Friday, July 31, 2009

“If you don’t have it, just forget it!”


China’s civil service tradition is thousands of years old. In ancient days, a civil-servant wannabe would be tested on his (sorry, no her) knowledge and understanding primarily of the Analects written by the legendary Confucius around 600 B.C. Long on general principles and short on specifics. Successful candidates were initially given small town or rural assignments and the emperor’s mandate was to extract taxes (remitted to the capital) and apply Confucius’ rules to the local population. It was possible, as reputations and revenues grew, for such a civil servant to rise through the ranks and perhaps even become a Prince of the Realm. Chinese law was supplemented by a more detailed set of criminal and civil laws – known as the Tang Code – in the mid-600s A.D., but bureaucratic discretion remained very much a part of the system.

The concept of a merit-based ruling bureaucracy is compelling, but there are flaws in the underlying tradition. A bureaucrat with loose guidelines (the writings of Confucius/the Tang Code and a taxation goal) and wide discretion is corruption waiting to happen. And so China’s history is one based on financial power influencing the scales of justice and privilege, perhaps more overtly than is found in the smoke-filled rooms of the American political scene. Chinese are masters of “plausible deniability” – the ability to create ambiguity in virtually any action or statement in order to explain away a decision that might someday find disfavor with those “bureaucrats with discretion” in power.

As Mao reinvented China in 1949, a “proletarian” semblance of the civil service endured, but the writings of Confucius were replaced with the “Little Red Book” of Mao’s doctrinaire interpretation of communism. Local cadres with loose guidelines and a goal of taxation still ruled at the local level. The notion of allowing bureaucrats wide discretion, and access to the blessings of those able to pay for them, is deeply embedded in Chinese tradition. Today, “corruption based on discretion” is the bane of China’s most senior leadership, who are wise enough to see the necessity of clear and modern statutes and regulations for those engaged in international commerce, but who also have to face the notion of discretionary entitlement seared into the psyches of the mass of empowered bureaucrats in the system.

For upwardly mobile contemporary Chinese, the key to plum jobs and a rosy future is the level of education they are able to achieve (entrance exams for the best schools mirror the test-taking barriers of ancient China’s civil service system). Here too, corruption raises its ugly head. As a student moves through the system, he/she carry with them (physically) an envelope filled with officially stamped documents registering his/her progress through the system. It is often the only record of their achievements.

The July 27th New York Times: “Everyone in China who has been to high school has such a file. The files are irreplaceable histories of achievement and failure, the starting point for potential employers, government officials and others judging an individual’s worth. Often keys to the future, they are locked tight in government, school or workplace cabinets to eliminate any chance they might vanish.” Unfortunately, often with local bureaucratic complicity, increasingly, these files are stolen and “sold” to those unable to achieve the relevant test scores and academic accomplishments on their own, leaving the victims with no proof of their past.

The Times presents an example of one student, one of several, whose documents were removed as the government moved his living quarters from one apartment to another: “‘If you don’t have it, just forget it!’ Wang Jindong, now 27, said of his file. ‘No matter how capable you are, they will not hire you. Their first reaction is that you are a crook.’… Perhaps no group here is more vilified and mistrusted than China’s local officials, who shoulder much of the blame for corruption within the Communist Party. The party constantly vows to rein them in; in October, President Hu Jintao said a clean party was ‘a matter of life and death.’” Stealing and selling school documents have become a virulent plague. A central system of recordation would help, but the underlying notion of corruption would still continue.

The Peoples Republic of China clearly wants this anomaly of corruption to die. Public arrests and executions of corrupt officials have not stemmed the tide of this common practice, and without an alternative party which can replace incumbents, a free press able to root out and point out local corruption or even a judicial system that allows citizens redress against the obvious problem, China seems to be battling in an unwinnable war. The drive to clean up China appears to be nothing more than a top-down directive – China’s most senior leaders (who are truly revered and respected by the masses) appear to have their hearts in the right place – that fails as the mandate dribbles down the chain of command.

China’s long-term growth literally rides on her leadership’s to deliver transparency and fairness to local governance, an exceptionally difficult objective given the historical evolution of a system of bureaucratic rules that is millennia old. But without this level of balance, the powerful Chinese economy may find itself hitting walls and limits that seem impossible given the PRC’s current level of achievement. It will be interesting to watch how China adapts to remedy this serious and widely, publicly known flaw in the system.

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

Thursday, July 30, 2009

Thinking Inside the Bun


My friend, Dennis Duitch (www.duitchconsulting.com) thought it might be really useful if we understood a bit more about what American buying power is when compared with the buying power in other countries. The sophisticated measuring device? A Big Mac! This is a short blog, but hey… Here’s an excerpt from his latest RSS feed.

THE ‘BIG MAC INDEX’ is theoretically a guide to valuing foreign currencies based on their purchasing power, since the exchange rate between countries should (theoretically) be equalized with reference to a clearly common denominator. However, the disparity of currency ‘purchase power parity’ in today’s upside-down economies is demonstrated by the range of prices for one Big Mac burger, when measured in U.S. dollars. In America, average cost is $3.57; in Norway – $6.15; Europe - $4.62; Peru - $2.66; Mexico - $2.39; Russia - $2.04; China $1.83; and Hong Kong $1.72.

So much for getting a PhD in economics! It’s just lunch!

I’m Peter Dekom, and Dennis Duitch approves this message.

Subcontinental Subversive


As well-armed and hostile Taliban forces moved from the northern Swat Valley toward the Pakistani capital of Islamabad, as other Taliban forces rise up in the ungovernable tribal districts, understanding that Afghani Taliban leader, Mullah Muhammad Omar, the one-eyed wonder who gave sanctuary to the al Qaeda forces that fomented the 9/11 attacks, probably now sits in Quetta, the capital of Baluchistan (Pakistan), where he leads top commanders supervising the war in southern Afghanistan, it is clear that the Taliban are the number one menace facing Pakistan, right? Not exactly.


