Saturday, June 30, 2012

The New European Solution

The agreement reached on Thursday in the Eurozone sparked a major stock and bond rally in world financial markets.  There was a nearly two percent pop across the globe.  The agreement basically made each country responsible for every other country's commercial banking system.  The next step will be Eurobonds, which makes every country responsible for the sovereign debt of all the other countries -- "joint and several" is the usual phrase.

Nothing, of course, in the agreement reigns in the growth of that sovereign debt or in way repairs commercial bank balance sheets.  There is just a new signatory -- Germany.  Now, if one looks only at Germany and ignores the rest of the Eurozone, it is clear that Germany itself is on the road to financial ruin, long before taking on the indebtedness of the likes of Greece, Spain, Italy, etc.  The main thing that these agreements do is to eliminate any rational reason for the profligate countries to take any measures to curb their budget deficits or fess up about their commercial banking problems.

In American parlance, Europe has adopted the "extend and pretend" model writ large.

This will, briefly, postpone the day of reckoning -- maybe a week, maybe a month, maybe three months...but not much more than that.  Then what:  Have the man on the moon guarantee Germany's sovereign debt?

To see a defense of this madness, read Laura d'Andrea Tyson's column in the New York Times this morning.  It spells out the usual stuff about how austerity doesn't work, which translates to "let the deficits ride to infinity."  Tyson is among those that think that laws that prohibit firing don't really matter much to entrepreneurs.  It must be nice to look at this from 30,000 feet in a business class seat and to not face the hard realities that Italian and Spanish business folks face every single day.  Maybe on a clear day....

As we have pointed out ad nauseum in this blog, the issue in Europe is one of arithmetic.  Sovereign deficits are spiraling off to infinity, while the economies, hampered mainly by over regulation and the welfare state (and not austerity...there is none), are grinding to a halt.  Having mother Germany step up to the plate is largely irrelevant to where this all ends.  It just means that Germany will suffer the same fate as everyone else. 

There is no arguing with numbers. Unless the growing gap between spending and revenues is reversed, which, at present, there are no agreements to do, then sovereign debt in the Eurozone will continue to march toward the sky and bond buyers will continue to run for the exits.

Friday, June 29, 2012

McDonnell Reappoints Dragas

I like Helen Dragas.  I know that may sound strange, but I think she is very smart and well intentioned.  We all make mistakes.  I think her second term will prove out that she can be an outstanding member of the Board of Visitors.

But, you have to wonder about Governor McDonnell.  What's he thinking?  He announced the appointment as if the opposition to Dragas was gender based, which is completely ridiculous.  What McDonnell still refuses to admit, at least publicly, is that he favored the ouster of Sullivan all along.  That is the only conceivable explanation for Dragas's reappointment.

I would not worry about the Board of Visitors ganging up on Sullivan.  I don't see that happening.  I expect Dragas will be very cooperative and the future is likely to be harmonious.

But, you have to wonder about the Governor in all of this.  No matter how you tell the story, the Governor's role is likely not to be one that history will look back on with admiration.

The Supreme Court

Conservatives are castigating John Roberts for joining with four liberals to provide a path to constitutionality for Obamacare.  Why pick on him?  When Republicans are in political control, they do exactly the same thing.

Ever hear of "Americans for Disability Act," "The Prescription Drug Bill," "No Child Left Behind," etc.  These are Republican initiatives passed by Republicans.  Who were the biggest critics of Sarah Palin after she was the Republican nominee for VP?  Karl Rove and Peggy Noonan -- two Republicans.  What was her crime?  She didn't read the NY Times and thought Russsia was across the Bering Straights (which it is).

Who coined the phrase "voodoo economics" to describe the Reagan tax cut plan?  A conservative Republican, that's who.  What Governor recently followed the advice of four liberal Democrats, against the advice of conservatives, to try to destabilize the University of Virginia?  A conservative Republican that's who.

So, why pick on Roberts?  Other than Scott Walker, Mitch Daniels, and Chris Christie, what other Republicans have made any effort at all to roll back the reach of government when  they had the chance?

Republicans are only for limiting the reach of government, when they are out of office trying to get in.  Once in, they behave like Democrats.  So don't pick on Roberts, he's just following tradition.  Isn't that what Supreme Court justices are supposed to do?

Germany Slowly Getting Pulled In

What was a disastrous future for the southern periphery of Europe is now being extended to the northern states as well.  Germany is the main target of this exercise.  Today's agreement to accept near worthless bank equity by the European banking stabilization fund is an admission of hopelessness.

No one yet is reducing the yawning deficits or recapitalizing the insolvent banks that plague Europe.   That's off the table for now.  So, European debt continues to explode off to infinity while the paper-shuffling politicians rearrange the names of the guarantors.  In the end, it won't matter.  Germany will suffer the same fate as Greece and for the same reason.  They can't pay their bills.

The problem in Europe is one of solvency, not one of liquidity.  These patch jobs only make the final outcome much more severe than it would be if the real problems were faced with candor.

Wednesday, June 27, 2012

Mostly Winners -- Two Losers

Now that the UVA crisis has passed it is easy to see that the ultimate outcome created winning positions for mostly everyone involved.  Even Rector Helen Dragas emerged with strength and character in bowing to the inevitable return of President Teresa Sullivan.  It is unfortunate that Mark Kington and Peter Kiernan remain on the outside looking in.  Both Kington and Kiernan are outstanding alums and their contributions to the University in the past merit returning these two to positions of respect at their alma mater.  I for one hope to see both Kington and Kiernan playing a major role at the University in the years ahead, as they have in the past.

