Saturday, October 31, 2009

Dealing with Devils

Every nation has them, the United States more than most. Devils, that is. We’ve financed dictators when they seem pro-American, even if their people pay with repression, secret police and torture – it was the American way for decades in Latin America Remember when we financed Manuel Noriega (the Panamanian dictator who now sits in a maximum security federal penitentiary for protecting drug cartels) and even Saddam Hussein, whose country we invaded to depose him? Perhaps you can recall the huge sums of CIA money funneled through the Pakistani intelligence agency to support the mujahedeen “freedom fighters” in Afghanistan to undermine their Soviet forces there? Today we call them Taliban and al Qaeda, and they are killing us now; we politely call that “blow back.”

So we’ve done lots of nasty stuff to insure oil flows into global tanks, natural resources flow to us and guarantee that the foodstuffs and raw material that have driven the American machine for so long continue to move and that we have unquestioned access to the most vital lanes of international traffic – like Noriega’s Panama Canal. Our willingness to put our democratic and human rights principals aside in exchange for cheap access to vital imports, cooperation in the containment of a sworn enemy or even a lock-step vote with our position in the United Nations are legendary; it is much of the reason for the disdain of so many around the world.

We’re getting better at this malignant practice, and even to those “pragmatists” who think we can do “whatever” in the name of America business and political interests, it is becoming apparent that our constant involvement in global strife and that negative “attention” we have drawn from so many populist new nations (which impacts our access to natural resources, etc.) may actually have cost us in cold hard cash much more than had we not been so callously “pragmatic.” So I was wondering; how does the new superpower on the block, China, make deals with its “devils,” and more importantly, how are those “deals” going to impact the United States?

China, a country that claims to have been built to serve the grassroots masses, plunged into deals with murderous despots and de facto warlords as it made deal for oils in nasty places like the Sudan and Nigeria. As the rest of the world gathered to generate a consensus on harsh economic sanctions on a defiant Iran, seemingly hell-bent on generating a full nuclear capacity (peaceful and most think military), with a clear need for support from the Peoples Republic of China (as a member of the UN Security Council and simply as a global power without whose support sanctions would be meaningless anyway), China had already become Iran’s largest trading partner. According to the October 26th Fortune Magazine (page 90), 14% of imported Chinese oil comes from Iran.

Was Fortune points out: “What does Iran get besides money? China… supplies it with much-needed gasoline [while Iran has lots of oil, it lack sufficient refining capacity to meet its internal needs for gasoline] and weapons.” What was China’s official response when Western powers called on China to join them in increasing the trade sanctions against Iran because of the latter’s refusal to cooperate with international inspectors and after a secret Iranian nuclear processing facility was recently discovered? “Sanctions and pressures are not the way out,” according to PRC Foreign Ministry spokesperson, Jiang Yu. China pressed for more talks and may live with watered-down sanctions of little relevance to pressuring Iran. China might accept a ban on going-forward deals, but it is highly unlikely that it would accept the elimination of existing agreements.

And what can the United States do about it? Not much, since China holds trillions of dollars in currency reserve (mostly from buying American deficit debt, but much from a huge trade surplus because Americans have imported so many Chinese manufactures). Our tariff threat over cheap Chinese tires is a tiny micro-dot of a gesture against Chinese economic policies, and the U.S. is pretty much hamstrung by its own borrowings at mounting much more. Let’s put this another way: Iranian President Mahmoud Ahmadinejad was supremely confident as he addressed the United Nations this past September. He was calm and when asked what he thought of the impending threat of sanctions, he just smiled and said he “welcomed” them. He is obviously a devil who knows. Kind of uncomfortable when your shoe’s on someone else’s foot, isn’t it?

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

Friday, October 30, 2009

Happy 80th Anniversary!

October 29, 1929 – Black Tuesday. The beginning of The Great Depression. But with the new GDP numbers, we’re home free, right? Naked emperors seem to be spotted with greater frequency by a very large number of economists. The Gross Domestic Product (the end-value of the market value of all goods and services made within a year) rose by 3.5% in the third quarter of 2009. Weeeee! Better than a sharp stick in the eye and clearly a marked contrast to the 6.5% decline in the last quarter of 2008. It is clearly the first “growth” in the GDP in many quarters, and you’d think this is the absolute sign that the recession is officially over. Lots of people are telling you that and a triple-digit rise in the Dow shows that most on Wall Street believe the recession is over. I don’t. Well, maybe Wall Street doesn’t either; that triple digit gain became a triple digit drop the very next day.

I was feeling kind of out of touch with my feelings that the rise in the GDP was either exceptionally anemic to constitute a quarterly signal that the recession is over – usually, the first quarter of growth following a recession is two or three percentage points higher – or simply the wrong measure of the end of the recession. Sure folks will tell you that unemployment trailed for as long as 22 months after the last bigger recession in the early 90s, but maybe talking about a recession ending is less valid that looking at where we truly are as a nation, perhaps even as a global economy. We’re years away from returning to the unemployment rates of 2007.

I’m not even sure there is value in trying to measure the beginning and end of a recession (or managed depression), because that suggests we are headed back to where we were, even if unemployment takes a couple of years to repair. It might be more valuable for us to look at what has occurred in this economic meltdown as a reset of virtually every sector of our economy. We don’t go back to the days of 2007; we just start from a lower, more realistic value base (homes, stocks, jobs, etc.), face the fact that the financial strain probably eliminated (or began the elimination) of many archaic business sectors permanently, and begin anew with an entirely different expectation set. Growth with probably be in newer market segments.

I’m not alone in believing that if you pick the right numbers, you can most certainly declare the recession over. (October 29th): “Treasury Secretary Timothy Geithner today said government rescue programs such as the stimulus and financial bailout had helped the nation's economy grow at an annual rate of 3.5 percent during the third quarter of this year, the strongest growth rate in two years, but warned that for many Americans, ‘the recession remains alive and acute.’” Alive and acute. Not so cute really, and let’s face it, the numbers look good for pretty artificial reasons.

The October 30th provides a slightly more realistic handle on where our economy really is, noting that “well over half of the gains are government related, as:

  • 1.66 percentage points came from car sales in the form of cash for clunkers;
  • Home building soared 23.5%, reflecting a combination of zero percent interest rates and first-time home buyers' tax credit. That was good for another 0.5 percentage points of GDP.

