Felix Salmon - All posts

Great Moments in Punditry, Felix Salmon Edition

Fri, 21 Nov 2008 16:48:47 -0800

Me, in July 2007, on the subject of the IPO of Kingdom Holdings, Prince Alwaleed bin Talal's investment vehicle:

Fancy investing in an extremely successful hedge fund without paying 2-and-20? ...
Kingdom could be the next Berkshire Hathaway (maybe it already is the next Berkshire Hathaway), and I suspect that its shares will trade up sharply in the secondary market.

Ben Holland, yesterday, on the same subject:

Those who bought Kingdom Holding shares when Alwaleed took his company public in a July 2007 initial share sale have lost 55 percent.

The S&P 500, yesterday, was down about 50% from July 2007, and Berkshire was down about 30%.

Note to self: when a billionaire sells equity in his own investment prowess, that's normally a very good deal -- for him. For the schmucks who buy the shares, not so much.

Geithner!

Fri, 21 Nov 2008 13:55:42 -0800

I'm pleased and surprised at the news that Tim Geithner will be the next Treasury secretary. Pleased because he's an insightful pragmatist who's more than qualified to do the job; surprised because I had thought that he might prefer to stay where he is, in what is essentially a tenured and extremely high-powered position at the New York Fed, rather than move to Washington for an uncertain period of time -- especially when his former boss, Larry Summers, is likely to have his own senior job at the White House, which will certainly include both some element of policymaking, and having Obama's ear. That said, Summers and Geithner work well together, so there aren't likely to be too many tensions between the two.

As for the big end-of-week stock-market rally, I think it's far too easy to ascribe it to the Geithner news. Stocks have moved around an enormous amount of late in the final hour of trading, especially on a Friday, and a small Geither uptick could easily snowball into a 500-point rally under those conditions. The chances that it will last, and that the bottom of the market will in retrospect be seen to be about 3pm this afternoon, seem slender indeed to me: I'd hazard that there are a few more major corporate failures coming down the pike, and that such events are just as capable of sending markets tumbling as Geithner's appointment is to send markets spiking.

Geithner has been worried about the international regulatory architecture for some time, and his September 2006 speech on the subject looks prescient, even if it concentrated a bit too much on hedge funds and not enough on leverage more generally. At ease in the international policy arena, he is America's greatest hope for putting together a coherent global financial system which encourages risk-taking without allowing it to get out of control. But before he can do that, he's going to have a lot of fires to put out, and a major stimulus bill to help draft. I hope he finds a replacement for his New York Fed job sharpish, because he's going to want a decent amount of time to prepare himself to hit the ground running on January 20.

Berkshire Hathaway's Peculiar Volatility Numbers

Fri, 21 Nov 2008 10:19:30 -0800

I just got off the phone with someone who's been making good money shorting Berkshire Hathaway stock in the past few weeks; he pointed out to me something very peculiar in Berkshire's public statements.

First, look at the 10-Q for the second quarter, ended June 30. Have a look at page 24, where the company talks about its equity put options:

At June 30, 2008, the estimated fair value of these contracts was $5,845 million and the weighted average volatility was approximately 23%.

It then goes on to say that if volatility were to rise by 4 percentage points, the value of the contracts would rise by $1.124 billion, to $6.969 billion -- a rise of $281 million per percentage point.

It's not clear where Berkshire is getting its volatility numbers from, but the VIX volatility index, as of June 30, was at 24 -- which means that Berkshire's volatility number was pretty much in line with the VIX.

Now look at the 10-Q for the third quarter, page 25. Over the course of that quarter, the VIX rose substantially, from 24 to 39 -- so one would expect Berkshire's own volatility numbers to rise as well. But they didn't. In fact, they fell, slightly:

At September 30, 2008, the estimated fair value of these contracts was $6,725 million and the weighted average volatility was approximately 22%.

Stock markets fell by about 9% over the course of the third quarter, which would explain why the value of the put options rose even if volatility fell, as Berkshire seems to think that it did. But of course voliatility rose substantially during the quarter, and it looks as though Berkshire is using an improbably low volatility number here.

