Free Willie Markets

Markets haven’t truly been free during most of the era of modern capitalism. Whether you are looking at trade barriers or tax codes, securities laws or environmental regulations, fraud statutes or the laws surrounding contracts, safety laws or professional qualifications, there have always been encouragements and restrictions on business. Sometimes, the solid statutes, such as the securities laws that germinated in the 1930s in response to the snake oil purveyors of stocks that led to the 1929 market crash, often have unintended consequences: generally, only well-heeled capitalists can afford the legal and professional fees necessary to raise true passive equity in the public marketplace. Bona fide but entry-level entrepreneurs are severely limited to inconsequential sums while major Wall Streeters just push the “make the structure work” button, and voila, an offering is born.

But then, without restrictions of some kind, we might return to the wild west of corporate misrepresentation and belching toxic smoke stacks or “black lung” killing coal mines. Why would a company install electrostatic precipitators and monitor its outflow of effluents into our rivers and streams, not exactly inexpensive, if none of its competitors was forced to comply as well? Thus, even a motivated “good citizen” smoke-belcher would be unable to compete in a world where it would have to price itself well-above the competition to be environmentally sound… literally putting itself out of business in the process. Literally, such legislation levels the playing field to allow a greater social good to prevail.

Some argue that we have driven such industry out of the United States, and the environment simply draws its pollutants from another place on earth, but dumps them into the same atmosphere we all live under. Fine, if you think (i) we really can manufacture the same materials that have moved such processing overseas with American-priced labor and (ii) if you don’t mind living near a plant that fouls your everyday experience. Further, if you really have watched a gorgeous lake or rive die from pollution, know well that only environmental regulation has a shot of restoring normalcy.

When the tax code gives oil companies tax breaks or allows hedge fund/private equity managers to enjoy a tax rate schedule of less than half that applied to almost everybody else, it is also clear that the level playing field necessary for a more freely operating market simply does not exist. Try and level that playing field and listen to the PACs and “bought and paid for” Congress-people scream like stuck pigs. You can always tell when some elite is about to lose a benefit accorded to them and no one else; the word “socialism” rises above the cacophony of protesting souls.

Writing for the January 19^th Financial Times, Otmar Issing (president of the Center for Financial Studies and a former member of the European Central Bank’s executive board) writes that there is no system of pure “capitalism” or “socialism” that has succeeded anywhere: “Whereas ‘real socialism’ ended in disaster wherever it was tried, history teaches that the idea of a socialist society promising equality will never fade, whatever empirical evidence shows. Moreover, there was hardly a country in the world where capitalism had become established in a way that was satisfying in every respect. Historical determinism was the most absurd aspect of Fukuyama’s notion [the infamous post-tsunami meltdown of a Japanese nuclear reactor]. No liberal philosopher would have embraced the idea of history being predetermined…

“Looking at the evolution of the financial market crisis, the only surprise is that it took so long before a serious movement materialised. The crisis has provided strong arguments for opponents of the financial system. Interventions to avoid its collapse have severely undermined not only confidence in financial markets but also in the market economy as a whole. Once a financial institution has become so big or interconnected that its insolvency threatens the stability of the system, politicians must intervene. The problem of ‘too big to fail’ has made society – more precisely, the taxpayer – hostage to the survival of individual financial institutions.

“As a result, the basis of free markets has been shaken. A market economy rests on the principle that individuals are free to act within boundaries set by a legal system. Individuals are invited to exploit opportunities and to assess risk. No other system can release the same amount of potential locked inside individuals. [The] market is the best discovery process.” Essentially, a level playing field, laced with a schema of reasonable regulation promoting the greater social good (not “socialism”), and a mechanism that does not favor getting bigger or creating exemptions from our legal system for the largest structures (the “whales”) are essentials in a modern era. The world is vastly too complex and interdependent to allow special interests to drift above the law, threatening the global economy and allowing them to have their way with society. In the end, there is no “pure system” that has ever worked; pragmatic and ever-adjusting compromise between and among economic theories is our only hope.

I’m Peter Dekom, and anyone who picks slogans over pragmatics to implement economic solutions is begging for a very, very big fall.

M.O.S. (Mitt Out Shame)

It’s little wonder that Republican presidential candidate Mitt Romney faced a precipitous drop in the South Carolina primary and generally in the popular polls. Not only did Newt Gingrich find traction among evangelical conservatives in that state (60% of all voters according the CBS), but former front-runner, Mitt Romney, made it clear that his massive wealth (estimated to be around a quarter of a billion dollars), and his seeming indifference to the distance and inequality from what most Americans experience, made him seem profoundly out of touch with the pain the rest of the nation was feeling. When born-wealthy Mitt trivialized what he had earned from public speaking – roughly $374 thousand over the past year – by calling that princely sum “not very much” and admitted that his overall federal income tax rate was “around 15%,” America winced. The actual rate, it seems, was 13.9% on $27.1 million of mostly investment income in 2011. The sad reality is that these rates applied even when Mitt was actually still working. How is this possible? Well, the tax laws were not written to benefit most of us, it seems.

The Internal Revenue Code is volumes and volumes of secret code, much of it written directly or indirectly by the very industries that it seeks to tax in order to create seemingly undetectable loopholes though which wealthy campaign and PAC contributors can pass… or even blatant tax benefits, such as those that grant industry-specific tax credits to encourage those business efforts over those of other sectors.

Some of that tax code appears to support outrageously high rates – like the 35% corporate income tax – except that the loopholes in the corporate tax code are so huge that major Fortune 500 companies, even those wallowing in profits, often pay token percentages – often under 10% – or even zero. By keeping their upside margins overseas on imports (the price paid at the source is significantly increased with a mark-up before the product is imported, so that the mark-up after the product is imported is kept low for tax purposes), companies can reduce their tax bite. By keeping their profits overseas – where they can invest or hire cheap (or expensive) foreign workers as opposed to Americans back home – American companies can keep those funds away from the carnivorous bite of the IRS. The list of loopholes is seemingly endless, and any chief financial officer of a big company that pays anywhere near the full 35% will be gone within seconds of filing such a tax return.

