Atlas Spinning

Regarding The Father Land and a Further Land

2009-11-13T11:24:00.002-06:00

Let freedom and blue jeans reign.

Freak show rocker Iggy Pop moved to Berlin because, he said, New York wasn’t decadent enough. So perhaps it wasn’t the mere cry of freedom that sent the waves of East Berliners across the wall twenty years ago. Maybe it was something a little more funky.

It’s hard to say because unlike every other journalist in the country, I wasn’t there at the time. Berlin in the 30’s was so depraved that Hitler thought it needed the Nazis, after the war, the grey dusk of communisms settled over half the country to deal with excessive smiling. It was to Hamburg that the Beatles fled when 1960’s Liverpool didn’t prove naughty enough.

German decadence is a strange sort of decadence. They may have beer for breakfast but they are not, by and large, binge drinkers in the Anglo-Saxon tradition. Sitting in the Heidelberg restaurant is not like sitting in a American bar: a big breasted German stereotype of a waitress brings the tables sausages and potato pancakes and of course liters of German beer. All around you, the joviality is as sincere as it is orderly. When the waitress brings me a boot, literally a glass boot, of lager the thing is spotless and measures exactly to the line near the top of the boot.

As the old saying goes, in every good German there are two good policemen. If you were on the wrong side of the Brandenburg Gate then one of the policemen was with the Stazi. But no more. Since the fall of the wall, the East has done remarkably well as the tagalong to Europe’s strongest economy, even if they aren’t quite on par yet. Other post-communist areas haven’t done nearly so well.

All of this got me thinking about Afghanistan, and a plan for the war that simply cannot fail. If your country is mostly wasteland, yet you are still called the “graveyard of Empires” the people must be of hardy stock, not unlike the Germans. Like Germany, we should partition the country into two, with the US and Britain administering 60% of the country, and the Taliban controlling the rest. This will cut our field of operation in half and cut out of the craggy, hard to reach places. Since we have enough soldiers to keep order in those places, the next surge we send is contractors from McDonald’s and Starbucks armed with light bulbs, proper toilets and shows like TMZ to flash shots of Brittany Spears climbing out of Bentleys. You know, the shots that answer the carpet/drapes question.

If we want to win the peace, and make some money on the side, when need to shape the hearty Afghan soul into our mushy image. Like the Germans, the Taliban Afghans would sneer at us for about 40 years. Although it’s hard to see how the Afghans would plausibly get themselves into a women’s swim team scandal like the East Germans, anything could happen.

But we know what will happen; it is only a question of when. How long until the tribal leaders of the Taliban section get tired of seeing their counterparts in the Western section whizzing about in their Mercedes, going from refrigerator to Xbox, sipping their Starbucks before they too want this. How long until the peasants who support them see that internal plumbing is not, in fact, tool of the devil? How long until the small, dirty faithful storm whatever wall the Taliban throws up in order to get to the golden arches of the West?

Why Should the Healthcare Debate Be So Painful?

2009-11-10T08:21:00.005-06:00

Thomas Jefferson, Defender of Freedom, hard to tell what his stance on ACORN would have been.

I happened to be standing in Monticello, the mountaintop home of Thomas Jefferson on Saturday while the House of Representatives were setting themselves to pass the President’s healthcare bill. Having just gotten my Jeffersonian freak on, I wondered if the “squire” would have thought the government getting between free citizens and their doctors, even to ensure a doctor to the poor, was progressive or nothing less than his worst nightmare – that the citizens of the republic he helped found had scratched one more item off the list of things they could do for themselves.

To Jefferson, small government was the aim, the only aim. But small government is rarely the aim of a politician, and is never the aim of enough of them to do anything about it. Government gives politicians something to do.

Why should America strive for small government when the world is such a rough place? Because big government makes it rougher – just look at the worker’s paradises created by Comrades Lenin and Stalin, or Herr Hitler.

Because the European colonists, sick of kings and a nosey aristocracy, crossed oceans in what amounted to sailing coffins only to be faced with the task of conquering the woodlands, mountains and prairies. They did this, hacking a super-power out of the wilderness, with little to no help from the government, and in many cases, in direct defiance of governments, churches and all that held a superstitious world in check. Life certainly isn’t any harder now than it used to be. We just scare easier and are lot more lazy.

Which is not to say that the work of the colonists was entirely noble. There were plenty of people doing just fine in the woodlands, mountains and prairies before whitey came along. It would also be a myth to say that the early government had never worked to improve the lot of the downtrodden. Just look how well the Indians did under government protection from rampant capitalism. When the Great Father in Washington took the native Americans under its wing, it succeeded not in elevating, preserving, or even assimilating those ancient and noble cultures, but only in genocide. Fortunately, as a government run program, it was done half-baked manner.

The United States government has a long history of helping out disadvantaged groups, nearly all of which have turned out worse for the help. You might be tempted to mention the slaves, but it was government policy that brought them across the Atlantic in chains in the first place. There are, of course, the French and their colossal bailout in 1944. But if you compare France's current economy with that of Germany’s, even their success is debatable.

So go easy on President Obama, he’s got ironclad precedent on his side. It would be hard to say that Barack Obama isn’t educated, he certainly is, and he’s no dummy either. All empirical evidence suggests that his birth certificate is legal. What he has not got is a resume with a real job on it.

His is a world where the government supplies all the money he needs to do nice things and achieve his private dream: like organizing communities. How these communities in disarray were helped by his reorganization is unclear except, given his partnership with ACORN, underage foreign prostitutes are readily available. If you are not an underage, foreign prostitute the government sponsored market might be a good thing. It must really take the edge off having ivy-league educated know-it-all’s constantly dropping in to tell you how poor you are.

For Mr. Obama, a man who has spent the entirely on his professional life as either a state employee or living off government grants, it must be hard to relate to those who work to pay to support their government. That for every government check, for every dollar of assistance that comes from the Great Father, some productive citizen has had to pay into the system an even larger amount from his wages. He will go home poorer for it, and he will be able give less to the causes dear to his heart.

It is simply inconceivable to someone like Mr. Obama that we wouldn’t trust the government or, for that matter, him. The taxpaying masses have been supporting him and his dreams all his life, why would they not now?

And therein lies the disconnect in the healthcare debate. A debate between people who work for a living, or at the very least inherited money from someone who did, and the ones who demand that government do all the heavy lifting for them. Between the two is the government that must create dependency on one side in order to consolidate power and find someone on the other to fund said dependency.

Which explains why it has all been handled in such a vague manner. Who demands, as the White House did over the summer, that a bill as massive and sensitive as healthcare be voted on and passed before it’s read? Because the White House knew what would happen if the plan were discussed. And they were right.

Healthcare is an intensely personal issue. It is not a concept like democracy, socialism or the free market. It is debate over your body. To lose say over your body is to, by definition, become a slave. Which makes the allies of the bill designed to extend government reach over something as personal as your body come from such odd corners. It’s the same crew that still sports “Keep Your Laws Off My Body” bumper stickers on aging Saturns across the land.

Abortion rights groups are stunned that their great victory, granted by the courts because they couldn’t win at the polls, will not be funded by those taxpayers who would never have supported it if they’d been given a chance. These laws are welcome on their bodies. These same believers are calling anyone who questions the wisdom of having a hospital run like the DMV a racist. To them I would say that dissent and argument on a matter as intimate as our bodies is not racism. I would also point out that slavery generally is.

The free market is the reason the United States has the best healthcare in the world. It is also the most expensive, the critics accurately point out. “Doesn’t the free market encourage competition and drive prices lower?” They sneer.

It does. But American healthcare and insurance industry isn’t a remotely free market. Government intervention stifles competition and drives prices up. Government regulation, not the free market, is the reason a little green lizard isn’t saving you 15% or more on your health insurance. Were the little bugger allowed, he’d love to. The government won’t allow it.
Regulation is the reason that we have 50 almost-monopolies of healthcare in this country, limiting competition to a handful of cozy chums so blessed by the halls of the Great Father who did so well by the Indians.

And we are turning to government to solve the problem of too much government tinkering in with health insurance, fixing markets and – very high – prices.

And why not? Bernie Madoff had a good run on the SEC. That’s not racism that’s just stupid.

Room 101? Down The Hall And To The Left.

2009-11-04T09:47:00.004-06:00

Big Brother, seen here watching you google "Boobtropolis." May tell the wife...hasn't decided.

American’s have developed a strangely bi-polar vision of huge American corporations. Oceans of ink have been spilt on the evils of Wall Street and deranged bond traders. Reams dedicated to the unscrupulous lenders, but nary a word on the honesty of borrowing money you can’t possible pay back. The billions made by Wall Street is proof positive of their nefarious disconnect from the great masses of Main Street.

All right, fair enough. Banks aren’t the only ones Main Street turns on when they start to distrust the giant at the end of the block. A few years ago Microsoft replaced the Soviet Union as the evil empire and were broken up by the Clinton administrations anti-trust league for the fairly innocuous sin of forcing a user to click once to using Microsoft’s web browser and click twice to use a third party’s browser. It was a monopoly, the mob said. But it wasn’t if you used a Mac.

If you think that an extra flick of your forefinger’s interphalangeal joint is a devilish hill to climb to get third party software, buy a Mac. It’s a fine product, but they damn well force you to dance with the one you came with. What gets me through the night with mine is that the skinny chap from the commercials will bring me a soy latte, or whatever it is cool Mac users drink.

America’s paranoia about being dominated by big corporations is not uniform. Google, Inc. has somehow managed to position itself as a $22 billion a year Ben & Jerry’s of the internet despite being a near monopoly, and at the same time acting as some all seeing big brother for everything we write, watch, read and buy online. If you take step back, the very concept of Google’s 65% market share is much scarier that anything the banks, AT&T or Microsoft were up to.

Google is likely to hold more power over us, in the form of what we see and hear and buy, than the bankers who let us buy three times as much house as we should have. They certainly have more control than whoever is minding the 401(k) we emptied out to pay the aforementioned mortgage.

Which is not to say that Google is doing anything nefarious with the information. The worst most of us can say about there service is that it is damned convenient if you have to retrieve fairly obscure information all day.

Despite the convenience, there is a creepy side to Google. I’m currently writing a fairly anti-social history of drinking in America; presumably because I’m good at it. If I start my search for resources by typing “Alcoholism” and “American Indian” and “Hootinanny”, I’ll get a fairly good idea of available resources so I can spend my time at the University library staring at co-eds and not wondering which books to check out. The next day, I’ll notice that the good people who make Bullet Bourbon want to talk to me, as well as the temperate souls at Alcoholics Anonymous, and the Expedia.com crowd thinks I have an overwhelming urge to fly to Montana by the end of the week. These cats are reading our minds. What’s even more obnoxious is that, to judge by my search history, I’m dull as hell.

To make matters even more unsettling, the Obama administration, which prides itself for not handing out jobs to corporate executives who may be corrupt in favor of academics who are certainly incompetent, has gotten very cozy with Google. It’s not the money. According to Opensecret.org, Google employees gave some $803,000 to the Obama political campaign, but that was behind both Microsoft (trying to gain traction with its Bing search engine) and Goldman Sachs who seems to have bought an irrational hate for their money.

Is it because Mr. Obama sees a kindred spirit, having himself been launched in to the Oval Office on a cyber-wave of support? Or is it because Google has a lot of dirt on all of us? An all-seeing eye watching our every cyber move is the sort of thing that would make George Orwell’s Room 101 nightmare seem tame. What could the government do with the information in my Google files? Send a brace of drunken native Americans to terrorize me? Would the party be BYOB?