“On the other side of the seesaw, leading economic indicators suggest that we are still in recession mode:

  • The Labor Department reported that jobless claims totaled 530,000 last week and that unemployment benefits fell to 5.8 million. However, next Friday the unemployment report is expected to show that the unemployment rate will reach 9.9%. Most economists project the jobless rate will exceed 10% by early 2010, according to Bloomberg.
  • Consumer confidence reportedly fell to a three-month low this week as unemployment continues to rise.
  • Home prices have been on a steady decline. However, the Case-Shiller index reported that prices are starting to recover and may have hit bottom. [OMG, good news? For real?] Household purchases have in fact increased, climbing to 3.4%, the most in more than two years. Yet foreclosures are still increasing, which could account for the rise in household purchases along with the decline in home prices.[ah, a reality check]

And a few more from other sources:

  • According to the Canadian Broadcasting Company: “WORLDWIDE SHIPPING IS NEARLY AT A STANDSTILL. Cargos are stuck on docks in China and other manufacturing centers due to absence of financing for import, especially in North America. Shipping rates are down 90% from six months ago and cost of chartering a bulk carrier is down from $200,000 to around $3,000 per day.”
  • According to the Oct. 30th Washington Post: “September personal spending dropped 0.5 percent, the Labor Department said … as consumers closed their wallets after the cash-for-clunkers program ended.” Nobody is buying or restocking. Hmmm, that doesn’t sound like growth either!

As noted above, we are about to see the jobless rate, which is slowing, rise to the national 10% level, with the alternative measurement (looking at part-timers and fully unemployed who want full time jobs but don’t know where to look anymore) rising very close to 18%... far worse in States like Michigan and California. With employers not using the full labor capacity of their remaining workers and with many industries simply “going away,” recovery is not so much about filling the old jobs as it is finding new ones. We’re not educating our next generations particularly well, so don’t expect too much in those new arenas, but the indomitable American spirit will still provide many pleasant surprises. The recession isn’t over, but the reset is firmly in place. It’s just about resetting and managing our expectations as well, and that is very, very painful… and will be for a long time.

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

Thursday, October 29, 2009

The Other Middle Eastern Conflict

Hard to focus on the Israeli-Palestinian conflict when two suicide car-bombs, literally minutes apart, killed at least 147 Iraqis and injured 700 more – the highest casualty toll in two years from such attacks – just outside the high-security “green zone” in Baghdad on Sunday. Insurgents “blew up by the justice ministry and a Baghdad provincial office, sites separated by one broad city block. The attacks, the bloodiest in Iraq this year, hit the nerve center of Baghdad's national and local governments, shattering windows, sending debris flying and tearing down parts of buildings.” Los Angeles Times, October 25th. With elections looming in January, the blasts clearly undermined the credibility in Prime Minister Nouri al-Maliki's ability to secure the country as U.S. forces withdraw. On October 28th, as Pakistani forces attacked Taliban strongholds nearby, a car bomb exploded in a Peshawar (Pakistan) marketplace that catered mostly to women, killing at least 100 and wounding another 200 plus – punctuating the arrival of Secretary of State Hillary Clinton to the region.

With such emphasis in the conflicts in central Asia – Pakistan and Afghanistan – and such devastating news from Iraq, sometimes the “other Middle Eastern conflict” seems distant and not as important. Make no mistake; while new hot spots have joined the simmering cauldrons of discontent bubbling throughout the Islamic world, the Israeli-Palestinian conflict is always an issue that could erupt in violent extreme at any moment. It is the conflict that gives many Islamists the justification to attack the United States and its Western partners.

And the status of Jerusalem itself, the continued development of new Jewish settlements on the Palestinian West Bank, threaten to undermine “progress” at any level in the region. Indeed, a new hardliner Israeli government, surrounded by hostile forces at every turn, seems to favor a return to conflict as more productive than negotiation, which has been less than stellar at calming Islamist attacks against the Jewish state. It is worthwhile to take a look at one particular “irreconcilable difference” between the Jewish and the Islamic worlds: Jerusalem’s holiest sites for each faith.

Al-Aqsa Mosque is the second oldest mosque in Islam after the Ka'ba in Mecca, and the third in holiness and importance after the mosques in Mecca. describes the spiritual importance attached to this house of worship under Muslim tradition: “Ten years after the Prophet Mohammad received his first revelation, he made a miraculous night journey from Mecca to Jerusalem and to the Seven Heavens on a white flying horse called Al-Buraq El-Sharif. During his interval in Jerusalem, the Prophet stopped to pray at the rock (now covered by the golden Dome [“The Dome of the Rock,” which is within the mosque]), and was given the commandment to pray five times a day.”

But then, Jews have a stake in this very land as well; they just have another name for it. “The Temple Mount contains the holiest site in Judaism. Jewish Midrash holds that it was from here that the world expanded into its present form, and that this was where God gathered the dust he used to create the first man, Adam. The Torah records that it was here that God chose to rest His Name and Divine Presence, and consequently two Jewish Temples were built at the site. According to Jewish tradition, the Third Temple will also be located here, and will be the final one. In recent times, due to difficulties in ascertaining the precise location of the Mount's holiest spot, many Jews will not set foot on the Mount itself.” Wikipedia. The Temple Mount is also known as the “Noble Sanctuary” to Muslims, since the Al-Aqsa Mosque sits in this revered place.

Needless to say that no good can come from the same place being of exceptional importance – critical actually – to two religions whose political manifestations appear to be at war with each other. And since Israel captured this land during the 1967 war, each side feels particularly strongly about who should control this site. I won’t even go into the significance of these sites to Christians, because at this moment, they are not a part of the fundamental struggle that embraces the Arab-Israeli hostilities over possession of this holy area.

So what just slipped past us in the Sunday news, while we were paying so much attention to the “main conflicts” in Iraq, Pakistan, Afghanistan and the battle over whether or not Iran has nuclear weapons? The October 25th New York Times: “The [Israeli] police said that their forces had entered the Temple Mount compound twice after Palestinians hurled rocks at officers patrolling there, and that they dispersed rioters with stun grenades… Palestinian medics at the scene said at least 17 Muslims were wounded. Nine police officers were slightly hurt by rocks, a police spokesman said… The Israeli police chief, David Cohen, said the disturbances were precipitated by calls from right-wing Jewish activists and an Islamist group, the Islamic Movement, for their supporters to ascend the mount on Sunday… Anticipating violence, hundreds of riot police officers took up positions in and around the Old City, prompting Muslims to accuse Israel of provocation.”

The Arab press supported Palestinian claims that they were protecting this holy Islamic site from “Jewish settlers” bent on further encroachment into Arab lands; right wing Jews wondered why the government even tolerated Muslim worshipers in their sacred site. As new Jewish settlements are permitted, perhaps even encouraged, within the mostly-Arab West Bank by the Israeli government, it is difficult to see how President Obama’s efforts at untangling the West Bank as a Palestinian “state” could find a path to implementation. But even if those concessions could be worked out, would Muslims and Jews ever accept that the Temple Mount/Nobel Sanctuary could ever be shared on any basis, even if controlled by a thoroughly neutral party? And without resolution in this volatile area, is peaceful co-existence between Western nations and the Muslim world remotely possible?

