Wednesday, November 30, 2011

Ho! Ho! Ho! Sort of!

“I want an X-Box 360, an iPad2, and Call of Duty: Modern Warfare 3,” asks the little boy sitting on department store Santa’s knee as his recently laid-off dad winces in the background. Even poor kids believe that Santa is a dude with lots of stuff no matter how horrible things are their own families. With about one in four children in the United States living at or below the poverty line and one of three families now defined as “poor” or “near poor” (families within 150% of the federal poverty line), the holiday season can be particularly stressful and frustrating. And exactly what is department store Santa to do with requests that are clearly way out of line for the economic reality that surrounds so many? Recommend pepper-spraying the crowds and simply stealing the X-Box?

The last few years have produced a nuance to the minimal training accorded most department store Santas: managing expectations. Take for example the Charles W. Howard Santa Claus School in Midland, Michigan, a state hit particularly hard with plant closings and layoffs. This year’s crop of 115 graduates had a different world to manage. They had to “learn to swiftly size up families’ financial circumstances, gently scale back children’s Christmas gift requests and even how to answer the wish some say they have been hearing with more frequency — ‘Can you bring my parent a job?’

“Santas here tell of children who appear on their laps with lists that include the latest, most expensive toys and their parents, standing off to the side, stealthily but imploringly shaking their heads no. On the flip side, some, like Fred Honerkamp, have been visited by children whose expectations seem to have sunk to match the gloom; not long ago, a boy asked him for only one item — a pair of sneakers that actually fit.

“‘In the end, Santas have to be sure to never promise anything,’ said Mr. Honerkamp, an alumnus of the school who also lectures here. He has devised his own tale about a wayward elf and slowed toy production at the North Pole for children who are requesting a gift clearly beyond their family’s price range. ‘It’s hard to watch sometimes because the children are like little barometers, mirrors on what the country has been through.’” New York Times, November 27th.

For men whose physical geometry fits the Santa mold, an opportunity to be a Santa may itself be a slight relief from the unemployment lines, an opportunity to be productive, if only for a moment in a marginally rewarding sort of way. “The Santa school itself, held in this small, central Michigan city over three days every fall, may offer some measure of the nation’s woes. Last month, it drew the largest class of its history. And while most of the men were longtime, passionate Santas looking to hone their skills in hair bleaching, story-telling and sign language, at least a handful, including an aerospace engineer and an accountant, said they were testing out Santa school in part because of slim times, shrunken retirement accounts, or a dearth of work altogether.

“‘I’m trying it,’ said Joe Stolte, who, at 28, was decades younger than most of the bearded, portly, jarringly similar-looking men in rows all around him. ‘There are no jobs out there — it’s ridiculous,’ he said, adding that he had been surviving by doing odd jobs and cutting lawns in Saginaw and that his mother had helped him come up with the tuition ($400 for first-timers, $350 for others). ‘I like being Santa Claus. And I figure it comes once a year. It’s a thing that’s going to be there.’” NY Times.

At least these “graduates” actually are prepared for the kids they will face. Indeed, whether it is a company president making lay-off decisions, politicians cutting back popular but unaffordable programs or simply families imparting descriptions of the hard new world, these days our lives seem to be built around downsizing and managing expectations for the “big reset” – the redefining of the average American lifestyle going forward – as the longer-term aspects of “recovery” settle in with an entirely difference range of contracted opportunities and lowered effective spending power for the vast majority of Americans. But it is also a time when even the slightest charitable donation can make a very big difference to someone in need.

I’m Peter Dekom, and those who can give a little more to those who need a little more really should.

Tuesday, November 29, 2011

Upwardly Mobile in Pakistan

When Pakistan arose from the ashes of a divided India in 1947 – a Muslim state artificially created is a bloody transition from British rule – the national army pretty much resembled the same local force organized during the Raj (British occupation). Professional soldiers recruited to fulfill a military need without strong ties to any fundamentalist Islamist faction. But that was before four-star general and Army Chief of Staff Muhammad Zia-Ul-Haq (an early picture of him is presented above) staged a bloodless coup, deposing Prime Minister Zulfikar Ali Bhutto in 1977. Some charge that the British Secret Service and the CIA were instrumental in this coup, fearing Bhutto’s pro-Soviet stance and preference for socialism. With the military firmly in place atop this struggling nation, the Pakistani military moved significantly closer to the more extreme elements of Islamic fundamentalism. To the United States and its Western allies in 1977, Islamist extremists and global terrorism were simply not issues of concern. They just didn’t care.

As the Soviets mounted their war in neighboring Afghanistan in 1980, Zia’s ties to the Afghan resistance (the Mujahideen, fairly strongly controlled by Islamist extremists) and his antipathy to the Soviet Union proved useful to the U.S. and the West as they funneled arms to the Afghan rebels to undermine the Soviet presence there. The economic strain of the Afghan War on the USSR war is thought by many to have been the straw that literally broke the communist regime’s back, ending the Soviet Union as a nation. Zia leveraged his position with the West and generated billions of dollars in military aid, further strengthening the military as the dominant political force in Pakistan.

Then came “blow back” as these well-armed, superbly field-trained Islamists turned their attention on the West... culminating in the infamous 9/11 attack on the United States. Zia is also blamed for accelerating Pakistan’s nuclear program and encouraging Dr. A.Q. Khan (the father of Pakistan’s nuclear weapons program) to spread that technology to Iran and North Korea. “Zia argued that Pakistan's atomic bomb is a property of Islamic Ummah [pan-Muslim Diaspora] , a theory that Bhutto had earlier avoided to keep the Pakistan sentiment strong and alive in scientists while developing the program.” Wikipedia. But the strongest change implemented by the Zia administration was the move to make Pakistan a fully-Islamic-centric society, a move which also included the active recruitment of Muslim extremists into the military, the road for poor Pakistani’s to move up into the highest reaches of Pakistani power and status.

