Saturday, May 9, 2009
A Silver Lining, The NY State Circus, Credit-Rating Crimes....
A Silver Lining – There are, indeed, some upsides to the economic depression we’re going through – there’ll be less of those young, cocky broker types with their brain-dead girlfriends sitting next to them driving their gas-belching, brain-rattling Hummers through the streets; we’ll be rid, too, of a lot of those tapas restaurants, with their fancy $16.50 small-plate, three-sardines-on-a-piece-of-lettuce rip-offs -- six of these minuscule dishes only whets Mr. Gripes’ appetite for that Stromboli torpedo-bomb across the street; there’ll be less of those gargantuan McMansion monstrosities erected, after beautiful, tasteful 150-year-old residences have been razed to the ground by too-rich-too-soon dunderheads, whose idea of classic architecture can be loosely summed up as ‘Staten-Island Mafioso’; there’ll be less of those incredibly expensive, vacuous, all-special-effects extravaganzas, of which some coke-crazed producer doesn’t blink at overruns in the hundreds of millions of dollars; there’ll be far fewer over-the-hill , barely ambulatory actors like Harrison Ford receiving $15 million for some celluloid garbage destined to go straight to DVD 10 days after release, and there’ll be a lot less execrable ‘contemporary’ art [remember that exhibit in a Brooklyn museum featuring a picture made with elephant dung?] being auctioned off at $30 or $40 million a pop. Thank God for a respite from all the insanity.
Among all these gaudy playthings destined to disappear into the ether, I reserve my greatest joy for the inevitable diminution in the number of professed wine connoisseurs. It’s certainly true that Mr. Gripes enjoys a nice glass of wine just like everyone else, and he can distinguish a pleasant-tasting wine from one that is not. But that’s it. All the pseudo-sophisticated chatter about the characteristics of a good Zinfandel or the finer points of a Chardonnay leaves Mr. Gripes totally unawed. Besides, I could care less if wild boar only goes with some sparkling Riesling, or a Ruffino Chianti is the only wine to accompany that well-done leg of wildebeest. Mr. Gripes bridles at all the rigid rules around oenology; they smack of stern, oppressive ideology -- dare I say it, communism. But Mr. Gripes’ biggest wine gripe is with the critics. They are responsible for some of the most overwritten, over-the-top, incomprehensible paragraphs I’ve ever encountered, and Mr. Gripes reads across the spectrum. Any writer worth his salt understands intuitively good writing means paring down and paring down: clarity is your ultimate goal. That’s not the case with wine critics – Consider a couple of wine reviews I’ve read recently:
For a Rued Chardonnay: ‘Golden color. Heady, slightly reduced foxy aromas mingled with bitter honey. With air, the foxiness blows off, and the honey starts to take over. Deep kernel of peach preserves, pear, tangerine. Highly mineral with wet stone-like minerality. Tremendous persistence on the finish, just gaining richness and intensity with air.’
‘Foxy aromas’? The ‘foxiness blows off…?’ What the hell is this all about? We’re talking about fermented grape juice, not some knock-out dame, mink stole dangling from her bare shoulders, smoking Camels at the bar. Or, ‘Highly mineral with wet stone-like minerality.’ Words without meaning. Pure gibberish. Get over yourself, guy. Maybe three people on Earth have any idea what you’re talking about. Or, ‘tremendous persistence on the finish.’ Are you talking about a wine or Mine That Bird’s miraculous dash at the Derby a week ago?
One more example:
A Malbec: ‘Rich Color, with a lovely nose of purple fruits. Nicely rich taste, with blackberries, earth, chocolate and some basil and sage. Round and complete.’
Mr. Gripes wasn’t born yesterday. ‘Earth’ in a glass of wine? Maybe the Health Department should be called in to inspect the winemaker’s filthy cellar floor. ‘Chocolate’? Did the vintner slip some Milky Ways into the vat? Basil and sage? I don’t think so, Mr. Wine Buckaroo. If you’re craving some seasoned Italian food, there’s a pizzeria one block over.
One final word: I challenge the wine critic who penned these excerpts to stand outside Penn Station one afternoon, canvas a cross section of New Yorkers to sip the aforementioned Malbec, asking them for their opinions. Out of 10,000 not one will tell you, sir, that there’s a smidgen of sage or basil in the wine. The vast majority will simply say, “This is pretty good,” or “I don’t really like it.” The boom years created such an abundance of phony sophisticates and hot air billowing out of their months. Some surcease will do us all some good.
