As I understand it, a bunch of geniuses used something called math to make it seem like a good idea to loan money to people who are unlikely to pay it back. But here's the part I don't understand: Who invested in these risky securities?
According to a recent piece on 60 Minutes, there might be $50 trillion invested in these exotic financial vehicles. So why didn't anyone ever offer those investments to me? And why don't I know anyone else who invested in them? And why haven't I seen a crying widow on TV who wishes she hadn't invested her life savings in them?
As I understand it, banks and mortgage brokers offloaded their crappy mortgages to these investors, thus transferring the risk from the system that makes loans to a bunch of confused people who apparently ran out of regular things to invest in. So why is the banking system in trouble if they moved their worst loans to other people? And who are these other people?
Do you personally know anyone who invested in these exotic securities? And if not, how did we watch so much coverage of the economic crisis without learning such a basic fact?
For the record, I don't believe in ESP or magic. But I do believe our perceptions are interpretations of a reality that is too complex for a human brain to process. And so sometimes when your brain tries to incorporate an inconsistency into its interpretation, the result can look like magic. And if you tell me that isn't just as good as actual magic, we could have a long discussion. It's like the difference between thinking you are happy versus being happy. I call that a tie.
With that context, I feel safe in telling you that I have had regular glimpses of my future throughout my life. If I believed in psychic powers, these experiences would fit that model perfectly. But since I don't, let's agree you can label it selective memory or whatever you like.
I had the first glimpse of my future when I was about eight years old. I saw an article about a cartoonist who was doing okay for himself, a guy named Charles Schulz. I remember looking at his picture and feeling that was my future job. The sensation was different from wanting or hoping. I wanted and hoped for lots of fantastic things, but I have only had one vision of my future career. And as I spent the next 20 or so years working on a more traditional career path, I never shook the feeling that I was supposed to be a cartoonist. It always felt like I was fighting destiny.
One day in my senior year at Hartwick College, in Oneonta New York, I woke up from a sound sleep, sat upright, and saw myself living in San Francisco. This was a seemingly random choice because I had never been to California, didn't know anyone in San Francisco, and didn't know anything about the city.
A few months later, I asked my economics professor what company I should try to join after graduation and he tossed a brochure in front of me for Crocker Bank, headquartered in San Francisco. He explained that they were doing lots of innovative things with technology, and they were the future. That wasn't enough to convince me, and after graduation I went to visit my brother in LA. Meanwhile, an ex-girlfriend had moved to San Francisco and invited me up for the weekend to visit. I went, liked what I saw (of the city), and on Monday morning I walked into a branch of Crocker Bank and got a job as a teller. I've lived in the Bay Area since.
Another college vision (or false memory) involved me standing in front of huge crowds of people, giving some sort of speech. The details were sketchy, but I knew the crowds were there to see me. This vision conflicted somewhat with my vision of becoming a cartoonist. I figured it was either one or the other. You don't draw comics in front of huge crowds.
One day, a few years into my cartooning career, I got a call from an oil consortium in Canada, asking if I would give a speech to their small group of twenty or so members. They offered $5,000 plus travel expenses. I said yes, went and spoke to them for an hour, and cashed my check. But the phone kept ringing and the crowds got bigger. One of the last events I did, before losing my voice, was an audience of about 15,000 people in Vegas. My opening act was a traveling branch of the Cirque du Soleil. I remember standing on stage, spotlights in my eyes, while the opening applause thundered, thinking this is just how I saw it.
People often asked me if I was nervous on stage in front of huge crowds. I wasn't. It felt like I was supposed to be there. Likewise, people ask if it is hard to produce comics on deadline. It isn't. This feels like what I am supposed to be doing.
I was thinking about these things because my book, Dilbert 2.0: Twenty Years of Dilbert is just out. I included in the book the story of how I used affirmations to achieve my goals (not magic). And I included the comics I previously showed only to live audiences during my speaking years. Those are the comics too edgy for publication, plus the ones that got published and got me in trouble. If you know anyone who saw me speak, they can tell you what to expect.
