Can Barack Obama channel Teddy Roosevelt?

Sep 9, 2011 14:50 UTC

My copy of the new book “Feynman”, written by Jim Ottaviani and illustrated by Leland Myrick, arrived last week and does not disappoint. I discussed it earlier on Reuters.com, “Steady state or dream state?” On the second page of this comic narrative led by one of the most remarkable personalities of the 20th century, Feynman asks:

Different theories of physics are very similar. Maybe that’s just because of our limited imagination … We try fitting every new phenomenon in the framework we already have! … Maybe it’s because we physicists have only been able to think of the same damn thing over and over again. Of course another possibility is that it is the same damn thing over and over again.

I read the words of the great American physicist last night as President Barack Obama was proposing yet another fiscal stimulus plan to a joint session of Congress. Basically Obama gave the same speech as last time and, again, largely avoided discussion of housing or banks. Indeed, the Obama Administration has been fighting against change since the President took the baton from George W. Bush. Witness Dodd-Frank, TARP, HARP, HAMP and various other deliberately ineffective policy initiatives from Washington supposedly focused on the banking and housing sectors.

A decade after the 9/11 attacks and the subsequent boom and bust in the housing sector, Americans remain unwilling and unable to embrace economic change – or to respond affirmatively to this change. Perhaps the biggest change facing us is the ongoing deflation of the bubble economy, which is manifested in stark terms by the reduction in both demand for and the supply of credit. Until we break the cycle of deflation, employment and economic activity will not rebound.

Both Washington and Wall Street remain defiant in their refusal to accept that there are probably still as many losses to be taken on housing and related securities as have already been recognized to date. And there is no concession among America’s political oligarchy that existing banks must be restructured in order to fix housing, restart credit creation and avoid economic catastrophe.

Pollock’s first law, named after American Enterprise Institute resident scholar Alex Pollock, states that debts which cannot be paid must default. In an upcoming article in Mortgage Banking Magazine, he notes that the political class resists real change in existing structures and debt:

Because this iron law and its implications are highly unpleasant, financial actors and politicians strive mightily to escape them, in spite of the fact that they cannot, with scheme after scheme. All to no avail, of course. The massive losses must ultimately be taken. So the questions are not: Will the loans default? They will. Or: Will the losses be huge? They will be. The only real questions are: What form will the defaults take? Who will take the losses? And when will the losses be recognized by those who are going to take them?

Notice that there was barely any mention of broad mortgage refinancing in President Obama’s speech last night, merely a comment about more emphasis on helping profoundly under-water borrowers via the HARP program. But without relief for the millions of home owners that cannot refinance their homes, the economy will not recover and many of these borrowers are likely to turn into future defaults. More defaults mean more deflation, fewer jobs and social instability.

The real world impact of the studied inaction by President Obama can be seen in the increasingly desperate situation at Bank of America. The bank has been selling assets willy-nilly and now has threatened to start closing branches and laying off 42,000 people, Reuters reports. Yet as I discussed in a previous post on Reuters.com, “Housing, debt ceilings & zombie banks,” Bank of America’s parent company needs to be restructured. See my discussion with Aaron Task and Henry Blodget on The Daily Ticker about how a BAC restructuring ought to proceed.

If President Obama was really concerned about jobs, he would pick up the phone and order Treasury Secretary Tim Geithner to start discussions with BAC about a voluntary restructuring with government and industry support. With Geithner, Fed Chairman Ben Bernanke and FDIC Chairman Martin Gruenberg standing around, the President would tell the American people that the bank subsidiaries of BAC are sound, that there will be no layoffs, and that the White House and Congress are directing Fannie Mae and Freddie Mac to move aggressively to refinance every performing American borrower who wishes to do so.

But of course this would require Barack Obama to get some new advisers, grow a set of cojones and start channeling President Teddy Roosevelt — and that is probably not going to happen. Just remember, Mr. President, that inaction does have a cost.

