Putting Jakarta before the Hearse

The Taliban is using land reform as the tease to draw Pakistani peasants into their web of regional power. Having stupidly been given the right to enforce sharia (Islamic law) in lieu of the statutes of the land in Pakistan’s Swat state, the Taliban took a giant step towards creating a regional Islamic republic (which would engulf Afghanistan as well) by threatening the feudal landowners in the region with death and/or imprisonment for returning to their landholdings. As Taliban troops advanced on their benefactors in Pakistan’s capital city of Islamabad, conquering new lands a mere 60 miles away, Pakistan’s military finally launched a counter attack, forcing the Taliban, after suffering heavy casualties, to withdraw to wait for a better day.

Pakistan has between 60 and 100 nuclear weapons, and this reality, coupled with the Taliban surge noted above, has given the Obama administration “grave concern.” We are seeing militant action growing everywhere, and the Shiite monolith – Iran – embodies an accelerating and disturbing trend of militant Islam’s goal of imposing sharia and Islamic control on the region, if not the world. Jihadist expansionism.

Pride in being a jihadist, fomenting the demise of the non-Islamist world is scary to us, however distracted we may be by this financial disaster that surrounds us. There are specialists in spreading the word, by force and violence if necessary. Osama Bin Ladin, Ayman Zawahri, and Abu Muhammad al-Maqdisi, cleric/mentor to some of the most violent terrorists.

According to the April 29^th New York Times, al-Maqdisi “has grown tired of hearing younger extremists accuse him of going soft… ‘Credit is due to the testimony of enemies,’ Mr. Maqdisi wrote, as he directed his readers to a recent journal article by Joas Wagemakers, a Dutch scholar of jihadism, and the ‘Militant Ideology Atlas,’ both published by the [Combating Terrorism Center at West Point]. Both identified Mr. Maqdisi as a dangerous and influential jihadi theorist, he noted.” He needed affirmation in the Western world for his militancy, and our intelligence experts hang on every word he utters. You get recruits by being hard on the West… by killing Westerners and inspiring others to do so.

So is there no hope? Is the recreation of the Crusades inevitable? But then there was this election in Indonesia, the largest Muslim country on earth – with hundreds of millions of people. Once the bastion of tolerance, Indonesia had seemingly fallen victim to the plague of radical Islam (notably the growth of the Jemaah Islamiyah faction and the rising tide of ethnic killings). We remember the 2002 bombings in Bali when Western tourists (and a lot of locals) were incinerated while at a local pub. Fundamental Islam had taken root, and major political parties were formed around this growing wave of religiosity.

But despite this fever, in the April 9^th parliamentary elections (the results are still being tallied), the exit polls told an incredible story. The April 16^th Economist reported the early results: “A cluster of Islamist parties saw their combined support slump from 39% to 29.5%. Only the Prosperous Justice Party, or PKS, the most Islamist party, which came fourth with about 8.4%, bucked the trend.” Could it be that the harsh rules of neo-Islamist fundamentalism were beginning to jerk some in an opposite direction? Was it possible that people were either tired of the rigidity and intolerance of their faith or, perhaps, saw the wisdom in a separation of church and state… a lesson that even the United States seems loathe to learn?

In the end, there are human beings on this planet, and the pendulum swings have taken us all to extremes. Perhaps the “inevitability” of any trend must be understood within the historical perspective of that back-and-forth, spiraling movement of human nature.

I’m Peter Dekom, and I thought this was a ray of sunshine you might want to see.

On the Fritz

In 1970, General Motors had 395,000 employees and 150 factories in the United States , Hello, Mr. Big! Fritz (GM’s new CEO, Fritz Henderson) has a different vision for his new charge: 38,000 U.S. employees with a plan to “eliminate another 21,000 factory jobs, close 13 plants [to 34], cut its vast network of 6,500 dealers almost in half and shutter its Pontiac division.” April 27^th NY Times. Hi, Little guy!

Much smaller Chrysler is trimming too, only unlike GM, which is still struggling with its unions, number three seems to have worked out at least a labor deal: “Chrysler would give the union a 55 percent stake to cut its obligations to the health care trust in half, said these people, who spoke on condition of anonymity because details of the agreement have not been released publicly… The deal suspends cost-of-living pay increases, limits overtime pay and reduces paid time off. It also eliminates dental and vision benefits for retirees. It also provides for Fiat to begin building cars in at least one Chrysler plant.” NY Times.

Even with federal support, both companies have battled with their bondholders (and other holders of debt instruments), many of whom resisted offers to reduce their debt enough to placate the government or convert their holdings into equity in the going-forward companies – if they indeed go forward. Chrysler’s ticking time bomb had the shorter fuse – April 30; GM still has until the end of May. Then the federal checks stop unless there is a government-approved restructuring in place, in or out of bankruptcy.

Who are the like owners if the restructured carmakers? For Chrysler, if the cards fall correctly, Fiat walks away with a 35% stake (their management will replace the current CEO), and the U.S. government and the carmakers’ unions have an Italian partner. A last minute deal with its banks, hedge funds and bondholders (they agreed to shave $6.9 billion owed down to $2.25 billion) seems to have saved the deal… assuming the unions ratify their agreement and creditors fall in line. The Department of the Treasury has told the 46 creditors that they have until Thursday to approve – unanimously – this deal. The big players, holding 70% of the debt, have signed off, but the smaller funds are willing to walk the tightrope. These minority creditors could derail this process; it’s down to the wire.

