Confessions of a Wall Street Analyst By Dan Reingold

Confessions of a Wall Street Analyst is the story of the rise of a prominent analyst on wall street during the telecom boom that paved the way for the information age as we know it.  I'm still a little skeptical about the 'facts' in this book as the story felt a little one sided.  I actually looked up some of the other people in the book and realized that just about everyone in the book has their own book and a version of what happened.  None the less, I think this book is the most popular out of all of them.  He was also one of the few people that didn't have charges brought against him so that's got to say something about the validity of his story.  Anyway, my take away is below:

  He talks about how corrupt the market truly is when getting good news or bad news on an authentic lead.  For example, "They'd flood our phone lines, and we simply say that Morris had been going over his mode and increased it 'That seemed okay to us', we'd say.  They then revised their estimates, and the boost to our stock price cause by Morris's earlier update held firm.  If you were among the largest institutional money managers, you had it made.  If you were an individual investor, you were inevitably too late to the party;  the stock had already risen and you'd missed its move.

    On the other hand, if the news was bad, we might also call a few of the most influential analysts, but, more often, we would pack up and, with minimal notice, fly to Boston for a day of meetings.  Boston was where the largest and most powerful mutual funds were located, companies such as Fidelity, Putnam and many others.  We always booked Fidelity first...The meetings were almost always the same:  with a group of 15 or so Fidelity portfolio managers...Fidelity's portfolio managers paid attention to every word we spoke, every number that left our lips, even our tones of voice and facial expressions.  Eventually it would dawn on someone that we were guiding down our earnings estimates, at which point the Fidelity portfolio managers would suddenly bolt out of the room, whistle down to Fidelity trading floor, and tell their in-house traders to sell MCI shares when the market opened at 9:30 AM. Brilliant again."

    On a secondary offering of Level3 stock (you'd need more context but this is a good example of why individual investors don't have a chance in hell of making any money on an IPO or most other market offerings.

    "The Wall Street Journal, his (Jack Grubman) target price increase caused the stock to jump from $51.75 to $54 a share...With such a strong demand, Jim Crowe decided to up the number of shares offered by 25 percent, to 25 million.  By my calculations, without Jack's report, Level 3 shares normally would have traded down to roughly $50 per share.  So in effect, Jack netted Level 3 a cool $100 million because Level 3 was able to sell its 25 million shares at a price of $54 each, approximately four dollars higher than it would have otherwise."

    On "No action" letters (no action):  "The SEC responded with its "No-Action Letter which is not a formal approval but rather an assurance that should Merrill do what it proposed, the SEC would not take any punitive action.  The SEC wasn't say that doing this was right or wrong, but rather that the commission would not interfere if Merrill or , indeed, any investment bank did issue some recommendations"

    I found the above to be a little shocking.  Banks can pretty much notify the SEC that they want the SEC to look the other way because what they're trying to do is pretty much illegal.  At this point the SEC can give the bank a nod to go ahead and the banks can act with impunity.  School bully with an extended hall pass to wreak havoc on the market.

  On insider trading involving Sprint.  The nemesis Jack Grubman had details on the exact (stock price) ratio of a merger between Sprint and Worldcom.

    "How could Jack know the exact ratio of the deal?  Had he been over the Wall and decided to share what he'd heard?...But the two stocks had already moved and some investors had already profited: in the sixteen days before the Journal's "scoop", Sprint shares had risen by a total of $5.4 billion...and  WorldCom shares had dropped by $1.9 billion, or 93 cents per share...Together, that added up to a total of $13.7 billion of shareholder value that had changed hands, with some investors winning thanks to their side information and others losing thanks to their lack of it.  If you or your mutual fund sold shares of Sprint during that time (1999) the buyer of your shares may have been armed with an unfair edge... You'd be cheated without knowing it"  

    You can find more about this here (scandals section): MCI

    During the first fall out of the dotcom boom, Dan describes a throttled back conference...

    "In the meantime, we had a show to put on...our budget for the conference had been bumped by almost 40 percent, to $2.3 million.  We considered a lot of big names for our special entertainment, people like Sting and Seinfeld....The going rate for these guys was as inflated as the stock of the executives they were performing for.  Sting, for example, charged between $600,000 and $1.1 million, plus six first-class and nine coach round-trip plane tickets, 14 hotel rooms, ground transportation and production.  Seinfeld required a $550,000 few, along with a private aircraft or two first-class round trip airfares, one hotel suite and one single room.  We ultimately chose Harry Connick Jr. at a bargain cost of $375,000 plus two first-class and 18 coach-class round trip airfares, two suites and 18 rooms along with ground transportation and production costs..."

  There is, of course, a lot more gluttony in the book.  The audacity of the 1% that run the financial industry is really what got me.  There is no limit to human greed.  The single most important thing I got out of this book is that I no longer look at the market as a real investment opportunity.  You can try to go big on a risky stock but there are just far too many people that know more than you and not because they're smarter than you, but simply because they have access to way more information than the individual investor.  It makes perfect sense for investors to buy and hold because you can't tell when anything is going to pop because that information isn't available to you.  You can only hope that you can tough it out through the bad times and still be around for a stock's good times and cash out.  Its a little hard to accurately quote the important parts of this book because so much of it is implied by Dan's collection of ups and downs throughout his career.

