Streetwise Professor

October 23, 2010

A Noisy Signal, But Not Completely Noise

Filed under: Uncategorized — The Professor @ 9:33 pm

NPR’s firing of Juan Williams is a travesty, of course, and one that’s so obvious and so widely remarked that I see no purpose in saying any more about the firing itself.  One thing that has struck me, though, is the analysis of Williams’s words.  In particular, the frequent statement that Williams’s fears of those in traditional “Muslim dress” were irrational because terrorists would try to blend in.

One example:

If anything, an Islamist terrorist wants to blend in, not stand out.

Another:

In this, [Williams] was simply acknowledging an anxiety that is felt by millions of Americans who fly.

This may not be entirely rational (the odds of being victimized by terrorism are very small), and Muslim garb is an unlikely marker of a terrorist in a U.S. airport anyway (a terrorist is likelier to try to fit in).

Williams’s fear was not entirely rational (though not entirely baseless, either).  But the “terrorists would try to fit in, not stand out” critique of is reasoning is unpersuasive.

It is unpersuasive because as a matter of policy, the adamant refusal of security personnel to profile as a matter of policy means that wearing such dress would have little if any effect on the likelihood of the wearer being subjected to additional scrutiny.  (Whereas my wife, who would fit no non-insane terrorist profile known to man was harassed by TSA in the St. Louis airport yesterday, although that could have been best explained as the actions of a twisted TSA agent abusing the new body scanning equipment.  Probably a good thing I wasn’t there.)

And as for Islamic terrorists trying to fit in, and avoiding Islamic dress, just as recollecting that one black swan is sufficient to disprove the hypothesis that all swans are white, it is useful to recall the events of about a year ago.  For that is when Major Nidal Hasan, the Fort Hood assassin, regularly paraded about in such garb.  Including on the day that he committed the murders:

An owner of a 7-Eleven at Fort Hood said Hasan — whom he knows as “Major Nidal” — came in for coffee and hash browns most mornings, including the morning of the shootings. Surveillance video from the store obtained by CNN shows a man who according to the store owner is Hasan at the cashier’s counter at about 6:20 a.m. Thursday, about seven hours before the mass shooting. He was carrying a beverage and dressed in traditional Arab garb.

In brief, Juan Williams’s fears were not based on careful analysis–and certainly, few fears are, and Williams forthrightly acknowledged that–but the analysis of those who critiqued those fears are hardly persuasive.  Williams wasn’t consciously being a Bayesian, but a coldly calculating Bayesian would not disregard Islamic dress in assessing the odds that an individual is a potential terrorist.  Those odds are extremely small in any individual case, including cases of individuals wearing said dress, but this is not a piece of data that should be discarded as wholly uninformative.  If Hasan’s superiors had taken note of his clothing preferences, especially in light of other information, the 14 people he murdered might be alive today.

To Err is Human: to Cover Up is Malign

Filed under: Military,Politics — The Professor @ 9:03 pm

Former Chairman of the Joint Chiefs of Staff has written in his memoirs that President Bill Clinton lost the codes necessary to launch American nuclear weapons.  For months–maybe more than a year:

Bill Clinton lost the secret codes that would be used to authorise a US nuclear strike during the last year of his presidency, a new book has alleged.

General Hugh Shelton, who served as chairman of the joint chiefs of staff under Mr Clinton, says the codes were lost for months, leaving the US unable to launch its nuclear weapons.

“This is the one point in the system where there is no backup and it failed,” he says in his book, Without Hesitation. “Without [the presidential authorisation codes] it doesn’t matter if we’ve got a thousand missiles verified inbound to the US, we would be unable to launch a retaliatory strike.”

The allegation about the frailty of the world’s biggest nuclear deterrent – the US retains more than 5,000 operational warheads – comes after a 2007 incident when a B52 bomber flew across the country with six nuclear weapons accidentally on board.

