Lehman Moment Turns Four

Four years ago today, on September 15, 2012, Lehman Brothers filed for Chapter 11 bankruptcy and failing to find a buyer, hurtled toward liquidation. On the same day, Merrill Lynch sold itself (and its bull logo and statues) to Bank of America.

Soooooooo, are we better off now than we were four years ago?

The answer will be different for individual people, but from a macroeconomic sense, the answer is an irrefutable "YES".

As an Economics and Math major, I had the unfortunate reality of understanding the financial precipice we stood on that day, the potential 'next shoes to drop' and the impending domino effect. For the first time in my adult life, I was scared. Not scary movie scared, seeing the apocalypse in front of your eyes scared. No matter what I and my family did, we would be the victims of whatever was about to happen. Not unlike citizens of post-war Germany who saw hyperinflation change prices dramatically overnight.

We should not underestimate the macroeconomic 'guesstimate' efforts that brought us back from the brink, have provided us with a 'new normal' stability, and the markets have responded with new highs.

Part of the credit should go to President George W. Bush, who against the stand of some from his party, chose to accept and implement the recommendation for the program known as TARP. This was instrumental in preventing our economy from looking like the last remnants of bathwater circling down the drain. Although TARP has had many detractors, realists know it was the unpleasant but necessary action that saved our economy. The fact that we have gotten a substantial portion of the money back due to the way it was structured will be appreciated more and more as years go by.

However, since the plug was put in the bottom of the bathtub, there have been two other major decisions and several smaller ones that have stopped the disaster from getting worse and begun to move us closer to our pre-recession existence.

The Auto bailout and the Stimulus have received a ton of bad press and frankly neither one is something to feel proud about. However, they were needed. No, there were essential in preventing extended 15% unemployment. The fall of GM and Chrysler would have resulted in the failure of many of their suppliers and other vendors. unemployment would have increased by several million. The Stimulus was watered-down and smaller that what was truly needed, but the right package would not have passed Congress. Tax refunds ('Making Work Pay' tax credit) felt good (or should have), but as most economists will tell you, don't have as large an impact as other measures. However, the 20+ consecutive months of job growth can be attributed at least in part (the percentage is debatable) to the Stimulus.

Are we where we need or want to be? No. Was this the perfect plan. Definitely not, but politics often prevent perfection. Is the US economy better post-Stimulus? Yes, and frankly anyone who would make a claim otherwise is unlikely to have gotten beyond Economics 101.

The events of 2008 sucked. Big time. The actions that were taken were painful. However, we are now able to calmly discuss the merits of these actions because we have substantial stability in our economy. There is no way to overstate how important that is and how close we came to not having it.

When you make your decision on who to vote for in the Presidential election this year, you really need to ask yourself the question - if we ever had to stare down into the economic abyss again, which candidate would we want to make the tough but long-term decisions, the ones that were unpopular in the short-term, but were necessary for the continued existence of the US economy?

I've got my choice made. Some times we focus on the small stuff or a single item rather than looking at the big picture. The roll of the President is to always look at the big picture regardless of what everyone else is looking at.

Does Walker Retention Portend Presidential Election Outcome in Wisconsin?

Although I don't like the way Walker handled it, as governor, he does have the right to find ways to balance the state budget. I have never been a big fan of recalls. Elections are where voters are supposed to make their choices and live with the consequences. Perhaps if voters realized they had to live with the outcome of an election, they might be more invested in making good choices and getting others to do the same.

Assuming that the outcome of this recall election with a low turnout foreshadows the outcome of the 2012 Presidential election outcome in Wisconsin is being overly simplistic. A better, but still not conclusive indicator would be the exit polling from the recall election which shows that the same voters who gave Walker a 53-46 win, also indicated a preference to re-elect President Obama by a margin of 51-44. This 7 point spread falls right in the middle of the most recent Wisconsin presidential polls which were conducted during the second half of May, 2012.

Again, since the portion of the Wisconsin electorate that participated in Tuesday's recall election may not reflect the same demographic sampling that will show up to vote in November, it is questionable whether there are any take-aways from Tuesday to predict the November election. However, that 14 point swing between the recall election outcome and exit poll preference for President when Walker and his supporters outspent Barrett $30M to $4M may indicate that the flood of money being spent against President Obama this election thanks to Citizen's United may not have very much impact.

Back to the Midwest

Ah, the Deep South creates primary problems for Mitt Romney and today (probably) the Midwest will make him look inevitable again.

last week's primaries in Alabama and Mississippi stalled for at least the moment, the claim that Newt Gingrich and/or Rick Santorum should drop out of the Republican primaries. Actually, with only second placings in both states, New Gingrich should have considered dropping out as he now has no reasonable path to the nomination. But that isn't why Newt is running and perhaps never has been. Newt said last week that he is in it for the duration, and I believe that no amount of third and fourth place finishes in the upcoming primaries will deter him from that manifest destiny.

However, for the benefit of the Romney camp, today is the Illinois primary with most polls showing Mitt to have a double digit lead over both Rick Santorum and Newt Gingrich, with a recent PPP poll showing Mitt beating the combination of their two vote shares.

Will this be the beginning of the end?

I think it will increase the talk about it, but I kind of doubt that either Rick Santorum or Newt Gingrich will decide to withdraw anytime soon. No folks, I think this game plays out for a while longer.

Gingrich is the Republican's Best Hope

OK, so now that I have your attention, what on earth do I mean. Certainly, you say to yourself, he can't mean that Newt Gingrich has the best chance of the 4 remaining Republican candidates to beat President Obama in the general election. With that assumption, you would be...correct.

