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Hard Asset vs. Soft Asset Manager

On the Nature & Philosophy of Financial Instability and Application to the Current Financial Crisis Part V

Hard Asset vs Soft Asset Manager

By Julian Sanchez, PhD

Read: Circuit Systems and our Financial Crisis - Part I
Read: Functions of Taxpayer Bank and the Market - Part II
Read: The Pros and Cons of a Taxpayer Bank - Part III
Read: Role and Purpose of Taxpayer Bank Hard Asset Managers - Part IV

The Hard Asset Manager:

What approach will be taken by the Hard Asset Manager will vary from market to market according to the needs of the local market. In any case the deflationary spiral must be stopped; otherwise no matter how much capital is put into the bank, banks will continue having capital deficiencies requiring more investment from the government. A deflationary spiral inhibits lending and mortgage insurance, since it would be foolish for banks to lend with asset prices continuing downward. It is critical the government stop the deflationary spiral anyway it can, including pulling the supply of homes off the market. Once the market is stabilized, its inventory of homes can be put back into the market, in a controlled manner, for a profit.

Soft Assets Manager:

A. MBS, CMO, SIV, CDO, ABS, CDX – The Taxpayer Bank should consider marking these assets to zero if they are not performing, since they are very difficult to unwind. The Taxpayer Bank should purchase these assets (and any other NPA) from a given financial institution, providing capital for the original value of the asset and receiving all equity in return (asset marked down to zero). This will fix the financial institutions earnings, raise its PE ratio and increase its stock value.

The Soft Asset Manager has several choices with soft assets:

1. Sell them cheaply to the public, thus earning a profit.
2. Hold on to them, waiting for the third party servicer to unwind the asset and obtain the hard asset underneath.
3. Assemble all the bonds associated with a given financial instrument and unwind them. The asset can then be turned over to the Hard Asset Manager for sale. Since the financial institution has been repaired at the time the government purchased these assets, the government has time to unwind these instruments.
4. Trade the government owned mortgages (written down to aid the homeowner and perform) with non-performing mortgages for a given security pool. Since the government’s mortgages are at lower interest rates, they will have to be overcollaterized to ensure the security pool’s bonds perform. Most securitized mortgage pools allow modifications to the portfolio when a loan is in or near default, if it’s in the best interest of those who hold the security. This allows the government to get access to non-performing or near default loans and turn them over to the Hard Asset Manager.
The option used depends on circumstances, availability of mortgages, interests of the taxpayer, and the economic stability desired.

B. Credit Card Debt – Since no collateral was given for this debt and the government received all equity (assets written-down to zero), the Soft Assets Manager should write these loans to zero and clean up the credit scores for stressed credit card holders, provided they take several financial classes and demonstrate an understanding of the basic concepts of personal finance. Most credit card holders have had no financial training and most credit card companies were aggressive in approaching these customers. Their current strained experience and the knowledge received from financial planning classes may incline many such debt holders to be more cautious when it comes to credit card debt. With such debt removed, this portion of the public can then start contributing to the economy.

C. Other Debt – can be structured in the same manner, provided the firm which owns the debt can issue equity and has a depressed stock price with respect to historical measures.

D. CDX, CDS, and Derivatives – Since a number of variables affect how they should be treated, these instruments are more difficult to evaluate. Considerations on pricing should not only include the original pricing of the contract but also the liability associated with the insurance aspect of the instrument. Many of these contracts did not capture the risk involved and are under-priced; therefore, the capital to equity exchange may need to be altered. One also needs to assess the viability of these contracts with respect to the probability for future failure. One needs to use probabilistic estimations of risk, which include counter-party risk, financial risk, systemic risk etc., as well as disposition methodologies for handling these products. The discussion of this class of financial instruments is complex and will not be covered in this paper.

Bush on the Couch

Bush on the Couch: Inside the Mind of a President

In 2004, a book called Bush on the Couch: Inside the Mind of a President, was published and offered an in depth look at our nation’s Chief Executive. The analysis produced sheds considerable light on why George W. Bush chose to rush the United States into the long and expensive mistake known as the Second Iraq War. Bush on the Couch: Inside the Mind of a President, written by psychoanalyst Justin Frank, M.D., accesses the vast record of public statements, behavior, and biographical information available on the forth-third President, in order to develop a psychological profile along the lines of the applied psychoanalysis assessments of world leaders routinely developed by our Central Intelligence Agency. Dr. Frank is a practicing psychiatrist with more than thirty years experience in the mental health field, and is also a clinical professor in the Department of Psychiatry at George Washington University Medical School in Washington D.C. [1].

