“Now is not the time for avoidance, denial or panic”

Those are the words of Assistant Dean (Career Services), Mark Weber, of the Harvard Law School in a March memo to his law students. The August 25^th New York Times: “How bad is it? Skadden, Arps, Slate, Meagher & Flom, the juggernaut of New York, has slashed its hiring by more than half. For the first time in 136 years, Morgan, Lewis & Bockius, a respected Philadelphia firm, has canceled its recruiting entirely. Global firms like DLA Piper and Orrick, Herrington & Sutcliffe have postponed recruiting for several months to see if the market improves… At Yale [generally ranked the top law school in the nation], students accustomed to being wooed by Big Law’s glittering names — like Baker & McKenzie; Milbank, Tweed, Hadley, & McCloy; and White & Case — were stunned when those firms canceled interviews in New Haven this month.”

I’ve blogged about debt-laden medical students getting slammed by staffing cutbacks, salary cuts and rising costs of practicing medicine. I’ve noted MBA candidates (who draw a whole lot less sympathy than doctors) who’ve borrowed themselves silly to get a high-level degree only to find a tight job market and no takers. Professional graduate schools, providing advanced degrees in law, medicine and business, are very, very expensive and seldom provide the kind of financial aid of the less “pragmatic” academic graduate courses of study (with lower tuition as well)… except for those loans. Tuition at the top professional schools (without counting room and board) can rise to $40-50,000 a year (and higher), so graduating with serious six figures in debt is a really tough beginning for a young adult with hopes and dreams for the future.

Top laws schools have seen a third to half as many on-campus recruiters as in the recent past; small schools are often all but ignored completely. Not feelin’ it for these folks? The “kids” going to top law schools expecting $125-160,000 salaries a year find that their job offer has been withdrawn or postponed a year (some firms have offered half pay to those who wait)… or that the top firms aren’t even recruiting? What do you do with six figures of educational debt, no job and a questionable future? Does it matter that many top firms have contracted, letting go of mid-level partners, dropping associates like a dog shedding fleas? Applications to governmental legal openings have skyrocketed! What a surprise.

But this is a metaphor for America. High priced professorial talent (which is the rule in professional schools) – much like their corporate counterparts – have built their prestige and compensation on the back of higher tuition charged to students who have assumed a salary and career path that collapsed in this bubble. Students borrowed heavily, much like subprime homeowners and private equity acquisition companies, the sizeable sum required to get the education (sometimes with parental help). Borrowing – the American way. But these young folks are indeed our best and brightest (why couldn’t they just have picked engineering instead?), and it is reflection of our values that debt is often the cost of higher education at all levels.

Education is the great equalizer, the transition from poor and lower class to running America and sharing in its glory. It is one of the most democratizing aspects of American society, the place where the fire of American hope burns brightest. Even as our cash-strapped economy struggles to preserve our society and maintain some semblance of an educational system at all levels, isn’t it time to reexamine debt as the routine financial route to higher education? Shouldn’t we be looking to allow students to pay for their learning with differing factions of their future earning power, depending on the job path they select (teachers ride free!)? America needs the education; Americans don’t need more debt.

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

Tomb it May Concern: The Cost of the Inevitable

It’s a burning, churning debate. Death panels. “End of Life” planning and counseling. Hey, folks, we are all going to die. This means you. If you never have to deal with all this “end of life” decision-making, let’s face it, you will die before your time! So when we are worried about the “old folks” or “we can’t burden the young folks with the cost of extending the lives of the old folks,” who are we kidding?! Absent that untimely, premature demise, “young us” become “old us” every time.

So if you carefully decide that we should limit certain benefits to the elderly, or if we have to convince the elderly to deny themselves “twisting and squirming” painful treatments that don’t buy them that much more time, WE’RE MAKING THAT DECISION FOR ALL OF US! Charles Smith, writing in the AOL’s Daily Finance column on August 25^th (“The health care elephant in the room: Medicare”), tells us that our current medical programs, Medicare (for those over 65) and Medicaid (for those at poverty levels), are under-funded and simply cannot survive without a complete financial overhaul. The fear that the current healthcare reform will reduce benefits for the elderly assumes that it is the new healthcare reform that is taking the money away. Medicare can’t work under existing payments structures anyway!

More specifically, Smith notes that “the costs of attempting to stave off the inevitable are rising three times faster than the overall economy, year in and year out.” In short, we have to let the old bastards die without extending their lives, because we’re going broke spending that extra cash to keep them going. Except the “them” is really just “older us.” So the anti-healthcare politicians have got an angle on healthcare reform: it’s all about killing old people or just letting them die an agonizing, untreated death. If we can kill the reform movement, the “oldies” will remain “safe.” Fear can get back the votes that the GOP lost in the last election and take down the Obama administration, creating a “lame duck” in the first year of his administration!

Problem is that even if you “kill” the current vector of healthcare reform, the existing Medicare plan is pretty much heading in the same direction. Add to this nasty mix the fact that since Medicare premiums are rising, prescription drugs significantly uncovered, and the recession will keep the Social Security checks from rising for the next two years (no automatic COL increases), older folks are going to have to pay for the rising cost of prescription drugs (yes, they still are) with less money.

Here’s Smith’s math: “Let's run through some simple arithmetic. The average wage in the U.S. is about $40,000 a year. The Medicare tax is 2.9 percent --1.45 percent from employer and employee, and 2.9 percent for self-employed. Over 30 years (yes, some will work 40 years but others only 10 years, so let's take 30 as an average), that means the average wage earner (and his/her employer) will pay in about $36,000 in Medicare taxes... The average benefits extracted from the system run from $393,000 to $525,000 (due to the benefits extended to non-working spouses, benefits for never-married people may be somewhat lower)… That means each of us who make it to 65 years of age -- which is the majority of us -- will take out 10 to 15 times more than we paid in. That is clearly a huge gap.”