 

 

 

 

COMMENT

I just read an article about Obama channeling Franklin Delano Roosevelt. If I am not mistaken, and I am only going by the information provided to me in school, both Franklin Roosevelt and Teddy Roosevelt are dead and channeling is described as : the practice of professedly entering a meditative or trancelike state in order to convey messages from a spiritual guide. This article confuses me more than enlightens me.

Posted by Bagwa | Report as abusive

Steady state or dream state?

Jul 25, 2011 21:43 UTC

Readers of this blog know that I am a long-time reader of The New York Review of Books. Sadly this love is not because of that great publication’s coverage of finance and economics, which I think is skewed to the neo-Keynesian, socialist end of the intellectual spectrum. George Soros does not count.

No, I read the NYRB because of contributors like physicist and author Freeman Dyson, who teach us about other ideas, people and worlds, both real and imagined. “Dyson has spent most of his life as a professor of physics at the Institute for Advanced Study in Princeton, taking time off to advise the US government and write books for the general public,” notes his bio on the NYRB web site.

This literate and considerate man of science has told the human history of the world of physics in his contributions to the New York Review, most recently through an essay on two new books about his teacher and Nobel Prize winner Richard Feynman: “Quantum Man: Richard Feynman’s Life in Science” by Lawrence M. Krauss and  “Feynman” by Jim Ottaviani.

Dyson’s essay on Feynman, “The ‘Dramatic Picture’ of Richard Feynman,” is important on many levels. It is a personal tribute and a professional history of a man Dyson argues is now a superstar of physics on a par with the likes of Albert Einstein and Stephen Hawking. It is also an important discussion of Feynman’s insights into the nature of organizations and society, particularly how we differentiate between reality and speculation when it comes to public policy.

Following the 1986 space shuttle Challenger disaster, Dyson reminds us, a fatally ill Feynman gave his final months of life to serving the people of the United States by participating in the official investigation and fighting political efforts to conceal the institutional causes of the accident:

Feynman wrote an account of the cultural situation as he saw it, with the fatal division of the NASA administration into two noncommunicating cultures, engineers and managers. The political dogma of the managers, declaring risks to be a thousand times smaller than the technical facts would indicate, was the cultural cause of the disaster. The political dogma arose from a long history of public statements by political leaders that the Shuttle was safe and reliable. Feynman ended his account with the famous declaration: “For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.”

Sound familiar? The same statement could be made about Washington’s complicity in creating the housing bubble and the shameful evasion of responsibility for the subsequent financial collapse. In terms of the world of ratings and analytics in which my firm operates, the same juxtaposition could be described as the difference between guessing about the future performance of a bank or company versus focusing on the visible facts of today’s financial and operational results.

But the sacrifice of Feynman at the end of his life to argue the perspective of science in the aftermath of the Challenger tragedy was not his greatest legacy, particularly to the layman who cannot fully appreciate many scientific achievements. Dyson describes how Feynman used pictures to describe the laws of physics, eschewing the mathematical equations used by his peers for more simple conceptual descriptions that are accessible to the average person. “Feynman,” to that end, is laid out as a comic book. Buy this book for your children, but read it yourself.

Even more important, Dyson reminds us of the distinction between the classical layer of human experience — the things we can see, touch and measure — and the quantum layer of reality, that which is impossible to measure with complete accuracy and therefore remains speculative. “The primary difference between the classical layer and the quantum layer is that the classical layer deals with facts and the quantum layer deals with probabilities,” Dyson writes. For Feynman, he concludes, “the road to understanding is not to argue about philosophy but to continue exploring the facts of nature.”

This distinction between the world of observable facts and the speculative worlds of quantum physics — and also unscientific realms such as politics and economics — is an important concept for all of us to ponder. So much of our public discourse about financial markets and fiscal issues like raising the debt ceiling is really just speculation, obscured by the pronouncements of supposed experts and their political sponsors. The beautiful vignette of Richard Feynman which is the latest addition to the literary legacy of Freeman Dyson gives all of us living in the “real” world of finance and public policy much food for thought.

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