it was stolen, it does look like MF Global was mingling its customers' funds with its own capital, which is a big regulatory no-no.
But the big story, to me, is how Corzine's fall from grace continues a proud line of big names from Goldman who just haven't done particularly well in other places. First, it was Bob Rubin, who left with a glittering reputation to join the Clinton Administration, was hailed as a great Treasury secretary... and then left to become Chairman of the Executive Committee at Citigroup. There, he pushed Citi to take bigger risks, Goldman-style, saw his deregulatory policies as Treasury Secretary fall into heavy disfavor, then watched Citi drive itself to the brink of collapse after taking his advice. But Rubin and Corzine aren't the only ones who have fallen out of favor: Chris Flowers, who left Goldman to open his own private equity shop, lost almost $50 million betting on MF Global, and keeps appearing at the scene of financial disaster after financial disaster.
So it seems like Goldman execs don't exactly have a great track record of replicating Goldman's success after leaving the firm. But it's not just leaving Goldman that seems to be a recipe for disaster-- Goldman itself isn't exactly flying high right about now either. Last quarter, they posted their second quarterly loss since going public in 1999 (the first was in 2008). Their stock price is off by about 60% from its 2007 peak, and it had to cut 1000 more employees recently (in addition to the typical performance-related layoffs). What this looks like to me is that it's not Goldman's traders that turned it into the best-performing big investment bank of the last two decades-- it was their risk management people, who kept them afloat through rough market conditions even as other firms teetered on the brink. Take the risk takers like Corzine and Rubin away from the risk managers, and they're no better than anyone else in the industry.
Now, I might be wrong in my diagnosis, but, at least perception-wise, the old superstars of Goldman's past have pretty much all lost their luster over the last few years. Corzine wasn't the first, and I kind of doubt he'll be the last...
Monday, October 17, 2011
The case for voting Republican
Sometimes, I remember that next year's an election year. Which means the Republicans are going to run a candidate to rival Obama. Now, with unemployment above 9%, the only issue that really matters is the economy. Since the general public doesn't understand the first thing about economic policymaking, chances are if the economy is still in the tanker next Fall, a Republican could win. The Republican debate on the economy was, as I figured it would be, a complete sham. They stood on stage and tried to outdo each other by saying dumber and dumber things. And some of them actually believed it. Which is why there's no way in hell I'd ever vote for Herman Cain, whose bank teller economic adviser managed to create a tax plan that reduces revenue AND raises taxes for the poor and the middle class, while cutting them massively for buyout barons and hedge fund managers. So he's out. Rick Perry has a "super secret" plan he won't disclose, but he's campaigning on the "competitively lower wages against yourself" platform, which shows he doesn't understand accounting identities, so he's out too. Jon Huntsman is running as white Obama, so the chances of him getting nominated are zero. Rick Santorum is a fool and Michele Bachmann's nuts. So that leaves Mitt Romney.
Right now, Romney's the front-runner, and, if things go according to plan, will probably be the nominee. And if he is, I'd be tempted to vote for him. Here's why. While he's been playing an idiot on TV for the last two months to appeal to his base, Romney's no fool. His economic team is headed by Greg Mankiw, who, while definitely a Republican, is a very good economist. And Mankiw and Romney realize that wrecking the economy isn't good for Romney's re-election prospects. So the results... will likely be economic policies that look an awful lot like Obama's, only more aggressive. The rhetoric about lynching Bernanke will go out the window. And lip service will be paid to "repealing regulations" so that, in the end, if the economy does recover, Romney can claim that it was the vague platitudes that are the cause. But in reality, while promising less aggressive policies, he'll likely be able to deliver more. Why? Because, while Republicans in Congress have spent the last 3 years decrying everything Obama's proposed as the death knell of capitalism, they won't want to see a Romney presidency fail. So the apocalyptic rhetoric will die down, and we'll get better policy, simply because of the political party of the person in the White House.