Gen Shelton adds that the loss of the codes only came to light “around the year 2000”, when they were due to be replaced by a new set. For months beforehand, he says, defence department officials had tried to verify that the codes were still in place, only to be fobbed off by Mr Clinton’s staff, who said he was in a meeting and had the codes on his person.

One can understand losing them.  Carter supposedly did.  What is inexcusable is the failure to acknowledge and correct the situation, and even worse, the persistent lying and stonewalling.  For months.

Maybe Monica wasn’t a legitimate impeachable offense, but such extreme cavalierness towards the most vital national security issue, all as part of a CYA, seems like one to me.  It also reveals a lot about Clinton, by showing the lengths he would go to in order to spare himself from embarrassment.  Indeed, it is a piece of the mindset that caused the whole Lewinsky scandal to metastasize.  What could he possibly have been thinking?  Of himself, and himself only, of course.

John Paul Jones and CCP Governance

Filed under: Clearing,Derivatives,Economics,Exchanges,Financial crisis,Politics — The Professor @ 9:16 am

I was in DC yesterday, participating in a joint SEC/CFTC Roundtable on CDS clearing.  These Roundtables are intended to provide information to staffers charged with the daunting task of writing the avalanche of rules mandated by Frank-n-Dodd.  This particular Roundtable focused on margin setting, default resolution, and CCP access and governance.

The quality of the panelists was quite impressive, and the discussion largely informative.  My main impression was that in 3 hours the panelists were able, at best, to scratch the surface of the surface on a relatively small subset of issues confronting the agencies.  That’s a pretty sobering fact.

Substantively, the issue that engendered the most back-and-forth related to the access and governance issue.  Not to say I told you so, but I told you so–and have been doing so since about 1997, and especially since 2006 or thereabouts.

As I’ve written, the fundamental tensions are clear-cut (no pun intended).  Yes, limiting access can be a way of exercising market power, and those on the outside might lose out on economic rents.  But against that, more expansive rules on CCP access raise serious concerns about risk and governance.

More expansive access means that less financially secure firms are in the CCP, which increases default risks.  But that’s not all.  More expansive access means that CCP membership will be more heterogeneous. This opens new cans of worms.

First, CCP margining and guarantee fund calculations depend primarily on the risks of the portfolios of cleared derivatives, but the default risk posed by any individual member depends not just on those risks, but on the interaction between these risks and the balance sheet risks posed by that member’s other assets and liabilities.  CCPs generally take that risk into account in a crude way, if at all, and do not really take into account the correlation between balance sheet risks and the portfolio risks–which is absolutely critical.

This is problematic because it means that the price levied for default risk does not vary across members in a discriminating way.  This distorts the trading activity across members: riskier ones tend to trade too much, and less risky ones too little.  The more heterogeneous the membership, the more difficult the problem.  A one-size-fits-all margin calculation (or one with limited conditioning on member-specific information) inevitably distorts incentives, all the more the more heterogeneous the members.

Second, heterogeneity raises governance costs.  Heterogeneity means that members differ in their desired margining and capital policies.  There is more politicking and rent seeking, the greater the heterogeneity.  This is costly in and of itself, and also can lead to distorted decisions regarding risk pricing and policy.  Indeed, this heterogeneity tends to lead to more cumbersome, committee-driven governance processes.

Things will only become more problematic if, as seems almost inevitable, there is a requirement to include other constituencies, such as end users, in critical governance functions (most importantly, the risk committee).

This is an interesting economic issue, in the abstract, related to club theory: what is the optimal membership of the clearing “club”?  It is a hard question, but heterogeneity imposed by regulatory fiat–engineering of the organization and governance of CCPs–is rife with potential for disaster.  There is a serious potential for misalignment of incentives and distortions in risk taking.  Which kind of defeats the entire purpose of a clearing mandate.