In the third-quarter 10-Q, Berkshire reckons that the value of its put options goes up by about $250 million for every percentage-point increase in volatility. The VIX is now at 80, but the VIX is much more short-dated than Berkshire's equity puts. But let's say that a reasonable volatility number for Berkshire would be somewhere around 50: that would mean the value of those equity puts going up by about $7 billion, before taking into account that the S&P has fallen by a good 35% since September 30.

Add it all up, and Berkshire's equity puts alone should probably have gone up in value (this is value to the holder of the puts, which means it's a liability to Berkshire) by $15 billion or so since the end of the second quarter. Now this is a noncash loss, and Berkshire doesn't need to post any collateral or otherwise lose liquidity as a result of any such losses. But when Whitney Tilson says that "there could be an additional $1-2 billion in mark-to-market, noncash losses so far this quarter", he could be underestimating greatly.

On the other hand, he might be right: Berkshire might end up taking only a relatively small markdown of one or two billion or two dollars on those equity put contracts. But if it does so, questions will continue to be asked about why Berkshire's volatility numbers stubbornly refuse to rise even as every other volatility number in the world is going through the roof.

Essentially, the shorts' argument is that Berkshire is short volatility, thanks to these puts, and that being short volatility has been a very, very bad trade over the past few months. Berkshire is in the happy position of not needing to take any cash losses on its short-vol positions, and it's entirely reasonable for long-term shareholders (and most of Berkshire's shareholders are long-term shareholders) to just want to ride out the present craziness. All the same, on a mark-to-market basis -- and it's entirely reasonable for the stock market to be marking Berkshire's assets to market -- it makes sense that Berkshire's share price should be falling to reflect the mark-to-market losses on its equity puts, not to mention similar mark-to-market losses on its CDS, bond-insurance, and deposit insurance portfolios.

Now Berkshire's lost a lot of market capitalization of late: about $77 billion, in fact, since September 30. So it's entirely possible that mark-to-market losses on its equity puts and other derivatives contracts have been more than priced into its shares. But it'll certainly be interesting to see how Berkshire values those puts in its next quarterly report. If the volatility number rises to something a bit more reasonable, Berkshire could end up reporting a quarterly loss -- and that might spook quite a few investors.

Update: Many thanks to Andrew Clavell, who send me some long-term volatility numbers. They seem to be around 38%, which is a big spike up from the 22% which Berkshire used in its last 10-Q. Combine that with the drop in the S&P, and you could see a big noncash hit to earnings in Berkshire's next quarterly report.

It's worth noting, however, that long-term volatility at 38% implies a random walk in the index of near 2.5% every trading day for the next 20 years. If and when that number comes down, Berkshire's noncash losses today will simply be cancelled out by noncash profits tomorrow.

Who Will Take Over Citi?

Fri, 21 Nov 2008 08:49:20 -0800

As John Carney notes today, Citigroup's market capitalization is $21 billion; that of Goldman Sachs is $20 billion. Can anyone say "merger of equals"? Nothing's unthinkable in this market, not even the idea that you can tie two rocks together and hope that they float. Reportedly Lloyd Blankfein approached Vikram Pandit with a merger proposal in September, and was rebuffed; now, however, the matter is out of Pandit's hands, and Citi's board might be more amenable to such a suggestion.

A Citi-Goldman merger would give Citigroup much more credible management, assuming that the Goldman guys took over most of the top jobs, and would give Goldman a much-needed deposit base, not to mention huge distribution capacity through Smith Barney. An enormous number of Citigroup investment bankers would surely lose their jobs, but that is probably going to happen anyway. Meanwhile, Goldman's investment bankers would suddenly see their deal pipeline fill up with the job of selling off all the bits of Citi they had no interest in keeping.

Possibly more likely is the idea that Citigroup will be nationalized this weekend, with shareholders being wiped out. John Hempton today sketches out what might happen if bondholders got wiped out at the same time; I'm reasonably confident that in the wake of the Lehman debacle there's no way that Hank Paulson would let that happen.