On December 2, 1978, on the occasion of the first day of the Hijra to enforce the Islamic system in Pakistan in a nationwide address, Zia accused politicians of exploiting the name of Islam: ‘Many a ruler did what they pleased in the name of Islam.’ After assuming power, the government began a program of public commitment to enforce Nizam-e-Mustafa (Islamic System), a significant turn from Pakistan's predominantly Anglo-Saxon law, inherited from the British. As a preliminary measure to establish an Islamic society in Pakistan, Zia announced the establishment of Sharia Benches [the application of Islamic law vs. a more modern penal code]. To many secular and communist forces, Zia cynically manipulated Islam for the survival of his own regime. In 1983, Nusrat Bhutto reasoned General Zia's policies as she puts it:

The (scream) and the horrors of 1971 war..... are (still) alive and vivid in the hearts and the minds of people of [Pakistan]...Therefore, General Zia insanely.... used the ‘Islam [Card]’.... to ensure the survival of his own regime.... —Nusrat Bhutto, former First Lady of Pakistan..” Wikipedia.

Clerics and Islamist zealots were given de facto rights to maintain strong (even bullying) presences on Pakistani university campuses. The army drifted steadily into the Islamist camp, and today, many of the young recruits in Zia’s day have risen to become the most senior officers in the Pakistani military... and the most profoundly anti-U.S. and anti-western voices in the country. Zia died in 1988 in a plane crash under the most mysterious of circumstances, but his legacy has defined Pakistan.

And so we move into the present day in which the consequences of decisions made decades ago, even with U.S. support, have created a modern Pakistan that has become the hotbed of Muslim extremists, where the military which receives massive US aid makes deals with the very terrorists we are trying to subdue, and where we are pretty much blackmailed into continuing military aid to Pakistan under a disguised threat that if we don’t, somehow that nuclear know-how, if not the weapons themselves, will be transferred to America’s greatest enemies. Relations between our two nations have never been more strained. Pakistanis have harbored our enemies (e.g., Bin Laden), probably with all the knowledge in the world and continue to aid Islamist/ Taliban forces as they attack American troops in Afghanistan.

And when the Pakistani ambassador to the United States grew concerned over the new escalation in negativity enforced by Pakistan’s highest military leaders, his bosses believe that he crossed the line. The allegations are most stunning, if they prove true. “Husain Haqqani, the embattled Pakistani ambassador to the United States, resigned [November 22nd] in the wake of accusations that he had sought American help to rein in the powerful Pakistani military. Although he had hoped to stay on, Mr. Haqqani offered to resign [b]ut on [November 22nd], the prime minister said he should resign so that an investigation into the accusations could be ‘carried out properly.’

“The accusations center on a memo that Mansoor Ijaz, an American businessman of Pakistani origin, said Mr. Haqqani asked him to have delivered to Adm. Mike Mullen, then the chairman of the Joint Chiefs of Staff. According to Mr. Ijaz, the memo asked for American help in heading off a possible military-led coup and promised concessions in return… The accusations, which Mr. Haqqani denies, created a political storm in Pakistan, where anti-American feelings run high and Mr. Haqqani is considered by some to be an apologist for the United States.” New York Times, November 22nd.

In a faint glimmer of appeasement towards American interests, Pakistan has appointed a U.S.-educated (Smith College) woman, Sherry Rehman, as Haqqani’s replacement: “Ms. Rehman … carries proven credentials as a social progressive; she’s advocated for women’s and minority rights. She was forced last year to live under police guard after receiving death threats from Islamist extremists over her opposition to Pakistan’s draconian blasphemy laws, which are often used to settle personal scores, especially against minority Christians and Hindus.” New York Times, November 23rd. Despite her liberal credentials, Ms. Rehman’s mission is to represent the incumbents in Pakistan, so it remains to be seen whether this appointment marks anything more than a cosmetic gesture.

Where this story and the tangled relations between the U.S. and Pakistan will lead are anything but clear, but the fracturing of regional relations between various powers in Central Asia seems to play directly into the hands of the very fundamentalists we sought to contain and destroy in our military campaigns in Iraq and Afghanistan. We misplayed our hand, have sapped our economy to pay for these failed efforts, and have probably impaired our national security by swatting a wasps’ nest with our massive military baseball bat. With accusations that 24 Pakistani soldiers died in the Afghan border region from a NATO airstrike gone wrong just days ago, US-Pakistani relations have plummet to a new low.

I’m Peter Dekom, and in a world of unintended consequences, I am beginning to believe that United States will win first prize.

Monday, November 28, 2011

3,500 People Later

As 19 of the 21 nations comprising the Arab League voted on November 27th to apply economic sanctions against Syria and the Bashar a-Assad regime, two countries abstained: Iraq and Lebanon. Iran is not a member of the League, and this latest turn of events is viewed as a blow to Iran’s attempt to straddle the center of the Muslim world, and embrace nations that have traditionally been bastions of that vast majority of Muslims (85%) – usually strongly anti-Shiite Sunnis – and consolidate regional power around itself. Iran is the center of the minority Shiite faith (15% of the Islamic world). Lebanon, whose politics is dominated by the Shiite Hezbollah and where politicians who oppose Syria have been assassinated, and Iraq, which is now a majority Shiite state with strong connections to Iran, just fell into their roles as local affiliates with allegiance to Syria and Iran.

How such sanctions would work when Syria’s two most likely border states, through which goods pass, were opposed is at best dicey: “Iraqi Foreign Minister Hoshyar Zebari said [November 26th] that Iraq has ‘reservations’ about sanctions and analysts doubt Iraq would implement them. And Lebanon, whose government is dominated by groups that support Assad, including the militant political group Hezbollah, also is unlikely to enforce the sanctions.” Washington Post, November 28th.

Syria’s brutal repression of its people, using the military to crush dissent with increasing violent (killing as estimated 3,500 to date), has been universally condemned by most of the rest of the world. But who is President Bashar Assad and how does he manage to force his military, comprised of common folk like those they are killing, to purge these protest movement with such virulence? To understand Bashar, one must go back to see where he came from. The above picture was taken sometime in 1994 (Bashar is second from the left in the back row), before Bassel Assad (middle back row) was killed.