There are a lot of messages in what has transpired in the past two weeks, but reflect for a moment on why the groundswell of support for Sullivan was so overwhelming.  Sullivan did the little things well.  She was kind and friendly.  She sought out all parts of the University community.  She expressed interest in everything that we do.  These things count.  It was difficult to see her ouster as warranted and to see the process as fair.  Underneath it all, the personality and humility of Terry Sullivan were her best weapons.  She disarmed the community and her opponents with her affable style.

One major loser was the Governor.  He did nothing to stop this process and more than one insider openly mentioned the Governor as a major mover in the effort to unseat Sullivan.  Insiders are well aware of the Governor's true, as opposed to stated, role in all of this and, in due time, the public will know as well.

Another major loser was the Wall Street Journal, whose editorial "Virginia Fracas" contains more inaccuracies per paragraph than anything I've ever read.  Moreover, the overriding theme of the editorial is totally inaccurate -- that this was a battle between reform and anti-reform. Nothing could be further from the truth. Today's WSJ article is similarly misleading for readers unencumbered with the facts.  The WSJ has embarrassed itself with its coverage of the Sullivan crisis and makes one wonder about its coverage of other issues.

Hopefully true reform, as opposed to rearranging deck chairs, can come to the University now that this drama has ended.

Tuesday, June 26, 2012

Harmony at UVA

The UVA Board of Visitors voted today 15-0 to return Teresa Sullivan to her post as President of the University.  In a gesture of unity, the Board conducted a 15-0 vote of confidence for the Rector, Helen Dragas.  Truly!

These are welcome actions and hopefully now the University can address the real issues that seemed to divide the President and the Board that, heretofore, had never surfaced at a Board meeting.  It is time to talk about these things in the open and begin a much needed move to reform an ossified, bureaucratic institution, that is in much need of reform.

UVA, like other major American Universities, faces an uncertain future because, while costs have gone through the roof, the quality of education provided has stagnated.  It is time to face these problems squarely and not pretend that all is well in academia.  All is not well.

The UVA Board has corrected an egregious error and should be commended.  Removing a sitting President, without so much as a meeting or a vote or even a discussion at a board meeting, could never provide the Sullivan removal with even a bare minimum figleaf of legitimacy.

Board member Hunter Craig was the real hero, fighting tirelessly to get the votes necessary to call a meeting to reconsider and then to follow up and ultimately create the conditions that would lead to a unanimous board vote to return Sullivan to her post.  Together with Heywood Fralin, Craig's leadership has rescued UVA from the brink.

All in all...a good day for UVA!

Strangled by Regulation

The American economy isn't going anywhere.  Even a Supreme Court decision against the Obamacare mandate can't fix the absence of commercial and residential lending mandated by Dodd-Frank.  American business is strangling under the heavy boot of government.  Hiring is simply irrational given the political and regulatory environment.

The energy industry will do well and there will be technology shows of strength, but the broader economy is weighted down by regulatory red tape and bureaucratic mistrust of free enterprise.  All of this bodes ill for the prospects of those seeking employment.  All the rhetoric about inequality and taxing the rich simply reinforce all of the reasons why business has no interest in adding jobs.

Unless and until the political environment changes in the direction of free enterprise, the American economy will remain on its present course, sputtering along with no real sense of direction.

A Learning Process

Normally, each morning I can't wait to read the Wall Street Journal's opinion pieces, hoping to learn more about news events that may not be captured in the regular news sources.  Or, to get a point of view that you rarely see in mainstream media.  This morning, I simply passed it by.

Somehow after the lies and misrepresentations in yesterday's WSJ editorial entitled "Virginia Fracas," I don't trust the WSJ any more.  Virtually, every paragraph of the "VF" article was an apparently deliberate attempt to distort what is really happening at UVA to fit a narrow political agenda.  Shame on WSJ.  I doubt that I will have any interest in perusing the WSJ editorial page in the future.  I simply don't think the WSJ can be trusted to be truthful when they have a political point to make.

You live and learn.

Monday, June 25, 2012

Republicans Want To Own The Sullivan Ouster

The McDonnell forces, not content with a furious effort to control the upcoming board vote on Tuesday, to maintain the ouster of Sullivan, have now enticed the Wall Street Journal into one of the most astounding editorials in the paper's history.  This editorial is so full of factual inaccuracies and outright distortions as to make you wonder about the facts cited in other editorials that the Journal runs.  Read it in today's WSJ.

The conservative right is apparently vying to support Governor McDonnell's effort to claim credit for Sullivan's ouster.  They are turning this into a right versus left controversy, even though the entire episode seemed to have been originally engineered by the left.  But, maybe not.  It is becoming increasingly clear that Governor McDonnell was in on this from the very beginning as the now-famous Darden email stated.

The McDonnell forces are pulling out all of the stops to control the vote to oust Sullivan and to keep the University in a state of turmoil for years to come.  This will be the principal legacy of the McDonnell governorship.  Far from his stated policy of "neutrality," the Governor and his team are doing everything in their power to remove Sullivan with finality.  Such action will never, ever have the stamp of legitimacy.

As Gilmore did in years past, McDonnell is on a path to alienate his Republican base.  Having worn out his welcome with Republicans, Gilmore found his political future in Virginia destroyed.  His crushing defeat by Mark Warner was accomplished by a substantial number of Republicans voting for Democrat Warner.  McDonnell is headed for the same future.  He is systematically fighting the very people that elected him and he will find out, as Gilmore did, that his Republican base in Virginia is withering away.