But even for earnings in the United States, our power elites have fashioned a tax code that benefits those who live off of investments or professionals who manage one or more forms of investment funds (e.g., private equity and hedge funds) at the expense of those who earn salaries and bonuses from ordinary jobs. For personal federal income taxes, most American pay somewhere between 15-20%, with the highest earners (with over $388,350 of taxable income) getting hit with a 35% marginal rate. But if you can get taxed at the 15% for appreciation of longer-term capital assets generated over more than a year (which I will simply call the “cap gains rate”), you would be paying taxes at one of the lowest rungs in our tax code. So if you could convert your high-falutin’ salary into some form of long-term capital gains, you could laugh all the way to the bank, pay taxes at a lower rate than your clerical assistants, and slorp at the trough of pig-driven excess! You would have “the moves like Romney.”

Forget about the “buy companies and lay-off workers” horrible that Mitt’s Bain Capital (their Boston headquarters is pictures above) is accused of doing. The above tax game is where the “Mitt Romney loophole” kicks in, how a senior partner in Bain can shelter a multi-million dollar annual compensation – money that he/she earns from their job at one of these big funds – and still pay taxes at “around 15%.” Fund managers generally get a token sum of their investors capital (often 2% per annum) as a management fee (from which they pay their operating costs), but they get 20% of the profits they generate for their clients, where the really money sits. They may also have some of their own money in such funds, so they get the benefit of any appreciation there as well.

So here’s how it works: “Because the manager is compensated with a profits interest in the fund, the bulk of its income from the fund is taxed, not as compensation for services, but as a return on investment [this is the essence of the loophole!!!]. Typically, when a partner receives a profits interest (commonly referred to as a ‘carried interest’), the partner is not taxed upon receipt, due to the difficulty of ascertaining the present value of an interest in future profits. Instead, the partner is taxed as the partnership earns income. In the case of a hedge fund, this means that the partner defers taxation on the income that the hedge fund earns, which is typically ordinary income (or possibly short-term capital gains), due to the nature of the investments most hedge funds make. Private equity funds, however, typically invest on a longer horizon, with the result that income earned by the funds is long-term capital gain, taxable to individuals at a maximum 15% rate. Because the 20% profits share typically is the bulk of the manager’s compensation, and because this compensation can reach, in the case of the most successful funds, enormous figures, concern has been raised, both in Congress and in the media, that managers are taking advantage of tax loopholes to receive what is effectively a salary without paying the ordinary 35% marginal income tax rates that an average person would have to pay on such income.”

There are several bills in Congress that would eliminate this industry-specific loophole to end the ability of individuals performing investment adviser, fund management or similar services to partnerships or other company structures to receive capital gains tax treatment on their income. After all, it’s what they do to earn a living, so why should a particular category of earnings be taxed at an entirely different rate from the rest of us? Sigh, but if you are able to ascertain where the big anti-tax PACs are being funded, not to mention the bulk of serious campaign contributors to the Tea Party candidates, you might find… hell, you will find… that these are precisely the beneficiaries of this lovely cap gains rate being charged against their earnings. “No new taxes” is a whole lot different when you really look behind the meaningless slogan… and you know that all those who “signed the pledge” are nothing more than stooges and front men for these mega-wealthy tax pariahs.

I’m Peter Dekom, and unfairness is most certainly not the American way.

Wimpy Competitors

A long time ago, and seemingly oh-so-far away, the United States of America had the highest high school and college graduation rate in the world. But that was 1970, and today, we have ignominiously fallen to 21^st in high school graduation, 15^th in college completion… and we’re still dropping. If it were just the rising cost of education combined with the recession, perhaps that would be an explanation, but a number of countries who’ve been hit harder by impaired economic times – like Ireland and Italy – seem to have passed us anyway.

Here is the hard truth, from CNN (November 3^rd) based on US Census statistics:

Twenty-five percent of Americans that start high school do not graduate. Entering the workforce without a high school diploma means an unemployment rate three-and-a-half times the rate of those with a college degree. And for those who do find full-time work, they on average earn less than half of what a college graduate makes each year.

Thirty percent of high school graduates do not go on to college right after graduation. In the workforce, a high school graduate earns on average more than someone without a diploma, but still only 60 percent of what a college graduate makes each year.

Forty-three percent of students who start college will not graduate in 6 years. Women graduate at a six-percent-higher rate than men within six years, and outnumber men in higher education by a ratio of 3-to-2.

In the economically disadvantaged classes, the numbers are even worse: “Only 7 of 10 ninth graders today will get high school diplomas. A decade after the No Child Left Behind law mandated efforts to reduce the racial gap, about 80 percent of white and Asian students graduate from high school, compared with only 55 percent of blacks and Hispanics.” New York Times, January 25^th.

Writing for the Times, Henry M. Levin, a professor of economics and education at Teachers College, Columbia University and Cecilia E. Rouse, a professor of economics and public affairs at Princeton University (a former member of President Obama’s Council of Economic Advisers from 2009 to 2011) observe: “While our economic competitors are rapidly increasing graduation rates at both levels, we continue to fall behind. Educated workers are the basis of economic growth — they are especially critical as sources of innovation and productivity given the pace and nature of technological progress.

“If we could reduce the current number of dropouts by just half, we would yield almost 700,000 new graduates a year, and it would more than pay for itself. Studies show that the typical high school graduate will obtain higher employment and earnings — an astonishing 50 percent to 100 percent increase in lifetime income — and will be less likely to draw on public money for health care and welfare and less likely to be involved in the criminal justice system. Further, because of the increased income, the typical graduate will contribute more in tax revenues over his lifetime than if he’d dropped out.

“When the costs of investment to produce a new graduate are taken into account, there is a return of $1.45 to $3.55 for every dollar of investment, depending upon the educational intervention strategy. Under this estimate, each new graduate confers a net benefit to taxpayers of about $127,000 over the graduate’s lifetime. This is a benefit to the public of nearly $90 billion for each year of success in reducing the number of high school dropouts by 700,000 — or something close to $1 trillion after 11 years. That’s real money — and a reason both liberals and conservatives should rally behind dropout prevention as an element of economic recovery, leaving aside the ethical dimensions of educating our young people.”

