Prime Minister?

Is DC the PM? Who knows. Following Thursday's razor edge elections we have a hung parliament with the Tories in front yet failing to capture a 50% majority by 20 seats (they have 306 of 326 needed or, by one analysis, 16,000 votes shy in the closest electorate races) required to govern. Despite Labour's loss, Gordon Brown remains Prime Minister, as is the custom in these situations, and it is upon him to either form a government or step down which, really, is his moral obligation. Being Super Gee, I cannot see this happening by tomorrow and hence... we're screwed. Not surprisingly, Stirling falls to year-lows against the dollar and the financial markets twitter. Without a clear winner, we could be staring at five years of party bickering and dickering and little precious legislation. We can ill afford this state given the UK's public sector net debt of £848.5 billion or 60% of National GDP (source: Office National Statistics). The PBR (annual government borrowing) forecast for 2009/2010 is net borrowing of £178 billion or 12% GDP. Any retard can see this is not sustainable. What is more, the UK's national debt is actually a lot higher because the figures should include pension contributions and private finance initiatives which government is obliged to pay. The Centre for Policy Studies (at 2008 year-end) suggests that the real national debit is more like £1,340 billion or 103.5% of GDP.

Cameron will likely form a majority with Lib Dems, giving them their cherished campaign reform which has otherwise benefited the Tories, in return to govern. I see a poisoned chalice.

Change She Be Coming

Today's election will, presumably, turf Gordon Brown out from Number 10 (unfortunately the mover-van behind Downing St in my image unclear but do trust that it is there). The financial markets are betting on a Tory majority while most polls suggest a hung parliament as neither party able to form a majority government of more than 50% of the seats in the House of Commons. If this happens, five more years of Super Gee unless he steps down - fat chance.

So bare with me, dear reader: parliament is the supreme legislative body in the UK and alone possesses legislative supremacy and thereby ultimate power over all other political bodies in the UK and our territories. At its head: the King or, as today, Queen Elizabeth II.

The parliament is bicameral, with an upper house, the House of Lords, and a lower house, the House of Commons. The Queen is the third component of legislature. The House of Lords includes Spiritual Lords (bishops of the Church of England) who spout on about buggery and fox-hunting and Peerage Lords (appointed by the King) who spout on about buggery and fox-hunting. Prior to the opening of the Supreme Court in 2009, the House of Lords also performed a judicial role through the Law Lords. The House of Commons, by contrast, an elected chamber with 650 members; voting is held every five years including today. The name BTW not because it originally represented commoners but rather because the constituencies were from the commons -- land areas.

Last election non held on a Thursday? 1931, on a Tuesday. There you have it.

White Rock

In those fine, early, years of courtship Sonnet and I often went to my parent's cabin in Bear Valley. Here she is at Lake Alpine in the summer of '94. Best decision I ever made.

Eitan moves up in swimming and now trains with the 10-11 year-old squad (he is the youngest). The boy has five weekly practices of 90 minutes, including Monday morning 5:30AM which we will miss, thank you very much. Unfortunately, the other pool-times not exactly accommodating as they cater to the older kids so last night Eitan trains from 7:30PM until 9PM going to bed around 10PM. Back and forth and back and forth he goes - never a complaint. His coach tells me he is a pleasure: competitive yet willing to take instruction. I might suggest the competitiveness from me while the patience and ability to remain focused Sonnet's. Last night the kids do individual medleys and I chuckle at the butterfly which takes some time and practice and a little bit of arm strong -- all forthcoming. I use the time to go for a jog along the Thames on a perfect, cool, late spring evening where the sun hangs over the river for what seems like hours. Thanks to our recent rain, the green grass and tree-leaves vibrate with colour; the water is a silver-dark glass broken only by the rowers' wake. When it works, it really works.

"Be your own boss. Sack your MP. Choose y our own school. Own your own home. Veto high council tax rises. Vote for your police commissioner. Save your local post office."

--David Cameron on the campaign trail (the general elections tomorrow)

It's A Bank Holiday

Two thirds of May's rain falls over the weekend, blighting the bank holiday. As if there was some drama here. The Met Office issues 14 flood alerts around Kent, Sussex, Surrey and London. I spend my yesterday at a football tournament in poncho and wellies huddled beneath an umbrella and shivering with the other dads. We drink coffee from white Styrofoam cups to try and stay warm (in the background, on the radio: Chelsea and ManU slug it out for the Premier League title - one point separates the Blues from the Red Devils with one game remaining). The boys have a good time racing back and forth on astro-turff pitches playing five-a-side. Never they mind the weather. Madeleine cranks out her home work for tomorrow as I write.

