Tuesday, January 6, 2009

Elections? What Elections?

Last autumn, Prime Minister Ehud Olmert resigned, sort of. Olmert agreed to leave office as soon as a successor could take office. Tzipi Livni, the Foreign Minister who won the Kadima election for a new leader, tried and failed to form a new government. And so new elections were called and scheduled for February 9, 2009. The various parties have since held primaries (another American import which has all the cultural attraction of McDonald's) and started campaigning. The response of the public has been underwhelming. Other than a hard core of true believers, most people seem to be ignoring the elections. One Israeli friend intends to vote for Livni because he really doesn't like Bibi, won't consider Barack. Livni will get his vote because, as far as he knows, she hasn't yet stolen his money or lied to him. Others are leaning toward Meretz but don't seem to think that Meretz will wind up in the government. I think a big reason that there's no enthusiasm for any candidate or party is a general belief that new elections will not change anything. There's that word again, "change."

Israeli politicians have adopted the form of American politics without the substance. I know. Its hard to imagine American politics with less substance. What's a negative value for next-to-nothing? Without any indication that they would actually listen to adversaries, think about alternatives and try to craft creative ways to deal with major problems, a la Obama, Israeli politicians have simply been adopting Obama's style. The one exception is Ehud Barack who is trying to emulate the John McCain who used to go on The Daily Show and be funny.

Israel is getting away from emphasizing party ideology (and loyalty) to focusing on individual candidates. And yet the country still elects governments based on votes for party lists and not for individual representatives. As they say in the Talmud, you might think that an election here would be an opportunity for a serious debate on critical matters like education, the environment, economic recovery and, oh yes, how to deal with Hamas, Hezbollah, Syria and Iran. But you would be wrong.

Bibi Netanyahu has a web sight that looks exactly like the Obama campaign site, right down to the requests for donors and volunteers (except its in Hebrew and uses a different slogan - "Together We Can Succeed"). Bibi, and the hard line rightists who make up a significant portion of the Likud list, are among the last people you would expect to get into the sort of dialogues with adversaries advocated by Obama. But hey, its an election, not a search for truth.

Meanwhile, Tzipi Livni is "ready for change." From what to what remains a mystery but if it comes, she's ready. The third major player, Ehud Barack, has been fighting an image problem. His stinks. Barack is tying to improve his image by using reverse psychology. The country is plastered with ads listing all his shortcomings but proclaiming that he's a Leader. He's not kind, sympathetic, funny, etc, he's a Leader. If you want a heartless automaton to be your Leader, he's your guy. To try to make himself appear more human, Barack went on Israel's leading comedy show (think of John McCain on Saturday Night Live). The next morning he started bombing the Gaza Strip back into the pre-Canaanite age.

But the prize for the most cynical ripoff of Obama's style without adopting any of the substance has to go to Shas. Shas is a right wing Haredi (ultraorthodox) party that cares nothing for anyone outside its narrow community. Shas cares about funding its own Yeshivas and increasing welfare payments to nonworking Haredi families having more children than they can possibly afford to support, period. A Shas government would have nothing to say to the general public (other than that any divorce or conversion done by a non-Shas Rabbi would be invalid). The rest of Israel can drift out to sea for all they care. So, of course, they're the ones shouting "Yes, We Can!"

As usual, the outcome of the elections will depend upon the security situation. If Livni and Barack produce something that looks like a "victory" in Operation Cast Lead, the center-right coalition might stay in power. Otherwise the perceived size of Israel's loss to Hamas will be directly proportional to the right wing majority that will take over the Knesset, making Bibi the next Prime Minister. Yes, Hamas is probably in a better position to pick the next Prime Minister than Joe Israeli Voter. So much for change.
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Monday, January 5, 2009

This Is How You Live In Israel - Part 1

Keren, Gal and Tamar are among our Israeli friends and family. These three exceptional young women are at different stages of their Army duty. Keren is a reserve officer subject to being called up, Gal has finished active duty and is in the year immediately after service when the Army tries not to call you back. Tamar is on active duty.