So why has Google not caused more of a furor? Because Google has done an excellent PR job of making the issue of federal regulation of the internet more important than the information Google collects on us.

Besides, the service really is convenient. When these “big brother” fears surface (or in the case of Google, don’t) I generally wrap myself in the bubble wrap of my own insignificance and carry on about my day.

Beware The Hand That Saves You

2009-10-29T09:39:00.002-05:00

Pandemic? Well it's one louder than an epidemic....iddn't it?

According to the doctors, the swine flu is as highly contagious, fairly mild disease. Unless you were vaccinated 35 years ago with President Ford, or last week, none of us has a natural immunity to it. According to the cable news “experts” we’ve got a pandemic on our hands. According to the President, we’ve got a national emergency.

To paraphrase R.E.M: It’s the end of the world as we know it...yet, somehow, I feel fine.

A pandemic, of course, is somehow more noxious than an epidemic, although even the experts seem hard pressed to explain why. Yet the 1918 Spanish influenza epidemic was much worse that today’s H1N1 pandemic by a factor of several times. So the 1918 epidemic has, some 90 years after it ceased to be an issue, declared a pandemic. Some we’ve come to the point in this national emergency when we’re re-christening old disasters to make the current situation seem more “disastery.” Which is generally the point when you need to stop listening to anyone on television (or me, for that matter), keep a handkerchief handy, and talk to the one who makes you turn your head and cough.

If you are an adolescent in good health, the good doctor will tell you, or even in late middle age without a previously impaired immune problem or somewhere in between, the worst thing that the swine or any other flu is likely to do is send you to the bed for an uncomfortable couple of days. That and stay hydrated.

Since April, there have been around 1,000 deaths from H1N1; about half of those had previously impaired immune systems. In an average year, there are about 36,000 deaths from the plain vanilla flu. So to go by the numbers we all agree on, the standard flu we all expect to get sometime by spring is, at this early stage, 72 times worse than the H1N1 strain that has prompted the national emergency.

The charitable view of the president’s declaration is that he is being pro-active to avoid his Hurricane Katrina – i.e. getting blamed politically for some unfortunately timed force of the natural world. As if Mr. Obama fears that Michael Bublé will take a page out of the book of Kanye and announce that the president hates white people. That won’t happen because Glenn Beck, who can’t sing but cries like Barbara Streisand, has already tried that stunt.

The uncharitable view would be that what has been produced by H1N1 isn’t a once in a lifetime plague, but a once in a lifetime political opportunity for a government seeking to expand its role in healthcare. Creating a disaster and then solving it has been a hallowed tactic of lackluster mothers and husbands trying to get of the sofa for generations – because it works. Saving the republic from an imaginary plague is going to be a lot more humane that saving us from imaginary nukes in the Iraqi desert.

We are still, it should be noted, fighting a war over those imaginary nukes, as well as one with a real enemy in Afghanistan. The economy may be walking again but it’s got a nasty limp. Even Democrats have voiced concern over attempting to reform healthcare when the economy is in such a precarious position and we are fighting two wars and contemplating and third with Iran. Why the rush on healthcare, an issue that needs reform but has been manageably gummed up for a generation now? It’s a legitimate question. So far, Mr. Obama has not yet been able to come up with an answer that justifies more debt on a battered dollar and less attention on two wars that desperately need some focus back home. He has failed to generate the required sense of eminent danger required for Americans to give up their rights (a la The Patriot Act) without a fight.

By declaring the country is in a state of emergency, the White House can swoop in with a vaccination that not be a life saver but probably is a good idea anyway, and when this year’s runny noses turn out to be no more fatal than any other, tell us how we couldn’t have gotten through it without the government’s benevolent hand.

To create a crisis, and then be the one to solve it is an age-old political trick. By employing it, the Obama administration isn’t redefining politics as he once claimed, but resorting to one of the oldest tricks in the book. Literally, even Machiavelli warned against false rescuers.

Keeping Up With The Ponzies

2009-10-27T09:46:00.001-05:00

It is hard to reckon what Mr. Black's cellmate thinks about this photo.

On a per captia basis, Dalton, Georgia is more densely populated with billionaires than most US cities, certainly more than its over-achieving cousin, Atlanta. Almost to a man, the billionaires in Dalton made their money in carpet. Yes, the fuzzy stuff that runs under our feet. Among the throng of people who do not fret about the mortgage in Dalton, you will find no grungy internet gurus or obnoxious hedge fund sorts. Who you will find among the über–wealthy are just a few normal people who produce some 80% of the carpet in the America, the most carpeted republic on earth.

Carpet, all rolled up, is very heavy, which I knew. It’s also perishable, which I didn’t. The other element in this formula for success is that heavy things cost a lot to ship and Asia is far away. As such, carpet is one of the few things that nearly all of us see everyday but never think about, that has not been outsourced to China. When you call to order said carpet from the fellow on the phone with the post colonial accent who swears his name is Roger, the call is probably being routed through Mumbai, but your carpet is made in Dalton, Georgia.

You wouldn’t know that these people had cornered the market in anything from looking at the place, though. It’s plenty nice: a quaint, well-maintained Southern downtown district that is thoroughly un-modern. It’s clean and you have all the mod cons, but the original building haven’t been knocked down because some architect is trying to make his reputation on the bad taste of some mogul with too much money. Dalton supports nice restaurants that aren’t difficult about being nice, where the owners come out and check on out of town guests and regulars alike. Nice is the operative word here, and friendly. It led me to ask the question: “So why are the billionaires and millionaires here indistinguishable from the...lets call them thousandaires?”

Honestly I have no idea if I met and billionaire while I was there or not. I know a handful (small hands) of billionaires in Memphis – but for the most part they shop in the same stores I do.

Why would, during his lifetime in Memphis, Holiday Inn founder Kemmons Wilson sit in the bleacher seats at the US Open and people like Conrad Black, Bernie Madoff, Allen Stamford, and Mark Drier be such insufferable jerks with their jetting around in private planes and barking at the help? The answer is that, save Mr. Wilson and an unremarkable handful of carpet tycoons, the rest weren’t really billionaires. They only played one for investors. To judge by the way the Feds raided the Galleon Hedge Fund those guys aren’t coming by their success honestly either.

Newspaper proprietor Conrad Black was affectionately known as “the poorest billionaire in Manhattan.” Reportedly, he was crestfallen when he had to tell his wife that they couldn’t afford a helicopter to go with the private jet because “we aren’t rich like the Kravises.” Mr. Black had his lawyers scare the hell out of every Canadian in the eastern provinces, bought a title into the British House of Lords, then tried to sue an American investor for suggesting that Lord Black wasn’t all he said he was. That’s when it all went wrong for Mr. Black.

Messers Madoff, Drier and Stamford, whose falls were more sudden and therefore more spectacular, are all in jail or under house arrest. Jeffery Picower, who authorities believe was the key to finding just what the hell happened to Madoff’s missing billions, was found dead in his swimming pool at his $33 million dollar estate in Palm Beach. Mr. Picower’s claimed that he was not an accomplice, but a victim. Given Mr. Picower’s heart problems, it was the stress of being a victim of a ponzi scheme that left him more than $7 billion richer that caused him to have a heart attack.

This isn’t the keeping up with the Joneses that led so many Americans to buy houses they had no hope of paying for. This is “Keeping up with the Jones” plus the multiplier of a state lottery. Like the one where I blew my money in Dalton, Ga. This is keeping up with the Ponzis.
Which just may be the key to understanding why some billionaires are such jerks, even when begging for money. If I made my money by scamming people – even legally – I’d want my customers and the general public to be scared to ask me questions too.

So how is one to tell an honest billionaire from a crook? You might want to observe how said moneybags addresses the great equalizer of the free republic: the hamburger. The wealthiest man I know – who worked for every one of his billion plus dollars is not afraid of a hamburger. He’s a gentleman about it, but he’s not afraid to get in there and mess it up with a hunk of meat either.

If, on the other hand, said billionaire whines about grease on his suit, or orders a burger with truffles in it, or pairs it with Bouchard Père et Fils 2006 Clos Vougeot then you know something else: people confident enough in their work to enjoy the fruits of their labor are also confident enough not to dress the classic burger with a $150 bottle of wine.

That’s for stolen money and getting laid.

A Ponzi Economy

2009-10-15T16:15:00.002-05:00

Charles Ponzi, seen here coining an unfortunate trend.

Yesterday the Dow Jones Industrial Average broke the 10,000 point milestone...again.

This is the 25th time that milestone has been passed since it first did in 29 March 1999. In doing so about half the losses since the markets all time peak of 14,164 in 9 October 2007 have been erased. The rising index is positive signal but remember that today’s market no bigger than the one ten years ago, and 40% off where we were two years ago. So how, a clever investor might ask, do we get back to those dizzying heights?

To look at what fueled the previous booms, apparently nothing. By March of 1999, it was clear the internet was a game changer in retailing and communication. The dinosaurs of the old economy were going to be obliterated by the unstoppable meteor of the new. When the dot.com crash bottomed out in 2002, it took the market some 38% off its highs. But there had been very little profit behind those astronomical numbers so no one was surprized. The internet may have driven the money out of print and broadcast advertising but it did not actually drive it to the web. Rates have remained so low that they are perennially unprofitable. In a bizarre change of internet tack, new media superstar Politico only became viable when it, created a subscription based print version of itself.

Our next boom was in the real estate market which, it should be noted, was fueled by people who were only pretending to have the money with which to pay for said real estate. It didn’t really matter because the banks were only pretending to service the loans. The massive write-downs on mortgage-backed securities that caused the banking system to implode were not caused by a climb in the mortgage default rate from 2 to 4%. Those securities froze on the realization that the projected returns were largely fantasy in the first place.

Remember the rating agencies? When they couldn’t justify the AAA ratings they sold to the bankers, they down graded the lot and, with a stroke of a pen, sucked billions out of the economy.

Which is not to say that plenty of people haven’t done well. Many investors enjoyed 12-15% on their portfolios in a decade that exactly where it began. Impressive until you realize that about $70 billion of those profits were just made up. Not the inflated prices of honest people behaving recklessly or of conflicted rating agency analysts, but simply made up. Bernie Madoff, R. Allen Stanford, and Mark Drier just typed up numbers on letterhead.

In an aside, Mr. Madoff seems to be faring better in prison that the strapping Texan also-ran. Sir Allen wound up in the prison hospital after his first prison brawl, whereas Battlin’ Bernie M won his first dust up. Apparently the fight started over a disagreement about the stock market.
The attorney Drier at least went to the trouble of impersonating people so his story is interesting. He only stole $400 million and for his troubles is going to suffer the worst fate of an egomaniac: his fifteen minutes of fame will be spent being remembered as a minor fraudster about to be forgotten.

So we are celebrating reaching the same place we reached a decade ago. Why not, it’s a sign that things are getting better in the broader economy even though foreclosures are climbing and unemployment won’t come down.

You might be tempted to think that most of the boom was just a national ponzi scheme. Were we really making all that money? Were we really doing all that well? The dot.com bubble never really created much wealth, all things considered. It merely transferred relatively small sums from a lot of excitable lemmings into the stock market. . Getting out of the market created the dot.com billionaires, not getting into it. The dinosaurs of the old economy largely survived the vast paper profits built solely on the expectations that later investors would drive the prices up further still.

The housing boom was largely based on buying houses with nothing and waiting on waves of new buyers to drive the prices up in order to sell the house later. Which would have worked if everyone had kept buying.