Physically, the book is beautiful. The publisher did a terrific job. It's ten pounds of the best Dilbert comics ever, according to me, with a disk to give you the entire 20 years of Dilbert comics. This is the best product I will ever be associated with. If you have a Dilbert fan in your circle, do him a favor. Here's a link:
Basic Instructions
Long time readers of this blog remember I was trying to help cartoonist Scott Meyer develop a syndicated comic strip. He already has a comic called Basic Instructions that is popular on the web, but its format and characters aren't a natural fit with mainstream newspapers. And while newspaper syndication didn't work out, Scott just came out with a book that is a collection of his comics. I have a copy, and it is pure genius. Check it out.
http://www.amazon.com/Help-Way-Collection-Basic-Instructions/dp/1593079958
The web site is here: www.basicinstructions.net/
Voice Update
In July I had surgery to fix my voice issue. For 3.5 years I have had spasmodic dysphonia, a condition where the vocal cords squeeze shut involuntarily when you try to talk. The projected recovery time from the surgery is 3-4 months, while the transplanted nerves in the neck regenerate. I was told that after a few months of only being able to whisper, the new nerve pathway would finally be complete, and one day I would wake up with a voice.
It happened this week.
I don't yet have a full voice, and I still can't talk above much background noise, but it's a real voice. Unlike before, it is fully functional. For the first time in years I can use the telephone, and order food at a restaurant and be heard. It will take several more months for the voice to become essentially normal. I am delighted.
Creativity
Recently I was asked if human creativity is nearing its limits. It seems as if every idea has already been done. Regular readers of this blog know that every time I describe what I think is a new idea, someone provides a link to an earlier description of the same idea.
I don't think creativity is coming to an end. I think creativity is increasing at an increasing rate, and always will.
Creativity is generally a combination of existing ideas. If there were only two concepts in the universe, creativity would be "What happens if we put them together?" If you add a third and fourth concept to the universe, the number of creative combinations shoots up.
The Internet allows you to check the originality of your idea quickly, so it sometimes seems that all the good ideas have been taken. But the Internet also seeds us with many more concepts than we would otherwise be exposed to. Humans are like distributed computing for creativity. The Internet and the media and our daily lives dump huge volumes of raw concepts into our heads and we process and combine things until something new feels right.
Worrying comes from predicting the future on a straight line, imagining trouble increasing at some established pace. But the real future comes in leaps and bounces, with creative solutions expanding faster than problems. I believe this is some sort of fundamental law of the universe, that solutions will always outpace problems.
Take a deep breath. You're going to be fine. Someone, somewhere, just thought of an idea that will fix everything. And you couldn't stop it if you tried.
Retirement is a fairly recent concept in historical terms. When the average life expectancy was 40, it wasn't much of an issue. I think the concept of retirement really took off when people were healthy and productive until about 65, on average, then started the rapid descent towards a dirt nap at about age 75. No one begrudged a few years of relaxation to someone who had put in 50 solid years of productive toil.
Now we have people retiring at 60 and living to 100. Do you still feel good about that? Even if the retiree has saved money for retirement, society is still picking up a big part of the tab. You have the Social Security payments that usually exceed the amount paid into the system, and all the roads, police, firemen, and other services that are being funded by other people's taxes. The list goes on.
I think about this when I hear about young families struggling with childcare expenses at the same time a bazillion retirees watch Jeopardy and wish they had something better to do. Is there really no way to solve those two problems at the same time?
If human life expectancy had suddenly jumped from 40 to 80, instead of gradually increasing, it would have been socially unacceptable to retire before your health failed. But because life expectancy inched up, we drifted into a situation where older people aren't expected to be part of the solution. I think most of them would prefer to contribute more than they are.
People who know me well don't ask when I plan to retire. I'm sure I will stop drawing comics at some point, but I can't imagine a life where I'm not adding something back to the system. I don't think I'm that different from most people.