I’m Peter Dekom, and yes, I do lose sleep over these issues.

Wednesday, October 28, 2009

The United States of Goldman

Maybe I’m being unfair to one of America’s premier financial institutions by suggesting that the United States government appears to be run for the primary benefit of these esteemed financial gurus at the expense of American taxpayers. Maybe I should add JP Morgan to that list and few other super-players on this list.

I’m all for private enterprise, folks making millions – even billions – for creating values that enhance this nation’s economy, but enough is enough already. It’s not the pay of the few executives at the top that riles me – big financial institutions don’t just over-compensate their top 25 executives – they overpay all their traders, investment bankers, etc., often thousands of them. They tell you that they cannot attract “the best and the brightest” if they do not. You know what? If we stop rewarding taking risks (which the government seems willing to “bail out,” so it really isn’t that risky!), maybe there can be some sense in all of this.

But with mega-checks being paid out, $3.03 billion in the latest Goldman Sachs earnings report (highly compensated employees also tend to be shareholders, big time, and then there’s the $5.35 billion in July-September compensation that Goldman paid out as well), and the government as the backstop of those too big to fail… it’s time to stop this madness and put an end to a one way street of government support for this tiny group of mega-millionaires.

NY Times writer Joe Nocera, writing on October 23rd , is well summarized in Sara Behunek’s piece in the October 26th

How has the government helped Goldman Sachs Group Inc. (NYSE:GS)? Joe Nocera at The New York Times counts the ways.

1. That $10 billion in TARP money, which Goldman CEO Llyod Blankfein said he regretted accepting because of the resulting focus on the bank's bonuses (the impetus for Nocera's article), allowed Goldman to put capital to work rather than use its reserves to shore up current positions. Unlike its rivals, Goldman at the time was operating with much more cash on hand, thanks to the government.

2. Early in the crisis, Goldman availed itself of a Federal Deposit Insurance Corp. program, which guaranteed commercial paper loans. The bank borrowed $28 billion -- though, as Nocera points out, it has since reduced that amount to $21 billion -- and as a result was likely to save around $754 million over the life of the guarantee program, according to a Wall Street Journal analysis.

3. The government encouraged Goldman (as well as Morgan Stanley) to convert to holding companies, which, Nocera maintains, was not that big of a deal, but it did provide a psychological benefit by showing the bank that the Federal Reserve was on its side at a crucial moment in the crisis.

4. The government's decision to save American International Group (NYSE:AIG) lead to Goldman being made whole, at 100 cents to the dollar, for its exposure to the firm, amounting to a sweet $12.9 billion.

5. The Fed's Term Asset-Backed Securities Loan Facility allowed firms to buy up distressed securities and sell them for a very healthy profit to someone who was part of the TALF program. "You don't think Goldman Sachs did plenty of that?" Nocera asks. "Traders I know say Goldman traders were all over those assets -- and made millions trading the securities."

6. "Finally," says Nocera, "there is the biggest benefit of all, a benefit that seems blazingly obvious to just about anybody who doesn't work at Goldman Sachs. The government will never, ever let it fail. That's what the events of last fall proved."

On October 27th, Treasury Secretary Tim Geithner, tried to articulate the “why” of the recent bailouts of financial institutions: “Reforming the system requires giving the government better tools to allow institutions to fail. You want to build a system where neither investors nor institutions believe that government will come in and insulate them from their bad decisions. In order to do that, you need a system strong enough to survive the shock and give the government the tools to manage the dissolution of a firm without it delivering a major shock to the system if a firm manages itself to the edge of the abyss… You have to design a system where the failure of an institution doesn't completely undermine other viable institutions.” Yeah, well, the system made some of the richest people in America even richer – benefitting from structures specifically designed for them at taxpayer expense – while most Americans faced harsh economic contractions in their lives, many of them permanent.

As the Administration and Congress take up the questions of regulating financial institutions that are “too big to fail,” which might entail the ability of government officials to take over large failing institutions long before bankruptcy and fire management, there are other key issues that should be addressed. I would think the seemingly unfettered flaunting of financial success at taxpayer expense should be at the very top of the government’s agenda. The October 26th New York Times: “Some regulators and economists in recent weeks have suggested that the administration’s plan does not go far enough. They say that the government should consider breaking up the biggest banks and investment firms long before they fail, or at least impose strict limits on their trading activities — steps that the administration continues to reject.

“Mr. [Barney] Frank, Democrat of Massachusetts, said his [House Financial Services Committee] would now take up more aggressive legislation on the topic, even as lawmakers and regulators continue working on other problems highlighted by the financial crisis, including overseeing executive pay, protecting consumers and regulating the trading of derivatives.” Might I suggest an obvious place to start?

What do the new regulatory proposals look like? According to the October 28th New York Times: “The legislation, drafted jointly by Treasury officials and Representative Barney Frank… would [1] create a special fund, paid by assessments on financial companies with more than $10 billion in assets, to bear the costs of big firms that fail [, 2.] impose new restraints on industrial loan companies — financial institutions owned by commercial enterprises like retailers or manufacturers [, 3.] in the future, would not permit any more commercial companies to own banks [, 4.] would permit the government to impose tough new capital requirements on the largest companies as well as take them over, making their shares virtually worthless, and remove management when they fail [and 5] would provide new authority for the Federal Deposit Insurance Corporation, which seizes weak commercial banks, to take over other large failing financial institutions like insurance companies or hedge funds. Let the financial special interest lobbying begin!

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

Tuesday, October 27, 2009

Bone Dry

A couple of years ago, my wife and I visited a small Samburu village about 250 kilometers north of Kenya’s capital city of Nairobi. The villagers were warm and friendly, but things were pretty tough for them. The land was parched, crops were failing and their goat herds were dwindling. Tourists attracted to the local game parks were cutting the area off of their itinerary (hence desperately needed cash flow was vaporizing) because the indigenous wild animals, from lion to kudu and elephant, were migrating south in search of water. Money and resources were increasingly scarce. Marauding bands of well-armed “warriors” from neighboring tribal areas had been known to raid this village looking to make up for the losses nature had imposed on this region.

In this part of East Africa, climate change has pushed temperatures higher, but the biggest toll on the people and animals here has been the profound change in annual waterfall. We read of desertification in the paper; my wife and I witnessed what that word means to human beings being pushed into sequentially graver levels of starvation through no fault of their own. In the extreme northern areas of Kenya bordering on the Sudan, Ethiopia and Somalia – locations better known for genocide and violence – the land may no longer be fit for human habitation. Nomads roamed across these borders, seeking changing grazing areas for their livestock. Today, that grass and any precious water that may be present in the earth are rapidly disappearing, seemingly permanently.