Which, curiously, is the definition of a ponzi scheme.

What Is Wealth Worth?

2009-10-13T11:54:00.003-05:00

Note the early sixties pillow-blocking-the-naughty-bits discretion.

There is a famous scene in the James Bond Movie Goldfinger, where Sean Connery’s Bond discovers his latest fling sprawled across the sheets in a Miami hotel room, fairly dead, smothered in gold paint.

In the latest Bond flick Daniel Craig gives our hero 21st century makeover. That famous scene is revisited in luxury hotel in South America with a graphic modern twist: the girl is still dead, exphixated this time in a coat shiny oil of black oil dripping over her and the white sheets. Oil, even the dullest of us can infer, is the new gold.

To look at the modern luxury of Saudi Arabia rising up through the fine pink dust that hangs over the gleaming cities, however, is to peer into the wrong crystal ball. Money doesn’t always bring wealth. Sitting on a mountain of gold and silver, as Spain did over its colonies, or oceans of oil as Latin America does today, will not guarantee national prosperity.

If the Olympic committee threw Brazil a bone on the 2016 games, it is because organizations like the IOC see countries like Brazil ambitious enough to cut a check for status. In short, they are the future. The future includes what are probably the two largest untapped oil deepwater oil fields in the world off Brazil’s shores. Oil companies are scrambling for the right to do business in Brazil and likes being courted.

Winning the geological lottery is not enough. If those economies are sacrificed on the altar of politics, then being made out of money isn’t going to make you rich. Brazil is a success story, despite some very Latin political setbacks. Its President Luiz Inacio Da Silva came from crushing poverty but has proven himself surprisingly pro business. Brazil on the other hand has seen an influx of $40 billion in foreign investment this year, all but offsetting the outflow of $40.1 billion during the height of the crisis last year.

Across the border, the Chilean miracle is in full force, not from increased social spending, but by allowing citizens to “opt out” of the welfare state. To witness the labor strikes on Buenos Aires is to witness and labor strike in a city on par with Paris or Milan.

Moving north to just south of the border. Mexico and Venezuela are not so rich. In fact they are outright poor despite their resources and appear to be getting poorer despite the boom in oil prices. Venezuela’s oil money went out of the country to buy a shiny new air force for Hugo Chavez. Mexico’s oil dividends are largely used for buying expensive union bosses as opposed to reinvestment. The window for using oil to redefine their abysmal economies is closing.

As late as 2004, the Mexico’s main offshore oil well, Cantarell, was producing over two million barrels per day (b/d) of crude. Now it can manage a mere 600,000 b/d. Of Mexico’s 32 known oil fields, 23 are in decline. Without replacement, the world’s 7th largest oil producer will be an importer by 2017. Why should this be?

Pemex is Mexico’s state owned oil monopoly. Adam Smith was able to enshrine state run business in a single sentence: “The state cannot be very great of which the sovereign has leisure to carry on the trade [of] a wine merchant or apothecary.” While Mexican wine, state run or not, sounds terrifying, I have it on good authority that some cracking good pharmaceuticals come out of that place without any help from the government.

Politicians run Pemex and the presidential term is six years, much longer that it takes to find a new oil field and bring it on line. So Pemex is more likely to disperse extra cash on social programs than reinvest it to find new sources of income to make the next guy look good. Social programs rarely signal a strong economy. Now the wells are running dry and without private investment, new ones will be hard pressed to develop.

Which begs the question – where is the private investment? The US constitution is a fairly broad document, baring things like illegal search and seizure and throwing a fellow in the pokey without telling him why. Mexico’s constitution is more of a nuts and bolts document that forbids private investment in hydrocarbons: something that slipped past our forefathers.

What didn’t get past them was that true wealth isn’t created by money, but by people freely using it.

Skinny People Dancing v. Chubby People Eating

2009-10-06T10:41:00.003-05:00

Feathered Happy Brazilians being glad.

The mobs filling the streets of Rio de Janeiro over the weekend were infinitely happier than those protesting in Buenos Aires, but marginally less well behaved. At least it was the fun sort of less well behaved. While the Argentines may have learned their labor negotiations from Europe but the instant Carnival that erupted in neighboring Brazil on the news that they would host the 2016 Olympics is pure South America. In Rio the chance of getting hit by a flying brick from the unemployed is fairly low, but you just might get dry humped to death.

The crowds in Chicago, I understand, were less jovial. They seemed struck dumb with disappointment at being beaten out of the Olympic contest in the first round of votes. That’s a shame because Chicagoans love Chicago without having to hate other places: a sign of a truly great city. A New Yorker will tell a Memphian why Big Apple is better than the Bluff City, the Memphian will generally agree. The Chicagoan couldn’t care less if Memphis is a rat-hole or the proverbial City on a Hill; they just know that Chicago is awesome.

Overly ambitious, hyper competitive Americans can smell out a winner a hemisphere away even if it’s not us. It wasn’t a two-way fight, but an four-way contest, the US was one of three countries that threw their hats in the ring and didn’t make it. To Americans, though, it was Chicago v. Rio. The Brazilians cast the fight in different terms: “Skinny People Dancing v. Chubby People Eating”. When you put it that way I might have voted for Rio too. However accurate, comments like that are diplomatically off-sides.

President Obama threw in his pitch and it just wasn’t enough. It wasn’t his fault, either for trying (what else would have done?) or failing (the world takes great pleasure in reminding the US that, despite evidence to the contrary, it is not the center of the universe). Mr. Obama’s political opponents should take care in sneering over the loss, because it’s a good way to ensure not one Republican vote ever comes out of the windy city again. On the other hand, no one is sure that one GOP vote ever has.

So what did Chicago and the Republic lose in being passed over? Less than you might think. When told that sometimes blessings come in disguise, Winston Churchill once quipped, “It certainly is a very good disguise.”

The games in Chicago would have been a boom, albeit a short term one, to both the economics and confidence of the city and the country. It would be 17 or so days of good sport, press and cash flow followed by one hell of a 30-year mortgage. And what have we learned about huge mortgages on short cash flow?

The long-term benefits of hosting the Olympics these days are less clear. London plans to tear down some 60% of the buildings it will build for the 2012 Olympics. Try selling that to the Green crowd. The fact that the stadium used for the Athens Olympics is still standing is something of a miracle, but not an economic one. Most engineers are shocked the thing was finished in the first place. A week before the Athens games, it wasn’t. Beijing has used its city defining and spastically ugly Bird’s Nest stadium only once since the games, and that was for a Jackie Chan concert (the Middle Kingdom will always be a mystery). Beijing will be paying the venue off for the next thirty years or until they remember that they’re Chinese and drop out of the world economy for a few centuries – whichever comes first.

Brazil and its 900 foot Jesus could prove a different story. After years of turmoil, the country is currently awash with cash from super charged commodity prices and free-market reforms enacted by President Luiz Inacio Lula Da Silva. They can pay for it; they want to pay for it. They’ll use it as an excuse to raze a few slums and nearly empty industrial park and ship the squatter inland.

“Hosting the Olympics is a signal to the rest of the world that you’re no longer and emerging market – you have emerged.” Said William Summerhill, a historian at UCLA. 2012 will be the new Brazil’s coming out party – and they are giddy as a debutante about it.

The US Taxpayer is not so flush this year; we can sit this one out. We’ve hosted the modern games more than any other country. If the US wants a shining example of the US example, it shouldn’t be Americans embracing a free market, but Brazil. The local powerhouse embracing and rising through the free market on a continent of struggling socialist Banana Republics is a brighter beacon largely because the rest of South America doesn’t hate Brazil with a blinding passion. Not yet at least.

That is America in action. If we can just keep the CIA from killing anyone too important or good-looking we’ll have succeeded despite ourselves.

A Charming Fusion of Hysteria and Shortsightedness

2009-10-01T11:39:00.007-05:00

They'd really be something to look at if they were screaming at you.

Buenos Aires doesn’t look like a South American city, not even one of the nice ones.

The clean wide boulevards are lined with wide sidewalks and pretty building that have been built and maintained with an attention to detail with which the average US city can’t be bothered. It is a modern city, but doesn’t try to look space age: there is a timeless quality about it, as if Hemingway might emerge from one of the café’s with a blotto Scott Fitzgerald on his shoulder. Beyond the architecture, there is something European about the place: the vibe, the way the people dress, even their half baked approach to labor negotiations.

It is a fusion of South American histrionics and feather-headed European coddling of unskilled labor. The upside to the Argentine models being that the aforementioned labor is generally very good looking. Vain to be sure, but people who look like that usually are.

Crowds of Argentines have poured into the streets of the capital in protest to what they see as the wrongful dismissal of some 159 workers who tried to lobby for a few weeks paid vacation by briefly holding middle management hostage. However pleasant sitting at a sidewalk café watching what has to be the best looking citizenry in the world pass by may be, the government is worried. Mass protests by the proletariat are the accepted method of regime chain down here.

President Christina Kirchner, former first MILF before she succeeded her ruggedly handsome husband, Nester, knows this all too well. The Kirchners are leftists, and in the economic boom that followed the near collapse of the country’s economy in 2001-02, they have folded most of the country’s union leaders into their political platform. A break with the workers of Argentina would be to fatally erode Madame President’s base.

The problem started in July, flu season in the southern hemisphere. Workers fearing an impending H1N1 outbreak at the Kraft plant located in a suburb of Buenos Aires demanded higher hygiene standards and some extra paid vacation. Kraft implemented the heightened cleanliness measures but failed to grasp why, exactly, a flu virus that had infected none of the 2,700 workers at the plant should warrant a week of paid leave for workers to perfect their all-over tans mid-winter. Kraft Foods, it should be noted, is based in Northfield, Ill. where perfect complexion is not regarded as a basic human right.

Kraft’s lackluster concern for the “hotness” of its workers led to scowls on otherwise good-looking Argentine faces. Some 160 workers detained 70 others, mostly management at the Kraft facilities. For this 159 were fired. According to the average Argentine worker, Kraft was entirely out of line.

Christine Abarza was part of the mass dismissal said, “They wanted to quiet us so they could begin applying the 12-hour American work shift, employing agency laborers the rotate every six months, increasing production without increasing salary or work force, freezing salaries and all the measures that these types of companies apply.”

Which was news to the Kraft spokesman, who said the company had no plans freeze salaries, increase production or implement a 12-hour shift. Ms. Abarza is one of those gals with a face that lets her get away with saying things like that. Kraft did file a criminal claim against the workers.

Personally, I’ve never managed to terrorize my boss into a raise. I’ve never tried, granted, but only because it seems that brown-nosing is the better tool for the job. I know a guy who, miscalculating his worth to the company, tried strong arm the boss. He wound up in the parking lot, with a box of his belongings between his feet, showing the company his newly unemployed middle finger. Perhaps I lack the aggressiveness necessary to get ahead in the corporate America.

The newly unemployed Kraft workers, now with a lot of time on their hands, decided to simply occupy the facility. They squatted and closed the facility down for 40 days until police forcibly evicted them last week.

Then the protests really started. President Kirchner has been slow to use the police to disperse the crowds for fear of upsetting her political base. It took over a month for the government to decide that an angry mob taking over a private facility and shutting down production was not entirely legal. Now Ms. Kirchner is banking on the angry crowd realizing that protesting makes frown lines before other unions join the fray. Still, it’s ungrateful, as the Kirchner’s have gone through the time and trouble of buying perfectly good union bosses only to have the rank and file worker peel away and start a wave of unauthorized protests.

Hector Mendez, the head of the Argentine Industrial Union, sees a new set of problems for the 155,000 Argentine workers employed by US companies: that other unions will follow the Kraft example and drive foreign investment out of the country. “We’re worried about this. These radical groups aren’t doing any good for anybody.”

No, Hector, they aren’t.

How Many Switzerlands Do We Need?

2009-09-29T15:41:00.002-05:00

Without this sign of quality, how do you know you're getting a genuine Switzerland?

The crucial element to remember about the G20 in Pittsburgh last week is that none of the member nations have any reason to do anything that they’ve promised. Private citizens and other useful entities have courts to keep their word good, countries to not.

Sure small countries, the ones that are perennially caught between the neighborhood thug and the US, have the United Nation to which they can scamper, but what good it that? As a rule, neither the neighborhood thug nor the sole global superpower generally listens to anything declared by that debate club in New York. President Obama’s triumph over Bush diplomacy isn’t that he’s listens to the UN, it’s that he’s pretends to listen. Then he ignores them. Sometimes it’s the little gestures that count.

The main achievement of the G20 summit was to declare itself arbitrator of the global economy. President Obama declared it a success because everyone agreed on some politically expedient concept in the future and no one had to agree to actually doing anything right there at the table. “Here in Pittsburgh we have taken steps to secure and strong, sustainable, balanced growth.” Other leaders made comments that, in their native tongue, were nearly as meaningless.

Treasury Secretary Tim Geithner said that reform of the financial and banking sectors across the globe was the main thrust of the conference. The Financial Stability Board (FSB) was established in April and consists of finance ministers, central bankers, supervisors of banks, market regulators (like the SEC), and those who set accounting standards. Mr. Geithner, envisioning a greatly expanded role for the FSB, likened it to the fourth pillar in some monument to bureaucracy like the International Monetary Fund, the World Bank, and the World Trade Organization. And like these three, it’s doubtful that anyone will really know just what the hell they do in those offices.

The theory goes that uniform global banking regulations across borders will keep banks from migration to wherever regulation is most lax. For example: many bankers decided that disclosure and regulation of sophisticated securities used to finance the housing boom started by Washington’s attempt to strong arm US banks into loaning money to poor people was lighter in London. So they moved their offices accordingly and drove up real estate prices along the Thames along with the tax base. It’s hard to see why London is going to be in the vanguard to change that scenario. Besides, anyone who has done business in Jolly Ole England knows that free wheelin’ London is not the problem.

A quick look at the G20 nations and it is the names you don’t see that make the loopholes in international finance: Nigeria (the Switzerland of Africa), Panama (the Switzerland of South America), and Antigua (the Switzerland of the Caribbean) were neither at the G20 table nor asked to be.

For that matter, the Switzerland of Europe isn’t even on the G20 list, or a member of the EU. It is, however, the only Switzerland that A) isn’t a credit sinkhole, B) doesn’t have a murder rate higher than its interbank rate, and C) you can get a decent fondue. The real Switzerland also has some industry, all those clever knives and watches for example.

The little viral Switzerlands currently support their economies by letting money do what ever it wants to do and lacing their banana with cocaine. To hear the G20 tell it, there is no future in that.

All of this to ask: So what is the point of regulation that keeps the big banks respectable but still allows them to park their money in unregulated financial backwaters?

Diplomats, unlike politicians, are reasonable people. That’s why they have no power. They want the world at least to appear fair. It is a policy of fairness and openness that none of the signatories have any intention of keeping. No one really wants a level playing field; they just want it to look level so that no one will notice that convenient warp at the corner of the field that makes placekicking easy for your side. It may not be fair, but we all know what they say about love and war.

Anyone who thinks that the global economy is anything less than a world war in pinstripes is doomed to middle management.

The Aim Is Victory

2009-09-24T17:20:00.003-05:00

Sir Winston, seen here about to win.

There is a reason no general who plans on keeping his job ever uttered the phrase, “We will meet the enemy with underwhelming force.” It’s a stupid strategy and those who spend their lives studying the one game the Republic simply cannot lose know this.

Government, on the other hand, concern themselves with the policy, rather than the aim, of war. They should leave the fearsome art of war to the professionals. Politicians would be wise to stick with what they do best: kissing babies and screwing interns.

Congress had made a big show of demanding that General Stanley McCrystal, currently directing the war in Afghanistan, to stop what he was doing and grant lawmakers an audience. The Pentagon refused, they should. Gen. McCrystal has made his assessment, and made his requirements clear.

The war is under funded; the forces do not have the resources they need to overwhelm the enemy. Congress has control of said resources. The army has pleaded for more resources, which the White House has refused on the grounds that generals don’t realize there are mid-term elections coming up and the anti-war crowd who pushed President Obama into office is getting uppity. So the war will continue to be under funded and without resources it will remain unwinnable. Congress will continue to ask why the war isn’t being won.

Watching that high-strung debating club on the hill trying on the same pair of pants that don’t fit might be funny if our soldiers weren’t out their getting themselves killed.

At the outset of World War II, when Great Britain was standing alone against a much more formidable war machine that the Taliban, Winston Churchill the politician outlined the government’s policy. “You ask, what is our policy? I can say: It is to wage war, by sea, land and air, with all our might and all the strength that God can give us…that is our policy.” Churchill the warrior continued, “You ask, what is our aim? I can answer in one word: victory, victory at all costs, victory in spite of all terror, victory however long and hard the road may be; for without victory, there is no survival.”

Justly or not, we are at war and without the benefit of time travel we can’t change that. In war we can only have one aim: route out the Taliban in Afghanistan. Our refusal to fight this war full tilt is the reason it cannot be won. There is no point of going to war if the aim is anything but victory. Half measures only prolong the pain; they don’t make it easier or less bad.

It is possible that if neither side is dead set, that wars can be avoided through diplomacy and friendship. Once started, however, those channels close. Wars can only be won by making life for the enemy more miserable that it is for us.

The question shouldn’t be to increase funding and troops for the war. There is no doubt among the professionals that it cannot be won with the current allocated resources. The question should be whether we should take our ball and go home – game unfinished – and take the consequences, or to pay the price for victory and achieve it.

To fight or not to fight is the question, not how hard should we try.

Daycare Just Got Groovier

2009-09-22T08:34:00.000-05:00

Shaheed Wright, seen here being a real Sh--Heed.

Shaheed Wright no doubt thought the idea was terribly clever at the time. By his own account, the police were circling so he hid his stash of cocaine in his 4-year old son’s jacket pockets, telling the boy it was candy. “Candy” must be the urban translation of “Daddy’s juice”.

The boy was dropped off at the Clinton Avenue Daycare in Newark, NJ where the boy promptly started to win friends and influence people with his stash of candy. The son, one girl and other boys were rushed to the hospital that morning after eating the cocaine that daddy had saving for his nose. All turned out to be fine with the children. Later that day, both Shaheed and his nose were being held in the Superior Court of Essex County on $400,00. How he plans to make bail is something of a mystery, as his boy spent the morning giving the inventory away.

The bright side of the story is that the child has learned how to share.

I didn’t go to school until the ripe old age of kindergarten, so had no idea what I was missing. I had to wait until my undergraduate days for my classmate to come in one day with a bag of not-quite-fine brown powder and tried to sell me some cocaine.

Drugs were never really my cup of tea. If proof were needed, people who are into drugs will never say that it is their cup of tea – no one ever pronounced a line of cocaine as “just jolly”. In Tuscaloosa, however, it “snows” a lot despite the heat. So even though I wasn’t in the market, I knew what it looked like.

“It’s brown.” Said I.

“It’s Mike Tyson cocaine.” Said he.

To this day, that response baffles me. This was back when boxing with Mike Tyson was counted in seconds, not rounds. Marvis Frasier famously was on his back in 43 seconds. Tyson’s then wife, Robin Givens, lasted longer, but she pulled her lawyers into the ring.

“As you say. But as I understand it, cocaine is white and doesn’t generally have a proper name.”

“It’s brown and packs a punch.”

I had to concede that both of those attributes described the boxer well. As for the bag he was dangling in front of me, well, it too was brown.

“Really?”

“Really, dude.”

We weren’t given the high-flown debate back then. My roommate was one of those people who acted and sounded like every other Southern fraternity boy of the age until the subject of drugs came up. Then he sounded like the campy pothead in some bad teen flick. Then his mother would call about his allowance, at which point he sounded like he’d just signed his father’s ticket at the club for a clandestine bourbon and water.

A tenacious little monkey, the roommate continued to dangle the bag before me. Finally I asked the nagging question. “Are you positive that you haven’t just crushed a couple of Ritalin tablets from that bottle on your dresser?” At least the gang at the Clinton Avenue daycare got teased with real cocaine. If they’d been snorting a synthetic substitute like Ritalin, the school nurse would’ve gotten a promotion.

“Naw man. This is the real shit.”

“Well, no thank you. It’s not my cup of tea.”

“…Like mushroom tea?”

If you were an undergraduate at the University of Alabama on or about 1989, the closest thing you got to a picnic is driving off to Lower Alabama to find a cow pasture from which to harvest ‘shrooms. In Colorado they have frog licking and in the South, mushrooms from cow turds. I suppose if I had gone to NYU I’d have had access to clean, professionally made Ecstasy or some other drugs designed to make me thin and social like the rest of the eighties. As it was, folks would eat the psychoactive mushrooms or stick them in the toe end of pantyhose, boil them in water, and literally have a cup of tea.

So fast forward about half the summer term and in walks my roommate, full of cheer and judging from the fact that he called me “Bra” and managed to drag it out across two syllables, full of something else. He’d just been down to Auburn to pick ‘shrooms. His girlfriend drifted back to his room to take a nap with the lava lamp. He did the obligatory head check to make sure there weren’t any Narcs hiding in the sofa, and dropped his voice. “He, we got a lot of ‘shrooms. You shoulda come with us.”

“No thanks,” I said, “I’m writing a novel no one will read.” Or words to that affect.

“You wanna buy some?” He threw a suspiciously clean bag on the Goodwill coffee table between us.

I’d had enough. Having a roommate who is a small-time drug dealer has its pitfalls, but at least it’s bohemian and vaguely dangerous. Having a roommate who is a small-time pretend drug dealer is just plain stupid. In my mind’s eye I could see him going to the farmer’s market buying a pillowcase of shitake mushrooms for $1.40 and selling them to anyone but me for $80. Which is what he said the “street value” of the bag was. Tuscaloosa had paved roads and internal plumbing in 1989, but nothing the urban vernacular would define as “street.”

“So,” I said opening the bag, “You wouldn’t want me to do this?” I crammed a handfuls or two of mushrooms into my maw. I’m one of five boys, I can eat very fast when I have half a mind to do it. He found this alarming.

I washed the afternoon snack down with one of his beers and went for what I thought would be a pleasant afternoon stroll. That was about 3:30.

It was a little too damn pleasant actually. It was the first time I’d actually had a meaningful conversation with that bullfrog that lived down by the river. Nice guy, but he was having troubles with the IRS.

Most of the dancing I’d done in my life up to that point, say 85% of it, was done that night. I remember being fairly good at it, but that wasn’t the universal consensus. In the intervening 20 years, that night at the Ivory Tusk still accounts for 75% of my dancing. The only conversation after the chatty bullfrog I can remember was my roommate demanding $80 from me. I never paid him.

I did offer him a dance though.

A Deal Is A Deal Is A Deal

2009-09-17T11:33:00.002-05:00

Barclay's Bank: "Retail is for suckers."