The issues in clearing are all the more acute because fundamental economic forces, related to the nature of netting and diversification, create economies of scale and scope that make clearing a natural monopoly, or at least a natural oligopoly.  This means that the normal club good outcome in the absence of such strong economies, with the formation of multiple heterogeneous clubs with relatively homogeneous memberships, isn’t viable in this context.  So the market power-access-governance battles are likely to be intense and never-ending.  We’ve seen such battles in security markets for years, and they will be coming soon to a derivatives market near you.  No need to hurry to watch, though, for they will never go away because the fundamental economic drivers are enduring and  inhere in the nature of the service.  (This is the subject of my next book, BTW.)

One question from an SEC staffer made me uneasy.  (I’ll try to remember to post a link to the transcript when it comes online here.)  The premise of the question was that a premise of Dodd-Frank was that the OTC market is too concentrated, and insufficiently competitive, and that clearing was a way of opening up the market and making it more competitive.  The staffer expressed concern that access policies would have to be regulated to achieve this outcome.

That would make access policy a political football.  Again, I am sympathetic to the view that CCPs can potentially utilize their membership and access policies to exercise market power.  But I am also very sensitive to the very real possibility that a la Fannie and Freddie, political pressure to benefit some market participants will lead to policies that compromise the financial strength of CCPs.

My response to the staffer’s question was that it was mistaken to start from the premise that the market was too concentrated and insufficiently competitive.  I said that before making policy choices, it was imperative to try to understand why the market structure evolved as it had.  Concentration was not mandated.  It was the result of an economic process.  I can think of “bad”  reasons why the market became too concentrated (TBTF subsidies, for instance), but I can also think of “good” reasons (economies of scale and scope).  Policies not based on an understanding of the underlying economics are likely to have fundamental flaws that will manifest themselves in the worst way.  Fighting against fundamental economic forces is a recipe for policy failure.

I am appreciative of the opportunity to have participated in this Roundtable, and hope I made a positive contribution to the debate.  I am sure, however, that I will have other opportunities to do so–as will many others.  That is because we have not yet even begun to fight, really, on matters of clearing market structure, organization and governance.  The war will be a long one.  This is a reflection of the fact that Frank-n-Dodd failed to come to grips with most of the most fundamental issues inherent in its litany of mandates.

PS.  Here’s an article by Matt Leising and Shannon Harrington at Bloomberg that mentions some of my remarks at the Roundtable.  Thanks, as always, guys.

October 21, 2010

Ripped From the Pixels of SWP

Filed under: Politics,Russia — The Professor @ 9:08 pm

Headline in Vedomosti (h/t JRL):

BETTER THAN THE WORST

Freedom of expression: Russia is the 140th on the list of 178 countries

As I’ve often noted when the whataboutism is going around, the ne plus ultra line of defenders of Russia is: “Not the worst!”  But it’s not every day you read it as a headline.

October 19, 2010

The Ghost of Christmas Future, Naval Edition

Filed under: Military,Politics — The Professor @ 9:16 pm

I gave Bryan McGrath at Information Dissemination a hard time for his “Obama’s just a politician doing what politicians do” defense of Woodward’s portrayal of the president.  Bryan’s defense notwithstanding, I stand by my criticism.

That said, Bryan has a piece titled “A Seapower Manifesto” on ID that is well worth reading.  He shares my concerns about SecDef Gates’s “analysis” of US naval power, and the implications of that mindset for not just the Navy, but America’s strategic position.  Gates’s recitation of the current preponderance of American naval force is clearly intended to lay the predicate for a substantial downsizing of the Navy.

In response, Bryan makes a point that has exercised me for years:  the procurement and strategy decisions potential adversaries make are endogenous.  Strategy is not something that can be made  unilaterally, in a vacuum: potential adversaries respond to our decisions.  (That’s the way that economists/political scientists/game theorists conceive of “strategic” situations: strategic players act and react.)   American naval predominance in large part reflects our first mover advantage; given that preponderance, it doesn’t make much sense for anybody else–either friend or potential foe–to invest heavily in naval capability.  But if the US were to reduce substantially its naval force, the strategic calculations would change, for the Chinese particularly, but for others as well.  Gates seems to be thinking in a linear way, and under the assumption that no one else will respond to our actions.