I wish I had time to write more about the book but I had to return it before finishing my summary.  

How to Read a Book

    I picked a pretty different book this time around.  Oddly enough this book isn't in the realm of my typical subjects rather its a book about reading.  I received a number of odd looks from a few of my coworkers while reading this one.  I have to say I was a bit skeptical of the value of reading this book.  My girlfriend mumbled 'You're not going to read that book', but I've proved both of us wrong.  Mortimer J. Adler and Charles Van Doren's How to Read a Book was actually a pretty good read. The tone of the book is actually what kept me reading as it sounds as if Meryl Streep from Julie and Julia is narrating the book.  

    Interestingly enough, the book focuses on what has been defined as the highest level of reading or syntopical reading.  What I didn't realize is that before reading this book I had changed the focus of this blog to what I now refer to as a syntopical blog.  I suppose now might be a good time to actually explain what 'syntopical' actually means.  Syntopical reading is essentially the art of reading many different books in an effort to tie them together in a cohesive way.  Its about bridging the gaps between subjects, fields or theories. This type of cross pollination of ideas coupled with a deep understanding of many topics yields new discoveries and alternate ways to perceive the world around us.  There exists a book dedicated to helping the Syntopical reader adequately titled 'The Syntopic'.  The Syntopic (as explained in the book) is a book containing information ABOUT books that concern the most pressing issues and/or concepts of our time ranging from every major subject possible (at the time it was written).  The syntopic essentially lists the whereabouts of specific information on any given topic that has ties with the Human Condition.  What's cool about this is that if you want to understand a subject, this is a great place to start because the Syntopic lists the books that are considered fundamental to particular subject.  

    What I've realized is that most of our school curriculum is really a bastardization of the syntopic.  Our curriculum have been dumb down, simplified and neatly packaged for the masses.  I feel this is the reason for the miseducation of the masses.  If you want an individual to understand a subject then it might be important to start from the beginning.  I feel that many of the introductory books imposed upon young students are so dumb down that they fail to convey the real purpose of learning the subject at hand. How can one gain an understanding if one has no knowledge of the history or authors behind a subject?  

    I won't digress much further but I must say that this book made my Elementary education appear cheapened by the mass production of the education process.  I wish that I could have had a more personalized experience-- perhaps I'll be able to offer that to my children as such an experience could make a profound difference on the views, perceptions and ultimately happiness of one's life...

    "theoretical" means visionary or even mystical; "practical" means something that works, something that has an immediate cash return.  There is an element of truth in this.  The practical has to do with what works in some way, at once or in the long run.  The theoritical concerns something to be seen or understood.  If we polish the rough truth that is here being grasped we come to the distinction between knowledge and action as the two may have in mind."

    "In this connection, one clue to an important word is that the author quarrels with other writers about it.  When you find an author telling you how a particular word has been used by others, and why he chooses to use it otherwise, you an be sure that word makes a great difference to him."

        "I cannot refute you, Socrates, said Agathon: Let us assume that what you say is true.

            "Say rather, Agathon, that you cannot refute the truth; for Socrates is easily refuted."

        "It would be thought to be better"

    "(1) You are uninformed; (2) You are misinformed; (3) You are illogical-- your reasoning is cogent; (4) Your analysis is incomplete.

On the third stage of analytical reading...

1. The First Stage of Analytical Reading: Rules for Finding What a Book is about
1. Classify the book according to kind and subject matter
2. State what the whole book is about with the utmost brevity.
3. Enumerate its major parts in their order and relation, and outline these parts as you have outlined the whole
4. Define the problem or problems the author has tried to solve
2. The Second Stage of Analytical Reading: Rules for Interpresting a Book's Contents
1. Come to terms with the author by interpreting his words
2. Grasp the author's leading propositions by dealing with his most important sentences
3. know the author's arguments, by find them in or constructing them out of sequences of sentences
4. Determine which of his problems the author has solves, and which he has not, and of the latter, decide which the author knew he had failed to solve
3. Third Stage of Analytical Reading Rules for Criticisizing a book as a communication of knowledge
1. Do not begin criticism until you have complted your outline an your interpretation of the book
2. DO not disagree disputatiously or contentiously
3. Demonstrate that you recognize the difference between knowledge and mere personal opinion by presenting good reasons for any critical judgement you make
4. Special Criteria for points of criticism
5. Show wherein the author is uninformed
6. show where the author is misinformed
7. show wherein the author is illogical
8. show wherein the author's analysis or account is incomplete

    "The reason commonly given for the separation of these schools from the social science divisions is that the main purpose of such schools (in the pure sciences) is to train for professional work outside of the university, while the previously mentioned departments are more exclusively dedicated to the pursuit of systematic knowledge of human society, an activity that usually goes on within the university."