Here’s his arithmetic bottom line: “Any way you slice it, the total taxes and co-pays paid into the system only add up to around $125,000-roughly a third to a fifth of expected benefits paid by the system… We are talking about stupendous sums of money. The current tab for Medicare ($452 billion) and Medicaid ($290 billion) for this fiscal year is $742 billion--more than the entire Defense budget ($707 billion) including the cost of two hot wars and the Global War on Terror. Actuarially, Medicare grows by seven percent a year, decade after decade, even as the U.S. economy's long-term growth rate is about 2.5 percent.”

So in the end, we are going to have to force healthcare reform or let the old bastards – us in the U.S. – die. Ouch!

I’m Peter Dekom, and not reforming healthcare scares me even more.

Action at the Auction?

When the U.S. government needs money to fund the deficit, they hold open auctions to place their debt instruments – generally 30-year Treasury bonds (different from the shorter-term notes) – and bidders set the effective interest rates in a basic application of the law of supply and demand. If there are insufficient bidders and the auction is not otherwise terminated, the Federal Reserve buys the excess inventory (which looks a whole lot like the government is simply printing more money). The feds tend to put out some sizeable numbers at these auctions, particularly as the stimulus package and the federal budget are generating trillion dollar deficits. $200 billion is not an uncommon amount these days.

One of the biggest buyers of these Treasuries (about $1.5 trillion to date), as we all know, has been China . After all the years the U.S. has pressed China for economic reform (to revalue the Chinese currency, for example), the shoe is on the other foot these days. China is deeply concerned about Washington ’s deficit policies, a combination of reckless spending and exorbitant stimulus packages that, in their eyes, threaten the underlying value of the massive U.S. currency reserves and Treasuries that China has accumulated over the years; the threat of dollar inflation is a genuine and major concern.

An official delegation from Beijing , visiting the United States in late July, had a very serious mission: evaluate the risks of China ’s huge investment in Treasuries. The U.S. in turn had the challenge of convincing the delegation to make more purchases of future bonds in support of the American deficit. “We are concerned about the security of our financial assets,’ China’s assistant finance minister, Zhu Guangyao, said with uncharacteristic bluntness during a briefing for reporters covering the ‘U.S.-China Strategic and Economic Dialogue’ on [July 27^th].” July 28^th NY Times.

The Chinese are buried pretty deeply in the dollar, and the fears that they will dump their dollar holdings on the open market (which would devalue the U.S. dollar so much as to create a serious depression) are probably unjustified: “There is little real danger, despite the periodic warnings from cable-television doomsayers, that the Chinese will sell off their huge holdings in American debt. As one senior Chinese official involved in the country’s investment strategy put it several weeks ago, ‘As the biggest holder of Treasuries, we would suffer the most from starting a panic.’ The euro and the yen do not seem especially attractive — China ’s most expensive import is oil, and oil is still priced in dollars.” NY Times.

But the writing is on the wall. As President Obama figures out how to reignite the U.S. economy with his budget-busting stimulus package, and as we are now facing a second wave of recessionary numbers through commercial real estate defaults (part one was the subprime residential mortgage collapse) with lingering and excessive levels of core unemployment, he also has to convince China and his own Congress that budget deficits will be reduced on a manageable basis in future years. Continuing stimulus spending is seen by many bond-buyers as unsustainable. Add the cost of the project healthcare plan before Congress, and the magnitude of the challenges is huge. But if Obama yields to pressure from our buyers of Treasuries and trims the spending stimulus, thus cutting the deficit before the economy reverses, the damage to our long-term prospects could be devastating.

The new economic world order clearly places the power in the hands of the creditor nations, making the United States the supplicant and China the financial master. It’s awkward, there is shame in the effort, but the unregulated excess, the unjustified levels of borrowing across every segment of the American economy, all carried a price. We are paying and will continue to pay that price for the foreseeable future.

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

As the Sun Sinks Slowly in the West So Do SAT Scores

The federal government has given so much “lip” to improving our educational standards, even as our national test results show us constantly slipping when compared to comparable tests, particularly in science and math, administered in other nations. We know China and India are producing an increasing number of very competent college and high school grads with proficiencies in those “hard” subjects that promise themselves and their countries an increasingly viable place in a very competitive world. The most recent foray into “improving education” – the relatively unfunded “No Child Left Behind Act” – left a whole lot of children in the dust; we are even failing when compared to ourselves.

The August 26^th Wall Street Journal noted that “High-school students’ performance last year on the SAT college-entrance exam fell slightly, and the score gap generally widened between lower-performing minority groups and white and Asian-American students, raising questions about the effectiveness of national education reform efforts.” Our scores represent the lowest in a decade, and the last three years pretty much reflected a zero-sum gain. Blame it on the Internet, but the reading scores haven’t been this bad since 1994.

It was one thing when the U.S. was clearly at the top of the economic food chain, providing the patents and inventions that made the world turn round, if a pile of our students didn’t cut the mustard, because we still rode at the front of the parade, and no one in the non-communist world was anywhere close behind. But in this post-Soviet/Cold War era, the number of U.S. patents is falling, just as the patents in India and China are accelerating – they’re no longer just building U.S.-designed “stuff.”

