Saturday, February 27, 2010

Planes of Cash

You’re a customs agent working at an international airport. You see a suitcase, full of cash – say $1 million – heading for Dubai. The individual who owns the bag has told you clearly that this is a sack o’ cash, and you and your fellow customs agents – at the same airport – have watched over $1 billion leave the country the same way over the past year. Add another variable: the region in which you work is notorious as the largest grower of opium on earth. Throw in that the U.S. government has expended hundreds of billions of dollars in an attempt to stabilize that region, with the lives of Americans lost by the score, and even more civilians killed or maimed in the process. What’s wrong with this picture? Figure out where this might be?

You just might be working at the international airport in Kabul, Afghanistan, where exporting limitless cash, as long as it is declared, is perfectly legal. Note, I didn’t even point out how wildly corrupt the regime in power is… ooops, I guess I just did… and how many folks get their opportunities through this bribe-driven chain of command.

Anything about this scene remotely troublesome to you? Feel remotely bad that we’re supporting this nation, and its corrupt government, with very little to show for it? The February 25th Washington Post: “‘All this money magically appears from nowhere,’ said a U.S. official who monitors Afghanistan's growing role as a hub for cash transfers to Dubai, which has six flights a day to and from Kabul… Meanwhile, the United States is stepping up efforts to stop money flow in the other direction -- into Afghanistan and Pakistan in support of al-Qaeda and the Taliban. Senior Treasury Department officials visited Kabul this month to discuss the cash flows and other issues relating to this country's infant, often chaotic financial sector.”

Hmmm…. “often chaotic financial sector.” Yeah, well, we’re sending American soldiers in there, putting their lives on the line, to support that financial sector and the rest of this “out of control” region in central Asia. Our troops have taken most of Marja, in that Taliban-hot province of Helmand, but now what? The Afghan locals we have to leave in charge are going to hold and stabilize that city? Wanna buy a bridge? Ever actually meet the Easter Bunny face-to-face?

So we should easily be able to trace where those sacks o’ cash came from, right? Not exactly. Here’s how it works (from the Post): “Tracking Afghan exchanges has long been made difficult by the widespread use of traditional money-moving outfits, known as ‘hawalas,’ which keep few records. The Afghan central bank, supported by U.S. Treasury advisers, is trying to get a grip on them by licensing their operations… In the meantime, the money continues to flow. Cash declaration forms filed at Kabul International Airport and reviewed by The Washington Post show that Afghan passengers took more than $180 million to Dubai during a two-month period starting in July. If that rate held for the entire year, the amount of cash that left Afghanistan in 2009 would have far exceeded the country's annual tax and other domestic revenue of about $8 75 million… The declaration forms highlight the prominent and often opaque role played by hawalas. Asked to identify the ‘source of funds’ in forms issued by the Afghan central bank, cash couriers frequently put down the name of the same Kabul hawala, an outfit called New Ansari Exchange… Early last month, Afghan police and intelligence officers raided New Ansari's office in Kabul's bazaar district, carting away documents and computers, said Afghan bankers familiar with the operation. U.S. officials declined to comment on what prompted the raid. New Ansari Exchange, which is affiliated with a licensed Afghan bank, closed for a day or so but was soon up and running again.”

What’s not to love about spending American money and lives to support this great Afghan nation? Why should we remotely be concerned about border havens in the Tribal Districts in Pakistan where Taliban soldiers routinely flee? After all we know that the Pakistanis have been cooperating with us in sharing intelligence and tracking senior Taliban operatives… OK, warily and within some pretty narrow limits. Do you really believe that all our money, human sacrifice and efforts are going to neutralize anti-American militants in the region and bring stability to Afghanistan? Really? What exactly do you think Afghanistan will look like five years after we leave? We are leaving, aren’t we? Aren’t we?!

I’m Peter Dekom, and I’m thinking about a whole lot of better uses for the money we are currently spending on Afghanistan.

Thursday, February 25, 2010

Slipping on Greece

If you could buy fire insurance that would pay you big bucks if your neighbor’s house burned down, how happy would you be to watch your buddies-next-door losing everything they own in a spire of licking flames? Who would ever sell you a policy like that? Who would even think of creating “neighbor fire insurance”? Not even AIG. But as Greece struggles under the weight of a failing economic system, desperate to access credit to stay alive, the financial industry has created another wondrous derivative, another credit default swap where investors can bet against the ability of the entire nation of Greece to survive past total economic annihilation.

The February 25th New York Times: “[A] little-known company backed by Goldman [Sachs], JP Morgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust… Last September, the company, the Markit Group of London, introduced the iTraxx SovX Western Europe index, which is based on such swaps and let trader s gamble on Greece shortly before the crisis.” Why is it that when financial misery is at stake, where traders stand to profit on the destruction of human lives or can push credit well-beyond the level of any prudent person – until overleveraging is simply viewed as healthy modern activity – you see the same litany of financial names, almost always topped by Goldman Sachs? Goldman CEO Lloyd Blankfein believes that his bankers are doing “God’s work,” so clearly what his bank is doing must be the essence of goodness. Yeah, right.

These are the same banks that helped Greece mask its mounting debtor issues until they became so overwhelming that they could no longer be hidden… riots and protests in that Hellenic nation blared the obvious: Greece was slipping over the edge. The February 26th Washington Post: “The Federal Reserve and Securities and Exchange Commission are seeking information about whether Goldman Sachs and other U.S. firms helped set up financial transactions over the past decade that effectively hid the amount of debt Greece was taking on.” The Feb. 25th NY Times adds: “Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers… If Greece reneges on its debts, traders who own these swaps stand to profit.” Vicious cycle. Destabilizing.

Bottom line, as bets against Greek financial viability rise, the interest rates lenders need to charge Greece fly upwards, accelerating the probability of default as this sliding nation struggles to pay ever-increasing sums to survive. This in turn puts pressure on the entire European Union to institute expensive economic measures to keep Greece alive. And Spain, Portugal, Italy and Ireland are waiting in the wings. “Trading in Markit’s sovereign credit derivative index soared this year, helping to drive up the cost of insuring Greek debt, and, in turn, what Athens must pay to borrow money. The cost of insuring $10 million of Greek bonds, for instance, rose to more than $400,000 in February, up from $282,000 in early January.” The Times.