In any case, with Citi shares trading at less than $4 apiece, something needs to be done. That's one of the problems with having a public listing: everybody can see when you're in distress, even if you stop displaying the stock price on the screens in your offices. The market is essentiallly forcing the board's hand here -- not to mention that of policymakers. Citi's managed to muddle through this week. But my guess is that there will be some kind of major announcement over the weekend.

When Stocks Go to Zero

Fri, 21 Nov 2008 07:05:46 -0800

The percentage fall in the valuation of the stock market is, pretty much by definition, lower than the percentage fall in the enterprise value of America, Inc. And the more levered that America Inc was, the greater the difference between the two numbers.

But with a lot of high-profile stocks now trading in the low single digits (Citi, Ford, GM, airlines), and even General Electric trading at just $13 a share, the optics of what's going on, especiallly among retail investors, are atrocious. I just got an email from Portfolio's travel guru, Joe Brancatelli:

I've noticed people get REALLY nervous when shares of a company start costing less than a cup of joe at Starbucks. It's sort of the dumb-guy's-guide to the market. If I can buy shares for less than coffee, things are bad.

Well, yes, when a multi-billion-dollar corporation sees its equity wiped out, things are certainly bad. And nominal stock prices do matter, for reasons I don't fully understand: somehow it's worse that Citi's gone from $35 to $5 than it would be if it had gone from $105 to $15.

But the whole leverage aspect I think is not well understood by the public. They know that if they buy a house with little or no money down, that means they have very little equity in the house and that equity can be quite easily wiped out, even if the house is still worth something. But they don't look at stocks the same way: they don't think of shares in Citigroup as equity in a house with a 90% mortgage while Apple, say, bought its house for cash.

If enough stocks go to zero during this stock-market downturn, that might change. Especially if and when companies start emerging from bankruptcy in listed form, the public might start to realise that companies don't necessarily die along with their stocks, it's just that their owners change. But for the time being, and for the foreseeable future, the news is likely to get worse before people start to see through to the other side.

This is Not Financial Meltdown

Fri, 21 Nov 2008 06:32:46 -0800

Is this the low point of the crisis so far? From the stock market's point of view, yes, it is. And the numbers coming out of the Treasury market would certainly seem to imply a flight to quality of unprecedented magnitude. Put plunging credit markets together with imploding banks, and there's little doubt about what results: a soaring TED spread, right?

Wrong.

The TED spread today is 213bp -- more or less exactly where it's been for the past few weeks. Which says to me that for all that financial stocks are being crushed, this is no reprise of the financial crisis we saw in the wake of Lehman's collapse. Rather, it's an old-fashioned economic crisis, which severely erodes the equity of leveraged banks, but where money still flows and even the occasional IPO can get away if it's priced at a discount. Or, to put it another way: it's a bear market, not a financial meltdown. Which might be little solace to anybody whose stocks have been crushed of later, but which might help reassure policymakers at least a little.

Banks' capital structures can cope with this: once the common is eroded, the bank belongs to its preferred stockholders. It's not the end of the world if Citi stock goes to zero, and the Fed has made it very clear that Citi's senior creditors are going to remain whole. This is not a great environment for a firm's stock to be wiped out, but with the help of Treasury, it might not even need any new money to be able to continue operating indefinitely. Assuming it doesn't sell itself first, of course.

Extra Credit, Thursday Edition

Thu, 20 Nov 2008 17:18:03 -0800

U.S. Financial System Still Needs at Least $1.0 Trillion to $1.2 Trillion: Says FBR Capital Markets.

The Mark Cuban charges – and the economic purpose of insider trading laws

Access Uber Alles: Why is the NYT acting as Sallie Krawcheck's mouthpiece?

Remembering irrational exuberance: When Greenspan gave that famous speech, the S&P 500 was at 744. It closed Thursday at 752.

Carl Marks: Is a small New York invesment bank and fund manager. "The Carl Marks name is synonymous with integrity." For real.

Animal or Vegetable? A great NYT photo caption. And talking of photos, here's a one from LOLfed:

What's Happening to Berkshire Hathaway?