It is not only the Board of Visitors that displays a remarkable lack of transparency.  The Governor of Virginia should be honest and admit his role in the sacking of Sullivan.  His team is fighting furiously, as I write this, to maintain her ouster.  Why not be open about it instead of more hypocrisy?

Sunday, June 24, 2012

A Reality Check from GASB

There are new rules coming out from the Government Accounting Standards Board (GASB) that will require public pension funds to recalculate their unfunded liability.  The new rules still retain a "wishful thinking" component, but the new rules definitely move the calculations more toward reality and away from the current fantasy rules that public pension funds now use.

The bottom line issue is how to "value" the future payments that pension beneficiaries are expecting to receive.  Current methods have absurdly low valuations on these future payments and, as a result, the employer contributions to these funds have always been absurdly inadequate.  It has long been in the interest of politicians and board members to downplay the miserable funding status of these pension funds and to hope and pray that their inevitable blow-up will occur on someone else's watch.

Some states, Utah in particular, have dealt with these obligations in a straight forward fashion and enacted true reform of their public pension plans.  Others, like Virginia, have enacted temporary band-aid solutions that mostly just obscure the true nature of the funding crisis.

Expect the usual knee-jerk response to the new GASB rules, which actually don't go far enough, from folks who fear that telling the truth about the true costs of these public pension plans would eviscerate the political support for the plans.

This is McDonnell's Decision

In a close vote on a state governing board, all eyes look to the Governor's mansion.  If Sullivan is not reappointed, then it should be obvious to everyone what really happened here and who is responsible.  Politicians change after they get elected.  Their inner circle quickly descends to a small group of political hacks and the super rich.   These folks usually have a very different agenda than the voters who elected the politicians and often are diametrically opposed to the views of the political party that the politician represents. 

Members of governing boards, both governmental and corporate, usually have only one agenda -- to stay on the boards.  Thus, they look to those who control reappointment in times of crisis.  Not all, but most.  Check the political contributions that board members make in the months leading up to a reappointment decision and you will find a clear pattern.  This is human nature, not some evil conspiracy.  That human nature is playing out now at the University of Virginia.  Whether or not Sullivan is returned to the UVA presidency will come down to the votes of two or three key McDonnell allies.  How they vote will tell all.

Saturday, June 23, 2012

Whatever Happened to Due Process?

While noting that the ouster of President Sullivan was done without transparency and proper procedure, Virginia Governor McDonnell has decided to make up his own rules.  He says that if no decision is reached by Wednesday, he will replace the entire Board of Visitors: "If you fail to do so, I will ask for the resignation of the entire Board on Wednesday."

What is the statutory requirement for the Governor to remove a Board member?  The only grounds permitting the Governor to legally remove a Board member are "malfeasance, misfeasance, incompetence, or gross neglect of duty."  There is nothing in the code of Virginia that says that disagreeing with the Governor constitutes grounds for dismissal.  The Governor's threat, if carried out, changes the clear intention of the Virginia Code.  It would permit any sitting Governor, any time they disagreed with a Board action, to simply remove the entire Board.

The Governor's behavior in all of this comes as no surprise.  To quote an email dated June 12th in explaining the ouster of President Sullivan by the Board of Visitors and reprinted in full in the Charlottesville Daily Progress from someone who claimed in the email to be in the inner circle of all of this: "As many of you know no major decision of this kind can be made at Virginia without the support and assent of the Governor."  Amen

Friday, June 22, 2012

McDonnell Wades In

The Governor of Virginia has finally said something of substance about the ongoing tragedy at the University of Virginia. Apparently, the Governor finds fault with all parties and demands quick action. He will, he says, remove the entire Board of Visitors if they do not emerge from next Tuesday's Board meeting with a decision and an explanation and, interestingly, "unity."

One suspects that the Governor is not happy about the very fact of a called meeting to "reconsider" President Sullivan's employment. He would have preferred to "move on" with the new leadership. Never mind that nearly 100 percent of faculty, student and alums seem uncomfortable with the manner of Sullivan's ouster. The Governor seems to think that speed and decisiveness are the answer as opposed to due process and sound judgment.

The Board needs to make a decision one way or another. The Governor should have called upon the Board to meet and make a decision last week not this week. It boggles the mind that the Governor was perfectly happy last week to accept the ouster of a sitting President of the University of Virginia, when not a single member of the Board has voted for her removal.

The issue is mainly one of governance and due process. Whether or not a "unified" decision is reached Tuesday is less important than whether or not the process passes the smell test. The Governor seems to be expressing sour grapes that his plans seem to be getting derailed.

Hopeful Signs at UVA

A meeting of the Board of Visitors of the University of Virginia has been scheduled for next Tuesday at 3PM for the express purpose of revisiting the ouster of Teresa Sullivan.  BOV members Hunter Craig and Heywood Fralin spent the better part of the week lining up what they think are a majority of the BOV in support of returning Sullivan to her post.  This is truly good news for the University and could spark a renewal of the sense of community that UVA has made its trademark.

While tempers have flared and some things have been said and done that one might wish had not, by and large, discourse between those who disagree has been remarkably civil.  One hopes that if Sullivan is returned, then a process of healing can begin that would include olive branches to Helen Dragas, Marc Kington, and others who are seen as central figures in this drama.  The University needs all of its alumni, not just those who might end up the winners in this tragedy.  Forgiveness, reconciliation, and goodwill should be the goals of the returning administration and, from my observations of President Sullivan, I think she will lead the University in that direction when she returns to the presidency.