The October 25th Los Angeles Times featured an article about this desperation, noting one harsh example: “For centuries, Adam Abdi Ibrahim's ancestors herded cattle and goats across an unforgiving landscape in southern Somalia where few others were hardy enough to survive.
… This year, Ibrahim became the first in his clan to throw in the towel, abandoning his land and walking for a week to bring his family to this overcrowded refugee camp in Kenya…. He's not fleeing warlords, Islamist insurgents or Somalia's 18-year civil war. He's fleeing the weather.
‘I give up,’ said the father of five as he stood in line recently to register at the camp. After enduring four years of drought and the death of his last 20 animals, Ibrahim, 28, said he has no plans to return.”

“Ibrahim is one of an estimated 10 million people worldwide who have been driven out of their homes by rising seas, failing rain, desertification or other climate-driven factors… Norman Myers, an Oxford University professor and one of the first scholars to draw attention to the unfolding problem, estimated that by 2050 there will be more than 25 million refugees attributable to climate change, which will replace war and persecution as the leading cause of global displacement.” The slums of Africa’s cities teem with displaced and desperate people with nothing to do and little hope left.

As the great industrialized nations grapple with new environmental commitments while countering the difficulties imposed on governments and economies everywhere by this financial meltdown – which despite statements from economists to the contrary appears to be anything but over – it is important to keep in mind the life-shattering consequences of doing too little or virtually nothing at all.

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

Monday, October 26, 2009

From Tarnished Perspectives

How would you feel about a society that mandates that women be sexually objectified, force to present themselves in public in revealing clothes to their utter humiliation? What would you say about a country that is hell bent on eradicating one of the largest religions on planet earth, even if slaughtering innocent men and women are an obvious result? Would it matter that it is your religion that is being targeted? New York Times reporter David Rohde and two associates were held captive (for ransom) in a Taliban-held town in Pakistan; his story has consumed many serial pages in the Times, incredible reading for anyone interested.

But the most fascinating items revolve around the perceptions of the ragtag army of “soldiers” who regularly crossed the border to fight Americans in Afghanistan. One of David’s many observations: “One morning, [Abu Tayyeb, the commander of the Taliban force that abducted David] wept at news that a NATO airstrike had killed women and children in southern Afghanistan. A guard explained to me that Abu Tayyeb] reviled the United States because of the civilian deaths. .. One evening, Abu Tayyeb declared that the Taliban treated women better than Americans did. He said women in the United States were forced to wear revealing clothes and define themselves solely as sex objects. The Taliban protected women’s honor by not allowing them to appear in public with their faces unveiled… My captors saw me — and seemingly all Westerners — as morally corrupt and fixated on pursuing the pleasures of this world. Americans invaded Afghanistan to enrich themselves, they argued, not to help Afghans.” October 19th NY Times (Part Three of David’s Series)

When Japan bombed Pearl Harbor and brought World War II to American shores on December 7, 1941, when Al Qaeda irregulars (back back by Taliban training grounds) slammed hijacked civilian jets into the Twin Towers and the Pentagon on September 11, 2001, Americans were both stunned and outraged. We swore that we would destroy the perpetrators of such horrific acts and bring them to their knees, if it were the last thing we ever did. They attacked our homeland, slaughtering innocents, including women and children, in the process. They were strange foreigners who skin color, religious practices and culture were miss-described in the press; people who were vilified in every corner of the land. How many Americans, to this day, know that the Japanese bombing was a direct result of the American denial of oil shipments to Japan because of their occupation of China? Doesn’t make the bombing right, but that might explain why it happened better.

Right or wrong, it is this passion that inflames the hatred that allows people to hurl themselves into battles with little concern for their own survival. It is this passion, whether justifiable or not, that we face in Central Asia as we fight on. These are religious fanatics, well indoctrinated by their highly manipulative leaders, lacking education and believing that their fight is a heavenly mandate.

The passion is clear as Rohde notes: “My captors railed against the evils of a secular society. In March, they celebrated a suicide attack in a mosque in the Pakistani town of Jamrud that killed as many as 50 worshipers as they prayed to God. Those living under Pakistan’s apostate government, they said, deserved it… One commander declared that no true Muslim could live in a state where Islam was not the official religion. He flatly rejected my compromise suggestion that strict Islamic law be enacted in Afghanistan’s conservative rural south, while milder forms of Islam be followed in the comparatively liberal north. … Citing the Taliban’s interpretation of Islam, he said it was every Muslim’s duty to try to stop others from sinning. If one person in a village commits a sin, those who witness it and do not stop him will also be punished by God.”

This is the battle we have chosen to fight in Afghanistan (a very different religious background from what we faced in Iraq). The title of David’s October 19th article? “You Have Atomic Bombs, but We Have Suicide Bombers.”

I’m Peter Dekom, and knowing the other side is just as important as believing we are right.

Sunday, October 25, 2009

Getting Lubricated Below the Border

The Mexican drug cartels have declared war on the Federales (the Mexican Federal Police) to secure drug routes into the United States. Slaughter and chaos abound. The economic meltdown has slammed Mexico particularly hard, initially with the downturn in the price of oil (which has slowly increased), but primarily because its humongous neighbor to the north, the United States, has decreased the demand on local Mexican manufacturers, and by reason of the very significant reduction in the U.S. hiring of undocumented aliens because of the steady rise in American unemployment rates (undocumented aliens sent large portions of their U.S. earnings to impoverished relatives below the border).

With a history of almost ritualized income tax evasion by so many of Mexico’s wealthy, the mainstay of Mexican revenues has been Pemex (Petróleos Mexicanos) – the State-owned oil conglomerate (Mexico has a history of “nationalization” dating back to the 1930s) – since vast pools of oil were discovered in the famous Cantarell field in 1976. They began pumping oil in 1981 and the field peaked in 2004 at a little over 2 million barrels a day. Thirsty for the cash flow from oil, the Mexican government has sucked virtually every net penny out of Pemex to fund the business of government.

But very much the way the U.S. state and federal governments have ignored repairing and updating our own infrastructure, likewise, Mexico has pretty much ignored fixing and updating its oil drilling equipment, which is now wearing out rapidly. Talks about privatizing Pemex – so long after it is clear that this is probably an insoluble problem – appear to fall into the category of “too little, too late,” and there is a little slogan that even kids in school learn at an early age that is embedded deep within the Mexican psyche: "El petróleo es nuestro" – the oil is ours (literally, the oil belongs to the people).

