Wednesday, September 28, 2016

There are parallels, but the comparison can go too far: Hitler and Trump

There are parallels, but the comparison can go too far:  Hitler and Trump

The New York Times published a book review of a new biography of Adolf Hitler by Volker Ullrich.[1]   A number of news organizations are suggesting that the reviewer, Michiko Kakutani, structured the review to provide a not-so-subtle comparison between Hitler and Donald Trump.[2]  Before I was a lawyer, money manager, or artist I was a serious student of Nazism and the Holocaust, so I’ve read more than a few biographies of Hitler.  I don’t think Ms. Kakutani had to be thinking at all about Donald Trump in writing her review as it follows a very established body of scholarship on social, economic, and political conditions in the Weimar Republic, as well as Hitler’s political tactics and personality in advance of his rise to the Chancellorship of Germany in 1933.

I count myself as one of those who is deeply troubled by the possibility that Donald Trump could become President of the United States because I think he is unfit for the job.  I also think that conditions in Germany in the 1920s and those in the United States in the 2010s both lend themselves to the political rise of demagogues.   Like Germans in the 1920s, today many Americans feel that their economic and social standards are being jeopardized.  Hitler played on those fears, and Trump is following a similar script.  Hitler’s rise was fueled in part because the political and economic elites underestimated him.  Clearly, our elites also miscalculated Trump’s appeal and strength.  Hitler had a deeply narcissistic personality, and Trump seems to share some of those traits.

Having outlined suggested the parallels between Hitler’s rise and Trump’s campaign, I think it is wrong to compare Hitler to Trump.    First of all, there are also lots of differences.  The Weimar Republic had far more serious economic and social problems than those of present-day America.  Germany’s democracy was still in its infancy in the 1920s and had much deeper ideological splits that we have today.  I know our rifts seem alarmingly wide, but they are not close to the strife and violence of German politics in the 1920s.  In addition, Hitler and Trump brought very different experiences and circumstances to their political careers. 

In addition, I think that the direct comparison between Hitler and Trump is dangerous because it blinds us to our real issues and challenges.  If we equate Trump to Hitler we run the risk of becoming so emotional that we can’t repair the growing economic rifts and racial and ethnic prejudices that are dividing this country.  America needs to repudiate Donald Trump, not because he’s another Adolf Hitler, but because he is Donald Trump.

Monday, September 19, 2016

An Unwarranted Attack on Public Pensions By the New York Times

An Unwarranted Attack on Public Pensions By the New York Times

Here’s a sensational headline that might have caught your attention if the Presidential election, terrorism, or the Emmy awards weren’t dominating the news cycle: “A Sour Surprise for Public Pensions: Two Sets of Books.”  The headline appeared on the front page of the business section of Sunday’s New York Times and is featured on the DealB%k website.[1]  The headline is misleading and the article is poorly researched and reported.  I’m detouring again from my artistic endeavors because it’s this kind of bad reporting that will become fuel for ideologues who want to eliminate public pension plans. 

I know that pension issues aren’t as exciting as Donald Trump’s pronouncements on President Obama’s place of birth.  I also know that Hillary Clinton’s use of the word “deplorables” deserves virtually endless commentary, while issues of pension accounting are supposed to be confined to academic journals and esoteric conferences.  At first glance I was thrilled that Mary Walsh Williams, the Times reporter, was given the opportunity to write extensively about one of the challenges facing public pensions.  However from the headline onward, it was clear that Ms. Williams had completely mischaracterized one of the central issues of public pension plans: the calculation of liabilities (what is owed to retirees and current employees).

Rather than layout every last shortcoming in Ms. Williams article, I direct you to Yves Smith at Naked Capitalism ( who does a thorough and colorful job of shredding the claims in the article.

Ms. Williams builds her thesis that pension liabilities are grossly underreported and unmanageable on the basis of a six person pension that withdrew from CalPERS in order to manage its own 401(K) program.  CalPERS has 1.8 million members across hundred of units of government, and Ms. Williams plucked one unit (a pest control district) to illustrate the allegedly intractable problems of funding public pension plans.

Leaving all the particulars to Naked Capitalism, I’ll emphasize two key points.

1.     CalPERS and as a general matter public pensions do not operate two sets of books.  The article’s headline would have you believe that Bernie Madoff is running America’s public pensions.  There is only one set of books.  When the tiny pest control unit decided to withdraw from CalPERS it faced a formula (not another set of books) that extracts an appropriately high price for any unit of government that opts to withdraw.  Moreover, there shouldn’t have been any surprise as the formula and pest control units exit cost were publicly available.

2.     Public pension plans under report their liabilities, but not nearly to the extent suggested by the Times article.  I’ve written about this problem many times.  In a nutshell, public pensions estimate the liability by applying the expected investment return (6.5% to 8%) as a discount rate.  This method is enshrined in accounting standards that have long been in need of reform.  Clearly, the discount rate should reflect the true risk of the liability, which is something less than a basket of stocks, bonds, real estate and private equity.  However in Ms. Williams’s reporting, we are led to believe that the discount rate should be a completely riskless US Treasury.  The proper discount rate lies in between these extremes and doesn’t create the national pension crisis suggested in the article.

In all too many instances some legislatures and municipalities have failed to properly fund their pension obligations.  That’s a problem worth writing about.  Most public pension plans have succumbed to lure of hedge funds and private equity as a magic potion for painlessly boosting returns.  That’s also a story worth writing about.  And pension liabilities aren’t properly calculated, which is worth writing about in a manner that doesn’t resort to sensational headlines and faulty analysis.


Sunday, September 18, 2016

Cardón Insiders (2016)

Cardón Insiders 24" x  28"  Water Color and Ink (2016)