As the U.S. digs itself a budget deficit for future generations to pay back, it might be nice to equip those generations with the education necessary to create the skills required to implement the economic values we so desperately need to generate the huge revenue requirements we have set for ourselves. The Journal: “Many observers… view the flat results of recent years as discouraging in light of the more than 25-year effort to improve U.S. education. ‘This is a nearly unrelenting tale of woe and disappointment,’ said Chester E. Finn, Jr., present of the Thomas B. Fordham Institute, a Washington , D.C. think tank [and a former education official in the Reagan administration] ‘If there is any good news here, I can’t find it.’”

The Journal reported the wide gap between minorities – Asians performed in math at a 572 average score, 72 points higher than the general population, while African-American students scored 429 on average on critical reading, 72 points below the national average. The Journal reported the College Board’s analysis of this reality: “[L]ower-performing minorities tended to go to school in poorer districts with fewer resources.” In short, we have betrayed our children, and we have forced under-performing students to succeed in under-performing schools. The great “equal access to education” – the backbone of our mobile and democratic society – has simply failed.

If we weren’t in an economic fight for our lives, we could be complacent, but the fact that so many students are applying to college tells you that our younger set is willing to try, willing to make the extra effort to receive that training and education – national value-builders than we cannot survive without.

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

Walking the Walk

Ever think that getting anything done in this country is just too complicated… too many rules… too many regulations? But when you take all those rules and regulations away, the “loophole masters” find a way to milk their cow, try and keep all the milk and leave nothing for the rest? Look at what’s going on at the high-performing, high-flying financial institutions in this melted economy. We saved their posteriors. We raged against that American wealth was predicated on “financial” games – selling new “bundles of risk” – buying with lots of debt, putting that debt on what you are buying versus your own balance sheet. What Americans were losing fast is making “stuff” with tangible values.

But what are those self-same financial high-flyers doing now? Supporting investments in American invention, creativity and manufacturing? NOT AT ALL. Making fortunes and paying fat bonuses simply by living in a world of financial instruments and market trading. Same-old, same-old. In fact, when you look at the landscape where small and medium-sized businesses can’t even borrow their basic operating capital to keep going, our manufacturing, creating and inventing capacity has been severely diminished. We’ve laid off engineers, tool and die makers, construction workers, architects, designers and we’re slashing our education budgets from top to bottom to make ends meet. Our biggest manufacturing sector – automotive – is a pale shadow of its former self.

Financial players and multinationals can move money anywhere in the world that they can make a buck. If you can’t make money in the U.S., move resources to “where the money grows.” It’s reminiscent of that magical question – “Willie, why do you rob banks?” – and Depression-era bank robber Willie Sutton’s purported answer (he denied he ever said this): “Because that’s where the money is.” Is America slowly sliding itself into a severely polarized society, with those on top searching for the gravy train with the investment capital to quench their thirst, and the rest of the nation in search of economic sustenance in a world where American workers lack the training and education to compete in a global market… ironically a global market heavily supported by U.S. investment capital?

One market sector is particularly illustrative of our quandary. We’ve proselytized “alternative energy” as our future path. We invented the silicon photoelectric power-generating chips and the panels that produce cheap and efficient electricity. Our government has prioritized this new “green manufacturing” sector as the path to new jobs in a new and glorious future. Subsidies abound. Yet, despite our engineering glory, we are falling behind China in actually manufacturing efficient hardware to implement our vision of ubiquitous solar-generated electricity.

The August 25^th New York Times: “The Obama administration is determined to help the American industry. The energy and Treasury departments announced this month that they would give $2.3 billion in tax credits to clean energy equipment manufacturers. But even in the solar industry, many worry that Western companies may have fragile prospects when competing with Chinese companies that have cheap loans, electricity and labor, paying recent college graduates in engineering $7,000 a year…. Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States.” With both China and the U.S. members of the World Trade Organization (China has not accepted WTO provisions regarding governmental procurement, however), don’t expect to see protectionist barriers rise to protect our industry anytime soon, although anti-dumping laws (selling below cost to the detriment of U.S. competitors) may be invoked if proof can be established.

Solar energy is still more expensive than electricity produced from coal, completely due to the cost of the panels, inverters and batteries necessary to make the systems work. It won’t be like that forever, and environmental concerns should force an even greater emphasis on this form of power generation. The subsidies are necessary. But with U.S. money tight, markets in disarray, and financial institutions unwilling to fund in accordance with governmental priorities because there is easier money to be made by playing purely financial games, it’s easy to see why China’s centrally controlled economy that has pushed past the recession into 7.9% annualized growth is accelerating its manufacturing processes before we seem to be able to start. Red alert; this is not a drill!

I’m Peter Dekom, and I am deeply concerned.

$253,000 a Second

That’s how much U.S. deficit debt is traded every second of every day. We were projecting a going forward (additional!), 10-year-projected deficit at $7.1+ trillion… but the Obama administration, noting that the economy was far worse than expected, has revised that number to be a whopping $9 trillion. But the government is a full-time participant in the borrowing business… it’s not like we only borrow the amounts we add to the deficit every quarter; old debt comes due and needs to be replaced with new offerings. $8 trillion worth of deal-making a year! And when there are no takers at what the Department of the Treasury believes is a viable interest rate, the Federal Reserve steps in to make a purchase until the markets correct. Some people compare the Fed’s purchase of U.S. Treasuries as the equivalent of “printing money” (since they increase the money supply to pay for the purchase), an inflation/dollar devaluing event they feel.