Now, my main reservation about voting for Romney is that it would reward Republicans for their bad behavior. Frankly, the last few years have been completely disgusting in that regard. Obama hasn't been able to get even extremely competent appointees past Congress... three years into his term (Richard Shelby's claim that Nobel laureate Peter Diamond was "unqualified" for the Fed board was an embarrassment). Any effort to relieve the economic problems has been stonewalled. And the Republicans risked allowing the nation to default just to wring concessions out of Obama. I can definitively say nothing like that would happen with President Romney in power. In essence, we'd likely get more aggressive policies than we got under Obama (though not as aggressive as might be ideal) because Republicans won't line up to oppose a Romney presidency the way they did to Obama.
But the real issue with casting that vote is that it essentially sends the signal to the Republican Party that they can stonewall everything for political gain, and it will benefit them politically in the end. So I'm really not inclined to cast my vote that way just for that reason. But I think it's very likely that we'll be better off under a President Romney just for that reason, and it is something I've thought about.
Goldman joins the 99%
All of the big Wall Street banks keep economists on their payroll to forecast trends and assist their traders in establishing positions. Goldman Sachs happens to have one of the best in the industry in Jan Hatzius. Now, Hatzius is calling on the Fed to set an explicit nominal GDP target which, combined with more quantitative easing, would bolster economic growth. Hatzius's baseline scenario (no action on the Fed's part) has unemployment at over 7% at the end of 2015 (a truly scary proposition), he forecasts that a nominal GDP target combined with more QE could get unemployment under 7% before 2013 rolls around.
A rising tide (in terms of GDP) certainly lifts all ships-- a thriving economy wouldn't just be beneficial to Goldman; it would also be welcome relief for the millions of unemployed who have suffered through this crisis. And the biggest roadblock to Fed action right now is... Republican politicians. While Democratic (Krugman, Stiglitz, Roubini) and Republican (Mankiw, Rogoff) economists alike have called on the Fed to be more aggressive, Republican presidential candidates have all decided that Ben Bernanke should be replaced as Fed chairman... because he's done too much to help support the economy. Which is kind of an absurd position, given that, without his support, we would be looking at catastrophic unemployment worse than we had during the Great Depression.
But the real message to take out of this is that, when it comes to fixing the economy, Wall Street and Main Street are on the same page-- both would benefit from aggressive action by both the Fed and the government to tackle the unemployment problem. But it's politicians that are blocking the road path to fixing that problem.
A rising tide (in terms of GDP) certainly lifts all ships-- a thriving economy wouldn't just be beneficial to Goldman; it would also be welcome relief for the millions of unemployed who have suffered through this crisis. And the biggest roadblock to Fed action right now is... Republican politicians. While Democratic (Krugman, Stiglitz, Roubini) and Republican (Mankiw, Rogoff) economists alike have called on the Fed to be more aggressive, Republican presidential candidates have all decided that Ben Bernanke should be replaced as Fed chairman... because he's done too much to help support the economy. Which is kind of an absurd position, given that, without his support, we would be looking at catastrophic unemployment worse than we had during the Great Depression.
But the real message to take out of this is that, when it comes to fixing the economy, Wall Street and Main Street are on the same page-- both would benefit from aggressive action by both the Fed and the government to tackle the unemployment problem. But it's politicians that are blocking the road path to fixing that problem.
Friday, October 14, 2011
Republicans on the economy
When it comes to job creation, the Obama Administration has a pretty poor record-- that's no secret. It pitched an initial stimulus that was much too small, came back for a second round of stimulus that was also much too small, and really hasn't done anything about the debt overhang in housing that's continuing to drag economic growth. But, unfortunately, politics being what it is, the question isn't whether the Obama Administration is doing well-- it's whether the Republicans have a better alternative. And, after reading the transcript of the primary debate, the clear answer is that, at least from what they say, the answer is very clearly "no." So first, I'll go through some general thoughts, and then some specifics about what's wrong with each candidate.