The Circus – For those of you who are lucky enough not to live in New York State, a primer on the most dysfunctional state government in America:
Historians have asserted that Alexander Hamilton and James Madison, authors of the Federalist Papers, fought vigorously for a checks-and-balances system; they reasoned that competing forces would be compelled to negotiate and compromise around mutual interests. Well, the New York government is, and has been for decades, all about too many checks and no balances, impervious to compromise; for one thing, until very recently, one chamber of the legislature has been controlled by Republicans, the other by Democrats – that’s the first roadblock. The dominant political forces are permanently split three ways in the state: the downstate, urban, New York City crowd; the upstate, rural, agrarian sector; and a suburban, highly educated, well-to-do populace. All three have very divergent economic interests, are beholden to extremely tenacious blocs, and are resistant to surrendering any power or influence. Result? Logjam – nothing gets done.
And, the ringleader of all this is the chief executive, the governor. What a bunch of deadbeats they’ve been. Mr. Gripes will not spend a lot of time on George Pataki, a Republican governor who basically mailed it in for three terms, assiduously amassing a huge real estate portfolio for himself, but otherwise singular in his near-catatonic lack of energy and gubernatorial achievement.
Next, we come to his eminence, Eliot Spitzer, a rising star one day and a disgraced ex-pol the next. He’s elected with the highest majority in the history of the state, more than Franklin Roosevelt or Al Smith even. Six months later, he’s exposed as a serial user of high-priced hookers during Washington trysts that had gone on for years. As governor, he managed to antagonize everyone, with his ‘I’ll-rip-out-your-esophagus’ bedside manner. Mr. Gripes suspects some of his numerous enemies knew about his extracurricular activities for a long time, and opted to rid themselves of Mr. Spitzer at a moment of their choosing. The tale was simply leaked to the press. Mission accomplished.
Now, Mr. Gripes finally has arrived at the marrow of this dispiriting New York tale: David Paterson, Lieutenant-Governor in the Spitzer regime. Initially, after he’s sworn in, Mr. Paterson is viewed favorably by the entire electorate. Seemingly bright, witty and low-key, he’s the perfect antidote to the high-strung and remote Spitzer. Even public confessionals by him and his wife about mutual extramarital affairs don’t really faze anybody – the grace period held.
Not for long, I’m afraid. Barack Obama is elected President, and, in assembling his cabinet, selects Senator Hillary Clinton of New York as his Secretary-of-State. She accepts, and begrudgingly resigns from the Senate. This is the beginning of David Paterson’s spiral south: he and he alone, must select a new senator. Consider this, readers, as we proceed: Colorado in exactly the same situation had a new senator in place within a highly efficient three weeks.
Out of the blue comes Caroline Kennedy as the sure-fire, inevitable candidate. Basking in the beatific glow emanating from the saintly, martyred souls of her father and uncle, and urged on by her Uncle Ted, Mayor Bloomberg, the New York Times and basically every New York glitterati, including the noisome and irritating Susan Sarandon, it looks like a shoo-in. In fact, she’s unofficially ordained as senator when she travels to Harlem for a meal with Al Sharpton, who thinks he represents each and every black voter in New York; in actuality, Mr. Gripes insists, he is, as radio talk show host Curtis Sliwa puts it, nothing but a very shrewd ‘street hustler.’
Governor Paterson, meanwhile, is taking his sweet time making any decision. He asks that all potential candidates fill out a 27-page questionnaire for vetting purposes; he gets them back, and never looks at any of them. On a daily basis, he plays cat-and-mouse with the press: one day he praises Ms. Kennedy, then he asserts he’s made no decision, the next day he says he’s close to a selection, and a week later he’s hinting of unnamed dark-horse aspirants. This charade went on for a couple of months. The New York press, chagrined, embarrassed and angered by its treatment, begins to turn on Mr. Paterson.
Finally it all fell apart. Caroline Kennedy, perhaps fed up by the dilatory game Mr. Paterson was playing, and certainly not relishing her role as the moribund mouse being boxed around by the powerful cat, drops out. Gone. The governor’s people blame Ms. Kennedy for the fiasco, Kennedy’s aides blame Mr. Paterson for his ineptitude, and voters, at that very moment, rise up and say, ‘What the hell are you doing, Governor? You’re an incompetent dunce.’ The electorate, almost unanimously, had decided that Ms. Kennedy was mistreated and used, and immediately abandoned Mr. Paterson. His approval rating now stands at 19%.