    "The multifarious and interrelated answers to this primary question constitute what we decided to call the general controversy about progress.  It is general in the sense that every author we studied who has anything significant to say about the subject takes sides on the various issues that can be identified within it.  But there is a special controversy about progress, which is made up of issues that are joined only by progress authors-- authors who assert that progress occurs.  These issues have to do with the nature of properties of the progress that they all, being progress authors, assert is a fact of history.  There are only three issues here, although the discussion of each of them is complex.  They can be stated as questions: (1) Is progress necessary or is it contingent on other occurrences? (2) Will progress continue indefinitely, or will it eventually come to an end of "pleateau out"? (3) Is there progress in human nature as well as in human institutions -- in the human animal itself, or merely in the external conditions of human life?

    Finally, there is a set of subordinate issues, as we called them, again any among progress authors, about the respects in which progress occurs.  We identified six areas in which progress occurs.  We identified six areas in which progress is said by some authors to occur, although other  writers deny its occurrence in one or more of these areas-- although never in all.  The six are (1) progress in knowledge, (2) technological progress, (3) economic progress, (4) political progress, (5) moral progress and (6) progress in the fine arts."

II.  Syntopical Reading of the Biblography Amassed in Stage I

1.     Inspect the books already identified as relevant to your subject in Stage I in order to find the most relevant passages
2. Bring the authors to terms by constructing a neutral terminology of the subject that all, or the great majority, of the authors can be interpreted as employing, whether they actually employ the words or not (consensus map)
3. Establish a set of neutral propositions for all of the authors by framing a set of questions to which all o most of the authors can be interpreted as giving answers, whether they actually treat the queations explicitly or not
4. Define the issues, both major and minor ones, by ranging the opposing answers of authors to the various questions on one side of an issue or another.  You should remember that an issue does not always exist explicitly between or around authors, but that it sometimes has to be constructed by interpretation of the authors' views on matters that may not have been their primary concern
5. Analyze the discussion by ordering the questions and issues in such a way as to throw maximum light on the subject.  More general issues should precede less general ones and relations among issues should be clearly indicated.

"There is a strange fact about the human mind, a fact that differentiates the mind sharply from the body.  The body is limited in ways that the mind is not.  One sign of this is that the body does not continue indefinitely to grow in strength and develop in skill and grace.  By the time most people are thirty years old, their bodies are as good as they will every be in fact many persons' bodies have begin to deteriorate by that time.  But there is no limit to the amount of growth and development that the mind can sustain.  The mind noes not stop growing at any particular age; only when the brain itself loses its virgo, in senescence, does the mind lose its power to increase in skill and understanding...

    Atrophy of the mental muscles is the penalty that we pay for not taking mental exercise.  And this is a terrible penalty, for there is evidence that atrophy of the mind is a mortal disease.  There seems to be no other explanation for the fact that so many busy people die so soon after retirement.  They were kept alive by the demands of their work upon their minds; they were propped up artificially, as it were, by external forces.  But as soon as those demands cease, having no resources within themselves in the way of mental activity, they cease thinking altogether, and expire."

The Rule of Three

This is a marketing book based on the theory that all markets evolve into three major players.  Anything more results in a serious of mergers and acquisitions to stay competitive, anything less results in mass inefficiencies in valuation.

"Subsequent attempts to make the industry more efficient come from four key sources or events: the creation of standard, the development of an industry-wide cost structure as well as a share infrastructure, government intervention, and industry consolidation through shakeouts.  These four drivers force the industry as well as the players in it to become more and more efficient in order to stay competitive."

For a shared infrastructure:

• Sharable: it must allow for simultaneous access by many users.
• Ubiquitous: it needs to be where you want it, when you want it.
• Easy to use: it must be intuitive and require little or no training to use effectively
• Cost effective: it must be accessible and affordable to all

"...large companies in a competitive market do best when their market share does not exceed approximately 40 percent.  When they grow beyond that mark, they can start losing their profitability, run into trouble with regulatory agencies and experience the agony of no new growth.  Incremental markets and customers can be more expensive to acquire and generate less revenue."

Some examples of the rule of three...

1. Banks
1. Citigroup
2. Bank of America
3. J.P Morgan
2. Brokerage Firms
1. Merril Lynch
2. Morgan Stanley
3. Goldman Sachs
3. Credit Card Companies
1. Visa
2. Mastercard
3. American Express
4. Disk Drives
1. Seagate Technologies
2. Quantum
3. Western Digital Corp
5. Television Networks
1. ABC
2. NBC
3. CBS
6. Telecom
1. AT&T
2. MCI/Worldcom (now Verizon)
3. Sprint

I think its pretty evident that a rule of three exists and the rule can probably be extrapolated to natural systems (meaning species and populations).  In fact, I'd like to look for the rule of 3 within our system of racial divisions (in the U.S.), political power (its a little self-evident that our political 'market' doesn't work well because we only have 2 players...thus the rhetoric for a 3rd party).  One major takeaway is that when assessing markets, one need only look for markets with 2 players to initiate an opportunity to start a company.  The natural order of the system should be in the newcomers favor.  I also believe that innovative disruption has played huge role with the help of the rule of 3.  Perhaps these disruptive companies are really companies that took advantage of a two member system.  Large monopolistic companies now spend very little time buying smaller ones to stop 3rd parties from becoming a threat.  The response to some of these biz purchases (summly for example) seem so far fetched but the leaders of many of these markets know the nature of markets and buying a shit company for 30 million now is much better than fighting for a dominant market space 5 years from now.  After all, with 3 players relatively equally footed, well-- you're now looking at a war of attrition and extreme (and tiring) innovation.  Perhaps companies prefer to be lazy, but to do so, a company must kill small disruptive innovations before they become large ones.