When we think of how to patch up the ailing economy, we reflexively think about youth. We think about education, and innovation, and getting healthcare for young working people. I think we're leaving some low hanging fruit on the trees with the older generation.
For example, imagine the government coming up with some sort of carbon trading-like plan for healthcare. Under this plan, anyone who uses less than the average amount of healthcare for his or her age, during a given year, wins some extra government funding for their local school system, and that amount would be tracked and publicly reported. You'd feel like a stud to be on the top of the healthy seniors list.
The idea is that retirees would be incented to exercise and eat right, thus cutting their average medical bills. Old people are the biggest users of medical care, so the impact could be huge. And since any savings would not go directly to the retirees, they wouldn't be incented to skimp on medical visits just to make a few bucks for themselves.
I'm making an assumption here that keeping older people healthy saves society money, but I could be wrong if it boosts life expectancy. That tradeoff would have to be studied, but you get the idea that maybe there are some missed opportunities here.
Certainly retired people could be helping with childcare, tutoring, crime watch, and other functions that directly benefit society, at least a few hours per week. Can you think of any other ways to harness senior power to juice the economy?
http://www.amazon.com/Dilbert-2-0-20-Years/dp/0740777351
The rest of this post is for art nerds who care about this sort of thing. I'll see the rest of you tomorrow.
The equipment you see me using is a Wacom Cintiq 21ux. Here's a page that describes it
http://www.wacom.com/cintiq/21UX.cfm
It's attached to a plain Windows PC running XP. The software is Photoshop. I created my own font for the lettering, using a commercial font creation packages. I forget which one.
Obviously I started my career drawing on paper, with the first draft in pencil, and then inking over the pencil lines. The dot pattern used for shading was a sort of decal you could buy at high end art stores. You placed the decal on your art and then used an X-Acto knife to cut it to fit.
It was a tedious process, and took about twice as long as my current method. When finished, I would take a photocopy and mail the original to United Media in New York. The flaw in this process is that once the local Post Office figures out who you are, the original art starts disappearing. So the next step involved scanning the originals and e-mailing them, which took forever with the computers of the day.
The next phase in the tool evolution involved drawing the basic art on paper, then scanning it into the computer to finish. Once scanned, I used Photoshop just to clean up stray lines, add the shading with a "fill" command, and do the lettering. I created my own dot pattern for the fills, through trial and error.
During those years I used a Macintosh for the art, and a PC for everything else, partly to be compatible with licensees. Every Mac I owned was a lemon, crashing ten times a day on average. My Windows machines were all relatively sturdy, so I moved everything to Windows and things have been great since. (You don't need to tell me your Mac never crashes. I know.)
About four years ago I moved to a fully paperless process, using the Cintiq 21ux. It took me about three months to get the hang of drawing on screen. It's an entirely different feel, scale, and process.
I still draw a first draft, as you will see in the video. It's hard to tell, but the lines of the rough art are jaggy because of the scale I use to draw it. The rough art is in its own "layer," which is Photoshop lingo. When I'm happy with the rough art, I click on the layer and change the opacity of the lines to about 25%. That makes the rough look like a light gray line. I do that so that when I do the final art in another layer, the black lines of the final are easy to distinguish from the lighter lines of the rough draft below it. I zoom to 200% for the final art, and use the paintbrush tool at size 6, with 25% hardness, giving the lines a smooth look.
The starting file is 600 dpi, grayscale. The comic size is about 2" x 7" with some extra white space around the perimeter. You can draw in any size that is proportional to the finished product. It took some trial and error to figure out what works best for me.
The daily strips are colored by an outside firm. I color the Sunday strips myself, in Photoshop. It takes about ten minutes, mostly just using the paint bucket took and clicking a color into each area. Before I add the color, I convert from grayscale to bitmap then back to grayscale and up to CMYK. The detour to bitmap makes the color fills cleaner, going all the way to the black lines without leaving a little border.