Thu, 20 Nov 2008 16:29:10 -0800

Jonathan Stempel of Reuters has a very useful look at what's going on at Berkshire Hathaway, which fell $6,500 per share today to close at its lowest level in over five years. After reading his article, I think we might be one step closer to understanding why Berkshire's CDS are trading so very wide right now. But first, here's David Gaffen:

In recent weeks, the credit-default swaps has seen a marked decline in liquidity and trading, so a smaller amount of insurance contracts purchased can still cause large shifts in prices of a particular credit-default swap. "It only needs a little bit to move the market a long way," says Tim Backshall, chief credit derivatives strategist at Credit Derivatives Research.

Now here's Stempel:

A credit rating downgrade would likely not be material. Berkshire would have to post "nominal" additional collateral on derivatives of "far below 1 percent of assets" if Berkshire lost its "triple-A" ratings, Buffett's assistant, Jackie Wilson, said. It was posting no such collateral as of Sept 30, when Berkshire assets totaled $281.7 billion.

Put those two together, and things start to come into focus. The people who bought derivatives from Berkshire weren't worried about counterparty risk at the time. But now, looking at what's happened to triple-A counterparties such as AIG and the monolines, everybody is worried about counterparty risk. And nowhere is counterparty risk higher than in these derivative contracts written by Berkshire Hathaway -- because even if it's downgraded, it only has to put up a negligible amount of collateral.

Says Whitney Tilson, who knows Berkshire intimately:

I doubt Buffett would write any contracts that would require Berkshire to post collateral in the event of a downgrade.

Which is all you need to know, really: if that's true, then anybody needing to hedge their BRK counterparty risk has no choice but to buy CDS protection, whatever the price.

If the stock is falling based on the idea that the CDS market might be on to something, then maybe Tilson is right that it's a screaming buy at these levels. (Although one wonders whether it wouldn't be more profitable to just write credit protection instead.)

But we're in a Dow 7,500 market right now: there are lots of screaming buys out there. Back to Gaffen:

"The insurance business which is a significant portion of their earnings, is a very cyclical business," says Harry Rady, CEO of Rady Asset Management in San Diego. "With everything else at an extremely significant discount, I see a lot more downside. There is so much opportunity to buy assets for 50 cents on the dollar, why buy a dollar for a dollar because Warren Buffett runs it?"

Or, to put it another way: if Warren Buffett isn't buying back his own shares at these levels, then that must be because he sees better uses for Berkshire's capital elsewhere. Which in turn means that you and I might be better off elsewhere, too.

Of course, Buffett might be buying back his own shares right now, we don't know. But the way in which those shares are plunging would suggest that he isn't. They ended last week at $101,000 apiece; now they're $77,500 -- a drop of 23% over the course of four trading sessions. If they just return to where they were on Friday, an investor buying at these levels would make a profit of more than 30%. But the same thing can be said of many other stocks, too, including ones in Buffett's portfolio such as Goldman Sachs and General Electric -- both of which, unlike Berkshire, have access to unlimited Fed liquidity.

So yes, Berkshire might be looking cheap -- but other stocks are looking cheaper, and always remember that Berkshire, like any insurance company, is very highly leveraged, with contingent liabilities many times higher than its asset base. AIG and the monolines were brought down because they stopped insuring real-world risks and started insuring financial risks. Berkshire's in the same business, with its credit default swaps and equity puts. Which means that in fraught times like these, there will be lots of question marks over its real value.

The Dangers of Looking to Washington for Help

Thu, 20 Nov 2008 10:59:56 -0800

Not since the House Republicans scuppered the first version of the TARP bill has the stock market paid so much attention to the legislative branch of government. I have no idea what's going on on Capitol Hill: the WSJ is reporting that Congress might pass a last-minute bill before Thanksgiving, allowing lawmakers to leave town until January, while the Washington Post is adamant that there's no deal today and that the fate of Detroit will lie in Hank Paulson's hands, unless Congress returns for a rare post-Thanksgiving session.