Keren, my Yemenite daughter, has been attending Hebrew University on Mt. Scopus in Jerusalem. We saw her Saturday night (Jan. 3) at a dinner party thrown by Gideon and Pnina, Molly's in-laws. As of 10 pm Saturday night Keren had not been called up and thought she might be heading back to school. Sunday morning, when her biological father, Mauricio, came by to help me stock up on coffee and wine and told me that, very late at night, Keren was called up. She reported for duty Sunday morning. We saw Keren in Tel Aviv Sunday night, She got the night off. This country is so small the kids can commute to the war front. Today (Monday Jan. 5) she's somewhere along the Gaza border but can't tell us exactly where or what she's doing. Her college studies are on hold for an indefinite period of time. Meanwhile her brother, Daniel, is in the Golani Brigade, an elite combat unit. He was somewhere on the Golan Heights but has been moved to a training area in the Negev. We don't know what he's training for but are pretty sure we'd rather have the war end before he gets a chance to do it.

Mauricio shrugs and says that this is how you live in Israel. In 1950, when he was 2 years old, his family moved here from Italy. He remembers the 1956 war, he fought in the Sinai in 1967 and, in 1981, rode a mobile heavy mortar into Beirut. Almost every Israeli has a similar story.

Here in Tel Aviv, unless you seek out the occasional anti-war demonstration or stay glued to the broadcast news you wouldn't know there's a war going on. Last Friday we joined the Rabinowitz family at the basketball game between the 11-12 year old teams from Hapoel Ussishkin and Hatikva. The game was at the Hatikva community center, the neighborhood where Becky and Gal lived together a few years ago. Gal's youngest brother, Yonaton, a very good player, was the high scorer in a lopsided victory. Gal's Dad, Danny, is a basketball player who supports his family by working as a University professor. He was clearly happy to have his son excel at his game and to have his daughter at home. Gal may get to miss the current war, keep working to save money and take her post-Army trip to the Far East.

Tamar is Marcia and David's granddaughter, making her  my third or fourth cousin (its been too long since law school to remember degrees of consanguinity). Tamar is on active duty. She's been at a base close to the junction of Israel, Gaza and Egypt but may have been moved north and inland. Her usual Army job involves counseling soldiers. So she may not be on the front line (wherever that is today) but she is probably in an area within Hamas' missile range.

Liz, Becky and I have watched the TV channel on which the Homefront Command broadcasts instructions (in Hebrew, English, Arabic and Russian) for dealing with missile attacks. Within 40 kilometers of Gaza, Israelis are asked to stay within a certain distance of a shelter or safe room. The response time varies depending upon how far you are from the missile launching sites. Schools within the danger zone have been closed and outdoor gatherings are banned. We have been told how to select the safest room in the apartment. In the event we can't reach a shelter or don't have a safe room (which we don't), we know how to select the safest room in the apartment. The Opera Tower's bomb shelter is on -3, the lowest garage/basement level, about 9 stories below us. I know where the stairwells are and which one is closest to the shelter. I don't expect to need this information but, having once worked in the World Trade Center, I know it's information I want to have on my frontal lobe, just in case.

The international press and the usual pro-Palestinian whiners are much more concerned with the "civilian" casualties in Gaza than any injuries inflicted upon Israelis. We've been asking Israeli friends and relations about this. The general view is that its unfortunate that some people are caught in the middle but that Israel is right to do something about Hamas' attacks. One friend with a relative who was badly injured by a Grad missile hitting Ashkelon is not at all sympathetic. One relation is so upset that he's rethinking his relationship to the Zionist project. Others point out how Israel tries to warn Gazans before dropping bombs on residential buildings. I don't know if The Usual Suspects in the US know that Israel will call cell phones, drop leaflets and use other means to warn civilians that the building they are in or next to is about to be hit. They even drop small bombs near the building or blank charges that make a loud boom without deadly force before the actual attack. I find myself ambivalent about the fate of children who have been raised to celebrate the death of a Jew and aspire to wear bomb belts. I'd like to see them get a decent life but their parents are the ones who will have to stop the insanity and, frankly, they don't seem inclined to do that. As long as Hamas forces the choice to be our kids or their kids, I'm going to worry about our kids first.