Regional banks are also slorping at the credit default trough of Greek misery; the Times identified that “European banks including the Swiss giants Credit Suisse and UBS, France’s Société Générale and BNP Paribas and Deutsche Bank of Germany have been among the heaviest buyers of swaps insurance, according to traders and bankers who asked for anonymity because they were not authorized to comment publicly.” I guess you don’t have to wonder why the Europeans are so focused on fixing their financial regulatory schema, drilling down on the particularly pernicious credit default swap. But then you really have to wonder why there really isn’t a parallel movement on this side of the Atlantic.

Even as our President promises regulations to prevent a repeat of depression/recession 2007-????, the loss of all those Wall Street contributions is beginning to hurt the Democrats. Maybe that’s why President, when he addressed a group of senior American corporate CEOs on February 24th, declared “himself an ‘ardent believer in the free market,’ [and] Mr. Obama challenged a line of criticism that has fueled discontent with his presidency. The policies of his first year in office, he said, ‘were about saving the economy from collapse, not about expanding government’s reach into the economy.’” The Times. Yeah, we’ve got Wall Street to do that for us.

The Washington Post (February 25th) adds this warning to the mix: “The Obama administration is no longer insisting on the creation of a stand-alone consumer protection agency as a central element of the plan to remake regulation of the financial system… In hopes of quick congressional approval of a reform bill, White House officials are opening the door to compromise with lawmakers concerned about creating a new bureaucracy, according to congressional and some administration sources… The administration may also have to compromise on Obama's recent proposal for a rule to limit risky activities at banks by prohibiting them from engaging in many kinds of speculative investments.”

I’m Peter Dekom, and are you seeing a pattern in all this misery too?

Wednesday, February 24, 2010

Pick One

Not parties or representative animals… solutions! So let’s say Congress has four basic choices to solve, let’s see, a spiraling deficit, immoveable unemployment, collapsed housing prices, the disappearance of credit for anyone except those who caused the problems, an unwinnable war, out-of-control healthcare costs and an educational system that produces more illiteracy than success?

1. Blame the other party for the mess.

2. Do nothing knowing that as things get worse, the party in power soon won’t be.

3. Work hard to find mutually acceptable compromises to make things “better.”

4. Reject anything just because the other party espouses that point of view… even if you voted for it before or even co-sponsored the same perspective.

If you picked number three, what planet are you living on?! Who are those guys (and gals)? They have accomplished less in a period of crisis, where solutions are desperately needed, than in calmer times when we actually didn’t need much legislation.

Bye bye, Evan Bayh, as he withdraws from the upcoming Senate race in Indiana, a Democrat who says he can’t live with this stalemate any longer. Whether you believe that’s the real reason, you most certainly can’t disagree with the premise. Try this quote on for size (noted in the February 16th New York Times): “‘I used to think it would take a global financial crisis to get both parties to the table, but we just had one,’ said G. William Hoagland, who was a fiscal policy adviser to Senate Republican leaders and a witness to past bipartisan budget summits. ‘These days I wonder if this country is even governable.’”

With our currency at risk, interest rates teetering on the brink of horrific increases, government competing with private industry for loans and the economy stuck somewhere between recovery and “slump, part two,” what exactly does it take to get legislators together to do what we elected them for? Or do we have to throw every single inflexible politician out of office until we find someone willing to find a middle path to solve the problems which, if unsolved, could making living in this great nation a thoroughly unpleasant experience of a society in steep and precipitous decline. The do-nothing Congress is useless. Factious doctrinaire Democrats with unified purity doctrinaire Republicans are both completely useless. If our elected representatives can neither lead nor solve problems, just repeat, almost by rote, doctrines that have abou t as much a chance of becoming America law as I do becoming the next Czar of Russia… we just don’t need them.

The Times: “Foreign investors now own more than half of the publicly held debt, and officials for the largest creditor, China, have fretted publicly about the fiscal course of the United States. While few expect foreigners to dump their assets, since the resulting plunge in values would hurt them as well as everyone else, the fear is that investors will demand higher interest payments and reduce or stop future debt purchases, threatening the government’s ability to finance its borrowing.

Lesser financial and fiscal crises have brought the two parties together to compromise on tough choices about taxes and spending. They include the 1983 accord between President Ronald Reagan and a Democratic-controlled Congress that reduced the financial strains on Social Security, based on proposals from a commission led by Alan Greenspan, and budget agreements in the 1990s that contributed to a four-year run of surpluses at the end of the decade.”

OK, we’ve had one mini-issue – the fairly unexciting “jobs” bill – which managed to get 62 Senate “yes” votes (hey, that included five Republicans…including the newest GOP senator, Scott Brown of Massachusetts) to forestall a filibuster on February 22nd. The bill? “Along with a Social Security tax break to encourage businesses to hire workers, the $15-billion package would replenish the depleted Highway Trust Fund, which uses gasoline taxes to repair interstate roads; expand the Build America Bonds program, which helps state and local governments fund infrastructure projects; and allow small businesses to write off large equipment purchases immediately rather than depreciating them over several years.” February 22nd Los Angeles Times. The 3 0 other negative votes, all Republicans, all voted to support the filibuster.

I most certainly don’t agree with the President on a whole host of issues, particularly our military path in Central Asia, but at least he is constantly making overtures to those on the other side of the aisle… who seem to be moving… not one bit. If the President can take steps toward compromise, exactly how patriotic is it to turn your back on solving problems in the hopes that your party will be able to wrest both the Congress and the Presidency in 2012?! Let the issues slide beyond the ability to repair on the hopes of a maybe political victory? Maybe they’ve been drinking too much tea. Bring back the moderates – Republicans and Democrats – and let’s get this show on the road. Or simply vote the recalcitrant bastards out of office, mules and pachyderms!

I’m seeing lots of hypocrisy, selfishness and not much “my country needs Americans” activity.