There are relatively few advantages to the bust that follows the boom, but it’s hard to argue with the prices these days. Government intervention has softened the worst part of the blow, but the end affect of the bail-out has been to allow survivors to snatch up bargains. That is really about the only thing likely to pull an economy out of its ruts. Low prices after the fall is capitalism’s natural stimulus plan.

Despite claims by Nicholas Sarkozy, Michael Moore and about a quarter of congress, capitalism is not dead. Finance may be screwed eight ways from Sunday, but capitalism isn’t even broken. If proof were needed, just look to the lawyers assigned to dispose of the corpse of Lehman Brothers, dead now this foul year.

They are trying to claw back some of the money that Barclay’s, the London bank that bought the failed bank’s assets, has made on the deal. Three days after Lehman Brother’s failed Barclay’s swooped in and purchased $50 billion in rapidly depreciating assets for $45 billion, and pocketed a $2.7 billion fee at closing for a nearly $8 billion “windfall”. The Lehman Estate, rather the attorneys charged with unwinding the late banks positions, say they want $10 billion from the Barclay’s ill-gotten “windfall”.

Yes, they want $10 billion of the $7.7 billion in profits of the deal paid back to the estate.

That this is even being considered is a bad sign for contract law. In the scandal over the AIG and Bank of America bonuses, congress has set a terrible precedent: that contract law is only valid while said contract is popular. Lehman was a fire sale, they weren’t failing when Barclay’s made their offer, they had already failed. The company was trying to salvage what it could. The Lehman estate now says that the price was too low, mistakes were made. The fact is that if Lehman, or anyone for that matter, could name their price all the time, then they wouldn’t have gone under. Now that prices have started to stabilize – a long year out – the estate wants to claw back the money they couldn’t demand while in free fall.

It is a common misconception that there is really such a thing as “below market price”. Market price, by definition, is what you price a certain asset will fetch at a certain time. Not what you wish it would fetch, not what your competitor got for it, not what you got for it six months ago, or for that matter, six hours ago.

Lehman Brothers had collapsed and the value of its underlying assets was rapidly dropping because no one wanted them. Barclay’s made an offer and the estate accepted - that is market price. The fact that the market for those assets has stabilized is hardly relevant. If you buy an antique commode while redecorating your office at 50% off the ticketed price during the Merrill Lynch President’s Day Sale, and come Monday the price goes back to full list, the buyer is not obliged to return to the store and pay the difference.

Capitalism isn’t dead, but respect for contract law seems to be mortally wounded. The moral hazard created by the government intervention into private business is not only the excessive risk taking by banks, but the lack of respect for contract law as well.

The Dollar Is Sinking, and If The Mayans Have Anything To Say, It's Not Coming Back Up

2009-09-15T09:19:00.002-05:00

The Mayan Calendar, seen here being gloomy.

Most economists are combing the economic omens and seeing signs of recovery, even if our wallets aren’t feeling any plumper. These things don’t happen overnight, however. It will be a long haul and it doesn’t look like we will be hitting pre-crisis levels until 2012 or beyond. If those proto-quants, the ancient Mayans, knew what they were talking about this will be just in time for the end of the world.

The longest unit if time on the Mayan calendar was a b’ak’tun (394.3 years) 13 of these went into a Long Cycle (5126 years) and after that they pretty much stopped counting. The current one started on the 11 August 3114 BC (when else?), and ends on the much hyped 21 Dec 2012. This development has caused a panic in France, but then again, what doesn’t? If true, the collapse of the Mayan universe could prove decidedly inconvenient to both an economy on the mend and Al Gore’s plans for long term gloom.

The predictions of a long recovery, even as investors appetite for risk increases, indicate that the Fed is likely to keep interest rates low until the end of time, as well and continue to pump more money into the economy. As such, the economic tea leaves foretell dark days ahead for the dollar. Low returns and expanding inventory will drive the prices down on anything, especially currency. Several world wide currencies will likely raise interest rates next year in the face of stable recovery, putting downward pressure on the price of the dollar. For those still boning up on Trader-speak, that means the price will go down, causing a weak dollar.

When the crisis hit, investors domestic and worldwide went into US treasuries because that was considered to be the safest asset class. Now investors are leaving. This is less a sign that the end of the Republic in nigh, an more a sign that the global economy is getting back to business. The dollar always slips during recoveries as investors seek higher returns through riskier assets.

One troubling sign is in gold, that other safe-haven into which investors flee when times get strange. Speculators worried about the dollar’s prospects are shifting into gold and driving the price past the $1000 mark. Investors think, and this is probably true, that the US will continue to print money and keep rates low. The danger is that the US will be the laggard in the world economy. This is vexing as most US economists agree that modern Europe’s reason for existence is to be the last kid picked in the world’s economic basketball game.

A weak dollar has its advantages though. It has buoyed American exports and staved off the really savage unemployment from taking hold earlier in the crisis. It means that, as foreign economies improve, they will seek out US goods at favorable exchange rates, stimulating exports if we can avoid the potential tariff war with China. That may be a tall order, the Middle Kingdom exists in a state of perpetual protectionism, and last Friday President Obama announced that he was slapping a heavy tariff on Chinese tires exported to the US. This is going to have the affect of driving the cost up of badly made tires we really ought not be driving on in the first place.

China has more too worry about here than the US, as some 56 countries have slapped Bejing with punitive trade tariff’s.

What does this mean to the average American? Expect a lot of foreign tourists – from Europe, Russia China and greater Asia telephone book as well as all the other emerging economies to whom the US is used to exporting pity. Brazil is included in the new “decoupled” powerhouses, so it appears that the descendants of the Mayans will be traveling north on strong reals to watch the end American primacy and therefore the world as we know it.

The nay-sayers be damned, this isn’t the end of the dollar despite how bad the Chinese, Russians, and French want it to be. To replace the dollar the world needs a replacement, which it doesn’t have. Rivals to primacy foresee an IMF credits denominated in a currency “basket”.

Here is where policy, prophesy and the reality of the market diverge. Since most of the world’s savings is in dollars, it is in everyone’s best interest to keep the dollar strong. For the world to move from the dollar to another “reserve” currency, central banks would have to get rid of their dollars, flooding the market and causing the price to free fall. That would cause the value of their savings accounts to fall at the same rate.

Stated policy and hopeful prophesy also assumed that the US foisted the dollar on anyone – it didn’t. The world came and snatched up dollars because, in the absence of gold standard, it was the safest bet.

Nothing lasts forever: Rome fell and the sun eventually set on the British Empire. The dollar and the Republic for which it stands will not be eternal. When it goes, it will be replaced gradually by gold or another usable currency. When the IMF puts out a universally accepted currency not backed by anything, not only will it be the end of the world, someplace will have frozen over as well.

The Greenbacked Monster

2009-09-02T10:01:00.002-05:00

Careful what you ask for.

The problem with a first rate financial crisis is that to get out of it you must deal with people who know a lot about money. These are the same people, we are told, who got us into this mess in the first place. Never mind that banker’s can’t create bubbles on their own – they can only throw gasoline on the smoldering coals of our speculative stupidity.

Free markets don’t create bubbles either, anymore than bathroom scales create obesity. A scale simply measures how fat we are getting, but we are the ones sneaking to the fridge at midnight to tidy up the edges of that cheesecake. A banker says you can afford a house for the same reason that cute salesgirl says you look hot in that $1,500 suit, to make a sale. Now that you have buyer’s remorse, you find yourself going to the same Shylock who sold you the house you can’t afford to get some more credit. Which he’s likely to refuse on given your massive debt that he facilitated.

That is why banking crises are so much more irksome than tulip, Mississippi or dot.com bubbles. No one needed the help of the geniuses behind the short lived internet currency Flooz after it sucked up $35 million in venture capital. Perhaps I’m being unkind, if the good people at Wachovia would let me pay my car note in Flooz, we’d really be onto something.

People who know a lot about money (the real kind) tend to collect a lot of it. People who know a great deal about engineering don’t collect quantitative flowage. If the Civil War is your area of expertise, you can collect historical artifacts, but you can’t collect history. You can collect money. After which you can collect things like manky old shot-through tunics that wouldn’t fit your 13 year old niece. People who know a great deal about astrophysics are admired, but people who successfully tinker with money are envied. Therein lies the crux of the problem.

America has always been an envious nation. Behind the raw ambition that created the most stable economic and political miracle of the modern world was envy. Europeans with a big house with a yard that was stocked with deferential villagers to say “M’Lord” and “M’Lady” didn’t make the harrowing journey across the oceans in barely seaworthy coffins. That ride was for the villagers sick of pretending to admire college-boy when he came by the pub to look superior. The villagers knew what land could buy, and they wanted it.

Envy may fuel ambition, but it burns pretty well under resentment too.

That the too-big-to-fail banks not only got the most help but are likely to emerge stronger on the other side, is only fueling America’s new populism. The bigger banks are eating up less capitalized banks with government guarantees and TARP money. Which will make them too bigger to fail (forgive the grammar). Too-big-to-fail non-financial like GM are being bailed-out and other large corporations have access to the credit markets where entrepreneurs do not.

All this is creating a tale of two economies within the recovery. One where the big get bigger and another where the small still continue to struggle and die away. This happened during and after the Great Depression when larger farmers were able to snatch up struggling farms for a song. Such are the dangers of collapsing prices and economies, but after the short term (but very acute) misery came a boom in agricultural productivity from large commercial farms that ushered in a era of cheap food that the family farm simply didn’t have the scale to produce.

The company that largely enabled the entrepreneurial boom of the last twenty years, flattening out supply chains, lower start-up barriers and host of other entrepreneurial whiz-bangs was none other that that heartless monopoly Microsoft. The same dorks who have made an art of stealing technology from the little guy (or their college roommate) and then crushing all the competition around them. To quote the most unfortunate email in Microsoft’s, and possibly corporate, history: resistance is futile.

Competition is a good thing, it makes the markets more efficient. Pure, lead-free water is good thing too, but you can drown in it. A given market can only bear so many competitors and the financial market was over banked. If proof of this was needed, just look at the number of dodgy loans that were made. Given the number of failures this year, the banks managed to shoot themselves in the foot as well.

The great mass sub-prime loans has worked its way through the system. Now defaults on prime loans and commercial real estate are mounting. A bad sign and a sure one that the little guy is going to get bent over the barrel.

He is. Big banks are coming out of the crisis stronger and they are loaning money to corporate clients, now that some cash flow is picking up. This isn’t evil and work, but common sense. Small business loans are riskier that those to huge corporations with massive cash flows. TARP, the money tax-payers loaned to the too-big-to-fail banks, is fetching us a 8% annualized return on the investment. All in all, we could come out about $60 billion ahead after TARP is wrapped up. The best, and cheapest, thing the government could do to help the clever but under employed citizen is not help him buy a car he won’t be able to afford in six months or a handout of quickly printed government money, but to guarantee small business loans the way TARP assets are guaranteed. Pay for the defaults with the $60 billion we made off the original TARP.

Still, the Wall Street types who were first at the trough are still driving Porsches. Sure those powerful enough to rig the system have rigged it to their advantage. To whose advantage were they supposed to set it? Your congressman has voted himself a good pension and can opt out of social security, you can vote yourself neither. Every free society has its haves and have nots. Some socialist utopias have managed to smooth the inequities by making everyone a have-not.

So it comes back to envy – that greenbacked monster. If the playing field isn’t exactly level, you have the freedom to push harder than the next guy and make your way to the higher ground on which some are simply born.

