A Juvenalian Satire

This week S&P reduced their long term outlook on US government debt to negative. On one side Bill Gross sees a downgrade as inevitable while Secretary Geithner argues we have no risk of losing our AAA rating. Congress resembles the Biblical story of the “Tower of Babel” where everyone began speaking different languages such that everyone was speaking and no one was listening. Since this debate began, the only thing our political class has agreed upon is that Republicans and Democrats must work together to solve this problem.

Our country’s situation is dire which calls for drastic action. The current process is not working so I propose a reboot and an examination of fresh new approaches. Albert Einstein once said, “If at first the idea does not seem absurd, there is no hope for it.” With that in mind, I scoured the news this week in search of absurd ideas.

Creative Financing – Bloomberg reported that Somali pirates are syndicating shares in upcoming attack missions with a claim on a percent of the take. They are also restructuring pay to workers with variable compensation based on success. While my view is that we should just blow these pirate boats out of the water with a missile or two, I do have to admire their free-market creativity toward financing the uncertainty of future events.

The IRS has too few employees for audits? Syndicate shares in upcoming audits where the investor gets a percentage of any money recovered. What about a variable compensation plan for Congress where pay is tied to the actual (not projected) deficit? Maybe our government could learn a thing or two from Somali free-market creativity!

Mergers – No one ever accused me of being a romantic so it should be no surprise I am tired of all this William and Kate tabloid fuss. While the notion of marriage as a tool of political alignment shakes our modern sensibilities, there is no doubt it was effective. The Habsburg King Felipe III of Spain had it down to a science. He married an Austrian, married his daughter off to the Emperor of the Holy Roman Empire and married a second daughter and a son to the French and in so doing, very economically solved some potentially very expensive political problems.

Now don’t think I’m proposing that Obama’s daughters should be pledged to the Chinese president’s son. That’s a bit too absurd, even for me. But a recent discussion with my 13 year old daughter about our nation’s debt problem took an unexpected turn toward an absurd solution.

“Why don’t we just reset all the debt back to zero and start again?” my daughter asked.
“Well, we owe China a lot of money and they really wouldn’t like that,” I replied.
“Then why don’t we just get together then the debt would go away?”

Hmmm, Chimerica. It would certainly raise a few other problems but debt wouldn’t be one of them! (Notice that my daughter has already mastered the ISDA concept of netting!)

Mediators – Domestic disputes are bad enough but when an entire city and all of Major League baseball has a front row seat, it is more difficult to watch than a Charlie Sheen “Torpedo of Truth” tour. When it is clear that two parties will be unable to agree on solving a problem, a mediator must step in which is what Bud Selig did this week. This is necessary in Los Angeles where the game is baseball and in Washington where the game is politics.

I propose that since Congress cannot agree on a debt reduction solution, we hand it over to a bi-partisan commission made up of members of Congress from both sides of the aisle, business people and other societal leaders. Oh, wait. We already did that and then totally ignored what they suggested.

Well then, how about a commission of the educated class such as Nobel Laureates and prominent professors of elite institutions? But that could be even more dangerous. I recall that William F. Buckley once said “I’d rather entrust the government of the United States to the first 400 people listed in the Boston telephone directory than to the faculty of Harvard University.”

OK then, let’s turn over the deficit problem to the first 400 people listed in the Boston telephone directory. Oh wait; do we even have phone directories anymore? No wonder we can’t solve this deficit thing!

Editor’s Note: This newsletter follows the literary genre of Juvenalian Satire which the dictionary defines as “any bitter and ironic criticism of contemporary persons and institutions that is filled with personal invective, angry moral indignation, and pessimism.” Admittedly this is not our typical outlook on life (we’re a rather optimistic bunch) but when the news gets as juicy as it has lately, sometimes we just can’t help ourselves!