Tuesday, February 23, 2010


Seems reasonable enough: secure your borders against undocumented aliens using technology. We’re talking the one with Mexico and not Canada, although frankly, if I were a terrorist, Canada would be my choice of entry. Canadians are much more generous with undocumented “visitors,” often letting them reside temporarily in Canada while their cases are checked…. And there is vastly more open space and border crossing opportunities over a vastly longer border. No, I’m talking about the proposed 2,000 mile virtual fence (we already have 650 miles of real fences) that we were supposed to have by 2011 on our southern flank… moved to 2014 because of “glitches.”

Well, those “glitches” appear to be making that border technology virtually unworkable. The original project was supposed to cost $6.7 billion. We’ve played with about $672 million to experiment with technologies, set up sample “in the field” virtual barriers, but the program is working so badly, that President Obama is proposing slashing $189 million from the near-term budget, a pressure which is multiplied by a desire to pare down our deficit and not waste money on clearly ineffective programs. Boeing was supposed to turn over a 23 mile test sample to the feds in January, but it isn’t working well enough for that transition. Those damned video cameras aren’t doing what they were supposed to do.

What’s the problem? Well, first, there are lots of “problems,” like the fact that the system supposed that Border Patrol agents would always be able to have laptops connected to the home base… a pretty basic assumption if you live in a 3G big city, but hardly the case in the vast empty tracks of desert land in the border region. Here are some more issues as reported in the February 10th Washington Post: “The system was supposed to let a small number of dispatchers watch the border on a computer monitor, zoom in with cameras to see people crossing, and decide whether to send Border Patrol agents to the scene. Although there are sensors, cameras and radar at many points along the border, they are not connected to cover large expanses.

“Among other things, the radar system had trouble distinguishing between vegetation and people when it was windy. Also, the satellite communication system took too long to relay information in the field to a command center. By the time an operator moved a camera to take a closer look at a spot, whatever had raised suspicion was gone.”

The government reaction: “In ordering a reassessment of the project on Jan. 8, Homeland Security Secretary Janet Napolitano said that the delays were unacceptable and that the government needs to consider more efficient and economical options. She did not elaborate. ‘Americans need border security now -- not 10 years down the road,’ Napolitano said.”The Post.

Did I mention the fence over the Otay Mountain? Just east of San Diego… a 15-18 foot high massive steel barricade, 3.6 miles long, that cost a measly $57.7 million? It was just finished this fall, a project that had its inception during the George W. Bush administration. All the environmental considerations were waived (and the environmental cost was massive). The February 15th Los Angeles Times: “At about $16 million a mile, the Otay Mountain barrier cost about four times as much as similar border fencing built during this expansion, according to the U.S. Government Accountability Office.”

Yes, it’s the most expensive piece of fencing on the U.S.-Mexican border, and traffic through the area has definitely slowed… Of course the lack of jobs in the U.S. might have something to do with the slowdown. The LA Times: “When the economy improves, the mountain will once again draw immigrants, fence or no fence, said Pedro Rios, director of the American Friends Service Committee in San Diego…. ‘It seems to me, if someone is able to climb the mountains in the Otay Wilderness, a 15-foot wall will not make a difference,’ he said.” Or maybe they’ll just cross down the road a piece. Your tax dollars at work.

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

Monday, February 22, 2010

Oh Canada!

Underdog U.S.A. beat the vaunted Canadian hockey superstars in the qualifying rounds at the Winter Olympics. It was a crushing defeat, unexpected and glorious at the same time. I had just returned from a trip to Ottawa, Canada’s capital, where the Olympics were on everyone’s mind. The U.S. is that 10,000 lb. gorilla next door; when we sneezed, Canada got pneumonia. Canada – a nation with a population smaller than the state of California – wanted a victory against its domineering neighbor. But Canada isn’t always the follower, the victim of American whims; sometimes Canada is actually ahead of us on major issues. And as I had just blogged about Anthem Blue Cross (California) and its massive increase in individual premium rates (as much as 39%), a smile of recognition crossed my face. I had briefly visited the Museum of Civilization, a s hort diversion from a heavy schedule, across the river in Quebec, and noted with particular interest the history of one of Canada’s most controversial differences from the United States: universal healthcare.

The move to have universal healthcare was born, not in the teeming urban centers of Canada, but in the agricultural heartland, Saskatchewan, and not in the most recent past but in 1947. It seems the Provincial Premiere (“governor”), Tommy Douglas, thought it would be a great concept if most of Saskatchewan’s citizens got hospitalization (Saskatchewan Hospitalization Act), whether they could pay for it or not. The local legislature agreed, and the experiment began. But attempts to expand the coverage or take the notion of universal healthcare insurance to the national level hit the same storms of protest we are seeing in the United States. Government making life and death decisions, extreme socialization, destruction of the economic basis for Canadian health insurance companies, loss of choice in medical care.

Flawed, plagued with long waits (particularly near the end of a fiscal year), and constantly subject to reform, the modern Canadian healthcare system is still viewed with affection by most Canadians who simply look on in horror as American families are forced into bankruptcy over medical costs. The Canadian plan was pretty basic in 1947, and it was not until a decade and a half later that the provincial plan began to look more like that national healthcare that exists in Canada today. “In 1962, the NDP (New Democratic Party) government of Saskatchewan introduces the first public Medicare program. Doctors react by going on strike over a fee-for billing principle. The strike only lasts 3 weeks, and ends with the doctors keeping the principle meaning they can now influence healthcare spending. Four years later, the federal government follows suit creating a national Medicare program. They also agree to pay for half the costs. A few years later, the [Pierre Elliott]Trudeau government gave the provinces more control over health spending, by shifting to block funding. This meant the federal government would set a fixed amount per year… Between 1980 and 84, the Canadian Health Coalition (CHC) issued demands for the healthcare system to reflect five principles. The group wanted it to: be public, and Not-for-profit, comprehensive, universal, portable and accessible… The result was, the Canada Health Act, passed unanimously by Parliament in _healthcare

The politicians who pushed healthcare into being were politically extinguished in the process. The battles raged, and healthcare insurers, doctors, pharmas poured tons of lobbying dollars (Canadian, of course) into pushing out the political champions of healthcare reform. While their efforts succeeded in terminating the careers of many prominent Canadian politicians, in the end the policy they opposed crept into law. I thought back of the devastation during the Clinton administration as the first significant nascent efforts to bring universal healthcare to the United States were crushed under the feet of well-compensated politicians. I am not sure that President Obama is likely to get what he wants out of Congress either, but the lesson of Canada is a simple one. A government-sponsored healthcare system is inevitable in a moder n democracy, particularly one where healthcare costs are both out of alignment with the rest of the Western world and where the upward pressures on costs make the prospect of affordability a national crisis in the immediate future… but the politicians who champion that program may be forced to do so at the cost of their political life.