Most syndicated cartoonists still draw on paper, then scan the art and e-mail it to their syndication company. They're going to be pissed when they see this video and realize how much extra work they have been doing.
http://abcnews.go.com/Technology/story?id=5951979&page=1
The only time women are not attracted to intelligent men is when they have the option of a good looking guy who is dumber than pants on fish. Still, it's comforting to know that given the choice of two ugly guys, women usually prefer the one who is not a moron. And obviously many women will still pick the guy who is both ugly and stupid if he has lots of money, good hair, is tall, or plays in a band. I did my own study to reach that conclusion. It's titled "Duh."
In my vast experience as an unattractive smart guy who was not always a syndicated cartoonist, there are in fact women who have fetishes for smart men. Not many, but they exist. My guess is that about 3% of the female public is in that group. That's probably good enough to keep the inventions flowing for a few more evolutionary steps.
The only risk to the future of humanity is that nerds will invent a technology that is better than sex with another human being. I'll try to keep this next part rated PG-13, so please be patient with the indirectness.
I assume some entrepreneur is already working on creating a business where guys will be able to buy a lifelike female body part that plugs into a standard USB port, and can be controlled by someone else across the Internet. That artificial body part could mimic a hand, mouth, or woo-woo. In the short run, the business model would involve paying women, in countries where such things are legal, to control the device and appear on a web cam chat. In the long run, artificial intelligence and CGI women will be controlling the action, so the whole system would only cost $100, with no recurring fees. And that will be the end of humanity because nerds will stop mating, their genes will die out, humanity will revert to the Bronze Age, and all the attractive, dumb people will be eaten by wild dogs.
I like to end on a positive note, so let's take a moment to be happy for the wild dogs.
Viewed in that light, the unwealthy are more like an investment opportunity than a tax burden. If you can make the poor and middle class more educated, healthy, and better employed, everyone wins. That makes sense, to a degree. But would the wealthy gain enough financially to make the extra taxes a good investment? I wonder if that has ever been studied.
Perhaps there are too many variables to make any kind of general statement about the benefits of taxing the rich. If the government raises taxes on the wealthy and pisses away the money on sketchy wars and pork, that's probably a poor investment. If the money goes into education, healthcare, and alternative energy, that starts looking a lot more like an investment with a 10-year payoff.
Obviously higher taxes on the rich are counterproductive if it stops them from building new factories, or causes them to invest overseas. Maybe corporate taxes have to remain low no matter what, or everyone moves their operations to Ireland. You can always tax the individuals, since most people won't leave the country just to save money on taxes.
Henry Ford famously paid his factory workers more than the market rate so they would be able to afford cars. I've never seen a study of how that worked out for him. Does anyone have a link to tell me if investing in poor people benefits the rich?
This raises an interesting question: What did the lenders know about the borrowers that the borrowers did not know about themselves?
In theory, the people who got loans from the so-called predators had enough monthly income to pay the mortgage plus their other living expenses. The real risk was that the borrowers would become sick, unemployed, unlucky, or irresponsible. Apparently we expect lenders to be better judges of the strangers asking for loans than the would-be borrowers are of themselves. How did the conversation between lender and borrower go in the old days, before predatory lending?
Banker: "Well, Billy Bob, you can afford this loan now, but based on that dumbass hat you're wearing, I give you two weeks before you drink a case of beer and drive your Chevy into a silo."
If a potential borrower has the monthly income to repay a loan, how much external risk should the banker accept? I think it's somewhere in the 2% range. In other words, a good banker should turn down a loan for someone who has a 2% or greater chance of being doomed during the early years of the mortgage, before any equity has built up.
Lenders should be required to assign a doom factor to all loan applicants, like a fortune teller. It would be interesting to know, for example, that Wells Fargo has assigned a 20% doom factor to you. Then you could find out on the same day that you aren't going to own a house, and you have a 1-in-5 chance of becoming a hobo by 2010.