India remains their main “enemy,” even though India seems to have accelerated into the modern era and no longer views its struggle with Pakistan as its central political focus. Islamabad believes that they can “work out” their issues with fellow Muslim Taliban – even though they never seem to be able to accomplish this goal despite numerous attempts – but fellow nuclear power, India , remains their primary fear.


Pakistan , a seemingly feudalistic nation led by the scions of old world land barons and political dynasties, is absolutely mired in the past. They drill down on India’s northern (and heavily Muslim) state of Kashmir, which most Pakistanis believe should sever its affiliation with mostly-Hindu India and join with mostly Muslim Pakistan – a religious line of demarcation that stemmed from the forcible split of the former British colony, in 1948, into separate Muslim and Hindu nations. Kashmir is filled with militant separatists who draw training and support from Pakistan .


The Muslim terrorists who attacked Mumbai, India last year in a deadly attack from the sea last year – resulting in the death of 160 people from these assaults on luxury hotels, a train station, a crowded cafe and a Jewish center – all had links to Pakistan. Even as India and Pakistan reluctantly share information that could prevent such terrorist attacks in the future, Pakistan remains obsessed with the “threat of India ”; it is what average Pakistanis believe about their world. The Taliban are a pain, but except when they move on the established government, Pakistan is pretty much content to let them do “what Taliban do.”


The result is that there is little sympathy at the government or popular level for any reaction or suppression of any Taliban (“fellow Muslim”) forces except when they act against the incumbent government. That they foment attacks in neighboring Afghanistan , well, again, it’s just what “Taliban do.” In fact, Pakistan’s main spy service, the Directorate for Inter-Services Intelligence (ISI), the service which works with our C.I.A. is notoriously sympathetic to Taliban ambitions in Afghanistan and not particularly interested in aiding American interests in the region… oh, they don’t mind getting U.S. military aid, but there are strong reasons to believe that such support has only been used in a most limited manner to contain Taliban militant who threaten U.S. interests; rumors abound that our funding is simply expanding Pakistan’s nuclear power.


Pakistan loves our technology but really hates when we use it in their backyard. On July 22nd, Pakistani Prime Minister Yousaf Raza Gillani asked the U.S. to provide real-time intelligence, deliver of the super-secret drones for the Pakistanis to control themselves and other military assistance to combat the Taliban. He wants the drones out of U.S. control and out of Pakistani airspace (they are really controversial), but it is unlikely that we would share drone technology with Pakistan (they would have a high probability of being used against our ally, India ). I guess he also needs more U.S. aid simply because they seem to have used so much of the American cash supplied to them for programs other than the containment of terrorists operating on their soil as we intended. But with the step-up in the Afghanistan war, things in Pakistan are definitely getting dicier.


NATO forces, led by U.S. Marines, have moved into the mountainous regions of Afghanistan’s Helmand Province, which borders Baluchistan, an area that has become a stronghold of regional Taliban, who have used the short trip across the Pakistani border to secure safe haven from land-based U.S. assaults (U.S. drones and air attacks have often crossed into Pakistani territory, however). Allied forces have announced a plan to purge Taliban control of the area and keep troops behind to maintain that status. Pakistan hates this idea.


The July 22nd New York Times: “Pakistani officials have told the Obama administration that the Marines fighting the Taliban in southern Afghanistan will force militants across the border into Pakistan, with the potential to further inflame the troubled province of Baluchistan, according to Pakistani intelligence officials… Pakistan does not have enough troops to deploy to Baluchistan to take on the Taliban without denuding its border with its archenemy, India , the officials said. Dialogue with the Taliban, not more fighting, is in Pakistan ’s national interest, they said.” Moving troops away from the Indian border is a non-starter for Pakistani military leaders. Taliban will be Muslim neighbors long after Americans depart the region, they assert.


A briefing document supplied by the ISI reads in part: “The surge in Afghanistan will further reinforce the perception of a foreign occupation of Afghanistan . It will result in more civilian casualties; further alienate local population. Thus more local resistance to foreign troops.” Bottom line is that our bottom line is not their bottom line. Stabilizing this region could prove vastly more elusive that our quest for stability in Iraq . And it is not possible to have a stable Afghanistan without a parallel containment of Taliban activities in Pakistan .


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

Wednesday, July 29, 2009

Default ain’t My Fault


It’s been pointed out by more than one economist that increases in corporate earnings – other than those who are making profits shorting the market (like Goldman Sachs) – have been due primarily to stringent cost-cutting measures enforced across the corporate landscape. As unemployment rises, as jobs are pared from the books, profitability looks better. But since 70% of economic activity in this country comes from consumer activity, if consumers are delaying purchases, squirreling away what monies they can save, reducing discretionary spending and staying out of the home-buying market, without consumers spending money, the illusion of corporate profitability is unsustainable. You can’t make money simply by cutting costs; there have to be revenues as well.


To make matters worse and add pressure to the horrific credit squeeze that has frozen most businesses out of the lending market, the number of commercial real estate failures is skyrocketing, reminiscent of the skyrocketing subprime mortgage failures that swept the nation last year (and continued into 2009). This is the “other shoe” that economists have dreaded, and it has arrived with a vengeance.


The July 27th theDeal.com: “Things are getting ugly in the commercial mortgage-backed securities arena as delinquencies have gone through the roof over the past year, rising an ‘astounding’ 585%, according to data from Realpoint Research… And in June, Real Estate Econometrics LLC predicted that the default rate on commercial real estate is likely to reach 4.1% by year's end. That projection would imply defaults on about $44.3 billion of commercial mortgages, based on the $1.08 trillion of such loans held by U.S. banks in the first quarter, according to data in the report.”


