Direct democracy in action, continued: Corine Mauch elected in Zürich

corine-mauch-electedRemember Corine Mauch? She of the Tim Curry hairstyle and wide grin in her electoral mailbox flyers.

Yesterday, she was elected to [the largely ceremonial post of ] Stadtpräsidentin, or mayor, of Zurich.

She is the first woman to be elected to the post, the first one who has played bass in two female rock bands, and the first openly homosexual one.

Le maire de Zurich est lesbienne… «Et alors?»“, writes the Tribune de Genève.

She deserves, then, another picture in this blog.

Where I Was From: California and Federal money, by Joan Didion

“A good deal about California, in its own preferred terms, does not add up.” This is the start of the third chapter of Where I Was From. Why does it not add up?

Consider this. The Sacramento River, “the main source of surface water in a state where distrust of centralized government has historically passed for an ethic”, used to end in a huge swamp for a good portion of the year: it was

regularly and predictably given, during all but the driest of those years before its flow was controlled or rearranged, to turning its valley into a shallow freshwater sea a hundred miles long and as wide as the distance between the coast ranges and the foothills of the Sierra Nevada: a pattern of flooding, the Army Corps of Engineers declared in 1927, more intense and intractable than that on any other American river system including the Mississippi.

What put an end to that marsh? Federal money, of course. By 1979 there were 980 miles of levee, 438 miles of canal, 50 miles of collecting canals and seepage ditches, three drainage pumping plants, five low-water check dams, thirty-one bridges, ninety-one gauging stations, and eight shortwave water-stage transmitters. The Sacramento Valley is now an entirely artificial environment.

That’s not all. The railroad West was built through a federal cash subsidy. For decades, Californian irrigation and Californian crops were subsidized by the American taxpayer. As recently as 1993, hundreds of thousand of acres in California were planted in cotton, rice and alfalfa: alfalfa alone, a low-value crop, required more water than was used in the households of all thirty million Californians.

The Pentagon was, of course, the sugardaddy of the aerospace and defence industry, until the early ’90s slump and the hundreds of thousands of job losses in Southern California, as factories moved to friendlier states or just shut down.

The most effective lobbying operation in Sacramento, the California Correctional Peace Officers Association, had by the early 2000’s about 29,000 union members. With thirty-three penitentiaries and 162,000 inmates, California had the largest correctional system in the western hemisphere. The prison guards were the political muscle behind the 1994 “three strikes” initiative. About Don Novey, their union leader, it was said: “If Don Novey ran the contractors’ union, there’d be a bridge over every puddle in the state”. And it was in 1995 that, in a statistic that still shocks me even though I have every reason to believe that Didion – a diligent investigative reporter –  has double-checked her numbers,

for the first time, California spent more on its prisons than on its two university systems, the ten campuses of the University of California and the twenty-four campuses of California State University.

Well worth, well worth reading, my Californian friends.

Where I Was From: Family history, by Joan Didion

joan-didion-where-i-was-fromTwo reflections, my dear readers, prompted by reading the early chapters of Where I Was From, by the fearless Joan Didion (she of The Year of Magical Thinking). This post is on family history; the next one will be about California and federal money.

On family history
Didion’s memoir starts with a vivid recollection of her forebears, their countenance and character, and objects and mementos that belonged to them: “My great-great-great-great-great-grandmother Elizabeth Scott was born in 1766″… “I have, besides her recipes, a piece of appliqué she made on the crossing” … “I also have a photograph of the stone marker placed on the site of the cabin in which Nancy Hardin Cornwall and her family spent the winter of 1846-47″… “the old potato masher which the Cornwall family brought across the plains in 1846”… “a quilt made by my great-great-grandmother Elizabeth Anthony Reese”… “fifty shares of Transamerica stock”.