What's clear is that this is no way to put together a coherent bailout package which carefully balances the interests of all stakeholders. Instead, Washington has descended into unhelpful finger-pointing, with the White House blaming Congress, the Democrats blaming the Republicans, and everybody caring far too much about taking a two-month-long vacation in the middle of a worst economic and financial crisis in living memory.

For the past decade, the markets, when they've got into trouble, have looked to Washington for help. Right now, that seems like just another strategy which works until it doesn't.

TIPS Strips, Redux

Thu, 20 Nov 2008 08:57:28 -0800

It took a bit of hunting, but I finally found someone who knows all there is to know about TIPS strips. Mike Pond is an Inflation-Linked Strategist at Barclays Capital (yes, that's really a job, and yes, it still exists) -- the bank which, as far as anybody can tell, is the only institution ever to have stripped TIPS. They even branded their stripped TIPS, as iStrips, not that it did any good: there was no demand for the iStrips product, and they haven't been stripping TIPS for a while.

My conversation with Pond was fascinating, in a nerdy way, and I think I now have some very good answers to the question of why TIPS strips don't exist, and also which TIPS to buy if you're thinking of investing in them. (Answer: buy the TIPS with the highest real yield, which tend to be off-the-run bonds issued a long time ago.)

TIPS strips are created by "stripping" the coupons from an inflation-linked Treasury bond, and trading each coupon -- and the final principal payment -- separately. A bank like Barclays won't even strip the bond in the first place unless there's demand for the final principal piece -- but then it winds up with a bunch of tiny coupons along the way, which are almost impossible to trade or to hedge with equally-illiquid CPI swaps.

"We stripped some tips," says Pond, "and those were really one-off events, where a specific client wanted a specific cashflow. But there was never a true market. There was a time where on daily basis we would put out indicative pricing, but there was never an active market for iStrips."

The reason why I thought that there would be such a market is that in times of uncertainty, people want to protect their future buying power -- which TIPS do very well. They might well also want to minimize their reinvestment risk along the way: reinvesting TIPS coupons, which are small, is non-trivial, and in any case real yields in the future might well be significantly lower than real yields now, and buying a strip essentially locks in that reinvestment yield at today's levels.

But it turns out that TIPS are what Pond calls "very backended": their coupon is low, relative to the principal amount, and it's the big final principal payment which provides a large chunk of their total yield. So the reinvestment risk on TIPS is already lower than it is on most bonds.

Still, real yields on TIPS are ridiculously high: you'd be better off buying TIPS all the way out to 8 or 9 years than you would be buying Treasury bonds, just so long as inflation is greater than zero. And the higher that inflation gets, of course, the better off you'll be in TIPS.

Do investors really believe that the US will see deflation over most of the coming decade? Probably not: what we're seeing in the TIPS market, says Pond, is due to factors other than inflation expectations. Specifically, it's liquidity concerns: TIPS are much less liquid than Treasuries, and therefore trade at a significantly higher yield, despite the fact that their credit risk is identical. Recently, the Treasury Department has been issuing more plain-vanilla Treasuries and fewer TIPS, even as the liquidity premium has gone up. The result has been a surge in real yields.

Even so, investors do seem to be inordinately worried about the possibility that they might see nominal losses on their TIPS investment in the event that there is deflation. For instance: The real yield on the July 2012 TIPS, which were issued back in 2002, is 3.45%. The real yield on the newer, on-the-run April 2013 TIPS is a full percentage point lower, at 2.45%. Then go out a bit further, to the April 2014 TIPS, and the yield spikes back up again, to 3.55%.

Why is that? Only partly because the 2013s are more liquid. It's mainly because there's a floor to the final principal repayment: it can never be lower than the intial par value. The floor on the older 2012s and 2014s is some ways away: their principal amount is well over 100, thanks to inflation between the time of issue and now, so if there is deflation, that principal amount could, in theory, fall quite a lot before hitting the floor. In contrast, the 2013s are much newer, which means the floor is closer, and investors therefore have more protection against losing money in nominal terms.