Although “Bush on the couch” was not well promoted, it is a serious study on an important subject and has been the object of acclaim as well as controversy. Carefully written, it offers an in-depth framework from an informed perspective for better understanding of the man who was, for eight years, America’s commander-in-chief.

Management experts have long understood that the behavior of an organization to a large degree reflects the personality of its leading executives [2], [3], [4]. The picture Bush on the Couch presents is troubling, but the themes it develops enlighten many of the themes developed by the Bush administration. In science, the utility of a theory is directly proportional to the range of phenomena it is capable of explaining.

A great deal of Bush on the Couch is taken up with providing sufficient fundamentals of the clinical process to permit the lay reader to grasp the gravity of George W. Bush’s psychological problems. The book is a devastating psychological dossier on the 43rd President, and a compassionate profile of a human being in need of care.

Jeffrey Steinberg [5]

According to Dr Frank, George W. Bush displayed signs of mental health issues through-out most of his life that, while although allowing him to be functional, made him poorly suited to the responsibilities of leading a democratic nation, especially the world’s most powerful. Dr Frank describes George Bush as suffering from the need to defy authority, from megalomania, and as probably being incapable of genuine compassion [6]. He observes indications of sadism, notes that Bush feels entitled to live unencumbered by the constraints that apply to ordinary people, and that he is inclined toward knee-jerk judgments in his decision making process [7]. He also points out the former President’s aversion to introspection and tendency to deny responsibility [8].

Stop throwing the Constitution in my face. It’s just a goddamned piece of paper.

George W. Bush, November 2005, White House meeting with Republican Congressional leaders [9]

The American Psychiatric Association holds that it is unethical for a psychiatrist to offer a professional opinion on a subject with whom the analyst has not had the chance to conduct an examination. Dr. Frank points out, however, that the research he did on G.W. Bush was similar to the psychological assessments of world leaders routinely developed by the CIA [10]. The Center for Analysis of Personality and Political Behavior, the applied psychoanalysis unit of the Central Intelligence Agency that formulates in-depth personality profiles on world leaders was established under Dr. Jerrold Post, a colleague of Dr. Frank’s at George Washington University Medical Center [11].

If one of my patients frequently said one thing and did another, I would want to know why. If I found that he often used words that hid their true meaning and affected a persona that obscured the nature of his actions, I would grow more concerned. If he presented an inflexible worldview characterized by an oversimplified distinction between right and wrong, good and evil, allies and enemies, I would question his ability to grasp reality. And if his actions revealed an unacknowledged—even sadistic—indifference to human suffering, wrapped in pious claims of compassion, I would worry about the safety of the people whose lives he touched.

For the past three years, I have observed with increasing alarm the inconsistencies and denials of such an individual. But he is not one of my patients. He is our president [12].

Applied psychoanalysis holds that public figures offer, with the notable exception of emotional interaction with the clinician, more material for analysis than patients typically do when seen under the more limited circumstance of the clinical setting. By virtue of being in the public eye, a President of the United States creates hundreds of hours of video footage and reams of biographical information on himself, many of his close associates and almost every member of his family, all of it offering an abundance of material to the trained analyst [13]. In developing a characterization of President Bush, Dr Frank had access to considerably more data than he normally does with his own patients which he rarely sees in their everyday lives.

And I am really struck by how much more I see of Bush and everything that I know about my patients is based on work in the consulting room, and then my fantasies about them, you know, how I think about them.

Dr. Justin Frank [14]

In Bush on the Couch, Dr. Frank draws a picture of a President suffering from serious, psychological disorders including: Attention Deficit Hyperactivity Disorder (ADHD), an omnipotence complex, paranoia, sadism, a mild form of Tourettes Syndrome, a diminished capacity to distinguish between reality and fantasy, and untreated alcoholism. These disorders stem from what Dr. Frank describes as Bush’s “diminished ability to manage anxiety.” Many of these difficulties stem from significant and shocking episodes of unresolved childhood trauma, in which his parents, George H.W. Bush and Barbara Bush, failed to provide the needed loving adult care that would have enabled him to grow through the experiences. Dr. Frank thus presents a compassionate picture of the former President.

