The First Amendment

Shortsighted followers generate shortsighted leader

Some recent news says that Obama's support rate has fallen to 50% or so and it seems the main reason is that he has not really fixed any problem of the U.S. in the last two years.

I haven't studied much economics at school, but common sense tells me that problems at the scale the financial disaster in 2008 take many years to fix. Despite this, many people expect to see results of his policies in a mere of two years.

If you are Obama, how will you feel and act? You will probably feel bad about the support rate, and, unless you are really unselfish, you will begin to adopt policies that will have immediate, observable "good" results in the next two years, although they may not be beneficial (or even disastrous) to the country in the long term. Otherwise, it is quite likely that you will not be elected as the President in the next term.

Similarly, in the finance industry, when investors want to see growth every quarter, the CEO and the board will feel the pressure and focus on generating more short-term revenue in the price of other difficult to measure but important things (such as employee morale).

I always have reservation about democracy and wonder what the contexts should be for it to be appropriately applied. Some people say that you have to do a job yourself first before hiring someone to do it. To my mind, even if you haven't done the job, you should have quite some knowledge about it to outsource. How many people have good knowledge about what it takes to be a good President? I don't, and I am not sure how many do.

One big problem about regular citizen making comments on the President is that they are not thinking like a President. In other words, they are not assessing the benefit of a policy to the country as a whole but to themselves only. The responsibility of a President is to allocate resources to deliver the greatest good for the greatest number of people and this process will inevitably leave some behind, and, those who are left behind usually generate the loudest voices.

Democracy works only if followers can make informed decisions and fair judgment on the leader. Shortsighted followers encourage a shortsighted leader to lead them. Even if the leader is not one in the beginning, s/he will have to adapt and be one to survive. This is sad.

Obama's speech in Cairo, Egypt

I always believe that violence is never a solution when there're conflicts among people, races, religions or countries. Yet, quite a lot of people in this world resort to violence and it only fosters hatred among people generation after generation (I've been hearing about the Israeli-Palestinian conflict since I was a kid).

Although I believe that many people share my view on this issue, I was moved when I heard that Obama expressed the same opinion.

It's one thing to believe in something. It's another thing when the commander-in-chief also shares the same belief.

As capable as the citizens of a country are, people need a leader to lead the country in the right direction; Obama is doing that now.

In an old post I conservatively claimed that Obama is the right choice because he has a smaller chance of screwing up compared to McCain/Palin. Now, I start to believe that he really is the right choice as the President of the United States, which is a role that has tremendous impact not only in America but the entire world.

President Obama, thank you for being very hard-working. Thank you for making the government a lot more transparent. Thank you for including capable people in your administration regardless of their races, backgrounds and political parties. And, last but not least, thank you for making an effort to lead us to a more peaceful world.

Please stay healthy and don't tire yourself out (play some basketball regularly!) . May God bless you :)

Some rants about this financial crisis

This post has quite some rants about the financial crisis we have now. If you'd like to acquire some background of this tremendous mess, watch the excellent video below created by Jonathan Jarvis first:



So, who should we really blame for this humongous financial mess that led to hundreds of thousands of layoffs not only in the finance sector but basically every industries?

Apparently, the banks' irresponsible lending practice was a major cause; had they not done this, the investment banks wouldn't have the opportunity to utilize their leverage and buy thousands of subprime loans. To my mind, however, the government is the biggest culprit behind all this mess.

"How come? The banks were so crazy that they lent huge sums of money to people without a decent credit score or even income proof! They're the biggest culprit!"

Well, if a system has holes in it, people will always abuse them to maximize their gains.

Wake up guys. You're not living in a wonderland. You've to assume that a substantial number of people are greedy and selfish. The most important thing a government should do is to make sure that when greedy people earn their money, they also bring some values to society. Ideally, the more money they earn, the more values should be resulted. Even if you cannot make these two things proportional, at least make sure they're doing no harm.

Both the government and the banks have bad systems. Let's take a look at the banks first.

If you read Joel's article "How Hard Could it be?: Sin of Commissions", you'll see how a shoe chain cashier earned his commission while driving down the net income of the business with hard-to-find coupons. Similarly, if you give your loan officers commissions based on the number of mortgages they solicited and the values of the loans, they'll sacrifice the things you're not measuring just to make sure these two benchmarks look good on paper.

"The borrowers don't have income proof? No problem. I will 'make it work'."

"How? The underwriter will reject the loan right?"