In one of my earlier career incarnations I was a banker. My job for a few years included reviewing and approving commercial loans for doctors and dentists. One day I declined a loan application for a dentist who, according to his recent tax returns, didn't have enough cash flow to repay the loan. My boss at the time reviewed my work and turned the decline into an approval without even looking at the financials. When I asked why, he explained that the borrower had a Chinese name. I questioned the wisdom of this lending procedure and he directed me to the files of delinquent borrowers, challenging me to find any Chinese names in there. There weren't any. I'm not judging, just telling you what happened.
Suppose the government passes a law requiring all relatively wealthy people, defined in some practical way, to buy extra crap they don't need from local providers. The relatively wealthy could dine out more often, buy some extra shirts, get a flat screen TV for the garage, whatever.
The result would be a stimulus to the economy that would lift all boats and fill the government coffers. The relatively wealthy wouldn't feel so bad about this form of tax because at least they end up with more shirts and flat screen TVs. This is the same principle as the $600 tax rebates, in terms of fiscal stimulus. But it wouldn't increase the deficit.
I know, I know, you will point out that our shirts and TVs are made overseas. But the local merchants get their markups, and that helps.
The best part of this clearly impractical plan is that the rich would have lots of options on how to spend their money. There is a lot of science supporting the idea that having freedom of choice is essential to happiness. I would be happier spending $100 on two shirts I don't need versus paying $50 in taxes and having no control over how it is spent. Everyone wins.
The hard part is figuring out how to measure this "extra" spending compared to the baseline, so you can be sure the relatively wealthy are complying. So perhaps it needs to be voluntary, like recycling.
I can imagine a new sort of credit card that is used only for the "extra" purchases, provided by the usual banks and credit card firms, but with one important feature: Everything you use the card for is public record, on the Internet.
I am convinced that the main reason people comply with recycling is that their neighbors can see who is being a good citizen on trash day. Peer pressure is important.
Obviously you wouldn't use the special credit card for beer and condoms, because the neighbors would be watching, or could be. I think this would induce people to buy harmless additional consumer items, or take extra domestic vacations, or buy extra birthday presents for friends.
Yes, this idea isn't practical. But how are the other plans looking?
http://www.nytimes.com/2008/10/01/business/economy/01leonhardt.html?_r=1&oref=slogin
I like the clarity of that explanation, but it seems incomplete. For one thing, there is no discussion of the positive aspects of a financial calamity, for example:
- Rent gets cheaper when housing prices fall. That's a redistribution of wealth from the rich to the poor.
- While it will be harder to get a mortgage for an $800K house, that house is only worth $500K now. That should make it a lot easier to qualify.
- Gas at $4 per gallon is a necessary condition for creating the next economic boom: renewable energy and green technology.
- A good recession now and then is necessary to purge the economy of things that need purging.
- College students are starting to choose technology majors over finance majors, probably because of the financial headlines, and this bodes well for the future.
I also wonder if the Internet will take some of the steam out of a credit problem. The problem is a lack of credit, not a lack of people who want to borrow, or a lack of money to lend. When lending is constrained by geography, you might find that your local bank is unwilling to help you. But with the Internet, it seems we could always find a match between a lender and a borrower, at some interest rate. The people who have money to lend aren't going to be keen on the stock market or real estate for awhile, so there should be plenty of capital for private lending at attractive rates. Arguably, banks are an anachronism anyway. This might speed up the inevitable.
I own some real estate (an empty lot) I have been trying to sell. Every recent offer on the property has included a component of seller financing. I expect to see a lot more of that if bank lending dries up.
And allow me to leave you with a pinch of optimism, just because I can. I call it Adams' Rule of Obvious Calamities. It states that any calamity that is foreseeable by the public at large won't turn out so bad after all. The best recent example was the Y2K problem, where computers worldwide were expected to fail. It seemed impossible that those issues could be resolved in time, but they were.
The problems that hit hardest are the ones that sneak up on you. Our current financial problem is big, but I expect a recession to be mild and even useful, precisely because so much human energy and attention is being focused on the fix.