Reflecting that same kind of ascension of military officers taking control of their countries, Syria’s dictatorial force, Hafez al-Assad, worked his way through the military and seized power in 1970 through a coup referred to as the “Corrective Revolution.” His elder son and heir apparent, Bassel, was groomed in the military, and rose to Syria’s chief of security until his death in 1994 (he liked fast cars and was killed flooring his prized Mercedes). Up to that point, Bashar had virtually no interest in politics, choosing to become a medical doctor with a specialty in ophthalmology. With Bassel gone, Hafez determined that Bashar would have to take over, so he was rapidly moved into the Syrian military to prepare for his eventual installment as Hafez’ successor.

The al-Assad family is associated with a very small branch of Islam, a mystical sect known as the Alawis with an affiliation to the Shiite view of Islam. Many old-world Alawis have migrated into mainstream Shiite beliefs, but there is still an ethnic allegiance among the scions of this sect. What’s more important is their disproportional power in this Middle Eastern nation. “Although the Alawis comprise the entirety of the top military and intelligence offices, government employees from lower bureaucratic ranks are largely from the majority Sunni Muslim faith, who represent about 74% of Syria's population. Today the Alawis exist as a minority, but are the most politically powerful sect in Syria and the only one with direct government control.” Wikipedia.

Just like Saddam Hussein, a minority Sunni where the vast majority of his subjects were Shiites, the reverse power dynamic – minority Shiite-affiliates dominating a Sunni nation – exists in Syria. So to be in power as an Alawis, a leader has to know that any anti-government movements in that vast majority of Sunnis, a sect known to be openly hostile to the Shiite interpretation of the Qu’ran, must be extinguished quickly and firmly for fear of a majority turning on the unpopular religious beliefs of their top leadership.

A recent article in Foreign Policy Magazine explains exactly how inseparable the military is from its top “civilian” leadership: “During its decades of rule, moreover, the Assad family developed a strong political safety net by firmly integrating the military into the regime. In 1970, Hafez al-Assad, Bashar’s father, seized power after rising through the ranks of the Syrian armed forces, during which time he established a network of loyal Alawites by installing them in key posts. In fact, the military, ruling elite, and ruthless secret police are so intertwined that it is now impossible to separate the Assad regime from the security establishment. Bashar al-Assad’s threat to use force against protesters would be more plausible than Tunisia’s or Egypt’s were. So, unlike in Tunisia and Egypt, where a professionally trained military tended to play an independent role, the regime and its loyal forces have been able to deter all but the most resolute and fearless oppositional activists. In this respect, the situation in Syria is to a certain degree comparable to Saddam Hussein’s strong Sunni minority rule in Iraq.”

When Hafez died in 2000, Bashar became President (confirmed in a referendum where he ran unopposed). While there were expectations of reform when a medical doctor assumed the country’s reigns, there were token and superficial efforts, mostly making it easier for foreign investors. The trickle of oil that Syria produces will turn it into a net oil importer by 2015, and its population growth and concomitant poverty have been explosive. Indeed, Bashar seemed to adhere to his family’s strict method of repressive rule that allowed a minority to rule a disenfranchised majority. Vowing to continue to fight “terrorism” and decrying the dissolution of “Arab unity” as a betrayal, Assad stood in defiance of the Arab League’s vote. The message echoed throughout his administration: “Outraged at the Arab League’s unprecedented battery of sanctions on Syria, the country’s foreign minister denounced the steps [November 28th] as ‘economic war’ by brethren states, and he hinted at retaliation.” New York Times, November 28th.

With porous borders, east and west, it is unclear how the sanctions would work: “Halting dealings with the central bank will make international trade more difficult, said Chris Phillips of the Economist Intelligence Unit, as will the ban against commercial flights between Syria and Arab countries, which could impact on the business community that has benefited from Assad’s liberalization measures and has thus far remained largely supportive of the government.” Washington Post. The likely ineffectiveness of the sanctions may produce some concessions from the Assad regime, but a near-term ouster seems unlikely. The battle for the hearts and minds of the Syrian people may eventually crack this hardened wall, but the Assad/military cabal is unlikely to go down easily, and the Syrian military is witnessing how difficult it is for the Egyptian military to maintain its domination of Egypt once the civilian “democracy” cat is let out of the bag.

I’m Peter Dekom, trying to look behind the headlines and simply explain “why.”

Sunday, November 27, 2011

Is the Harvard Business School the Root of All Financial Evil?

Admittedly, a blog that tends to associate a litany of huge financial failures, from Enron to bundling subprime mortgages as A-rated gold and deciding to bail out the biggest baddest boyz on Wall Street, with Harvard’s esteemed Business School (HSB) has to be suspect when it is written by a Yale graduate, but hey, facts are facts.

First, let’s look to a quote (executive summary) from a paper, released way back on October 13, 2008 (at the HSB centennial celebratory business summit) by Professor Rafael M. DiTella: “The current financial crisis has raised questions about the legitimacy of capitalism. Ethical failures certainly played a role. While it remains to be seen whether and how many people blatantly broke the law, there are abundant signs of various forms of potentially unethical behavior. These include greed, unreasonable amounts of leverage, subtle forms of corruption (such as ratings agencies that appear to have had a conflict of interest), complex financial instruments that no one really understood, and herd behavior where people just followed along and failed to exercise independent judgment.” So Harvard acknowledged early in the game that massive ethical lapses were the seeds that ultimately decimated the nation… and then the world. But which business school had the greatest number of its graduates in capacities of “deciders” in the mess that Wall Street left behind?