"Haha you must be kidding me. The underwriter is just a small potato. Who's he to say anything when our CEO says that it's okay to do subprime loans?"

And, guess what, the CEO's bonus is based on the revenue of the bank in that year (Will we be still okay in 2008? Who cares?).

If I claim that this financial mess was unavoidable because no freaking bankers was able to see that they were generating a housing bubble, you must say that I'm out of mind.

I mean, how could they NOT KNOW? Even if the low-rank loan officers didn't know because they couldn't see the big picture, the management MUST have known that. They do that for a living, okay?

And the sad thing was: who would give a dime even they knew what's going on? If you're pocketing astronomical bonuses that're more than enough for you to retire at 40 and live a easy life later on, why would you care that you're killing Citigroup, Bank of America, HSBC, etc?

"In addition to our bonuses, the stupid government will utilize all means to save our ass should we run into troubles since we're 'too big to fail'."

Talk about AIG.

Yeah the boards of directors should have had the incentives to care. After all, they're supposed to have substantial amount of stock of the banks. No matter how much dividend they got in those few booming years, I don't see how it's worth it to have all their stock flushed down the toilet later on. Well, the only reason I can think of is that they were all fooled by their CXO's (X = E, F, O, etc).

"We've increased our income by 20% this year!" said the CEO.

"You've done a good job! Let's give him 20% increase in bonus!" cheered the board of morons directors.

Anyways, how about the government?

Banks are no regular businesses in at least two ways:

• they've a huge number of small debtees (aka depositors)
• the money they borrow (the deposits) are backed by FDIC

The first characteristic makes it a disaster when banks fail because it affect so many people. A large number of people seeing their money gone is much worse than a few rich guys losing their investment since the former can cause widespread panic.

Because of this, the government created FDIC to insure the depositors' money. This is a good thing, but it also creates the "government-will-save-our-ass" problem. If the banks aren't regulated, they'll make very risky bets:

"Hey, the money is backed by the government anyways so let's make this bet. If we win, we'll be rich. If we lose, worst case is that we got fired, no big deal."

And the banks weren't regulated at all when they were creating the biggest housing bubble in history. Did Alan Greenspan notice the bubble? Of course he did, everyone did. Did he or the government do anything to stop it from growing? To the best of my knowledge, not that much or even none.

I don't have enough knowledge in economics (heck, I've never taken any economics class) to judge how well his free market ideology works. That being said, there're some regulations that make perfect sense to even to a layman like me. How about these rules?

1. Do not lend money to borrowers who've no proof of income.
2. Do not lend money to borrowers who've very bad or zero credit.
3. Do not let borrowers make 0% down payment despite the lucrative high interest rate.
   
4. Do not make ARMs to borrowers who've no hope of making payments when the interest rises after a few years.
5. And so on.
   

Or, maybe the above rules already exist? If that's the case, the banks were clearly violating those rules and, surprisingly, no one is being punished now (at least I've not heard of any banker being sued or put to jail or at least pay a fine).

Using any kind of reasonable measure, the Bush administration was a failure. Bill Clinton might have initiated the bubble back in the 90's but Bush had plenty of time (8 years) to at least make the bubble burst more gracefully.

I hope that the Obama administration will reform the rules that govern the banks so as to stop these irresponsible lending practices from emerging again. Remember, to own a home is the American Dream, but there's no shame whatsoever to rent. If you can't afford to buy, just don't buy. This is one message that I really hope that the government can spread to the general public (preferably from Obama's mouth).

Beside having a more capable government, another long term solution is to educate the our next generation to have better values:

Instead of judging people's success by how much money they make, judge them by what they do to the country, to the world, to humanity.

There's no way to construct a perfect legal system with no hole at all that can be exploited by the malicious to get rich. However, if we have values like the one I propose above, a low-income janitor will be considered far superior than a wealthy investment banker who uses his smarts to invent securities that no one can understand and sell them to the ignorant elderly (Lehman mini-bonds in Hong Kong anyone?). When people have right values, they'll tend to do the right things.

To the bankers who caused this world disaster for the sake of their commissions/bonus/whatever: how do you think the history will judge you?

People, please, stop irresponsible childbreaing

I'm sure you've heard about the mother who gave birth to an octoplet while she already has six kids. This kind of irresponsible childbearing is happening everyday, yet we've no solution to tackle it.

Why is it irresponsible?

The argument is straightforward: even if you're very rich that you don't have to work at all (which is not true for 99.99% of the world's population), you just won't have time to take care of all of them. Yeah, you can hire nannies to help you. But, what's the point? To have as many offspring that bear your genes? Why would you want to do that?