"In our view the premium investors are putting on the floor is too high," says Pond, "because of the actual probability of deflation." He's almost certainly right: there's no way the Fed will allow actual deflation for any substantial period of time, and it will, if necessary, simply print money to avoid such an eventuality. But for some reason investors seem petrified of deflation, and willing to sacrifice substantial real yield pick-ups for the sake of nominal downside protection. Which is a bit weird, but is hardly the weirdest part of today's fixed-income markets.

Tasting menus

Wed, 19 Nov 2008 16:38:47 -0800

Pete Wells will tell you, and show you, and talk about, what you get for $1500: a 20-course meal, with paired wines. Gael Greene has the play-by-play, including this:

Several tables have emptied even before the bacon. Foodists have to catch the train back to Dutchess County or find their way home to Tribeca. So I see many chocolate bon bons left behind.

Spending $1500 a head on a meal? That's obscene. But spending $1500 a head on a meal and then heading home before it's even over? Now that's conspicuous consumption.

But it's also something I can understand. A huge multi-course tasting menu with paired wines is exhausting, and often not much fun. A great restaurant meal has to have great food, but it can't be only about the food -- it's also about the guests enjoying -- as opposed to simply being impressed by -- the food. And when you're concentrating on the molecular gastronomy, and the ever-changing wine pairings, especially at a meal which is billed in advance as being incredibly unique and special -- well, then you lose a certain amount of fun.

I don't think I ever want to have wine pairings again, they're too distracting. For me, the best meal is one where I'm the happiest. Good food makes me happy, as does congenial atmosphere, and friendly servers, and great company, and, frankly, not eating in a shopping mall. This is good food, which made me very happy indeed.

While I'm as impressed as the next guy by auteurist pyrotechnics, I always get a whiff of self-congratulatory smugness, both from the chef and from the diners. And sometimes, as happened at one recent 20-course meal which started at 8pm and didn't finish until 2 in the morning, the whole thing can become a chore. I think I'm the kind of person who cares more about the food than about the cooking. But ask me again in a couple of weeks, when I get back from Corton. I might have changed my mind.

Broken link datapoint of the day

Sat, 15 Nov 2008 17:35:40 -0800

Four years ago, Apartment Therapy ran a Sleeper Sofa competition. (Evidently, four years ago the switch from "sofabeds" to "sleeper sofas" had already happened.)

Apartment Therapy put together a shortlist with 15 sofas on it. I found it quite quickly, when I started looking for a sofabed myself. And how many of the links to those 15 sofas are now broken? All of them. People, I'm all in favor of keeping websites fresh. But don't break all your old links when you do so.

Have the Democrats moved to the left?

Mon, 10 Nov 2008 02:13:32 -0800

Brad DeLong:

One way in which 2009 is different from 1993 is that the Democratic Party is far to the left of where it was back then--let alone back in 1977.

Is the Democratic party the only major left-wing party which has moved to the left over the pat 30 years? Or is Brad being a bit contentious/disingenuous here?

The Prop 8 Hypocrites

Wed, 05 Nov 2008 13:45:30 -0800

This is the kind of thing which tipped support for Proposition 8 over the 50% mark:

The NYT boils the story down to one paragraph:

A total of $73 million was spent on the race there, a record for a ballot measure on a social issue, resulting in incessant television and radio commercials from both sides. Advocates of the ban played up their belief that without it, children could be taught about gay marriage in schools, while opponents likened approval to denying fundamental civil rights.

And in Slate, even the alternative thesis that Prop 8 went through thanks to Barack Obama's large African-American support is ultimately discarded in favor of this:

The "Yes on 8" campaign was particularly well-funded and savvy, blanketing the airwaves with ads suggesting that gay marriage would be taught in schools.

I've talked to people who are very angry about this campaign, saying that Proposition 8 has nothing to do with education -- which is, narrowly, true. They say that supporters of the ban talk about not having a problem with two men or two women getting married, so much as with the idea that such a thing might be taught to children.