Since the commercial real estate business is spread across the banking sector at every level and in every community, the harm of such massive defaults is that local banks will have a significant reduced capacity to access Federal Reserve lending (their underlying required capital base will be sufficiently eroded by these defaults), and hence they will be further impaired in their ability to make local loans. Major economic powerhouse states like California , Texas and Florida are particularly hard hit; Los Angeles alone has $4.5 billion in commercial real estate defaults (foreclosure or bankruptcy).


With small businesses being looked at with a skeptical eye by most banks – the jobless rate and consumer-spending-slowdown have tanked small business revenues particularly hard – this added burden of shrinking lending capacity suggest that the “recession” or “managed depression” as I call it, is very likely going to enter a new phase that will simply prolong the agony. Perhaps this is the second part of a rolling succession of recessions, but whatever the label, Americans are going to have to adapt to this elongated economic contraction.


And as the “new” Chrysler and the “new” General Motors enter this consumer-impaired, credit-contracted world, will even their reconstituted, leaner and meaner business plans be able to survive in this environment? What are your contingency plans?


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

Tuesday, July 28, 2009

The Second Generation


In 1979, a Revolution placed the Ayatollah Khomeini atop the new Iranian Shiite Republic and toppled a secular regime, the Pahlavi monarchy (Shah = king), which was believed to be most corrupt and exceptionally repressive – the Shah’s dreaded Savak (Sazeman-e Ettela'at va Amniyat-e Keshvar), the intelligence/ security force, routinely arrested and tortured political opponents, people just disappeared. The spiritual rebirth of a nation under God was supposed to change all that.

As a theocracy, Iran’s political hierarchy places its spiritual leaders – who presumably insure that the government follows God’s will – above the elected government, and the supreme spiritual leader, the Ayatollah Khaminei, nears papal status within both the government and the Shiite faith. But thirty years have passed this violent change of government transitioned this nation into an Islamic Republic. The first generation of revolutionary forces is slowly being replaced by a second generation, whose priorities appear to be more crudely aligned with raw political power – at almost any expense – and economic privilege.

The protectors of the State, the Islamic Revolutionary Guards Corps, are increasingly the recipients of the benefits of a party in power. Their stranglehold on the people only increased during the Presidency of Mahmoud Ahmadinejad, and they have been leading the crush against Ahmadinejad’s opposition. They are also battling, with amazing success, some of the clerics and political powers from the first generation that led the nation to its current form of government. A small coterie of elite forces – about 130 thousand with their own army, navy, air force and intelligence service quite separate from the mainstream armed forces – is disproportionately powerful.

The July 21st New York Times: “The corps has become a vast military-based conglomerate, with control of Iran’s missile batteries, oversight of its nuclear program and a multibillion-dollar business empire reaching into nearly every sector of the economy. It runs laser eye-surgery clinics, manufactures cars, builds roads and bridges, develops gas and oil fields and controls black-market smuggling, experts say…

“The corps’s alumni hold dozens of seats in Parliament and top government posts. Mr. Ahmadinejad is a former member, as are the speaker of Parliament, Ali Larijani, and the mayor of Tehran, Mohammad Baqer Qalibaf. And the influence of the Revolutionary Guards reaches deep into the education system, where it indoctrinates students in loyalty to the state, and into the state-controlled media, where it guides television and radio programming.”

As clerics struggle with differing spiritual agenda, interpretations of the Qur’an, the Revolutionary Guard, and their non-uniformed cohorts (the Basij militia, now with literally millions of volunteers), speak with one voice and clearly set the nation’s direction. The sheer numbers of the Guards and their followers represent a significant voting block, assuming elections are not rigged, an unwarranted assumption I suspect. Their scorn for the first generation of powerful players, people like cleric and former President Ali Akbar Hashemi Rafsanjani, is obvious; they are even educating and preparing their own clerics for the future as figureheads in a regime clearly controlled by the Guards.

Their children get priorities at the universities, their lifestyles are heavily subsidized, and their economic power has exploded: “Since 2005, when [Ahmadinejad] took office, companies affiliated with the Revolutionary Guards have been awarded more than 750 government contracts in construction and oil and gas projects, Iranian press reports document. And all of its finances stay off the budget, free from any state oversight or need to provide an accounting to Parliament.”

The Times quoted one Iranian political scientist who preferred to remain anonymous for obvious reasons: “They are the proponents of an authoritarian modernization, convinced that the clergy should continue supplying the legitimization for the regime as a sort of military chaplains, but definitely not run the show.” But for now, the clerics seem to be on top; for how much longer is anything but certain. Ahmadinejad’s controversial first vice president was forced to resign – under a mandate from the Ayatollah himself – because of earlier statements made last year that Israel might not be the real enemy. If Mahmoud doesn’t toe the line, a not-too-subtle letter from high level clerics suggested he could be forced out as well. Hardliners, religious and spirited (if not pseudo-spiritual) revolutionaries, still rule.

Iran is laboring under a government that lacks both accountability and transparency, a system without the obvious checks and balance built into a solid democracy and obscured by a tethered press where reporting the truth is punishable by imprisonment and torture, maybe even death. But isn’t this the very reason the Pahlavi regime fell in 1979? How long can the Guards muzzle a people who are finally beginning to see what their nation has become?

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

Monday, July 27, 2009

The World is Flattened


Back in May of this year, 16 new or “under-construction” houses in Victorville, CA were bulldozed by the San Bernardino branch of Guaranty Bank in Austin, Texas. They were built to sell in the $300K range, modest by Los Angeles suburban (OK, way out from LA, actually!) standards. They were big, beautiful, empty, unsold and foreclosed. The city was about to levy fines, because many of the structures sat unfinished. It was determined that, notwithstanding a crisis of increasing homelessness, it was more economical to raze these structures to the ground.