In most cases, the parents are far from being very rich and they don't even have enough money to give their children a barely acceptable environment to grow up in. What happens next? Welfare, money that have alternative uses to solve other societal problems, comes in and pay for the child expenses. Since the welfare money is limited, the kids aren't likely to get the care, nutrition and education they need. As a result, they became troubled teens and in the worst case turn into criminals and cause harm to other people.

Come to think about it, this is bad for the parents, bad for the children and bad for society.

We're talking about lose-lose-lose situation here, which is very bad (usually there's upside and downside for a decision, like raising tax). Let's think about what we can do to alleviate this problem.

Can we resort to something like the One Child Policy in China? No, the human rights activists in the U.S. will use all means to make sure that it won't happen.

"It is a very basic human right for a woman to bear children!"

"That is a violation of our freedom!"

Anyone can easily think of a dozen of emotional and persuasive slogans like that. Well, yeah, if we practice our rights and freedom responsibly, why would we need any policy like that, huh?

Basic economics tell us that when a cost induced by a person is shared by other people, one will likely abuse it as long as the reward is greater than the portion of the cost s/he bears. That's why factories tend to pollute air/water when there's no law that forbid them from doing it.

When a woman has kids that she's unable to raise, the cost (welfare) is shared by all the taxpayers. I'm not sure what the reward is in this case (the happiness of having kids?), but, similar to the factory case, people will tend to abuse the system when they know they've a golden parachute to take care of their kids.

Although I don't know about the statistics, let's be optimistic and assume that the people who abuse the welfare system are the minority. In that case, we can focus on the people who do not have the intention to bear child irresponsibly but do it because of ignorance. I can think of the following reasons for this group of people:

• they don't know how to use birth control
• they don't know how to find out whether they're prepared (both mentally and financially) to raise kids

For the first case, the high schools in the U.S. are already providing some kind of sex education classes to the students. I don't know how effect those classes are but at least the government is doing something.

The second case is the one that the government isn't doing enough about. To solve this problem, high school students should be forced to take classes that teach them

• what kind of responsibilities childbearing gives them and what it means to their lives
  
• how much money will be needed to raise a kid (with all the expenses broken down that clearly show the money needed until their children get a college degree)

Yeah, this is a very big topic to be written about and it takes a lot of research to figure out the best solution. Can some politician work on this issue?

If you're reading this, I hope is that you'll think twice ten times before deciding to have kids. It's a lifelong commitment and if you're not ready for it, you ruin both the lives of you and your kids, not to mention the damage you do to society.

So, please, think.

"You should vote for this candidate."

So Obama won.

Not because of Palin's extraordinary interviews with various reporters, I really wasn't sure which candidate was better. I guess a fair thing to say is that the McCain/Palin combination can turn out to be pretty bad if McCain has any health problem. For the Obama/Biden combination, maybe it works, maybe it doesn't. I'd just say that, probabilistically, Obama has a smaller chance of screwing up. Now that they won, I certainly hope that they'll do a good job in the coming four years.

There's another thing I want to talk about in this post though: some churches told their members to vote for one particular candidate. And, if I'm not mistaken, some member actually wanted to vote for the other one but gave up because s/he wanted to conform to what "the church says".

I know one major reason the churches told their members to vote for a specific candidate is that they oppose homosexual marriage. I did no due diligence on this issue so I'm in no position to decide whether it'll be good or bad to society (Although I doubt whether it really is bad to the kids if the schools teach them about same-sex marriage. Even assumimg homosexual orientation is a bad thing, which I hold a neutral stand, not teaching it is like not letting the kids know that there're violent crimes and murdering in this world).

The thing that makes me feel really uneasy is that they told their members whom to vote for. Well, they might not explicitly tell them whom to vote for, but the implicit pressure from the pastors and other members was enough to deter them from voting otherwise.

I think that's not right.

We're not only talking about churches. Any organization, group, professional soceity can have a stand on which candidate to support. However, it should not tell or imply to the members that if they vote differently, they're betraying the organization and/or other members. While we have laws that prohibit people from bribing voters to vote in favor of a certain party, I don't see punishing a person for voting a specific candidate is anything better.

After all, what's mean by democracy? If people in some groups cannot vote for a candidate according to their free will, that's not democracy; it's just a democratic society with many little monarchies.