Last night we go to a fun party in Notting Hill celebrating Paul and Simon's birthday. A chef prepares sushi while others serve champagne. We mingle with an abundance of attractive, well groomed, people while the women's long legs pointed with toe wedges showing manicured, coloured, toe nails. We chat with Natalie and Justin, who completed last weekend's London marathon in 3:51, which is a rocking time for his first go or any go. Plus he enjoyed the experience which has never happened for me - at least, after 22 miles. B.. o.. n k. Edwin, meanwhile, is in France where rumour has it he finished inside the top-10 in the men's European duathlon championships. Sonnet looks her usual radiant self and I am a lucky man to leave with her. We drive Puk and Lars to East Sheen and home and we are delighted that the bought a house, Friday, not too far from us.

Me: "What are you doing?"

Eitan: "I am jogging [in place] to get some exercise."

Me: "In your bed room?"

Eitan: "I am going to do this until 9:30AM while listening to Capital FM." (it is 8:48AM)

Me:

Kids ALL-TIME Favourite Music Video

Groomsmen

Photo from Eric's wedding at Cornell, 1991. Eric woke a judge at Midnight, following the rehearsal dinner, to obtain a license. Roger, behind me, departing New York for California leaving me without a best friend and room mate. Chas, to the right, living in Providence working the meat counter at Almacs. Eric's brother Matt found religion. The dude second from the far-left lost his marbles completely and institutionalised. Marc, on the far right, became a public policy analyst at the American Federation of State, County and Municipal Employees in Washington DC. Enough said there. I was breaking up with my college sweat heart and trying to figure out: which way is up? So, yes, there was a lot happening on this particular week-end. I think most of us are pretty glad to have worked our way through that anxious, post-college, transitional period with our friendships stronger for it ("gold dust," says Judge Ballachey). We certainly love to relive many of the stories .. with a buffer of twenty years.

Driving to Eitan's football tournament this afternoon.

Eitan: "How much does gas cost?"

Me: "A tank of gas is about £50."

Eitan:

Me: "Your next question should be: 'how far does a tank of gas go?'"

Eitan:

Me: "Well, if we get about 300 miles for a tank of gas, how much does it cost to drive a mile?"

Eitan:

Me: "Do you know which one is the numerator?"

Eitan:

Me: "Do you care?"

Eitan: "No."

Drill, Baby, Drill

At this writing, the Gulf of Mexico oil spill has spread over an area of 100 miles long and 45 miles wide (picture, from NASA). The April 21 explosion at the Deepwater Horizon oil rig site, which is leased to BP, continues to flow at 1,000 barrels (42,000 gallons) a day from damaged pipes 50 miles off-shore and 5,000 feet underwater. The spill will soon eclipse the 1989 Exxon Valdez incident as the worst U.S. oil disaster in history (11 million barrels) in a matter of weeks and a growing number of experts warn that the situation may already be much worse. It may take three months or longer to staunch the flow. More good news from the accountable generation.

"What does he actually seek to accomplish, after he's done turning back the waters and healing the planet?"

--Sarah Palin on Presidential Candidate Barack Obama's proposed energy policies, September 4, 2008

Madeleine

Madeleine contemplates giving her sandwich to the goldfish, which receives a stern look from yours truly. She desists. This morning the kid has three hours of performance class which, she tells me, includes "singing, dancing and some acting" which I imagine she is pretty good at. Performance class has replaced football on Saturday mornings - unfortunately, girls have a limited choice of teams or leagues for their advancement. While soccer the national pastime, it is a boys game in the UK (by far the most popular girls sport here is netball, which started in England and sort of like basketball). At some point Madeleine lost interest, despite being one of the fastest kids at Palewell Park. She still has swim-team so sports not over by a long shot while we have yet to find that one thing Madeleine wants to do more than anything else. For now, it is Tommy or arts and crafts or playing with some creature she has found in the pond. She loves to disappear into her imagination and can spend the day re-arranging her bedroom toys. I remind myself: no rush.

Christian And A Top-Ten

Here is a final snap of Christain in SF. We hang out before my return flight Wednesday. Note the two remote-controls and the New York Times Review of Books. That's my man.