Hamas has for years indiscriminately attacked and killed Israeli civilians and evidences not the least inclination to change its behavior. Israelis, for the most part, really are unhappy when noncombatants get hurt. Hamas could care less. What most of the "international community" wants to ignore when bemoaning the "humanitarian crisis" in Gaza is that one of the reasons the Gaza borders are usually closed is that Hamas has the habit of shelling any crossing at which Palestinians were trying to get into Israel to work or do business. They really do not care how many of their own people die for the cause. If they can't maneuver the Israelis into shooting Palestinians, they'll just do it themselves and say, with a straight face, that Israel forced them to do it. The Hamas leader who died with his four wives and 11 children deliberately ignored Israeli efforts to warn them to get out of harm's way. He would have died with 12 children but for the fact that he had already used one as a homicide bomber.

Its disgraceful how many seemingly intelligent adults refuse to acknowledge that maybe Hamas and its allies have some responsibility for current events. As a pleasant surprise, some Arab governments seem to have figured this out. Arabs accepting that fellow Arabs may actually be at fault is progress of sorts. But my favorite voice in the wilderness is the support Israel has received from the Czech President of the EU. The Czechs know something about self-defense and what can happen if you rely on the British, French and the rest of the "international community" to preserve your borders and protect your citizens. After 50 years of being ruled by Nazis and Stalinists, the Czechs know something about Israel's predicament.

So, how does this end? Well, officially, neither side wants a cease fire that "gives legitimacy" to the other. There is some slim possibility that reality will set in and both sides will find a way to claim victory and stand down. If Hamas survives and gets a truce under which Israel ultimately opens up the borders and seaport, they'll say that they won. Israel can claim victory if it survives (no other UN member gets its existence questioned, why is that?), rocket fire ceases and the smuggling tunnels are closed. As of tonight (Monday Jan 5) Israel has split Gaza into three sections and is clearly trying to achieve the sort of control it has asserted over the West Bank (which has been divided into four sections for a number of years). But Israel can't sustain its divide and conquer strategy with which it has had some success in the West Bank unless it permanently reoccupies Gaza. So, a bigger, albeit unlikely, victory for Israel would be to mortally wound Hamas and put Fatah back in control.

A big reason why the West Bank has been relatively quiet (except for the pogroms initiated by Jewish settlers) is that Fatah police, armed by the US and trained in Jordan, have been keeping Hamas and other Islamic terrorists under control. Amnesty International objects to the use of torture and targeted assassinations that continue to be part of the Fatah playbook but homicide bombings have been squelched. In return, Israeli troops have been pulled back from some population centers, allowing the locals to move about and do some business. The ironic business news of 2008 is that while the rest of the world sank into a deep recession the Palestinians' West Bank economy grew by about 12%. Now 12% of next to nothing isn't much but having the hotels in Bethlehem crowdedwith Christian pilgrims while Israeli Arabs go shopping in Jenin and Ramallah are hopeful signs. However, economic improvements will not, in the end, satisfy Palestinians' national aspirations or bring Israel any lasting peace. The gloomy statistic around here is that from 2005 to 2007 the largest Israeli population increase was the growth of West Bank settlers from 230,000 to 250,000. No segment of the Jewish population has that high a birth rate. This was not "natural growth" but deliberate expansion of the settlements. No matter what sort of cease fire gets worked out in Gaza, the seeds for the next generation's war are being sown.

Meanwhile, the weather has been pleasant and we've been out walking some of the city's more interesting neighborhoods with the Solomons (who left for home this evening), rediscovering some of our favorite restaurants, listening to some great jazz and generally having a very good time. Today, David Chamovitz gave us a tour of the cemetery on Trumpeldor, where many of Tel Aviv's streets and the faces on our Zionist sugar packets are buried. David keeps notes and newspaper clippings to educate the tourists and even waived his usual fee. We found the graves of Dizengoff (Tel Aviv's first mayor), Max Nordau (who never lived in Israel but whose bones were moved to a crypt formerly used by David's friend Joe to teach young Irgun members how to assemble weapons), Ahad Ha'Am, a number of city founders, the mass graves of people killed in the Arab riots of 1921 and 1929, a couple of the Irgun kids who fell in battle while still in their teens and artists like Bialik, Brenner, Reuven Rubin and Shoshana Demari (Israel's great lady of song). This is also how you live in Israel.