As opposed to being the Republican's best general election candidate, Newt Gingrich is the Republican's best hope that Mitt Romney manages to hang on and win the nomination. If Gingrich were to drop out, there is a good chance that Rick Santorum would win enough of the remaining primaries to make it very difficult for Mitt Romney to collect enough delegates before the Republican Convention. A mano-a-mano competition (sorry Ron Paul), would not be an easy road for Mitt Romney, even with some upcoming winner take all primaries in large states with significant urban populations.

Instead, Newt Gingrich continues to split the conservative vote with Rick Santorum, allowing Mitt Romney to continue to win primaries while not attracting more than 40% of the votes. In all polls, Mitt Romney stands the best chance against President Obama in the November general election.

So in his own twisted, self-centered way, Newt Gingrich is once again doing everything he can to bring the Republican party back to national power. Today's primaries in Mississippi and Alabama may be a very close three way battle. If Mitt Romney were to win both, even by the smallest margins, it would probably indicate to all financial backers of Santorum and Gingrich, that the party is over. Without money, they would need to fold their campaigns very shortly. If Romney had to compete against only Santorum or Gingrich, he would lose in both states, and perhaps by double digits.

Also for your reading pleasure today, this poll from Public Policy Polling for the Republican primaries in Alabama and Mississippi. Skip down to questions 22 and 23 for both states and try not to let your jaw hit your desk. Not only is Barack Obama believed to be a Muslim by 3 to 4 times as many people who believe him to be his professed faith as a Christian, but in both states, at least 60% DO NOT believe in evolution. They were not asked if they believed in evolution as opposed to Creationism, just whether or not all of the science books they read and are being read by their children in school were accurate or fabrications. Evolution and the belief that God created humans are not mutually exclusive. In fact, of those who are members of the 12 largest religious denominations in the US, approximately 80% belong to churches who SUPPORT the concept of evolution. Perhaps this is unfairly targeting these two states as a poll referenced in the Wiki article linked above shows that nationwide there is a 30% difference in support for evolution between Democrats and Republicans. However, as a guy who grew up in the north and in the first grade of a Catholic elementary school was taught evolution and religious studies in the same day, this high percentage of scientific ignorance or intolerance is pretty stunning.

Will the Republican Tuesday remain "Super"?

Ever since states started to collaborate on holding their primaries on the same day to increase their power relative to the early states (Iowa, New Hampshire, etc.), the Republican nominee has been effectively determined upon the outcome of "Super Tuesday". Will the trend continue?

In 2008, with a relative split in the delegates won on Super Tuesday, it became readily apparent that Barack Obama and Hilary Clinton were going to be battling until the last primary vote was cast. A substantial split of the delegates among Republicans on Super Tuesday 2012 would probably do the same.

However, it appears that with his narrow Michigan win last week, Mitt Romney may have enough momentum to avoid losing too many states today. Notice, this isn't a ringing endorsement of the strength of his popularity among Republican voters. When you only win by a few percentage points in your home state to a candidate who's views are anything but mainstream and who is very underfunded, that isn't a clarion call to your inevitability. But, it might be enough for Mitt. The concept of Mitt Romney losing his birth state of Michigan was so prevalent that when he held on to win, Mitt Romney seemingly beat expectations. Similarly, if Mitt Romney wins the iconic battlefield of Ohio today, almost regardless of the results in other states, it will announce the likelihood of his nomination.

A win today in Ohio and an accumulation of delegates today in the high 100s out of the 400+ available will not so much make Mitt Romney seem like the victor as much as it will make everyone come to the conclusion that neither Rick Santorum, nor Newt Gingrich, nor Ron Paul have the ability to beat Mitt Romney. Kind of backing into the nomination.

If this was the Democratic Party, I would say that the race for the presidency 2012 is over. However, the Republican Party has an uncanny ability to hold their nose and emphatically support a candidate they do not like because they realize they hate him less than his opponent, President Barack Obama.

I believe Mitt Romney will win the most states and delegates today, but both Rick Santorum and Newt Gingrich will win one or more states and 10-20% of the available delegates today. Mitt Romney still will not be very far ahead of the delegate count. But it will be all but over as to who will be the Republican nominee, even if nobody drops out of the race. Once they get to winner-take-all primaries, coming in second place won't matter and Mitt will coast to the convention.

Will the Real Republican Nominee Please Stand Up?

Today we get the Michigan and Arizona primaries and this surprisingly cloudy Republican primary campaign might get clearer. Or not.

Most pundits had expected Mitt Romney to have broken away from the field at this point in the campaign season given his experience from the 2008 Presidential nomination race as well as his substantial advantages in money and organization over the other candidates. As most of you know, the 2012 campaign has been a series of "Who is the Not-the-Romney today?". The last man (or woman) standing in that situation comedy series is Rick Santorum. Former Pennsylvania Senator Rick Santorum, who lost his last campaign trying to hold his Senate seat by double digits, is somehow leading in most national polls. (BTW - Ron Paul, although durable and perhaps the only person other than the eventual nominee who will contest throughout the campaign season, will likely never wear the crown as Not-the-Romney of the day.)

However, despite leading in national polls, the Presidential nomination race is won state by state and perception by perception. Surprisingly, the actual delegate count rarely matters until there is only one candidate remaining. If Mitt Romney wins today in Michigan, which is his birth state, he will have at least stopped the talk of him not being the nominee until Super Tuesday on March 6th. However, if Rick Santorum manages to win Michigan, this will be a wide open race and may go all the way to the convention.

Interesting, the Republican nomination campaign hinges on the state that had its major industry bailed out by the Obama Administration. This bailout was and continues to be hammered by all remaining Republican candidates. Michigan is also a state where you can be registered in one party and vote in the other party's primary (although you are then recorded as having done so).

An interesting outcome and momentum shifter rests in the Great Lakes state today.