But if you were really in favor of gay marriage, wouldn't you want to have it taught in schools? What does it even mean to say that you support gay marriage, but you don't want children to be taught that men can marry men, or that women can marry women? That's a point of view which treats gay marriage as some kind of loophole: it's maybe OK for gay people who've already made their mind up, but it's not something we want to be proud of, and in fact it's something from which we should protect our children.

And in any case, if a young girl really can grow up to marry a princess, how on earth would it be possible to ensure that she couldn't learn that fact in school? If gay marriage is a reality, then yes of course it's going to be taught in schools -- and quite right too.

But I am confused as to why this education tactic seems, by all accounts, to have worked so well. I can see three possibilities:

A lot of Californians really did support "loophole marriage". If you're already an out gay person in a long-term committed relationship, then what the hell, sure, go ahead and get married, it makes lots of people really happy and it's not like you're not going to be gay otherwise -- plus, maybe then gay people will shut up about this marriage thing already. But the implications, like gay marriages becoming so societally accepted that they get taught in schools and generally become part of the culture, are a little bit scarier: it's the point at which homosexuality moves out of "the privacy of their own home" and into family units. So you vote Yes on Prop 8 because while you're OK with them being able to get gay-married, you're not OK with us being able to get gay-married.
It's the old "gays are pedophiles" thing, dressed up just enough to be acceptable. At the end of the ad above, it says "Protect our Children." From what? Obviously, from The Gays.
It's simply an excuse to vote with your prejudice rather than your head. As Ta-Nehisi Coates says, "If someone wants to give me a reason why gay people shouldn't be able to marry that doesn't, at its root, boil down to 'yuck,' I guess I'd love to hear it." And the argument about children and education, while not being much of an argument at all, at least is something you can use to kid yourself that there's a good reason to vote Yes and try and stop yucky gay marriage from taking root in California.

Clearly, the Christians who pumped millions of dollars into this campaign didn't feel comfortable making an explicitly Christian argument for it, so they pimped out their children instead. I hope that by the time those children become old enough to vote, we will have gay marriage, not only in California but also in the rest of the country. It does seem historically inevitable. But it's taking far too long, and retrograde steps like this are a particularly tough blow: it's much harder to lose something you have than it is never to have it in the first place.

Indeed, for the first time in my three years of marriage, I felt ashamed of my married status today, like I was perpetuating some kind of apartheid institution. Obviously, I don't kid myself that any gay person would appreciate my getting divorced in solidarity with their plight, and that's not going to happen. But the aftertaste of Proposition 8 is nasty indeed, especially when it was so overwhelmingly supported by the blacks who gave Barack Obama the largest margin of victory any presidential candidate has ever had in California -- bigger even than Reagan. And when its passage is accompanied by so much hypocrisy, it's harder to take still.

Victory

Wed, 05 Nov 2008 04:15:39 -0800

Only twice have I seen lots of American flags on the streets of downtown New York. Once was after 9/11; the other time was last night, after the election of Barack Obama. An impromptu midnight street party sprang up on St Mark's Place, between 1st Avenue and Avenue A; one apartment put some speakers out on their fire escape and started pumping out Queen, Kanye, Biggie Smalls, and other crowd-pleasers. And the ecstatic throng below would scream and chant: "Yes We Can!" "O-ba-ma!" "U. S. A.!" At one point they even sang the national anthem. The cops were sensible, and let the party run until about 2:30am, blocking off the block to traffic and doing little more than keeping a careful eye on things.

I'd known in advance that Obama would win -- and when Pennsylvania and Ohio both went Democratic, the result was a foregone conclusion. But the emotion we all felt on seeing him officially declared president-elect -- that was something else entirely. There were quite a few tears shed; the vision of Obama and Biden on stage, with the old white guy being the sidekick and the young black guy being the president-elect, was indelible.

So last night was great, but this morning is horrible, couldn't we have just a few days at least to savor the victory? I'm hugely disappointed in California; the result on Prop 8 goes to show that this country has a very long way to go, beyond electing a black president, before it can truly say that all its citizens are equal.

A couple of pictures from St Mark's Place last night: