Sunday, April 4, 2010


Dear friends.

With changing life circumstances, it will become more difficult to post with any regularity. I welcome all comments, but please accept my apologies in advance for not being able to respond in a timely manner.

Best of the year to all.

Wednesday, March 24, 2010

A Not-so Gentle Nudge to Restart Mortgage Securitization

The financial regulatory reform bill is speeding through congress.
There are many sections which represent progress, but I fear the portion dealing with Securitization would not do enough to reassure future investors. I shall review what's been proposed and discuss their shortcomings and propose an alternative which may help restart this market segment.

I. Excerpt from the summary of the revised financial regulatory reform bill unveiled Monday

(3/15/10) by Senate Banking Chairman Chris Dodd:

Companies that sell products like mortgage-backed securities are required to retain a portion of the risk to ensure they won't sell garbage to investors, because they have to keep some of it for themselves.

Why Change Is Needed: Companies made risky investments, such as selling mortgages to people they knew could not afford to pay them, and then packaged those investments together, called asset-backed securities, and sold them to investors who didn't understand the risk they were taking. For the company that made, packaged and sold the loan, it wasn't important if the loans were never repaid as long as they were able to sell the loan at a profit before problems started. This led to the subprime mortgage mess that helped to bring down the economy.

Reducing Risks Posed by Securities

- Skin in the Game: Requires companies that sell products like mortgage-backed securities to retain at least 5% of the credit risk, unless the underlying loans meet standards that reduce riskiness. That way if the investment doesn't pan out, the company that packaged and sold the investment would lose out right along with the people they sold it to.

- Better Disclosure: Requires issuers to disclose more information about the underlying assets and to analyze the quality of the underlying assets."

Mortgage Bankers Association (MBA) chairman Robert Story Jr. suggested that qualified residential loans with certain characteristics like a 30-year fixed rate, full documentation and a sufficient downpayment should be exempt from the risk retention requirement.

This idea is actually reasonable as the conforming loans have been performed well and the oversights from Fannie Mae and Freddie Mac do maintain a minimal underwriting standard. However, I fear that we're focusing on the wrong questions in the current legislation.

There are several myths which needs to be dispelled to get a clear picture toward possible solutions. Having worked at major issuers of conforming and private label MBSs and ABSs, I have detailed knowledge of the securitization process and I shall endeavor to bust some of these myths.

1. Risk Rentension

While the risk rentention proposal is a sensible clause, it wouldn't have prevented the mortgage credit crisis. This is becuase many of the alt-a and subprime issuers ALREADY retained a portion of the mortgage risk. The buyers have been knowledegable enough to demand the issuers to 'retain skin in the game' for many years already.

2. Capital backing the residual risks

Again this was already done - many issuers did set aside reserve to cover potential losses. The problem was the housing price assumptions being used.

3. If you pool together junk, you can't make an AAA asset out of it.

While this is true in a broad sense, credit support structuring in MBSs and ABSs do work to a degree.

Consider this analogy. Say you have one hundred 90lb weaklings who can each lift 50lb each. While none of they can lift 2500lb individuall, 50 of them together CAN accomplish this feat. Another 25 of them can lift 1250lb, etc. The general idea of MBS/ABS is to pool cashflow from many mortgages to support multiple classes of securities. The most senior class get the support of everybody in the pool. THe second most senior class get the support of a smaller portion, say 60% of the pool, etc. It is in this sense that the rating agc give the most senior class a AAA rating: that it could withstand a high % of defaults among the mortgages within the collateral pool and still be able to repay its principal.

So the future value of this senior class depends on how many collateral mortgages default. If the default stay below a designed %, then its value is not impaired. The defaults hurt the less senior classes. If defaults trend above this level, then the value of the senior class is diminished.

From the above discussion, you can see that the assumptions used for the expected default and loss are critical parameters. With consistent underwriting on a tested product, one can arrive at reasonable assumptions - i.e. conforming loans are performing reasonably well.

The key surprise was the severe home price drop which was beyond the range of most model assumptions. The system failed to adjust and reprice the securities according to the increasing amount of risk that was becoming apparent in 2007-2008.

This failure is due to severe misalignment in incentive structures which CAN be fixed via regulations or best practices. Having observed these misalignments in industry, I have found a good vocabulary to talk about them in the book "Nudge: Improving Decisions About Health, Wealth, and Happiness" by Richard H. Thaler and Cass R. Sunstein.