What the Republicans don't seem to understand, across the board, is simple accounting identities. To be fair, Britain's Prime Minister, David Cameron, doesn't understand them either. It's very clear that a major drag on growth in the US is that consumers built up unsustainable debt burdens by borrowing against their houses. The big banks did the same thing. And, with tax revenues depressed, government has been running deficits (rightly, but ignore my commentary for a second). So, in essence, consumers and businesses have both been savings to pay down their debts. Government spending hasn't done nearly enough to fill that hole. But the Republican candidates, to a man, seem to think that government should be cutting spending, and that those spending cuts will somehow spur job creation. To understand how wrong that is, all you need to understand is simple arithmetic. The first truism is that debt is a zero-sum game: there's no such thing as "too much debt in the system"-- individuals can be overindebted, businesses can be overindebted, and governments can be overindebted. But every dollar of debt is offset by a dollar of lending-- you can't run up debt unless you find someone else to lend to you. Demand (and the size of the economy and job growth by extension), however, is not a zero-sum game. If, as the Republican candidates insist, government should be reducing the deficit (and paying down debt), and consumers should be paying down debt (which they obviously should be), and businesses should be paying down debt (which certainly happened over the last few years), then there's no place for demand to come from. To pay down debt, you need income. And to earn income, someone has to demand your labor (meaning spend money). And that means that someone has to be borrowing. Now, consumers are already overindebted, so consumer borrowing is a terrible idea. And it's hard to induce businesses to spend when demand is weak without creating expected inflation (go find a Republican presidential candidate to advocate higher inflation), so the only remaining candidate is the government. By putting people to work, they can pay down their debts, which allows them to spend more in the future once they have paid off their debts. This economic growth eventually bolsters government finances and allows the government to draw down its spending and pay down its debts. Unfortunately, none of the Republican candidates seem to understand this accounting identity. So instead we've got a bunch of candidates who insist that everyone needs to save more simultaneously and get out of debt at the same time. Which is a nice recipe for disaster.
Now, even though all of the candidates are a mess, the specifics are pretty bad too. To start with, we've got the Hermanator hawking his "9-9-9" tax plan, which sounds an awful lot like Domino's 5-5-5 pizza deal from back in the day. When the moderator pointed out that 9-9-9 wouldn't raise enough revenue to run the government, the Hermanator said everyone was using the wrong baseline. But, since he hasn't pointed out that baseline, I guess we're supposed to take him at his word. Good luck with that. It also doesn't help that the "expert" who came up with this idea isn't an economist at all-- it's a Wells Fargo wealth manager with an accounting degree. And not a high-level wealth manager, but the guy you go to if you want to plan your retirement. Which is a respectable profession and all, but most definitely doesn't qualify you to advise a presidential candidate on federal tax policy. It's the equivalent of a Starcraft junkie coming up with military strategy.
Then you've got Rick Perry. Somehow, he's gonna create 1.2 million jobs in the energy industry by "making America energy independent." But no one knows what the plan is, and no one's suggested they can make anything of it, so there's no there there. Then you've got Michelle Bachmann, who whined about Barney Frank a lot, but didn't offer anything in the way of ideas. Ron Paul gave a ramped-down version o his usual schpiel about the Fed-- just as silly and nonsensical as always. Jon Huntsman didn't offer much specific, but, reading between the lines, I think he's running as Obama with an R next to his name-- not stupid enough to actively harm the economy like most of the rest of the field, but not aggressive enough to make an active difference.
The last candidate worth mentioning is Romney. On issues, he brought up the usual Republican platitudes about regulation and not raising taxes, but I seriously doubt he'll actually end up following through. More likely, you can learn a lot about what he thinks by looking at his advisers, Glenn Hubbard and Greg Mankiw. Hubbard is the dean of Columbia Business School, so he's not a dumb guy. His policy views are pretty wrongheaded, but he certainly understands business. Mankiw is a Harvard economist who chaired George W. Bush's Council of Economic Advisers for awhile. On policy grounds, he's a somewhat tax-obsessed New Keynesian. In other words, he thinks tax rates matter more than most New Keynesians do, but in terms of the models he's using, he's starting from the same place as Paul Krugman and Joe Stiglitz. And he's recently advocated a higher inflation target to stimulate growth. This is a good idea not just to stimulate consumption, but also because it reduces the real value of debt, which in turn is kind of a good thing when we have a private debt problem. But, again, Mankiw is an academic and Romney is a Republican politician-- throwing out that platform will get him burned at the stake. But I do have far more confidence in Romney than in any of the other Republican contenders solely because he has real advisers who aren't inept.
The one thing that all the Republican contenders seemed to agree on was the need to get rid of Ben Bernanke. Ignore for a second the fact that Bernanke is probably the single biggest reason we didn't have a second Great Depression-- he's also a Republican who was appointed by George W. Bush, and a pupil of Milton Friedman's. The public lynching of Bernanke shows just how far the Republican Party's gone off the rails in the last 3 years. And that's scary.
What the Republicans don't seem to understand, across the board, is simple accounting identities. To be fair, Britain's Prime Minister, David Cameron, doesn't understand them either. It's very clear that a major drag on growth in the US is that consumers built up unsustainable debt burdens by borrowing against their houses. The big banks did the same thing. And, with tax revenues depressed, government has been running deficits (rightly, but ignore my commentary for a second). So, in essence, consumers and businesses have both been savings to pay down their debts. Government spending hasn't done nearly enough to fill that hole. But the Republican candidates, to a man, seem to think that government should be cutting spending, and that those spending cuts will somehow spur job creation. To understand how wrong that is, all you need to understand is simple arithmetic. The first truism is that debt is a zero-sum game: there's no such thing as "too much debt in the system"-- individuals can be overindebted, businesses can be overindebted, and governments can be overindebted. But every dollar of debt is offset by a dollar of lending-- you can't run up debt unless you find someone else to lend to you. Demand (and the size of the economy and job growth by extension), however, is not a zero-sum game. If, as the Republican candidates insist, government should be reducing the deficit (and paying down debt), and consumers should be paying down debt (which they obviously should be), and businesses should be paying down debt (which certainly happened over the last few years), then there's no place for demand to come from. To pay down debt, you need income. And to earn income, someone has to demand your labor (meaning spend money). And that means that someone has to be borrowing. Now, consumers are already overindebted, so consumer borrowing is a terrible idea. And it's hard to induce businesses to spend when demand is weak without creating expected inflation (go find a Republican presidential candidate to advocate higher inflation), so the only remaining candidate is the government. By putting people to work, they can pay down their debts, which allows them to spend more in the future once they have paid off their debts. This economic growth eventually bolsters government finances and allows the government to draw down its spending and pay down its debts. Unfortunately, none of the Republican candidates seem to understand this accounting identity. So instead we've got a bunch of candidates who insist that everyone needs to save more simultaneously and get out of debt at the same time. Which is a nice recipe for disaster.
Now, even though all of the candidates are a mess, the specifics are pretty bad too. To start with, we've got the Hermanator hawking his "9-9-9" tax plan, which sounds an awful lot like Domino's 5-5-5 pizza deal from back in the day. When the moderator pointed out that 9-9-9 wouldn't raise enough revenue to run the government, the Hermanator said everyone was using the wrong baseline. But, since he hasn't pointed out that baseline, I guess we're supposed to take him at his word. Good luck with that. It also doesn't help that the "expert" who came up with this idea isn't an economist at all-- it's a Wells Fargo wealth manager with an accounting degree. And not a high-level wealth manager, but the guy you go to if you want to plan your retirement. Which is a respectable profession and all, but most definitely doesn't qualify you to advise a presidential candidate on federal tax policy. It's the equivalent of a Starcraft junkie coming up with military strategy.
Then you've got Rick Perry. Somehow, he's gonna create 1.2 million jobs in the energy industry by "making America energy independent." But no one knows what the plan is, and no one's suggested they can make anything of it, so there's no there there. Then you've got Michelle Bachmann, who whined about Barney Frank a lot, but didn't offer anything in the way of ideas. Ron Paul gave a ramped-down version o his usual schpiel about the Fed-- just as silly and nonsensical as always. Jon Huntsman didn't offer much specific, but, reading between the lines, I think he's running as Obama with an R next to his name-- not stupid enough to actively harm the economy like most of the rest of the field, but not aggressive enough to make an active difference.
The last candidate worth mentioning is Romney. On issues, he brought up the usual Republican platitudes about regulation and not raising taxes, but I seriously doubt he'll actually end up following through. More likely, you can learn a lot about what he thinks by looking at his advisers, Glenn Hubbard and Greg Mankiw. Hubbard is the dean of Columbia Business School, so he's not a dumb guy. His policy views are pretty wrongheaded, but he certainly understands business. Mankiw is a Harvard economist who chaired George W. Bush's Council of Economic Advisers for awhile. On policy grounds, he's a somewhat tax-obsessed New Keynesian. In other words, he thinks tax rates matter more than most New Keynesians do, but in terms of the models he's using, he's starting from the same place as Paul Krugman and Joe Stiglitz. And he's recently advocated a higher inflation target to stimulate growth. This is a good idea not just to stimulate consumption, but also because it reduces the real value of debt, which in turn is kind of a good thing when we have a private debt problem. But, again, Mankiw is an academic and Romney is a Republican politician-- throwing out that platform will get him burned at the stake. But I do have far more confidence in Romney than in any of the other Republican contenders solely because he has real advisers who aren't inept.
The one thing that all the Republican contenders seemed to agree on was the need to get rid of Ben Bernanke. Ignore for a second the fact that Bernanke is probably the single biggest reason we didn't have a second Great Depression-- he's also a Republican who was appointed by George W. Bush, and a pupil of Milton Friedman's. The public lynching of Bernanke shows just how far the Republican Party's gone off the rails in the last 3 years. And that's scary.
Thursday, October 13, 2011
Wall Street Is Struggling: Should we care?
Bloomberg had an article a couple of days ago talking about the struggles on Wall Street. Essentially, the article points out that Wall Street banks aren't actually doing as well as the Occupy Wall Street people seem to think. And that's certainly true-- Goldman is set to announce its second quarterly loss since going public in 1999 this month, and Morgan Stanley, Citigroup, and especially Bank of America aren't doing so hot either, especially compared to the heights they reached in 2007. All of them have laid off employees, and pay is down. What struck me in particular was this passage from the end of the article:
The implication seems to be that the trader is demoralized because he's working hard and his pay is down. But his discontent shows just how far off the rails our financial system was in the boom years leading up to 2007, when these kinds of pay packages were common. Short of a brilliant entrepreneur starting his own company, no 27-year-old employee creates a half-million worth of value in a year. Pay packages on Wall Street were certainly huge, but they were huge for a reason: banks could make directional bets with their capital, and use extreme leverage to magnify their returns. The result was huge profits... but also huge risks that were borne not just by the banks, but by the entire economy. Think of it this way. If a 27-year-old trader makes a huge trading profit, he takes a significant chunk of the upside. If he loses that much, his bonus may be cut, but he'll still get a salary. And if the trade is complex enough that it doesn't go sour for 5 years, well, he'll pocket big gains, then leave his firm holding the bag. But with financial firms as big as they were, it wasn't really the firms holding the bag-- it was taxpayers. Because banks do provide valuable services to businesses that can't be replaced on a whim. But it's not those activities that were earning traders monster bonuses in the good years.
What we've seen over the last couple of years is a realization that the outsize pay in the banking sector didn't in any way reflect social value-- banks certainly play a valuable role in helping companies streamline operations, go public, merge, make acquisitions, go public, and hedge their risks and exposures. Heck, Goldman Sachs has done an aggressive ad campaign over the last few years emphasizing its role in financing public projects. And those services are truly valuable. But what they don't mention is that those services made up something like 10% of their profits during the boom years (I may be remembering the exact number wrong, but it was certainly at most 25%). But in boom times, it was proprietary trading and investments that were driving monster profits, as well as securitization fees from their disastrous mortgage operations. The Dodd-Frank bill cut back on a lot of those extremely profitable but not particularly socially useful activities... and a lot of monster paychecks went by the wayside (though finance still pays a LOT more than just about any other industry). So what we're seeing, I think, is these 27 year olds who think they're entitled to monster paychecks because they "work hard", who don't realize that those monster paychecks came about in large part because of a system that was rife with moral hazard (government picking up the tab for losses while banks took all the gains). If reduced paychecks in finance meant companies had a harder time raising capital, or made going public more difficult, it would be a cause for concern. But there's no evidence of that: I hope that what we're seeing instead is a useful readjustment of Wall Street's proper role in helping businesses raise capital.