Combined with the clear depletion of this largest of Mexican assets, it appears that Mexico’s longer term financial well-being will be further undermined as Cantarell depletes… absent major new discoveries. The October 16th “At one time the second largest oil field in the world, contributing more than 60% of Mexico's crude oil production as recently as 2005, the field is dying, having produced less and less oil for several years, with a falloff of as much as 25% this past year from 2007 levels. This year, it's expected to produce 7% less to an average of 700,000 barrels per day, and sometime between now and 2017 the figure may sink to 400,000 barrels a day, despite efforts to optimize the field… ‘Owing to the rapid decline in output at Cantarell and to political and ideological excesses and corruption over the years, disenchantment with Pemex is overwhelming,’ David Shields, an independent energy consultant based in Mexico City, said in an Inter-American Dialogue report recently…”

“[A]nalysts and observers say Mexico's state-owned oil company is debt-bloated, overtaxed and facing massive production declines, and even a new Pemex chief and new oil and gas laws that promise to open it up to private oil companies may not be enough… Cantarell is old, and Pemex has nothing with which to replace it. The national oil company has been taxed so heavily to support the Mexican government -- it provides 40% of the federal budget -- that it has had little capital to invest in new fields. .. ‘Despite ample pretax cash flows, a high tax burden has stymied capital retention and investment in reserves and key infrastructure and has resulted in a heavy debt burden,’ Moody's Investors Service wrote in a May report.”

In short, Mexico, already burdened with social and political issues that threaten her very existence, has an economic elephant in the room that will be there long after the rest of the world “recovers” from this recession. For those Americans who prefer to turn away and say, “Well, too bad and so what, but it’s a problem of their own making, and they should just have to deal with it,” this simplistic answer does not even begin to address the “side effects” that will also slam the United States. If transporting and dealing in drugs is the obvious growth business to supplant “oil,” if the cartels will only become stronger as the Mexican government spirals into insolvency, the ramifications for the United States, particularly our border states, could be nothing short of horrific.
I’m Peter Dekom, and I approve this message.

Saturday, October 24, 2009

Getting a Bit Testy

American children, particularly those in our public school systems, are getting a profoundly raw deal. Bottom line: they will not be prepared to compete in the global labor force with anywhere near the skill-sets that various incarnations of political leaders have pledged for decades. The completely discredited No Child Left Behind Act has produced another demonstration of failure, but this one is likely to ripple through America’s future for decades.

This past spring, the National Assessment of Educational Progress Test, designed to monitor schools, teachers and students in math and reading under the Act, was given to 329,000 fourth and eighth graders. The math results (released on October 14th) produced the following anomalous results: 39% of fourth graders and 34% of eighth graders performed at or above the “proficient” level. The reading results will be published later. The vast majority of our children remain at the “less than proficient in math” level… a completely unacceptable result.

This is the worst our schools have done in a long time. Secretary of Education Arne Duncan reacted to these results: “This is the first time in 19 years that fourth-grade math scores are flat… We’ve got to get better faster.” Another reaction reported by the October 14th New York Times: “‘The trend is flat; it’s a plateau. Scores are not going anywhere, at least nowhere important,’ said Chester E. Finn, Jr., president of the Thomas B. Fordham Institute, a research organization in Washington. ‘That means that eight years after enactment of No Child Left Behind, the problems it set out to solve are not being solved, and now we’re five years from the deadline [the Act set standards for 2014] and we’re still far, far from the goal.’”

A more detailed analysis of the results shows a particular failing in inner city schools: “The latest scores were especially disappointing because score gaps between white and minority students did not diminish at all since the last time the math test was administered, in 2007. On average, the nation’s fourth graders scored 240 on a 500-point scale, just as they did in 2007. White fourth graders, on average, scored 248, Hispanics scored 227 and blacks scored 222…Eighth graders, on average, scored 283 on the same scale, up from 281 in 2007. White eighth graders, on average, scored 293, while Hispanics scored 266 and black eighth graders scored 261…The gap of 32 points separating average black and white eighth graders represents about three years’ worth of math learning.” The Times.

So we are cutting state educational budgets, and the federal assistance to education doesn’t remotely make up the difference. We need a work force to be able to earn enough future money to handle the massive debt load our government has incurred. Instead, we seem to be creating a legion of children who are more likely to need welfare and populate our prison system, exceptionally expensive alternatives, than participate in an optimistic future of joyful and production employment.

I don’t know about you, but you believe in America and her future as I do, this should really piss you off! We’re better than this!

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

Friday, October 23, 2009

Black Outs? Brown Outs? How ‘Bout Gray Outs?

What do you think your “golden years” will be like if you are not already scooping up the gold dust and reaping the benefits of a life of working hard? Yup, 60 is the new 38 (not even 40!), don’t ya know?! You no longer need to worry if you’re over 70 about age discrimination… hey, they can force you to retire and it’s not discrimination! Isn’t that the new 48? For most Americans, retirement is a long ways away… and they will deal with that at a more appropriate time, much later in life. The problem is that sooner or later, the lucky ones (the ones that survive) will all reach those golden years.

A pile of “golden bears” retired this year to kick in their Social Security payments, because their jobs were phased out and, well, they didn’t actually have luck moving to their next work experience, so they gave up. The result? A 23% increase in Social Security retirement claims over the same time last year; folks are opting in even at age 62, when the benefits are, well, miniscule and much less than they would be at 66 or 70. The October 23rd NY Times: “The median income for those 65 and over was just $18,208 in 2008 — a quarter of them had incomes under $11,139, according to Patrick Purcell, an expert on older workers and pensions with the Congressional Research Service. … The average Social Security recipient age 65 and over receives just $12,437 in annual benefits, he said, and among individuals 65 and older who received income from financial assets, half received less than $1,542 last year.” Bet you can’t wait to retire and live off the fat of that government check, right?

In fact, the ranks of the “over sixty and unemployed” has doubled since 2001, and of America’s 7.1 million over-sixty workforce, a full half a million are unemployed and looking for jobs, a number that is double what existed in 2001 and a rate of elderly unemployment that has not been duplicated since The Great Depression. And if you’re over 60 but not yet 65, there’s no Medicare, and your insurance costs are at their highest possible level.

Think about the little things we seem to have taken for granted: that our 401(k) plan is intact (enter the market crash of 2008), that 30 year mortgage would be paid off even though it really has another decade until full payment because we “traded” up in the real estate boom, that our homes will provide the retirement money even if they are not worth enough to sell and retire on, that our company’s pension plan will be more than enough even if that entity has filed for bankruptcy and the pension insurance covers only a small fraction of planned expectations.... Yeah, for most Americans, these are “too bad” issues, but those old folks should’ve planned better. Some of them thought they had… and they were “young and foolish once.” But old folks, here’s the bad news; things are tough all over, and those youngsters really would prefer not to pay anymore taxes to cover your golden years – you get coal instead… just not enough to heat your home.