How about this mea culpa summarized in the February 3rd Wall Street Journal: [Harvard] university caused a stir last week when it said it would significantly revamp its M.B.A. program, adding new required courses with an increased focus on ethics and teamwork. It's an unusual step away from the school's lauded case-study method of teaching and the start of a planned overhaul—made more urgent as the school seeks to restore a reputation tarnished by the financial crisis…The changes are also part of an effort to diffuse what many see as a money-hungry culture that prevails at elite business schools—a culture that some say helped create the recent crisis on Wall Street. ‘The public lost trust in business, and some of our graduates seem to be responsible for that,’ says Nitin Nohria, who was appointed dean of the school in July 2010.” For a number of the senior HSB deciders – investment bankers, traders, CEOs, accountants, lawyers, analysts, etc. – who pretty much ran the Street when those fateful decisions were made, ethics wasn’t even on the curriculum when they attended Harvard.

While there are lots of folks who disagree, “Phillip Delves Broughton, an alumnus of the Harvard Business School, says a procession of Harvard–trained MBAs played starring roles in the economic collapse…. ‘George W. Bush was a Harvard MBA. Hank Paulson was a Harvard MBA. The CEOs of General Electric, Procter & Gamble, the heads of hedge funds, private equity funds [were Harvard MBAs],’ Broughton says.’ NPR, May 17, 2009.” There are those who would add the business schools at the University of Pennsylvania (Wharton) and Columbia University to the list. These days, “all graduates of Columbia Business School must pledge to uphold a Columbia Business School Honor Code, which reads as follows: ‘As a lifelong member of the Columbia Business School community, I adhere to the principles of truth, integrity, and respect. I will not lie, cheat, steal, or tolerate those who do.’” Wikipedia. A few other business schools have their own versions of this new MBA code.

Jeffrey Skilling, Enron’s disgraced CEO who is now serving a 24 year sentence (the US Supreme Court did vacate a portion of his conviction) in connection with Enron’s collapse, was a 1979 graduate of HBS. Henry Paulson (noted above), former Goldman Sachs head (when they pushed the “too big to fail” policy on the SEC) and the Bush administration’s Treasury Secretary widely credited as the architect of the Wall Street bailout, is a 1970 graduate of HSB. Former Merrill Lynch CEO Stanley O'Neal and O'Neal's successor, John Thain are also HSB grads and are also linked to failed banking practices. The majority of HSB miscreants emanated from classes between 1970 and 1985, a rowdy period where finance was more about inventing complicated “derivatives” and selling them to rack up huge profits than such mundane subjects like creating real economic value within ethical proscriptions.

It’s not just Harvard, of course, but a host of elite business schools that pumped out vain-glorious failures who touted new “can’t lose” paths to riches, but themselves created and then followed like sheep Wall Street’s proclivity – still hardly contained to this very day – to invent toxic derivatives and make money at all costs without the slightest concern about ethics or their impact on their country or the global economic scene. It’s our fault for letting them do that to us. But shame on you for screwing me the first time, and shame on me for letting you screw me the second time. There is a movement to stop the regulations that might slightly dissuade such noxious behavior in the future… or at least de-fund the regulators so that they cannot do their jobs. When are voters going to learn that they really can make a difference and elect Congress-people who really can make a stand and a difference?

I’m Peter Dekom, and I suspect I will not be getting any invitations to lecture at Harvard’s Business School anytime soon.

Saturday, November 26, 2011

Is There any Middle in the Middle Anymore?

The Tea Party knows there’s something wrong with their lives, but they attribute it all to government interfering with the free market system. Most Democrats wonder what kind of tea is being consumed by their brethren to the right, because they haven’t seen a free market in America in the lifetimes of most of them. When the senior manager of a private equity fund, paid tens of millions dollars a year, is taxed at rate that is a fraction of the rate applied to his secretary’s pay, folks just shrug and say that’s the way it goes. When some rating agency tells you that a bundle of inferior debt should be A-rated, and it happens all the time even in the current market, and there really isn’t a regulation to stop this process because the SEC’s enforcement/regulatory budget has been cut and they don’t have the staff to manage new regulations, folks just shrug and say that’s just the way it goes.

But who’s right? Are the rich getting richer? Or is that just a lot of “Occupy Wall Street” propaganda? Enter the Congressional Budget Office (“CBO”) with research based on census and tax data: “[On October 25th], the CBO released an analysis of America's distribution of wealth over the last three decades. Their findings were shocking: Among the top 1% of households, income grew by an amazing 275% over the last 30 years. In the same period, the middle 60% of households -- the heart of the middle class -- saw their incomes increase by less than 40%.

“But rising pay only tells half the story: As the rich have gotten richer, they have also gobbled up a bigger portion of the overall income pie. In 1979, half of all income went to the top 20% of households; by 2007, they were pulling in 60% of all income. Meanwhile, everyone else lost ground… While the middle class’ slice of the income pie has gotten thinner, the price of real-life pie has shot up. According to the Department of Agriculture, food prices have increased by 4.7% since September 2010 and are on track to go up by another 4.5% over the next year. For certain products, the rise has been even sharper: Eggs and oils, for example, have gone up by more than 11%, while dairy products and beef have increased by more than 10%.”, October 27th.

The top 1% of Americans have 225 times the wealth of those in the middle! “While corporate performance has been on this sharp decline, executive compensation [CEO’s] has been increasing astronomically. Whereas in 1965, executive compensation was 24 times what the typical worker made, studies show that today executive compensation is a staggering 275 times what the typical worker makes.”, January 2011. With the major component of middle class wealth buried in the American dream of home ownership, the demise of real estate values has simply killed the middle class. Without the massive discretionary income to trade stocks and bonds on a meaningful level, most of us relied on wealth-building in our homes. With house prices crashing and burning, that middle class’ economic buffer is simply gone. “Half of borrowers with prime loans -- or loans made to borrowers with good credit and income -- will likely end up underwater anyway, according to a recent report… Already more than one-third of prime mortgage loan borrowers are underwater or owe more on their homes than they're worth and with home prices expected to drop by another 10 percent, half of prime borrowers will likely end up underwater, a Fitch Ratings report found. More than 12 percent of borrowers are seriously behind on their payments according to the report, putting them at risk of defaulting.”, October 7th. Mortgage delinquencies have hovered around or above 10% for a very long time.

But the stock market reacted to better-than-expected retail numbers and the settlement of new European bank recapitalization required as a result of the concerted action of the European Union. So we’re not going to double dip! Yeah! Champagne! Oh… you referenced the big stock market rally, and middle class folks aren’t really that heavily invested in that sector of the market. They are actually the ones who make up the vast, vast majority of the unemployed and under-employed, and those with enough stock don’t derive their wealth from salaries or wages. Yet, “42 percent of financial wealth is controlled by the top 1 percent. We would need to go back to the Great Depression to see such lopsided data.”

So I am going to predict. The current “Occupy Wall Street” phenomenon will fizzle – unless the authorities are dumb enough to fire real bullets into one crowd or another (Oakland?) – if for no other reason that winter is around the corner. But unless someone figures out how to restore the middle class, the underlying unrest will be back… and back again… and again… and again… growing a bit at time. For those old enough to remember the progression of the Vietnam protests in the late 1960s and early 1970s, from a trickle to a raging fire that only was extinguished with American forces in fast retreat being pulled out of this most unpopular war. I remember how the protestors were referred to as “hippies” and “drug-users,” but in the end, they became just people like us. We’ve been here before, and ignoring the middle class is an invitation for an escalation of tensions from increasingly angry, massive group of people.

I’m Peter Dekom, and it is interesting to watch the birth of a potentially very large political movement that threatens to envelop us all.

Friday, November 25, 2011

Messing with the Middle

You have undoubtedly picked up on a couple of themes in many of my blogs, like “no investment in education, infrastructure and research = no future,” “our military expenditures – almost half of such allocations on earth – are bankrupting us,” or “America without a middle class just isn’t America,” but the linkage between such themes is staggering. As our middle class loses their home-equity-piggy-bank, faces unemployment and probably equally importantly (but under-reported) under-employment, as commodity prices rise from global demand making everything proportionately more expensive, and as wealth shifts to more to those at the top, their children are living in a world of unaffordable education with absurd levels of student loans, face a future of pothole-laden streets and collapsing bridges, are going to have to find what jobs they are in companies short on the kind on innovation that made us great and will face a deficit payback obligation and retiree support that their lower pay levels will never be able to extinguish.

It’s not exactly a secret that our middle class is in jeopardy. Corporate America is lowering its economic targeting towards budget-conscious shoppers whose financial capacities and economic fears have them entering the lower classes or at least acting as if they were (see my “Hourglass Marking” November 6th blog), but data from our recent Census is pretty telling as well. Preliminary analyses of Census data noted the impact of the economy on the poverty-level families, but paid little attention to the “next level up” – people who make 50% or less above that poverty line.

“When the Census Bureau this month released a new measure of poverty, meant to better count disposable income, it began altering the portrait of national need. Perhaps the most startling differences between the old measure and the new involves data the government has not yet published, showing 51 million people with incomes less than 50 percent above the poverty line. That number of Americans is 76 percent higher than the official account, published in September. All told, that places 100 million people — one in three Americans — either in poverty or in the fretful zone just above it.” New York Times, November 18th.

That next level from the bottom is called “near poor” by some social scientists, but their growing numbers and their longer term pressures on programs like Social Security and Medicare do not bode well for the stability of our nation’s future. What’s bad for Wall Street is that they simply are dropping out of a prime consumer base that corporate America has relied on since WWII. “They drive cars, but seldom new ones. They earn paychecks, but not big ones. Many own homes. Most pay taxes. Half are married, and nearly half live in the suburbs. None are poor, but many describe themselves as barely scraping by.” NY Times. Except for necessities, and these are bargain basement brands, they’ve just stopped spending.

For those at the top of the economic food chain, however, life has never been better. We do live in an increasingly polarized society of haves and have-nots. “Since 1980 about 5 percent of annual national income has shifted from the middle class to the nation’s richest households. That means the wealthiest 5,934 households last year enjoyed an additional $650 billion beyond what they would have had if the economic pie had been divided as it was in 1980, according to Census Bureau data.

“The typical U.S. household, meanwhile, has yet to regain the ground it lost during the recession. The median income of $49,445 at the end of 2010 remains a shade below the level reached in 1997, adjusted for inflation. ‘Income inequality in this country is just getting worse and worse and worse,’ says James Chanos, president and founder of money managers Kynikos Associates. ‘And that is not a recipe for stable growth.’” Bloomberg Businessweek, November 16th. As wealth shifts increasingly to these individuals, the world in which they live is clearly deteriorating around them, at least for the vast majority of Americans. And if you are a rich investor looking to make money in a growing American market… maybe you are living in a world where that growth potential just vaporized.

In the 1960s economists such as the late Arthur M. Okun, who was chairman of the White House Council of Economic Advisers, believed that societies could emphasize equality or growth, not both. Today, when the quality of the workforce plays a larger role in determining who prospers, many economists—including Federal Reserve Chairman Ben S. Bernanke—now believe that equality and growth are linked. As Branko Milanovic, a World Bank economist, wrote in September: ‘Widespread education has become the secret to growth. And broadly accessible education is difficult to achieve unless a society has a relatively even income distribution.’

“Thus the growing chasm in the U.S. between the haves and the have-nots has serious consequences. Societies that manage a narrower gap between rich and poor enjoy longer economic expansions, according to research published this year by the International Monetary Fund. Income trends in the U.S. mean that future U.S. expansions could last just one-third as long as in the late 1960s, before the income divide began widening, says economist Jonathan D. Ostry of the IMF. The average postwar economic boom lasted 4.8 years, according to the National Bureau of Economic Research. The current expansion, which is just 27 months old, may peter out within a few months. Goldman Sachs said on Oct. 3 that the U.S. would be ‘on the edge of recession’ by early 2012.