If there are "philosophical differences" about the future of the University, let's discuss them  -- in the open and with candor.  Future board meetings should be about real issues, not shunting the real disagreements off to private emails and behind the scenes conversations.  We can disagree and still have a community.  Let's try open discussion.  No one has a monopoly on truth or vision.  Let's explore online education.  Set up a task force to look into this topic and let's begin a serious look at this issue and other issues that seemed to trigger the current crisis at the University.

The University could emerge a better place if President Sullivan is reinstated, if we begin to think seriously about how to improve governance, and if we forgive those with whom we disagree.

Tuesday, June 19, 2012


The University of Virginia Board of Visitors laid down the gauntlet by naming McIntire Business School Dean Zeithaml as the "interim President."  It is hard to see this appointment as anything but a thumb in the eye to the University faculty and student body, concerned that outside financial interests have taken over University governance.  There was no vote taken on the resignation and/or termination of President Teresa Sullivan, avoiding the hard question of who does or does not support her removal, not to mention the haunting question of why.  As has become normal operating procedure for this Board of Visitors, all relevant activity took place in secret under the cloak of "executive sessions," further arousing the suspicions of those who view all of this as a massive conspiracy.

This sets the stage for a protracted battle between virtually the entire University of Virginia community and the school's governing Board and raises serious questions about where future funding will come from, given recent statements from major donors.  The idea that this will "soon blow over" is wishful thinking.  The road ahead probably signals the decline of what once was one of the very top public universities in the country.  Nothing good lies ahead as the cohesion required for a major institution to thrive has been ripped asunder.

Surprisingly, Governor McDonnell has decided to go with this outcome and he now earns the dubious distinction of being the Governor who, effectively by proxy, removed the first woman President in the history of the University of Virginia.  I guess he wanted this mantle, otherwise he might have acted differently.  I suspect he must know by now that Mitt Romney has no interest in adding him to his presidential run this year.   Ironically, this entire episode could easily be enough of a political problem for Republicans to ensure an Obama victory in Virginia in this year's presidential election, even though Sullivan's removal seems to have been mainly orchestrated by two Board members first appointed by Democratic governors.

Monday, June 18, 2012

UVA Board Facing a Tidal Wave

They should have seen this coming.  Major large donors are now abandoning the UVA Board in its effort to defend its decision to sack President Terry Sullivan.  The current Provost John Simon added his voice of protest to that of former President John Casteen over the board's yet-to-be-explained removal of Sullivan.  More than 800 faculty, staff and onlookers convened quietly in the Darden School auditorium last night to watch the Faculty Senate endorse a resolution expressing "no confidence" in the University's Board.  UVA's Student Honor Council weighed in with its own letter expressing views that can't be encouraging for the Board.

Who's left?

Within the next 24 hours, I would expect some major changes in board composition as well as some change of course by the Board itself in the Sullivan ouster episode.  The Board simply does not have the horses at this point and it is time to sound the retreat.  Having the authority to fire Sullivan is just not enough.  There needs to be some buy-in somewhere for this action and, thus far, there isn't any.  Look for some kind of capitulation today by the UVA Board.  Only the Governor and his staff seem content with the current situation and that will change too when they finally wake up and smell the coffee.

Saturday, June 16, 2012

UVA Crisis Morphs Into a Political Issue

It's a great irony that two Democrats have created a growing problem for a Republican Governor.  Both the Rector and Vice Rector (translate to Chairman and Vice Chairman) of the University of Virginia Board of Visitors (i.e. Directors) were first placed on the Board by Democratic governors.  But Governor McDonnell has embraced both, reappointing one and quietly giving assurances of reappointing the other.  So McDonnell will now be widely seen as responsible for their actions, even as he makes every effort to distance himself.

The problem is that the Rector and the Vice Rector have led the charge to remove one of the most popular university presidents in the country -- Terry Sullivan, until last week, President of the University of Virginia.  Apparently, there is no constituency, outside of the Board of Visitors itself, that seems happy with Sullivan's dismissal.  And, the Armada is assembling.

Strongly worded petitions are garnering signatures expressing a "lack of confidence" in the University's board from faculty, students, alumni groups, and the broader University of Virginia community.

The problem for the Board is a relatively simple one.  No one outside the Board (and perhaps a wealthy citizen or two in Greenwich, Connecticut) seems to have any idea why the Rector and Vice Rector have taken the steps to remove President Sullivan -- and the Rector and Vice Rector aren't talking -- citing "confidentiality" issues that surround personnel decisions.

This bizarre situation permits discontented observers to dream up their own devil theory as to what happened, aided and abetted by strange emails from prominent donors claiming to be the devil themselves.  So, how does it end?  Well, it doesn't end.

Faculty and student groups live for opportunities like this and are licking their chops to begin the demonstrations, petitions, and calumny that will soon dominate the news output in Virginia.  Why study and do research, when you can carry a sign?

My sense is that the Board is underestimating the degree of disruption that their enemies are capable of.  I don't doubt the good intentions of both sides, but within a few days that won't matter anymore.  For McDonnell, his legacy will be that he will remembered forever as the Governor who orchestrated the removal of the first woman President in University of Virginia history.  Whatever McDonnell's true role may or may not have been in this drama, he will gradually be given the baton by those who write the history of this episode.

Friday, June 15, 2012

The Ultimate Destination of "Affordable Health Care"

Greece was the model -- a national health care system that was both affordable and universal.  Candidate Obama chided Americans for being the only developed country in the world unwilling to provide "affordable" health care.  We now see where the "Affordable Health Care Act" is taking us.