Both of these ideas are profoundly wrong.  Given the nature of strategic interaction, the situation is not linear.  As Bryan phrases it, there can be a “tipping point”–a non-linearity–in which a modest decline in US naval force structure could lead to a discontinuous change in the strategic balance as others seize the opportunity created by our retrenchment.

Bryan also points out some things that need to be fixed, notably shipbuilding.

But most importantly, he points out the pressing  need to think strategically, and to devise a force structure that fits the strategy.  In crafting this strategy it is essential to remember that the US is first and foremost a maritime nation and a maritime power, rather than a continental one.

This is a matter of some concern to me, because my impression from my days at Navy, and from my reading since, that US Navy officers tend to be techno-centric rather than stratego-centric.  This is a problem of longstanding.  In the sailing days, the intricacies of sailing and seamanship dominated naval education and thinking.  As steam came to the fore, engineering became the most important skill for officers intent on career advancement: this was elevated to an extreme in the nuclear navy.  Thus, there is room for serious concern that there has been an underinvestment in the development of naval strategists, and insufficient incentive for naval officers to develop these skills.

This was all brought home this afternoon when watching a show on the rise of the Royal Navy (an episode on Sir Francis Drake, the Armada, etc.)  and then, in jarring juxtaposition, reading an article on the gutting of that self-same Royal Navy (already a shadow of its former self, as my visit to Portsmouth this June made painfully clear.)  Deeming it impossible to afford both a carrier and the planes to fly off it, the Cameron government went with the carrier, axed its Harrier force, and announced plans to operate the carriers as helo ships for 8-10 years before buying F-35s.  I would bet dimes to donuts that in 10 years, that purchase decision will be kicked down the road like a rusty can.  (An appropriate metaphor, alas, for the “modern” British navy.)  The whole decision is an absurdity, a political compromise completely unhinged from any strategic concept.

I’ve often said that the UK is like the Ghost of Christmas Future, giving us a glimpse of what the future holds if we continue down the path we are on now.  That’s true of economic policy, social policy, and foreign/military policy.  The absurdity of a carrier with no planes should serve to concentrate American minds today on what years of neglect will do.

But it’s even worse than that.  When asked: if not Britain, who?, post-1945 the answer was obvious–the US.  If you ask today: If not the US, who?  the only answer is silence.  The silence of a vacuum that will be filled by . . .

Making Vlad Look Bad

Filed under: Military,Politics,Russia — The Professor @ 4:15 pm

Vladimir Putin recently held forth on Chechnya:

He says that what is happening in the North Caucasus is not “really terrorism in the proper sense of the word.” It is, rather, a struggle between “clans” for the “redistribution of property.” And Kadyrov is not only a “decisive warrior” but also “a very good economic leader,” a “great guy.”

In other words, since what’s going on in the Caucasus is all just a “struggle between ‘clans’ for the ‘redistribution of property,'” Chechnya is just like the rest of the Russian state, so it can’t be terrorism, right?

I wonder if this might make him reconsider:

Islamist militants stormed Chechnya’s parliament Tuesday, killing at least four people in the worst terrorist attack in the embattled North Caucasus since August.

Though Russia claimed victory over insurgents there after two wars in the 1990s, “this attack shows the battle is far from over, and Chechnya is far from being in the secure situation the Russian government would like to see,” said the BBC’s Tom Esselmon.

At least three armed men, who may have also used a suicide bomb, managed to carry out the attack by following the car of a high-level official into the parliament building in the regional capital of Grozny.