However, the order of magnitude of Chrysler’s finances pale in comparison to the numbers on GM’s table. The government still seems to be pushing a boulder uphill with not a lot of receptivity; according to an April 27^th report by the Associated Press: “General Motors CEO Fritz Henderson said the company would offer the Treasury Department more than 50 percent of its stock to absolve GM of $10 billion in government loans (they borrowed $15.4 billion in total)… The automaker also proposed that the United Auto Workers take GM stock for at least half the $20 billion the company owes to a union-run trust that will assume retiree health care expenses starting next year… Combined, the union and government would own 89 percent of the century-old automaker, which has been bleeding red ink and is saddled with more than $62 billion in debt.”

What happens to GM’s unsecured creditors/bondholders who are owed $27 billion? A government-backed proposal would give them 10% of the new equity in lieu of their lovely bonds; the old shareholders would be crammed down to an almost non-existent 1%. While the offer looks like 46 cents on the dollar, reality is not nearly so rosy – since the United Auto Workers and the government will get a monstrous share, those bondholders get slammed even more.

It seems likely that a formal bankruptcy is likely for both companies; the issue is whether or not there is an agreement from creditors in place to make that bankruptcy a reasonable and planned implementing structure. Further, creditors may feel more comfortable in an open GM bankruptcy where a judge and a trustee make decisions that carry no direct political ramifications or purported “pro-union” positions – like the unions really want this deal.

Still, GM has a month to solve these issues. But with Americans wary of buying vehicles manufactured by failing companies with unhappy workers, even if warranties were not at risk, the exceptionally difficult credit markets make car-buying, at any level, a post-bankruptcy challenge that by no means guarantees that surviving carmakers will… well… er… survive.

I’m Peter Dekom, and I’m hoping the credit markets thaw and the meltdown freezes.

With money particularly tight, getting through medical school is getting even harder than getting into medical school. The average MD graduate carries about $140,000 of student loan debt when he or she graduates. Malpractice rates are soaring, some into six figures, and since internships and residency add years to the day when a “good living” can be made, times are particularly tough for most doctors. Managed care and Medicare have put severe limits on doctor compensation. But this isn’t about why doctors should get paid more. It’s about the law of supply and demand.

Simply put, we do not have enough doctors to serve our needs. This comes at a time when we are considering increasing our medical capacity under some, yet-to-be-worked-out form of universal health care coverage. The shortage is particularly heavy at the primary care level, where most people begin their journey through the medical labyrinth.

The April 27^th NY Times: “Lawmakers from both parties say the shortage of health care professionals is already having serious consequences. ‘We don’t have enough doctors in primary care or in any specialty,’ said Representative Shelley Berkley, Democrat of Nevada… Senator Orrin G. Hatch, Republican of Utah, said, ‘The work force shortage is reaching crisis proportions.’… Miriam Harmatz, a lawyer in Miami, said: ‘My longtime primary care doctor left the practice of medicine five years ago because she could not make ends meet. The same thing happened a year later. Since then, many of the doctors I tried to see would not take my insurance because the payments were so low.’”

If we increase the number of graduates, supplementing medical education along the way, we still only produce an additional 5,000 doctors a year. So what are the alternatives? Aside from “making more doctors,” another alternative form of medical care – the nurse practitioner (licensed to dispense certain prescription and make basic diagnoses) seems to be where we are headed… at least at the initial screening stage and where an obvious emergency requiring more advanced medical training is required (such as provided in a hospital emergency room).

The strange thing is where such medical facilities – those with nurse practitioners dispensing prescriptions and giving shots – are showing up. According to the April 14^th CNNMoney.com: “Americans, frustrated by endless waits at the doctor's office, are sidestepping their family physician and taking their rashes, strep throat and pink eye to stores such as Wal-Mart and Walgreens instead.”

While those unable to afford health insurance at all might blink at the average $60 per consultation fee, for many this is a reasonable alternative and is often covered by insurance anyway. CNNMoney: “No. 1 drug store chain CVS already operates more than 500 MinuteClinics at its stores nationwide. Rival Walgreens plans to expand its health and wellness clinics to more than 800 in-store locations by the end of the year.” Serious cases are referred into the more traditional healthcare system.

Though nurses have less training time than full doctors and often can develop their skills overseas, we also face a severe shortage of nurses as well. The April 28^th Los Angeles Times: “The American Health Care Assn.'s most recent estimates from July 2008 show 116,000 open hospital nursing positions and more than 19,000 vacancies in long-term care settings… A March 2008 report by Dr. Peter Buerhaus of Vanderbilt University Medical Center and colleagues predicted that national nursing shortages could balloon to 500,000 by 2025. Predictions from the U.S. Department of Health and Human Services are more dire: It anticipates a shortage of 1 million nurses by 2020…A lack of faculty at nursing schools across the country is preventing many people from entering the profession, thereby exacerbating the shortage. Nearly 50,000 qualified applicants were turned away from professional nursing programs in 2008, according to the American Assn. of Colleges of Nursing.”

It comes down to importing qualified nurses or opening new programs to educate the next generations of nurses – re-prioritizing what young people study in the future. Whatever the solution, clearly widening the coverage of healthcare necessarily carries with it the expansion of those able to provide the required services. Nothing is going to alter our growing need for fully-trained doctors, but there are a few cushions along the way… if we can meet the demand of those seeking to be trained as nurses.

I’m Peter Dekom, and I approve this message.