In the end, I have never heard a coherent argument by anyone anywhere that education really needs to be cut because we simply can’t afford it. If we continue to spend the level of dollars on our military, and our children produce less and less, what exactly is all that military might going to defend? How will those low-skilled adults ever afford the taxes that they would have to pay to continue spending well-over 40% of the world’s military budget, a number that even includes every budgetary cut that has been proposed to contain our military spending?

I’m Peter Dekom, and I wonder what is going to keep this great nation from cutting the very support structures that keep us great?

“Nein”!

Recently-appointed managing director of the International Monetary Fund, Christine Lagarde (above), drilled into the German-led press for strong austerity measures across the Eurozone, noting that without a combination of government spending directed at growth, such deficit-reduction measures could send Europe – and perhaps the global economy – into more than just the expected European recession. Speaking before the German Council on Foreign Relations on January 23rd, she analogized current thinking to the failed responses aimed at ending The Great Depression over 80 years ago. “"It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand… A moment, ultimately, leading to a downward spiral that could engulf the entire world.”

Most of the quasi-governmental global financial institutions (including the World Trade Organization, the World Bank and the IMF, all part of the World Economic Forum's Global Issues Group) agreed with this assessment, challenging the “austerity is the only solution” directive, issuing the following statement: “But entering 2012, we worry about: decelerating global growth and rising uncertainty; high unemployment, especially youth unemployment, with all its negative economic and social consequences; potential resort to inward-looking protectionist policies.” They warned that “fiscal consolidation” programs should be applied in a "socially responsible" manner, in order to promote growth and employment. Healthy economies in countries that buy German goods, they argued, are good for Germany. The plea is apparently falling on deaf ears, even as Italian Prime Minister, Mario Monti (who is implementing austerity in his country) has joined the chorus that some growth stimulus is needed.

Further, the European effort to shore up their banking system with capital infusions and requirements of additional equity have so far fallen decisively short of the mark: “Banks are hoarding the European Central Bank’s record 489 billion-euro injection into the banking system, thwarting attempts by policy makers to avert a credit crunch in the region. Almost all of the money loaned to 523 euro-area lenders last month wound up back on deposit at the Frankfurt-based central bank instead of pouring into the financial system, according to estimates by Barclays Capital based on ECB data.

“Governments are urging European banks to keep lending to companies and individuals while requiring them to raise an additional 114.7 billion euros of core capital by June to weather a deepening sovereign-debt crisis. Instead of raising equity, most lenders across Europe have vowed to meet capital rules by trimming at least 950 billion euros from their balance sheets over the next two years, either by selling assets or not renewing credit lines, according to data compiled by Bloomberg… The world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent, according to the World Bank. The IMF will cut its global growth forecast for 2012 to 3.3 percent from 4 percent when it publishes its World Economic Outlook… the Daily Telegraph said [January 22^nd]...” BusinessWeek.com, January 23^rd.

While reluctantly complying with the demand for more stable balance sheets, these European banks, many with severe exposure to failing sovereign wealth debt (particularly in Greece), are screaming like stuck pigs: “The banking authority has called on banks to raise the money through cuts in shareholder dividends and issuance of new stock. It has warned that the sale of any operation, particularly in banks’ home markets, that hurts business lending won’t be allowed… ‘Regulators are asking for the impossible,’ said Etay Katz, a banking regulatory partner at the law firm Allen & Overy in London. ‘They want banks to keep lending to the real economy, and there’s an expectation banks will have to swallow the bitter pill of offering new equity at times when investors’ appetite is negative.’” Struggling negotiations to replace existing Greek bonds with new issues at half the face value are facing severe resistance from the private lenders who will have to absorb the downgrade, and battles over the term and the interest rates threaten to sink the talks.

Germans endured a difficult, no growth decade at the beginning of the new millennium. They swallowed the bitter pill, endured a contraction in lifestyle as the nation reconfigured, investing in education, infrastructure and research, resurrecting the German export machine only in the last few years. The Germans believe passionately in thrifty austerity, for cultural reasons outlined in my December 3^rd Historical Fears blog. They do not believe in government stimulus as a way out of economic malaise, and most Germans think that the pain of austerity, even if it requires a recession, is simply an economic necessity. Suck up and take your medicine, Europe. They are bound by different principles than gave rise to the above statements from the IMF, World Bank and others. Theirs is a philosophy of “ordoliberalism, a conceptual blend of free markets and strong government. It says rigorous regulation is necessary, but only to help the free market achieve its full potential… Ordoliberals detest stimulative Keynesian policies.” BusinessWeek.com, December 2^nd.

But without German backing for a pan-European bond which can allow the weaker Eurozone nations (particularly Greece, Italy, Spain and Portugal) to access interest at a rate they can afford and a relaxation of the German mandate for austerity without stimulus, the seemingly inevitable European recession that Germans appear to be knowingly accepting as “necessary medicine” may migrate to tank whatever recovery was brewing in the rest of the world, including the United States. Could a depression follow? And so far, the German response, despite these global admonitions is, “Nein!

I’m Peter Dekom, and the missing ingredient in the German position appears to be common sense.

Government by Militia – Nigeria

Nigeria is “the second largest film industry in the world in terms of number of annual film productions, placing it ahead of the United States and behind the Indian film industry.” Wikipedia. It is also a major oil and gas producing nation, heavily reliant on fossil fuels: “As of 2000, oil and gas exports accounted for more than 98% of export earnings and about 83% of federal government revenue, as well as generating more than 40% of its GDP. It also provides 95% of foreign exchange earnings, and about 65% of government budgetary revenues... Its reserves make Nigeria the tenth most petroleum-rich nation, and by the far the most affluent in Africa.” Wikipedia. With over 155 million people, it needs every penny.