As I’ve pointed out on several earlier blogs, when folks realize that a house may not be an investment – real estate appreciation has for many become an unsustainable myth – the notion of driving from a distant suburb using expensive gasoline and inflicting extensive wear and tear on the family car to get to work no longer makes economic sense. Not to mention that these “starter homes” relied heavily on unqualified “no down payment” buyers getting subprime loans. These are the houses least likely to find any “recovery of value” even in the not-so-near term.

I am reasonably certain that this will be a pattern that will either be applied by banks with their foreclosed land on similar such properties across the land or perhaps by local governments seeking to defend against mosquito-attracting pools, squatters creating drug houses or general decay inherent in such abandoned properties. Sure, we can picture new “green companies” building alternative energy plants (or other businesses spawned by the stimulus package) near these abandoned properties so that workers can take advantage of cheap housing, but this is by no means a universal solution for the problem.

Indeed, if you apply Google Earth to large areas in and around Detroit, Michigan, you can look down on some amazing residential real estate bargains – houses with three and four bedrooms and several baths selling for under $10K – surrounded by the bulldozed rubble of abandoned neighborhoods flattened by concerned municipalities. Is this the future for many American communities?

The July 23rd FastCompany.com points out the possible direction of a number of American cities that face a relatively permanent and significant contraction: “Flint, Michigan, for, example, was once a thriving factory town with 79,000 locals employed by General Motors. Today it's one of the poorest cities in the country with 20% unemployment and block after block of abandoned closed homes.”

As city government examined the problem, the notion of a managed contraction, planned and implemented for a long-term change, becomes a new focus of many municipalities. “The plan has been backed by Dan Kildee …, the treasurer of Genesee County, which includes Flint. The goal would be to create a smaller, more manageable city with improved services. If the plan is adopted the city would bulldoze entire neighborhoods--as much as 40 percent of its area--and return the land to nature.” FastCompany.com

Unused factories, abandoned homes and vacant businesses would be absorbed by the city, country or state and “reconfigured” to reduce the demand on local services, eliminate venues for criminal activity and enhance the general environment. The Obama administration is watching the efforts in places like Flint as a possible general experiment for many other communities – perhaps deploying some of the federal government’s future infrastructure allocations to such new uses. Downsizing lifestyles, expectations and even the communities in which we live appear to be a part of our future for the foreseeable future.

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

Sunday, July 26, 2009

Subcontinental Subversive


As well-armed and hostile Taliban forces moved from the northern Swat Valley toward the Pakistani capital of Islamabad, as other Taliban forces rise up in the ungovernable tribal districts, understanding that Afghani Taliban leader, Mullah Muhammad Omar, the one-eyed wonder who gave sanctuary to the al Qaeda forces that fomented the 9/11 attacks, probably now sits in Quetta, the capital of Baluchistan (Pakistan), where he leads top commanders supervising the war in southern Afghanistan, it is clear that the Taliban are the number one menace facing Pakistan, right? Not exactly. Sure they counter obvious attacks, occasionally share some “intelligence” with us and even arrest a Taliban operative or two now and again (like the July 26th arrest of the cleric, Sufi Muhammad, who brokered the failed peace deal between the government and Taliban forces in the Swat Valley), but that’s a side show.


India remains their main “enemy,” even though India seems to have accelerated into the modern era and no longer views its struggle with Pakistan as its central political focus. Islamabad believes that they can “work out” their issues with fellow Muslim Taliban – even though they never seem to be able to accomplish this goal despite numerous attempts – but fellow nuclear power, India, remains their primary fear.


Pakistan, a seemingly feudalistic nation led by the scions of old world land barons and political dynasties, is absolutely mired in the past. They drill down on India’s northern (and heavily Muslim) state of Kashmir, which most Pakistanis believe should sever its affiliation with mostly-Hindu India and join with mostly Muslim Pakistan – a religious line of demarcation that stemmed from the forcible split of the former British colony, in 1948, into separate Muslim and Hindu nations. Kashmir is filled with militant separatists who draw training and support from Pakistan.


The Muslim terrorists who attacked Mumbai, India last year in a deadly attack from the sea last year – resulting in the death of 160 people from these assaults on luxury hotels, a train station, a crowded cafe and a Jewish center – all had links to Pakistan. Even as India and Pakistan reluctantly share information that could prevent such terrorist attacks in the future, Pakistan remains obsessed with the “threat of India”; it is what average Pakistanis believe about their world. The Taliban are a pain, but except when they move on the established government, Pakistan is pretty much content to let them do “what Taliban do.”


The result is that there is little sympathy at the government or popular level for any reaction or suppression of any Taliban (“fellow Muslim”) forces except when they act against the incumbent government. That they foment attacks in neighboring Afghanistan, well, again, it’s just what “Taliban do.” In fact, Pakistan’s main spy service, the Directorate for Inter-Services Intelligence (ISI), the service which works with our C.I.A. is notoriously sympathetic to Taliban ambitions in Afghanistan and not particularly interested in aiding American interests in the region… oh, they don’t mind getting U.S. military aid, but there are strong reasons to believe that such support has only been used in a most limited manner to contain Taliban militant who threaten U.S. interests; rumors abound that our funding is simply expanding Pakistan’s nuclear power.


NATO forces, led by U.S. Marines, have moved into the mountainous regions of Afghanistan’s Helmand Province, which borders Baluchistan, an area that has become a stronghold of regional Taliban, who have used the short trip across the Pakistani border to secure safe haven from land-based U.S. assaults (U.S. drones and air attacks have often crossed into Pakistani territory, however). Allied forces have announced a plan to purge Taliban control of the area and keep troops behind to maintain that status. Pakistan hates this idea.