Karolina Tagaris spells it out in a special Reuters report today:

"Greece's rundown state hospitals are cutting off vital drugs, limiting non-urgent operations and rationing even basic medical materials for exhausted doctors as a combination of economic crisis and political stalemate strangle health funding."

The 'rundown state hospitals'  did not become rundown overnight.  It took some time to destroy the medical system in Greece, but we are there now.  I wonder if no health care is better than free market health care.  Greece is about to find out.

What is the lesson?  Contrary to Candidate Obama's loose talk, no nation can 'afford' "Affordable Health Care."  You get what you pay for.  If no one pays, eventually no one gets.

Thursday, June 14, 2012

The Greek Vote Doesn't Matter

The only sense in which the Greek election on Sunday matters is as a time marker.  Whoever wins cannot possibly follow through on the austerity program and, regardless of the outcome, Greek is headed for a Euro exit.  It's just numbers now.  Greece is gone.

The real news is what is happening in Spain and Italy.  Yields on sovereign debt are rising quickly in both countries.  They are past the point at which either country has any real shot at making it through this.  Germany does not have the resources to rescue the situation, nor does the US and/or Britain.  It is over for the Eurozone.

The failure to permit workouts and bankruptcy, which is what should have happened here, as well as in the US in 2008, is going to exact a huge price on the Eurozone.  Massive unemployment, surging inflation, and collapsing GDP represent Europe's near term future.  It is really far too late now to avoid catastrophe.

Hopefully, other countries will learn something from Europe's coming agonies.  States like California, Illinois, New Jersey and Maryland are heading down the path to insolvency and quickly.  The US national fiscal situation probably has a two to three year window left within which to tackle it's enormous debt problems.  We shall see if anyone learns or if we are simply destined to follow Europe down the road to disaster.

Honesty and transparency would solve these problems.  Pretending that there is some other fix by politicians guarantees economic and political chaos.

Unrest Grows at UVA

The University of Virginia is in crisis.  There can't be any doubt about it.  There seems to be remarkable unity among those who question the Board of Visitor's recent decision to request the resignation of UVA President Teresa Sullivan.  I suspect part of that unity is fed by the personality that Sullivan exposed to the community during her two year tenure at the University.  Sullivan exudes happiness and optimism and seemed to immerse herself in all aspects of UVA from the moment of her arrival.

With a history of experience with very large universities and a research background in sociology, Sullivan's selection in 2010 was initially widely viewed with skepticism by many parts of the University community -- me included.  But Sullivan took steps to meet and greet with all parts of her constituency and soon became a familiar and welcome figure around grounds.  She held meetings with different employee groups, gave frequent talks in small settings, engaged groups that had never been engaged by a UVA President before, and was regularly seen cheering on UVA athletic teams, often alone without the usual entourage that accompanies the University's highest ranking employee.

In short, Sullivan is a very engaging and pleasant person who appeared to genuinely like the University and made herself visible in an apparent effort to reassure the restless that she would do what she could to make UVA a better place.  That has left a residue of goodwill for Teresa Sullivan that the Board of Visitors is going to have a tough time dissipating.

One of the discouraging features of the current public relations debacle is that board minutes do not exhibit any disagreement between Sullivan and the Board over University policy, strategy or vision.  If there are "philosophical differences," then these differences should play out at Board meetings.  UVA is a public institution and the idea behind the legal requirement for open and public meetings is that policy differences should be aired publicly.  One of the bizarre features of the current crisis is that, even now, no one seems to really know what these "philosophical differences" were.

Devil theories abound about why we are where we are, but the truth is more likely that all concerned are trying to do the right thing and genuinely believe the actions they have taken are the correct ones.  I would not buy in to the view that this is some sort of conspiracy at work.  A conspiracy would have handled matters very differently than the strange pattern of events that we are witnessing.  It is far more likely that things weren't thought through adequately and well-intentioned people misread the reaction that would accompany their efforts to improve UVA's future.

But, we are where we are and this is not going away.  It may sound like a ridiculous pipedream, but I would hope that Sullivan can be persuaded to return with perhaps a more formal mandate from the Board and the Board can begin a process to begin to adopt a strategic plan and vision that it feels is appropriate.  Then if  "differences" remain, the Board can take whatever action it feels is appropriate.  Both sides in this fiasco can "win" something if this is handled openly.  Absent some kind of good faith effort to reconcile the current differences between the UVA Board and the greater University community, I am afraid that the current conflict could escalate in directions that the Board may not now envision.

Wednesday, June 13, 2012

Chaos Ahead and Soon

The Greeks will vote on Sunday. The election is probably going to install a far(ther) left political party that intends to renounce the austerity program that has been forced upon them by their richer European neighbors.  That means the end of the Euro for Greece.  Greece will then descend into utter chaos and likely political anarchy.  If you were plotting a visit to the Acropolis this summer, it might be best to seek a refund before its too late.

So, Greece will be gone.  Then what?  Spain and Italy are already gone, but no one is yet willing to admit it.  Yields on 10 year government debt in both Spain and Italy are rapidly moving to the 7 percent level.  At debt levels of more than 120 percent of GDP (that's Spain's debt level, if you correct for last week's bailout), Spain and Italy are now past the point of no return.  Their debt levels are not sustainable.  It's over for Spain and Italy.