The Obama administration has told us to expect a $1.58 trillion annual deficit “peak” over the next year, tens of billions over the original estimates. Big numbers, but what does it all mean? To get an idea of how much we borrow, not just in the trillions of dollars, but as a fraction of what we make (the gross domestic product), for the past 50 years, we’ve borrowed 50% of our GDP, but with the recent stimulus package and expanding deficit, that number stands at 60%, and it seems destined to rise.

The August 25^th New York Times: “The government’s total debt would roughly triple by 2019 to $17.5 trillion under the new estimate, almost $2 trillion more than the White House estimated in May. Measured as a share of the nation’s economic output, public debt would hit 76.5 percent of gross domestic product by 2019 — by far the highest percentage in the past hal f-century — from about 56 percent this fiscal year. This year will be the first time the number has exceeded 50 percent since World War II. The previous estimate was about 67 percent.” These debt levels are unique for a time that does not carry a WWII level of global military conflict. Even forgetting about the cost of the stimulus package, you can pretty much figure that the entire Iraq-Afghanistan conflicts have been waged with borrowed cash.

Many are asking if we can afford healthcare reform in this environment. The demise of GM and Chrysler under the weight of their union-negotiated benefits package (with huge healthcare costs) and the not-so-hidden cost of 47 uninsured Americans suggests that 16% of our GDP currently spent on healthcare is going to get paid no matter what. Reallocating where the money goes and increasing in efficiency may ultimately stabilize this “out of cost control” sector of our economy, a reality we would have to face sooner or later anyway. But in light of the numbers above, it is a profoundly painful process.

We are constantly “borrowing money” in the form of public auctions, where buyers range from private institutional investors and micro-saver retirees to the Peoples Republic of China. Because we are selling so much of our debt, we’ve accelerated that auction process. The August 24^th New York Times: “In February, the Treasury announced it was bringing back the seven-year note, for the first time since 1993, and it doubled the number of 30-year bond auctions, to eight a year. Just three months later, it announced a further increase in the frequency of 30-year bond auctions, to 12 a year.” The a mount for sale at each of these auctions is expected to rise as our thirst for borrowing increases.

Common sense tells you that this cannot continue forever, although it seemingly has. In March, China’s finance minister expressed concern as to this rising level of debt, a suggestion that was taken by many that China may reduce or stop is purchase of U.S. governmental securities at some time in the near future, this despite the fact that we are still her greatest trading partner (okay, we import vastly more from China that we could ever export). European nations also have expressed serious concern over America’s mounting deficits and concomitant debt. Long-term forecasters are predicting that the dollar will eventually fall significantly by reason of all this borrowing.

Still, the U.S. remains pretty successful finding buyers for its debt. The Times: “Federal officials have been pleasantly surprised to see the demand for Treasury securities keep pace with the growing supply. Invariably, they get ‘coverage,’ meaning that the bids exceed the amount of securities being offered — a great relief to federal money managers. When the government auctioned $32 billion of four-week Treasury bills [in the week of August 17^th], the bids totaled $114 billion.”

This heavy debt is a continuing drain on our annual budget, since debt service is part of our carry. It is a mortgage of our future, but as many argue, we wouldn’t have much of a future without these borrowings in the first place. Many seasoned economists also warn that cu tting off the stimulus package too early would render what we have spent to date a waste and cascade our economy into a true full-on depression. No really good choices. Smaller nations don’t have the same military costs we do and most certainly have lower levels of bureaucratic costs and infrastructure requirements. There are costs simply associated with being a global power, as China is rapidly discovering. But we most certainly have been living well beyond our means for some time now, and most government leaders agree that slowing, stopped and even reversing the growth of our national debt is a mandate for the not-too-distant future.

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

Deep Seated Problem

Seats on the floor at an NBA basketball game can run $2,500+ each. Sky boxes at major arenas are in serious six figures a year, with multi-year commitments. Hockey “seats on the glass” and baseball dugout seats can run $500 each in major markets, and when the Mets and the Yankees priced some box seats at $2,500 a game, they were forced to cut back by 50% when the boxes were so “empty.” Premium seats at tennis and golf championships can also run into the thousands. Baseball’s regular season produces 81 home games (plus playoffs where merited), major league hockey and basketball about half that number. Football’s shorter season doesn’t stop boxes or seats on the 50-yardline from being very pricey. And with athletes demanding higher pay, ticket prices are still, in the main, rising. Do the math; you gotta be really rich to afford those seats… or a corporate structure.

The teams love focusing their broadcast cameras on the celebrities in the high-priced seats. Going to a game, even sitting in a sky box, can be a very public experience; there are photographers and news reporters everywhere. It’s pretty common to see “businessmen” partaking of the “game,” both as hosts and invited guests. And with TARP money and government stimulus money flowing all around, companies that routinely paid for such extravagant tickets are being challenged on their continuing right to do so. Shareholders are asking questions, and now serious ethical questions abound as well.

Many corporations are worried about their “decision-makers” being effectively bribed by vendors to do business, and there are usually articulated standards as to the maximum level an executive can receive a business gift before the gift is either fully disclosable (requiring permission from corporate higher-ups) or simply not acceptable. High priced tickets to sporting events are increasingly falling within the purview of those restrictions. And if there is a tax write-off for a business purpose, the IRS is clearly wanted to see exactly what the business purpose was – not an abstract “it’s good for business,” but a notion of exactly what business was accomplished.

Most of us would fight to sit behind home plate at a major league baseball game; it’s a treat that few of us will ever experience. But the likelihood of being on camera is high, and if there are ever “business appropriateness” questions to be asked, those sitting there are mostly likely to have to explain themselves to government or company. The August 15 New York Times: “‘The seats behind home plate, no one wants to be seen there,’ said John Lieberman, the former chairman of the entertainment and sports committee of the New York State Society of Certified Public Accountants. ‘There’s a perception that you’re throwing your money away. Politically, it’s like car company executives taking private jets from Michigan to Washington.’”