II. Structural misalignments

As a general principal, when the full costs and benefits of a decision is NOT fed back to the decision maker, but are separately directed to distinct parties, this leads to mispricing within the decision.

The current securitisation process suffers from 2 separations and 1 darwinian effect which cause mispricing.

1. Separation in Time

Pool mortgages; Structure; Sell rated classes now; Get bonus.
If the structure loses money later, it's not my problem.

2. Separation in Space (organizational groups)

Performance bonuses go to securitization/structuring/trading departments and the Executives.

The retained residual (equity class) and low rated classes are usually managed by the asset management department. If the residuals and low rated classes lose money later, mostly the asset management department lose out on their bonuses. If there are enough securitization deals occuring, the income overwhelms the loss from the asset management area, the Executive bonuses won't be affected much.

3. Red Queen or Chuck Prince effect

"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing," CitiGroup's Chuck Prince said in an interview with the FT in Japan.

Once having set up the securitzation pipeline, staff, IT, etc. a firm wants to keep them working, so it would pursue deal which may not be profitalbe in the long run. As more dealer pursue the same securitization pie, the deals get worse as the collateral underwriting get looser. This is related to Separation 1 above as the increased risk is not apparent now.

Without a mechanism for resolving these structural problems within the securitization process, the reform bill would not prevent a future recurrences of credit crises. Others have suggested deferred compensation and clawback provisions, but that can be complex to implement and would not provide much feedback.

III. A Simple Proposal

"Require that a portion of the bonus for people sponsoring securitization be paid in form of the least senior classes (BB and below) and the residuals created within that year." These sponsors include Executives, structurer, banker, trader, underwriter, etc.

Such classes are inherent illiquid and rarely sold. They usually only pay down as mortgage principal is paid off.

In this scheme, if the residual is overpriced to make a deal go through, the structurer would be hurt by lower cashflow in the future. If they underprice the residual, then the income is lower for the current year and they would get a smaller bonus. If the underwriting is too loose, one may get higher current income, but would lose out on future bonus cash flows.

This naturally ties together the costs and benefits of the choice for doing the securitization and for making the loans. Perhaps even more important, it would make the quality of the loans/classes 'Salient' to the sponsors. While a bonus is usually granted once a year, the bonus cash flow would be reported monthly. Whether the mortgage collaterals are performing well or badly, the impact would be salient (in their face) to the sponsors each and every month.

The loan origination and securitization firms can benefit by not having to set aside reserve against classes that they retained, if they are put inside this bonus pool since the risk is now transferred from the firm to the risk creator. If there are not enough residuals and lower rated classes, the firm can fund a separate bonus fund with payout indexed to the residual pool paydowns.

Some of my colleagues in the securitization field may resent this proposal. I would only remind them that until the investor regain her/his confidence in the nderwriting and securitization process, NO ONE will be making any money from securitization. And that would be a shame since I consider it a most worthwhile tool when used in the right way.

Monday, April 20, 2009

The Myth of the One Price

In recent newspaper columns and letters, I see many people lamenting that financial engineeers created products which 'they don't know the value of'. This sentiment is understandable in that much of financial communications are geared to assuring the public that the money manager and banks knows 'precisely' what they are doing.

I thinks it's time we come clean: we don't know THE price of the CLO, CDO, or CMO tranches.
For that matter, we do not know THE price of your stock investment or municipal bond investment either. The most liquid investment you can think of, say US treasury bond, still does not have THE price. What's going on? Is this whole finance thing a sham?

The real culprit here is that we're posing a bad question.

If you want to know how much your 300 shares of IBM is worth, you'd look it up in the newspaper or quoting service, right? The problem is that that price is the last trade from the prior day or the current day. It does not guarantee that you will be able to sell your shares at that price. In fact, for liquid stocks, there will be bids at varying prices for varying size of trades. So you would be able to sell into those bids if your size fits into their requirement. This means, that you don't really know how much your shares are worth until AFTER you've sold them. Furthermore, selling your shares may move the market, such that right AFTER you've sold the shares. Another lot with exactly the same # of shares may sell at a different price.

If I don't wish to sell the shares, then I cannot know EXCATLY what they would bring on the market. That is why we do NOT know THE price of even the most liquid asset. However, the ranges of bids and offers do give me a range of maximum and minumum prices which should bracket the execution price if the trade was done. The more liquid an asset is, the tighter this range will be. We can think of this range as a measure of the uncertainty in the pricing of the stock.

For the very illiquid assets, such as low rated ABS backed by subprime loans, there are very few or no bids and offers and no transactions! Thus, the possible range of price is large indeed. By the user of models, one can narrow the estimate of the price much more and this is typically what is used for the asset's Fair Value a la FAS 157. However, as many have noted, the model depends on historical data and sometimes unobserved assumptions which add more undertainty to their output. We can certainly say that the pricing for these assets are very uncertain.

In other words, when people say that we don't know the price of an asset, they really mean that the uncertainty in the asset pricing is very large.

Risk Accounting Explored

This change in perspective dovetails nicely with the Risk Accounting proposal by Andrew W. Lo and David E. Runkle in their FT article, "Insights: Crisis fuelled by accounting" on 4/1/09: "It takes the GAAP accounting framework as the starting point, but uses the language of probability and statistics to describe the future realisations of any accounting variable."
This is an excellent proposal which I support strongly with several caveats.

1) I would focus on the income statement first rather than the balance sheet. Since some of the equity component are primarily plugs, there is no meaningful independent measurement of their uncertainty. By analyzing the uncertainties in the Asset incomes and Liability expenses, one would derive the uncertainty in Net Income. Also, one must take into consideration the impact of off-balance sheet items. Assuming that we capture the non-NI charges/adjustments, the Net Income uncertainty would generate a better estimate of the equity market value than using the balance sheet components, I believe.

2) Treating the asset incomes and liability expenses as random variables still could subject us to the inference-from-history criticism. This applies if the asset/liability random variables are calculated as distributions based on parameters estimated from historical data or as historical distributions.

3) Correlations betwen Assets and Libilities must be taken into consideration. For example, an Asset portfolio and Liability portfolio with the same variances would be a perfect match if they are perfectly correlated, i.e. the Net Income (which equals "asset income" - "liability expenses") uncertainty would be reduced to zero. However, they might be a bad match if they are negatively correlated, i.e. the variation in Net Income would be maginified instead of cancelled.

4) We are still unlikely to be able to quantify uncertainty due to tail risk/black swan events since there is rarely enough data to explicitly model them. However, this is an area where human judements might be usefully applied.

In view of these caveats, I would propose that we consider other methods to incorporate more subjective views and nonparametric models. One possibility is to apply Bayesian based inference methods such as the Dempster-Shafer theory of evidence. I shall endeavor to create an example of such a risk qualified income statement in a future blog entry.

Benefits of Risk Accountings

To the public:

The biggest accomplishment of using this method of financial reporting is to convey to the public that accounting is NOT an exact science, but rather a principled and methodical best estimate of the conditions of a company.

To the investment professional:

Let's quote Lo and Runkle again, "By viewing future values of accounting concepts as random variables, the well-developed framework of probability and statistics can be used to quantify the impact of events such as credit crunches, flight-to-quality, and volatility spikes on corporate balance sheets and income statements. Without filling this gap in GAAP, the relationship between financial crisis and a company’s prospects cannot even be articulated in an operationally meaningful way."

Sunday, February 15, 2009

How to recapitalize the banks with no money down!

Many people have come up with proposals to recapitalize the banks with distressed assets. Since the latest plan from Treasury Secretary Geithner still leaves a lot of room for extrapolation, let me propose my ideas for how this might be done without expending government funds up front.
This idea is based loosely on Ashby's Law: using Variety to absorb Variety. In other words, since the cost of a government guarantee is uncertain, the government can charge an uncertain but correlated back-loaded amount for it.


Banks have distressed loans or securities backed by loans with high and uncertain delinquency rates. Market assigns a high risk premium to this valuation uncertainty, thus bid/ask spread is too big and no trading takes place. Without trading, there is no generally accepted market value for these assets and no confidence in any valuation models. Thus, these assets count for very little in terms of bank capital.

Problem statement:

How can government provide certainty to these distress assets so that they will count substantively toward bank capital?

My idea is as follows:
1. As per original TARP idea, hold reverse auction for pools of such distressed securities or loans.

2. Offer term is as follows, government will sell a 5y Put on this pool at $X in exchange for a 5y Call on this pool at $Y. Bank will propose the strike prices: X and Y.

3. Government will value these calls and puts using internal models and accept an exchange when the Call is valued at Z % or more of the value of the Put.

4. The Call is detachable and sellable on the market to private investors, but the Put is nontransferable.

5. Repeat above steps.

Now why should this work without the bad side effect of triggering more writedown of similar securities on other banks' books?

1. Most importantly, the Put sold by the government put a floor on the value on the pool of assets and changes the psychology of investor toward these assets: i.e. the uncertainty in the value of this pool+Put is greatly reduced. Thus, the uncertainty premium drops and the standard option models for this pool+Put combination become a better approximation to reality. In contrast, the standard option models would not describe well similar pools held by other banks without the floor guarantee.

2. The danger of model error is mitigated due to the well-known Put/Call Parity relation:

For any underlying, the value of the Put = value of the Call + strike price with riskless return - fair value of the pool, assuming the Call and Put strike prices and maturities are the same.

A VERY important property of this relation is that it does NOT depend on modeling assumptions at all. Thus, with Call and Put strike prices that are not too far apart and riskless rate driven to near zero. A reasonably fair exchange offer can then be constructed. Coming up with workable Cut and Put strike prices should be much easier than coming up with a fair value for the Put option alone.

3. Since the government already control several banks via capital infusion or conservatorship, the government can mandate these banks to submit exchange offers with reasonable strike prices to jump start the auction process. As the number of bidders, information availability, and market conditions changes, the hurdle rate of Z can be adjusted in subsequent auctions.

4. There is NO cash outlay by the government initially. There may be a cost when the Put is excercised at maturity, but there is also opportunity to sell the Call before or at maturity at a profit.

5. Valuation is done on a pool level, not individual securities. So if banks submit pool with varied loans and securities, there may be some diversification benefit and it would be difficult to impute prices to individual positions.

An Example in Numbers

A numerical example should make this even more clear.
Say the pool is booked at $60, but the best market offer is $20. The bid/ask spread is at $60-$20=$40. With no trading, the pool may contribute nothing to the bank capital. Let's say the bank offered a Call at $65 in exchange for a Put at $45 and the exchange is accepted. Bank will write down $15 for this pool. Now the bid/ask spread is $60-$45=$15 and the pool can be counted at $45 as part of the bank's capital. This lower uncertainty actually is input into the valuation of the Put and Call on this pool.

At th end of 5 years, if the pool has market price of $35, the government loses $10 and the bank loses $10. If the price would be $55, the bank would make $10 and the government might have made money by selling the call sometime before the end of the 5 years. If the price would be $65 or above, the bank would make $15 max, and the government would make $5 or above on the call.

Market professionals will readingly recognize this as selling a Collar on the pool to the bank. Though I think this scheme is straight-forward enough to explain to the public and the US Congress. In simplest terms, the government is offering to give a floor guarantee for these assets in exchange for a piece of the upside profit. And by providing the floor guarantee, the government is increasing the chance that it will profit on the upside along with the bank.

I would be most interested to hear of weaknesses or problems with this approach. Please feel free to add your criticism or suggestions for improvement.

Friday, January 9, 2009

Rules and Betrayals in the New Year

The major conundrum for investors these days is that many "Rules of Thumbs" that've worked for years and years no longer worked this past year. After witnessing the collapse of major firms: AIG, BSC, Lehman and then seeing Citigroup go begging for funds, the investors' set of comfortable believes were devastated.
Collapse of basic markets such as CP, money market, Repo, which almost all companies rely on for daily operations destroyed the faith Main Street once had for Wall Street. Thus, all assumptions are called into questions.

Investors feels betrayed and either do nothing or want to review every contingencies. This is rational. Yet Rules of Thumbs are really useful. They hid complexity and speed transactions. The more deeply one looks into a business, the more uncertainties one will find. For example, Reliance on Authority is a useful Rule of Thumb. It usually works quite well and is still the dominant decision making mode for individuals when it comes to complex subject such as medicine. It works by reducing complexity to a level that we're comfortable with in handling on a casual basis.

Rating agencies were set up to be Authorities who boiled down the complexities to a simple set of rankings. Yet this year, ratings no longer worked to predict credit risk. Consider the Seasonal Pattern, a common assumption in various retail business. Just because we sold 2000 coffees the same time last year, how do we know we'll sell 2000 today? May be there'll be a medical studies showing linkage to some serious illness? Are such fear probable? Very likely not. However, by using this Rule of Thumb, we got used to assessing these probabilities at zero. Now that we don't trust the rule of thumb, we'll give them a substantive probability, which is likely to be higher than a realistic estimate.

Alternatively, we might freeze in indecision. If we considered all the possible events that could go wrong, would we ever drive on a freeway? For new drivers, they have to muster up a large measure of courage and trust to go up that first on-ramp. It is no different for investor wading into an environment without rules of thumb that they trust. Until new rules of thumbs are developed and trusted, the investment process itself will be slow.

What might the new rules be like?

OLD RULE - US government will never nationalize banks, that's for third world socialist countries.
NEW RULE - US government has a constructive and active role to play in the economic system.

This mean we need to become more like "Kremlinologist", who read the subtle signs and portents to interpret future policy trends of the various US government bodies: regulators, executive branch, the conress, as well as the Federal Reserve. More specifically we need to look at President-Elect Obama's choices and priorities:

- energy
- global warming
- education
- health care
- infrastructure stimulus

By Obama's choices of appointments, we can see how these priorities will be funded. Biofuels industry, in particular, could get a lot of government assistance. At the same time, we need to consider the bailout's boundary effect: that is, the US government is selecting specific key companies to support and letting the rest find their own ways. A long queue of industries has formed to tap government assistance, but many of them will be turned away. Weak hands become take-over targets. Correct bets on where this boundary of support will be extended or withdrawn could be handsomely rewarded.

Many Rules are evolving and being redefined. Understanding these changes are essential to understanding where an active investor base can form. Let us explore how they are changing and what they may look like in the future in this and other forums.

Wednesday, November 26, 2008

US Governmental Bailout Glossary

If you have been like me, than you've tried to follow our mercurial capital markets and the US governmental responses these past few months with increasing confusion. It's hard to imagine a better illustration of what uncertainly feels like except for us going into a world war. It is now clear that we need a score card to track all the acronyms and activities. Below is my attempt to summarize the US governmental programs thus far. I shall endeavour to update this post as new programs are announced. Please feel free to leave comments with additional details which may help fellow market watchers.

US Treasury Program

TARP/CPP (Troubled Asset Relief Program/Capital Purchase Program)
Approved 10/3/2008 as part of the EESA.
A $700 billions flexible program which initially targeted purchase of distressed MBS/ABSs. That has been replaced by direct investment into preferred shares and warrants of banks .

Federal Reserve Programs

TAF (Term Auction Facility)
Initated 12/17/2007, this facility makes low interest loans for 28 or 84 days to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window.

AMLF ( ABCP MMMF Liquidity Facility )
Began 9/19/2008, the AMLF finances the purchases of ABCP by banking organizations with loans from the Federal Reserve Bank of Boston at the primary credit rate. The loans are collateralized by the ABCP but are without recourse to the borrowing banking organization. Currently set to expire in January 2009.

MMIFF (Money Market Investor Funding Facility)
Announced 10/21/2008, the Fed will finance up to $540 bn purchase of CD, bank notes and CP up to 90 days maturity by SPV from 50 financial institutions.

CPFF (Commercial Paper Funding Facility)
Operational since 10/27/2008, the CPFF provides a liquidity backstop to U.S. issuers of commercial paper. The CPFF is intended to improve liquidity in short-term funding markets and thereby contribute to greater availability of credit for businesses and households. Under the CPFF, the Federal Reserve Bank of New York will finance the purchase of highly-rated unsecured and asset-backed commercial paper from eligible issuers via eligible primary dealers.

(To Be Determined)
The Federal Reserve announced on 11/25 that it would buy up to $500 billion in agency mortgage-backed assets from the government-sponsored mortgage finance giants
The agency would also buy up to $100 billion in debt directly/via auction from the GSEs above and the FHLB.
"Purchases of up to $100 billion in GSE direct obligations under the program will be conducted with the Federal Reserve's primary dealers through a series of competitive auctions and will begin next week. Purchases of up to $500 billion in MBS will be conducted by asset managers selected via a competitive process with a goal of beginning these purchases before year-end."
The average rate for a 30-year fixed mortgage fell to about 5.5 percent after starting at 6.38 percent yesterday

TALF (Term Asset-Backed Securities Loan Facility)
Announced 11/25.
The Fed would make 1 year loans totaling up to $200 billion on a nonrecourse basis to holders of asset-backed securities supported by car loans, credit card loans, student loans, and business loans guaranteed by the Small Business Administration. US Treasury will use $20 billion from TARP to seed this program.

FDIC Program

Temporary Liquidity Guarantee Program (TLGP)
"The Program guarantees newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and provides full coverage of non-interest bearing deposit transaction accounts."
"The goal of the TLGP is to decrease the cost of bank funding so that bank lending to consumers and businesses will normalize."
This insurance costs is on a sliding scale. "Shorter-term debt will have a lower fee structure and longer-term debt will have a higher fee. The range will be 50 basis points on debt of 180 days or less, and a maximum of 100 basis points for debt with maturities of one year or longer, on an annualized basis."
Goldman was the first to sell $5bn new debt under the guarantee of this program on 11/24.

General Terms

Asset Backed Commercial Paper (ABCP)
EESA (Emergency Economic Stabilization Act)
Money Market Mutual Fund (MMMF)
GSE (Government Sponsored Enterprise) Includes: Fannie Mae, Freddie Mac, Ginnie Mae.
SPV (Special Purpose Vehicle)

Wednesday, July 30, 2008

Address to the CIAI Quarterly Equity Forum, NYC 7/25/2008

Distinguished panels and guests:

From the presentations by the august panelist today and also reading the headlines, we can see that both China and US economies both face enormous uncertainties:
recession or recovery, correlation or decoupling, peak oil or abundance, inflation or stagnation.

But there is also an interesting contrast between the 2 environments.
Within PRC, there is an optimism, a belief that they can create a better future. Within USA, there is a feeling of being lost at sea, not sure of which way to go and a fear of ‘things getting worse’.

Is it a case of the glass being half full or half empty?
I propose that we are facing REAL uncertainties here pregnant with REAL possibilites.

Consider the story of Nan-in, a Japanese master during the Meiji era.
One time he received a university professor who came to inquire about Zen. Nan-in served tea. He poured his visitor’s cup full, and then kept on pouring. The professor watched the overflow until he no longer could restrain himself.
“It’s is overfull. No more will go in!”
“Like this cup,” Nan-in said, “you are full of your own opinions and speculations. How can I show you Zen unless you first empty your cup?”

When the civic leaders and reporters are all repeating the same sets of stories, it is very hard to change the pattern, to inject new ideas and stories for consideration. But when there is REAL Uncertainty and no one is sure of the ‘right’ stories, there is an opening, there are possibilities for many ideas to bloom, for real changes in the mid to occur.

I would suggest that we have such an opportunity today.

I have noticed in the US press and civic dialogue about China, there is a bi-polar quality: love of Chinese culture, distain for governance & regulation; partners in fighting terror, rivals in economic affairs; one moment it’s an ideological menace, next it’s a new face of capitalism. There varied and conflicting stories are constantly vying for acceptance.

Those with experiences in both these cultures have a unique role. We have the understanding of history and culture from both side. Those of us in business and finance understands further the gears and levers of global economic and finances which are a critical linkage between the two economies. We have the knowledge and the opportunity to create New Stories. Storeis that help America make sense of the Chinese people and stories that help China make sense of itself and the world.

What kind of stories could these be?

Stories that made a difference.

Consider one example:
Anthropoligist Margaret Mead’s book “Coming of Age in Samoa” was a hit academically and popularly in the 30’s great depression era. The then exotic familial and childrearing practices in Melanisia were both shocking and enticing to her contemporaries. She demonstrated that anthropologists have a privileged position to comment on human affairs because of their intimate knowledge of diverse cultures.

The world was emerging from the end of the colonial era, America was groping its way toward its proper role for a world power, one with active ties and commitments all over the globe. To a significant degree, China is going through the same phase today.

Margert Mead challenged many unexamined believes: including the universal believe that “we” are special and superior to other cultural groups. She convinced most of Americans that we should learn from other societies so that mutual understanding would reduce conflicts. That was a radical thought in that age.

She changed how US people viewed herself in relation to the rest of the world. And her ideas influenced social trends in the ‘60s and continues up to today. In other words, she found a power Story which resonated with her contemporary audiences.

Ross Perot said, “We owe it to the American people to explain to them in plain language, where we are, where we are going, and what we have to do. Then we need to build a consensus to do it.”
This is what our new Stories must do.
We need Stories that will encourage both US and china to build a long term partnership for prosperity, health, and peace.

In spite of the many competing stories, the sense of Uncertainty today gives us an opportunity to shape this change.

Guilermos del Torro said in an interview, “The art of the director is meeting the compromises (in film making) with creativity.” Let me paraphrase him to said:

Our challenge today is Meeting our Uncertainties with creativity.
Creatively crafting new stories that work.

I challenge you to contribute New Stories that make a difference.
Or provide counter stories to erroneous stories in the press.

I look forward to engaging with you creatively in this area.
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