With the government ending its subsidy of gasoline at the pump January 1^st (doubling the cost overnight), the country is stumbling through an economic strain that simply has stunned the local populace resulting in a general strike with tens of thousands taking to the streets in protest, but even that nasty is not what is grabbing international headlines. What is ripping this country apart is secular violence, Muslims in the north, Christians in the south (many representing a Nigerian brand of evangelical Christianity that has sent Nigerian ministers to the United States in search of converts), and a few tribal faiths (animism) in the middle. Bottom line: the elected government has long since lost effective control.

Each of the Christian and Muslim factions has its sets of militias, making life hell for those who are not aligned with the right faith for the region. Civil unrest between Christians and Muslim (and both groupings also have sizeable and often conflicting sub-sects) has been fairly common here for well over a decade. Thousands have died. Eleven northern states have even incorporated Islamic law, shari’a, into their local criminal codes, a violation of the Nigerian constitution that guarantees a secular government. The violence settled down for a while, but it seems to be returning with a vengeance, a fire flamed by tensions inherent in rising gasoline prices.

In recent months, in the northern states, the local Islamist militia, Boko Haram (pictured above), has made it clear that non-Muslims, whatever their beliefs might be, are simply not welcome. These “non-believers” have been directed to vacate their homes immediately or face assassination. The reciprocal message has been given by Christian militias in the south, with bombings at local mosques and a recent attack against an Islamic school in the southern city of Benin that left five dead and six injured.

Muslim retaliation was swift. In the State of Yobe, purported Boko Haram fighters attacked a bar filled with such alcohol-imbibing non-believers: “Religious tensions have been growing as a general strike over rising petrol prices continues to grip the country... ‘Suspected Islamic sect members attacked the drinking joint and killed eight people, four of whom were policemen,’ Yobe state police commissioner Tanko Lawal told Reuters news agency… Reports said the gunmen fled on a motorcycle after the late-night attack in the town of Potiskum. A seven-year-old child was also among the victims, police said…Southerners, who are mostly Christians or animists, have recently been the targets of attacks by Boko Haram, which operates in the mainly Muslim north… Yobe is one of the states where the government has declared a state of emergency following an upsurge in violence by the Islamist group.” BBC, January 10^th.

On January 20^th, at least 20 blasts, some from suicide bombers but all attributed to Boko Haram and most focused on police facilities and other government buildings, left an estimated 185 people dead (lots of police officers and other government functionaries) in the northern and mostly Muslim city of Kano, Nigeria’s second largest (with 9 million residents). The death toll would have been a lot worse, but ten planted explosives didn’t detonate. Police immediately arrested 158 alleged perpetrators. Boko Haram had declared war on the state, partially in retaliation the arrest of BH operatives and more importantly to underscore their commitment to placing the entire nation under Islamic – shari’a – law. Southern Christian militias are expected to retaliate against Muslims living in the south.

Additionally, all across the north, Boko Haram is said to identify where Christians gather, where they live, and attack under cover of darkness. Streams of Muslim refugees heading north and Christian refugees making the opposite trek are reminiscent of the Muslim/Christian population exchange that took place in 1947 when Muslim Pakistan separated from mostly Hindu India, a trail of bloodshed and tears that created a wound that, to this day, has not healed. It’s happening again. Thank God, this is the last blog on the subject of government by militia!

I’m Peter Dekom, and the vitriol and violence of these African factions of extreme Christians and Muslims seems to carry a vicious trend that grips so much of the earth, pushing towards a very dangerous tipping point.

Government by Militia – Kurdistan

With the heat from the exhaust pipes of departing American forces still lingering in the air, the world has focused on the escalating tensions in Iraq between majority Shiites (in the al-Maliki government) and increasingly disenfranchised Sunnis, who have pulled out of the government as the Shiite-led regime seeks to arrest the most prominent Sunni leader and has invited the militia forces of pro-Iranian Muqtada al-Sadr to participate in the government. Sunni frustration has lead to increases in death and destruction from bombings in Shiite neighborhoods. Western fears that sectarian violence will rip the country apart appear to be very real and really beginning.

But when Prime Minister Nouri al-Maliki ordered an arrest warrant for that Sunnis leader, Vice-President Tariq al-Hashimi, on terrorism charges, where the latter went to seek sanctuary is particularly interesting. If people were fearful of a break-up of Iraq into Sunni and Shiite regions, they seem to have lost focus on the third sector of Iraq, the Kurdish lands in the north, which for all practical purposes have their own independent “government” that has little real connection with Baghdad and the al-Maliki regime. It is critical to note that a good chunk of “Kurdistan” actually slops over into eastern Turkey as well, and the Turks are loath to let its Kurds breakaway under any scenario. And of course, Kurds from both sides of the border seemed to want to unite into a single new nation of Kurdistan.

Saddam Hussein’s Iraq persecuted Kurds mercilessly, seeking to crush their desire for autonomy. In 1988, “[a]s the Iran-Iraq war draws to a close, Iraqi forces launch the ‘Anfal Campaign’ against the Kurds. Tens of thousands of Kurdish civilians and fighters are killed, and hundreds of thousands forced into exile, in a systematic attempt to break the Kurdish resistance movement… [In March of 1988, t]housands of Kurdish civilians die in a poison gas attack on the town of Halabjah near the Iranian border. Human rights watchdogs and Kurdish groups hold the Iraqi regime responsible… After the expulsion of Iraqi troops from Kuwait in March 1991 [the infamous Gulf War which involved US forces], members of the pro-government Kurdish militia, the Jash, defect to the KDP [Kurdish Democratic Party] and PUK [Patriotic Union of Kuristan], but the uprising grinds to a halt and US-led forces refuse to intervene to support the rebels. Around 1.5 millions Kurds flee before the Iraqi onslaught, but Turkey closes the border forcing hundreds of thousands to seek refuge in the mountains.” BBC.