Meanwhile, check out Germany's situation.  The impact of the bailout adds debt on Germany's plate of nearly 40% of their GDP.  That puts Germany in a perilous situation.  Even though Germany's economy is still puttering along, their debt is rapidly moving toward the unsustainable level and, in truth, is not far behind Spain and Italy.  So, Germany is toast as well.  Is it worth analyzing the situation in France, which is not really much different now than the situation in Spain or Italy?

The whole house of cards is coming down and Act one of our chaotic future begins next week in Greece.  All of this has been predictable; all of this was completely avoidable.  To repeat the most recurrent theme of this blog:  the modern welfare state is not affordable.  There is no set of taxes, bond sales, or anything else that can provide the majority of any country's citizenry free goods and services at the expense of an ever-dwindling number of productive citizens.  It is not a question of left or right wing politics or absence of political leadership.  It is simply a question of arithmetic.

The lesson to be learned is that if no one is responsible for their own education, health care retirement, housing or anything else, then there will, in time, not be anyone left to produce these goods and services.  "Taxing the rich" is the last refuge of the demagogue.  Once you hear this theme, you know the game is over.

It doesn't really matter whether Obama wins or loses the election in November.  The US is on the same trajectory as Europe and the ultimate outcome will be the same as what is now unfolding in Europe.  Until the US body politic is willing to unwind the welfare state, eliminate bureaucratic rigidities to the free market, and face the fact that accumulation of wealth by individuals is a crucial and indispensable component of economic growth, then there is no avoiding the predictable outcome of the collapse of the modern welfare state.

Monday, June 11, 2012

UVA's Sullivan Steps Down

With a little nudge from the University's Board of Visitors, University of Virginia President Teresa Sullivan resigned yesterday after not quite two years in office.  Few know, in any real detail, why Sullivan was eased out so early in her tenure, but the background noise suggests the usual headaches.

Money and its allocation form the main issues in the modern University.  Elaborate fund raising operations have grown up in the modern elite schools, a group in which UVA claims membership.  Athletic programs have profitability issues front and center.  Witness the reshuffling of athletic conferences, which is completely driven by monetary issues.  Compensation for administrators and successful fund raisers far exceed their equivalents in the private sector.  Meanwhile, the education quality at elite schools has eroded dramatically over the past four decades.  The only measure that seems to be improving in the elite schools in the US is the quality of the incoming student.  By any other measure, American universities are on the decline.

The biggest problem is that of governance.  Who should run a University?  Students, faculty, administrators, taxpayers, boards, and alumni all seem to think they should be in charge.  Typical of private foundations or state-run institutions, the "stakeholder" theory of governance is in charge, which means that no one is in charge.  Worse, there is a community of interest between students and faculty to diminish the actual effort put into education.  Faculty want to teach less and students would like more leisure time.  This conspiracy has dramatically reduced teaching hours, classroom hours, and studying time over the last few generations.

Meanwhile, numerous political agendae have invaded the University community and it's budget.  Centers have proliferated that seem to have no real purpose but to create political activism among the student body.  These centers are very expensive, are constantly expanding, and serve no real educational purpose.  Worse, many students devote their time to "activism" to the neglect of their education.  Many students graduate thinking they are headed out to perform great public service, with sociology and anthropology degrees in hand.  Who hires this group?

The burgeoning cost of higher education has created a mountain of debt for graduating seniors, and for many who never graduate.  These costs are largely the result of the shift in focus in the modern University away from education toward social activities, political activities, and the promotion of semi-professional athletic programs.  The actual education process is absurdly inexpensive, but actual educational expenses have been a declining part of University budgets since the early 1960s.

The modern University is adrift.  Technological change is coming to education, but it is not likely to be lead by a modern University, whose eyes are always in the rear view mirror.  President Sullivan, who seems to be a very nice person and well liked in the University of Virginia community, probably found herself in the cross-hairs of the various conflicts in governance that plague the modern University.  If education is no longer the goal of the modern University, then it's anybody's guess what the priorities of a modern University should be.

Saturday, June 9, 2012

Throwing Good Money After Bad

Spanish banks have been thrown a (temporary) lifeline by the European Union.  The Spanish banks now a have a $ 125 billion loan (?) from the EU to prevent a collapse of the entire Spanish banking system.  Spanish banks got in trouble lending heavily in the Spanish residential housing boom.  But, their big trouble now is that the Spanish government has coerced the banks into buying Spanish government debt.  That practice, no doubt, will continue.  So Spain sells more government debt, the Spanish banks buy that debt, and other European nations underwrite the Spanish banks.  To spell out the obvious, the EU has just bailed out (temporarily) the Spanish government.

Within a week or two the Greek bailouts will probably come crashing down and Eurozone will begin the process of unraveling.  The $ 125 billion is intended as a firewall to keep Spain from going down with Greece.  All this $ 125 billion will do is keep Spain from making the decisions necessary to slow the rapid disintegration of their economy.  Now they can make it for another few months.  Why upset the applecart with a few reforms?  After all, Germany hasn't run out of money yet. 

Yet is the key word here.  Germany is now on the hook for Greece and Spain, as well as Ireland and Portugal.  Gradually, Germany is being sucked into absorbing the costs of the welfare states in all of these countries.  The truth is that Germany cannot afford their own welfare state, so absorbing the costs of other welfare states will simply hasten Germany's economic decline.

You have to wonder what France is putting into the kitty on this deal.  France is broke and has nothing but its arrogance to offer the floundering European Union.

It will be interesting to see how German and French bond auctions go after this additional bailout.  At some point, rising yields will hit both Germany and France and folks will begin to find it difficult to distinguish German credit from Spanish credit from Greek credit.  None of it will be any good.