The Price of Civilization

    This book had a profound influence on my understanding of the liberal perspective concerning several key issues that plague humanity.  Namely, universal health care, poverty and education.  I expected Jeffrey Sachs's book to be one of obtuse liberal rhetoric, perhaps like Raj Patel's The Value of Nothing, I thought he might suggest something similar to protein food rations to help solve food distributions.
    On the five core ideas of mixed capitalism:

• Markets are reasonably efficient institutions for allocating society's scarce economic resources and lead to high productivity and average living standards
• Efficiency, however, does not guarantee fairness in the allocation of incomes
• Fairness requires the government to redistribute income among the citizenry, especially from the richest members of the society to the poorest and most vulnerable members
• Markets systematically under provide certain "public goods" such as infrastructure, environmental regulation, education and scientific research, whose adequate supply depends on the government
• The market economy is prone to financial instability, which can be alleviated through active government policies, including financial regulation and well-directed monetary and fiscal policies

    "That year, Ronald Reagan won the presidency on a platform of rolling back the role of government.  Across the Atlantic, the UK's new prime minister, Margaret Thatcher, stood the same.  Together, Reagan and Thatcher launched a rollback of government the likes of which had not been seen in decades...

    The main effect of the Reagan Revolution, however, was not the specific polices but a new antipathy to the role of government, a new disdain for the poor who depended on government for income support, and a new invitation to the rich to shed their moral responsibilities to the rest of society.  Reagan helped plan the notions that society could benefit most not by insisting on the civic virtue of the wealthy, but by cutting their tax rates and thereby unleashing their entrepreneurial zeal."

    "In modern scientific terms, the invisible hand of the marketplace is called a self-organizing system.  A highly complex and productive system can create an orderly division of labor-- and benefit for the entire population-- through the self-interested actions of the individual actors of the system.  There is thus no need for a central power to move the society's resources here and there."

    "The war on Poverty had its most lasting effect on two groups, the elderly and African Americans. Medicare and the expansion of Social Security effectively ended the persistent high poverty among those over sixty-five.  In 1959, the elderly poverty rate stood at 35.2 percent; it fell to 25.3 percent by 1969 and just 9.7 percent by 2007.  African American poverty rates fell from 55.1 percent in 1959 to 32.2 percent in 1969 and 24.5 percent in 2007.

    One more crucial factor made possible the source in social programs during the period of the 1960s:  the availability of existing government revenues to pay for them.  Up until the mid 1960s: politicians could enact new social programs without having to raise taxes as a share of national income for a simple but powerful reason:  the federal tax system that emerged from World War II and the Korean War was able to collect 18 percent to 19 percent of GDP in revenues and therefore to support a roughly equivalent level of spending; as defense spending declined after the Korean War, non-defense spending had room to expand."
    "At the aggregate level the Reagan Revolution did not shrink the federal public administration, but it did...stop it from expanding.  The federal civilian bureaucracy had 2,109,000 full-time-equivalent civilian employees in 1981.  the same in 1998, and nearly the same over the next twenty years, with an expected 2,101,000 full-time equivalent civilian employees in 2011.
    In terms of taxation, total federal revenues as a share of national income in 2007 stood at 19.6 percent of GDP, slightly lower than the 21.7 percent of GDP in 2007, down slightly from 14.8 percent of GDP in 1980.
    The larger shift from Reagan onward was across the categories of domestic spending...discretionary civilian spending declined from 5.2 percent of GDP in 1980 to around 3.6 percent of GDP in 2007.  mandatory spending, mainly transfer programs to individuals such as Medicare, Medicaid, Social Security, and veterans' benefits, grew slightly from 9.6 percent of GDP in 1980 to around 10.4 percent of GDP in 2007.  Thus the Reagan Revolution set into motion a squeeze on government investments in areas such as education, infrastructure, energy, science and technology, and other productivity enhancing areas, while leaving mostly untouched growth of transfer to individuals for health care and retirement."
    "The notion that the private provision of public services will automatically deliver more value for money than the direct government provision of services is built on a series of confusions.  Most of the services in question are public goods, so that private competition is inherently lacking, Government outsource is therefore tantamount to converting a public monopoly to a private monopoly, with no competition regarding the quality of services.  Nor does the free-market ideology acknowledge the pervasive abuses of the contracting process.  Contractors are often selected fraudulently as the result of bribes or on political grounds in return for campaign contributions.  Congress routinely pays for expensive weapons systems that are opposed by the Pentagon, because local military contractors win the political backing of their congressional delegations."
    "One of the greatest and most interesting confusions involves the real burdens and benefits of federal taxes and transfers.  The red states of the Sunbelt tend to be the great opponents of federal taxation and spending, no doubt partly the legacy of southern resentment of federal rule.  The residents of these states generally don't realize, however, that they are the leading net beneficiaries of today's federal taxes and transfers.  The millionaires and billionaires live in blue states...and their income taxes support the medicaid, disability, and highway programs of red state residents."
    "The main reason for America's majoritarian character is the electoral system for congress.  Members of congress are elected in single-member districts according to the "first-past-the-post" (FPTP) principle, meaning that the candidate with the plurality of votes is the winner of the congressional seat.  The losing party of parties win no representation at all.  The FPTP tends to produce a small number of major parties, perhaps just two, a principle known in political science as Duverger's Law.  Smaller parties are trampled in first-past-the-post elections."
    On the mindful society...one needs mindfulness of:

• self: personal moderation to escape mass consumerism
• work: the balancing of work and leisure
• knowledge: the cultivation of education
• others: the exercise of compassion and cooperation
• nature: the conservation of the world's ecosystems
• future: the responsibility to save for the future
• politics: the cultivation of public deliberation and shared values for collective action through political institutions
• world: the acceptance of diversity as a path to peace.

    "First, buy experiences instead of things...Second...use our incomes to help others instead of ourselves, because as hyper social animals, "almost anything we do to improve our connections with others tends to improve our happiness as well." Third, buy many small pleasures instead of a few big ones...Fourth, buy less overpriced insurance, because we adjust better to adverse shocks then we suppose.  Fifth, pay now and consume later...Sixth, be attentive to the details of a purchase, since they may disproportionately affect the happiness of the experience.  Seventh, beware of too much comparison shopping, since I can focus our attention on unimportant distinctions.  Eighth, listen to others about what can bring happiness.

         "So, let us not be blind to our differences-- but let us also direct attention to our common interests and to means by which those differences can be resolved.  And if we cannot end now our differences, at least we can help make the world safe for diversity.  For, in the final analysis, our most basic common link is that we all inhabit this small planet.  We all breathe the same air.  We all cherish our children's future.  And we are all mortal" 

-John F. Kennedy

On goals and targets

1. Raise Employment and the quality of Work life
1. Reduce unemployment to 5 percent by 2015
2. Improve governance of CEO compensation
3. Guarantee paid maternity and paternity leave in all firms of a hundred employees or above
2. Improve the Quality of and Access to Education
1. Raise the share of twenty-five to twenty-nine-year-olds with a  bachelors degree to 50 percent by 2020
2. Raise the U.S. ranking in global test scores to within the top five in all categories, reading, science and mathematics
3. Reduce Poverty
1. Cut the national poverty rate to 7 percent by 2020, half of the 2010 rate
2. Reduce the share of America's children growing up in poverty to below 10 percent by 2020
4. Avoid Environmental Catastrophe
1. Reduce America's greenhouse gas emissions from 2005 to 2020 by at least 17 percent
2. Endure that low-carbon energy supplies account for at least 30 percent of U.S> power generation by 2020 and 40 percent by 2030
3. Have a 5 million electric vehicles on the road by 2020
5. Balance the Federal Budget
1. Reduce the budget deficit to below 2 percent of GDP by 2015
2. Eliminate the budget deficit by 2020
3. Stabilize government health care outlays at 10 percent GDP
6. Improve Governance
1. Provide public financing for all federal elections
2. Limit corporate financing of campaigns and lobbyists
3. End the revolving door
4. Consider constitutional amendments on term length and limits
7. National Security
1. Ed the military occupations of Iraq and Afghanistan
2. Re balance the outlays on defense, diplomacy, and development
3. Create by 2012 a national security strategy in line with National Intelligence Council's Global Trends 2025
8. Raise America's Happiness and Life Satisfactions
1. Establish national metrics for life satisfaction
2. Raise life expectancy to at least eight years
3. Move from twenty-second to top five in least corrupt countries

    "It is easy to lose sight of the ultimate purpose of economic policy: the life satisfaction of the population.  That ultimate goal should be unassailable for a country founded precisely to defend the inalienable right to the pursuit of happiness.  Yet not only do we miss myriad opportunities to promote happiness through our collective undertakings, we even miss the opportunities to measure happiness so that we can gauge how we are doing as a nation.  Our fixation on GDP/GNP crowds out our attention to more important indicators."

    "There are three main sources of federal revenues.  Roughly 8 percent or so of GDP in 2015 will come from personal income taxes, around 6.3 percent will come from payroll taxes for social security and Medicare, and 2.2 percent from the corporate tax.  The rest, around 1.5 percent, will come from a  variety of excise and other taxes.

    Under current law Social Security will account for around 5 percent of GDP.  On current trends, health care spending will account for around 6 percent.  The mandatory spending, such as unemployment insurance, disability pay and the Earned Income Tax Credit will account for another 2 percent.  Military outlays will absorb 4 percent, and interest payments on the publicly held government debt will amount to around 3 percent.  I assume that discretionary civilian spending will account to around 4 percent of GDP... In total, therefore a reasonable baseline...puts total spending at around 24 percent of GDP.

    The single most important point about this accounting is the following:  The budget baseline revenue of around 18 percent of GDP will not even cover mandatory spending (13 percent) plus military ((4 percent) plus interest on the debt (3 percent).  This means that on the baseline, all civilian discretionary spending, and then some would have to be paid for with borrowed money.