Good thing... if it leads to more financial stability. These people are colorblind to the fact that their risk-taking in "good times" helped wreck the economy. But it also says that the solution isn't more railing on Wall Street-- Wall Street's been reined in to some extent already. The solutions need to be macro in scope.
Bankers aren’t optimistic about those gains. Options Group’s Karp said he met last month over tea at the Gramercy Park Hotel in New York with a trader who made $500,000 last year at one of the six largest U.S. banks.
The trader, a 27-year-old Ivy League graduate, complained that he has worked harder this year and will be paid less. The headhunter told him to stay put and collect his bonus.
“This is very demoralizing to people,” Karp said. “Especially young guys who have gone to college and wanted to come onto the Street, having dreams of becoming millionaires.”
The implication seems to be that the trader is demoralized because he's working hard and his pay is down. But his discontent shows just how far off the rails our financial system was in the boom years leading up to 2007, when these kinds of pay packages were common. Short of a brilliant entrepreneur starting his own company, no 27-year-old employee creates a half-million worth of value in a year. Pay packages on Wall Street were certainly huge, but they were huge for a reason: banks could make directional bets with their capital, and use extreme leverage to magnify their returns. The result was huge profits... but also huge risks that were borne not just by the banks, but by the entire economy. Think of it this way. If a 27-year-old trader makes a huge trading profit, he takes a significant chunk of the upside. If he loses that much, his bonus may be cut, but he'll still get a salary. And if the trade is complex enough that it doesn't go sour for 5 years, well, he'll pocket big gains, then leave his firm holding the bag. But with financial firms as big as they were, it wasn't really the firms holding the bag-- it was taxpayers. Because banks do provide valuable services to businesses that can't be replaced on a whim. But it's not those activities that were earning traders monster bonuses in the good years.
What we've seen over the last couple of years is a realization that the outsize pay in the banking sector didn't in any way reflect social value-- banks certainly play a valuable role in helping companies streamline operations, go public, merge, make acquisitions, go public, and hedge their risks and exposures. Heck, Goldman Sachs has done an aggressive ad campaign over the last few years emphasizing its role in financing public projects. And those services are truly valuable. But what they don't mention is that those services made up something like 10% of their profits during the boom years (I may be remembering the exact number wrong, but it was certainly at most 25%). But in boom times, it was proprietary trading and investments that were driving monster profits, as well as securitization fees from their disastrous mortgage operations. The Dodd-Frank bill cut back on a lot of those extremely profitable but not particularly socially useful activities... and a lot of monster paychecks went by the wayside (though finance still pays a LOT more than just about any other industry). So what we're seeing, I think, is these 27 year olds who think they're entitled to monster paychecks because they "work hard", who don't realize that those monster paychecks came about in large part because of a system that was rife with moral hazard (government picking up the tab for losses while banks took all the gains). If reduced paychecks in finance meant companies had a harder time raising capital, or made going public more difficult, it would be a cause for concern. But there's no evidence of that: I hope that what we're seeing instead is a useful readjustment of Wall Street's proper role in helping businesses raise capital.
Good thing... if it leads to more financial stability. These people are colorblind to the fact that their risk-taking in "good times" helped wreck the economy. But it also says that the solution isn't more railing on Wall Street-- Wall Street's been reined in to some extent already. The solutions need to be macro in scope.