But for now, this will give the appearance of a fix to what ails the Eurozone.  The Obama folks should be delighted, though, in reality, it won't do anything for America's economic woes, which have nothing to do with what is going in the Eurozone.   Markets should react favorably until the giddy feeling slides into a dulling headache once more.

None of these guarantees, bailouts and so forth can do anything but postpone the day of reckoning for the out-of-control spending habits of Eurozone governments.  Promises to pay wear thin when nothing is ever paid.

The US will be having these same discussions with Detroit, California and Illinois very soon -- perhaps before the year is out.  It will be the same tired arguments.  "This is a national problem," it will be argued.  Those who have behaved frugally will be asked to underwrite the profligate.  That's what's happening in the Eurozone and the same discussion is headed our way.

Obama Outs Himself

"The big challenge we have in our economy right now is state and local government hiring has been going in the wrong direction."  Moments earlier, Obama uttered the now famous remark: "The private sector is doing fine."

So, now we have it.  Basically, the President is saying that the private sector is an irrelevancy.   All that matters are government workers.

We knew all along that the President really didn't like free enterprise, but yesterday's comments truly say it all.

Even thought the President made an effort later in the day to to "clarify" his remarks, the remarks speak for themselves and explain a lot about the economic policies and the economic results of the Obama Administration.

Thursday, June 7, 2012

Jackson Jr Promotes More Job Losses

Jesse Jackson Jr, a Congressman from Illinois, has a new idea to kill off some more jobs.  He wants to raise the minimum wage from its current level, $ 7.25, to $ 10.  As if unemployment, especially among youth, isn't high enough!

Remember what a $ 10 minimum wage law says.  It says that it is against the law to hire anyone that you intend to pay less than $ 10 per hour.  It outlaws a transaction between employer and potential employee.  Basically, it makes criminals out of employers who offer jobs.  So, why offer jobs anyway?

Jackson, of course, is among America's wealthiest individuals, which is typical of people that propose things like this that cut the legs out from under the poorest amongst us.  What does he care if another million or so join the ranks of the unemployed?  Might give him another voter or two.

If you want more apples, make it against the law to buy one for less than $ 10 apiece.  That should do a lot for the consumption of apples!   That's the Jesse Jackson Jr way to increased apple production.

Wednesday, June 6, 2012

Francois Hollande is Deluded

Like Scott Walker, Francois Hollande is delivering on his promises...unfortunately.  His first real proposal is to lower the retirement age for social security back to 60 from 62, reversing the move, instituted by Sarcozy, from 60 to 62.  This is really not as big a deal as it looks, since no one under the age of 50 will receive any benefits anyway, whether they retire at 60 or 62.

But, it does reveal the clear direction of Hollande's thinking.  Like many French politicians who preceded him, he thinks France is rich and can afford to fund more than half of its population in a life of leisure.  It turns out he's wrong, like many French politicians who preceded him, but if he can just fool enough people before he leaves office then I think he'll be happy.

France has been trying to slide into total decadence and chaos for several generations. Only the strength of the world economy has kept this sick puppy afloat.  But, the world economy isn't likely to oblige this time around and it is probably over for France.  So why not cut the retirement age.  Why not take it to 55?  If you're going to go bust anyway, what real difference does it make where you set the retirement age.  Make it zero and cut to the chase.  There are no funds set aside for it anyway and the shrinking work force can't possibly pay for it.  So, why not go for it.

Hollande, of course, has found the magic elixir -- tax rich people -- the Obama theme song.  But even if you confiscated all the wealth of every single French family with more than $ 1 million in assets, you still could not come close to funding their social security system, even if you left the age at 62.  So really.  What difference does it make whether the retirement age is 60 or 62.  Not much.

Watch Greece carefully.  Greece is everyone's future.

The Sun Shines in Wisconsin

A state known for its "progressive" politics rejected union bullying yesterday and, by re-electing Governor Scott Walker, cast a vote for fiscal sanity.  Even in Wisconsin, government finances are still in serious peril.  What Walker has done so far represents only a baby step toward getting Wisconsin's state financial house in order.  They still have massive unfunded pension liabilities, both at the state level and at the local level.  The size of these unfunded liabilities are several orders of magnitude worse than the $ 3.6 billion budget gap that Walker has closed in the last two years.  But, still.  It is a beginning and brings a glimmer of sunshine to a state that was careening off into disaster until Walker came along.

As in Europe, the situation in the various states in America is simply a question of numbers.  This is not about politics.  There is no political solution for Europe or for the American states.  There is no set of circumstances that will enable them to pay their debts.  So, it is time to acknowledge that their debts are unpayable.  Once you do that, then there are solutions.  But, there are no viable solutions if politicians continue to pretend that their are some grand solutions for the current problems.  There are none.

Wisconsin will, sooner or later, have to change their retirement and health care deals for public employees.  There is no set of taxes or rates of economic growth that will fund their current projected obligations.  That is the same problem that is faced by California, Illinois, New York, New Jersey and, yes, even in Virginia.  The sooner these liabilities are restructured, the less will be the pain for all.

Tuesday, June 5, 2012

"More Europe, Not Less"

So says Angela Merkel.  The idea is that if only Europe will "centralize" fiscal decision making and commercial bank regulation," then Germany may be willing to participate in a Europeanization of member country debt.  There are only two problems with this solution: 1) centralizing fiscal decision making makes no difference at all; 2) commercial bank regulation has never been known to prevent financial crises and bank failures.  All this shows is that Merkel doesn't understand what the problem is.  No politician seems to get it.