  Take away is-- the nation needs to find 6%.

    "The public believes that means-tested spending is mainly in the form of welfare payments for the (undeserving) poor.  That is simply not true.  Medicaid (health care for the poor) constitutes the largest of means-tested programs, 60 percent of the total and equal to around 2 percent of GDP.  There is no broad public support for ending health care for the poor.  Food stamps constitutes the next largest program, roughly 0.5 percent of GDP.  Here again, there is no public outcry to take food off the table of the poor.  The third program is the Earned income Tax Credit, which rebates taxes to poor working families.  It s widely regarded as an important incentive to work for the poor.  It constitutes around 0.3 percent of GDP.

    Finally comes the welfare program that has been most contentious for decades: aid to poor families with dependent children.  Welfare...makes up only 3.5 percent of the means-tested programs and just 0.1 percent of GDP.

    The upshot is that we could eliminate foreign aid, earmarks, and welfare payments in the TAN program entirely, and the combined effect would be to save just 0.5 percent of GDP out of a structural deficit of 5 to 6 percent of GDP.  Unless we are willing to slash Social Security, Medicare, Medicaid, veteran's benefits or food stamps to the bone, we have to look elsewhere to close the deficit.

    "The deficit commission assumed that total spending and revenues could settle at 21 percent of GDP.  I did so because it utterly neglected the need for existing, much less new, civilian spending in key areas such as infrastructure, education, training, and R&D.  It is relatively easy to balance the budget if one presumes that new kinds of public spending are not needed.  Yet that is no way to pay for civilization.

    On tax solutions...

    New York State, for example, levies a transfer tax on the sale of stock shares of a mere $0.01 to $0.05 per share, depending on the share price.  The small tax collects around $15 billion per year.  Under the pressure of Wall Street lobby, however, the New York State government has, since 1981, been rebating the revenues right back to the brokerage firms.

    A final option, one that will likely be adopted sometime in the coming decade, is to introduce a value-added tax...

    The upshot is the following: Perhaps 4 percent of extra GDP could be collected as of 2015 mainly by taxing the rich (2 percent), tightening corporate taxation (1 percent), strengthening tax enforcement (0,5 to 1 percent), taxing financial transactions, and taxing carbon emissions (0.5 percent).  Introducing a VAT would raise even more revenues and could be phased in over several years."

    "The fourth and greatest area of challenge, implicated in all of the first three, is managing diversity.  This challenge seems to be humanity's hardest task of all.  The great religions all preach universal brotherhood of humanity, but they all simultaneously warn against the perfidy of the nonbeliever, the "other," the heathen.  This duality-- the capacity both to cooperate and to segregate--probably has its roots in the deepest recesses of our psyches.  It most likely reflects, after all, the deepest evolutionary forces that have shaped our species: the urge to care for our young and our in-group and the need to defend our young and our turf from other clans...

    The challenge of diversity will be front and center of every policy and crises, domestic and international, in the decades ahead.  We have arrived at a global society, but with the clannish instincts inherited from the tropical savanna.  Or, as E.O. Wilson put it inimitably in his foreword to my book Common Wealth,"We exist in a bizarre combination of Stone Age emotions, medieval beliefs, and god-like technology.  That, in a nutshell, is how we have lurched into the early twenty-first century."  

I just completed reading The Value of Nothing by Raj Patel.  It was a decent read however the ending was a bit lackluster due to the author's picturesque projection of what the human civilization should be in terms of government, markets and social structure.  He presents some strong arguments as to why markets are fundamentally flawed (incorrect pricing of everything) and ties the basis of his argument to a well know quote from Oscar Wild's The Picture of Dorian Gray, "Nowadays people know the price of everything and the value of nothing".  I pulled a few interesting quotes:
    "There's a final route through which profit might be created, one that doesn't involve labor: enclosure.  Polanyi's observations about the creation of market society aren't mere historical curiosities.  Geographer David Harvey has written about how the capitalist search for new resources to privatize generates its own maps of crises.  When a national forest is sold for timber, biodiversity is put under patent or mineral rights are auctioned off, there's an enclosing, a privatizing of that resource that allows someone to profit from it at public expense.
    Marx's discussion of the economy works by asking where it is that value comes from.  He traces it back to labor, and then explored the dynamics of profit seeking in market society.  It's a way of thinking about market society with great explanatory power, showing the origins of externalities in the rise of capitalism and in the social forces at play withing our market society.  It explains why corporate behavior consistently skirts the boundaries of ethics and legality-- the corporation's need for profit drives it to rapacity and setting ethics firmly to one side-- even if ultimately, Marx thought, the persistent quest for profit would lead to the end of capitalism itself.
    Although today's economic crisis looks dire, Marx's predictions haven't come true quite yet.  Our current economic turbulence is a result of the way capital is invested, and the life that money takes on when it is not industrial capital, but finance capital.  Although Marx understood the importance of finance better than classical and neoclassical economists, his analyses comes with a politics that are fundamentally incompatible with the ideology of today's market society-- it's far easier to think about the crisis as the result of poor regulation or bad apples on Wall Street than to see it as emerging from a social system into which we have been folded.  It is perhaps this reason that in explaining today's recession, the theories of a much more recent economist, one who grew up amid the machinery of finance and whose thought presents only a moderate challenge to prevailing ideas about market society, have taken center stage: the twentieth-century British economist John Maynard Keynes."
    In reference to how poorly markets price the social negative externalities, they are equally inefficient at pricing social positive externalities.
    The treatments for malaria are fairly rudimentary, and in the absence of an effective cure, one way to prevent it is to stop the mosquito bites.  A cheap way to do that is through bed nets treated with an insecticide that lasts from three to seven years, which cost between three and six dollars.  They're 70% effective at preventing mosquitoes from biting.  The World Health Organization recommends that they be given away free to mothers and children...The value of these nets is much higher than their price, and if left to the market, fewer lives would be saved...
    A similar case can be made for education...The British Department for International Development reports that the Rwandan government's efforts to ensure free primary education for 100 percent of Rwandan children in the aftermath of the violence that left 1.2 million children orphaned resulted in some of the highest enrollment rates, for boy and girls in East Africa.  Enrollment rates in Rwanda have increased from 73.3 percent to 94 percent, representing an additional 500,000 children.

