Education between the Genders

Greg Mortenson, in The Commonwealth (Jan 2009), tells us a beautiful proverb about education:

If we educate a boy, we educate an individual. But if we can educate a girl, we educate a community.

He is the co-founder of Central Asia Institute, and the co-author of Cups of Tea. In smaller communities, especially poorer ones, Mr. Mortenson is indeed correct.

Ali Salem on Peace

In honor of X-Mas day, I give you some words from Ali Salem, an Egyptian playwright:

Peace will not come to you; you have to make it, you have to sculpt it...you know, business deals lead to peace, not "enlightenment" from writers and intellectuals. [SF Chronicle, 12/19/08, A24]

I have a soft spot in my heart for writers, especially blacklisted ones. Mr. Salem has the right idea--words alone are not enough for peace. Individuals must work together. We forget that racism and lynchings in America were not resolved through American courts, which affirmed both Dred Scott and Plessy v. Ferguson. From everything I've read, when white Americans had to serve with African-Americans in the military, only then did America's racial consciousness change. After all, it's hard to be racist when you spend time with someone and do productive and/or courageous activities together. On this day, I give thanks to human beings everywhere who make it possible for us to connect to other human beings all over the world. Thank you, eBay. Thank you, Doctors Without Borders. Thank you, Google. Thank you, Kiva. And most of all, thank you to the "people who do their jobs, raise their families and sacrifice so that we can gather here in peace."

An X-Mas Gift

On X-Mas Eve, I received my new passport. I love the new design. I realize the new passports are a privacy lover's worst nightmare because of the embedded chips. I was still very happy to receive what felt like a timely gift from the feds. I especially like the quotes from famous Americans, including Abraham Lincoln and Martin Luther King, Jr., on each page. Here's one I had not seen before:

Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty. -- JFK

The passport also has blank sections where you can write in your address and other contact information. Use pencil when writing in the requested information. I made the mistake of writing my address and phone number in pen on the passport. That's my fault, of course--paragraph 5 told me to use pencil. The new passport also has two new pages titled, "Important Information." Most of the information is excellent and useful, but there is one interesting section--"Loss of U.S. Citizenship" (paragraph 13):

LOSS OF CITIZENSHIP. Under certain circumstances, you may lose your U.S. citizenship by performing any of the following acts: (1) being naturalized in a foreign state; (2) taking an oath or making a declaration to a foreign state; (3) serving in the armed forces of a foreign state; (4) accepting employment with a foreign government; or (5) formally renouncing U.S. citizenship before a U.S. consular officer overseas.

I admit I don't know which federal statute the above language comes from. (If someone does, please post a comment or email me the U.S.C. and/or CFRs directly.) Even so, most of the language seems overly vague and may therefore be unconstitutional.

For example, "Taking an oath or making a declaration to a foreign state?" That could encompass a lawyer writing a declaration in another country's court of law on a routine matter.

How about, "Serving in the armed forces of another state?" What about an Israeli citizen with dual citizenship? (Israel has mandatory military service.)

In short, Americans have allowed their government too much discretion if their new passports contain the direct language of a federal law. I am now having visions of Sir Thomas More appearing before Chancellor Cromwell, i.e., an innocent citizen before a government employee who twists the law to eliminate opposition. My country can do better in protecting all of its citizens from the vagaries of government discretion.

Why Does Hilary Kramer Still Have a Job?

I don't usually watch television, but I happened to catch tonight's NBR. Analyst Hilary Kramer scared me out of my wits when she said she expected the market to drop 25%:

I believe in the first six months, everyone should be very careful, all investors. We could see the Dow dip to 7500. S&P could have another 25 percent downside...But don't just rush in or if you have some concern in the market, sell, hold out, wait for the real bottom to come...I think that gold could reach $1400 during 2009.

http://www.pbs.org/nbr/site/onair/transcripts/081224e/

I was absolutely frightened until I saw the following transcript, also from NBR:

http://www.pbs.org/nbr/site/onair/transcripts/080123c/

Ms. Kramer says,

I believe we have seen the bottom and we are going to now see a bull come back into Wall Street. We have formed a bottom and the reason we know that is that we finally had real buyers come in today. But we know it even more so because of what I saw this morning and yesterday, which is real fear. Fear took over and it over powered greed. Greed for so long was fueling the market, including as it was going down people buying into it.