George W. was six years old at the beginning of the tragic episode that he has said yielded his first vivid childhood memories—the illness and death of his sister. In the spring of 1953, young Robin was diagnosed with leukemia, which set into motion a series of extended East Coast trips by parents and child in the ultimately fruitless pursuit of treatment. Critically, however, young George W. was never informed of the reason for the sudden absences; unaware that his sister was ill, he was simply told not to play with the girl, to whom he had grown quite close, on her occasional visits home. Robin died in New York in October 1953; her parents spent the next day golfing in Rye, attending a small memorial service the following day before flying back to Texas. George learned of his sister’s illness only after her death, when his parents returned to Texas, where the family remained while the child’s body was buried in a Connecticut family plot. There was no funeral. [15]

Dr. Frank found his publication of Bush on the Couch: Inside the Mind of a President, was well received by those who read it, but not widely appreciated within the psychiatric community or by Republicans, the latter dismissing it as awful even though few actually read it.

But as far as the psychoanalysts and psychiatrists, a lot of people are disturbed about it, they’re not very familiar with applied psychoanalysis, and then when they are, they feel that it should only be used for foreign leaders; and Gerald [sic] Post [Dr. Jerrold Post of The CIA’s Center for the Analysis of Personality and Political Behavior], in fact, feels that way.

Dr. Justin Frank [16]

For the Republicans, it was unfortunate that they generally choose to avoid reading Dr. Frank. By the time President Bush finished his two terms, he had managed to splinter the conservative movement, gut the Republican Party of intellectual vitality, and enable the Democrats to return to power in Washington. Much of that might have been avoided had Republicans been more willing to understand where they were being lead.

I would love to find who they are [Republican audience interested in the book], and if I could find Republican groups, I would be very interested in talking with them, because I do think there’s an audience for this. I think that they are very concerned about a couple of things: One is the deficit spending; two is really pre-emptive war.

Justin Frank, M.D. [17]

Dr. Frank does not believe Vice President Dick Cheney secretly ran the Bush Administration. He credits George W. with more intelligence than most of the nation was willing to grant by the middle of his second term. He says that Bush was the decision maker and gave Cheney the job of thinking those decisions through and articulating them. This view is consistent with that presented by Dick Cheney, who not only stated that he looks at the Office of the Presidency as that of a king and poured considerable effort, as Vice President, into enhancing the powers of that Office. According to Dr. Frank, Bush knows what he wants to do, but does not like the work of thinking because it makes him too anxious. Franks believes the core of George W’s functioning lies in defending himself against anxiety.

Yes, it has to do with the fact that he was never able to mourn, and when you don’t mourn, you can’t integrate your inner life. What happens is that, as I write in the book, sorrow is the vitamin of growth, and until you face who you are and what you’ve lost, you really can’t organize your mind, and so what happens is when you’re the first born, and the next one dies, you’re left with a lot of unworked-out hostility, anger, guilt, that maybe your wishes killed them. You have lots of magical thinking, and if you don’t have a family that helps you gather those things together, you can be in a lot of trouble.

So then you have to manage your feelings yourself. And one of the ways people do manage them when they are that age, is they have friends to talk to; but he doesn’t seem to have had anybody to talk to much. But they also read, and pay attention to things, so they learn about human beings from reading about other people, if their parents aren’t responsive to them. But he really has such a hard time reading, that it’s like swimming with weights. I mean, it’s just too much for him. So he didn’t have that avenue either, so he became sometimes cruel to people, with animals, which is one way of managing your aggression, and then to drink in order to manage his anxiety, and he became a very heavy drinker, that’s very clear, till he was 40, at least.

Justin Frank, M.D. [18].

Dr. Frank believes one of the reasons the press was afraid to ask President Bush tough questions was because there was a tacit recognition that dealing with the President, an untreated alcoholic, meant walking on egg shells for fear of upsetting him with unknown or unfortunate consequence.

The only way [to really break through, and get through to him] would be for somebody to actually directly confront him in a clear way, to bring him out, so you would really see the bully, and you would also see the fear.

So Cheney is very powerful, and Cheney is really a destructive guy, but I don’t think that Bush needs him as much as we like to think he does. That is one of the strengths of Bush. Bush is an amazing person at ducking blame and ducking responsibility, so he’s even got a lot of people who oppose him thinking its all Cheney’s fault. And through this secret way, it’s a way of getting off the hook yet again.