    "The main work of a social movement is to put the rich in their place."

-Shamita Naidoo, activist with the Abahlali baseMjondolo shackdwellers' movement

    In Argentina, researchers surveyed urban area where some shackdwellers were given land titles and others were not.  Those given land titles, the "lucky" group, were more likely to trust others than their untitled counterparts.  Curiously, "lucky" shackdwellers also though that "you can succeed on your own" at rates 30 percent higher than "unlucky" ones, despite the fact that land titles had been handed out, rather than earned.  Those who received land titles started to hold more individualistic and materialistic beliefs than their untitled counterparts, despite the fact that both the lucky and the unlucky groups earned about the same amount.  De Soto sees this as an educational benefit; "Property makes capital 'mind friendly'", he says.

    I found this passage pretty interesting because it made me question whether or not most republican families happen to have a long lineage of home ownership in their history.  The democratic party in America is largely inclusive of minorities, however many minorities and first generation Americans do not have long lineages of home ownership.  While ownership is not the only  reason to carry the mentality of 'you can succeed on your own", families with long histories of this particular philosophy may pass this mentality from generation to generation.  This could also play a part in the perceived dependency of the poor on the government and the republican motto of 'Pull yourself up by your own bootstraps'.  In the case of African Americans of whom were not allowed to own land centuries ago this experiment hints at how long lasting the effects of slavery might actually be.  The ego lift given to European Americans and the philosophy spawned from being a land owner and subsequently passed from generation could have lasting effects on the successes or failures of entire families, communities and ethnic groups as a whole.

    "But what is to be done with the waste when it's created?  Larry Summers, the director of President Obama's National Economic Council, once followed market signals to their logical conclusion in answering this question.  In a  leaked memo, written during his tenure at the World Bank.  Summers asked, "Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]?" His logic, impeccable by economic standards, was that poor people value environmental harm less than rich people, and so toxic waste could more efficiently be disposed of in Africa.   

    Rounding out the end of the book, the author closes with the perspective of John Locke:

    "In Locke's day the great crisis of value lay in the falling value of money-- coin slippers, counterfeiters and frauds of various kinds had altered and shaved the edges off silver coins so that the face value was more than 50 percent higher than its real worth...His solution was for the government to take a coin that claimed to be say, a 10-ounce piece of silver, and reissue it as a more accurate 7-ounce piece.  By turning coins into self-contained educational devices to correct the insanity of debauched currency, Locke sewed up both madness and money."
    The author digresses into a list of comparisons of John Keynes, Naomi Klein and Locke's ideologies being similar to medical doctors (and this is where he really lost me).  The assumption throughout the book is that there are at least two advanced species of the genus Homo running around.  That is homo-sapiens and homo-economus (corporations).  It is the latter species that is currently endangering the former.  Raj Patel argues that homo-econimus should be diagnosed as a psychopath (given their brazen history).  This has all been said before in other documentaries so he offers nothing new on the topic.  The author goes a step further to say that if homo-economus are a sick and depraved species of the homo genus, then economists are the only 'doctors' that can cure the species.  At this point, I decided the author had somewhat lost it and felt that his level of self importance had breached the solidity of his argument.  In my opinion, we do have two species of human running around, however the solution is not to cure corporations but to merely revoke the rights we as a civilization have afforded them.  My mother frequently quoted "People are more important than things".  As a teenager I'd get irate every time she said it because I loved the materialistic world and the value to which I thought all these 'things' were worth.  In retrospect, that bit of wisdom has been the difference between me growing up to be a cold and calculating individual with littler respect for his fellow man and an ever evolving person that strives to forge, bridge and maintain relationships on the basis that there really is nothing more sacred than our human experience and with whom and how we share it.  That being said, we must realize that homo-economus is not one of us and he cannot identify with our human experience.  One cannot value what one cannot identify and so our existence means little to homo-economus.  In essence homo-economus only needs enough homo sapiens to keep its moving parts well ordered.  I think homo-economus insures that a percentage of the homo-sapien population will survive and possibly thrive, however a great many of us are completely expendable in the name of it's own species advancement up the evolutionary chain.