With the managed depression/recession still going strong, the simple economic pressures are leaving many premium seats/boxes are major sporting events unsold. Companies are having trouble justifying the expense. As ad sales push broadcast television revenues down, as ad budgets reduce venue billboards, and as athletes demand increasing salary increases, clearly something has got to give.

The Times: “Baseball was the first major sport to begin a full season in this more spartan environment. Yet with new seasons approaching, basketball and hockey teams are trying to find takers for suites that were not renewed by financial firms. Many corporate hospitality tents sat unused at the United States Open at Bethpage this June, one reason annual revenue at the United States Golf Association is expected to be about 20 percent below the projections made before the economic collapse… Ticket brokers are also scrambling.

“‘The bankers we did business with in the past have eliminated purchases or scaled back to minimal amounts,’ said Jason Berger, the managing partner of AllShows.com, one of the largest ticket brokers in New York. ‘A few years ago, they were focused on the best, best seats. Now they’re under a tremendous amount of scrutiny, especially under TARP, so we’re seeing almost no spending.’”

If they way American sports are funded and paid for is changing in these hard economic times, the overall metaphor for permanent changes foisted on society as a whole cannot be lost. America and its way of life are being seriously downsized. And perhaps, some of this “stop wasting money” can’t be all bad!

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

Happy Trailings to You

The National Association of Realtors announced that the U.S. sale of existing homes rose 7.2% in July, this despite the fact that CNN reported that 9% of residential mortgages were in some form of default. I’ve already blogged about the unemployment numbers being a tad optimistic (the “new” reduced 9.4% unemployment rate conveniently dropped off all those folks whose unemployment benefits ran out in July, all 400,000 of them). We are watching stories of “back-to-school” numbers underperforming (except for the now-ended “cash for clunkers” program, which sold a lot of Japanese cars, U.S. consumers are not spending), escalating defaults on commercial real estate, and even projections by the Federal Reserve that while the “contraction” necessary to define a recession may be coming to an end, unemployment and housing values will stay at or near the bottom for some time.

Clearly, Japan and the bastions of the European economy are projecting actual growth. It is true that Europe was spared the direct impact of the subprime meltdown (they got hit only to the extent their financial institutions bought subprime-backed derivatives), and their social safety nets put the brakes on unemployment. They also did not generate deficits on the order of magnitude that we did. China’s growth rate, with lots of governmental pushes, is at an astounding 7.9% already.

It’s true that our stock market trades on expectations, so it is a leading economic indicator… and it expects corporate growth, even though U.S. consumers aren’t spending and they account for 70% of the economic activity in the nation. It is equally true that housing starts, retail sales, sales of existing homes and employment are all trailing economic indicators – people hire and buy based on actual income/actual orders.

Conventional wisdom tells you that those numbers can be bad even for a few years after the a recession is declared over. That appears to be what the Federal government and Wall Street are counting on. The August 22^nd New York Times: “Though the Fed chairman repeated his warning that the economic recovery here was likely to be slow and arduous and that unemployment would remain high for another year, he went beyond the central bank’s most recent statement that economic activity was ‘leveling out.’ Speaking to central bankers and economists at the Fed’s annual retreat … in the Grand Tetons, Mr. Bernanke echoed the growing relief among European and Asian central bankers that their own economies had already started to rebound.

“Even as they indulged in a bit of self-congratulation over what had been achieved since the financial crisis of last year, these central bankers were beginning to focus quietly on another big task, how they will unwind the vast emergency measures they put in place to fight the crisis.”

There is a danger in following the European lead that we saw when Bush-era Treasury Secretary Henry Paulson, seemingly enamored of being surrounded by the financial big-wigs of the earth – himself among them – agree with European leaders to seek out the same kinds of solutions that Europe was exploring to solve the “global financial crisis.” It didn’t work out that way, but there is always a temptation to join the crowd and follow the path of least resistance – it what got us to over-borrow so much in the first place!

But American issues are uniquely American – our heavy reliance on home ownership as a bastion of our economy differs significantly from the patterns of other nations. Although some Americans may rail at what they see as “creeping socialism,” clearly, we do not have the same level of safety nets found in Europe and Japan. We are different. What’s more, our domestic corporations have yet to figure out how to “grow” beyond the cost-cutting they have engaged in for the past year; they now need consumers to spend to generate revenues. What happens to our stock market if Americans aren’t able to spend at the level needed to create “growth”? Can we rely on a recovering European and Asian market to replace those buyers? And what is happening to that essential element of any American recovery, reasonable access to credit for local small businesses and consumers?

Earlier this month, the FDIC seized Montgomery, Alabama-based Colonial Bank, a big lender in commercial real estate development with 346 branches in five states, the biggest bank failure so far this year, and the sixth-largest in U.S. history. On August 21^st, another large regional bank, Austin, Texas-based Guaranty Bank, with 162 branches in Texas and California, was taken over by the FDIC because of its failing investments in real estate lending and mortgage-backed securities, the second biggest failure of 2009 and the tenth-largest in America’s history. The writing is on the wall for dozens of large regional banks, and the Dept. of the Treasury is hardly affording these critical local banks the same “bailout” opportunities accorded to the largest 19 national banks. If local credit is essential to local business and regional consumers, this litany of regional bank failures does not augur well for our overall recovery, particularly at the grassroots level.