After allied forces left, Saddam continued his persecution punished the Kurds for helping the allies, and confiscated then transferred one of their major oil fields (Kirkuk), ceding it to other Iraqi nationals. Still, after this first Gulf War, Kurds began creating a semi-autonomous region that pretty much looked after its own. “Twenty years ago, the Kurdish region in Northern Iraq achieved effective autonomy after the first Gulf War, establishing a liberal constitution and a democratic assembly.” BBC, January 10^th. When the U.S. drove Saddam out of Iraq in 2003 and decimated his Republican Guards, the industrious Kurds (again with money from active oil fields) began rebuilding their region, and their freedom fighters (the Peshmerga), who had fought alongside the victorious Americans, took effective control of the effort. But times have changed.

Today the real government in Northern Iraq is not the civilian authorities, but the Peshmerga (literally meaning those who face death, an homage to Kurdish freedom fighters over the years), armed Kurdish fighters. These militias call all the shots, and if you aren’t on their good list, you pretty much don’t participate in the booming economy of this region. “Unlike the other militias, the Peshmerga were not prohibited by the transitional government; the Kurdish army has been formed out of the Peshmerga. They are usually armed with AKMs, RPKs (light Soviet machine guns) and DShKs (heavy Soviet machine guns). During the American-led invasion the Peshmerga captured the rest of the arms of the Iraqi forces, consisting of more than 2,000 armored vehicles (some hundred of them PT-76s and a smaller number of T-55s) and an unknown number of artillery pieces.” Wikipedia.

Today, as many young Kurds resent the cronyism of the Peshmerga, there is a jealous eye cast at the successful uprisings generated by the Arab Spring. Some feel that the Peshmerga are salting dollars away, investing overseas and creating a lifestyle that is inappropriate and corrupt. “In February, there were protests in the city of Sulaimaniya against corruption and the dominance of the two parties which govern the region [who basically are in the pockets of the Peshmerga]. The demonstration was violently suppressed, resulting in the deaths of several activists. Some Kurds believe that the generation of Peshmerga guerillas who fought for autonomy in the 1980s and 1990s are now blocking more openness and democracy. Yet even critics concede that the Kurds have achieved far greater stability and security than the rest of Iraq.” BBC.

Sunni leader Tariq al-Hashimi knew he’d be safe in Northern Iraq, where even Iranian-backed Shiite militias and the “elected government” forces fear to tread. When Saddam was removed, people feared that this unnatural nation, borders structured by a Franco-British treaty at the end of WWI, would fracture into its natural three regions: Kurds in the north, Sunnis in the southwest and the majority Shiites in the oil-rich southeast on the coast. Both Presidents Bush and Obama claimed a new and stable “elected government” would keep these factions together in one nation, a notion that seemed to splinter days after the American departure.

But clearly, at no time was the Kurdish north ever really a bona fide part of the new elected government, and now with the al-Maliki regime cozying up to Iran and coming down hard on the Sunni minority (who seem to prefer bombs in retaliation), the southern reaches of Iraq appear to be fracturing along those feared Shiite and Sunni lines. In short, not only didn’t we find weapons of mass destruction when we deposed Saddam, the “democratically elected regime” we imposed on Iraq simply has failed, and we have moved the incumbent government right into the Iranian camp. At least Saddam fought Iran and was a constant menace to that theocracy. And to think, Ahmadinejad didn’t even send us a thank you note. But Kurdish militiamen smile through their wallets. They just don’t care.

I’m Peter Dekom, and I shudder at the hubris of American policymakers willing to shed American lives and spend trillions of dollars to impose a solution that really was doomed day one.

Government by Militia - Brazil

There is a very fine line between violent gangs and militia who rise up to step into replace an ineffective government or are sucked into the vortex of a political vacuum where leadership has absconded or been removed. The Mafia had its roots in providing locals with governing structures in old Sicily. A militia that is wildly successful and completely replaces an incumbent government obviously becomes a government that may someday face the same fate. In the Tribal District of Western Pakistan and so many Afghan provinces, literally the only government the locals see is that sort of local warlord led militia, sometimes a pan-national force like the Taliban and sometimes just a local bully with perks.

While we think we know where all the militia ride high, I’d like to drill down on three regions in a series of blogs – Kurdistan (most of which is in northern Iraq), the Islamic vs. Christian militia of Nigeria, and the “peacekeepers” of the big slums – favelas – in major Brazilian cities. Today, in my first blog on this subject, I begin with Brazil and specifically Rio de Janeiro where the World Cup will be played in 2014 and where the summer Olympics will be held in 2016. As a backdrop, Brazil has money, gobs and gobs of money that will only flow with increasing richness as the two major off-shore oil fields (discovered in 2007 and 2010, respectively), each with at least 8 billion barrels of petroleum (and maybe much more), begin pumping their bubbling crude. So Brazil has the money to deal most effectively with its impoverished urban areas, and the government appears to be sufficiently enlightened to deploy that newfound wealth to solve such basic problems.

The issue is, however, that before such crudités were discovered, the favelas were functioning inner cities that slipped out from direct government control, imposing their own rules and regulations to their citizens. And there were and continue to be legendary “death squads” that operated quite freely within the favelas, crushing out drug trafficking and other illegal activities by becoming effectively judge, jury and executioners for what they perceive to be illegal activities. Murder is the only punishment meted out, even young children have been assassinated, and judges and prosecutors seeking retribution against such vigilantes often wind up riddled with bullets.

“Officials have been lauded for reclaiming lawless areas from drug traffickers in various favelas across a sprawling metropolitan area with 11.8 million residents. But the image of a city on the mend has been undermined by the actions of its own security forces, particularly the spreading militias composed largely of active-duty and retired police officers, prison guards and soldiers… These groups function like a criminal offshoot of the state. According to judicial investigations, they extort protection money from residents, operate unlicensed public transportation, charge commissions on real estate deals, mete out punishment to those who cross them and, most alarming, carry out extrajudicial killings.