“Expansions fizzle sooner in less equal societies because they are more vulnerable to both financial crises and political instability. When such countries are hit by external shocks, they often stumble into gridlock rather than agree to tough policies needed to keep growth alive. Raghuram G. Rajan, the IMF’s former chief economist, says political systems in economically divided countries become polarized and immobilized by the sort of zero-sum politics now gripping Washington. ‘It makes the politics more difficult, and that makes it more difficult to grow,’ says Rajan, now a finance professor at the University of Chicago’s Booth School of Business. ‘There is no consensus on any of the solutions that are proposed.’” Businessweek.

Yeah, well, maybe there is “no consensus” for the solution, but the answer isn’t that illusory. If the emphasis is on growth and value-added policies, then the kind of money our society spends needs to tilt more toward return-generating investments – like education, infrastructure and research – and move away from writing checks that have no real reward – like absorbing 44-47% of the world’s military expenditures to support a military that hasn’t won a major war since WWII.

I’m Peter Dekom, and it does seem that politicians really prefer mythology to pressing the easy – okay, the “easier” – button.

Thursday, November 24, 2011

Austere Prospects

I keep harping on Europe – understanding its turmoil and anger – because what is happening there is constantly slamming the markets and upside in the United States. A selfish perception, I admit, but to get Americans to care these days, issues usually have to hit them personally in the pocketbook or their religious solar plexus. I’ve blogged about the impact of Europe directly on us – from sucking up global credit, tanking our banks with debt exposure there, slamming US companies selling into or operating in Europe and generally destabilizing global markets – and I’ve reminded Americans that Europeans still blame us for their economic woes by our successfully selling “sustaining lifestyle and corporate growth through excessive debt” as the modern way to go. But Europeans are obsessed with austerity as the only solution, even though this path – and one American that politicians have embraced with both arms – has brought misery to millions.

I spoke to a Greek friend of mine about what life is like in Greece these days, a nation that has changed governments and laid off 300,000 government workers (huge for a nation of 11 million people). Massive austerity was the price this country has to pay for rescue money from Europe’s Central Bank. It’s everyone for themselves these days as nothing in Greece is stable. In Athens, the Acropolis – the biggest tourist attraction the city… and maybe the country… has to offer – can shut down for a week or more, public transportation (even taxicabs) can vaporize for days on end, small businesses are closed, hotels are understaffed, and many are returning to villages to grow their own food and wait for it all to end. The rich have long since relocated their moveable wealth to secret bastions well-outside the reach of Greek authorities. Government telecasters may shutter. Hard to believe that this is a modern nation in once-rich Europe.

The northern European, euro-based countries – like France, Austria, the Netherlands and certainly Germany – have acted like angry parents chastising their southern counterparts, particularly Greece and Italy of late, for their unhealthy lifestyles, economic practices and their populist sentiments that favor safety nets over productivity. This “I told you so” mentality may ultimately unravel the entire European Union, but the unwillingness of European leaders – notably Germany – to reduce the borrowing rates of these southern nations by issuing Eurobonds based on the blended backing of the entire 17-euro-nation sector of the EU is forcing interest raise to rise is creating a vicious spiral … one which ultimately will add more costs to the successful nation to bailout later. Unless these richer nations want to the see the euro dragged down from the bottom, that bailout is almost inevitable.

The European Central Bank (ECB) has suggested that it just might let some of these troubled nations sink into the abyss if the initial stage of support proves insufficient. But in one rising phenomenon – what I describe as “what’s good for the goose is good for the gander” economics – the northern admonition of live within your means or face the consequence is coming back to haunt…er… the northern nations in the euro cabal. “[S]uddenly, as investors’ fears mount that many euro area nations are about to tip into recession, even countries like creditworthy France are finding it much more expensive to borrow money in the open market. And with that development comes a dawning realization: that austerity, rather than making it easier for them to pay down their higher debts, could make it harder — and more expensive…

The so-called yield gap — the premium that investors demand for holding French 10-year government bonds, rather than German ones — rose [November 16th] to a new high since the euro began of nearly two percentage points. It later eased back somewhat, to 1.9 percentage points… That is still not close to the yield gap of nearly 5.2 percentage points that beleaguered Italy has with Germany, but it is a disturbing new trend for France. Austria and Netherlands are also experiencing widening yield gaps with Germany, and Spain has become a new source for concern. ” New York Times, November 16th. Credit rating agencies are downgrading European banks and even entire nations as the economic miracle of European unity begins to unravel.

Why does Germany refuse to budge in this onslaught of imminent and potentially dangerous contagion? Pure and simple: Hitler. The thought of guaranteeing profligate nations’ debt with pan-European bonds –primarily supported by the relatively strongest European economy (Germany) – makes Germans queasy from the possible inflationary surge that might result. They still carry historical images from the Post-WWI era of Germans with suitcases of near-worthless currency just to buy a small allotment of food, economic pain that provided the fertile and angry soil from which the Nazi party and Hitler took root, eventually sending Europe into murderous WWII.

Germans have since built their economy based on investing heavily in modernizing their infrastructure and manufacturing facilities, upgrading the skill-set of the already productive work force through expanded education and cherishing research. They are poised to take advantage of all these efforts, while austerity programs are forcing other nations to destroy their own futures – a prospect that could apply to the United States as well – by denying the funding necessary for these same investment categories elsewhere. Germany wants the fruits of its investments to remain German, probably not possible since they cast their fate to a common European currency, a lesson that is particularly hard for them to accept.

Thus, Germany and France are beginning to disagree on fundamentals. “‘The Germans have been able to rely on the French, the Dutch and the Austrians,’ said Simon Tilford, the chief economist at the Center for European Reform in London. ‘But if they get dragged into this and their borrowing costs continue to rise, that could influence whether they continue to back Germany and the line taken on the euro zone crisis.’… Analysts, though, say the time for insisting on ideology is quickly running out. Because European policy makers still have not started up the main bailout fund for Europe — the European Financial Stability Facility — there are virtually no other tools besides austerity to whittle down debts and deficits.