What really seems to be happening is that the economic power with the greatest degree of over-borrowing (both public and private) – the United States – is likely to be one of the last such nation to resurface from this economic meltdown. The “horribles” of trashed home values, impossible credit and dire unemployment/under-employment are likely to linger far beyond the trailing economic indicators of those other nations. In short, we need to be really careful in not playing “follow the leader” this time. Our problems are unique, and the damage to our economy has run deeper and wider than the damage that may have occurred in foreign lands. We get to be optimistic – last. Unless your work for Goldman Sachs, JP Morgan or CitiGroup; you can be happy right now… your government has successfully bailed you out!

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

Missions Impossible

Is the future of Iraq, as a unified nation of diverse ethnic and religious factions, beginning its own death spiral as sequential bomb blasts devastate Baghdad (Sunni revenge against the dominant Shiite regime), as Kurds pull away from the central Iraqi government demanding their lost oil fields and the concomitant revenues, and as the interests of secular, Sunni and Shiite Iraqis diverge? The latter is brought home by government orders at the start of the month-long period of daytime abstinence – Ramadan – of new restrictions that will apply to all residents: “Now even those seen smoking on the streets will be subject to arrest, according to the new decree issued by the Ministry of Interior. Bars and liquor stores were ordered to close completely for the whole month, also for the first time.” August 23^rd New York Times. Secular residents, used to the more secular governance during American rule, are alarmed. American forces are disengaging and withdrawing; it is up to the local police and military now.

That Ramadan began on the same day this year for both Shiites and Sunnis is seen by some as an omen of peace and unity, a harsh divergence from the bloody post-bombing scenes in the streets of Baghdad residents. There are claims that the old Sunni Bath Party (Saddam Hussein’s regime) is at work sewing violence and discontent among the Sunni minority. It seems that the only major faction that wants a unified Iraq is the Shiite incumbency, which carries ties to the neighboring Iranian Shiite Islamic Republic.

The renewed U.S. efforts in Afghanistan, the next major theater of emphasis for the Obama administration, are beginning badly. Even as recently-added American generals are taking greater care not to hit civilian targets and to appreciate local sensibilities with greater awareness, the growth of Taliban strength in the countryside, the power of the local opium trade and the antipathy of our purported ally Pakistan in our battles to suppress militant Islamic forces suggest that America may be escalating an unwinnable war. Even with “green shoots” of latent communications between American forces and the Taliban, it is not altogether clear that the American retaliation for 9/11 will produce anything close to our stated goals. Afghanistan is a vast country with a most rugged terrain.

Even where American forces have secured villages from Taliban rule, threats of death and cutting off fingers from Taliban leaders against people who voted in the recent elections were more than enough to keep the voter turnout, especially in the countryside, very low. This report, from the August 23^rd New York Times, presents a harsh example in the isolated southern village of Khan Neshin that is all-too-common across Afghanistan: “Something is missing that has left even the recently appointed district governor feeling dismayed. ‘I don’t get any support from the government,’ said the governor, Massoud Ahmad Rassouli Balouch.

“Governor Massoud has no body of advisers to help run the area, no doctors to provide health care, no teachers, no professionals to do much of anything. About all he says he does have are police officers who steal and a small group of Afghan soldiers who say they are here for ‘vacation.’

“It all raises serious questions about what the American mission is in southern Afghanistan — to secure the area, or to administer it — and about how long Afghans will tolerate foreign troops if they do not begin to see real benefits from their own government soon. American commanders say there is a narrow window to win over local people from the guerrillas.

“Securing the region is overwhelming enough. The Marines have just enough forces to clear out small pockets like Khan Neshin. And despite the Americans’ presence, Afghan officials said 290 people voted here last week at what is the only polling place in a region the size of Connecticut. Some officers were stunned even that many voted, given the reports of widespread intimidation.”

In the end, the Afghan people have seen the Soviets come and go in a humiliating defeat, and they watched as early American promises of new roads, hospitals and schools – not to mention peace and stability – all died as the U.S. turned her resources to the Iraqi battlefield instead. The Americans are back with new promises, but the Afghani people remember… and believe that when the U.S. forces leave, as they inevitably will, they will be left with the same drug lords, corrupt officials and Taliban autocrats that were there before.

By the end of 2009, we’ll have 68 thousand troops in this Central Asian nation, up from 20 thousand three years ago, but is it already too late? U.S. Admiral Mike Mullen (Chairman of the Joint Chiefs of Staff) sounded this warning (quoted in the NY Times) about the situation facing U.S. forces in Afghanistan: “I think it is serious and it is deteriorating, and I've said that over the last couple of years, that the Taliban insurgency has gotten better, more sophisticated.” Mullen knows that this not entirely a military solution; civilian support for this struggling nation is equally essential. The next 12 to 18 months are critical; either the U.S. wins enough hearts and minds over to the cause – a seemingly elusive quest – or the best we can mount is minimal damage control and a graceful exit.

There is little reason for the average Afghan citizen to support the American efforts and believe the American promises. We’re not a Muslim nation, we do not speak their language or share their customs and we don’t even look like them. Is it only a matter of time before the Americans will leave in frustration? Does our enemy only have to wait us out?

I’m Peter Dekom, and recent American history has seen this before.