I wonder why so many Americans (outside the Mormons, for whom it is a religious calling) are so fond of digging way back into their family history. Sure, many have an ancestor who hurried to cross the Sierra Nevada before the winter snow, or one who came to Ellis Island with a cardboard suitcase, or one who had this or that story to tell to epitomize the triumph of the human spirit over adversity and such heroic feats of will. So, perhaps, their great-great-great-great-great-grandmothers are by definition more interesting than ours. I don’t even know the names of anybody who came before my grandparents. I own a single surviving recipe book in my maternal grandmother’s handwriting, and two of her finely embroidered tablecloths; from those generations and generations of earlier forebears I have no letters or diaries, no surviving artifacts, no stock certificates, and certainly no potato mashers. (The oldest family lore I can recall is an unverified rumor about my paternal grandmother hugging and kissing a black American soldier, on or about April 25, 1945.) We regular Europeans do not reconstruct our family trees as a hobby, we do not practice ancestor worship: unless we’re in the tiny minority who has inherited a castle in the Loire valley, say, and can stare at those people’s dusty portraits in our darkened halls, and sell their furniture.

Realistically, most of our forebears must have led unremarkable lives. I guess it would be possible to reconstruct these lives’ outlines through church archives: they were born and baptized, they married, they bore children who were in turn baptized, they died and were buried. For centuries and centuries, the monotony of agrarian life wore them down. They grew crops and brought them to market. Once in a while, they sold a pig or a calf. You see, unlike Joan Didion’s ancestors, my folks, I’m afraid, never went anywhere. It just wasn’t that common to up and go somewhere. Did one of my ancestors join the Crusades and see the Holy Land? Did one see China in the footsteps of Marco Polo? Did one travel North and learn to paint in the style of Albrecht Dürer and Lucas Cranach? It just seems so unlikely. Historians, contradict me if I’m wrong, but I think that statistically, even through wars and famines and epidemics, most people stayed put. That was what life was like. And that’s why genealogy would bore most of us to tears. On average, our ancestors must have been unremarkable, or at least less enterprising than those who got on some boat and whose children went on to build America. The mobility gene packed up and left; we are the children of those who lacked it.

Perhaps, by taking for granted that there is nothing special to learn about our forebears, we do miss out on patterns, on clues to who we might be underneath our veneer of cultural sophistication. Joan Didion, reconstructing character from the flimsiest of clues, finds a dark thread running through her family:

They were women, these women in my family, without much time for second thoughts, without much inclination toward equivocation, and later, when there was time or inclination, there developed a tendency, which I came to see as endemic, toward slight and major derangements, apparently eccentric pronouncements, opaque bewilderment and moves to places not quite on schedule.

But then, were that to be the case for me too, wouldn’t I be better off not knowing?

Understanding the Financial Crisis: extremist predictions for 2009

On Saturday, I had the good fortune to attend a Stanford University alumni event in London (the only European date in a four-year, 20-city world tour by President John Hennessy and distinguished faculty, called Leading Matters). It is not only a way for Stanford to reconnect with alumni, but also a great opportunity for alumni and their guests to hear about multidisciplinary research from faculty members on topics ranging from personalized DNA-based medicine to ecosystems sustainability and energy policy.

The most successful session by far, though, was one where academia and practice came together: Business School Dean Bob Joss (whom I am a great fan of – see a short article here) started off a discussion with alumni Jerker Johansson, CEO of UBS Investment Bank, and Bill Browder, founder and CEO of Hermitage Capital Management.

browder-bill-hermitage-capitalNow, I’m going to focus on what Bill Browder said. It is very much of a Black Swan scenario – yes,  blacker than it’s been so far. Not that I’m giving you such a big scoop: first, because Browder has already gone on the record as fundamentally bearish (see here);  second, because in a couple of weeks’ time you will be able to listen to the whole session on iTunes (the meritorious organizers of the event are making recordings and notes public – see for example the Los Angeles sessions from last January here); third, because he’s probably going to give much the same speech at the  London campus of the University of Chicago next week. It was Browder’s talk that generated the most heated debate at the cocktail reception and dinner that followed, and I did take some notes, so I thought I’d share them with you.

Browder made four – admittedly extremist, but in his view quite solid – predictions for how the crisis will play out in the rest of 2009.