    

I'm changing the focus of this blog.  Since I've greatly increased the number of books I"m reading I'll be singling out passages that resonate with me.  I'm currently reading Notes of a Native Son by James Baldwin.  I haven't read Native Son by Richard Wright but from what I gather more can be gathered about the commentary provided by James Baldwin than actually reading the book.  Passages that really stuck out to me were on the topics of Negro leaders (since most people would argue that we don't really have any)
   
    "The terrible thing about being a Negro leader lies in the term itself.  I do not mean merely the somewhat condescending differentiation the term implies, but the nicely refine torture a man can experience from having been created and defeated by the same circumstances.  That is, Negro leaders have been created by the American scene, which thereafter works against them at every point; and the best they can hope for is ultimately to work themselves out of their jobs, to nag contemporary American leaders and members of their own group until a bad situation becomes so complicated and so bad that it cannot be endured any longer.  It is like needling a blister until it bursts.  On the other hand, one cannot help observing that some Negro leaders and politicians are far more concerned with their career than the welfare of Negros, and their dramatic and publicised battles are battles with the wind.  Again, this phenomenon cannot be changed without a change in the American scene.  In a land where, it is said, any citizen can grow up and become president, Negroes can be pardoned for the desiring to enter Congress"

The only points I would raise about this detailed conundrum is that there are very few people who would choose to exacerbate and elevate there lives in the realm of contradiction.  In many ways, Blacks are aware of the befuddled and subtle contradictions of their very existence.  Becoming a Black leader would only make this internal struggle worse (although it may ultimately help Blacks in America as a whole).  On another note, its really unfortunate that James Baldwin never lived to this day and age as the faulty conviction of having a Black president is no more.

James Baldwin on his father:
    "He was, I think, very handsome.  I gather this from photographs and from my own memories of him, dressed in his Sunday best and on his way to preach a sermon somewhere, when I was little...But he looked to me, as I grew older, like pictures I had seen of African tribal chieftains: he really should have been naked, with war-paint on and barbaric mementos, standing around spears.  He could be chilling in the pulpit and indescribably cruel in his personal life and he was certainly the most bitter man I have ever met; yet it must be said that there was something else in him, buried in him, which lent him his tremendous power and, even, a rather crushing charm.  It had something to do with his blackness, I think -- he was very black -- with his blackness and his beauty, and with the fact that he knew that he was black but did not know that he was beautiful.  He claimed to be proud of his blackness but it had also been the cause of much humiliation and it had fixed bleak boundaries to his life.  He was not a young man when were were growing up and he had already suffered many kinds of ruin; in his outrageously demanding and protective way he loved his children, who were black like him and menaced, like him; and all these things sometimes showed in his face when he tried, never to my knowledge with any success, to establish contact with any of us.  When he took one of his children on his knee to play, the child always became fretful and began to cry; when he tried to help one of us with out homework the absolutely unabating tension which emanated from him caused our minds and our tongues to become paralyzed, so that he scarcely knowing why, flew into a rage and the child, not knowing why, was punished.  If it ever entered his head to bring a surprise home for his children, it was unfailingly, the wrong surprise...  I do not remember, in all those years, that one of his children was ever glad to see him come home.  From what I was able to gather of his early life, it seemed that his inability to establish contact with other people had always marked him and had been one of the things which had driven him out...He had lived and died in an intolerable bitterness of spirit and it frightened me, as we drove him to the graveyard through those unquiet, ruined streets, to see how powerful and overflowing this bitterness could be and to realize that this bitterness now was mine.
    When he died I had been away from home for a little over a year.  In that year I had had time to become aware of the meaning of all my father's bitter warnings, had discovered the secret of his proudly pursed lips and rigid carriage:  I had discovered the weight of white people in the world.  I saw that this had been for my ancestors and now would be for me an awful thing to live with and that the bitterness which had helped to kill my father could also kill me...
    We had not known that he was being eaten up by paranoia, and the discovery that his cruelty, to our bodies and our minds, had been one of the symptoms of his illness was not, then enough to enable us to forgive him.  The younger children felt, quite simply, relief that he would not be coming home anymore.  My mother's observation that it was he, after all, who had kept them alive all these years meant nothing because the problems of keeping children alive are not real for children.  The older children felt, with my father gone, that they could invite their friends to the house without fear that their friends would be insulted or, as had sometimes happened with me, being of that their friends were in a  league with the devil and intended to rob our family of everything we owned...
    In my mind's eye I could see him, sitting at the window, locked up in his terrors; hating and fearing every living soul including his children who had betrayed him, too, by reaching towards the world which had despised him."

This passage really summarizes so much of the relationship between my father and I that I was at a loss of words because of the exactness of the passage.  Its good that my experience is not mine alone and that there are a multitude of choices one can make to achieve a preferable future.

Lastly:
    "For so long as the waters are troubled they cannot become stagnant."

Past-Negative

Past-negative people tend to lean towards being fatalistic. Could there be a link in the collective past-negative perspective of the black (american) culture and the seemingly accepted dependency of religion (high fatalistic)?

I'll be adding more thoughts on this.