The July 22nd New York Times: “Pakistani officials have told the Obama administration that the Marines fighting the Taliban in southern Afghanistan will force militants across the border into Pakistan, with the potential to further inflame the troubled province of Baluchistan, according to Pakistani intelligence officials… Pakistan does not have enough troops to deploy to Baluchistan to take on the Taliban without denuding its border with its archenemy, India, the officials said. Dialogue with the Taliban, not more fighting, is in Pakistan’s national interest, they said.” Moving troops away from the Indian border is a non-starter for Pakistani military leaders. Taliban will be Muslim neighbors long after Americans depart the region, they assert.


A briefing document supplied by the ISI reads in part: “The surge in Afghanistan will further reinforce the perception of a foreign occupation of Afghanistan. It will result in more civilian casualties; further alienate local population. Thus more local resistance to foreign troops.” Bottom line is that our bottom line is not their bottom line. Stabilizing this region could prove vastly more elusive that our quest for stability in Iraq. And it is not possible to have a stable Afghanistan without a parallel containment of Taliban activities in Pakistan.


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

Saturday, July 25, 2009

Death by Fifty


Every time the subject has been raised at the negotiating table – by anybody – the negotiators on the other side of the table go ballistic in a frenzy of angry denial. Still, there are satellite photos and sufficient escapees and even former guards who confirm the ugly truth: North Korea maintains slave labor camps – punitive institutions – where an estimated 200,000 are held. Beatings, malnutrition and disease pretty much guarantee death by fifty years of age. The July 20th Washington Post: “‘Talking to them about the camps is something that has not been possible,’ said David Straub, a senior official in the State Department's office of Korean affairs during the Bush and Clinton years. There have been no such meetings since President Obama took office… ‘They go nuts when you talk about it,’ said Straub, who is now associate director of Korean studies at Stanford University.”

Prisoner/slaves are making uniforms, growing crops, felling trees or toiling in mines… in isolated mountain camps where no outsiders are ever permitted. Seven days a week. The Post pieced together a report on what this horror really looks like. “North Korea has operated political prison camps for more than 50 years, twice as long as the Gulag in the former Soviet Union.”

Five camps: Camp 22 is near the Chinese border, where one former guard noted, “We were taught to look at inmates as pigs.” Brutal beatings are routine in this facility that houses an estimated 50,000. Camp 16, which borders a nuclear test site and is not too far from the sea in the north east, is a smaller facility that seems to house 10,000 – government personnel, who have fallen from grace, and their families. Camp 15 is in the central region, home to an estimated 50,000, but seems to be the camp from which release is more likely. Another 50,000 prisoners, accorded minor privileges, are housed in Camp 18, but death from beatings and malnutrition are still common. Adjacent Camp14, also home to 50,000, seems to be the camp of no release. Everyone is strictly controlled; no one leaves alive. They work till they drop dead or are killed. Escapees that are caught are routinely hanged before an assembly of prisoners to make sure no one misses the lesson.

What is life like in these horrible camps? The Post: “Eating a diet of mostly corn and salt, they lose their teeth, their gums turn black, their bones weaken and, as they age, they hunch over at the waist. Most work 12- to 15-hour days until they die of malnutrition-related illnesses, usually around the age of 50. Allowed just one set of clothes, they live and die in rags, without soap, socks, underclothes or sanitary napkins…

“But high-resolution satellite photographs, now accessible to anyone with an Internet connection, reveal vast labor camps in the mountains of North Korea. The photographs corroborate survivors’ stories, showing entrances to mines where former prisoners said they worked as slaves, in-camp detention centers where former guards said uncooperative prisoners were tortured to death and parade grounds where former prisoners said they were forced to watch executions. Guard towers and electrified fences surround the camps, photographs show.”

And with North Korea’s recent testing of ballistic missiles and nuclear weapons, dealing with this horror has moved to a diplomatic back burner. The Post: “Containing that crisis has monopolized the Obama administration's dealings with North Korea. The camps, for the time being, are a non-issue. ‘Unfortunately, until we get a handle on the security threat, we can't afford to deal with human rights,’ said Peter Beck, a former executive director of the U.S. Committee for Human Rights in North Korea.”

I’m Peter Dekom, and it bothers me a lot.

Friday, July 24, 2009

A Loan Wolf


The residential mortgage marketplace produced large bundles of individual loans that were swallowed up mostly by the largest banks in the nations. These mortgage-backed securities – a substantial part of the derivatives marketplace – were a “sub”-prime mover leading the country, and eventually the world, into this horrific financial meltdown. Over-leveraging in general suddenly came out from behind the curtain of unregulated economic frenzy to bring us where we are today. Unemployment, consumers’ stopping or delaying spending, credit card defaults… all part of this mess.

But the massive “derivative” horribles were absorbed by the big financial institutions that got the big bailout money. Now comes part two, providing one of the biggest reasons why seasoned economists seem to have no real clue when this managed depression (or serial recessions) will end. As big banks accelerated their write-offs of bad debt (still not enough to suit my tastes) – quadrupling their taking bad debt off their books – local banks only took such write-downs off their books as a bit more than double their previous level of bad-debt-recognition. But guess where local banks are likely to suffer the most? They’ve laid off their residential mortgage bundles to the big boys, but what they’ve kept in their portfolios may kill a lot more banks… and keep the credit freeze as solid as ice for the foreseeable future.

Commercial real estate loans! Here comes the litany of bad debt, part two, and the government doesn’t seem incline to bailout any more banks. The locals appear to be very much on their own. According to the July 20th DailyFinance.com, commercial real estate represents 13% of our gross domestic product ($6.7 trillion). We’ve see 57 banks fail so far this year, but that statistic may be a drop in the bucket since thousands of local banks are mired in commercial real estate loans.