What do Finland, South Korea, the Netherlands, Switzerland, Canada, Japan, New Zealand, Belgium, Australia, Denmark, the Czech Republic, Iceland, Austria, Germany, Sweden, Ireland, France, the U.K., Poland, the Slovak Republic, Hungary, Luxembourg, Norway and Spain have in common? Their “average” 15-year-old, according to a National Governors Assn. report, is more math-proficient than their American counterpart. Good thing we were dealing only in averages; if we were to add the top quartile comparison, Asia would also blow us away. According to Education Secretary Arne Duncan, speaking in the April 27^th Newsweek, “Kids in India and China are going to school 25% to 30% more than students here.”

According to a companion piece in the above Newsweek, “Forth years ago, the U.S. still had the best graduation rates in the world. Now it ranks 18^th.” And falling. The No Child Left Behind Act allows states to set their own standards for reading and math proficiency. So a whole pile of states created new lower standards to make themselves look better. If you look at how these states measured such academic proficiency in their public schools against a national test (the National Assessment of Educational Progress – NAEP), the differences are staggering. Mississippi goes from first to last. Here are a few examples (looking at fourth-graders): Mississippi: state – 89%, NAEP – 18%; Louisiana: state – 67%, NAEP – 20%; New Mexico: state – 52%, NAEP – 20%, California: state – 21%, NAEP – 48%; and Nevada: state – 21%, NAEP – 45%. Public school dropout rates in the top ten cities average over 50%; Detroit hits 74%.

President Obama has said: “This is prescription for economic decline, because we know that the countries that out-teach will out-compete us tomorrow.” Underfunding is chronic, but there are bigger “American” issues blocking the way. It isn’t, for the most part, teachers’ unions standing stopping progress – they seem to favor national standards – it’s our obsession with local control and local funding. While most of the rest of the world has a national public school systems (primary and secondary education), the U.S. has over 13,000 autonomous school districts, many vastly more concerned that “intelligent design” be taught in their schools than whether their graduates can compete in today’s world. And it’s pretty clear that they cannot.

Each of the above school districts has its own governing board, its own set of rules, and its own, often cumbersome and heavily entrenched money-sucking bureaucracy, duplicating functions of nearby school districts in the name of local autonomy. Rich populations centers, to no one’s surprise, tend to have better (funded) schools than those poorer, more crowded region. But “local control” is an American sacred cow. Maybe funding from the new federal stimulus package can make adhering to more national standards, encouraging smaller classrooms and better teachers, part of the plan. But with the exception of a few public school districts in wealthier areas, folks wanting better education are relying on charter and private schools.

The net effect of a meltdown is an accelerating polarization between well-educated children of those who can afford to pay for it and those stuck in the under-funded and under-qualified public school systems of so-many local schools.

Without change, the future looks pretty bleak, even for the top graduates in our top schools… if they want to live in this country. They will be surrounded with under-educated adults, clamoring for better pay and social benefits, angry at those who “have,” and voting their anger at the ballot box. Education is and always has been priority one… to those nations who are serious about their future.

I’m Peter Dekom, and I approve this message

Leavin’ Home without It

So many issues fall together in the American obsession with “movin’ on up”…. Step back a year or two and look at the patterns of our lives: We buy “starter” homes with the clear expectation that we will “trade up,” but in the meantime, whether we use a “big box store” or watch the DIY or HGTV networks, we constantly remodel. In that mix, we go to banks, borrow to buy, borrow to build, and engaged construction workers who, more often than not, have to use undocumented workers to make a profit and do the jobs that no American laborer would ever do. Home ownership has been “the American dream” and the “American saving account.” I came, I sawed, I defaulted.

As the economy begins to founder, but Americans cling to consumption patterns that were now decades old, massive discounting superstores, buying in volume, building China into a consumer goods mega-exporter, continue a shift in the balance of payments, where Americans import vastly more than they export – it got to a point before the meltdown where we averaged $60 billion a month in trade imbalance. The stock market loved these deep discounters. Wall Street meets Wal*Mart.

The currency of all of this is the financing of upgrades to the home – trading up or building out. McMansions or out-of-control, cookie-cutter suburban “planned communities.” Granite countertops and stainless steel appliances. Gotta have, gotta buy. Then came the reset button – a managed depression that lost your job or sapped your paycheck, trashed your house, tanked your retirement plan and devalued your upgrades into the ashes of a subprime collapse.

We used to upgrade our television when the old ones work, our computers when we don’t need the extra computing power, our credit cards from green to gold to platinum to graphite, our airline tickets to business class, our cameras to those with more pixels even though the photos rarely are seen beyond an email, our cell phones when all they do is take away the last vestiges of being alone that were left…

Until now… For the majority of Americans, the concern has shifted from “what do I upgrade next” to “how do I keep what I have, or at least as much as I have as I can keep.” The April 25^th NY Times: “[A] report last week by the Census Bureau … found that fewer Americans are changing residences than at any time since 1962, back when there were 120 million fewer Americans than today.” How do I get my life back? How do I resume or at least lose as little as possible?

Think of the permanent contraction of jobs, work that will never come back at anywhere near pre-meltdown levels. Think the big automakers will resume the same level of manufacturing they had in 2006 any time soon? If you specialized in setting up subprime loans or packaging them into derivatives, when do you get your job back? What happens to those contractors who built the vast tracks of unsold “planned communities” in suburbs where no one really wants to live who can really afford a house?

