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Prediction: The day the bailout of the auto industry fails in the Senate, the DJIA drops more than 700 points.

Why do I suggest this?  It’s fairly simple.  Today, Congress has agreed a bipartisan plan, provided the industry can present a “viable” and compelling business plan by December 2 — 12 days away.  So if the Big Three can’t make their case, why such a big blow?  Afterall, there are many arguments, particularly from the conservatives, that make an equally compelling case: Chapter 11 bankruptcy would be a more draconian means of forcing these companies to abandon their pithy ways.  Even Michael Moore concedes that the although the ripple effect of letting the auto industry fail would be intensive, Americans are equally angry in their response to bailing out failed institutions.

There’s reasonable cause for concern for these bailouts and without presenting the viability, the sustainability, and some forecast of measurable success, bridge loans to nowhere are a waste of taxpayers’ dollars.  In the 1990s, the Japanese government spent billions of yen propping up corporations that were otherwise inevitably doomed to failure.  As a result, the “zombie corporations” took the Japanese economy more than a decade to start recovery.  At a certain point, there should be institutions that are too big to fail; what is the rationale behind the sacred cows (p.s., it is no longer what is good for GM is good for the US… it is what is good for Google is good for the US).

So why would the Dow drop more than 500 points if an entire industry is thrown into bankruptcy?  Simple.  The field of behavioural finance looks at the various human, social, and emotional factors that form the basis of investment decisions.  It is often this herd mentality that drives a flight, en masse, to quality.  Or the same mentality that drives speculators to raise the high point of oil to near $150.  Behavioral finance was what caught the attention of investors when Lehman Brothers failed, raising the prospect of the $700bn bailout.

These psychological lines in the sand are always being drawn and it’s my belief that as Lehman Brothers was the straw that broke the financial camel’s back, the automakers will be the straw that break the manufacturing camel’s back.  The rescue of the financial industry was not a panacea and in the short run, confidence in the American financial system has been shot.  I suspect the same will happen if there is no rescue of the auto industry.  Not only will consumer confidance start to collapse as a result of the ripple effect of involved counterparties (don’t forget, Detroit’s problems stem from poor financing of auto loans *ahem GMAC Financing* and the subsequent seizure of the credit markets, brought on by Bear Stearns and Lehman’s collapses), but also, investor confidence will start to shrink.  For whatever it’s worth, Detroit represents a significant amount of American R&D.  Without sufficent investment, that R&D will be lost to other countries.

The fact is, the American visa process for qualified individuals is already cumbersome.  Attracting qualified candidates is not the problem — getting expedited paperwork for them to research here is.  Yet without sufficent R&D to speed innovation and swing the economic downturn in reverse, America loses its final vestigages of greatness.

What’s a shame is that these events are unfolding so rapidly that there is almost no time to focus on macro-level solutions.   The seizure of credit markets means too much attention is paid to patchwork, micro-solutions-as-bailouts.  Yes, American taxpayers have a right to be upset about the bailouts.  But doing nothing is equally as extremely detrimental.  Finding the pragmatic solution is what will salve the healing until the housing and healthcare problems (which are the fundamental, root causes of any of the entire crisis) can be stablized.

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Twitter: listening to habs postgame podcast… Wistful for a schwartz smoked meat sandwich. Montreal me manque

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“In theory, “preferences for broader knowledge, or even randomized information, can also be indulged.”  In reality though, our slight bias in favor of similarity over dissimiliarty is difficult, if not impossible to eradicate.  It’s part of human nature.  Not surprisingly, then, Brynjolfsson and Van Alstyne report that their model indicates, in a direct echo of Schelling’s findings, that “other factors being equal, all that is required to reduce integration in most cases is that preferred interactions are more focused than existing interactions.”  If, in othe words, we have even a small inclination to prefer like-minded views and people–to be more “focused” rather than more inclusive–we will tend to create ever more polarized communities online…

…Given how easy it is to find like-minded people and sympathetic ideas on the Internet and given our innate tendency to form homogeneous groups, we can see that “ideological amplification” is likely to be more pervasive online.  Here again, as Brynjolfsson and Van Alystne note in their article, filtering and personalization technologies are likely to magnify the effect.  “Individuals empowered to screen out material that does not conform to their existing preferences may form virtual cliques, insulate themselves from opposing points of view, and reinforce their biases,” they write.  “Indulging these preferences can have the perverse effect of intensifying and hardening pre-existing biases…. The effect is not merely a tendency for members to conform to the group average but a radicalization in which this average moves toward extremes.’”

~Nicholas Carr, The Big Switch, pp. 162-166, W.W. Norton & Company, 2008.

To read Van Alstyne and Brynjolfsson’s paper “Global Village or Cyber-Balkans? Modeling and Measuring the Integration of Electronic Communities,” click here.

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This is a very wistful year for me and it likely won’t be the last post I write on this subject. This year marks the 100th season of existence of the Montreal Canadiens existence. My name is not being immortalized in Centennial Plaza. I’m not getting the opportunity to see the Bell Centre’s new “Ring of Honor.” And the man who first inspired me (albeit indirectly inspired me) to become a Habs fan 21 years ago, Patrick Roy, is having his jersey retired on November 22.

You see, my enthusiasm for the Habs was as cursory as could be for someone growing up in Hartford Whalers territory. But going to McGill changed all that. The ability for me to see my favourite team in home market changed how I perceived the game, changed how I perceived my team, and changed what I understood about the interlinked relationship between Les Habitants and the City of Montreal. In fact, I even wrote a term paper on the history of Hockey and its relationship to Canada.

If I’m lucky, I’ll even get to go see a game here in New York this year. But after getting to discover the depth of the game, it’s really going to be a sad season that I won’t be there to enjoy any of it. My best hope is that the Habs even get to win the Stanley Cup for the first time in 16 seasons.

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The Key to Wedded Bliss? Money Matters, by Tara Siegel Bernard, NYTIMES, 9/10/2008

This article is totally true. All of it.

In my senior year of high school, I wrote my thesis on how the basis of humanity boils to two P’s: Procreation and Provision (I wish I was able to recover it from my first laptop). Everything we do in life boils down to its impact on either of these two subjects. And they’re cyclical. Because we work on ourselves to impress a mate (the social construct of the mating game) once we have children, we use the tools of a social construct to enable ourselves to provide for our children.

Unlike any other of the millions of animal species that revolves around Procreation and Provision, this social construct we employ is significantly more sophisticated, particularly when you throw irrationality and emotions into the mix. In addition, it is the socio-religious imposition of monogamy that makes the singular Procreation and Provision model reliant on the backing of an artificial financial system.

As a result, the complexity of the social construct imposed on Procreation and Provision means that “financial soul mates” are key to the upkeep of the cycle. The ability to be financially synchronous with one’s mate is what inhibits–and potentially prevents–the disintegration of marriage. It is the old adage that “money doesn’t by happiness,” which makes financial synchronicity an important element to maintaining one’s happiness.

Is it true that people can “fall out of love?” Perhaps, but as our society has increased its base of wealth and even increased its middle class, it becomes more obvious that financial pragmatism is will keep money from dividing couples and dividing families.

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