DailyFinance.com: “Estimates are that banks will charge off $30 billion in bad commercial loans this year. This is the highest rate in 20 years. The data for this estimate were taken from reports submitted by 8000 banks. These are loans for offices, shopping malls, hotels, apartments and other commercial property…. Foresight Analytics estimates that commercial delinquencies will double to about 4.3% in the second quarter.”

As the government has refused to help CIT, a commercial lender to thousands of businesses, forcing the bank to a very expensive $3 billion private bailout that may or may not work, it does not augur well for any federal assistance for even smaller banks that might find themselves in trouble. Look at what AOL’s Money (July 20th) tells us CIT’s failure could mean: “CIT's failure could pose a major threat to the economy, industry representatives have warned. A collapse of CIT could cut off financing just as businesses need it most during the ongoing recession. Its failure could force thousands of companies to drastically cut costs or shut down — driving up unemployment and dashing hopes for a swift economic recovery… CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing, so other lenders taking up all the slack would pose a big financial strain.”

The absence of local lending, a necessary corollary to local banks’ dealing with failed commercial real estate loans, has a disastrous impact on local business, which so desperately need working capital and receivable financing to survive. This credit freeze has a most unfortunate impact on such businesses’ ability to keep going and sustain jobs. Tight credit suggests sustained unemployment for the foreseeable future.

And it’s not like the TARP loans generated any significant expansion in bank lending even among banks that got the money. A report released and summarized by the Washington Post on July 20th by shows how TARP money was used for other purposes: “Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government's financial rescue program.”

What does all of this mean for you and me? Longer and higher unemployment. Fewer small businesses expanding and many more failing. A housing market sitting in the doldrums caught between fewer qualified buyers and a decline in available loan financing. In short, this economic meltdown is like to extend even beyond the 2010 “bottoming out/turning around” expectations.

I’m Peter Dekom, and please don’t shoot the messenger.

Thursday, July 23, 2009

I-Rocky V – I Told You So


The Kurds are pulling away from the rest of the Iraq, creating their own constitution, reclaiming the oil fields taken from them by former dictator, Saddam Hussein: “The proposed constitution enshrines Kurdish claims to territories and the oil and gas beneath them. But these claims are disputed by both the federal government in Baghdad and ethnic groups on the ground, and were supposed to be resolved in talks begun quietly last month between the Iraqi and Kurdish governments, sponsored by the United Nations and backed by the United States. Instead, the Kurdish parliament pushed ahead and passed the constitution, partly as a message that it would resist pressure from the American and Iraqi governments to make concessions.” July 10th NY Times.

As time passes, the issue remains unresolved. U.S. forces withdrew from Iraqi cities on June 30th, and the big question is whether a nation, conceived in post-World War I efforts by the victors to carve up the former Ottoman Empire with little reference to local realities, can survive as a functional democracy. Hussein’s brutal reign placed his minority Sunnis (representing slightly more than 20% of the population, mostly centered in the southwestern provinces far from most of the country’s oil production) above the northern Kurds and the majority Shiites. Shiite holdings – stretching across the central and coastal regions where oil production is the heaviest – represent the richest part of Iraq.

And bottom line, the Sunnis hate and do not trust the Shiites – who have tried repeatedly to push the Sunnis out of Baghdad and away from any area of value. The Kurds don’t trust the Shiites either. And the Shiites are divided between those with ties to fundamentalist religious ties (well supplied with arms and support from neighboring Iran – Shiite Islamic mysticism remains an anathema to the literalist form Islam practiced by Sunnis) and those with allegiance to Prime Minister Nouri al-Maliki’s more secular government. But make no mistake, al-Maliki’s government very much represents the Shiite majority. Sunnis have taken to suicide bombings against Shiite targets; tensions remain exceptionally high. But Shiite fundamentalist attacks are also on the rise, and it seems as if al-Maliki is turning a blind eye to these rising Shiite threats.

U.S. forces slowly gained a semblance of begrudging trust from Sunnis who saw American support as a wedge of protection from hostile Shiite domination. But as U.S. policies – supported by mandates and agreements with the incumbent al-Maliki government – pushed the withdrawal of military forces down a set timeline, the severe rifts among the three factions threatened to fracture this country almost as quickly as our departure could permit. There is genuine doubt as to whether this “Iraqi nation” had any possibility of remaining a unified and viable state.

Lest there be any doubt as to the intentions of the al-Maliki government’s intent, the message was clear. The July 18th Washington Post: “In a curt missive issued by the Baghdad Operations Command on July 2 -- the day after Iraqis celebrated the withdrawal of U.S. troops to bases outside city centers -- Iraq's top commanders told their U.S. counterparts to ‘stop all joint patrols’ in Baghdad. It said U.S. resupply convoys could travel only at night and ordered the Americans to ‘notify us immediately of any violations of the agreement.’ … The strict application of the agreement coincides with what U.S. military officials in Washington say has been an escalation of attacks against their forces by Iranian-backed Shiite extremist groups, to which they have been unable to fully respond.

“If extremists realize ‘some of the limitations that we have, that's a vulnerability they could use against us,’ a senior U.S. military intelligence official said. ‘The fact is that some of these are very politically sensitive targets’ thought to be close to the Shiite-dominated Iraqi government of Prime Minister Nouri al-Maliki.” The Prime Minister’s impatience, not even waiting until the Americans have fully departed, has begun what the Kurds and Sunnis feared most – a clear Shiite domination (backed by close ties to Iran) of the entire country. The writing is on the wall; the very concept of a unified Iraq appears to be little more than an American theory with limited chances of success.

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

Wednesday, July 22, 2009

Old Dogs vs. New Tricks


Welcome to a meltdown that the Federal Reserve believes may take five more years to restore normalcy. Welcome to the highest real unemployment rates (still rising) since The Great Depression. And welcome to a new era in age discrimination.