Do Americans who survive this crisis carry the meltdown of 2008 in their psyche the way Depression babies could never shake their memories? Have we really changed our need to upgrade into a mindset of being satisfied with what we have? Ask yourself exactly what you might have expected in your life five years ago compared to what you expect five years from now. How deeply have we changed, and how permanent do you think the change will be? And finally, when this malaise passes, how will those who survive explain what happened to those who will be born beyond the wall of this financial meltdown, well into the future?

I’m Peter Dekom, and I approve this message.

The Real Land of the Lost

Will Ferrell may be the man we think of when we picture The Land of the Lost, but here’s a multiple choice question for you. Who is running Pakistan, our “ally” in the war on terrorism, monitor of arms trafficking in the area?

a) The elected leadership in the capital of Islamabad

b) The military and the intelligence service (the ISI or Inter-Services Intelligence)

c) The Taliban

d) Al Qaeda

e) No one

If you picked a), you’d be wrong. And if you picked any of the others, you would be right to some degree or another. The New York of Pakistan, Karachi, is viewed as some the most dangerous city on earth… a mega-metropolis where bin Ladin might even hiding in plain sight. The fundamental issue with Pakistan stems from one of the biggest differentiating characteristics between Pakistan and Indian, more than the obvious distinction that Pakistan is primarily an Islamic country, and in India, Muslims only represent a minority.

The 1948 partition of India from Pakistan (there were once united under British rule) was based primarily on religious factors – Muslim vs. Hindu. Muslims fled, panicked northwards toward Pakistan, leaving possession and jobs in a migration that was often bloodied with religious hatred. The two countries fought and struggled, mostly over the future of the northern Indian border state of Kashmir, which has a large Muslim population.

The distinction I referenced above, however, is one seldom mentioned in cursory summaries of the region: de facto feudalism. While there are certainly mega-rich families in India with large landholdings, this is balanced with self-made entrepreneurs and a huge middle class. Pakistan, on the other hand, is a nation where massive land holdings and corporate control are concentrated in the hands of a very few families, who simply pass the wealth from generation to generation. Unlike India which instituted land reform early in their modern life cycle, Pakistan perpetuated effective feudalism by allowing traditional land owners to retain their massive estates. Think dukes and lords of ancient English owning their castles and all the lands around them.

If you add new militant Islamist movements to the mix, instability becomes the rule. Much like the early roots of Christianity, where brotherly love and ennoblement of the common man were basic recruiting tools for a nascent religion, Islamists in Pakistan seek to ennoble the effective peasant class as their recruitment tool, but this effort has taken on a distinctly non-“brotherly love” violent aspect.

The struggling government, with its highly suspicious intelligence service (ISI) allegedly being closely aligned with the Sunni fundamentalist Taliban, has literally ceded political and legal control of entire regions of Pakistan to regional control, from the Western Tribal District, which borders Afghanistan on the southwest, to Swat in the north. Pakistani authorities have virtually no control over what happens in these areas. Americans are concerned that strategies directed and ferreting out terrorists are constantly being compromised by leads from the ISI to those being sought. Taliban field operatives have used this feudal landholding practice in Swat, where Islamic law was recently permitted by Islamabad to apply in this state, to take over buildings and farms, arrest or slaughter the rich land barons, and effectively become heroes to the locals.

The April 23^rd The Washington Post cites Secretary of State Hilary Clinton as she addressed Congress: “The Pakistani government ‘is basically abdicating to the Taliban and to the extremists,’ Secretary of State Hillary Rodham Clinton told Congress yesterday in an unusually blunt statement that reflects the unease within the Obama administration about an agreement authorized by President Asif Ali Zardari… ‘Look at why this is happening,’ Clinton said, referring to the Swat Valley agreement [to permit Islamic law to govern]. ‘If you talk to people in Pakistan, especially in the ungoverned territories, which are increasing in number, they don't believe the state has a judiciary system that works. It's corrupt. It doesn't extend its power into the countryside.’”

Our military leaders have spoken about the reality that the Afghani problem is really a regional problem that embraces stability in Pakistan as well. But it is difficult to see how a corrupt and feudalistic government, in which even those standing for elected office are the scions of the powerful families themselves, can survive and avoid an Islamist, anti-American government to take over without implements a massive change that threatens the very existence of the ruling class itself. Without ending this traditional feudalism, Pakistan’s shaky foundations are crumbling. It is equally difficult to envision a nuclear nation run by the Taliban. Pakistan is a country with many nuclear weapons, and the father of its “Islamic bomb,” Dr. A.Q. Khan (pictured above), generously jump-started the nuclear development, with design specifications and technology, in both Iran and North Korea.

I’m Peter Dekom, and I’m worried too.

STRESSed Out

The Wall Street Journal tells us what we already know and what I blogged about on April 16^th: there’s lot less bank lending going on right now than there was at the time that prompted the TARP infusion into lots of banks, an infusion that was supposed to unfreeze the credit markets. It’s global cooling in the credit markets by any measure, reflected by the rising tide of the unemployed who used to work for companies that required credit flow to operate. Yet, we are seeing one bank after another report “improvements” or outright profitability at a time when they aren’t really doing much in the way of business.

Sure they can borrow money from the Federal Reserve at close to zilch, and so any interest they earn when they make loans is wildly profitable, but what is it about all those profit or “income improvement” pictures that just plain makes me, and lots of financial analysts, feel so uncomfortable. Why don’t I believe that these banks have turned the corner and are out of the woods? Why do I think that the bear market rally that we saw last week was based on false hopes and shoddy accounting practices? What happens when truth slips through as it seemed to be doing on Monday, April 20^th? As earnings reports were shakier that we thought? Look at the precipitous market fall on that day. Not pretty, huh?