I’m Peter Dekom, and it helps to see how others have walked down the same road.

Wednesday, February 17, 2010

Generically Speaking

Aside from the ubiquitous practice of healthcare insurance companies pushing cheap, often-not-quite-as-effective (and sometimes not the right treatment at all and sometimes a perfectly acceptable substitute) generic drugs on policy-holders in lieu of the brand names, there is another tough side to life that the big pharmaceutical companies fear most of all: expiration of a patent. U.S. patents are generally issued for 20 years (there are certain reasons they can be longer… such as a delay in the filing process caused by the Patent Office), and the U.S. is the only nation that recognizes the first to invent requirement (verses the first to file). If you have a valid patent, you literally control any and all rights to that invention, which, of course, includes new medical pharmaceuticals. When the patent expires, anyone on earth can make and sell your invention without the slightest obligation to the inventor.

Given the billions of dollars of research the pharmaceutical industry pours into creating new drugs and the exceptionally costly testing and filing process required by the Federal Food and Drug Administration for certification, successful drugs often generate unbelievably high gross profit margins (the cost of making the product deducting the cost, without reference to items like general overhead, payroll, taxes, and a fair share of the other general operating costs of the company), very frequently above 80%. More average, non-pharma company gross profit margins are in the 30% range, but most companies don’t have the new product development costs that the pharmas do.

The pharmas argue that developing and then producing a new major FDA-approved drug for the marketplace usually takes between 10 and 15 years and costs about a billion dollars. Not everyone agrees with those figures, but the pharmas push those figures and add that for every one drug that breaks out, 5-10,000 drugs have to be discovered and processed at least part of the way through the system. (January 25th) presented a list of major drugs whose patents are set to expire in the next couple of years. The analysis is fascinating and provides insight into the fervor and pitch of pharma industry lobbying on Capitol Hill. Some big companies are about to have huge revenue-generators “fall off the cliff,” as describes. If you are a patient taking any of the drugs described below, prepare for a cost reduction and being required to buy that drug from a much cheaper supplier.

Pfizer’s cholesterol-reducing Lipitor has generated over $80 billion dollars around the world, accounting for 28% of their revenues and making Pfizer the biggest pharma in the group. The patent on Lipitor will expire at the end of November 2011. “Pfizer's eventual loss of Lipitor revenue dwarfs the expected losses on other individual drugs losing patent protection in the next three years, but the company is hardly alone in feeling the pinch. All told, IMS Health Inc., which collects marketing data for the pharmaceutical and healthcare industries, says that more than three dozen drugs producing $137 billion in revenue are expected by 2013 to fall off the patent cliff, the apocalyptic term the industry likes to use in describing the coming end to the brand-name exclusivity that laws across the world granted their medications.” This is huge increase in revenue drops to pharmas from patent expirations as compared with the $103 billion that occurred between 2005 and 2008.

“There are numerous other best-selling drugs that in relatively short order will be off patent, such as GlaxoSmithKline plc's Seretide, an asthma drug also sold as Advair, with $7.7 billion in annual sales; AstraZeneca plc's anti-psychotic drug Seroquel, with $5.4 billion in sales; Merck & Co.'s asthma drug Singulair, with $4.7 billion in sales, and blood pressure drug Cozaar with $3.4 billion; and Pfizer antidepressant Effexor, with $4.3 billion in sales, which the company acquired when it took over Wyeth in a $68 billion acquisition in early 2009.”

In the end, the cost of prescription drugs is one of the most difficult issues on the healthcare agenda, no matter when that reform may occur (some now might argue “if”), and since most countries in the world with national healthcare systems effectively limit the cost of prescription drugs, the highest gross profit margins are almost always relegated to U.S. consumers. We literally bear the greatest amount of the relevant research and development costs, not just because of the volume of consumption, but because we literally have least number of restrictions on prescription drug costs. If we are to understand how to put pressures on pharmas to get those costs down, to deal effectively with our place in the schema of global pricing practices, we also have to understand how the pharmaceutical industry justifies itself to Congress and what pressures it faces to survive and prosper. We also have to understand that most nations with national healthcare have not actually bought those justifications.

I’m Peter Dekom, and the more you know, the better you will vote.

Tuesday, February 16, 2010

When You Stop and Think About It

Any way you slice it, there is something magnificent about large scale athletic competition. Putting aside the untimely death of Georgian luger Nodar Kumaritashvili, sad beyond words, this year’s Winter Olympics is certainly no exception. Sure there are always glitches, although China seemed to have fewer of them for its Summer Olympics two years ago notwithstanding the extraordinary complexity, but the overall aggregation of special moments more than compensates. Fans, most of whom have traveled from far and wide to root for their country’s athletes, cheering their countrymen on to victory… or perhaps just for showing up and trying at all. The expressions on the victors and those whose day was not to be are caught by the omnipresent cameras, as we watch and cheer them on.

The Winter Olympics does seem to have its share of unbelievable danger and incomprehensible speed, where I am sure human beings were never intended to go. Great drama, genuine thrills and some truly crazy moments. National teams are outfitted in designer-created outfits, linking individual and nation by an array of colors and styles. Wow! Nations often design the lifetime of large numbers of children, taking the most athletically gifted and putting them into lifelong training and coaching facilities, looking for those who might be able to rise above the rest. The stories of the former German Democratic Republic (East Germany), Russia and China are the stuff of legend. National commitment, zeal, disciplined focus and some underlying driving need to make one’s athletes “better” than those of any other country. A symbol of national superiority in… well… everything.