Xe Services LLC

Did President John F. Kennedy actually offer the mob money to destroy Fidel Castro’s beard in the early sixties to destabilize his image in Cuba? Did he authorize a mob “hit” on the Cuban leader? World War II had its share of nefarious deals between the government and “shadowy” figures and organizations. Wikipedia: “[Imprisoned mob Boss Lucky Luciano’s] help was sought in providing Mafia assistance to counter possible Axis infiltration on U.S. waterfronts, during Operation Avalanche, and his connections in Italy and Sicily were tapped to furnish intelligence and ensure an easy passage for U.S. forces involved in the Italian Campaign. Albert Anastasia, who controlled the docks, promised that no dockworker strikes would arise. Luciano supposedly dropped a yellow handkerchief from a plane flying over Sicily with his crest to signal friendly faces were approaching; this allowed for the Sicilian Mafia to arise from underground and participate in the liberation of Sicily.”

The government stopped sabotage at the New York docks with this alliance, the story goes, and Luciano was purportedly allowed to continue running his criminal enterprises from jail in exchange for his efforts; he was eventually deported to Italy after the war. Many believe that it was this unholy alliance between the Mafia (which had been ruthlessly rooted out by Italian Fascist dictator, Benito Mussolini) and the U.S. government that replanted the Mafia back into southern Italy.

And then we have “Contra-gate,” a/k/a the “The Iran-Contra affair … [which according to Wikipedia] was a political scandal in the United States which came to light in November 1986, during the Reagan administration, in which senior US figures agreed to facilitate the sale of arms to Iran, the subject of an arms embargo, to secure the release of hostages and to fund Nicaraguan contras…. [See below] In the end, fourteen administration officials were charged with crimes, and eleven convicted, including then-Secretary of Defense Caspar Weinberger. They were all pardoned in the final days of the George H. W. Bush presidency, who had been vice-president at the time of the affair.”

In the 1980s, as part of the above scandal, charges surfaced that the C.I.A. assisted the Nicaragua drug trade (using the Colombian drug cartels to secure drugs) – resulting in a major influx of cocaine to the U.S. through African-American gangs based in Los Angeles – to enlist and finance a Nicaraguan “Contra” army (Fuerza Democratica Nicaraguense), rebels who were trying, unsuccessfully, to topple the incumbent communist Sandinista government. The circle of arms-trading with the then “new” Shiite Iranian government, along with the funding to Contra rebels in Nicaragua, could be hidden by funding all this activity off-the-books of the C.I.A. – money from the drug trade could be used instead!

Yes, the U.S. has a pretty long history of dealing with “the dark side.” The Iraq War even created an entirely new mainstream defense contractor industry in which actual fighting (often under the guise of “guarding” people or facilities) and even prisoner interrogation was “outsourced” to companies like Kellogg Root Brown (a former Halliburton subsidiary, which changed its name to KBR, Inc.) and the infamous BlackwaterUSA (which recently changed its name to Xe Services LLC, most probably because the name “Blackwater” had become so tainted with negativity). These “contractors” fell into a legal loophole where they were neither covered by the Uniform Code of Military Justice (and some took the position that as private contractors, they also were exempt from the Geneva Conventions) nor local Iraqi law. Accusations of arrogance and murder abounded against Blackwater, until the current Iraqi government banned them from working in Iraq.

These “contractors” carried and used mainstream military weapons, operated armored vehicles and helicopters, and their image – flak jackets and dark glasses with BIG guns – is seared into the memory of so many Iraqis. Their casualties were always counted as “civilians,” and controlling their activities under color of law was always difficult. In effect, these “soldiers” were mercenaries hired by the U.S. military (today their big employer is the U.S. Department of State… where they allegedly guard U.S. diplomatic personnel). They still work and fight for the U.S. government all over the earth.

So why are we remotely disturbed by this report in the August 19^th New York Times: “The Central Intelligence Agency in 2004 hired outside contractors from the private security contractor Blackwater USA as part of a secret program to locate and assassinate top operatives of Al Qaeda, according to current and former government officials… Executives from Blackwater, which has generated controversy because of its aggressive tactics in Iraq, helped the spy agency with planning, training and surveillance. The C.I.A. spent several million dollars on the program, which did not capture or kill any terrorist suspects… The fact that the C.I.A. used an outside company for the program was a major reason that Leon E. Panetta, the new C.I.A. director, became alarmed and called an emergency meeting to tell Congress that the agency had withheld details of the program for seven years, the officials said.”

Look, our C.I.S. is bad enough; the August 22^nd Los Angeles Times: “The CIA staged a mock execution and brandished weapons, including a gun and a power drill, during interrogation sessions with detainees the agency was desperate to persuade to talk, according to a long-secret internal CIA report expected to be released [August 24^th].” But outsourcing to a contractor moves control and supervision even farther away from viable scrutiny.

Letting private contractors slime their way into questionable or even illegal activities – killing people, violently interrogating “detainees” in the field, engaging in what has to be full-scale military combat without clear color of law or authority… one step removed from the scrutiny by and responsibility of the properly appointed government regulators and our elected representatives… is now the American way? We know that the Obama administration has curtailed the use of “contractors” in these nefarious ways, but they still work for our government, and it is still a HUGE business. There’s just something that still feels really, really, wrong.

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

The 6% Solution

If you represented a segment of American business that controlled 6% of our gross domestic product – that’s well over $700 billion – and someone wanted to introduce a zero-profit competitor into the market, how would you feel? Would you muster as much Congressional support as you could? Create issues that would inflame grassroots’ sentiments? Even if you had to stretch the truth? Is it about “survival”?

With healthcare costs consistently rising at a multiple of the general cost of living, with giant companies literally collapsed by the cost of committed healthcare and pension benefits (look at the automakers!), as the cost of compensating civil servants skyrockets beyond affordability because of generous healthcare fringe benefits and with about 47 million (and rising) Americans without any healthcare coverage, what is the path to manage costs? If the government is going to subsidize healthcare at some level – beyond Medicaid and Medicare – should it subsidize an expensive system with a large profit factor or should it create an environment where costs are pressured downwards?