In a rapidly changing technological environment, many make a strong argument for younger workers with more updated educational skill-sets. Others simply look at the fact that older workers often are more highly compensated simply because they have risen through the seniority system to the top of the relevant wage or salary scale for their job description. If you want to save money, hack off that older worker (and that can even mean someone in their 40s in the tech arena!) and replace them with a younger, cheaper and more recently trained substitute.

But when meat axe layoffs are sought, rarely do the managers (generally actually only one individual makes the implementing decision) open up personnel files and generate a cost-benefit analysis based on that individual’s record and accomplishments versus their cost. The axe falls. Further, as the workforce skews younger with time, workers are less comfortable with their older counterparts, with whom they lack commonality and connection. With more older workers, having had life savings decimated and home equity values destroyed, clinging to their jobs for lack of retirement alternatives, the situation as become just plain sticky.

According to the July 16th Washington Post, the federal Equal Employment Opportunity Commission – the agency charged with enforcing this nation’s age discrimination laws – “the American workforce faces ‘an equal opportunity plague’ of age discrimination…Workers filed nearly 30 percent more age discrimination charges last year than in 2007. ‘That is a huge increase, and it will continue going up,’ testified Cathy Ventrell-Monsees, president of the nonprofit group Workplace Fairness, at a public hearing at EEOC headquarters in Washington.”

Workers who would blanch at sexism or racism towards a fellow worker don’t skip a beat at the use of an ageist term: “Describing older workers in demeaning terms remains ‘socially acceptable,’ noted Anna Y. Park, regional attorney for the EEOC's Los Angeles district office… ‘People who would not dream of making sexually provocative statements or using a racial epithet will think nothing of calling someone “grandpa” or an “old mutt” or “old bag,”’ Park said.”

Bottom line, there is a vast older segment of the workforce that is both terrified and desperate; they sense that if they lose their job in this economic environment, their productive years will terminate, that if they find future employment, it will only be at a lesser and more demeaning (given their experience) level. They watch this harsh reality settle in with friends and acquaintances that have already experienced the deadly consequences of a horrible job market.

Still, hordes of new college and trade school graduates are being punched out of our crumbling educational system, and they want to find a place in the workforce. Younger workers, already in the work world and often supporting families, face their own employment crises, and the reduced number of hours being asked of workers used to overtime has tanked more than one family’s plans for the future. The difference may be that one way or another, these younger workers have a future. The Post: “‘How often do we hear employers talking about getting fresh blood in?’ asked EEOC Commissioner Constance S. Barker. ‘What are they talking about? They want younger and cuter.’”

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

Monday, July 20, 2009

When Hugo is Boss


The is absolutely no doubt but that demand for illegal narcotics in the United States is the driving force that finances most of the drug cartels and drug traffic in the Western Hemisphere. As I have recently blogged, the use of these drugs is at the root of the vast majorities of felonies committed in the United States. De facto civil wars – in countries like Mexico and Columbia, for example – threaten to topple democratically-elected governments in a sea of drug-trade-financed violence between governments and well-supplied and well-trained cartel militia, leaving a wake of maimed or killed innocents in its trail. Narcotics-fueled corruption has destroyed the notion of fairness and justice across the hemisphere. All this without the slightest reference to the narco-trade in Afghanistan and throughout the Golden Triangle; this is in our backyard.

Prominent leaders – from California’s governor, Arnold Schwarzenegger, to former Mexican President, Vicente Fox – are questioning whether or not the use of certain currently-illegal drugs might not be legalized and taxed, mirroring the results on organized crime that followed the end of Prohibition. Wikipedia: “In the history of the United States, Prohibition, also known as The Noble Experiment, is the period from 1919 to 1933, during which the sale, manufacture, and transportation of alcohol for consumption were banned nationally as mandated in the Eighteenth Amendment to the United States Constitution

“The ‘Volstead Act,’ the popular name for the National Prohibition Act, passed through Congress over President Woodrow Wilson's veto on October 28, 1919 and established the legal definition of intoxicating liquor. Though the Volstead Act prohibited the sale of alcohol, it did little to enforce the law. The illegal production and distribution of liquor, or bootlegging, became rampant, and the national government did not have the means or desire to enforce every border, lake, river, and speakeasy in America. In fact, by 1925 in New York City alone there were anywhere from 30,000 to 100,000 speakeasy clubs.” Sound fami liar? In 1933 Prohibition was repealed, and alcohol flowed (and was taxed) again.

The U.S. government has funneled billions of dollars, lent military and intelligence aid, sent enforcement officers and even military personnel, to Latin American governments over the years to battle the narco-trade. And yet, even in the middle of the biggest economic meltdown since The Great Depression, the drug trade prospers. And Venezuela, a nation with a common border with Colombia (the capital of the South American cocaine trade) and wide access to the Caribbean, remains a pivotal nation in the war on the illicit drug trade.

The July 19th Washington Post: “[T]he amount of cocaine flowing into Venezuela from Colombia, Venezuela's neighbor and the world's top producer of the drug, has skyrocketed, going from an estimated 60 metric tons in 2004 to 260 metric tons in 2007. That amounted to 17 percent of all the cocaine produced in the Andes in 2007.” The Los Angeles Times (July 20th) amplifies: “The volume of drugs passing through Venezuela more than quadrupled from 66 tons in 2004 to 287 tons in 2007, the GAO said. U.S.-Venezuelan counter-narcotics cooperation ended in 2005, as friction intensified between the Bush administration and leftist President Hugo Chavez.”

Chávez has long-maintained that the United States and its operatives were themselves the corrupt forces in the region and, as a part of his strong anti-American stances, denied any semblance of cooperation to the U.S. in the drug war. The Post: “‘The United States is the first narco-trafficking country,’ Chávez said, adding that Venezuela's geography -- particularly its rugged 1,300-mile border with Colombia -- makes it vulnerable to traffickers. He also asserted that Venezuela had made important gains in the drug war since expelling U.S. counter-drug agents in 2005, a measure the [U.S. Government Accounting Office] says made Venezuela more attractive to Colombian traffickers.”