“U-S-A! U-S-A! U-S-A! U-S-A!” is the loudest faction at any Olympics, often eclipsing even the home cheering sections. It sounds pretty obnoxious, but then, how can you not root for our home team and exactly what would a “polite” cheer sound like? With so many athletes in so many competitions, individual names often get lost in a sea of national chants. But this is a competition of individuals (with the exception of team sports and relays, where it is still about “individual effort” coordinated with “others”). Individuals who have sacrificed, worked hard and earned the right to stand and compete among the best.

Is this really a competition among entire countries? Is America wounded to the quick when Bode Miller only takes a bronze or the Americans are washed out of the medals in the pairs figure skating competition? Isn’t the magnificence of China’s 31-year-old Shen Xue and 36-year-old Zhao Hongbo (ancient by Olympic standards), who delivered a magnificent pairs skating performance, taking the gold, enough of a reward for everybody able to watch this stunning performance? Who could forget the face of Alexandre Bilodeau, a freestyle skier who ended Canada’s gold medal drought, as he hugged his beloved older brother, Frédéric, whose lifelong struggle with cerebral palsy was obscured in a huge grin and a shower of love at the triumph of his younger brother?

Oh the Americans are winning gold everywhere, to be sure, in a flow of medals. Hannah Kearny pulled in the first American gold (and the first gold of the Olympics) as she slashed her way through the vicious mogul course, and Seth Wescott garnered his gold at the men’s snowboard cross. They’ll be more, of course, but in the end, it is about individual excellence. Winter sports tend to require more training, special venues, and great access to specialized equipment than summer sports. That alone seems to present a financial barrier that is clearly absent as you watch the great Kenyan runners in the longest summer races. But in this battle of nations, it is easy to overlook the joy that can only belong to the individuals who have competed, win or lose, and their families and coaches who have stood behind them for years.

Throwing money to “buy” and train athletes is an old tradition. The Yankees’ purse has purchased some mighty fine baseball teams over the years. Sometimes it really does get down to “my city has more money to buy star athletes than your city” – salary caps become loopholes for lawyers to design around – but I’d like to think that even though there are a vast array of well-trained professionals at the Olympics these days, the moments of individual triumph rise above it all and bless all of us in the glory of that moment. I’d like to think that we can all find joy in every victory, regardless of national origin, and nobility in every effort, regardless of the outcome. And yeah, I know, I know, the American hockey team is a definite underdog!

I’m Peter Dekom, and I am still in awe at the abilities and commitments of all of these excellent athletes. Go world!

Madness in Marja

Before the offensive began, leaflets were dropped all over Marja, in Nada Ali district of Afghanistan’s Helmand province, warning civilians of the impending military strike. This Taliban stronghold, rife with armed rebel forces and opium farms where this nefarious crop generates the cash necessary to support Taliban activities, has been a sore spot for NATO allies and the Afghan government itself, although the latter was hoping for more of reconciliation than an attack. 15,000 NATO and Afghan troops have lumbered into the area, determine to take and hold this Taliban fortress region as a part of President Obama’s seeming strategy of enhancing our military position (the big “surge”) before engaging in peace talks with the Taliban leadership.

My mind recalled old tapes from Vietnam, where then-President Richard Nixon embraced much the same policy in his negotiations with the North Vietnamese. Reports of progress flowed from the Pentagon, notwithstanding a fairly successful earlier attack by Viet Cong and North Vietnam regulars against the South and the U.S. that began on January 31, 1968. In the end, we left, South Vietnam fell, and the North plus its Viet Cong won a complete victory. The volume on those tapes grew louder as I read stories of how a NATO rocket malfunction inadvertently killed 12 civilians and how: “On the first full day of operations, much of the expected resistance failed to materialize. Certainly there was none of the eyeball-to-eyeball fighting that typified the battle for Falluja in Iraq in 2004, to which the invasion of Marja had been compared.” February 14th New York Times

With an easy escape route to Pakistani safe havens and the ability to plant bombs and booby-traps to ensnare the NATO invaders over time, except for sporadic counter-attacks, the Taliban avoid much of the conflict. The February 14th Los Angeles Times: “In line with their usual practice, insurgents avoided massing for a confrontation, instead staging hit-and-run attacks. Even the Marines' commander, Brig. Gen. Larry Nicholson, had to duck sniper fire Sunday as he was visiting a front-line Marine position, the Associated Press reported…For the advancing Marines, it was a rough, dirty slog -- and a slow one. Companies of U.S. and Afghan troops moved through the streets, carefully detonating improvised explosive devices, or IEDs, in their path. Plumes of dusty smoke arose from the blast sites… Commanders acknowledge that such ‘clearing’ could go on for days or weeks. The town and its outskirts are thickly sown with homemade bombs, which are the insurgents' weapon of choice against much better armed coalition troops.”

While there has been no large-scale defensive response, the NATO troops’ progress is agonizingly slower than predicted: The February 15th Los Angeles: “Reporting from Marja, Afghanistan, and Kabul, Afghanistan -- Ambushes, sniper fire and a labyrinth of buried bombs again slowed a drive by U.S. Marines and Afghan troops Monday to rid a former Taliban stronghold of insurgents… The arduous pace of progress on the offensive's third day appeared to bear out commanders' predictions that clearing the town of Marja, in troubled Helmand province, could take weeks, rather than days as initially hoped.”

There will be no crushing defeat for the Taliban in Afghanistan; we are hundreds of thousands of troops short of expanding our presence to command control even most of the country. There will be no massive extermination of “rebel” forces in a supreme battle with thousands of Taliban casualties; they have only to leave Marja – for alternative venues in Afghanistan or to safe havens across the border – and wait for another day. Unless we have plans to invade and hold a large part of nuclear-power Pakistan, the Taliban will always have an escape plan. The NATO instrumentality of local government is the systemically corrupt Hamid Karzai regime, very hard to justify on any moral or ethical basis. And unless we plan on spending trillions more on decades of continued military presence in Afghanistan, time is very much on the side of local rebels.

We are Western invaders, most untrustworthy in the eyes of most people in the region; we are not seen as friendly support. The last country to try this was the Soviet Union, and they’re not around anymore. The attempt at enhancing our bargaining position prior to negotiating with the Taliban seems to be creating the opposite effect; we are proving to them that we are unable inflict heavy losses against them. What we are doing, very successfully, is burning through billions of dollars and killing NATO forces and civilians alike for what is looking more and more like a lost cause. We really need to stop the mounting casualties and to deploy that money somewhere else. Now!

I’m Peter Dekom, and I’d like to see someone plan what will actually work.

Monday, February 15, 2010

15 Times Faster than Inflation

As Republican leaders threaten to boycott the President’s healthcare summit unless the Democrats dump what is already on the table, signs that our healthcare system is sicker than ever may jar a frustrated electorate to demand reform, one way or another. The February 9th Washington Post reports: “Anthem Blue Cross of California sent out notices earlier this month to many of its roughly 800,000 holders of individual policies, informing them that the costs of their plans would sharply increase [by as much as 39%!] to cover rising health-care costs. The increases do not affect employer-provided plans in the state.” Sensing that Congress is simply not a threat, that internal partisan bickering will stop any real effort at cost-containment at the Capitol steps, the healthcare insurance industry appears ready to join big pharma in a new set of rolling cost increases.

The Post continues with specifics: On Monday, HHS Secretary Kathleen Sebelius joined the fray, writing Anthem President Leslie Margolin to impress on Anthem its ‘responsibility to provide a detailed justification for these rate increases to the public.’ In particular, she said, Anthem should disclose to policyholders what share of their premiums is going toward profits, administrative overhead and advertising, as opposed to covering medical claims. In its initial defense of the increases, Anthem has said only that its so-called ‘loss ratio’ (the proportion of premiums spent on care) is above the state's required minimum of 70 percent… Sebelius also noted that Anthem's corporate parent, WellPoint, has seen its profits "soar," rising to $2.9 billion in the fourth quarter of 2009… ‘These extraordinary [rate] increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy,’ she wrote.”

Anthem delayed the effective premium increase pending a state investigation, but there doesn’t seem to be any legal basis to stop this financial carnage: “The [California] state insurance commissioner, Steve Poizner, requested the delay on Monday after an estimated 700,000 individual policy holders began receiving notices from the insurer, Anthem Blue Cross, of increases, some as high as 39 percent. The increases, originally scheduled to take effect March 1, were suspended until May 1… Mr. Poizner said his department needed time to determine whether the increase would violate state regulations that require insurers to spend at least 70 percent of premiums on health claims, rather than on overhead and profit. Absent that, he said he had no authority to reduce Anthem’s rates.” February 13th New York Times.

In world of layoffs, unemployment and contracting paychecks, cost-containment in healthcare is where the rubber hits the road. Americans may not be concerned with those who don’t have coverage, but they are deathly afraid of not being able to afford their policies or being hit with those big holes where coverage lapses. I’ve blogged about most of them, but a little summary won’t hurt (the following is a partial list with lots of shorthand): high cost of prescription drugs that are skyrocketing even faster, caps on lifetime benefits, cancelation based on medical claims, denial of coverage for pre-existing conditions, out-of-service charges, out-of-plan expertise just out of reach, bankruptcy from huge medical bills, increasing costs/taxes to pay for the uninsured, etc.

When the big pharmas made a deal with the Obama administration to cut $80 billion over a decade from their aggregate costs… once a plan went into effect… they instantly raised the prices on many prescription drugs, some by over 2000%, so that they could cut them back and look as if there were complying later. Now that the healthcare legislation appears to be dead or maimed, those price increases are still on the books with no off-setting pledge to reduce costs. If we ever needed to have the right to import European or Canadian alternative prescription drugs to create some serious competition to the American branches of these drug companies, that time is now!

We need to end medical bankruptcies, take pre-existing conditions and heavy but justified usage out of the list of acceptable reasons to deny or cancel health insurance and offer affordable healthcare alternatives to everyone… Maybe we can worry about extending universal coverage, a politically unpopular theme these days, until a later time, but if the healthcare industry can continue to block the solutions even to the cost issues that are a priority for 85% of Americans (only 15% prioritize universal coverage), if a stubborn and partisan Congress cannot find common ground to solve the issues that concern the entire American electorate, then this country is killing itself with doctrinaire and unjustified logjams. We need fewer Democrats and Republican Congressmen and women and more Americans. That unaffordable healthcare is imminent is obvious; the writing is on the wall. Sometimes leadership requires someone to lead.

If you think this is a false issue, try this quote from a poster shown in the February 10th For every person who dies in a terrorist attack globally, 58 people in the US die due to lack of health care. How much did we spend in Iraq and Afghanistan over the last few years? What were the results again?

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

Saturday, February 13, 2010

A Point of Maximum Vulnerability

When a home value drops below 75% of what is owed on the property, it’s a time when folks just think about walking away from their lenders a recent study, noted in the February 2nd New York Times, concludes. “‘We’re now at the point of maximum vulnerability,’ said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. ‘People’s emotional attachment to their property is melting into the air.’” By June of this year, the number of homes that fit that category will be 5.1 million, 10% of all mortgages.

Even financial advisors are telling perfectly solvent homeowners that the better financial step under such circumstances is simply to walk away and stick the lender with the underwater property. It’s just when a home falls below a certain value, where it could take decades to recapture the high market value, advisors suggest that continuing to pay a mortgage under such circumstances is simply throwing good money after bad. The Times: “The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call ‘house arrest.’

“Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation.” You’d think that banks and other lenders would be sensitive to this predicament and voluntarily adjust mortgages rather than face a walk-away and the resulting abandoned and probably unsellable property, but stubborn lenders, living in a world of denial, believe that following this path would release a floodgate of homeowners seeking such an adjustment, which would erode their balance sheets and send them spiraling into the abyss of insolvency.

The reality is that most underwater mortgage-holders keep paying, and it would cost an unbelievable $745 billion to bring all the homes with values below their mortgages above water… not too much more than the 2008 TARP bailout. We can’t afford more of a deficit, but is particularly galling, as Wall Street financial institutions are pouring huge bonus pay packages into their revenue-producers coffers at an alarming rate, that America helped her financial elite but is completely unable to help the average homeowner (even excluding the subprime miscreants) bail out of an economic collapse actually caused by the same Wall Street predators who are amply rewarding themselves after their greatest financial failure. What’s worse, commercial real estate is already facing the economic onslaught of massive defaults, the next large shoe that is dropping.