I know my church friends will probably feel unhappy with this post. Really, I don't want to trigger any flamewar. I merely want to bring out the following message:

No matter how strongly/religiously you believe that a candidate should win/lose, do respect your members' choices and encourage them to make their own decisions.

Respect the spirit of democracy :)

Okay I was wrong....

After seeing Tina Fey's hilarious imitation of Sarah Palin's interview with Katie Couric (the real one is here),



I admitted that it is, after all, not that difficult to choose the right president (as opposed in my previous post). Well, given a "not so smart" candidate and a regular candidate, who will you choose? Perhaps Palin's greatest contribution in this presidential election is to make it super easy for the US people to make an obvious choice :P

Some thoughts on Democracy: Ethicality vs Effectiveness

Western cultures love democracy. You can tell that by the sheer number of US TV shows that involve voting:

• American Idol? Let's vote!
• American's Got Talent? Let's vote!
• American Inventor? Let's vote!
  
• Last Comic Standing? Let's vote!

And of course, we got to vote to decide who's going to be our president.

Why do we like democracy? One big reason is that it's fair. Thomas Jefferson wrote that "all men are created equal" in the Declaration of Independence. So, isn't it perfectly ethical that everyone should have his/her voice heard when it comes to deciding who's going to lead the country?

Yes, it's ethical, it's fair, it's politically very correct.

The sad thing is, ethicality doesn't necessarily lead to effectiveness.

"No, let me give you one counter example that fairness leads to effectiveness. The woman who won the Last Comic Standing was actually the funniest among all the other comics and she won because she got the most votes from the audience!"

Well, let me tell you: the reason we arrived at a good decision of the Last Comic Standing show was that people in general have the ability to decide, duh, who makes them laugh. It has nothing to do with whether the system is fair or not.

Now let me ask you

"The policies that Obama/McCain propose, do you think that they will be effective? If you do, why?"

I remember seeing a presidential debate between Obama and Clinton. The moderator asked Obama why he wanted to raise capital gain tax because, historically, raising tax rate doesn't necessarily increase tax income for the government. I forgot how Obama responded exactly but he implied that it is the right thing to do. Or, ethical, fair, politically correct, choose one you like.


In Freakonomics, Levitt claimed that the sudden crime rate drop in the US during the 90's was due to the legalization of abortion in the 70's. I know there's a good deal of people who don't agree with his theory and I don't have time to read about all the technical details of their analysis. However, one thing I'm pretty sure is that Levitt's theory cannot be completely wrong.

If it's not completely wrong, we've just witnessed a case in which ethnically questionable behavior (abortion) can lead to good outcome for society (crime rate drop).

The more I read about economics, the more I believe that it's very difficult to decide whether a government policy is actually beneficial to the country. A policy that sounds so good to you may well be a disaster to the economy as a whole in the long run.

Realizing it actually irritates me when the presidential candidates say something like

"We'll make health care accessible to the poor."

"We believe that everyone should get a job that pays living wage."

"We'll be energy independent."

How can you make huge promises like these? How do you know that the polices you're proposing will actually work and not harm other parts of the economy at the same time? Do you know that we don't have infinite resources to make everything wonderful?

Maybe, maybe a citizen can decide whether your polices are good if s/he

• has a deep understanding of various economics theories
  
• has good mathematical and analytic skills
• will actually read through all the words in your policies and understand them

Do you think an average citizen has/will do the above? Tell you what, I really like reading but I still feel tired if I need to read through a long article like this one to understand the cons of the abortion-drops-crime-rate theory. Mind you, it's just one theory/policy on one potential cause. A candidate proposes many policies that affect numerous aspects of the country. No exaggerating, one probably needs to read thousands of pages just to have a grasp of what really is going on.

No, an average citizen won't/doesn't have the ability to do that. Because of this, I don't think an average citizen would make a good decision on choosing the right candidate. And, a lot of average citizens making decisions with no rational ground will just result in one final average, or, bad, decision.

That's why I think that, as good as democracy sounds, it is seriously handicapped in leading to effective decisions on complex issues such as, yup, choosing the right person as the president of a country.

If highly educated citizens in a developed country like the US may not make good decisions on choosing a good leader, how hot an idea can it be for a developing country like China with many illiterate citizens to practice democracy? I really, really doubt it.

What do I want to say in this post?

• Be a critical thinker; ideas that sound that they work doesn't mean that they'll actually work
  
• Be non-religious when situation warrants it; actions that are ethical doesn't mean that they'll lead to good outcomes
  

Thanks for reading :)