With a healthcare commitment that sucks up 16% of our GDP (including the above 6% in private care administrative costs that includes our gigantic health insurance companies), what is it worth to keep what’s left (after Medicare and Medicaid) in the profit-driven private health insurance sector? Despite all the claims that bureaucracies can’t get the job done, will be callous (“death panels” would limit life-saving benefits to the elderly, critics claim without much justification), and that governments tend to be inefficient, experience in places like the UK, Canada and even Massachusetts suggests that government-run programs actually cost less.

President Obama suggested the “public option,” a stripped-down basic “non-profit” healthcare plan provided and administered directly by the government, as a market alternative to private plans. He argued that the mere existence of such a public plan, cost-efficient because of the lack of a need to generate profits, would have created a general cost-cutting market pressure on the better and more complete “for profit” plans offered by private health insurance carriers. This would be an option in addition to private plans, not a substitute for such plans if people prefer the private path.

There has been a profound pressure from heavy campaign contributors in the private healthcare sector. Angry television commentators, protests at town hall meetings and a plethora of disinformation abound. The healthcare industry’s publicity arms are highly effective, and their behind-the-scenes battle to plant negative stories about the “public option” has forced some Democrats, maybe even the President, to rethink whether or not requiring such a public option can be passed against this well-funded opposition. The very viability of national healthcare might not survive this onslaught. Traditional healthcare providers argue that the ability of the government to “pool” large numbers of people into groups – that can take larger masses of customers to create economic leverage in order to negotiate better terms with private health insurance carriers – is sufficient to pressure the downward cost on healthcare costs.

That’s the “public option” debate in a nutshell. White House press secretary Robert Gibbs: “The goals are choice and competition. [The President’s] preference is a public option. If there are other ideas, he's happy to look at them.” What’s your call?

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

‘From the bottom of our souls, we hate you.’

Taliban militants have attacked the Pakistani army from strongholds in the Swat Valley and Waziristan; they have conquered lands, seized farms and property, executed and tortured “detainees,” and violated agreements with their own Pakistani government, profoundly destabilizing the entire nation. But to the average Pakistani, the Taliban are at least Muslims, brothers where dialog and understanding are at least possible. It’s a family dispute.

Ask the average “man or woman in the street” who is the greatest threat to Pakistan on earth today, and the answer is pretty uniformly “India,” a fellow nuclear and regional power, albeit predominantly Hindu, that has steadfastly maintained its continuing right to border state, Kashmir, a region with a substantial Muslim population and significant connections to Muslim Pakistan. Ask the same person how they feel about the United States, even in a post-George Bush world, and you have a pretty good chance to get a strong vituperative in response.

Our “war on terror” has resulted in thousands of “refugees” (many of them well-armed Taliban fighters) from Afghanistan pouring across the border into Pakistan, our missile-launching drones have decimated more than one Pakistani village, and our campaigns in Afghanistan and Iraq have been viewed as anti-Muslim. It is an American war, and notwithstanding our press of military and civilian aid to Pakistan to aid in the fight against the Taliban, this is most certainly not a fight that most Pakistanis want to join. And without a Pakistani solution to Jihadist militancy – which appears to be a most elusive goal – regional stability and success in our Afghan campaign are likely to fail.

Undersecretary of State, Judith McHale, was in Pakistan as part of an Obama-administration effort to rebuild bridges of understanding between the U.S. and the Pakistani people. She knew the road was a rough one, and she faced a private interview with a harsh critic of America, Ansar Abbasi. He was most candid, according to the August 19^th New York Times, in his assessment: ““ ‘You should know that we hate all Americans,’ ” Ms. McHale said Mr. Abbasi told her. “ ‘From the bottom of our souls, we hate you.’ ””

The Times bottom lines the difficulty we face in securing any genuine support from the Pakistani masses, the very people who elect the governments with which we must deal: “… Mr. Abbasi’s reaction — a response that, Ms. McHale acknowledged, apparently reflects the feelings of about 25 percent of the population, according to a recent poll — demonstrated just how tough the job is. For all of the administration’s efforts to call attention to the nonmilitary ties that would bind the two countries, America is still being judged by many Pakistanis as an uncaring behemoth whose sole concern is finding Osama bin Laden, no matter the cost in civilian Pakistani lives.”

Even as President Obama avoids using the word “terrorism” in his speeches directed at Muslim states, our legacy remains; we are viewed as a nation obsessed with terrorism, and we easily label those who disagree with us as “terrorists.” Even as that policy has materially altered, because it was hammered home at so many governmental speeches from 2001 to 2008, it remains the single clear image, in the minds of so many Muslims, of who and what America is and represents to them.

Even as Mahmoud Ahmadinejad shows the world the sheer absurdity of a “free election” in Iran, the United States is still viewed as the Muslim equivalent of an “Axis of Evil.” If you saw the news on August 20^th, undoubtedly, you witnessed cheering crowds in Libya greeting the arrival of Lockerbie bomber who had been released from a Scottish prison. That’s how they really feel about a man who blew up an American civilian aircraft, killing 270 human beings, 189 of whom were U.S. citizens.

It is going to take lots of time, continuing efforts to reverse our image and consistency in our new foreign policy directions to reverse this negative perception. The most obvious opportunity on the table: The Israeli-Palestinian front offers the U.S. an opportunity to become a peacemaker, a negotiating mediator, addressing legitimate Israeli security concerns while finding a path to a truly independent Palestinian state.

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