Dr. Justin Frank [19]

To better understand how the United States got into its current mess, the American people have to better understand the many-sided and distorted world of the man who, more than any other, led them into it. Dr. Frank includes a chapter in Bush on the Couch that discusses why American choose him as their leader. Bush then choose Cheney, Rumsfeld and the neo-conservative theoreticians that set the tone of administration and actively pursued such traditionally un-American doctrines as preventive war, an aggressive nuclear policy and attempts to socially engineer the Middle East for America’s benefit, while trying to support such counterproductive, illegal, and wasteful policies through lying and spying on the American people, using techniques of torture, and misdirecting a ‘War on Terror’ that undermined our nation’s military and national security while enriching their friends and associates [20].

I’ll be long gone before some smart person ever figures out what happened inside this Oval Office.

George W. Bush, Washington, D.C., May 12, 2008

Much of this misdirection and departure from traditional American values could be foreseen in Dr. Frank’s profile. By the time George W. Bush left office, most of America recognized that something had gone wrong and the country was no longer headed in the right direction. This understanding was reflected in polls of Bush’s approval numbers and in the fact that the great American ship of state had begun to act as though it had struck an iceberg and was dangerously taking on water.

You can fool some of the people all the time, and those are the ones you want to concentrate on.

George W. Bush

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The Slipper Tongue

The ironic story behind “The Slipper Tongue”, Bush’s favorite painting!

The title of George W. Bush’s 1999 ghostwritten autobiography, A Charge to Keep, is associated with a favorite painting of the former President’s, that was loaned to him by a childhood friend, Joseph I. O’Neill III, shortly after his 1995 inauguration as governor of Texas. Joseph ‘Spider’ O’Neill said the lead cowboy reminded him of Bush and the former governor claimed it as his own.

“I thought I would share with you a recent bit of Texas history which epitomizes our mission. When you come into my office, please take a look at the beautiful painting of a horseman determinedly charging up what appears to be a steep and rough trail. This is us.”

Governor George W. Bush, memo to staff [1]

The painting followed George Bush from Austin to Washington, where it occupied a prominent place in the tour and talking points routine the President gave Oval Office visitors during his years in the White House [2].

“One of the paintings I selected for the Oval Office shows a man on horseback, leading a charge up a steep hill. His face is full of purpose and determination, and it is clear he expects to get the job done. The painting is called ‘A Charge to Keep,’ based on a Methodist hymn that’s a favorite of mine.

I love the painting because it speaks to serving a cause that is greater than yourself. The picture reminds me every day that my most important job is to unite our country and provide leadership to overcome America’s toughest challenges.”

George W. Bush, 2004 campaign fund raising letter [3]

Bush loved to talk of his identification with the heroic struggle he saw in the illustration and the resolute determination of the nineteenth century circuit riding preachers who spread Methodism across the Allegheny region of the young American nation. Its title, he asserted, was “based upon a religious hymn….about serving God,” a song written by Charles Wesley called ‘A Charge to Keep I Have’ [4].

Referring to Bush’s fondness of the picture, David Gergen a longtime Presidential advisor and director of the Center for Public Leadership at Harvard’s John F. Kennedy School of Government, commented:

Bush’s personal identification with the painting, which now hangs in the Oval Office, reveals a good deal about his sense of himself as a political leader–who he thinks he is, the role he plays, and the centrality of his religious faith….His followers today tend to see in Bush what he sees in the painting: a brave, daring leader riding fearlessly into the unknown, striking out against unseen enemies, pulling his team behind him, seeking, in the words of Wesley’s hymn, “to do my Master’s will.” They see him as a straight shooter and a straight talker. [5]

The painting was originally commissioned in 1916 by The Saturday Evening Post; which gave the job to William H.D. Koerner, a regular illustrator of popular magazine short stories in early twentieth century America. In 1912, it was Koerner that was picked to illustrate author Zane Grey’s famous ‘Riders of the Purple Sage’. In later interviews, W.H.D. Koerner and his daughter Ruth explained that the inspiration for his work came from immersing himself in the story and characters for which the illustration would be used:

“I try to draw the man the author describes…I concentrate on the character until it comes alive and I can see him in my mind’s eye.”

William Henry Dethlef Koerner, ‘Yes We Read the Story’, interview for The Saturday Evening Post; June 25, 1932 [6]

The painting was subsequently used in other short stories, including, in 1918, ‘A Charge to Keep’ in Country Gentleman magazine, a tale about a timberland inheritance and the responsibility it brought to protect its resources from the capitalist robber barons that were aggressively seeking to exploit its assets. But the character that lived in William Koerner’s 1916 illustration was the one that rode in the 1916 Saturday Evening Post story, a tale called ‘The Slipper Tongue’.