  1. Commercial banks will start “gating” their deposits (i.e., introducing restrictions on how much a depositor is allowed to redeem), probably in the European Union.
    Rationale: the entire banking system still has a precariusly low level of capitalization, and government guarantees are no longer credible – a country like Ireland, with €7bn in offical reserves, cannot possibly make good on €400bn of guaranteed deposits. If 10% of depositors decide to pull their money out, Ireland needs to come up with €40bn in cash, and by the time the ECB has scheduled a meeting to see if they can help out the Irish, the whole Irish banking system is insolvent. That’s why the last resorts for banks – or for governments, really – will be to tell you that you cannot take out more than, say, a thousand euros per week. Can’t happen? It’s already happened – in Russia, Argentina, Latvia, Ukraine. Sooner or later, it is happening somewhere in the EU.
  2. The price of long-term US government bonds will crash.
    Rationale: 10-yr and 30-yr Treasury yields are unrealistically low. The US is facing the biggest budget deficit in its history: even if you argue that the US is not just like any other borrower (which Browder doesn’t believe, by the way), bond prices cannot defy gravity indefinitely. Who will buy enough bonds to finance a $2 trillion deficit? Nobody. Even if buyers can be found for bonds covering half of it, for the other half the Fed’s going to have to print money. And you don’t want to be caught holding bonds with a single-digit nominal return when the Fed prints enough money to generate double-digit inflation. (By the way, an interesting side effect may be that other countries can’t issue bonds at all, because issuing by the US Treasury is crowding out everybody else).
  3. There will be a number of sovereign defaults, including in the EU.
    Rationale: follows from the above. Current risk premiums already imply a probability of defaulting within the next 5 years between 10 and 20% for the usual suspects: Ireland, Greece, Poland, Italy. The probability that at least one of them defaults, even if we don’t know which one, is pretty high. Again, it’s happened before (Russia, Argentina, etc.)
  4. The price of gold will go up.
    Rationale: it’s the only thing that governments cannot print.

The best question from a rather traumatized audience was: “What has to happen for you to be wrong?”

Browder replied that, for his argument to be wrong, asset prices have to stop falling. If we’ve bottomed out today, then the predictions above are wrong. However, note that, no matter how much they commit in relief programs and stimulus packages, governments have never been able to stop asset prices from falling.

Recommendations for the retail investor? Put 90% in Treasuries with extremely short maturities (2 weeks to a month) or, if you have access to it, buy commercial paper by the likes of Microsoft, Johnson & Johnson, and Philip Morris. Put the other 10% in gold. And sit tight.

The only bright spot in Browder’s argument was: the Euro is not going to fall apart. Stress on the Euro is coming from the likes of Ireland and Portugal, not from the healthier countries. The people with the biggest problem have the biggest incentive to stay in the Euro, because doing otherwise would be disastrous for them (as far as Italy goes, I’ve believed for months that without it we’d all be in the streets, banging pots and pans, Argentinian-style). Conceivably, France and Germany could decide they’d be better off getting out of the Euro and leaving the rest of the Euro countries to fend for themselves: yet their political commitment to the Euro is too big. It took 40-50 years to make the Euro, it won’t get unmade in the short run.

And on that happy note, my dear readers, let me remind you that the next Leading Matters is scheduled in San Francisco on May 9 and, given the proximity to the University, promises to be packed with interesting speakers, although it won’t be featuring Bill Browder, I believe. Still, if you have any friends who’ve been to Stanford, get yourself invited and you’ll have a great time fulfilling your intellectual curiosity. And wishing you were back in school, maybe!

My new favorite fashion designer

Last weekend, an advertising image (among dozens and dozens of full-page ads in a magazine) caught my eye.


Yes, she is advertising a fashion brand. Yet, look at her.

She is not squeezed into a corset or stuck onto stiletto heels. There are no animal prints, no lace, no fur, no patent leather. No chains: she is not wearing any jewelry. No sunglasses. No handbags. Normal, healthy hair.

The clothes play with her body – concealing some features, showing others. She’s comfortable. She’s not constrained.

She may be dancing. But she’s dancing for herself – not for a male gaze.

The designer’s name is Martino Midali. I haven’t had a chance to wear his clothes yet, but based on this image alone, I think we need more designers like him.

Yoga am Fluss

Who know what’s worth recording in a blog, for the sake of posterity. Or even for oneself, as one tends to forget.

Yet I know this much and I want to remember it:

  • Every time I spend an hour practising yoga, things look better afterwards. The winter spleen recedes, the rain looks less bleak, problems feel easier to solve.
  • Finding a good yoga teacher is not unlike finding a good shrink, transfert included.
  • If you’re looking for classes in Zurich, try Yoga am Fluss by Susan Connor.