It’s not fair, but there it is.

When Not To Rock The Boat

2009-08-28T15:06:00.002-05:00

Ben Bernanke, seen here winning friends and influence people... lots of people.

It’s hard to say with any certainty, but it appears that politics consumes nearly 800% its weight in reality. Since we’re managing to politicize every other aspect of American life from birth to death counseling, why not go for the economy too? The shock and uncertainty of the financial crisis is screaming for more regulation. Fortunately centrally planned economies to remove all the uncertainties of capitalism – we know the cart is headed off a cliff.

This week President Obama wisely decided not to rock the heeling boat further with his renomination of Ben Bernanke to a second term as chairman of the Fed. It is almost inconceivable that the nomination will not be confirmed. The process has its nay sayers, though. Senator Richard Shelby (R -Ala) is unimpressed: “The banking committee should carefully examine the impact of the Fed’s failures as a bank regulator, how such failures contributed to the crisis, and whether Chairman Bernanke’s performance as the chief regulator merits his reconfirmation.”

You get the impression that the senator from the great state of Alabama is going say no to anything the president does. Even if what the president renominates a Republican first placed by another Republican. With three seats on the fed open and a chairman to appoint, Mr Obama has resisted a once in a century opportunity to completely stack the Fed board with liberal reformers who know little to nothing about math or even economics.

Mr Bernanke has an impressive CV. He was an influential member of the Federal Reserve Board under Alan Greenspan, by whose own admission helped sow the seeds of the current crisis. In retrospect, Mr Bernanke’s remarks in March of 2007 seem ominous: “The dispersion of risk more broadly across the financial system has, thus far, increased the resilience of the system and the economy to shocks.”

I suppose that people had to die before we realized that leeches didn’t work either. In Mr Bernanke’s defense had banks, borrowers and the rating agencies and, yes, the government not lost their heads the market would still think CMO’s were just jolly.

Still, his record isn’t flawless. The Fed bailed out Bear Stearns in March of 2008 and then inexplicably let Lehman Brothers fail in September. The ensuing panic brought us as close to a redux of the Great Depression as we have ever been. Then he quit listening to the mob (that’s you, me, the politicians we elect and the lobbyists they sleep with) and enacted a reasonably affective and coherent plan, and didn’t stop until something like a recovery was in sight.

When the mob grumbled, he did something no Fed chairman had ever done. Mr Bernanke broke the hallowed tradition of remaining aloof, obtuse and generally incomprehensible to engage in a PR campaign defending his emergency measures. He appeared on 60 Minutes and at a town hall meeting for PBS. Riveting, but the Obamacare meetings have more vim.

His next term will be a challenge of a different sort. He must, at some point, unwind the emergency programs he enacted in the first place. The timing will be crucial: too early and the recovery will stall, too late and off we go on the inflation rocket. The other hurdle will be hard for Mr. Bernanke but nearly impossible for anyone else. There will be a massive overhaul of federal regulation. You really can’t have a newbie wearing the big diapers when you change the way that the Republic does business.

Is Mr Bernanke’s effectiveness and competence the reason the president has renominated him? Let’s hope so. But politics don’t always, or ever, fully jibe with what the private sector might call reality. Politically it would be very hard for Mr Obama to let Mr Bernanke go. You can’t publicly fire someone for a job well done. Mr Obama is trying to sell the idea that the worst is over. If he dropped Mr. Bernanke the public, and more crucially the markets, would doubt this and get spooked. The worst does appear to be over, but the steak has very little to do with the sizzle.

Since politics and not ideology or even coherent logic seem behind both the Senator’s and the President’s actions, you can’t accuse either of not being themselves. Just hope they stay out of the Fed’s way.

All That Bass Is Bad For The Digestion

2009-08-26T14:03:00.002-05:00

Three Hour Tour and one White Animal, still going after twenty years.

The old and rock n’ roll do not mix, not naturally at least. There are plenty of iconic exceptions: The Rolling Stones, Areosmith, Eric Clapton, but almost none who haven’t ingested a whole lot of chemical preservatives over the years. To slice open Keith Richards would be to unleash upon an unsuspecting world a terrifying marriage of the chemical and organic.

That isn’t what this story is about, though. It’s about Rock n’ Roll and normal people. One of my best friends in college, a few of them actually, had a band called Three Hour Tour. A name, band lore has it, that I invented but like most college memories, the details are hazy. The bassist, Tommy Terrell, was looking down the barrel of his 40th birthday, and Beau Jones, the drummer, had just had his 39th. Into this mix add special guest Steve Boyd of that 80’s college stand-by glory, The White Animals.

The White Animals come through Memphis about once a year now, maybe less. When they do it becomes a city-wide private high school reunion: a pleasant but strangely nightmarish blend of old memories of youth hyper-colliding with the reality of passing time. There isn’t much to do about that though.

So Three Hour Tour plus one White Animal was playing at The Brick in Decatur, Alabama. I told my wife – on whom I have about ten years, she’ll have me point out – and she rose to the occasion. And so it was. The magazine wasn’t going to pay my expenses and truly there was no real way to expense the hotel so David Seale, the lead singer and my college roommate, found suggested a hotel about three blocks from the hootenanny.

I ran into a slight problem with the reservation as it was on my card. It wasn’t declined, but I generally find paying for things myself problematic. The accent of the innkeeper was a hurtle too, it led me to believe that our invasion of the middle east is a two way street. I managed to understand $39. Really? David assured me that he’d stayed there before and that is was “fine.”

Language is subjective. No more so than with words like “fine”, where the meaning depends a great deal on the speaker. Fine – to a 40 year old pop singer on his 2nd bachelorhood might mean something wholly different than to say, a 30 year old graduate of both Ms. Hutchinson's School for Young Ladies and Hollins College.

As it turned out, the hotel had a smallish, kidney-shaped swimming pool that, while having no water in it, was home to a tidy, well mowed patch of lawn. Strange because the sign listing pool hours and rules was still up. This would make a post show belly-flop from the second floor balcony objectionable, if not fatal. If “fine” was too optimistic a term for the hotel, then “flea-bag” would have been too harsh. Mrs. Murff has one of those unsinkable spirits and simply said, “We won’t be here much.” So we were off the Brick.

The Brick, a smokey subterranean cellar with that beautiful hole-in-the-wall feeling that no decorator has ever managed to reproduce in captivity, had burned since my last trip to Decatur. Then it moved. Now I was face to face with a clean, barn of a place that had plenty of character, but somehow lacked what could only be called the dead flowers that made Mick Jagger croon all those years ago.

I suppose you could say that we were “with the band”, but that really loses its roughish panache when the lead singer has his daughter with him. While they were setting up I asked her if going behind scenes with a band lost all its cool when said band included your father. “Pretty much.” She is, however, a big fan of Elvis movies and coached me on which ones to start my own daughter, so she not be denied an appreciation of the finer things in life.

There was no more smoking at The Brick, no rhythm guitar dangling a smoldering jake at that go-to-hell angle, but I was sitting with my wife and one of my best friend’s 12 years old daughter talking about which musicals my 9 year old might like. They could have served hash at the place and I’m not sure I would have noticed.

The food was fantastic, and that really forgives all manner of sins. I was starting to work through my sandwich when the sound check started. Really, I hesitate to post this, but, it’s the only way to make my point. My overriding thought during the sound check was, “All that bass has got to be bad for the digestion.”

That appears to be, in retrospect, the moment I gave up.

It’s always a danger to get dressed if you are in a band and are old enough to have a college diploma. A kid can wear any damn thing combination of leather, silk and dirty he wants a simply chalk it up to being a trendy fop. At a certain age, there is a balance that must be struck. Too much drama is just ridiculous. It’s ridiculous on the young, but they seem impervious to the observation of their elders and their peers are as half-witted as themselves. Still I suppose, if you are putting on a show, you have to make an honest effort at glitz. Certainly more of an effort than a writer does to do his thing – where you can get away with having fundamentally the same look you had in 6th grade.

Jeans and untucked shirts that were, just a hair, shinier that I ought to attempt. That was enough to pack The Brick, even in its new massive size, wall to wall with people. It is always strange to see your college buddies, now teachers, stock brokers and salesmen, jumping abut on stage like, well, rock stars. There they were, though, doing what they love. And the crowd was loving it too.

They played some classics to start off with, and by the second set had Steve of White Animal fame playing with them, playing the soundtrack to my high school years. The show was great, I had vowed to the Mrs. not to goob out and failed to deliver on the promise.

The truth is you can’t occasionally party like a rock star any more than you can occasionally hit the track and run like an olympian. To live like that takes more stamina than I have the stamina to give. Also, it’s bad on the digestion, which is why all those rock stars are so skinny while I, gentle reader, am not.

Don't Tax The Hand That Feeds You

2009-08-19T15:15:00.002-05:00

Austerity is cool, tight is in, thrifty is trendy. Some of us have waited 39 years for this glorious upland of the cheap. As Americans, we make a good show of being thrifty when the opportunity demands it, but we don’t really like it. That’s why we left our risk-averse cousins in Europe. Our grandparents were cheap because they never really got over the depression and the rationing of war. This generation may carry the scars of the current fiasco - but modesty is not in our national character.

Consumer spending is down, and not just the 15.5% at Saks either. At that purveyor of all the basics in life, Target, sales are down 6.2% compared to last year. And last year, it should be remembered, was a bloodbath. In the back of our heads we know all this austerity just may lead to another round of job cuts. The dark clouds are on the horizon and we are hoarding. The exception being auto sales, thanks to the government’s “Cash for Clunkers” program. But that is expensive therapy and someone is going to be presented, in the near future, with a massive bill.

The numbers tell us that initial jobless clams have dropped drastically recently, and that productivity is up. The government is delivering its much promised palettes of HOPE on the backs f these numbers. Stats can be misleading. Anyone who spent time in the derivatives business can confirm that numbers can, in fact, lie. Which is not to say that they are useless, but like the financiers who put them together, they bear watching – closely.

The initial jobless numbers shows who has been fired. That number seems to have bottomed out for the time being. The number to be watching is the unemployment rate. It is now at 9.4%, worse than France, and is an indication of who is getting hired. Or more to the point in this case, who isn’t.

If the current number is maintained for any length of time, the recovery will fail as consumer spending drops, sales go down, inventory climbs which will trigger a new round of lay-offs. There is talk of a second stimulus. Actually, another stimulus would be a third, the first was put through by the Bush administration to a small but forgettable bump. The second stimulus, which is being doled out now, has already caused us to go back to the printing presses to court inflation.

Beware of the magic bullet of stimulus. The sort of people who own businesses are the same people who know that the goodies doled out by the government have to be paid for by someone. Namely the businesses that haven’t failed. Soaking the businesses with payroll taxes to fund extended unemployment benefits and other stimulus treats all make it more expensive, as well as riskier, to add new employees. Which is the real key to the recovery. We can weather almost anything if the check is good.

Unemployment benefits are funded, not really by the government as they like to tell you, but by employers through payroll taxes. Every new hire is (theoretically) an asset, but a liability as well. If payroll taxes go up, which they will when the stimulus and aid bills come in, every new hire becomes more expensive, as well as a long-term liability. Businesses keep paying for fired employees in the form of higher taxes on the worker they still employ.

In past recessions, the end of a downturn brought on a surge in new hires in anticipation of an impending upsurge in demand. With the present and future costs of adding employees on the rise, businesses are waiting for demand to rise before they add employees. They may be waiting for a long time. High unemployment dampens consumer demand, which kicks a hole in profits and causes higher unemployment.