The April 20^th theDeal.com: “[A] number of large banks -- J.P. Morgan Chase & Co. (NYSE:JPM), Wells Fargo & Co. (NYSE:WFC), Goldman, Sachs & Co. (NYSE:GS), even benighted Citigroup Inc. (NYSE:C) and Bank of America Corp. (NYSE:BAC) -- reported earnings above estimates. Now let's face it: That could be a massive charade, hence the Enron meme, and Citi and BofA, in particular, are not close to being out of the woods. Or it could be, as the administration argues, that there's differentiation going on naturally [defensive bragging to prevent investor panic], which the stress tests may fuel. The only conclusion that [theDeal.com editor, Robert Teitelman] will put forth even tentatively is that the situation remains deeply ambiguous. Numbers can lie, on the upside and the downside.” Skepticism remains quite justified. But what do we know now?

I already described the “push-pull” of regulators not wanting banks to repeat the sins of the past and lend to the unqualified (but isn’t everybody, just about, unqualified in such a down market?) while the government extols banks to open the credit faucets to consumers and small business. But May 4^th approaches – the day that the federal “stress test results” are supposed to be final for the 19 largest U.S. banks – and there are lots of toxic assets ($2 trillion according to the prestigious McKinsey consultancy) on the balance sheet of banks that will produce some very unpleasant surprises. Exactly who has how much poison? Who will the government deem insolvent (or shored up with false assets on a manipulated balance sheet)?

Since the government is only in phase one of the stress analysis, which only covers the biggest of the bad boys – the next stress test will follow with the next tranche (one size down) of banks – we most certainly are not going to get a complete banking picture any time soon, although there are number of theorists who believe that massive holdings of toxic derivatives are unlikely scenarios for the smaller banks, except to the extent the little boys have not been able earlier to sell off their loans, which now fall into the non-performing or vastly-under-performing categories.

So what’s a government to do? Replace a portion of the toxic asset base with a deemed U.S. government equity position in the bank? Who else would make such an investment if not the government? Congress won’t appropriate more funding now, so the government would have to swap “equity in the bank” for the “deemed value” of the toxic asset. Treasury has created a program, subsidized with federal loan guarantees, for private investors to buy such assets, but only at auction-set pricing. That pricing won’t help a lot of banks, and hence the government is the only player able to move directly into those lending institutions. It might be the only thing that keeps more than a few of our national banking “treasures” from going under. And if the biggest banks were to fail without government intervention, there seems to be a growing consensus that the capital markets – and hence our economy – would drop below the unthinkable.

But if the government does step in – as many believe it must – aren’t we effectively “nationalizing” those banks, even if only on a temporary basis (until the government ownership position can be flipped back out into the market when times are better)? Should we be scared by a word like “nationalization” (even if we can create some harmonious synonyms)? Doesn’t this really deepen the federal deficits no matter what we call it, fuel inflation and infuriate taxpayers? In the end, it’s going to be a judgment call, and whatever the decision – let the banks fall to whatever level they deserve or we will support those banks with the greatest impact on our nation’s recovery – it will be wrong and it will be right. Detractors will be justified, because there is no way to ascertain what really would have happened if the opposite choice were made.

If the bad boy bankers riding those wild hogs are stressed, at least they’ve made their pile off the sweat of the aggregation American workers we call the economy. It’s okay to be stressed while being stress-tested when you’re well paid, but when that stress, which has already been inflicted on the rest of us who might not have drawn those big corporate checks, comes home to the average American household, we have nowhere to turn to except to our elected representatives… and God.

And if you think the situation is bad, so does the IMF, as noted in the following excerpt from an Associated Press article by Jim Kuhnhenn on April 21^st: “Treasury Secretary Timothy Geithner defended the bank rescue program devised by the Obama administration [April 21^st] as the International Monetary Fund predicted U.S. financial institutions could lose $2.7 trillion from the global credit crisis.” Although avoiding the blunders of blind and non-accountable distributions of cash from the early use of TARP is critical, the rolling passage of time without movement in the credit markets could be even more devastating. At some point, unplanned bank failure will become the “decision absent a formal decision,” and those cards will fall.

I’m Peter Dekom, and there goes another night of lost sleep!

Enhanced Interrogation Techniques

Former Vice President Richard Cheney says harsh interrogation practices – like the “fit feels like I’m drowning” water boarding technique used to interrogate Al Qaeda prisoners – were essential to protect national security. He’s out there on news programs and talks shows making that point. Director of National Intelligence Dennis C. Blair admitted that some of the information obtained in such questioning may indeed have been valuable, but wondered if other normal interrogation and investigation might not have provided the same information. And more than one top American General has questioned the reliability of an “I’ll say anything they think they want to hear to stop this torture” response.

All well and good, and there is always the savant who makes the point that anything is acceptable to stop a ticking bomb from wiping out a city. But has “Do unto others before they do unto you” replaced “Do unto others as you would have done unto you”? Are terrorists who think they are freedom fighters exclusions form moral codes? And how many times is it appropriate to water board a “person of interest”? Once? Over 180 times as clearly occurred? Let’s forget about morality for a moment, as it appears our American leaders recently did. Let’s avoid constitutional issues, the issue of punishing an alleged perpetrator before there is a conviction, and whether there is justification for the technique. Let’s just be practical.