Members of parliament were evacuated while a special police unit moved in to battle the gunmen, reports RIA Novosti. The death toll varied in media reports, but all agreed that no parliamentarians were harmed. At least four other people were killed and 17 people were injured in the attack, reports Reuters:

One blew himself up and two others went on the rampage inside, spraying bullets around as they screamed “Allah Akbar” (“God is Greatest”), a Reuters source who spoke to a witness at the parliament building said.

The remaining two attackers holed themselves up on the ground floor and then blew themselves up when forces loyal to Chechen leader Ramzan Kadyrov stormed the building.

Putin likes to claim that he’s tamed the Caucasus, and turned its struggles into a somewhat messier version of politics-as-usual in Russia.  The parliament attack clearly casts serious doubts on those claims.

Follow the Money: Draw Your Conclusions

Filed under: Economics,Energy,Politics,Russia — The Professor @ 4:02 pm

This FT Beyond Brics post raises an interesting issue:

BP is having to eat humble pie. Two years ago, it fought a bitter battle with Fridman and his partners in AAR, the holding company that holds their TNK stake, over influence at TNK-BP, which ended with a truce after Bob Dudley, the joint venture’s chief executive fled Russia. Among the points of dispute was whether TNK-BP should be a Russia-focused company, as BP wished, or go international, as the Russian partners demanded.

Even before Macondo, it was clear that Fridman and friends had come out on top, with BP’s Dudley being replaced by a Russian chief executive. The latest deal sees the Russian shareholders gaining further ground – putting the joint venture’s hard cash into international expansion. [Emphasis added.]

Interesting, isn’t it, that it’s the Russian owners of BP-TNK who are so anxious to invest outside of Russia?  (Ditto Rosneft’s recent splurge for PDVSA refining assets in Germany.)

That desire by Russian firms to invest cash flows generated inside Russia outside the country even in the energy business (where Russia presumably has its greatest attraction because of the often-touted untapped oil and gas reserves there), says a lot about the investment climate there.  And it doesn’t say anything good.  We’re constantly lectured that Russian assets are undervalued; the investment prospects there are amazing; there’s a lot of money just lying around to be picked up.

If all that’s true, why don’t Fridman et al pick up the money and buy all those undervalued assets in Russia?

If Russian oligarchs aren’t too wild about investing their capital in Russia, Putin’s new initiatives to attract foreign investment are facing a serious uphill climb.  That’s especially true in light of stories like this one:

After an arduous 17 years in Russia, Motorola is finally throwing in the towel – and for good reason. Once the country’s leading mobile phone producer, Motorola saw its market share drop from 20 per cent to 1 per cent in a few years, while it became embroiled in a local scandal.

Motorola’s exit is another reminder of why multinationals get so nervous investing in Russia – and it comes in the very week when the government launched a new drive for foreign investors.

Motorola’s troubles date back to 2006 when a $20m-shipment of its phones to local retailer Yevroset was seized by the interior ministry’s economic crimes department. The phones were first declared contraband, then counterfeit, and finally, when the other two claims were disproved, a health hazard.

Putin’s plan to address these kinds of horror stories?  Appoint an ombudsman.  In my experience, “ombudsman” means “reputational window dressing: somebody appointed to make it look like an authority with a reputation problem is doing something, but really isn’t.”  Ombudsman also means no real authority, no resources, and no power.

So yeah, that’ll work.

October 18, 2010

Lily Tomlin and the Moscow Police

Filed under: Energy,Politics,Russia — The Professor @ 7:33 pm

This story has many SWP angles.  Economist–check.  Gazprom–check.  Death by gunshot–check:

A senior economist at Russia‘s biggest company, Gazprom (GAZP.MM), was found dead in his car with a gunshot wound to the head, the company and police said on Monday.

Sergei Klyuka was chief economist in the finance department at state-controlled gas monopoly, which is also the world’s biggest gas producer.

“(Klyuka)…was found dead,” Gazprom said in a terse statement. “The police are inquiring into the cause of the death.”