“Alba Zaluar, an anthropologist at State University of Rio de Janeiro who studies public security, sees the militias occupying a paramilitary role by going well beyond the line of lawful policing. Their power is expanding, according to research she oversees, with 45 percent of Rio’s favelas under the control of militias in 2010, up from 12 percent in 2005… A 2008 legislative investigation of Rio’s militias led to the arrests of several officials tied to the groups, including legislators, councilmen and senior police officers. The Rio militias, together with death squads formed by police in neighboring São Paulo, have been responsible for hundreds of murders each year and impunity in these cases remained the norm, according to a 2009 Human Rights Watch report. ” New York Times, January 9^th.

Will the new, cash rich Brazil figure out how to root out the violence, corruption and vigilantism that plagues its major cities? Will it do it by creating new housing with concomitant job opportunities to change the lives of those forced to eke out their livelihoods in the favelas? Will it have the power to investigate and successfully prosecute the militias, most of whom are themselves in the law enforcement sector? Both? Leave it alone but appear to be solving the problem or…..

I’m Peter Dekom, and local tyranny of the disenfranchised is often ignored by everyone but those directly involved.

We Hate You, We Really Hate You!

As increasing numbers of Americans slip out of the middle class into the “low income or less” socioeconomic class (according to the 2010 Census, that is now half of us), as the number of homes in foreclosure or underwater soars to record heights, and as the number of people who have simply given up looking for work hits a level we have never seen before, the Washington Post-ABC shows President Obama’s ratings are pretty mediocre, representing a huge fall from his 68% approval rating in February of 2009. “Slightly more than half the respondents — 52 percent — say Obama has accomplished ‘not much’ or ‘little or nothing’ as president, while 47 percent offer a positive assessment of his record. Those findings are identical to public attitudes two years ago.” Washington Post, January 17^th. Sure the job statistics look better… the able among that unemployed universe have found “something” even if it is seasonal and part-time. But those in the older segments have simply dropped out and retired with less than they need seeing little other choice.

As European austerity and falling credit ratings threaten to impact us – either from our banks with the wrong kind of European sovereign wealth exposure or the cutback in our exports and US companies’ doing business in the EU – our own credit rating has dropped to the lowest it has ever been based substantially on our continuing political impasse, we have a bickering Congress unable to make serious decisions. Congress, joined by a “follow the polls” president, seem to want to follow Europe’s ruinous decision (Standard & Poor’s assessment of the EU austerity program’s current likely impact) to embrace austerity without serious reductions in defense spending and off-setting growth investments in education, infrastructure and research needed to recapture growth.

With Tea Party representatives unwilling to veer from long-since-irrelevant “no new taxes” pledges, the Congressional statement simply continues, as the coming agenda looks like “legislation light,” sidestepping what needs immediate attention in favor of less relevant and less controversial considerations that won’t make our representatives look as inane as they have in recent sessions. But don’t let that fool you; as their new Congressional session begins, our representatives are avoiding making the kinds of hard choices we need to get back on the right track simply to look more “electable.”

Congress – more specifically the House of Representatives – is a joke. It has been four long years since that “esteemed” institution had even a 30% approval rating. And from where most voters see these idiotic incumbents, 30% would look mighty-fine right now: “A new Washington Post-ABC News poll shows that a record 84 percent of Americans disapprove of the job Congress is doing, with almost two-thirds saying they ‘disapprove strongly.’ Just 13 percent of Americans approve of how things are going after the 112th Congress’s first year of action, solidifying an unprecedented level of public disgust that has both sides worried about their positions less than 10 months before voters decide their fates.” Washington Post, January 16^th.

Indeed, it does seem as if the president senses this obvious weakness with a couple of bills that are likely to find favor with the electorate: “Most prominent among them is President Obama’s proposal to extend a payroll tax holiday for workers through this year, an issue that hamstrung House Republicans before the holidays.” The Post. He is also asking Congress for the power to consolidate government agencies, starting with the Department of Commerce, subject solely to a yes or no Congressional vote, a position consistent with Republican goals and likely to find resonance with voters.

House Speaker, Republican John Boehner’s (pictured above) office, on the other hand, tells us that the do-nothing Republican caucus will be “relentlessly focused on the issue of jobs in 2012,” but since that seems always to be nothing more than the “reduce taxes and regulations” same old-same old mantra, no one should actually believe that any meaningful job-creation legislation is likely. This seems to be a strength in the President’s agenda. “By 55 percent to 38 percent, more Americans consider [economic] inequality the bigger economic issue than over-regulation of free enterprise.” The Post/ABC poll, reported January 17^th.

Our frozen legislators are generating evidence that our non-parliamentary form of democracy is cracking at the seams. Parliaments – often based on negotiated coalitions – place the chief executive (the prime minister) and the prevailing party on the same side. We have a different structure where president and legislature, indeed where legislature (House) and legislature (Senate) may be from divergent parties. Additionally, our permissive filibuster rules and the hideously disproportionate representative power of US senators (where Wyoming, with 245 thousand people, has the same two senators that California, with 37 million people, does, a disparity multiple of over 150 times!) seems to suggest that our implementation of democratic ideals leaves much to be desired. Right, left or centrist, the American people deserve better!

I’m Peter Dekom, and it will be interesting to see if Americans forget these polls and reelect same idiots to Congress that they seem to hate today.

Biosafety Level 4

It is said to be the ultimate containment system for deadly and highly contagious agents; a biosafety level 4 laboratory (the one at Fort Detrick, MD is pictured above) is where scientists experiment on and store the most deadly infectious agents of disease that they want to examine. Both Russia and the United States, for example, store the active small pox virus in such facilities. Bioweapons are often born in biosafety level 4 labs, but these represent capacities that are as much a threat to humanity as full-on nuclear weapons. At the National Institute Health’s Fort Detrick facility, scientists “conduct groundbreaking research in these rooms, trying to determine how lethal infectious diseases kill their hosts.