If you were running a terrorist group and you knew anger and revenge were powerful tools to recruit new terrorists, what would you do? And yes, the Internet, posters, radio and television in the hotbed of recruiting grounds were and still are full of clear evidence of American cruelty, a disdain for non-Europeans (true or not). People who has no real axe to grind with the U.S. wound up in guerilla training camps for the sole purpose of attacking the U.S.

Think we could have kept this a big secret? Not in an era of Internet communications and whistleblowers… and particularly not when there are clearly going to be administration changes, lots of secret memos, opinion letters and the pervasive use of “harsh techniques.” Not in a world where Western media and governments are hell bent on enforcing the Convention Against Torture. Can Dick Cheney really ever travel extensively outside the U.S. again without fear of arrest?

And if we condone torture on our prisoners, haven’t we pretty much sanctified torture as an interrogation technique for all captured prisoners? Does that mean “it’s okay to torture” American soldiers when captured? Are they different because they are in uniform? The Geneva Conventions say they have rights. We said the Conventions didn’t apply to Al Qaeda captives. Yet, the Geneva Conventions actually do not allow member nations to interpret their meaning – that privilege belongs to the governing body, no matter what our government said. The message we sent was clear… and unfortunate. If we really care about our men and women in uniform, can we ever suggest that there is an excuse for torture? And didn’t the Nuremburg trials after World War II establish that just “following orders” was not a legal excuse to cruelty and murder?

Further, in a world where the financial burden of dealing with world problems is not longer within America’s fiscal grasp, where cooperation and joint efforts are now mandated for the based and most practical reason – we cannot afford to go it alone anymore – don’t we want to be a nation that encourages other nations to work with us? Dennis Blair: “The bottom line is these techniques have hurt our image around the world… The damage they have done to our interests far outweighed whatever benefit they gave us and they are not essential to our national security.” Now what do we do with the lawyers who wrote the opinions that “legitimized” this process. Remember Watergate? If you don’t, Google it!

I’m Peter Dekom, and I approve this message.

Been There Done That

In under a decade, U.S. real estate more than tripled, national debt rose by two and a half times, personal and business debt exploded, new banks expanded exponentially, we imported with wanton abandon and people were living high on the hog. And then the bottom fell out of the markets. Loan defaults soared to clearly intolerable limits literally causing 40% of the banks to fail, unemployment rocketed, 150 New York businesses collapsed in a matter of days… real estate values fell through the floor. The Great Depression? The financial meltdown of 2008-2009? Could be, but what I am describing was the Panic of 1837 (May 10^th to be exact; Martin Van Buren had just succeeded Andrew Jackson as President). A five year depression followed, and the economy did not fully recover until the Civil War/Reconstruction era decades later.

The fact is that we’ve been here before, and the “reset” button has been pushed hard in 1837, 1929 and 2008. Since we’re still in the last financial crisis, it’s anybody’s guess as to where we go from here, but one shimmering set of facts stands out uniting these three monumental collapses in the American economy. Each of these crises was caused by wild and economically unjustified speculation and profoundly stupid economic policies.

In the 1830s, everybody was buying and bidding up the value of land, and banks were issuing “paper” money of questionable value. The opening of vast new tracts of federal lands to buyers had fueled real estate speculation. The federal government, using revenues from a huge new tariff, was flush by 1835 – Andrew Jackson actually paid off the national debt – but states hoarded gold and silver, and the use “paper” money from various sources (like banks) became the common practice. It got so bad that Jackson began requiring payments for federal land to be backed with gold or silver. The financial markets were unprepared for that requirement, so people were waiting for the next President, Van Buren, to fix the mess.

Wikkipedia: “Jacksonian Democrats blamed the bank irresponsibility, both in funding rampant speculation and by introducing paper money inflation. This was caused by banks issuing excessive paper money (unbacked by bullion reserves), leading to inflation.” Van Buren took office in January of 1837. In just a few months, with no real governmental solution in sight, the panic started over absurdly rising land values and questionable paper money; Jackson was given the initial blame, soon to be passed on the Van Buren. Sound familiar? People rushed to banks to withdraw deposits, but there was no FDIC to protect them when the money was gone. Values, banks and businesses just collapsed.

1929 was triggered by absurdly rising stock prices; everybody was buying and bidding up the price of stock. Banks failed one after the other. 2008 was launched by wildly trading in overleveraged financial instruments which were use to buy everything from stocks to homes – prices were soaring along with the debt load. You know the drill here.

What is startling about the first two catastrophes is that they each took decades to recover. We don’t know about the third, but the prognosis isn’t particularly good. In the past, stuff fell in value fast, a few “bear market rallies” played in the intervening years, but for the most part, after the fall hit bottom (which was never instantaneous), most of the American economy went “sideways” for years. 1837 and 1929 crashes were only stopped by the demands on materiel created by the wars and rebuilding that followed. What is the driver that will begin to move the current American economy back to a happier and healthier place? In the current era, with the proliferation of nuclear weapons, war can be terminal. So to pick up a chant and misapply it to this scenario, “war is not the answer.”

If history is any lesson, we can expect more than one bear market rally – we are living in exceptionally volatile times – but there is absolutely nothing “obvious” in our future that suggests that we should be optimistic any time soon. If history repeats itself, markets will fall again, to what level is anyone’s guess. Have they already hit their bottom? Maybe, but it seems unlikely that the markets can sustain the current rally, and as our borrowings rise, any rise in hard commodities like oil and gold will reflect a loss in confidence in the long term value of the dollar. This inflationary reality seems all but certain.