Klyuka’s body was found early on Sunday in the front seat of his Range Rover in an underground garage in Moscow, with a gunshot wound to the head, the Interfax news agency cited an unidentified police source as saying.

Police suspect suicide, though there was no suicide note, Interfax cited the source as saying. A Czech-made handgun was found near the seat, the report said.

I ask this question in all seriousness, and in full knowledge that the suicide rate in Russia is very high (as is the murder rate): do Moscow police ever not immediately suspect suicide if they have even the shakiest pretext for doing so?  I’m sure investigations of the violent deaths of relatively high up people (albeit in a staff role) at companies like Gazprom could be time consuming, and could lead to places that could create, shall we say, complications.  So just rubber stamping “suicide” on the case makes things easy and tidy.  And knowing that, a murderer (especially a pro) knows that just dropping the weapon at the side of somebody he’s (or she’s) just popped is an easy way to give the cops an excuse not to probe too closely.

Yes, this may sound cynical, but I’ve been following and writing about Russia for long enough to realize the wisdom of Lily Tomlin’s words: we try to be cynical, but it’s hard to keep up.  (BTW, reading “The New Nobility” only stokes the cynicism.)  And it’s a sad commentary that the credibility of the militia is so low that one is predisposed to doubt any statement they make.

October 17, 2010

China Station

Filed under: History,Military,Politics — The Professor @ 8:15 pm

In my talks over the last couple of years about national energy strategies that I’ve given to State Department and other US foreign policy folks, I’ve compared China to Wilhemine Germany.  Rising powers with a major chip on their shoulders.  Each believing that theirs is a superior culture that has been held down by inferior ones.  Inferior cultures that are now in terminal decline and who should make way for the ascendence of the rising ones, but were not doing so voluntarily–and so who would have to be pushed aside if necessary.  And nations intoxicated with the writings of an American naval officer who was a contemporary of Wilhelm II, one Alfred Thayer Mahan.

One of the deans of American foreign policy intellectuals, Walter Russell Mead, has recently made the same comparison:

As China’s economy grows and its military develops new capacities, it is looking for ways to turn that potential power into actual power over events.  In the past, China has tried to attract its neighbors into its orbit with sweeteners like trade deals and aid.

But these measures apparently strike a new generation of Chinese policy makers as unsatisfactory.  China is too great a power to play nice, they think.  So they assert their territorial claims more and more boldly, and blow up disputes with Japan out of all proportion.

Wilhelm I had put his empire together (defeating Napoleon III in the Franco-Prussian War), he and his brilliant chancellor Otto von Bismarck realized that Germany’s greatest danger was to unite the surrounding powers against it.  It was time for sweet talk and flowers, or as the last generation of policymakers in Beijing used to put it, “peaceful rise”.  Wilhelm and Bismarck were nice to everyone who might join a coalition against them: Russia, England, Austria, Italy, the Ottoman Empire, America — and even France.  This was an exhausting policy and German foreign policy sometimes looked like a French bedroom farce as Bismarck hid Austria in the closet when Russia stormed into the bedroom.  Nevertheless, it worked.  Germany rose peacefully after 1871; it overtook Britain in manufacturing and its exports filled the world.  German financial firms developed a world reach and Germany even built up a colonial empire with dependencies in Africa and the Pacific.

But the old Wilhelm died and a new Wilhelm (Wilhelm II) brought a new generation of Germans into power.  Firing the elderly and crotchety Bismarck, Wilhelm read Admiral Mahan’Importance of Sea Power in History and dreamed of the blue water navy that would turn Germany into a true Weltmacht, world power.  Moreover, ‘Willi’ was sick and tired of deferring to all the neighbors.  Enough of this insipid “Dreikaiserbund“, the complicated three-way alliance between Russia, Germany and Austria!  And enough of this being nice to France.  The French were losers, has-beens.  It was time they were made to feel it.  Germany was the greatest power in Europe and it was high time people accepted this fact.