So, today, Saturday, begins another strangely named "Bank Holiday Week-end" and no work Monday. Surely these Brits could be more imaginative naming their national holidays? There are a few good ones to choose from. In 2002, the BBC broadcast "The 100 Greatest Britons" which they rolled out with confetti: I was riveted by the prospect of Di beating out Churchill for #1. Here is the Top 10 great and the good:

1. Churchill

2. Isambard Kingdom Brunel (1806-1965), engineer, creator of Great Western Railway

3. Diana, Princess of Wales, "the people's princess."

4. Charles Darwin (1809-1882)

5. Shakespeare (1564-1616)

6. Sir Isaac Newton (1643-1727)

7. Queen Elizabeth I (1558-1603)

8. John Lennon

9. Vice Admiral Horatio Nelson (1758-1805), naval commander

10. Oliver Cromwell (1599-1658), Lord Protector

David Beckham was was #33 and, while Eitan might agree re England's greatest mid-fielder, we really do see the talent fall off sharply thereafter: Boy George, #46? And what about Sir Tim Berners-Lee, inventor of the World Wide Web, only #99 - without him, you would be spared this blog.

Eitan observes a charity box: "Can you give me some money for them?"

Me: "How about you use your allowance."

Eitan: "Well, that does not seem fair, does it?"

Yo All In The Game Yo

I come home to an inside job as Sonnet tears up the living room. We are going room-by-room and eventually the en suite gold leaf toast. Sooner the better. Our bedroom's green carpet also high on the priority list but, for now, another day. So, pictured, we rip out the existing horrible carpet, correct the ceiling cracks, take down the heavy drapes and change the overhead lights; we sink the flat-screen TV into a wall and re-wire everything. Wi-fi, baby. The fireplace will stay the same, God bless. Sonnet selects a cream and pewter colour palette. Tres lounge. Eitan and I smack Obama-rocks re the new hi-def screen which will cable June World Cup. England BTW ranked eighth going into the finals with, given the talent, a reasonable shot at the title. We have been here before, dear reader. Oh, my, the thought of being in the UK when the World Cup trophy returned to football's founders -- Oooh. oo. oo. I remember like yesterday watching the '98 semi-finals when 18-year old Michael Owen carved up Argentina at the Stade Geoffroy-Guichard, Saint Etienne (France) in a thriller England lost, 3-2. It was like the Cal-Stanford Big Game, '82. Well, almost. Madeleine could care less. Yo, all in the game, yo.

Modern Travel

So I am greeted at Heathrow Terminal 5 ... by this. How Space 1999. The Jr. Varsity knows that T5 is only for British Airways. More expert travellers will tell you that it is the largest free-standing building in the UK and is as big as 50 football pitches or Hyde Park. There is enough glass to stretch between T5 and Buckingham Palace. The roof can be raised to add another layer in the future. There are already seven floors: four above the ground and three below. The depth to the bottom of the building is deeper than the height of St Paul's Cathedral.

During construction, two rivers were diverted around the T5 site. Fish and other water creatures were moved before the diversion, and new channels were made habitable for wildlife. This is probably better than the villagers of Sipson, whose 700 homes may one day be demolished for the third runway. But that is next year's story. There are 11 miles of baggage conveyor belts and baggage can travel at up to 30mph. Since this is Britain, the UK's single biggest dig unearthed >80,000 items including pots, cups, buckets, flints and 3,000BC hand axe. Dude.

T5 was designed by Sir Richard Rogers and capable of 'processing' 30 million people including yours truly. Heathrow's existing two runways are at 98% capacity or around 67 million passengers a year - making us the busiest airport in Europe and the third most visited in the world. Paris CDG, by contrast, is at <70%>annum. Will there be a third runway and T6? It depends on the May 7 elections. Labour has approved the expansion despite the European Union's objection that a third-runway violates the human rights of those relocated or under the flight-path; the Tories oppose it. In the end, it may come down to economics: Heathrow employs 50,000 people and many more indirectly. It is a critical piece of the Southeast's economic engine and enhances London's status as a key gateway city. Not insignificantly, 20 years and several £billions have gone into planning consulting. By chance, I met the head of McKinsey & Company's global transportation practice at an Obama fundraiser who advises British government on Heathrow - he said the third runway "no way" and rather we should distribute the network across existing Heathrow, Gatwick, Stanstead and Luton with hi-speed rail. I would too. But: nobody wants to inter-connect those long-haul flights. Why that when Schiphol?

The Campanile

Sather Tower, only known in the Bay Area as the Campanile, is visible from my parent's house in the North Berkeley hills. It towers above campus and, happily, one can know the time any time. It is probably UC Berkeley's most recognizable symbol, at least I cannot think of another one. Oskie maybe? The Campanile was completed in 1914 and opened to the public in 1917 (my first ride to the top in '76 or '77 on a school field trip). It stands 307 feet, making it the third tallest bell clock-tower in the world. It has thirteen floors and an observation deck on the eighth floor where the bells rest overhead giving one a slightly anxious feeling like, hey bro, I don't want to be here when they chime off (some of the Campanile's lower floors used to store fossils -- I love this tidbit). As for those bells: there are 61 of them or a full concert carillon. They range from small 19 pounders to the 10,500 pound "Great Bear Bell," which tolls on the hour and features bas-relief carvings of bears as well as the constellation Uris Major. During the Fall and Spring semesters, the carillon is performed from ten minutes at 7:50AM, noon, 600PM during weekdays, from 12-12:15PM and 6:00-6:10PM on Saturdays, and from 2:00-2:45PM on Sundays. The bells also toll the hour seven days a week between 8AM and 10PM. At noon on the last day of instruction each semester, "They're Hanging Danny Deever in the Morning" is played. Following that, the carillon is silent until the end of finals. (Sources: Wiki and UC Berkeley website).

While visiting Cal, I have a few free hours which I spend at Strawberry Canyon rec to enjoy the sunshine and swim a few laps. This was where we went back in the day, before hard-core swimming took over and we actually enjoyed the pool. I find a small patch on the green grass and am surrounded by undergraduate flesh. It is an orgy. As is the style, the dudes wear baggy trunks just above their Johnson while the girls parade themselves in barely-covering bikinis. A lot of "adjusting" goes on. I realise how outside their world I am so ease-drop like mad. The night before was Saturday - party! - and most of the youngsters complain about A) being hung-over and B) being hung over and studying for final exams. None of these kids in the library so they cannot be that bothered. The more studious read "Catch 22" or "The Brothers Karamazov" but this, I feel, somehow a less than honest effort- and besides, the drinking tonight at "Raleigh's" which, I ascertain, is a bar in Berkeley (located, to be precise, on Telegraph and Haste. Want to join me?). The girls talk about so-and-so and who did what while the bro's discuss investment banking internships and private-equity. They smack hands (the "Obama rock") and check each other out. It is all very tribal with strong sexual current, like, everywhere. It sure was not like this at Brown. Or maybe it was and I have forgotten? Or perhaps I just missed out. Probably that.

Photo from UC Berkeley.

Ivor And Habiscus

Last night I re-union with some dear Berkeley friends whom, in some cases, I have known >30 years of my life. Ivor, pictured, and I went to college together and he reminds me that I knew of his acceptance to Brown before he did thanks to an indiscretion from Brown’s swimming coach Ed Reid (Ivor played water-polo). I think I mostly kept my mouth shut. The ten days before college was spent in Bronxville which we used as a launch-pad into Manhattan and the clubs, joined by Dan and John. God bless my Aunt and Uncle, who were in VT for most of our visit. Now that was brave. I did my best to act like a college kid, nipping the family car when I should not have, which still gets play at the family gatherings. Ivor and I lived together Sophomore year next to Delta House, which I famously depledged deciding I did not wish to be in a fraternity after deciding I wanted to be in a fraternity. For his part, he was dating his high school sweet heart,Alison, who was at nearby Amherst College so he was often away on the week-ends (I can appreciate why Alison did not wish to visit us – college living no place for a lady). Today, Ivor and Alison married with two beautiful girls living next to the Claremont Hotel with views of the Bay Area. They are architects and following their early dreams.

So. Habiscus is a dinner club in a cool part of downtown Oakland that is gentrifying. It is not far from the old Fox theatre, which was renovated several years ago and, once again, a top draw for music and bands. Nearby is a Greyhound bus station (with its wonderful logo) next to modern condominiums and Oakland's few sky-scrapers a visible backdrop. I cannot decide if menacing somehow. Christian is an investor in the restaurant and they love him here – before the crew arrives, Christian introduces me to the head-chef, who is a black lady from England. We chuckle about the weather of course. Christian’s interest in Habiscus is presumably for a return but he also supports Oakland and the East Bay. Plus it is a rocking venue.

Poppies

It is a glorious Californian day for weather, everything a European dreams of. I meet CW at yoga this morning, 9AM. Perry joins us and looks fabulous. The last time I saw her was two years ago in Napa Valley, where her family has a house and we were with our New York friends. She had a different hair style which was then straight and long while now it is curly. It is her hair, though, and not a wig – which she has been using during chemo therapy to kill her cancer. She is recently on the other side of her treatment and has as much, if not more, energy than ever+the cancer is in remission. She continues her life which includes everything Northern California has to offer and her life is blessed. Who knows when life’s curve ball arrives? All we can do is love and fight.

Last night I join my parents in Mill Valley with the Berkowitizes, who host dinner. Our families go back 40 years when Moe and Alan met a the National Labour Relations Board in ’68 or ’69, which was Moe’s first job after Michigan Law. They later became partners at Schacter, Kristoff, Orenstein and Berkowitz doing labour and employment discrimination. Moe and Alan go back and forth on various current and past cases, share some easy gossip, and bemoan today's legal profession which has changed from the Good Old Days when attorneys knew their clients and not pre-occupied with billing hours. Now, it seems more like a meat grinder but a well paying grinder: top lawyers charge over a grand an hour.

Meanwhile, back in London, Sonnet leads an active week end: she organises a class picnic in Richmond Park. Eitan has an overnight party, swimming practice+two football matches (the Blues win both; Eitan scores the winning goal in the first and sets up both goals in the second). Madeleine has swimming and play-dates and “movie night” with mom while Eitan away Friday. Both kids have home work and, of course, their chores. Was I this busy at their age? I. Don’t. Think. So. It helps that the winter has turned to summer overnight and the temperatures somewhere between mild and warm while the sun sets after 8:30PM. Sweet spot.

Image of poppies in bloom at Big Sur, California, from Corbis.

Tilden

Pictured - Tilden at the Nimitz trail parking lot facing Briones Regional Park where Katie and I once hunted shell fossils along the Old Briones Road.

My morning starts at 2AM Pacific time - wide awake and nothing to do but think. Stress. By 6AM I am grateful to be jogging and eventually my anxiety subsides. I visit Peet's (again) and today am rewarded with a pure Berkeley moment: amongst the elderly hippies, standing in line next to me, is Robert Reich who is unmissable in a blue button-down shirt, jeans and running sneakers, the old liberal dog. He is also 4'10''.

Reich was Clinton's Secretary of Labor from 1993-97 and today a Professor of Public Policy at UC Berkeley. Otherwise Reich is an East Coaster having grown up in Scranton, PA, and graduating from Dartmouth. He also went to Oxford, Yale Law School, and then became a Professor at Brendeis University where I was hit by a car whilst running a X-country race in college. Seriously - I went over the hood but kept on going. It is not surprising that Reich is now in Berkeley given his political views - it is hard to see him anywhere else in this country, really. Or maybe Cambridge - so perhaps his run for Governor of MA in '02 not unusual.

Reich the first Democratic candidate for a major political office to support same-sex marriage. He also pledged support for abortion rights and strongly condemned capital punishment (eventually Demo incumbent Shannon O'Brien lost to Mitt Romney who won 50% of the vote and gave us all health care, though he denies it vehemently). We need more dudes like Reich to balance Sarah Palin and Glen Beck and the other dip shits who have hi-jacked the Republican party. What a debate that would be: Reich vs. Palin. Brains vs. beauty. I would put my money on the legs.

74 Years Young

I arrive at SFO following a longer-than-usual flight as our plane skirts around the ash-cloud. What, me worry? I watch two movies including George Clooney's "Up In The Air" about a dude who travels 240 days a year to fire people. Of course there is a love-interest and hard lessons learned &c and etc. but what I find most interesting (other than a film about the soothing emptiness of air-travel) is the relationship between Clooney's character Bingham and his younger protagonist Natalie Keener (played by 25-year old Anna Kendrick) - I side with Bingham and not the the fresh-faced Keener which, I suppose, makes sense as, well, I am middle age. From where I write, in my parents' living room facing westward and looking straight across the bay at the Golden Gate Bridge in the house where I grew up, it is easy to be swept away by youthful nostalgias. This morning, for instance, I jog in Tilden Park on the Nimitz trail where I have memories from age-five, then high-school and college followed by Christmases and holidays over the years and a third or fourth date with Sonnet when she dragged me one summer morning and I couldn't think of anything else but her. That was in '93. After my run I hit Peet's and watch the Berkeley weirdos who sit about and drug up on coffee. Everybody is super friendly and no doubt this is their scene today and every day. Make love not war, man. Sadly, around the corner one of Berkeley's best book shops, The Black Oak, has closed.

Sooo here I am with my father, Moe, at Saul's delicatessen where we each have Reuben sandwiches+iced tea. We talk about the usual father-son stuff: business, taxes and Cal football which, we both agree, faces a challenging season and certainly no Rose Bowl (last appearance in Pasadena: '58. I am getting stressed by this). Today is Moe's birthday - 74! - and we will celebrate at Pizzaiola, which is a bunch of x-Chez Penise. Eitan sings Moe 'happy birthday' without my threatening him. Progress.

Self Portrait XVII

Today is one of those days that makes you think of England - puffy white clouds, blue skies, no planes. My friend James has been stranded in Moscow this past week so he flew from there to Rome then five trains later, home. Many others remain stuck like the British youth fencing team in Beijing who have been there since Thursday and told the next rescheduled flight to Briton is May 4th. Radio 4 reports that the team is training in the morning and organising cultural activities during the day. Hope they like noodles. Still, things are slowly improving and certain zones re-opening to commercial flights after Air France bravely flies one flight through the haze. KLM tries seven. Bingo! Let's fly, baby. For my part, I check London's weather quality daily which, strangely, remains pure. A little investigation provides a surprising piece of data: according to the Nordic Volcanological Institute at the University of Iceland, Eyjafjallajoekull is emitting 150,000 tons of carbon a day into the atmosphere compared to 344,109 tons by the European aviation industry (source: USGS, BBC, EEA). Over 200,000 tons of CO2 saved by grounding 60% of European airlines. Go figure. This is not entirely fair, though, since the analysis does not include sulphur or methane which are major contributors to the greenhouse effect but still. Recall that since the Industrial Revolution human beings have dumped one-half trillion tons of CO2 into our atmosphere and will do so again inside 25 years.

"Who are we? We find that we live on an insignificant planet of a humdrum star lost in a galaxy tucked away in some forgotten corner of a universe in which there are far more galaxies than people."

--Carl Sagan

CDOs And CDSs

Back to Goldman. In the early '90s, I recall, Collateralized Debt Obligations or "CDOs" were taking off on the continuation of mortgage bond market pioneered by Lewie Ranieri the mighty First Boston in 1987 or '88. Back then, "jumbos" and "subprime" strange words but not evil. CDOs are, in theory, an investment-grade security backed up by a 'pool' of low-risk bonds or loans or other assets of different maturities and credit quality. The pool generates cashflows from principal and interest payments, which can be chopped (or tranched) allowing investors various exposures to different risks and returns. The originator, like bank or thrift, could efficiently move the asset, such as a mortgage, from its balance sheet reducing the need to reserve cash to offset a possible default. This new market offered unheard of liquidity benefitting companies and home-owners alike.

By the 90s, hot shot traders realised CDOs highly unlikely to fail as the underlying issuer companies like GE. Triple A, dude. Still, defaults could happen and banks wanted insurance - enter credit default swaps. A CDS guarantees a credit on the issuer so, for instance, should GE fail the owner of a CDS still receives his payments. CDS sellers earn a premium with little worry (they thought) of a default-inducing-payout; and they issued these securities with no money down. In short, the ultimate ATM until, that is, the crash. Firms like Bear Stearns and Merrill Lynch made billions issuing and trading CDSs. Commercial banks, for their part, sold and bought CDSs so when the the musical chairs stopped, they owned a net position. Pure sellers, like AIG, were caught unawares once the liabilities crystalised - this amounted to hundreds of billions of dollars they did not have.

So now it gets tricky. By '07, CDOs were mostly a cash market, ie, backed by principal and interest payments from the collateral (bonds). By '07, over 80% of CDOs synthetic. In a synthetic CDO, the bank holds a portion of the reference portfolio (the "stump") instead of selling it off to investors. With a cash CDO, banks transfer the risk to another party through the sale of the assets; however, in a synthetic CDO, banks keep the assets on their balance sheet and purchase protection through a CDS to transfer the risk away to another party. Banks do this today to manage their cash position - it is a "hedge." In the unlikely event the SEC decides that CDS a ponzi scheme and declares them illegal, a large chunk of your banks balance sheet will vaporise.

So why did AIG not protect itself and how is Goldman somehow involved? AIG believed a CDS like any insurance policy where a payout event, like death, non-correlated. My dying has little baring on your dying, for example. Bonds are different: if a bond fails, other, similar, bonds are highly likely to fail.. and their risk of failure becomes exponential. The first defaults in '08 triggered an avalanche of destruction for most, excluding .. Goldman Sachs. As Gretchen Morgenson at the NYTs noted, Goldman, and no other Wall Street firm, was involved in the AIG rescue talks and an AIG failure would have created a hole as big as $20 billion on Goldman's balance sheet as they purchased CDSs from AIG. Instead, they were made whole while Lehman Bros., also sellers of CDSs like AIG, allowed to collapse. Goldman also made money with Paulson & Co on CDS by allowing Paulson, the counter-party, to assist in the creation of a portfolio that Goldman marketed to its clients without informing them Paulson (A) helped construct the portfolio and (B) was shorting it. More will come out.

Sunday News

This photo from several years ago at Bournemouth in Dorset. In the far distance, at the top of the image, is the Isle of Weight.

Travel chaos continues and the British airports remain shut until tomorrow morning and perhaps the end of next week. The volcano has worsened while wind-flows fail to remove the ash cloud. There are 1 million Brits stranded somewhere unable to get home. Us, we take advantage of the warm weather to go to Richmond Park for a picnic. I read the Sunday papers while Sonnet plays Frisbee with the kids. Eitan's KPR seals their division title by defeating the Isleworthians 1-nil in a game notable for blood: one of theirs has his front tooth knocked out in a mid-field collision. Poor lad. The physical game sees all sorts of tackles (in European football, this means a slide tackle) and Eitan earns side-line whistles when he connects with 'studs up.' This the sort of thing that gets a Yellow Card in the professional leagues (later he tells me: "I was feeling a bit frustrated which is why I did that"). Whoever thinks soccer not a physical game sorely mistaken. Next year, KPR will move into Division One.

Driving in Richmond Park: "Dad! There's Joe! Stop the car"

Me: "There is no parking"

Eitan: "Aw, I would have loved to see Joe."

Madeleine, whispers: "Are you g-a-e?"

Sonnet: "There is nothing wrong with being G-A-Y."

Me: "Madeleine, do you like gals or guys?"

Madeleine: "Neither, dad!"

Me: "What about that boy in year 6? You said you were in love with him."

Madeleine: "Did not!" (Eitan sniggers)

Me: "Or how about Kenny? You were definitely in love with Kenny."

Madeleine: "I am no longer listening to you, Dad."

The Tower And Torture

The gang re-unions at the Tower of London. The last time I was here was in November '97 with some visiting friends and Alex and Spencer, who shared our first Thanksgiving shortly later. Alex on the fast-track at JP Morgan and Spencer a hedge-fund investor; both are now retired, living in Connecticut with their three kids. Back then, we drank martinis and thought, wow, London. How sad when they left us after two years.

But, dear me, I digress. Eitan enthusiastic to meet the "Beef Eaters" while the kids learn about England's medieval hanging, drawing and quartering described as "a spectacularly gruesome" and public torture saved for the most "heinous of murder" and treason; it was applied only to men while women burned at the stake (changed to hanging by the Treason's Act of 1790). Women were lucky. The convicted men were (1) drawn or dragged on a hurdle (a wooden frame) to the place of execution; then (2) hanged by the neck for a short time or until almost dead; and finally (3) the body beheaded, then divided into four parts (quartered). Typically, the condemned were disemboweled and emasculated, the severed genitalia and entrails burned in front of the victim, before the final, fatal, beheading after which the resulting five parts (ie, the four quarters of the body and the head) were "gibbeted" (put on public display) in different parts of the city, town, or, in famous cases, in the country to deter would-be traitors who had not seen the execution. After 1814, the convict was hanged until dead and the mutilation performed post-mortem. How nice. Gibbeting was later in 1843, while drawing and quartering ended in 1870 (source: George Neilson, "Drawing, Hanging and Quartering;" 1891).

A joke on Radio 4: A man in Colchester is accused of having sex with a horse and a donkey. The court does not release him on bail since he does not have a stable address.