If there is a lesson in all this, perhaps it is that governments can only fix so much. They can only slow the progress and perhaps, we hope with optimism, bring us to bottom faster so that the seeds for recovery can at least be planted, even as it may takes years to effect. We need to rebuild values ourselves.

The reality is that every working American is now faced with this challenge, in a clearly competitive global marketplace (which can no longer be walled off): what fundamental value do I bring to the earth and how is that value measured? The future will be unforgiving in that evaluation. Burning the midnight oil education and nose to the grindstone work metaphors are clearly called for. We cannot presume that we have lifestyle and healthcare entitlements; we must earn them… all over again. Past excellence is a wonderful memory, but future accomplishments require new vectors and ground-up rebuilding. As I lecture to young college students, I know they can do it. As I meet stubborn people in my workforce environment who feel that “this too shall pass soon,” I wonder if they can.

I’m Peter Dekom, and I approve this message.

Life Begins at 40

Forty is one hell of a number. 60 is the new 40. Yeah, right… tell it to my osteopath! 40% of this nation’s wealth in the last decade came out of financial services! Yeah, right… tell it to the angry global mob that wants to kill all the bankers (as a lawyer not practicing on Wall Street, I finally feel relatively safe… I said “relatively”)… would Shakespeare rewrite his elegant phrase if he lived today? 40% of the world’s small arms are in the United States! Yeah, right… tell it to the Mexican military charged with “containing” the drug lords and their private armies.

Funny how stuff comes back to bite you in the posterior. We arm Islamic militants in Afghanistan in the 1980s to help crush the Soviet Army. The U.S.S.R. collapses, and now we’re battling the same militant group we armed, that same group that flew jets into the Twin Towers, in a seemingly never-ending battle in that same Afghanistan that threatens to collapse Pakistan in the bargain. Blowback.

America gets wildly wealthier than it had ever been by creating and selling a panoply of various forms of financial derivatives that encouraged debt, ignored debt-to-equity ratios, and even had the hubris to find credit-rating agencies who, after being well-paid to provide honest evaluations, rated garbage as gold. Our best and our brightest were lured to Wall Street to partake of the financial excess slop-trough… making things – manufacturing – was not valued anymore. You fudged the line if you “manufactured” software or pharmacological/bio tech stuff. Now our financial success has melted and come full circle to haunt us. Blowback.

Trying to rein in assault weapons, the gangland favorite “arms du jour,” is a battle with the NRA and every conservative who screams for strict and limited construction of the U.S. Constitution, except when it comes to the widest possible interpretation given to the Second Amendment (the right to bear arms). It is more than an occasional event when our police officers are out-gunned as more sophisticated and very-much-more lethal weapons are used on them, often by gang members trained by the U.S. military. Mexican drug lords can make damned sure they can protect their drug routes with weapons easily obtained from U.S. border states and smuggled south across the border… making sure the flood of narcotics can reach all those out-stretched hands in the U.S. Blowback.

Justice? Greed? Stupidity? All of the above? And how are we changing? How will we learn from all of these abundant lessons to make a better world for Americans? Maybe some lessons. We seem to have learned that we have nothing to lose by talking to our enemies, even if we don’t secure immediate miraculous solutions to virulent problems… but diplomacy is a lot cheaper.

Will our best and our brightest be lured into the new technologies that are touted as the saving grace for a nation gone awry… or will Wall Street raise its head to lure the heart and soul of our future, our best educated sons and daughters, back into the world of smoke and mirrors? Will common sense dictate logical interpretation of our laws and constitutional underpinnings, or will extremists define a new America – alone, isolated and with a downward spiral in lifestyle and economic well-being.

I’m Peter Dekom, and guess what I think about every night before I go to sleep?

Is Green a Color?

If it were just a color, Greenland wouldn’t be moving massive mammoth meltdowns of glacial ice into the ocean at an accelerating pace. The Boston “green” Irish wouldn’t be enjoying the weather pattern that used to be associated with Philadelphia over three decades ago. But “green” is a political movement with razor blade cutting edges.

You see, all of the carbon dioxide (CO2) that has ever been produced and made its way to the upper atmosphere is still there. There are no chlorophyll-laden green plants that create oxygen from CO2 up there. While we need a bit of greenhouse gas to make this planet habitable, it would be too bitterly cold (-18 degrees Fahrenheit average) without it.

As the planet warms, however, and the permafrost melts, a vastly more destructive gas, methane (25 times heavier than CO2), is accelerating the process. Too much greenhouse gas changes climate everywhere, raises ocean levels, migrates disease-carrying insects to formerly inhospitable times, dries out regions and turns their “green” forests into kindling for wildfires, destroys farmland while creating new farmland… well, we all saw Al Gore’s Academy Award-winning slide show, we all know the rest. “Something must be done,” cry those who see a bleak change in the future without prompt action.

But since the Western world got rich in the Industrial Revolution, even though that happened a very long time ago, the developing world is wondering why environmental controls should be global, why they shouldn’t have their enriching “industrial revolution” just like the wealthy Western powers? Why are they being asked to pay the price without being afforded a comparable opportunity, they ask? So it pollutes the environment. That’s how the West got rich. Pretty tough to ask them to stay poor, not develop, and help Westerns live longer with clean air and a steady and predictable weather pattern, safe real estate on their coasts and no ranging wildfires in their forests. People in these developing nations have much shorter life expectancies and generally have little or no sympathy for richer nations, no matter the cause.