The government is stymied, but this fact combined with unrelenting unemployment has raised the anger level of the middle class to the boiling point. “‘We haven’t yet found a way of dealing with this [residential mortgage problem] that would, we think, be practical on a large scale,’ the assistant Treasury secretary for financial stability, Herbert M. Allison Jr., said in a recent briefing.” The Times. The economic news suggests that the last Wall Street rally, celebrating the laying off of millions and the concomitant increase in “corporate efficiency,” was just a momentary rise in a highway heading down a steep decline.

With mid-term elections coming up, the party in power is looking at an awfully large group of seriously irritated voters who have their negativity squarely centered on incumbent politicians and the party that had the majority vote, filibuster-proof, and blew it with stupid self-serving votes, internal bickering, shameless favoritism, and a rather arrogant failure to listen to the people. If you can’t help us, but have no problem helping the rich get richer, stands the cry, why should we vote for you? As the voters hear the false message of unbridled corporate campaign contributions (thank you, Supreme Court)… and they might just forget that it was those voices who caused this economic mess in the first place and who really only want lower taxes and as little government oversight as they can muster; they really never did care what happened to the average American.

Little movements in the unemployment rates (January reflects a lower 9.7% jobless rate) are misread as progress: the statistics are misleading as folks settle for part-time work or give up looking for jobs altogether and are thus excluded from the unemployment number – there are still six applicants for every job opening. State and municipal governments are cutting benefits and raising taxes, schools at every level are contracting, and crumbling infrastructure further inhibits growth. As the stock market plunges to a 3 month low, maybe the financial hogs are beginning to understand that without Mr. & Ms. Average American having solid jobs and a decent home, there’s no real recovery without consumers!

I’m Peter Dekom, and I think we all better hang on for what might be around the corner.

Friday, February 12, 2010

Euro Tract Infection

Americans are angry at their unemployment issues, home value collapse and have a rather bleak view of the future. The February 11th Washington Post tells us that while two-thirds of Americans know very little about the “Tea Party” movement, “Two-thirds of Americans are [also] ‘dissatisfied’ or downright ‘angry’ about the way the federal government is working, according to a new Washington Post-ABC News poll. On average, the public estimates that 53 cents of every tax dollar they send to Washington is ‘wasted.’” Mr. Obama is not having a good time with this apparent massive disconnect with his constituency. But if you think he’s got problems, take a closer look at the unraveling of Europe’s weaker European Union nations, Greece, Spain, Italy, Portugal, etc., and its impact on the relationship between the voters in the stronger economies, which are being asked to use their power to bail out the weaker nations, and the leaders of those stronger countries – primarily Germany’s Chancellor Angela Merkel.

Greece is teetering on the brink of total economic collapse, while other countries in the EU are looking to follow. If any one country falls, the entire EU economic unity threatens to fall completely apart, taking down one of the most powerful economic structures on earth. To Teutonic Germans, who pay their taxes, invest relatively wisely and have built their country into one of the most powerful exporting nations on earth (yes, it isn’t just China), supporting nations where people scoff at the tax collector and are willing to let their entire country fall off a cliff before they even begin to consider paying their allocated tax burden… is … well… outrageous. But that’s exactly what their Chancellor is in the process of doing… guess how popular she is with the German voters?

Greek government workers have called strike, shutting down essential services, in the wake of massive cut-back that the government has been forced to impose. If the past is any predictor, we can expect these protests to turn violent very soon. Rather than allow this thread that threatens to unravel their EU to unwind, “[I]n a conference call with the finance ministers from the 16 countries that use the euro and the president of the European Central Bank, Jean-Claude Trichet, officials said that some action had to be taken to calm markets and take pressure off Greece. It appeared clear that Germany, with an assist from France, would have to take the lead. ‘The Germans are the only ones with deep pockets,’ said Daniel Gros, director of the Center for European Policy Studies in Brussels. If it was just Greece, they could consider letting them go down the drain, but it threatens the entire euro zone.’” New York Times, February 11th.

If we were worried about the collapse of the dollar, this horror in Europe will reverse that pressure, although the U.S., U.K. and the euro-based Western nations all clearly have downward pressures on each of their currencies. But the collapse of Europe is not good news for the United States, since this economic turmoil could easily trigger a global “recession, part deux,” which would soon embrace us as well. Our banking systems and economic balance are heavily intertwined with Europe, no matter how separate most Americans believe them to be.

To Germans who sacrificed their Deutsche Mark in favor of a blended European currency, this potential for economic collapse is a huge “I told you so” moment. There has been a long-simmering resentment from many Germans (and more than a few French) that their prosperity is been leveraged by the less economically advantaged nations of Europe to escalate their standards of living – now that they were full economic members of the EU – by doing what took even the U.S. economy down hard: borrowing their way into their lifestyle. With one unitary economic system at the core, and the strong German and French economies as collateral, people who long looked at “richer” Europe with envy began to emulate what they yearned for with debt from pan-European banks, regulated and supported by the wealth of those on top. Germans deeply resent sacrificing their hard-earned money to shore up profligate nations, wallowing in unjustified debt with citizens turning their backs on the tax collector; the feeling is very understandable.

The world is looking to countries like France and Germany to issue guarantees for the Greek economic system, and some form of banking support from these stronger European nations is expected. While there are negative reactions in France, the backlash is particularly strident in Germany, which faces its own litany of economic and geopolitical changes: “The apprehension in Germany runs much deeper than a single crisis. It comes in the same week that Germany gave up its most cherished title, world export champion, to China, heightening fears of a declining stature and importance globally.

“Germany also faces a demographic challenge, managing a population that is not only graying but shrinking. Last month the government announced that the population dropped below 82 million last year for the first time since 1995. That means fewer people trying to pay off a growing national debt, with a projected budget deficit of $118 billion this year.

“After Mrs. Merkel’s re-election in September and triumphant turn on the world stage in November for the 20th anniversary of the fall of the Berlin Wall, her approval ratings have fallen to their lowest levels in more than three years. Criticism of her government over infighting in the governing coalition — mostly over tax cuts and the budget — has risen steadily. She has been noticeably reticent about the crisis in Greece, speaking out far more forcefully on populist issues like tracking down tax dodgers hiding money in Switzerland.” The Times.