“Hemorrhagic fevers like Marburg and Ebola, which are caused by viruses, are among the world's most horrific afflictions. For about seven days after infection, patients suffer from flu-like symptoms, but as the virus multiplies, blood starts to seep from the skin, mouth, eyes and ears. Internal organs hemorrhage into bloody, shapeless masses. Some of these fevers kill up to 90 percent of those who contract them, and they can be passed along by close contact with bodily fluids, maybe even by a sneeze.” Popular Mechanics, April 27, 2009

The latest experiments have been with the ever-mutating bird flu virus, more particularly mutated strains of the real world H5N1 variation, which “[t]hus far the virus has infected close to 600 humans and killed more than half of them, a fatality rate that far exceeds the 2 percent rate in the 1918 influenza pandemic that killed as many as 100 million people.” New York Times Editorial, January 7^th. But this time, in addition to U.S. experiments, scientists in the Netherlands have managed to create the deadliest and most contagious version of the virus imaginable.

So horrific that the NIH has officially requested that these experiments be contained and that publications of methodology and results be severely limited for fear of encouraging others to continue developing a mega-strain of virus that could challenge the very existence of mankind on earth. “The U.S. government has asked scientists to censor portions of experiments that detail how the H5N1 bird flu can be mutated into a strain that could be highly infectious to humans.

“Government officials are alarmed at the prospect that the information could be used by terrorists to create a biological weapon. They have asked for details of the experiments to be deleted from scientific manuscripts before their publication… ‘While the public health benefits of such research can be important, certain information obtained through such studies has the potential to be misused for harmful purposes,’ the NIH said… ‘These manuscripts... concluded that the H5N1 virus has greater potential than previously believed to gain a dangerous capacity to be transmitted among mammals, including perhaps humans.’” BioPrepWatch.com, December 22^nd.

The main research has been conducted at the Erasmus Medical Center in Rotterdam: “Working with ferrets, the animal that is most like humans in responding to influenza, the researchers found that a mere five genetic mutations allowed the virus to spread through the air from one ferret to another while maintaining its lethality. A separate study at the University of Wisconsin, about which little is known publicly, produced a virus that is thought to be less virulent.” NY Times.

How much will actually be published? “The two journals reviewing the papers seem inclined to follow the advisory board’s recommendations that the research be published in a redacted form, provided there is some way for researchers who need the information to gain access to the full details. The Erasmus team believes that more than 100 laboratories and perhaps 1,000 scientists around the world need to know the precise mutations to look for. That would spread the information far too widely. It should suffice to have a few of the most sophisticated laboratories do the analyses.

“Defenders of the research in Rotterdam claim it will provide two major benefits for protecting global health. First, they say the findings could prove helpful in monitoring virus samples from infected birds and animals. If genetic analysis found a virus somewhere that was only one or two mutations away from going airborne, public health officials would then know to bear down aggressively in that area to limit human contact with infected poultry and ramp up supplies of vaccines and medicines…

“A second postulated benefit is that the engineered virus can be used to test whether existing antiviral drugs and vaccines would be effective against it and, if they come up short, design new drugs and vaccines that can neutralize it. But genetic changes that affect transmissibility do not necessarily change the properties that make a virus susceptible to drugs or to the antibodies produced by a vaccine, so that approach may not yield much useful new information.” NY Times. It seems as if life could easily imitate a recent motion picture, Contagion, and the risks of any replication or release of this particular virus – shown in the real world to be exceptionally infectious in lesser strains – are perhaps sufficient for us to let this one go, shut down the program and destroy every remnant of this virus as soon as possible. Western scientists have agreed to suspend these experiments for 60 days pending reconsideration of the risks… one country, however, remains willing to continue: China.

I’m Peter Dekom, and this is one “inspired by true events” situation that I believe we can do without.

Let’s Get Clinical

Nobody is going to tell the world that it needs more abortions. As much as we argue about “right to life” vs. a “right to choose,” and notwithstanding China’s acceptance of abortion as a mechanism to implement its “one child” per couple mandate, induced abortion is never pretty, never free from emotional struggle and never pleasant. The moral and religious overtones can complicate an extraordinarily difficult decision, and abstinence appears to be a huge fraud on our youth. Young innocents, caught up in passion, conceive without preparation or understanding… and moreover, step into their parents’ and peers’ moral quandaries as they seek the correct answer. Those who conceive, give birth and are emotionally or economically unprepared for the magnitude of parenting often raise succeeding generations of socioeconomically impaired children, foment rising crime rates and people unable to cope with mainstream society and normal employment tracks.

Let me step away from the moral debate and focus on what seems to be effective in reducing abortions and saving lives. If we could introduce policies and legislation that effectively lower the number of such abortions, to many that would be a good thing, right? You are going to be reading a lot of facts (and a few quotes) and figures in this edition of my blog. They have all been generated by a long-term set of studies, beginning in 1995, of abortion patterns and risks globally by the prestigious and statistically rigorous World Health Organization (the public health arm of the United Nations) reported this January. I won’t cite each fact separately, but you can find this information in their “Facts on Induced Abortion Worldwide” presentation, available online and reported in the British medical publication, the Lancet.

First, 13% of all women’s deaths during child-bearing years occur in connection with induced abortions (half of all abortions are technically labeled as “unsafe”). The vast majority of such fatalities are in countries where such abortions are illegal and are conducted by untrained amateurs, are self-inflicted or are performed, ad hoc, by locals who don’t even know anything at all about the procedure. When the law permits abortions, and hence medically competent people are charged with implementing an induced abortion, associated death-rates drop like a stone. Case in point: “In South Africa, the annual number of abortion-related deaths fell by 91 % after the liberalization of the abortion law.” Or this: “In the United States, legal induced abortion results in 0.6 deaths per 100,000 procedures. Worldwide, unsafe abortion accounts for a death rate that is 350 times higher (220 per 100,000), and, in Sub-Saharan Africa, the rate is 800 times higher, at 460 per 100,000.”