“But, said Mr. Tilford, the euro zone ‘is going to crack unless E.C.B. enters the picture soon.’ If the central bank really starts carrying out the lender of last resort function, then the crisis can still be reined in, he and others said… The question is whether the central bank is engaging in a strategy of brinkmanship to extract as many reforms from governments before it intervenes, or whether it genuinely intends to resist pressure to be a lender of last resort.” NY Times. And if Europe cracks, a whole pile of American banks and companies will crack with it. With all that downward pressure on our financial institutions and further evaporated credit availability, the impact on our own economy would be devastating as well.

I’m Peter Dekom, and bottom line is that “their big problem” is not just their “big problem.”

Wednesday, November 23, 2011

Welcome to America with Open Arms

46-year-old Detlev Hager was driving down a highway in Alabama, a state that recently passed – and prides itself on – one of the toughest immigration laws in the nation. If you are suspected of not being a legal resident when a police officer has reason to stop you or confront you, if you do not have sufficient proof of legal status, off you go to jail for violating those wonderful new laws. Well, somewhere around Tuscaloosa, Detlev was pulled over because of a license plate issue on his rental car. Guessing that Detlev’s German accent might make him an undocumented visitor/worker in the state, the officer demanded proof of legal status. Pure dumb Detlev just didn’t happen to have such proof on him… so he was “properly” arrested for violating the Alabama statute that required him to carry such proof with him.

Charges were later dropped when a passport and a German driver’s license were produced, but there is extreme irony in this arrest, one of 66 such Alabama arrests since October first according to CNN (November 23rd). You see, Detlev was a senior executive with Mercedes Benz, a company that was lured to Alabama as a friendly place to do business. That Mercedes is also Alabama largest exporter of manufactured goods is not to be treated particularly lightly in this time of massive American unemployment. A billion dollar plant in Tuscaloosa assembles the M Class Mercedes SUV there.

Now comes the fun part. The November 22nd St Louis Post Dispatch (in its hard copy paper and on its Website) presented an open letter/editorial to Mercedes Benz about considering moving their operations to Missouri that is nothing short of precious, and I wanted to share their note with all of you blog-fans out there:

Dear Mercedes-Benz U.S. International:

We are dismayed about the unfortunate arrest of one of your company's German executives who ran afoul of Alabama's restrictive anti-immigration law. The 46-year-old executive was arrested Friday while driving a rental car because he didn't have his immigration papers with him.

How inhospitable. Carpetbaggers never have been treated very kindly in the South, though we would have thought exceptions would have been made for those with SUV factories in their carpetbags.

The head of the state's pension system, David Bronner, told the Associated Press about Alabama's immigration law: "You are giving the image, whether it's valid or not, that you don't like foreigners, period."

Here's an idea: You should move your SUV plant to Missouri.

Our state has many advantages over Alabama. We are the Show-Me State, not the "Show me your papers" state. Our Legislature is hostile on the immigration issue, but not as hostile as Alabama's or Arizona's.

Unlike in Alabama, our law enforcement officials won't check immigration status unless presenting you for incarceration on other offenses. In St. Louis, we not only welcome immigrants (outside of Valley Park), but we have a proud German heritage.

Many of our founders came from your country, and at least two elements of traditional German heritage — hard work and beer — stuck.

We realize that moving a massive automotive plant is quite the undertaking, but we happen to have space for one in Fenton and a lot of trained autoworkers. A lot.

We have a state law that offers up to $100 million in tax incentives for automobile plant expansion; in the last 12 months Ford and General Motors have expanded operations here. We probably could come up with a lot more for a brand new plant.

Missouri is not a right-to-work state, but let's face it: Judging from the new United Auto Workers contracts, there's not much to fear there. Word is, your employees in Vance, Ala., already are well paid, and your corporate boss, Daimler AG, is no stranger to dealing with auto workers' unions.

You've got two choices. Either ask your executives to carry their immigration papers at all times, or move to a state that understands gem├╝chlichkeit.

What a warm and fuzzy declaration of war from one state to another in these most tempestuous times. Hey, the officer was just doing his job! And again, in world of stupid slogans and simplistic solutions to exceptionally complex problems, the law of unintended consequences proves what idiotic, unthinking hate-mongers can do to destroy the livelihoods of their own neighbors, relatives and friends. Kinda makes you go mushy inside, don’t it?!

I’m Peter Dekom, and this one was just too good to resist!

Tuesday, November 22, 2011

Mail Supremacy No More II

The US Postal Service is obviously in deep, deep trouble, even with Congressional subsidies and the even with the seemingly imminent Congressional reprieve eliminating the requirement of the USPS’ advancing $5.5 billion in future retiree health care benefits. Come fall of next year, the pressure to cut the losses may result in a Congressional mandate to turn off the lights and close the entire organization… leaving private delivery services and electronic communications entirely to fill the void. Imagine a letter sent from another country without the Post Office. “In the event of a shutdown, private companies such as FedEx and UPS could handle a small portion of the material the post office moves, but they do not go everywhere. No business has shown interest in delivering letters everywhere in the country for a set rate of 44 cents.” Los Angeles Times, November 16th. Think of all those legal notice clauses in contracts that could no longer be enforced. Think of the new rates…

In a world of emails and social networking, mail continues to provide 3rd class “spam” to fill landfills, but also to generate promotions, coupons and awareness to millions of businesses and organizations across the country. This is “spam” you have to touch, if only to carry it to the trash, but at least you cannot filter and delete it from your mailbox. Yet the losses continue to mount as mail volume continues to decline. $5 billion over the last year, even as 130,000 staff cuts were implemented. The post office had income of $65.7 billion for the year, down $1.4 billion from the previous fiscal year. Expenses totaled $70.6 billion…Mail volume totaled 168 billion pieces, compared with 171 billion in 2010, a decline of 1.7%. At the same time volume was declining, the post office was required to begin service to thousands of new addresses to accommodate population growth and new businesses.” LA Times.