The net result is a major setback for economic recovery. The February 12th New York Times: “The economic recovery in the euro area almost ground to a halt in the last quarter of 2009… adding to worries about the ability of some countries in the region to use growth to improve their budgetary positions… Much of the weakness appeared to stem from Germany, where the economy unexpectedly stalled during the last quarter; the expansion in France strengthened.”

We are watching a major power shift from the West to the East. Most of Asia (particularly China and India) has lived within an exceptionally modest standard of living, where workers contribute vastly more value to their economies than they take out. The significant improvements in the quality of life for many Asians still doesn’t begin to compete with the social and economic benefits enjoyed by their Western counterparts, so that aggregate of value building in Asia is tilting the global power base towards those able to continue to produce value without sapping the system that supports them. We know in time this will change, that they will slowly mimic the consumption patterns of the richer Western nations… but right now, it’s all Asia and almost no West. Every time a Western power begins to lift its head above water, there seems to be a force that simply wants to drag it down. Change happens. It’s not always pretty.

I’m Peter Dekom, and I approve this message

Thursday, February 11, 2010

Black Hawk Down

When Google elected not to participate in the censorship of Chinese-based searches, it (and similar sites) soon found itself the subject of targeted hackers’ attempts to breach its security walls. As a part of a statement issued by Google to the press on January 12, 2010, it noted: “[W]e have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists. Based on our investigation to date we believe their attack did not achieve that objective… [I]ndependent of the attack on Google, we have discovered that the accounts of dozens of US-, China- and Europe-based Gmail users who are advocates of human rights in China appear to have been routinely accessed by third parties. These accounts have not been accessed through any security breach at Google, but most likely via phishing scams or malware placed on the users' computers.” Secretary of State Hillary Clinton soon announced that the U.S. would provide financial assistance to groups fighting censorship within China. The Peoples Republic was outraged, calling the U.S. an “information imperialist.” Since then, Iran seems to be shutting down Google and gmail access as well. Censoring, hacking, spying.

But let’s face it, spying and hacking are part of every major intelligence agency’s basic mandate in a modern world. The U.S. is probably the biggest hacker in the world, but it’s not exactly something we are going to brag about. But because the U.S. is so completely “wired,” where the entire financial sector, corporate communications, the power grid to the complex interweaving of intra and inter-governmental agency connectivity are based on one form of the Internet or “another,” we are also ultimately more vulnerable to attack than any other nation on earth…. The Pentagon has been charged to create a centralized defense operation (the Cyber Command) to defend the United States – its military and critical civilian institutions – from cyber-attacks intended to disable America’s economic and military computer systems and Internet linkage, but everyone knows that we are still very, very vulnerable. OK, we’ve not actually been at war, but what can happen in combat has already been “projected” by recent history.

It does get worse when the intent is a precursor to a military invasion, an event that suggests the future military aggression. Within the first month of China’s Defense Ministry setting up shop (on August 20, 2009), 2.3 million attempts to hack into the system were recorded! Just days before Russian forces invaded the nation of Georgia in early August, 2008, Georgian-government file servers (their digital storage systems) and Websites were taken out by an explosion of messages, many directed from the United States. The August 13, 2008 New York Times reported: “Researchers at Shadowserver, a volunteer group that tracks malicious network activity, reported that the Web site of the Georgian president, Mikheil Saakashvili, had been rendered inoperable for 24 hours by multiple D.D.O.S. attacks.” This is the first recorded use of such a cyber attack in a military conflict. The principal message of this cyber attack: “win+love+in+Russia.”

Shortly thereafter, on Thanksgiving (November 27, 2008), a “malware” computer attack of the U.S. Central Command (which oversees combat operations in Iraq and Afghanistan) also appeared to originate from “somewhere inside Russia,” and wreaked havoc with vital defense systems in the region. The virus appears to be of a new variety that is designed specifically to disable or cripple military networks. We can expect this form of attack to become a routine aspect of warfare, probably expanding to target the Web connectivity of entire nations, slamming both military and civilian targets – ranging from compromising defense security to shutting down all financial transactions and locking down power grids.

It’s no surprise that China employs censorship or that it is very interested in the workings of “liberal” or “anti-government” movements within and without its borders. The war of words between China and the U.S. escalated of late, not just over Internet or “freedom of speech” issues, but over support for Iran, currency valuation and our own massive path of governmental deficits. It is interesting to see what “token steps” China has take of late to make little “gives” to U.S. demands, a reflection of a possible thawing in Sino-American relations.

China just announced the closed down the nation’s biggest “hacking school,” arresting the three principals of the Black Hawk Safety Net, an entity in central China that, according to the February 8th, operated as follows: “It seems that their main crime isn't so much hacking themselves, but running a subscription site which provided sophisticated tools like Trojans [computer viruses that lie in wait for a future attack] and account-hijacking code. They also ran training sessions in which they'd show other coders how to write malicious code. Over the years of operation, Black Hawk attracted some 17,000 VIP members, 140,000 free-access members and had made a haul of the equivalent of just over a million dollars in membership fees. And that's actually pretty amazing--it implies that there's an active hacker base numbering in the hundreds of thousands just from this one site, and though the media is labeling Black Hawk as what's ‘believed to be’ the biggest site, there must be others, and they may be of a similar scale.”

Of course, you really have to ask some basic questions at the very existence of such a “school.” It obviously had to exist for years under the noses of Chinese authorities, and it is equally clear that no one in China takes risks like that without some form of government sanction, no matter how informal that might be. Further, if there is one such “school,” there have to be others, and training people with those basic hacking skills has to be valuable for any government looking to recruit the “best and the brightest.” I have no doubt but that our C.I.A. keeps its eyes on those with similar skills here in the U.S.

Whatever the motivation or the result, the new notion of “cold war” seems to be played on many levels; we face surrogate wars, where countries that hate us finance terrorist groups that operate far away from them in other nations… or… worse, without reference to any particular nation. Cyber attacks, often deployed with plausible deniability and not traceable to the originating nation, are the new secret weapons, often causing more damage than a well-place bomb.

I’m Peter Dekom, and the way humans carve away at each other never ceases to amaze me.