The date? January 23, 2008. The DJIA was 12,270--now it's 8,468. The S&P was 1338--now it's 865.  Some "bull," eh?

The lesson? Analysts don't know squat. Trust your own instincts. Or at least listen to people who've been right before, like Barry Ritholtz.

Update: gold did not reach $1400 in 2009, but on March 6, 2009, the Dow dipped to 6626, proving Ms. Kramer partially correct.

Plumes, Tulips, and Mortgages

Sarah Stein's book, Plumes, was reviewed by Stephen Birmingham, in the WSJ on November 19, 2008. It shows the fallacy of human greed and is yet another reminder of our tendency to engage in overzealous optimism. To wit,

It is the tulip craze that is most often cited in discussions of speculative bubbles, like the frenzy of for Internet stocks a decade ago and the more recent madness in the mortgage and credit markets. But the rage for ostrich feathers a century ago is instructive, too. When ostrich feathers flounced into vogue among the fashionable set in Paris, London, and New York, traders assumed that the popularity of plumes would stay permanently aloft, as if floating on an endless zephyr.

An ostrich feather bubble? Just one hundred years ago? Oh, the human frailty.

"Capitalism without failure is like religion without sin."

On seekingalpha.com, my Madoff article has attracted the second most comments. I've added a comment of my own, which I share below:

I've read all of your comments with the hopes that our outrage will prevent another ill-advised bailout. Carnegie Mellon economist Allan Meltzer once said, "Capitalism without failure is like religion without sin." In other words, capitalism doesn't work unless we allow losers. Having losers creates two positive outcomes: one, it shows others what doesn't work (in this case, not diversifying or not doing due diligence when investing); and two, it creates shame--a powerful motivator--by warning others that bad actions lead to real consequences.

A Madoff bailout would be particularly harmful to capitalism as a whole, because it would pervert it into a tool for the rich and well-connected. I called the WSJ article propaganda because it focused not on the investors who made substantial returns over the 25+ years of investing with Madoff, but on charities and the elderly. Thus, it was deliberately designed to pull on our heart-strings for a class of people who are generally well-off.

The real victims are non-Madoff investors who will suffer diminished returns from their mutual funds. Their mutual funds hold companies like UBS and other entities that invested with Madoff. No one will be bailing out these Main Street investors, but they are the real victims. Yet, all the attention is being given to Madoff's investors, who are a highly exclusive group of hedge fund investors and investors who failed to diversify their investments.

In the end, a bailout is wrong because it would cause the transfer of wealth from people America should support rather than penalize. Basically, rather than reward people for making wise decisions or providing utility to others, a Madoff bailout ensures that Main Street will continue to suffer for bad decisions made by the rich and investors who failed to diversify.

If we wish to serve as a non-exploitative economic model for the rest of the world, we must allow some failure. We must not allow well-connected investors to make bad decisions and then escape the consequences because of their friends in Congress, on Wall Street, and in the Dow, Jones & Company publishing firm.

More important, if we want the U.S. dollar to continue being the world's reserve currency, then we must ensure the rich as well as the poor suffer the slings and arrows of bad decisions. The alternative is printing more money, which will lead to inflation, and reduced stature.

Mad about Madoff

My Madoff article became the most popular article on seekingalpha.com yesterday, as well as the third-most commented on article. People are angry. I hope their reaction pre-emptively stopped serious talk of another ill-advised bailout.

More comments and public reactions at the Daily Kos.