State business at this writing is paralyzed: there’s a $14 billion shortfall in the state budget, and an additional $5 billion deficit in the MTA [NY subway, buses and trains] budget. Nothing’s been settled for months, amidst endless bickering, acrimony and disagreement. There is one certainty though: David Paterson is finished. Andy Cuomo, if he desires, would win the Democratic primary next year in a cakewalk. And, take a look at this recent poll: the disgraced ‘John’ himself, Eliot Spitzer beats Basil Paterson in a hypothetical run-off, 54%-39%.
A word of advice to my readers: don’t move to New York. It just doesn’t work.
An Empty Frame – Mr. Gripes, not one to let go of his rancor, finds that the further he moves away from the financial meltdown of fall 2008, the angrier he feels at the behavior of the individuals who, as custodians of the American financial system, chose collectively to violate the implicit trust of 330 million citizens. Let’s just take a quick glance at some of the rogues’ gallery:
We’ll start with Ronald Reagan, whose creed that “The government is the problem,” set off the war cry of those rock-head free-marketers that regulation would destroy free enterprise; Bill Clinton and George Bush, at the behest of their ungodly wealthy backers on Wall Street, accelerating the pace of a ‘see-no-evil’ regulatory climate; Alan Greenspan, who confessed to be shocked – shocked! – that CEOs of institutions might place self-interest over the well-being of the companies they were running. [An aside is warranted here: that statement offers proof that Mr. Greenspan never in his life had to actually get his hands dirty making money in a real blood-and-guts business.]; The senior executives of Wall Street investment firms and banks who certainly knew better but allowed their judgments to be blinded by enormous quarterly profits and spiking stock prices. There are so many to blame: at the bottom certainly are the mortgage brokers passing on fraudulent applications, and clueless homebuyers, so eager to own a house they thought nothing of taking on 12% mortgages.
All the various robber barons and sleaze-balls ought to have their mug shots put up at the post office under the rubric, ‘Wanted for Stealing America Blind.’ That’s not going to happen in this great land of no accountability. And, I don’t think public shame works either, as most of the big shots that ran this casino are sitting at home with $25-, $50-, $100-, $200-million in the bank.
There’s one picture frame, though, on the post-office bulletin board that’s empty, regrettably, and the villains missing are conceivably responsible for the entire debacle: the credit-ratings agencies. Just think: this catastrophe could have been prevented if one of the three powerhouse ratings agencies actually did its job properly: early in the game if one of those toxic AIG debt instruments, loaded as they were with worthless subprime loans, had been classified as ‘junk’, there would be no crisis. The house-of-cards that was allowed to build on itself and ultimately unleash the hydrogen bomb would have been stopped in its tracks.
Moody’s, Standard & Poor’s and Fitch, and those three alone, determine the creditworthiness of 98% of corporate and municipal bonds sold to the public. Incredibly, they’ve got off scot-free. No real recriminations or penalties whatsoever. And, my goodness, the mistakes they made in the past decade have been gargantuan:
● Lehman bonds were rated an ‘A’ rating – meaning they were a safe investment – right up to September 15, the day Lehman filed for bankruptcy.
● Enron’s debt was deemed creditworthy, and given stamps of approval from the three agencies four days before the company collapsed. It was discovered subsequently that Enron was essentially a criminal enterprise who lost billions of its investors’ and employees’ money.
● AIG’s creditworthiness was rated ‘AA’ right up to the day AIG had to deliver billions of collateral to its customers. It couldn’t, and as of this writing has needed $185 billion to keep afloat.
To a layman, it’s unconscionable that the three companies are even permitted to remain in business, much less flourish. And flourish they will: grading the securities that will be forthcoming out of the Geithner toxic-asset sell-off plan will be – guess who? – Fitch, S&P and Moody’s. They’ll earn $400 million for their labors. For once, Mr. Gripes is momentarily speechless.
Just one more point, and I’ll wrap this up: the business model for ratings agencies is grievously flawed. Each of the three companies is paid by the very institutions whose bonds they’re classifying: objectivity, and that’s the sine qua non in a bond determination, is impossible. An example: Lehman contracts S&P to classify a mortgage securities pool, and S&P comes back with a ‘junk’ rating for the bond. Lehman may pay S&P for this single transaction, but will be very leery of bringing any other similar bond to S&P for a rating. That means lost business for S&P, and lost revenue. Thus, S&P, for its own self-preservation and profit, will inevitably view that type of bond in a more favorable light. That, in essence, is how the system broke down. It’s no different than the implosion of Fannie Mae and Freddie Mac: the contradiction between the dual missions of these institutions -- a stockholder-owned, for-profit enterprise versus a public charter mandated by the government – will always create destructive distortions, and the institutions eventually must collapse. Let the government set up its own ratings agency, and take the profit motive out of the ratings game.