The managed depression has also been a blessing and a curse. With people buying and making products in vastly reduced numbers, as consumer consumption, travel, automobile use, etc. have fallen, there have been parallel benefits to the environment. But the curse has followed those nations, like China (the PRC), who finally recognized that their massive economic growth must be tempered with environmental consciousness or else their own people might not survive. With severe growth contraction, China has now put on hold or reduced on some of its own environmental standards – costly programs to implement – to re-prioritize towards growth instead. For them, it was simply a question of allocation of dwindling resources.

There is no joy to the vision of China building electric cars to compete in the international markets while the steel plants used in that manufacturing process belch toxins into the atmosphere. She builds a new coal-fired power plant almost every week. Being less reliant on smoke stack manufacturing, the United States has prioritized developing new technologies that create environmental sustainability, alternative energy and reduced automotive emissions… even as the multinational oil companies are fighting this trend.

China’s response is pragmatic, but still troublesome for us all (including China). The April 18^th New York Times: “The [PRC’s] Ministry of Environmental Protection, citing the urgency of fighting the downturn, adopted a new ‘green passage’ policy that speeds approval of industrial projects. In one three-day stretch late last year, it gave the green light to 93 new investment plans valued at $38 billion.

“Provincial environmental agencies quickly followed suit, cutting the allotted time limit to review environmental impact assessments from the maximum 60 days to as few as five days in one province. Here in Hebei [Province], the parched dust-bowl province that surrounds Beijing, officials announced approval of four new cement plants in a single day in January.” It’s not a simple decision by Chinese officials; it is a debate that continues every day at the highest levels.

The bottom line? We cannot halt the ravages of climate change no matter what we do. The greenhouse gasses trapped in our upper atmosphere will stay there unless some brilliant society creates a technology – probably well into the future – to reverse a process that has not stopped since time on earth began. We can only minimize the damage we create going forward, and it seems that this will continue to be the biggest struggle the planet will ever face. Today, we are dealing with crippling economic realities. But tomorrow, will battles for food and water cripple our ability to survive as a species?

I’m Peter Dekom, and I wonder which of my following generations will face that wall?

Immi-ungratful

There is a legitimate debate going on about undocumented aliens, their cost (drain?) on social benefits and whether or not they should have a means to find legitimate residency in the U.S. The battle rages. Some say that in these hard times, U.S. citizens are losing jobs to undocumented workers, yet when bottom-level jobs (digging ditches by hand, stoop labor to pick crops, working in slaughter houses, bus boys in restaurants, etc.), frequently no legal resident applies – fruit rots on the ground, construction work stops for lack of the super-unskilled exceptionally physical labor, and meat processing plants cannot keep up with demand.

I’ve blogged about the super-skilled, engineering and math types, who have been blocked from immigrating at the expense of growing new technology jobs in this country, but this blog is about something else entirely. When California schools are providing $8-9,000 a pupil public education to the young undocumented aliens, when emergency rooms administer very necessary care to those injured undocumented workers (who clearly are uninsured), the social costs begin to mount. So the debate is legitimate and healthy, and within the nexus of the democratic process, perhaps we can find a viable middle ground as the Obama Administration clearly hopes to do.

On the other hand, the passions enflamed on this issue have another, vastly more sinister side. Super-right-wing groups, ranging from the Ku Klux Klan to those militias who are training their “troops” to replace the existing government with a Nazi-like Aryan racial purification civil war. That the economy is in shambles, people are losing their jobs and homes and an African-American is in the White House have angered a significant mob of political dissidents. For the militant extremists, however, hell-bent on growing their ranks with accelerating recruitment efforts, there is a much easier way to find nascent extremists who might be convinced to train for what they perceive is the inevitable violent purge for racial purity – hold anti-immigrant rallies that cater to jobless (and often angry) Americans.

It seems that what would be a normal process of free speech and assembly under the First Amendment, to express dissatisfaction with the government’s position on undocumented immigration, is being used by those with the ability to spot the particularly vulnerable members of the audience to be approached later and separately as a part of this militant recruitment effort. On April 15^th, the Department of Homeland Security issued a warning the current climate of economic hardship is a particularly good time for such recruitment efforts.

The April 15^th Los Angeles , Times: “[I]n September, the agency issued a report that highlighted how right-wing extremists over the past five years have used the immigration debate as a recruiting tool… The latest assessment started making its way into the mainstream press after conservative blogs got wind of the analysis. In this report, the agency warns that imposing new restrictions on firearms and returning military veterans who have difficulties assimilating back into their communities could lead to terror groups or individuals attempting to carry out attacks. The returning war veterans have skills and experience that are appealing to right-wing groups looking to carry out an attack, according to the report.”

As lax American policies allow a “funnel of firearms” to make their way from the U.S. to Mexico may result in new government policies, to restrict arms sales, that are profoundly threatening to right wing militants (who see the Second Amendment right to bear arms as their most important right), as undocumented aliens – the overwhelming number of unskilled and uneducated works come from Latin America and crossed from Mexico into the States – move from the their initial point of contact in the border states and disperse to fill jobs all across the U.S., the opportunity to use immigration rallies to recruit more angry militants is rising.

I’m Peter Dekom, and there seems to be so much to worry about!