A recent report paints an even bleaker picture... with a tiny, futuristic, ray of hope: “There were 59 million fewer visits to post offices in 2010 than in 2009, and visits are down 21 percent over the last decade, according to a new Government Accountability Office report. (Ironically — despite searching high and low for a number — the report doesn’t actually say how many visits were recorded in 2010.)... ‘Although the public increasingly uses postal retail alternatives, more widespread adoption will be needed if USPS is to close thousands of post offices as planned in the next few years,’ GAO said. ‘USPS has projected that by 2020 alternatives to post offices will account for 60 percent of its retail revenue.’

“And how are those alternative options doing? Take a look:

— According to the Postal Service, visits to have jumped to 413 million visits annually in 2010 — up by 100 million since 2006. The site generated $640 million in revenue in 2010.

— There are 2,500 self-service kiosks nationwide that generated $580 million in fiscal 2010.

— There are more than 56,000 sites nationwide selling stamps, but revenue dropped in 2010 to about $1.1 billion annually, down slightly from 2009.” Washington Post, November 18th.

And what is the GAO’s recommendation for executive action? “To better ensure that USPS's efforts to expand access through retail alternatives support its strategic goals to improve its service and financial performance, the Postmaster General should develop and implement a plan with a timeline to guide efforts to modernize USPS's retail network that addresses both traditional post offices and retail alternatives. This plan should also include: (1) criteria for ensuring the retail network continues to provide adequate access for customers as it is restructured; (2) procedures for obtaining reliable retail revenue and cost data to measure progress and inform future decision making; and (3) a method to assess whether USPS's communications strategy is effectively reaching customers, particularly those customers in areas where post offices may close.”

Congress is slowly working to find a viable path, but is it just too little too late? “Proposals passed by House and Senate committees in recent weeks would permit the Postal Service to end Saturday mail deliveries, close thousands of post offices and processing facilities and potentially lay off hundreds of thousands of workers... But the bills ‘would not provide the Postal Service with the speed and flexibility it needs,’ [Postmaster General] Patrick R. Donahoe said [November 21st]. ‘Both bills have elements that delay tough decisions and impose greater constraints on our business model. Taken as they are, they do not come close to enabling the cost reductions... Congress needs to step back and look at the Postal Service as a business and give us the business model that allows us to act quickly to lower our costs.” Washington Post, November 21st.

So how would you be impacted if the U.S. Postal Service were no more? Would you miss it or even notice? Would you turn your mailbox into a planter? Or do you think in this modern era, there is still a place for government mail delivery?

I’m Peter Dekom, and change can seriously accelerate in impaired financial times.

Monday, November 21, 2011

Buying without Seeing or Sampling

How many times have you ordered an item online without actually having seen it in person? What if it’s too big for your kitchen, doesn’t look good when you try it on, doesn’t fit or is a whole lot cheaper-looking in person? I am reminded of my first experience with such buying experience as a little boy when I succumbed to a children’s show selling Captain Video toys that included a special ring (plastic), a magical add-on for your TV to see stuff you needed this item for (it was a very cheap sheet of plastic you could use crayon on to trace what the host was indicating) and a space helmet (plastic so thin that it tore within 72 hours of purchase). But today, we have home shopping and on TV from QVC, HSN and the dozens of pseudo-charismatic infomercial hosts whose “must buy ads” – usually in increments of $19.95 (plus the notorious “shipping and handling”) – populate the airways.

For some, the venture to buying online is based on a suggestion of “only upscale” found on clothing sites like Ideeli, Rue La La, Hautelook, Blue Fly, etc., where the stuff is primarily from known brands and seems like nothing more than an outlet store on the Web. Liberal return policies help make the day. Size matters, but not as much as you would think! Just return it in the handy, prelabeled box. Retail/wholesale aggregators like Amazon also create an aura of trust in these often detached and distant transactions. It just so convenient!

FedEx and UPS are indeed grateful for the volume of deals, and the temptation of being able to comparison price-shop so easily and avoid sales tax (a sore spot that is wending its way through the courts and legislatures as states cry “foul” in recessionary times) is just too much for Americans who are still willing to shop, particularly when they know exactly what they want. Even when they are ready to buy large-ticket items, from appliances to cars, they are likely to know the real wholesale price of the item and all of the available options and features before they enter the showroom.

But buy or lease a car they haven’t seen or test driven? Yup, as the title of a New York Times piece (November 11th) suggests: “For New-Car Buyers, Taking a Test Drive Now Seems So 1995 .” Folks are leasing cars online with increasing frequency: “It’s not nearly so simple to undo the sale of a car or a truck. So there were raised eyebrows at, an online lease transfer service, when it discovered a significant increase in the number of people who closed a deal through its Web site without so much as sliding behind the steering wheel of their new vehicles… ‘We found the number of people who skipped the test drive more than doubled since 2007,’ John Sternal, a company spokesman, said.” NY Times. Less of a commitment when you lease, but then, you are still locking in for a number of years.

Given the amount of research a car-buyer can amass, it’s really not that surprising, and it is often the deal on a predetermined model that closes the transaction. For many, it’s just getting a newer model of what they already have and like. For others, it is only the deal that drives closure, but there is the underlying notion of trusting most car brands that are forced to comply with rigid federal requirements and lots of competitive market testing: “Improvements in the overall quality of new cars and trucks are likely to play a role, said George Peterson, president of AutoPacific, an industry consulting firm… ‘Based on the research we do for our annual Vehicle Satisfaction Awards, it’s fair to say there really aren’t any bad cars anymore,’ Mr. Peterson said. ‘I think consumers are picking up on that, so they feel more confident they’re making a good decision.’…

Oren Weintraub, founder of a car-buying consultancy, Authority Auto, and a former sales manager at a large Southern California Ford dealership, says that when he negotiates a new lease or purchase on behalf of a client, he strongly recommends a test drive. Even so, he estimated, as many as a third of his customers just do not think it is that important.” NY Times. Okay, shopping fans, what is the biggest item you have ever purchased from a TV or online experience without having viewed or tested the product first? Come on! What?

I’m Peter Dekom, and the notion of how we live and shop today bears little resemblance to the practices of a decade or two ago.