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Monday, December 29, 2008

Here We Go Again

Tel Aviv
29 December 2008


Today we did not go to a Hadassah luncheon in Beersheva. And our tentative plans to head further south or up north with the friends visiting from the USA are going on a shelf. Too risky now that Hamas has missiles that can reach 30 to 40 kilometers into Israel and the Arab population is demonstrating against the attacks.

This morning a Hamas made-in-Iran missile hit a construction site in Ashkelon, killing one worker and wounding 12. The dead man is an Israeli Arab but Hamas doesn't care. The BBC/Sky News people are whining that since the casualty toll on the Gazan side is so much higher, Israel has to stop and the Gazans' attacks should be tolerated. Nonsense. 100 to 200 missiles and mortars launched indiscriminately at a civilian population (which is what has been going on since long before the so-called ceasefire ended) cannot be allowed to continue. I'm not noted for being a hawk or right winger but enough is enough. Yes, there are civilian casualties in Gaza because Hamas facilities are hopelessly interspersed with residences, schools and mosques. Resorting only to violence with no serious offer of benefits for good behavior won't solve anything. (Consider, for example, the 40 rockets launched at Israel from Gaza today.) I made this argument when Hamas first got elected, Israel shut down the borders in a futile attempt to topple the regime and violence from both sides escalated into the Second Lebanon War. (See blog posted July 15, 2006.). I'm about to make it again.

Hamas was elected to bring stability internally while prosecuting the war against Israel externally. Unlike most political parties it actually delivered on most of its promises by ending sectarian violence and continuing to attack Israel. If an election ever gets held again, Hamas will win again. Meanwhile, all those children being trained by the big Mickey Rat to want to grow up to wear bomb belts, will grow up and, given that they have no hope of doing anything else, will take over from their martyred elders and recommence firing  the missiles, mortars and dispatching suicide bombers. As the Mayor of Sderot said, if the current offensive buys us two years of quiet (and for him quiet is 3 to 6 kassams a week) it will be a success.

So why won't violence alone work for either side? Hamas is not capable of militarily defeating the Israelis. Their only hope is that terrorism will compel the Israelis to leave, just like the British left. Guess what? Won't happen. If anything, the continued violence has pushed Israel to the right and fomented a siege mentality that will last for years. For its part, Israel really can't pound Gaza into submission. Why? Because such an action can only be interpreted as genocide. Also, Israel can't retake and garrison the Gaza Strip. All that does is touch off the Third Intifada and give Hezbollah an excuse to start bombing Israel's northern cities. To say nothing of an Israeli population that will not tolerate the number of casualties that will be suffered by the IDF. As the IDF's Chief of Staff said, he knows how to go into Gaza but does not know how he'd get out again.

So, once Israel has destroyed what it can that will be the end of things for now. Both sides will return to the daily grind of attacks and retaliations, with each side claiming that the other started the violence. As for Israel's ongoing efforts to economically choke Gazans into abandoning Hamas, this has had and will have about as much success as the USA has had in eliminating the Castro regime in Cuba. Inevitably there will be another escalation, as happened this week, and we'll go through the cycle all over again. As has been the case for the past 40 years, resorting to violence will not solve the underlying problem. It will punish some but not all of the bad guys and a lot of civilians caught in the middle but violence won't bring any long lasting relief to what ails Israel, let alone the Palestinians.

Before suggesting an alternative, let's review the seemingly impenetrable barriers to any kind of long term ceasefire. First, Livni and Barak were about to be voted out of office. The hail of Hamas missiles came close to being the final nail in their political coffins. Then they struck back. Big time. The latest polls have Kadima running neck and neck with Likud and Labor is back from the brink of extinction. If they manage to restore some semblance of quiet in southern Israel, Livni and Barak might get to remain in the government while Olmert may be remembered as something more than an incompetent hack and crook. (He might even get some time off his jail terms.). Their hope is that deep down inside most people don't want Bibi to be the next Prime Minister but have, until this week, felt they had no other choice. So, Livni and Barak are in no hurry to bring a quick end to Operation Castlead.