Wednesday, October 12, 2011
"We are the 53%" is really really stupid
So, in response to the Occupy Wall Street folks, Erick Erickson from RedState.com decided to start a competing "movement" called "We are the 53%." The idea behind the tag is that 53% of Americans pay income taxes and 47% don't, and the 47% should work harder and stop complaining. This is without a doubt one of the dumbest ideas of all time. To start with, the statistic it's based on is a common right-wing talking point that's also laughably misleading. Yes, a lot of people don't pay federal income taxes. Why? Well, first, a lot of those lucky duckies are poor. The idea seems to be that if you're lucky enough to be poor, you won't have to pay taxes! That's like being jealous of your neighbor whose friends chipped in to buy him a wheelchair after his legs were blown off. It's easy to join the 47%, Erick-- just stop working. Then go out and tell all those poor folks all about how awesome it is to be poor in America. Of course, the Heritage Foundation released a nice little survey recently pointing out that, if you're poor in America, odds are pretty good that you've got a refrigerator and a microwave. Great. Maybe Heritage can start a movement. Tag: "Being poor in America: Way better than being poor in Somalia." The second reason the tag is stupid (and probably the more relevant one) is that the implication is that 47% of the country doesn't pay taxes on their income. That's baloney. The federal income tax is a specific tax on income across the board. But for most Americans, federal income tax isn't the biggest tax they pay-- instead, it's the payroll tax. Which... is also levied on income. So they cherry-pick a tax and decide that, because a lot of people are too poor to pay it, they must be freeloading. Clever (except not).
Then there's the second reason that "movement" is stupid-- it's the implication that if only people wanted to get jobs, they could get them. It's a rehash of the absurd idea the Real Business Cycle folks like to float-- that downturns happen because people suddenly decide that they value leisure time more than working. Their explanation for the Great Depression boils down to a quarter of the population dropping everything and deciding that they all simultaneously wanted to go on a long vacation. And also stand in bread lines. Yes, the idea is as dumb as it sounds. So, implicit in the "53%ers" demands is the idea that the reason a lot of people are out of work is they're not working hard enough to find jobs that are out there. Which is a patently ridiculous idea-- if taken to its logical conclusion, it suggests that, in the last 3 years, twice as many people have become lazy and stopped looking for jobs that are out there. The reality, of course, is that jobs aren't hiding in the woods waiting to be found-- if businesses are selling a lot of their product, they'll expand and hire workers. And they won't keep those jobs secret from the unemployed so that they'll have to finish a scavenger hunt to get hired.
But the problem is that those businesses ARE seeing weak sales. And the result is 9% unemployment and frustrated people protesting all over the country (whether they're protesting at the right places is a different question).
Two reasons: 1) Misleading statistic, 2) Economy is cyclical-- implication is that 10% of the population suddenly became super lazy in 2008.
Then there's the second reason that "movement" is stupid-- it's the implication that if only people wanted to get jobs, they could get them. It's a rehash of the absurd idea the Real Business Cycle folks like to float-- that downturns happen because people suddenly decide that they value leisure time more than working. Their explanation for the Great Depression boils down to a quarter of the population dropping everything and deciding that they all simultaneously wanted to go on a long vacation. And also stand in bread lines. Yes, the idea is as dumb as it sounds. So, implicit in the "53%ers" demands is the idea that the reason a lot of people are out of work is they're not working hard enough to find jobs that are out there. Which is a patently ridiculous idea-- if taken to its logical conclusion, it suggests that, in the last 3 years, twice as many people have become lazy and stopped looking for jobs that are out there. The reality, of course, is that jobs aren't hiding in the woods waiting to be found-- if businesses are selling a lot of their product, they'll expand and hire workers. And they won't keep those jobs secret from the unemployed so that they'll have to finish a scavenger hunt to get hired.
But the problem is that those businesses ARE seeing weak sales. And the result is 9% unemployment and frustrated people protesting all over the country (whether they're protesting at the right places is a different question).
Two reasons: 1) Misleading statistic, 2) Economy is cyclical-- implication is that 10% of the population suddenly became super lazy in 2008.
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