But reports from both the U.S. government and European journalists suggest otherwise. Spain’s El Pais (newspaper), cited by the Post, believes that “Venezuela has extended a ‘lifeline’ to the Revolutionary Armed Forces of Colombia, or FARC, which the United States estimates has a hand in the trafficking of 60 percent of the cocaine produced in Colombia.” The Post adds: “A report for the U.S. Congress on drug smuggling through Venezuela concludes that corruption at high levels of President Hugo Chávez’s government and state aid to Colombia’s drug-trafficking guerrillas have made Venezuela a major launching pad for cocaine bound for the United States and Europe.” A Latin American anti-American populist government with its hands in the narco-trade till? How novel?!

While the drug plague is a global problem, it is equally clear that there are governments that represent a huge barrier to controlling narco-trafficking, through corruption (like Venezuela or Mexico) or direct government production (like North Korea). We can’t fight this war alone, and clearly the U.S. appears powerless to engage in joint anti-drug enforcement with many reluctant nations. Better relations – at least open dialog with those hostile to us – are necessary, but at a minimum, we have to start looking at local options available to us here in the United States. The focus on supply must carry a parallel and perhaps greater effort on demand (and legalization issues).

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

Sunday, July 19, 2009

Banking on the West Bank


The rise of modern Islamic fundamentalism can be traced to one overriding concept: betrayal. The militancy that has flowed within this tide has been a gesture of empowerment, power that negates the humiliation of Muslim nations that have slid, first as colonial holdings of the West, and second as undereducated barbarians with too much oil money, as the Western perception goes.

During our “Dark Ages,” the Islamic world preserved the classic books that were being burned in Europe, they invented modern mathematics (try working with Roman numerals; algebra is an Arabic word), advanced modern geography and expanded scientific research. During the Spanish Inquisition, as non-Christians were tortured and slaughtered, Jews fled to Islamic lands where they could live without fear. How times have changed.

The collapse of the decadent Ottoman Empire, described in the 1800s as the “sick man of Europe,” a fate firmly sealed with the loss in World War I, brought the Islamic world, particularly in the Middle East, down into the mire of second and third class citizenship. Even as Muslim nations found “independence” in the years following World War II, it was often in the form of a Western-appointed monarchy (the CIA has its hand it establishing the Pahlavi regime in Iran, a monarchy that was toppled in the 1979 Islamic revolution) or a dictator with a very large Swiss bank account.

As a teenaged step-son of a U.S. diplomat stationed in Beirut, Lebanon during the 1960s, I witnessed firsthand the general belief across most of the Middle East that their standards of living would rise to match those in the West, often depicted in American film and television programs. But educational, health and economic prospects, outside of the big oil-producing regions, were then dimmed. Corrupt leaders fattened their bank accounts. Bribery was a way of life. Anger seeped in. the local leadership need “Israel” to refocus that anger – initially directed at Arab leadership – towards an extrinsic scapegoat. The plan worked brilliantly.

Which brings me to one of the possible longer-term solutions to Islamist fundamentalism and the Palestinian “problem”: prosperity. In American geo-political “speak,” “it’s the economy stupid.” People with nothing to lose are a whole lot more dangerous than people with a genuine sense of economic well-being. There are seeds of a positive economic shift in what was once the hotbed of Palestinian radicalism under one of the most corrupt factions of local government: the West bank – that slot of land still under Israeli control that is home to the more moderate, Fatah-controlled, Palestinian leadership.

Fatah, the party of now-deceased Yasser Arafat and once viewed to be profoundly corrupt, was toppled in recent elections by the profoundly anti-Israeli Islamist Hamas, a party that still rules in that other parcel of Palestinian land wedged at the Egyptian border, Gaza. In January of 2006, the unthinkable happened. A Reuters report at the time: “Hamas's capture of 76 seats in the 132-member parliament against 43 for Fatah was widely seen as a political earthquake in the Middle East, triggered by voter disenchantment with corruption and the failure of peace efforts.” Israel and the West could not support the Hamas victory, and the split of Hamas and Fatah rule (Gaza/West Bank, respectively) came about.

Fatah seemed to understand how far it had fallen, how removed its corrupt leadership had become from the people it claimed to represent. The July 17th New York Times writes about a different West Bank (from the town of Nablus) today: “The first movie theater to operate in this Palestinian city in two decades opened its doors in late June. Palestinian policemen standing beneath new traffic lights are checking cars for seat belt violations. One-month-old parking meters are filling with the coins of shoppers. Music stores are blasting love songs into the street, and no nationalist or Islamist scold is forcing them to stop…

“The International Monetary Fund is about to issue its first upbeat report in years for the West Bank, forecasting a 7 percent growth rate for 2009. Car sales in 2008 were double those of 2007. Construction on the first new Palestinian town in decades, for 40,000, will begin early next year north of Ramallah. In Jenin, a seven-story store called Herbawi Home Furnishings has opened, containing the latest espresso machines. Two weeks ago, the Israeli military shut its obtrusive nine-year-old checkpoint at the entrance to this city, part of a series of reductions in security measures…

“[A recent opinion poll] in the West Bank and Gaza by the Jerusalem Media and Communications Center, a Palestinian news agency, found that Fatah was seen as far more trustworthy than Hamas — 35 percent versus 19 percent — a significant shift from the organization’s poll in January, when Hamas appeared to be at least as trustworthy.” If there is to be peace and security in the region, it seems obvious that there also must be prosperity… and in the long run, economic support may be considerably less expensive that the vast military machine required for any other solution.

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