Hamas, for its part, is religiously committed to destroying any semblance of a Jewish state, making Palestine Judenfrei or becoming martyrs in the process. Hamas steadfastly refuses to deal with Israel, even for what would seem to be practical matters such as getting enough food and fuel into Gaza. Israel, rightfully, won't deal with or recognize a regime whose very existence is predicated on Israel's destruction. But, let's be honest, Hamas gives Israel an excuse to not get too serious about a real peace deal because that would mean getting serious about helping to build an economy in Gaza or, even more critically, pulling settlers out of the West Bank. Hamas enables Israel to say they have no partner for peace by reminding the world, every day, that they refuse to be a partner for peace. Hamas also does what it can (which is a lot) to undermine the efforts of any other Palestinian faction to make peace. As for enforcing a cease fire, Hamas was serious when they said that they would not be Israel's policeman.

It has been said around here that the last ceasefire fell apart (or never actually took effect, depending upon your point of view) because there never was a meeting of the minds as to its terms. Since nothing was put in writing and signed, everyone concerned was free to announce and follow their own version of the terms. And, as there was no agreed upon enforcement mechanism, the only recourse was to resume the violence. Hamas can claim that Israel violated the cease fire by not allowing enough trucks into Gaza or by not extending the cease fire to the West Bank. Israel, for its part, can simply point to the fact that the missile fire never completely stopped and that Hamas was still trying to tunnel its way into Israel. So, for any future deal to last, both sides are going to have to agree to specific terms, put them in writing, sign them (I would insist that both Haniyah in Gaza and Meschal in Damascus sign on behalf of Hamas) and come up with some way of enforcing the deal.

It is an understatement to say that its not easy to strike a deal between parties who will not recognize, negotiate or take action on behalf of one another. As for the latter, remember, in any negotiation, at some point each negotiator has to go back to his or her own people and convince them that the other side is right about some things and the people who hired or elected the negotiator have to make concessions. Can you name anyone from Likud, Kadima or Labor who is going to tell Israelis that Hamas may be right about something? And vice versa. So if any future deal is to have a future, Egypt, Turkey. the US under an Obama Administration, someone, has got to write down the deal, make the parties sign it and figure out how to enforce it. Good luck.

I actually think that Hamas is going to blink first. Its refusal to bend makes for great sermons in the Mosque but doesn't help Joe Gazan get a job or send his kids to school or keep Hamas' leadership alive. At some point Hamas will revert to form and seek a ceasefire to give it time to reorganize and reload. But the typical Hamas ceasefire is only to buy time. Not to live in peace. So, the question is how do you get to an indeterminately long ceasefire? Behavior modification. Make compliance really worthwhile while violations are punished without resort to renewed violence.

Israel should agree that in return for one week of no hostile acts (defined, in writing, as no missiles, mortars, human attacks in any form and no importation of weapons, known terrorists or people to train terrorists), the border crossings will be opened to up to 100 trucks a day. (Israel allowed up to 90 trucks as day during the last cease fire and Hamas objected that this was less than what was promised.) In addition to the trucks, unlimited crossings should be allowed for people in need of medical care and individuals with work permits (which permits will not be unreasonably denied). For every additional week of no hostile acts Hamas gets an additional 100 trucks until the Hamas number of 900 a day is reached. After that the truck limit is a combination of whatever the crossings can handle and how much is being shipped into and out of Gaza..

If 6 months go by with no hostile acts, Israel will allow Hamas to reopen the port in Gaza. Israel keeps the right to inspect ships coming and going for arms, wanted terrorists and the like but generally allows commerce to move along. After one year Israel opens an unrestricted means of egress between Gaza and the West Bank. At this point the cease fire is extended to the West Bank for both sides to obey. Also, private parties may establish joint business ventures, reopening the industrial zones along the border that have been shut down since the Second Intifada began. After two years, Gaza gets its international airport reopened. No plane can fly over Israeli airspace and every plane has to go straight west for 200 to 300 kilometers before making a turn.