The problem is simple: the welfare state has undermined the fiscal health of the Eurozone.  There are two reasons, both stemming the from the same principle:  when you promise people that they can receive income and services without paying for them, then two things happen: 1) people quit working and saving to provide for themselves; 2) you have to borrow unlimited amounts of money to fund the promises that you have made to people since they no longer have any plans to provide for themselves.

No amount of "centralization" of fiscal decision making can possibly matter.  This is an imaginary fig leaf designed to make sure that the ultimate collapse in Europe occurs after Merkel leaves office.  It does nothing to prevent that collapse.

"Not on my watch" seems to be the only theme of European and US policy.  No one seriously wants to tackle the fundamental problem. If you don't dismantle the welfare state, it will dismantle itself in a chaotic, dehumanizing way.  We can see this taking place in Greece and Spain today.  This same dismantling process will be visiting Illinois and California in the near future. 

Contrary to the views of the Krugmans and Stiglitz's of the world, there are no simple answers that can turn "no revenues" into "revenues."  Someone, somewhere, must foot the bill.  Who is that to be?  If I am not willing to pay for my old age and my medical care and my education, etc., then who pays?  Bondholders?

Centralizing decision making and increasing regulation will have no effect on the European financial crisis, since it does not address the problems in the Eurozone.  It simply provides politicians, like Merkel, cover while they prepare for their own comfortable retirement.

Monday, June 4, 2012

El-Erian Joins The Chorus

Mohammed El-Erian of PIMCO joined his voice to the chorus today by saying that "leaders should get their act together."  Geez Mohammed.  Haven't they done enough?  They've imposed a welfare state, borrowed trillions of dollars that can't be paid, imposed regulations and laws that make business formation and expansion next to impossible, enacted labor laws that make it unattractive to expand or maintain employment.  What more can they do, Mohammed?

At some point, folks like El-Erian need to recognize that employers make hiring decisions and that, absent a reason to hire anyone, they won't hire anyone.  Employers have been give a host of good reasons not to hire anyone and they are acting accordingly, both in Europe and in the US.  Hopefully, the "leaders will not get their act together." 

Maybe, we should give all political leader 364 days of paid vacation annually.  They can meet ceremoniously one day every four years.  Then much less damage would be done and markets could function without their interference.

This idea that the world can be led by political hacks that have spent their formative years learning how to memorize a set of meaningless platitudes that can provide a path to an electoral victory is a joke.  The world doesn't need political leaders "to get their act together."  What they need is for the political leaders to get out of the way and let free markets work.

Only free markets can deliver economic growth.  Western political leaders have done everything in their power to wage war on the free market.  They win.  The economy loses. 

What in the world does El-Erian think they (political leaders) can do, if not more of the same?

El-Erian praised all the bailouts of the 2008-09 period, praised the stimulus package.  He's been a consistent cheerleader for big government and high deficits.  Now, I suppose he wants more of the same since it's worked so well so far.

Saturday, June 2, 2012

Au Revior and All That

My stay in Paris comes to an end tomorrow morning -- all in all, nine days. So what's doing in modern France? How's the welfare state going? It's going great for rich people and entrenched bureaucrats -- they never had it so good. The rich and politically connected in France have the life style reminiscent of Louis the IVth. Their so-called "socialism" is essentially a giant cage for everyone else to live in.

Their are no jobs for young college educated, unless their parents are members of the elite. Opportunity is so bad for young people here that is not uncommon for youth to live with their parents until almost middle age. There are no Steve Jobs or Bill Gates or any of that. The best entrepreneurs here are street hustlers and con artists. The government doesn't seem to restrict their activity like they restrict the activities of ordinary legal businesses.

The newly elected President thinks you can create growth by raising marginal tax rates to 75 percent and protecting entrenched bureaucracies whose main role is to snuff out any hints of entrepreneurship. Good luck with that. This place is a throwback to the Middle Ages. But, when you ask a Frenchman, what's so great about France, the conversation inevitably drifts back a couple of hundred years to Napoleon or Voltaire or some such luminary.

This place is like the rest of Europe, frozen in time, with no future. Sooner or later this society will be swept into obscurity by its massive social obligations which, like every other European country, it cannot afford. Unfortunately for France and it's fellow Europeans, creditors are beginning to get wise. But, like Italy and Greece, it's a great place to visit. Lots of sights to see and its getting cheaper by the day.

Friday, June 1, 2012

Don't Break Out the Champagne

The jobs release this morning confirms that the US economy has no real pep. This is bad news for anyone looking for a job or hoping to keep the job they have. I guess waging political war on capitalism isn't such a great economic policy after all.

Where are the economists? Why are they pretending that current economic policy makes any sense?

Obama spends a lot of time thinking about Europe these days. Schadenfreude I presume.

Surprise, surprise, Spain is beginning to be the next big story. Just wait. Italy and France will have their time in the sun. If you want jobs, then you have to make it attractive for business to hire people. Why is that so tough to see? If you wanted more apples would you put a $ 5 tax on every apple produced?

 I'm beginning to think the world might be better off without economists. Economists come up with tortured explanations to support things like minimum wages, health care mandates, higher taxes, and oppressive regulation. Do they really think this will create jobs?

The stock market is getting cheaper, although nothing fundamental has really changed in the last two years. At some point the stock market may become a real buy again, even though the news background is depressing. The march toward disaster in Europe continues its predictable path and the US political war on the economy is reaping its harvest.