Ignoring author Toni Morrison’s reference to Bill Clinton as the nation’s first “black president,” if elected, will Barack Obama be the nation’s first black president? Some think so.

But Barack Obama is only half black. Why don’t we refer to him as a white guy? If you look at him, it’s obvious he is part white. Why is he referred to as “black?”

If Obama had married a woman of European descent, many would call that a “mixed marriage.” But since Obama is half white, why doesn’t anyone refer to his marriage to Michelle Robinson as a mixed marriage?

It seems that, in thinking about race, we have not progressed too far from the Nazis. They thought of someone being a Jew if one grandparent was a Jew. Even if the other grandparents were what the Nazis considered Aryan, the individual was a Jew. And clearly, to the Nazis’ way of thinking, the Jew was thought of as a non-citizen at best, and a lower life form at worst.

In our common way of thinking today, we consider someone with one white parent and one black parent as black. Why not white?

Maybe, as a society, we still have a ways to go.

What happened to Fannie Mae and Freddie Mac?

For a concise summary, check out the Washington Post here http://www.washingtonpost.com/wp-dyn/content/article/2008/09/13/AR2008091302638.html.

Karl Rove and Obama

Lately, Karl Rove has been writing op-ed pieces in the Wall Street Journal recommending courses of action that Barack Obama should follow to wage a successful presidential campaign. Wait a minute – Karl Rove? The Karl Rove? Karl Rove, Republican political consultant and “architect” of George W. Bush’s political victories?

Yup, it’s that Karl Rove — and furthermore the advice he writes to Obama seems logical and rational. If Barack Obama follows Rove’s recommendations, it could contribute to an Obama win in November.

But wait a minute. Is Rove really trying to help Obama or is he setting him up. I can see the Obama war room now.

Is Rove making those suggestions so we will do the opposite?

If we follow those suggestions, will we be walking into a trap?

It’s called gamesmanship: Giving the opposition a conundrum to deal with.

Freudian slip?

Barack Obama in a Good Morning America interview last Monday: “If we’re going to ask questions about who has been promulgating negative ads that are completely unrelated to the issues at hand, I think I would win that contest pretty handily.”

Moral Hazards and Glass-Steagall (repeated from Ruminations, March 23, 2008)

Moral hazard is an insurance term. It refers to the proclivity of some people to behave in an immoral manner due to the existence of an insurance policy. For example:

Two retired gentlemen who haven’t seen each other in 20 years meet on a street in Florida.

The first guy says, “You know, the last time I saw you, my store was failing. But then, I had a fire. So, I took the insurance money and retired to Florida.”

The second guy says, “Me, too. My business was really in bad shape. But then we had a flood and I took the insurance money and retired to Florida.”

The first guys looks puzzled and says: “How do you start a flood?”

The first guy is an example of a moral hazard. If he had not had an insurance policy, he never would have started a fire and burned his store. The lure of a cash insurance payment to cover his fire loss was too much for him.

Moral hazards exist inside and outside insurance. And sometimes we recognize the possibility for this behavior and set laws and procedures to preclude it. One insurance example is the suicide exclusion clause in a life insurance policy; this protects an insurance company from someone who buys a policy while fully intending to commit suicide so that his/her heirs will benefit. An example of a law that was implemented to prevent moral hazards in the financial industry is the Glass-Steagall Act of 1933; this law segregated financial operations to avoid conflicts of interest.

Among the provisions in the Glass-Steagall Act were those that prohibited commercial banks from engaging in investment banking, selling stocks or insurance. This prohibition in the financial markets, it was thought, would prevent conflicts of interest. But as the years went by, bankers and brokers and other financial wizards told Congress that today, other countries do not have the same restrictions and we are lots smarter than the bozos of the 1930s – besides which, we now have transparent accounting techniques and independent auditors like Arthur Andersen. We don’t need no stinkin’ Glass-Steagall Act.

And Congress listened. So did President Bill Clinton. And together, they relegated the Glass-Steagall Act to the museum of archaic and no longer applicable laws in 1999 (although, some parts of the 1933 Act still remain in place – such as the Federal Deposit Insurance Corporation).

Were the moral hazards proscribed by Glass-Steagall any more likely to happen after 1999 than they were before 1933?

Were bankers reducing their exposure to Enron at the same time that their analysts were promoting Enron? Did J.P. Morgan, Citigroup, Bank of America, Deutsche Bank and Switzerland's UBS make Enron loans at a loss in order to gain investment banking business? Were these conflicts of interest that could have been prevented by Glass-Steagall? But, we don’t need no stinkin’ Glass-Steagall.

In 2003, there were findings of actual and alleged fraud against Citigroup's Salomon Smith Barney, Credit Suisse First Boston, Merrill Lynch, Goldman Sachs and Morgan Stanley – and others. The charge was that these banks promised companies flattering stock research reports in return for getting their investment banking business. Rather than draw out a long court case, the banks decided to settle for $1.5 billion. This couldn’t have happened under Glass-Steagall but we don’t need no stinkin’ Glass-Steagall.

A practice Glass-Steagall outlawed is what we today call securitization. In the era before the Great Depression, banks put together speculative loans and sold them as securities. Of course, when the loans went bad, it put the entire system under stress. Kind of like when sub-prime mortgages are securitized in a package with good mortgages and nobody knows if the packaged security is good or bad. But, we don’t need no stinkin’ Glass-Steagall.

Moral hazards can exist anywhere there are humans. Not all humans succumb to temptation – but some do. And the greater the reward, the greater the temptation. Maybe, we do need another stinkin’ Glass-Steagall.

Robert J. Kulak

West Hartford, Connecticut

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