Unemployment aide is a relief for a great many people, and has been for a long time. As a rich republic, we can afford some close-ended welfare. It isn’t free, though, and it’s a job-killer too. The much derided 2003 Bush tax cuts caused a flurry of hiring. Bush’s cock-up was that he kept spending on the war.

To afford that kind of stimulus now, we’ll have to stop spending. Good Luck

From B-list to A-Hole

2009-08-13T14:00:00.003-05:00

Certainly not B-list

Washington fat-cats have always enjoyed pointing fingers at corporate fat-cats. The theory being that screaming about executive pay in a populist rage deflects from the issue of executive perks on Capitol Hill. Even ole Gaius Julius Caesar was a fan of that trick and he was a card carrying member of both camps.

And why not, all’s fair in love, war and politics. Political fat-cats have a point in their favor over the corporate kind: they generally have the populist decency to spend hundreds of thousands of PR dollars to fabricate ridiculous tales of their common touch. Your top Wall Street banker doesn’t so much buy that Magnum Marine super-yacht because he can, but because we can’t. They don’t send money as mush as flaunt it.

Historically, the sneers from Washington have been met with faint but confident grins from the financial sector, which has a tight trim on Capital Hill. Now, momentarily, the winds have shifted and politicians are making the most of the advantage.
The financial crisis and subsequent bail-out has given congress the excuse to impose caps on executive pay and bonus schemes. It’s hard to feel sorry for Wall Street, largely because it really is hard to look pathetic on the aforementioned yacht, especially after you’ve taken so much public aid that your boat should be re-classed as public housing. It’s really hard to pull off arrogance of such biblical proportions on other peoples money.

So it has been, so it is. Pride goeth before destruction and arrogance of that magnitude generally ends in a wrath of fury from all sides.

In it’s final form, however, Congress has chosen to back off somewhat on the issue of executive pay. In doing so has decided not to withhold oil from the engine that drives the economy. It has – wisely – limited itself to regulating the pay and incentives of companies that create a “systematic risk” to the financial system or take public money. For the rest of publicly traded America, the question of pay will be left to shareholders who will have an annual vote on executive pay and “golden parachutes.” As it is , such votes will be merely advisory and managers will have the right to ignore the vote completely. That leaves pay packages exactly where they were before, 100% in the hands of the managers. The most likely outcome to all to this is that shareholders will rely on the same outsourced consultants as the Boards do to determine pay. It’s nice to see our legislators on the ball.

Washington didn’t exactly back its way out of the equation, however. Most of what you’d call the A-list banks are under the government’s eye after taking TARP. These are the same banks that used to have the pick of the most profitable traders because only they could afford such lucrative pay packages. The smaller, B list outfits now have the freedom to pay however much they can afford without catching the eye of regulators.

This puts the surviving firms that the government either ignored or hoped would go under without much of a fight in the position to pay well without having to make excuses for it. They can pursue the “every man for himself” attitude that has been the root of every boom and bust in history.

Make no mistake, though, the boom the B-list firms are enjoying with undoubtedly create some A-holes.

Hey! That's My Move!

2009-08-11T09:52:00.002-05:00

Egad, can't you just disagree with the guy?

House speaker Nancy Pelosi has denounced that rabble-rousing protests as un-American. Which happens to be exactly what the wing-nut fringe of the GOP used to say about anyone who questioned the wisdom of the war that made the rest of us at least slightly queasy.

Whether people simultaneously came up with the protest on their own, or a corporate lobbyist cracked the code of four decades of appalling liberal manners is unclear – and largely irrelevant – someone under the GOP banner has learned the classic Democrat play of screaming slogans as opposed to a coherent thought. While emotionally charged slogans are no match for a reasoned and lively debate, but they can ensure that said debate never happens.

The polarization of political factions has dangerously wide. People don’t seem to disagree with each other any more as much as hate each other. Yet the scope of American political beliefs – relative to the crack-pot schemes that get play in the rest of the world – is fairly narrow. The Bush/Gore race was so close largely because the two candidates were running on identical platforms. So why are we all acting so offended by each other? It isn’t a gulf between ideas and ideals but that each side sees, very clearly, their own worst behavior in the other.

If there is one thing I’ve learned as I slide headlong into my forties, it’s that people really hate to be treated the way they are used to treating other people. If you doubt this, next time your phone rings in the middle of the night with a misdirected booty call and the gorilla on the other end of the line slurs “Where Angel?” Simply tell the caller that Angel is, in fact, searching for her panties at the moment and she’ll have to call him back. The same fella who drunkenly woke you at 3 am demanding the whereabouts of Angel will be so affronted that I can almost guarantee a death threat. If you are a real risk taker, start nagging the Mrs. about putting the toilet seat back up after she’s done.

Democrats have long enjoyed the freedom of screaming incoherent catch phrases at the GOP while the Republicans sit around trying to say things like “Well, sure were against poverty too, how how do you plan to pay for all this?” Now the Democrats are faced with the same appalling behavior as they try to got to town meetings as say “Now look, if we can’t sell this class-warfare story, how are we going to pass this Obamacare?” Apparently they find these outbursts irksome. Welcome to the club.

As fun as it is to cheese off the powers that be for those who don’t...be...some caution is needed. The low road of style over substance is easier that a coherent platform or thought process. Debate is part of democratic process, simply silencing the opposition through threats or screaming is not. And for this the Democrats call Republicans un-American. Which is especially annoying as Republicans have long thought that quip was their signature move. So they behave more like Democrats, who will continue to hurl tactics out of Republican play book.

The truth is that the only connection between Obamacare and Hitler is that they are both socialist. The plan isn’t tyrannical, it’s just a misguided mishmash of liberal party favors. If proof of this were needed, just look at the mad dash to force the thing through congress. Anyone with a really brilliant idea likes for everyone to hear it and congratulate them on being so clever. Then they want to encourage debate to so that they can disable all the competing ideas. But congress is not some hippodrome where all ideas start as equals. If you’ve got a hare-brained scheme that will never withstand a common sense debate the only option is to press the damn thing through before someone turns on the light.

The ironic thing is that there is one point both side agree on: No one wants to debate healthcare. Democrats want to push it through without a reading, and the GOP, who seem to oppose the undisclosed plan on the grounds that Democrats approve of it.

Still there is the question of grass roots or astroturf. President Obama’s “grass roots” revolution had a technology and PR juggernaut behind it pulling the strings. So what? All protests, love-ins, and demonstrations have organizers. There is a left-wing cottage industry based entirely on teaching the miffed how to protest.

Whether sent by twitter, memos, or get out the vote vans, most movements are all organized and stage managed. Included in this list f stage-managed stump politics are the ever present Town Hall meetings themselves. Al Gore was famous for filling his “Town Halls” with campaign volunteers to lob him soft questions. I can imagine that most politicians are guilty of this in a media age.

The only truly spontaneous get togethers are not really protest at all. That very American way of celebrating national championships called rioting. It’s a very affective way to protest unbroken glass.

Send Iran "the Bill"

2009-08-06T09:47:00.002-05:00

President Clinton, see here getting someplace with short people.

Yesterday saw the happy end to a story that had really dismal potential. Euna Lee and Laura Ling, the journalist who were pinched snooping around a lousy neighborhood in the employ of greeniac Al Gore, came home. The North Koreans seemed to think that Mr. Gore wasn’t important enough, which must really be a kick in the pants for a the man who always assumed he’d be king.

So Mr. Gore called his former boss, and seasoned Democrat alpha male, Bill Clinton who was able to woo North Korea’s Kim Il Jong after Mrs. Clinton nearly sealed the fate of the two journalists with what the Korean’s called her “vulgar” remarks (not promising for the Republic’s face to the world). Somehow it doesn’t tax the imagination too hard to see that this isn’t the first time the second smoothest man in America has had too clean up some mess after the little lady/brains of the clan shot her mouth off.

Regardless, Mr. Clinton closed the deal, presumably with his pants on. Which is a good thing because Kim Il Jong likes to blow things up and it wont do to have him jilted and waiting for that next day call.

Charming those three Berkley grads who wandered into Iran out of the insecure grasp of President Ahmadinejad is going to be a much trickier proposition. When Iranians take hold of Americans, historically speaking, they don’t let them go until we vote the Republicans back in office. That could be a while.

Iran, which doesn’t seem to approve of the US no matter who we elect president, or who they don’t, is now the proud owner of 3 graduates from a famous American university who can’t even read a map. Apparently at Berkley, Military Science is not the standard GPA padding it is at the University of Alabama.

All this journalist napping has the makings of some first rate international incidents. Things with North Korea are touchy, but we aren’t contemplating war with them. The extraction took some time and a private jet for which Mr. Gore ought to be slipped the bill. It’s hard to see how that flurry of government spending will stimulate our economy. Getting the three out of Iran will require greater capital and force. Is it even worth it?

The purpose of the US Army is not to rescue spoiled Americans without enough sense not to go hiking along the border of a country we wrecked over WMD that didn’t exist and a country we won’t wreck over WMD that do.

We aren’t going to invade and Mr. Ahmadinejad knows this. Which gives Iran all the leverage and puts us in the sad position of negotiating over something we don’t have and won’t take, with a power that wants nothing more that to humiliate the US in the eyes of the Arab World.

At the risk of putting a price on human life, there are better people than these three dying for American interests in Iraq. We shouldn’t spare our nation’s interests for the fate of three Americans who shouldn’t have been there in the first place.

By all means, let President Clinton rest up after his Korean trip, then put him and an agreeable intern on a plane for Iran to apologize, look lovingly into those Persian eyes, do what ever it is he does. Bill the private plane charter to UC Berkley – which can make up the cost by mandating every student take a semester of Military Science. If Mr. Clinton gets them back, great.

If not, the US needs to leave Iran to its own devices. Tehran may claim that they are spies, but can’t possibly believe it. They have two choices, return the three and appear magnanimous in the eyes of the world by painting the US as a bunch of boobs, or keep them and appear cruel. Should they disappear into the depths of the Islamic Republic, we should remember that it is not worth our scarce military or political capital for the return of three people whose lack of common sense is so profound that is couldn’t possibly be in our national interests to get them back.

Could I Get A Glass Of Water With That Office Building?

2009-08-04T15:13:00.003-05:00

Artist's rendering of the Regions Bank building. The one they probably won't build.

These days, talking about the dot.com bust is like watching “Refer Madness” before turning the channel to “Cops” in South Central LA. The former looks so quaint, so not horrible. Crises, even ones that in retrospect don’t look some mean, often hold the seeds for the next disaster in their solutions.

After the inexplicable price to earnings ratios of the dot.com bubble dropped back to Earth , embattled investors took what was left of their stomachmonkey.com stock and turned it into some good honest real estate - something solid to become wildly overpriced. And it did, as interest rates were kept low to ease us out of the last pinch, investors could borrow at low interest rates to purchase real estate that, with rent and appreciation, would outpace borrowing costs by a decent margin. This allowed the common man to indulge in his own mini-carry trades.

Both private and institutional investors moved in huge numbers to commercial real estate. The institutional investors did it the old fashioned way - buying the building and filling it with rent paying tenets. Individuals entered the asset class via Real Estate Investment Trusts (REITs) and like products. REITs act like a mutual fund, but instead of stocks, they buy the gas station down the street. In a world where property values always rise, rents paid a handsome dividend until the property was flipped for the real pay-off.