Any violation by any Palestinian closes all of this down and the one week time clock starts ticking again. Any violation by Israel results in an appropriate economic sanction. In other words, no one gets to just start shooting again but there is a definite penalty for violating the ceasefire. Honoring the ceasefire would get Gazans some concrete rewards and make it worth their while to maintain the calm. Since the stick alone does not work, it's time to try adding a real carrot.
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Thursday, December 25, 2008

How We Spent Yom Hag Hamoled

Last night (December 24) Liz and took our visiting friends, Burt and Alice, to Schmuel's, where we met up with our Israeli friends, Mauricio and Nurit. Burt and Alice arrived in Israel that morning. We fed them lunch and sent them off for a nap. We woke them a few hours later, fed them dinner (with potato latkes) and hauled them off to Schmuel's. We are very cool friends.

I wrote about Schmuel's last year when Mauricio got me warmed up for my Super Bowl all nighter. Schmuel has lately gone on a Brazilian music kick with a wonderfully talented trio playing on Fridays and other holiday evenings. Last night was the last concert for the lead singer, Nillson, who is going home to Brazil to pursue acting gigs. The group plays bossa nova, samba and lots of other mellow Brazilian dance tunes, some of which they wrote themselves. Listening to this under Schmuel's crusader arches is a transcendent experience. The crowd attracted to the music is largely Brazilian plus locals who know what's good. To get a better feel for the place than I can convey please check out www.mazalarieh5.blogspot.com for photos and music clips.

To protect the band, dancers and my drinks from the winds and rain, Schmuel has made large curtains out of coffee bean sacks provided by Mauricio. In addition to being Brazilian music night, it was also the fourth night of Hanukah and also the eve of Yom Hag Hamoled (The Day of The Festival of the Birth). As if Tel Avivans need an excuse to party.


OK, so everyone is merrily drinking and smoking their way through the evening. Lots of smiling faces and mellow dancing. Around 11pm the band takes a break. Everyone's attention is called to the bar where Schmuel and Nillson are about to light the menorah that has taken up a prominent place all evening. Schmuel has put on a kippah and holds a prayer book (kept under the bar? kept with his stash?). He recites the blessings while Nillson lights the candles. The entire crowd of about 40 pleasantly inebriated people joins in singing Maoz Tsur (Rock of Ages) to a Samba beat. We really love this country.

Today, Liz and I got up at 5:30am, caught an early bus to Jerusalem to attend Joshua's Bar Mitzvah (Becky's friend Jesse's younger brother). Trust me, functioning on 4 1/2 hours sleep with a hangover is a young man's game. Nevertheless, the service was just fine (Joshua davened, read Torah and gave a good speech) The brunch was delicious. This all took place in the Mount Zion Hotel. The hotel doesn't seem to get a lot of buzz. Its built into a hill just down the road from the wall of the Old City. The view alone is worth the 5 stars this place gets in the guides. Family and friends from Israel, New Jersey and Skokie IL gathered together and had a fine old time.

This is not my vacation, this is now how I live.

Happy Holidays to You All.
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Thursday, September 25, 2008

Two Days of Hearings Bring Me to Two Questions

OK, its Fall of 1929 (or maybe 1888 for you total finance junkies) only this time the powers that be actually want to try to avoid the closing down of credit markets and the cascading failures of banks and brokerages. So, I have two questions. And I would really like those of you are smarter than I am about these things (and that's most of you) to tell me if I'm even close with the answers. First, rather than some stupid formulaic limit on CEO pay or dividends, why doesn't the government just put a condition on the money requiring that any money received to buy an institution's assets may only be used by the institution to make loans or otherwise do business? Second, am I missing something or does buying up mortgages and mortgage-backed securities at a deep discount almost guarantee that the Feds will make a profit?

First, the Feds could easily put limits on the use of our money and on any profits earned with our money. Limits on the use of the funds could remain in effect for the remainder of the institution's current fiscal year and its next five fiscal years (unless Congress determines that the crisis is over sooner).