For those that have already retired but find their cash flow is a little short, perhaps those 35 years as an account executive can prepare you to be a cashier at McDonalds. Maybe you can help folks match paint at Home Depot. Older and looking for work? You’ll spend 40% on average more time looking than someone below that “60 is the new 38” threshold. And think what will happen to most people on fixed incomes if, as predicted, the dollar begins to inflate to reflect the international devaluation based on our massive borrowings! Their meager monthly payments will buy less and less as time goes on. This “little problem” will accelerate and race through the economy as the average age of Americans creeps increasingly older. What do you really think we should do about their… er… your future… problem?

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

Thursday, October 22, 2009


It means “comrade” in Russian, and its use harkens back to the days of Soviet communism in the U.S.S.R. But we all know that the communist system shuddered and fell just two years have the collapse of their Afghani offensive in 1989 (and the collapse of oil prices in the mid-1980s). Since Soviet Premiere Mikhail Gorbachev’s attempts at reform ended in his ouster in 1991, when Boris Yeltsin took the reins of the new nation, it sure looked like the same old same old leadership splitting the spoils of regime change – privatizing into their pockets the wealth of a once-great super-power.

Members of the dreaded KGB (the abusive and terrifying Soviet equivalent of the FBI merged with the CIA) and the highest inner circle of the destroyed Communist Party wound up mega-billionaires as they now controlled vast pools of resources (like oil), huge tracts of real estate and massive production facilities and factories without paying a dime for these assets. The notion began to be politely described as “state capitalism,” particularly as mega-billionaires (notably oilman Mikhail Khodorkovsky who was prosecuted for fraud and tax evasion) were brought to heel under Vladimir Putin’s reign. Putin had managed to push all of his rivals aside (sometimes a push can be fatal, I am told) and has been Russia’s leader (as President or Prime Minister) since 1999. They were indeed the “young invincibles.”

Putin longed to recapture the global power of the once-great Soviet empire and denigrate his old nemesis, the United States. He rose into the role of cult-hero to the masses, and even watched a terrifying youth movement, the Nashi (literally “ours”), grow in 2007 to worship Putin… some comparing this organization to the infamous Hitler Youth. He challenged U.S. policy everywhere. When the U.S. wanted to isolate Iran, Russia signed a treaty with them. When American pushed to contain North Korea, Russia made it clear that nothing could be done without them. As oil prices rose to fuel a new military to replace the once-powerful Soviet machine, Russia’s weapon systems, notably missiles, rockets and planes, began to be rebuilt into a cutting-edge technologically superior force of arms.

The financial meltdown and collapse of the price of oil brought all of this “progress” in Russia to a grinding halt. There was talk of a dilution of Putin’s power, but this relatively young man (he is still in his fifties) tightened his grip and held on long enough so that when oil prices began to rise again, he knew his reign would hold. But that moment of financial pain that threatened his political power created a clear vacuum in the Russian leader’s strategy of retaining power that had to be filled. Something had to change.

Putin and his retinue noted that the one superpower that seems to drift relatively unscathed through the financial morass was China… a “communist” nation, but for all practical purposes, in China anyway, “communism” was relegated to the status of just being a word for a system that was clearly capitalist with a profoundly centralized, one party, leadership in control. The October 18th New York Times: “Like an envious underachiever, Vladimir V. Putin’s party, United Russia, is increasingly examining how it can emulate the Chinese Communist Party, especially its skill in shepherding China through the financial crisis relatively unbowed… In truth, the Russians express no desire to return to Communism as a far-reaching Marxist-Leninist ideology, whether the Soviet version or the much attenuated one in Beijing. What they admire, it seems, is the Chinese ability to use a one-party system to keep tight control over the country while still driving significant economic growth.”

Putin’s government has studied the Chinese system, and his policies appear to be moving the Russian leadership increasingly into that model. “Today, both countries govern with a potent centralized authority, overseeing economies with a mix of private and state industries, although the Russians have long seemed less disciplined in doing so… Corruption is worse in Russia than China, according to global indexes, and foreign companies generally consider Russia’s investment climate less hospitable as well, in part because of less respect for property rights… Russia has also been unable to match China in modernizing roads, airports, power plants and other infrastructure. And Russia is grappling with myriad health and social problems that have reduced the average life expectancy for men to 60. One consequence is a demographic crisis that is expected to drag down growth.” The Times.

The Russian economy is profoundly (and to many Russians, embarrassingly) dependent on the price of oil; China is more diverse and built on an exceptional powerful manufacturing sector. The Russians appear to be directly emulating the Chinese growth machine. “‘The accomplishments of China’s Communist Party in developing its government deserve the highest marks,’ Aleksandr D. Zhukov, a deputy prime minister and senior Putin aide, declared at the meeting with Chinese officials on Oct. 9 in the border city of Suifenhe, China, northwest of Vladivostok. ‘The practical experience they have should be intensely studied.’”

In the end, Russian cold-hearted pragmatism really doesn’t care about the labels (how completely opposite what most in the U.S. feel – once Americans can attach a label, muddy issues appear to be crystal clear and the solution then proffered dispositive!); they want something that works and keeps those in power… well… in power. This should be a most interesting political movement to watch.

I’m Peter Dekom, and I thought you might be interested.

Wednesday, October 21, 2009

The Missing Link

Picture if you will a perfect world – for Islamic militants if you will – where you can attack nasty and “Godless” westerners at will… where they even come for the killing… and you can withdraw to a fellow (and relatively safe) Muslim nation, Pakistan, where you can attack them too, but they literally do very little about it. Add a dose of cash flow. Not only do you get untold hundreds of millions from guilt-ridden Saudis who richness and excess seem to fly in the face of their Spartan and fundamentalist Sunni Wahabi roots, but now you get to “tax” that 50% of Afghanistan that you actually control.

Afghans aren’t exactly pleased with the corrupt Karzai government, and the Taliban are in the best shape they have been since the U.S. ousted them after 9/11. Meanwhile, the West appears to be sinking into an economic morass of its own making. Wow, these are great days to be a Taliban leader!

But the Islamic world is hardly a solid and unified force. Back to history. Shiites (a large minority in Pakistani, but generally, they represent only 15% of the Islamic world) are Muslims who believe that the Qur’an is a mystical book that only the holiest of clerics can interpret for the masses (Iran’s Ayatollah for example); Sunnis (85% of the Muslim world) believe in the literal interpretation of the Qur’an (the more fundament, the more literal) with each Muslim required to read that holy book himself (yeah, I said him).

Taliban are extreme Sunnis, tied into the fundamentalist Wahabi view of the world (effectively: non-Sunnis are not really people), and have supported Al Qaeda since the get-go – the 9/11 bombers all trained in Taliban-controlled Afghanistan. Generally, Sunnis and Shiites hate each other, although Iran (Shiite) has recently gone out if its way to finance Sunni extremists in the hopes of expanding its regional power.