In true Mahanian fashion, China is attempting to amass rapidly a blue water navy and air and missile forces that can deny the US Navy access to vast expanses of the oceans bordering China.  It is stridently asserting expansive territorial claims with no basis in international law.  It is actively bullying neighbor states, and shrilly telling the US to butt out of these disputes.

One doesn’t need to be as hysterical and alarmist as Mark Helprin to recognize that this is a potentially dangerous emerging threat to American interests that requires (a) long term strategic planning, (b) alliance building, and (c) the maintenance of robust US naval forces that are capable of operating at will in the South China Sea and the Yellow Sea.

The US Navy’s hull count is down dramatically, to under 300 ships, and new building programs like the DD-1000/DD(X) are languishing (at best).  The current SecDef is not a big navy fan who could benefit by reading a little Mahan himself, and who has made noises about cutting back on the number of US carrier groups.  All meaning that (c) isn’t looking too good right now.

A Wilhelmine-esque China and a drifting, distracted, and enervating US is a bad combination.  As Mead points out, China’s obstreperousness is engendering a reaction that the US can use to bolster a containment-oriented strategy.  Whether we have the will to do so, or are willing to commit the resources necessary to implement it, is another issue altogether.

Barack Obama, Evolutionary Psychologist

Filed under: Politics — The Professor @ 7:09 pm

What could possibly explain Obama’s plummeting popularity?  The fact that he and his party rammed a deeply flawed, highly divisive, and deeply disliked health care “reform” bill through Congress against widespread popular opposition?  No way!  His administration’s fiscal incontinence?  Surely you jest!  Popular dismay at the discovery that the man who ran as a post-partisan, post-racial uniter was in fact rabidly partisan, divisive, and prone to making naked racial appeals?  How dare you even suggest it!  His administration’s relentless efforts to expand the reach of government into every nook and cranny of America?  Heaven forfend! The fact that the only thing “shovel ready” was his bullsh*t about the stimulus?  Impossible!

No, it is the fact that the American people who were supposedly reality-based and firmly in control of their emotions when they voted him into office at the apex of the financial apocalypse in November, 2008, are in October-November, 2010 so traumatized by economic circumstances that they are in the thrall of a fear that is hardwired into their psyches.  No, seriously:

At a Saturday-evening fundraiser held in the home of a wealthy Massachusetts hospital executive, President Obama suggested Democrats are having difficulties in midterm campaigning because Americans simply aren’t thinking clearly. Seeking to explain his party’s troubles, the president focused not on controversial legislation like national health care and the stimulus but on evolutionary psychology. “Part of the reason that our politics seems so tough right now, and facts and science and argument do not seem to be winning the day all the time, is because we’re hard-wired not to always think clearly when we’re scared,” Obama told the assembled Democrats, who paid $15,200 a person to attend. “And the country is scared.

To “break through the fear and the frustration that people are feeling right now,” Obama told the crowd, will require high-end donors not just to “write checks” but also to “lift up people’s spirits and make sure that they’re not reacting just to fear.”

. . . .

At the Massachusetts event Saturday, Obama said November’s elections are “absolutely critical, because essentially you can respond in a couple of ways to a trauma like [the current recession]. I mean, one is to pull back, retrench, respond to your fears by pushing away challenges, looking backwards. And another is to say we can meet these challenges and we are going to move forward. And that’s what this election is about.”

The mind boggles.  It’s hard to know whether he believes this or not, or which alternative is worse.  Let’s consider.  Doesn’t believe it: we have  president who’s willing to heap slurs on the emotional balance of those disenchanted with him to rationalize his political nosedive.  Believes it: we have a delusional president who is so invested in his Olympian self-image that he is incapable of responding to feedback that screams that he’s careened off course, and actually believes that diagnosing vast swathes of America as emotionally crippled PTSD victims is a winning political pitch.

Whatever the explanation, I hope he sticks with it.  The more he condescends, the lower his fortunes, and those of his party, will descend.

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