As with so many other positions embraced by our forty-third President, it might have been better had George W. Bush been a little less certain of his own point of view and a little more curious and inclined toward deliberate reflection in his decision making process. For what George W. is so certain is a depiction of a Methodist preacher resolutely ‘leading a charge up a steep hill’ that he proudly announced,

‘When you come into my office, please take a look at the beautiful painting of a horseman determinedly charging up what appears to be a steep and rough trail. This is us’;

turns out to actually be an illustration of a smooth-talking horse thief on the run, risking the welfare, and perhaps the life, of the mount he rides in a mad dash to try to escape the justice following close behind.

Bush’s perspective exemplifies the decision making style that characterized his leadership of our nation. Starting from little research and continuing through little examination, based on his gubernatorial inauguration’s use of Charles Wesley’s hymn, ‘A Charge to Keep I Have’ and his friend ‘Spider’ O’Neill’s offer to loan a painting he called ‘A Charge to Keep’, George W. choose to associate his work in public life with a reckless horse thief’s attempt to evade justice.

slipper tongue

‘Had His Start Been Fifteen Minutes Longer He Would Not Have Been Caught’,

W.H.D. Koerner

The Slipper Tongue

1916

““This is us,” said George W. Bush claiming autobiographical semblance to an illustration originally titled, ‘Had His Start Been Fifteen Minutes Longer He Would Not Have Been Caught’ [7].

It seems a fitting marker for the Bush presidency. Bush has consistently exhibited what psychologists call the “Tolstoy syndrome.” That is, he is completely convinced he knows what things are, so he shuts down all avenues of inquiry about them and disregards the information that is offered to him. This is the hallmark of a tragically bad executive. But in this case, it couldn’t be more precious. The president of the United States has identified closely with a man he sees as a mythic, heroic figure. In fact that man is a wily criminal one step out in front of justice.

Scott Horton, Esq.; Harper’s Magazine, January 24, 2008 [8]

The philosopher Socrates once observed ‘without reflection, there can be no experience’. That explains a great deal, for without thinking about our experiences, life becomes just a blur of events from which we take little opportunity to grow. Many are the qualities essential to leadership, especially leadership of a great nation. Discernment is indispensable and lacking that, we can better understand how the presidency of George W. Bush, among other things, left our nation floundering economically and on the horns of two wars; one unresolved in the land that Empires go to die, the other frivolous, wasteful, and based on deception.

As George W. Bush once said:

“I’m the master of low expectations… I’m also not very analytical. You know I don’t spend a lot of time thinking about myself, about why I do things.”

George W. Bush, June 4, 2003, on board Air Force One

REFERENCES:

[1] Horseshit! Bush and the Christian Cowboy, by Jonathan Hutson, TALK TO ACTION, May 12, 2006; http://www.talk2action.org/story/2006/5/12/7393/57216

[2] 45 Minutes with Bush, Kai Diekmann, The BILD Interview, May 5, 2006: http://www.counterpunch.org/diekmann05112006.html

[3] GEORGE W. BUSH, ART CRITIC, by Michael Horne, Milwaukeeworld Roundup, February 23, 2004; http://www.milwaukeeworld.com/html/horne/h-040223.php

[4] A CHARGE TO KEEP I HAVE, Words by Charles Wesley, Short Hymns on Se­lect Pass­ag­es of Ho­ly Script­ure, 1762; http://www.cyberhymnal.org/htm/c/h/chargkeep.htm

[5] Horseshit! Bush and the Christian Cowboy, by Jonathan Hutson, TALK TO ACTION, May 12, 2006; http://www.talk2action.org/story/2006/5/12/7393/57216

[6] Horseshit! Bush and the Christian Cowboy, by Jonathan Hutson, TALK TO ACTION, May 12, 2006; http://www.talk2action.org/story/2006/5/12/7393/57216

[7] A Charge to Keep, Wikipedia Encyclopedia; http://en.wikipedia.org/wiki/A_Charge_to_Keep#cite_note-horton-4

[8] The Illustrated President, by Scott Horton, HARPER’S MAGAZINE, January 24, 2008; http://www.harpers.org/archive/2008/01/hbc-90002237