Back to the Pakistan/Afghanistan region. So we’re busy stacking up the military in Afghanistan, firing very unpopular (and often indiscriminate as to collateral civilian casualties) missiles launched from drones into the neighboring Pakistani Tribal Districts to take out fleeing Taliban/Al Qaeda troops. While Pakistan has paid lip service as our “allies” in the region, the truth is that the local Pakistani masses hate us, hate our drones, think that helping the West is anti-Islamic and hardly in their best interest, and until very recently, and that the Taliban be dealt with as fellow Muslims. No… India, to most Pakistanis, India (primarily a nation of practicing Hindus with a vastly smaller Muslim minority) is their evil empire, holding that primarily Muslim Indian state of Kashmir against the wishes of the local Muslim residents (in the eyes of Muslim Pakistan). Hate India. Hate the West.

Well, Pakistan has nukes… lots of them (estimated 60-70 warheads) and the missiles to deliver them. Their infamous “father of the Islamic bomb,” Dr. A.Q. Khan – who provided both North Korea and Iran with plans as to how to build true nuclear weapons capabilities – has long dreamed of building an Islamic nuclear arsenal to level the playing field with the bullies in the West. And to balance India’s nuclear capabilities. Khan, once placed under a token “house arrest,” is free again.

Our greatest fear? That these nukes wind up in the hands for Muslim fundamentalists bent on destroying Israel and bringing the West, particularly the U.S., to their knees in a fiery set of clandestine nuclear weapons, planted to maximize casualties, placed throughout the Western world. For many militants, not based in any particular country, they laugh at the thought that the West may not have any nation to retaliate against (but if the Taliban win….)… and for others, the thought of dying in a retaliation will instantly carry them to heaven as martyrs. You see, under traditional Muslim beliefs, good folks who die will have to wait until judgment day (an eternity away) to enter heaven; only those who die as martyrs get a direct and instantaneous admission to paradise (with or without the requisite 72 virgins).

Well, dem Taliban are feeling their oats these days. Sporadic attacks (places like Dir and Swat) against the Pakistani establishment, the willingness to live in the Tribal Districts where Pakistani forces have long since given up attempting to govern… well… not enough. It appears as if the Taliban want it all now. The October 15th New York Times: “A wave of attacks against top security installations over the last several days demonstrated that the Taliban, Al Qaeda and militant groups once nurtured by the government are tightening an alliance aimed at bringing down the Pakistani state, government officials and analysts said.”

Al Qaeda and the Taliban have increased the links between them, mounting joint assaults on numerous Pakistani police and military installations with horrific and mounting casualties. The Times: “But the style of the attacks also revealed the closer ties between the Taliban and Al Qaeda and what are known as jihadi groups, which operate out of southern Punjab, the country’s largest province, analysts said. The cooperation has made the militant threat to Pakistan more potent and insidious than ever, they said.

“The government has tolerated the Punjabi groups, including Jaish-e-Muhammad and Lashkar-e-Jhangvi, for years, and many Pakistanis consider them allies in just causes, including fighting India, the United States and Shiite Muslims. But they have become entwined with the Taliban and Al Qaeda, and have increasingly turned on the state.” Oooops.

We’re still shoveling money at Pakistan to help our cause. On October 15th, “President Obama signed a civilian aid package for Pakistan of $7.5 billion over five years. The package has prompted friction over conditions for the aid — like greater civilian oversight of the military and demands that Pakistan drop support for militant groups — which army officers and politicians considered infringements on Pakistan’s sovereignty.” The Times. Yet, they really need the money. But don’t mistake Pakistan’s counter-attacks against these militant forces as a new era of Pakistani popular support for the U.S. positions in Iraq and Afghanistan. They still think that they can “work it out” with their Muslim brethren, even if they are wrong.

I’m Peter Dekom, and I thought you might like to know.

Monday, October 19, 2009

Wellness Initiatives – the Opposite of Hunger

The Obama administration has stated that one of the most significant goals of the proposed healthcare legislation is to prevent insurance carriers from terminating or denying coverage or charging higher premiums by reason of preexisting conditions. But there is this little loophole, naturally favored organizations like the U.S. Chamber of Commerce and the National Association of Manufacturers, which allows employers to impose penalties on workers who are, frankly, out of shape. The October 16th Washington Post: “By more than doubling the maximum penalties that companies can apply to employees who flunk medical evaluations, the legislation could put workers under intense financial pressure to lose weight, stop smoking or even lower their cholesterol.” The same types of parameters would also apply to individual policies.

Let’s face it… America is fat. Fat… particularly with a touch of demon tobacco… causes myriad health issues, prominently including heart disease, stroke, cancer and diabetes. In the insurance world, people who are in shape subsidize people who are not. The older you get, in shape or not… until you hit Medicare… the higher your premiums go. Hey, your “parts” are wearing out! No one is talking about taking the age variable out of the calculation for healthcare premium (damn!). But tying costs to healthy lifestyle choices sounds fair, actually, and those some folks actually have medically caused obesity and cholesterol issues, which diet and exercise alone cannot counter (why does this sound like a TV ad for a diet drug?), would have a carve-out for these truly medical conditions.

Unions, the American Heart Association, the American Cancer Society and the American Diabetes foundation all oppose this “wellness” provision. But the policy is clearly moving in that direction. “The bipartisan initiative, largely eclipsed in the health-care debate, builds on a trend that is in play among some corporations and that more workers will see in the benefits packages they bring home during this fall's open enrollment. Some employers offer lower premiums to workers who complete personal health assessments; others limit coverage for smokers… In effect, [these features] would permit insurers and employers to make coverage less affordable for people exhibiting risk factors for problems such as diabetes, heart disease and stroke.” The Post.

In fact, these penalties could force folks entirely out of the universal coverage that everyone in favor of healthcare reform seems to support. And aren’t obesity, smoking, etc. “preexisting conditions”? But the fact remains, if we really want to reduce the burdensome cost of healthcare, Americans should be rewarded for healthy habits and be held responsible, where free choice of lifestyle is concerned, for what they choose to do to their bodies. And costs will skyrocket without some attention to the underlying causes. Want a very recent example? The October 19th NY Times: “The basic Medicare premium will shoot up next year by 15 percent, to $110.50 a month, federal officials said [Oct. 19th].” Houston, and every city in the United States, we have a problem. “Supporters say economic incentives can prompt workers to make healthier choices, thereby reducing medical expenses. The aim is to ‘focus on wellness and prevention rather than just disease and treatment,’ said John J. Castellani, president of the Business Roundtable.” The Post. We’ve got to drill down on costs or we aren’t going to be able to afford any healthcare plan.