We don’t live in that world anymore. As the economy has stalled, shops have been shuttered so that rents are dropping and the properties themselves are getting harder to sell.

Birmingham-based Regions Financial posted an $188 million loss for the second quarter. The stocks has faltered, but the loss was in line with analysts expectations. The problem Regions’ is facing isn’t another phantom trance of sub-prime loans, but what was supposed to be solid commercial real estate to weather the storm (we all knew that was wishful thinking). Regions two largest portfolios - business and commercial real estate - saw losses jump by 45% and 6% respectively. A large part due to land bets in Florida – that semi-tropical sink hole of property values. Business loans are a double edged sword - if a concern quits repaying its loan, chances are it’ll stop paying rent too. If a bank is holding a small business loan, as well as the mortgage on the office building it occupied, they get two defaults for the price of one.

Following the the nearly unquantifiable finding of the government stress-tests - Regions was ordered to raise the most of capital of any of the 19 rated banks, relative to its risk-weighted assets. A month later, the money was largely raise on the back of one offering. Further obscuring the precarious nature of Regions’ position is that the FDIC brokered the bank’s purchase of two failed banks over the same period.

It appears that Regions, despite the hit their top portfolios have taken, is not teetering on the brink. Its commercial real estate positions aren’t going to sink it – but it does mark a shift in concern: when it comes to sub-prime mortgages the wide swell of the curve has been swallowed, leaving only the long tails to be chewed. With commercial real estate, we may only be getting started on what may be a be a large pill to swallow.

Blame the Economist, Blame the Salesman

2009-07-28T13:22:00.002-05:00

If your phone isn't ringing, you know who it is...

When Hurricane Katrina hit New Orleans – no matter who you want to blame – everyone understood what the problem was: too much damn water everywhere. Despite Mayor Ray Nagin’s Food Network solution of fixing the place with a ton of chocolate and a dash of sour milk, the real problem was obvious: dry the place out and apply the broom.

The crisis that swamped Wall Street in 2007 was a bit more brackish than the water from Pontchartrain. Most people – and by that I mean myself and most likely you – failed to understand the complexity of the mathematics behind economic models that had been put forward by the professors and “quants” over the last 30 years. In that time they built the equations that enabled Wall Street to think that it could run itself on autopilot .

The truth is, very few people you’d want to have a drink with understand the math, and yet nearly everyone, from politicians, to bankers, to anyone with a bank account, put their faith in those models. Now that something has gone horribly wrong, we are on the warpath like a mob out of some poorly-ventilated FEMA trailers.

The knee-jerk reaction is exactly where the next danger lies. Being mad at economics, as a discipline is like getting mad a geometry because you can’t come up with a better right angle. Many economist certainly failed to see the crisis coming, or as some now claim, saw it coming and said nothing. Which replaces being wrong with being a coward. At least being wrong is forgivable.

Economists are human. To dismiss economics as smoking voodoo of capitalism will throw the course of recovery into darkness. At this point it is too early to declare free-market theories dead, or even the models wrong.

What is obvious is that the assumptions that were plugged into the models were faulty. More than faulty, they were insane. But math doesn’t render opinions on its input, it only renders outcomes. Garbage in, garbage out. So illogical were the assumptions that it seems hard to believe they came from the same people who invented the models.

Only a dyed-in-the-wool salesman would plug into the business model perpetually rising house prices into economic projections. Only a really good salesman would turn around and, based on those assumptions, sell to major financial institutions the idea that dodgy loans, re-gifted three or four time, will spread the risk over the previous four owners.
Its like these people never played “tag” n school. As for what went wrong between the brainiacs and the salesmen, it’s best to return to the school yard.

Remember that the guys in the math club, those future economists, would always, if given a choice,be part of the cool crowd. A decent salesman might not be cool, but he’ll make people think that he is. And for a fleeting generation, snappy dressing, fast-talking cool guys with money and the girls paid a lot of attention to the fellas from the math club. And the Mathletes told the brokers everything they wanted to hear.

Isn’t it nice to know that somethings never change?

Ponzi, Madoff & The Rest Of US

2009-07-23T09:56:00.002-05:00

The big one in the middle is Uncle Sam's.

To complain that the government isn’t subject to the same rules as it inflicts on the rest of us is both as valid and useless as complaining about executive pay or that your parents have a later bedtime. It’s true, it’s not fair, but so what? Nixon famously said, “When the President does it, that means that it's not illegal.” C’est la vie say the old folks.

What happens, though, when that unfairness becomes a massive taxpayer funded fraud? A ponzi scheme of such a scale that Bernie Madoff suddenly looks like R. Allen Stanford, or that guy who didn’t declare the $100 he won in poker on his taxes.

Most private corporations are scaling back, or even closing their defined contribution pension plans to new employees. Indeed the public sector is taking on the pension liabilities of some to the companies that have filed for bankruptcy this year as part of the TARP plan. The federally chartered Pension Benefit Guaranty Corporation has agreed to take on $6.2 billion in pension liabilities from now defunct auto parts supplier Delphi, once part of GM, of which the government already owns a majority stake. The pension rescue is only the second largest in PBGC’s history, behind the 2005 bailout of United Airlines’ $7.5 billion in pension liabilities. According to Douglas Elliot, of the Brookings Institution, the PBGC has enough money to cover 15 or 20 years, but not the 50 years needed to cover the obligations. “It’s like Social Security.” He said, “There’s enough cash for a while but there’s a big hole that’s eventually going to need to be filled.” If there is no change, he estimates the agency will need to be bailed out to the tune of some $100 billion.

The public sector has hardly taken notice. Any retirement plan, public or private, from a single IRA account to social security is, theoretically, a pot of money that is set aside and invested to increase in value or produce an income sometime in the future. To protect investors, private corporations are subject to accounting and regulatory standards, so that no one takes hard-earned retirement money and spends it on Caribbean cricket teams or public works programs. We are just supposed to trust the government won’t do this because politicians are such honest people.

Private companies must actually set aside the money and invest it in some class of assets. They know how much money is in the pot, how much is coming in, can estimate a rate of return and, most importantly, how much is will likely be going out. In light of the dismal performance of stocks and assets the last few years, these companies know that shortfalls are looming and are addressing the projected value of pensions, and their liabilities.

The reason why public sector pensions have not had to address the short fall is that the full bill isn’t even known. This isn’t a function of the transparency we all pine for when others are holding our money. It is because no one has bothered to crunch the numbers. Municipal governments are just cutting checks and hoping that current tax revenues cover them. Which means that private sector employees are not only funding their retirement, but that of the public sector as well.

Again, Sic Quis? Life isn’t fair. The issue here isn’t a matter of fairness – the numbers don’t work no matter how unfair we are willing to be to the productive sector of the citizenry. A fixed dividend (or benefit) based on variable payments invested in a dynamic market is impossible to guarantee despite what Bernie Madoff or Barack Obama would have you believe.

So why have a defined benefit? Because there is no pot of money or assets invested for the pensioners. Current pensions are being paid out with current tax dollars – and as the Federal and municipal governments, as well as every ponzi scheme (great and small) are learning, new money goes down in recessions. The only option then is to either come clean with the state of things (and pass out holding your breath) or print more money. The second options risks – and by that I mean guarantees – wild inflation.

The exact nature and scope of the shortfall of the public sectors future pension debts is unknowable because so many of the funds are “unfunded”. The traditional way of dealing with this is to keep pushing the final bill further into a receding horizon and hope - like Bernie Madoff – that the economic tide never goes too far out. This is not the time for such wishful thinking.

Bazaar World

2009-07-16T10:27:00.004-05:00

Neither Rita Hayworth, her husband's films, the hamburger nor the swimsuit is the real enemy here.

A nature of a country will always be reflected in its marketplaces: from the long, dismal and ultimately futile lines of the Soviet planned economies to the free-wheeling risks of Wall Street. The way people do business tells more about their nature than the way they are governed. Those who would do well in the marketplace would do well in politics - so it is in America, so it is in Iran.

While a deferential smoothness and a certain cunning charm will open nearly any door America can build, it doesn’t work so well in the Arab world. That is the reason the Obama administration’s “smart diplomacy” with Iran isn’t working. Anyone who has had any dealing with the Arab market place knows that the politeness is taken as subservience. I’m not making this up, you almost can’t be rude enough.

In some Superfriends Bizzaro version of Dale Carnegie, rudeness is respected. Short, arrogance sentences, not holding the door, and - should the opportunity present itself - hurling paperwork at them, will win you friends and influence people. People is plural because Arabs rarely contract business alone - they need an entourage with lots of huddles and chatting in some language that I don’t know.

That’s why Secretary of State Hillary Clinton’s speech yesterday (I’ve got to pinch my nose to say this) struck the right cord by treating Iran like a petulant child. “No, sir, young man, put down that nuclear weapon...alright, you can put in down now, and go out and play....or...OR...I’ll stop your allowance and take it away myself!”

Given the Arab’s track record with women, they may not listen to Secretary Clinton, but on the other hand they may mistake her for a short Aryan man. I get confused myself.

The crux of the problem, diplomatically, is that the UN fail to understand Arabs. The ones who do are on Iran’s side. Not only do they know the thought process, they can see it through Iran’s point of view.

Revolutions Come Around

It is hard to remember that the revolution of 1979 was brought about by a youth movement fueled by sudden advances in communication that made it possible to get word out without going through government controlled organs.

The revolution overthrew the Shah and founded an “Islamic Republic” – which certainly sounds better to rioting students than handing supreme power to a charming Shah to an old cleric, because republics, by definition, don’t have unelected Supreme Leaders.

What America colonists did when they overthrew the British was an attempt to recreate that peculiar and wildly successful experiment the Romans tried when they overthrew Tarquin, the last of the Roman kings. What Iran did in 1979 was fast forward through 450 years of a freedom, economic expansion and orgies to installed their own pontifex maximus.

Now the architects of that “republic” are seeing the next generation craving mod-cons, Nike trainers, and $200 jeans that they find so distasteful. I don’t mean to be sleeping with the enemy, but I find $200 jeans, if not distasteful, at least a little silly. The Ramones aside, overprices skinny pants do not a revolution make.

Then, as well as now, America’s preoccupation is focused on Iran’s determination to defend itself with nuclear weapons from the nuclear powers. America’s position is basically that Iran does not have the right to defend itself on the grounds that we aren’t going to attack them, yet. But Tehran knows we aren’t going to attack, we played our ace in Iraqi on a bluff. The world knows we can’t afford to do it again. President Mahoud Ahmadinejad knows he has nothing to fear from us and, despite his rhetoric, he isn't going to nuke Israel either, because that would bring America down on him.

Iran is making a big show of being defiant to the US because the US isn’t a threat. Iran is being polite and deferential to the one they see as the real danger – Russia. Remember them? Those crazy vodka drinking psychopaths who are growing more nostalgic by the hour for the good old days of Empire. For Russia to annex Iran would almost be an administrative affair and Iran knows it. Iran also knows that Moscow loves anti-American talk and hates $200 jeans. Iran is being very polite to the Russians, or, through the eyes of an Arab, subservient.

The rioting last month has been largely silenced through a huge effort by the Tehran, but the victory may be a pyrrhic one. The unelected clerics who put the Supreme Leader in power have come out against him and his president. More telling, even though the story just came to light, some three weeks ago, Iran’s Vice-President and chief of Iran’s Atomic Energy Organization, Gholam Reza Aghazadeh, resigned. No reason given.

Something has gone very wrong in the way that Iran conducts business within its borders and without, and the powers that be in Tehran are very scared - but not of us.