The institutions get to count bailout money as good capital, thus allowing them to borrow other funds at lower rates, meet capital requirements and get a higher credit rating from the rating services. But what the institution may not do is to use the federal money or any earnings on it to determine the size of the executive bonus pool or shareholders' dividends. Don't let anyone who says there's no way to account for cash flows in such a micro level. Brokerages and investment banks do it all the time to calculate things like their cost of funds.

It seems to me that requiring the money only be used for loans would achieve the main goal of opening up the credit markets. Not allowing it to be used to calculate executive compensation would enable Congressmen to say that no one is getting personally rich on taxpayers' money (though, of course, they will but that's really the point and possibly the subject of another blog). And, for shareholders, while their dividends won't go up, the rise in the share price that will follow the improved balance sheet and increased revenues will more than make up for a lower dividend. Besides, it beats the heck out of bankruptcy or a federal takeover of the institution's equity.

Second, buying up mortgages and mortgage-backed securities at a deep discount almost guarantee that the Feds will make a profit. The Federal government's cost of funds to buy the assets is about 3 to 4% at current Treasury market rates (or even less if they just print the money). OK, so let's say they buy assets at 50 cents on the dollar. This would be a substantial premium over the mark-to-market or "fire sale" value of this garbage, so the institution will be glad to sell, but the discount below face value would leave plenty of room for the Feds to make a profit. Why? Well, despite all the gloom and doom, the default rate of "prime" mortgages (mortgages that were made to people who could actually afford to repay them) is now in the 6 to 8% range. This is two or three times "normal" default rates, reflecting the economic downturn. But that means that 92 to 94 percent of these mortgages and any securities backed by these mortgages are going to paid in full and on time. Assuming that the interest rates on these things run is the 4 to 6% range (and I think I may be low) the Feds' real rate of return will be 8 to 12%, because the paper was bought at half of face value. As for the bad paper, Fannie and Freddie can step in and renegotiate most if not all of the defaulting mortgages to rates that the borrowers can afford. Same deal with the subprime paper only more so. The dirty little secret in this crisis is that about 80% of subprime the loans are still being repaid. If you assume that the ARMs have reset to the 10 to 12% range, the Feds' rate of return could be in the 17 to 21% range (that's buying at half face value and subtracting a 3% cost of funds). As for the 20% in default let these be renegotiated to 30-year fixed rate mortgages in the 4 to 6% range, depending upon what the borrower can afford. The Fed still makes a tidy (albeit smaller) profit and the politicians can truly claim (just a few weeks before election day) that they OK'd a plan which allows borrowers duped by evil lenders to keep their homes.

So what's wrong with my "logic"? And, if I'm right, why isn't Paulson saying this, slowly and with small words so even a Senator or Congressperson can understand it?
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Wednesday, March 28, 2007

Lighting Up Pesach

Tel Aviv

Pesach (Passover to some of you) is fast approaching. To prepare for the holiday, Jews all over the world are cleaning their homes, offices and cars to get rid of their hometz (bread and bread-like substances) and re-stock their kitchens with foods and even drugs that are acceptable for consumption and/or ownership during the holiday. And this is where the infinite ability of the Tribe to pick nits becomes a huge source of agnozing for some and entertainment for the rest of us. For example, until this morning, my all time favorite Pesach question (asked on a call-in radio show) is whether Preparation H needs a hecksher (certifying its OK to eat during the holiday).

She is still in the pantheon but has to move over to make room for the Green Leaf Party. Green Leaf is a political organization that runs candidates for office on a platform to legalize marijuana in Israel.

Tel Aviv
28 March 2007

Pesach (Passover to some of you) is fast approaching. To prepare for the holiday, Jews all over the world are cleaning their homes, offices and cars to get rid of their hometz (bread and bread-like substances) and re-stock their kitchens with foods and even drugs that are acceptable for consumption and/or ownership during the holiday. And this is where the infinite ability of the Tribe to pick nits becomes a huge source of agnozing for some and entertainment for the rest of us. For example, until this morning, my all time favorite Pesach question (asked on a call-in radio show) is whether Preparation H needs a hecksher (certifying its OK to eat during the holiday).

She is still in the pantheon but has to move over to make room for the Green Leaf Party. Green Leaf is a political organization that runs candidates for office on a platform to legalize marijuana in Israel.
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