How much are these possible “wellness” premium increases that are we talking about here? “Under current regulation, incentives based on health factors can be no larger than 20 percent of the premium paid by employer and employee combined. The legislation passed by the health and finance committees would increase the limit to 30 percent, and it would give government officials the power to raise it to 50 percent.” The Post. That’s a lot of money! Some companies are raising the deductibles (sometimes by thousands of dollars) in their plans for smokers and those who are overweight. Expect individual plans to mirror these features. Incentives for participation in anti-smoking clinics and weight-loss programs are also choices that some employers make.

There is a complex balancing act going on in the crafting of healthcare reform. As I’ve blogged before, were paying way too much time on how we charge and pay for this plan and way too little on managing excessive “defensive medicine,” overtreatment and skyrocketing pharmaceutical costs. What’s your opinion? Is this “wellness” vector a good thing or a bad thing for our new healthcare policy? Given the number of overweight Americans, it is pretty clear that a lot of people are going to be paying a lot more if the “wellness” incentive plan passes. Is the “public option” alternative (very basic, no frills insurance, provided directly by the government) a reasonable addition to a program of creating cost competition (and hence savings)? What are your thoughts?

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

Sunday, October 18, 2009

Bribery, a Useful Diplomatic Tool

If an American resident/citizen bribes a foreign governmental official to allow a favor or make a favorable decision to the bribing party or even to abstain from some discretionary act, that resident/citizen has committed a felony under U.S. federal law; they have violated the Foreign Corrupt Practices Act, which could result in multi-million dollar fines and serious time in a federal prison. It’s done all the time, and the government only occasionally elects to prosecute – after all, rationalize the offending parties, that’s the way business in done in most of the world.

But you know, it’s okay for governments to bribe foreign governments to effect U.S. policy – we sometimes call it “foreign aid” (it carries lots of strings) – and without it, where would Pakistan have all those cool fighters and weapons to taunt and threaten their lovely neighbor, India? Hey! We all know that all those weapons we are giving them to fight Taliban are being used to fight Taliban, right? Oh, not really, but they are beginning to think about it as Taliban serially attack Pakistani police stations and military targets?

The theory goes that if the Taliban go unchecked, they easily take over Afghanistan and can then focus on toppling the Pakistanis to access a rather significant arsenal of nuclear weapons (an estimated 60-70 warheads). With bombs in tow, the Islamists would have nuke to deploy against Israel and their enemies in the West (like the U.S. ). Unfortunately, they would also have a country that we could actually bomb back. So Afghanistan is mission critical to Western policy-makers, and they’ve done so well with their efforts to date.

I mean after all, when you promise to build schools, hospitals, create jobs, etc. (which we seem to have forgotten to do in Afghanistan ), it can’t really be looked at like a bribe to the locals… not like paying your enemy cash not to shoot you so much. Now maybe that’s a plan? On October 15th, the UK-based (The Times of London) reported: “When ten French soldiers were killed last year in an ambush by Afghan insurgents in what had seemed a relatively peaceful area, the French public were horrified.

“Their revulsion increased with the news that many of the dead soldiers had been mutilated — and with the publication of photographs showing the militants triumphantly sporting their victims’ flak jackets and weapons. The French had been in charge of the Sarobi area, east of Kabul , for only a month, taking over from the Italians; it was one of the biggest single losses of life by Nato forces in Afghanistan .

“What the grieving nation did not know was that in the months before the French soldiers arrived in mid-2008, the Italian secret service had been paying tens of thousands of dollars to Taleban commanders and local warlords to keep the area quiet, The Times has learnt. The clandestine payments, whose existence was hidden from the incoming French forces, were disclosed by Western military officials.

“US intelligence officials were flabbergasted when they found out through intercepted telephone conversations that the Italians had also been buying off militants, notably in Herat province in the far west. In June 2008, several weeks before the ambush, the US Ambassador in Rome made a démarche, or diplomatic protest, to the Berlusconi Government over allegations concerning the tactic.” Ooooh, bad Italians, bad! The allegations also suggested that the Italians had bribed the Taliban (the American spelling, you will note) in the Sarobi area as well. Of course, the corruption free (hmmm, that doesn’t sound right, does it?) Berlusconi government labeled the reports “completely groundless” and Defense Minister Ignazio La Russa called the story both “offensive” and “rubbish.”

Why all the fuss? The theory goes that if the Taliban go unchecked, they easily take over Afghanistan and can then focus on toppling the Pakistanis to access a rather significant arsenal of nuclear weapons (an estimated 60-70 warheads). With bombs in tow, the Islamists would have nukes to deploy against Israel and their enemies in the West (like the U.S. ). Unfortunately, they would also have a country or two that we could actually bomb back into the Stone Age, as we like to say. So Afghanistan is mission critical to Western policy-makers; gosh, they’ve done so well with their efforts to date.

But that Italian bribe thang did get me to thinking. Estimates are that we have spent at least $223 billion on the war in Afghanistan to date (according to the August 9th Washington Post). Pessimists see a total expenditure of $2.4 billion if we are stuck there for a decade... and the government itself projects $65 billion a year in direct military spending. If we calculate that there are 30 million people in the entire country, we could eliminate the middleman (the corrupt Karzai government) and simply bribe the relevant people directly. What, about 1/3 are Taliban “sympathizers” or actual Taliban? Less, you say, but half the country is under their control.

Forget about negotiating with the Taliban and recognizing the legitimacy of their constituency in the Afghan countryside, let’s just pay them a salary to “be nice to use so we can go home and have them not attack us.” Okay, say we have 5 million hard core, and in a country where the annual per capital income is about $800, if you paid each one of them $250 a year, that would be only $1.25 billion. Ok, if you are paying folks who are “hard core,” likely everyone will become “hard core” pretty quickly, so let’s just say you paid all the adults (about half of the 30 million total population) $250, that would be $3.75 billion a year… alright, alright, don’t push me, so go all the way and pay everybody $250; that would be $7.5 billion a year.

Instead, we will have 68 thousand troops in the country by the end of the year, and we will be spending that nasty $65 billion a year without counting doing the nice stuff for the people we promised back in 2001 and never delivered. We’d only be paying $24 billion a year if we bribed… er… paid every man, woman and child $800/year (the average annual per capita income) to “be nice.” Think of the savings! That’s less than half of what we’re spending now, and then they can build their own schools, hospitals and infrastructure. Maybe they’ll promise not to nuke us too and even throw in some free opium to make feel good; after all, they account for well over 90% of the global illegal opium trade. Is this really an unwinnable war or do the Italians actually have a better idea? Think Ferrari or Maserati. Yeah….

I’m Peter Dekom, and I wonder who’s doing the math in Washington ?