But clearly, banning or restricting the right to abortion saves the lives of vastly more unborn lives than in nations where such procedures are legal, right? Strangely, the abortion rates begin to fall in countries where such medical choices are still available and remain high where they are not allowed or are severely restricted: “Highly restrictive abortion laws are not associated with lower abortion rates. For example, the abortion rate is 29 per 1,000 women of childbearing age in Africa and 32 per 1,000 in Latin America—regions in which abortion is illegal under most circumstances in the majority of countries. The rate is 12 per 1,000 in Western Europe, where abortion is generally permitted on broad grounds.” Perhaps a more “liberal” society, where abortions are permitted, is also one where contraception and sex education clearly communicate how to limit childbirth before conception. Looking at these numbers, it seems that every year, almost 3% of all women in childbearing years experience an abortion. Every year!

Yet the overall number of abortions has dropped: “Between 1995 and 2003, the abortion rate (the number of abortions per 1,000 women of childbearing age—i.e., those aged 15–44) for the world overall dropped from 35 to 29. It remained virtually unchanged, at 28, in 2008.” Some attribute this statistical change to alteration in legal restrictions worldwide: “Between 1997 and 2008, the grounds on which abortion may be legally performed were broadened in 17 countries: Benin, Bhutan, Cambodia, Chad, Colombia, Ethiopia, Guinea, Iran, Mali, Nepal, Niger, Portugal, Saint Lucia, Swaziland, Switzerland, Thailand and Togo. Mexico City and parts of Australia (Capital Territory, Victoria, Tasmania and Western Australia) also liberalized their abortion laws. In contrast, El Salvador and Nicaragua changed their already restrictive laws to prohibit abortion entirely, while Poland withdrew socioeconomic reasons as a legal ground for abortion.” Notwithstanding these changes, however, the number of abortions “carried out without trained clinical help rose from 44% in 1995 to 49% in 2008.”

The BBC (January 18^th) drilled down into this report with some additional information: “Professor Beverly Winikoff, from Gynuity, a New York organisation which pushes for access to safer abortion, wrote in the Lancet: ‘Unsafe abortion is one of the five major contributors to maternal mortality, causing one in every seven or eight maternal deaths in 2008…Yet, when abortion is provided with proper medical techniques and care, the risk of death is negligible and nearly 14 times lower than that of childbirth… The data continue to confirm what we have known for decades - that women who wish to terminate unwanted pregnancies will seek abortion at any cost, even if it is illegal or involves risk to their own lives… Dr Richard Horton, the Lancet's editor [noted that ‘c]ondemning, stigmatising and criminalising abortion are cruel and failed strategies.’”

So let me think… fewer abortions take place in countries where it is legal, fewer mothers die or are injured during abortions performed where the procedure is legal, and women absolutely everywhere (there are measurable abortions in every country on earth) are completely willing to take any risk, ignore any law to get an abortion… hmmmm. So if you want fewer abortions and fewer lost lives… hmmmm. If you really, really want fewer abortions… make abortion… er… legal?

I’m Peter Dekom, and why do I think that facts will most certainly not get in the way of anyone’s preexisting views on Roe vs. Wade?

I-ran So Far

There are several stories in the news of late that all wrap around Iran’s escalating nuclear weapons threat. I’ve already hammered the risks about our possible responses to their closing the threat to Strait of Hormuz (if the Western allies escalate their economic sanctions and boycott Iranian oil) in my Risk of Confrontation December 31^st blog. Iran’s now also demanding that U.S. naval force vacate the Persian Gulf entirely. Many Americans are at least mildly amused at the U.S. waterborne rescue of two separate sets of Iranian sailors in recent weeks in that same Gulf that Iran wishes us to leave: the rescue of thirteen Iranian seamen from Iranian fishing vessel taken over by Somali pirates and the Coast Guard’s response to a sinking Iranian vessel, resulting in saving six sailors.

But there are other stories coming out of Iran that aren’t so amusing. First, an ethnically Persian-American, a former U.S. Marine, 28-year-old Amir Hekmati (who served as a military translator), was arrested and charged with espionage while visiting his grandmothers in Iran, then convicted and sentenced to death. Hekmati was born in Arizona and graduated from high school in Michigan. “Iran says he is a CIA spy who tried to incriminate Iran in terrorist activity; the Obama administration flatly rejects the accusations… It is the first time Iran has handed down a sentence of capital punishment to a U.S. citizen since the Islamic Revolution 33 years ago.” Washington Post, January 10^th. Undoubted, there is a political bargain in the works.

The next bit of news from this Islamic Republic speaks very specifically to the increasing likelihood that Iran is hell-bent on having nukes as opposed to the peaceful generation of power that they always claim. Power generation doesn’t require the same high level of uranium enrichment that would be needed to create a viable nuclear weapon, so when it was revealed that Iran was upgrading its enrichment program to accommodate this higher level required for warheads, shockwaves went through the international community. Secretary of State, Hillary Clinton, responded as expected: “‘[T]here is no plausible justification’ for [Iran’s] decision to increase enrichment to 20 percent, which ‘brings Iran a significant step closer to having the capability to produce weapons-grade highly enriched uranium.’” The Post.

But even Russia, which has an enriched uranium exchange program with Iran and has generally backed the Iranian position against the protests of the United States and Israel, has expressed its concerns over the news: “A statement from the Russian foreign ministry said that Moscow has ‘with regret and worry received the news of the start of work on enriching uranium at the Iranian plant.’” The Telegraph (UK), January 11^th. Israel, of course, was shocked and horrified that the very nation that has denied the Holocaust and threatened to push Israel into the sea has upgraded its nuclear enrichment program.

Which brings me to the third leg of this blog, exactly what we think Israel, through its legendary Mossad (their CIA, but a tad more “hands on”), is doing about Iran’s nuclear efforts, short of sending in a fighter-bomber strike force for a surgical removal of the nuclear threat (if they really even know where all the facilities are). Americans and Israelis have fondly inserted computer worms and viruses into the computers generating the programming necessary to run and control their refinement centrifuges as well as other essential steps in their operations. But there is a greater and very physical (probable Mossad) attack, with guns and bombs focused on the Iranian scientists who actually are implementing the nuclear threat.

“The script, by now, is familiar enough. An assassin riding a motorcycle weaves through Tehran's morning traffic towards his target, almost invariably a Peugeot 405, the vehicle of choice for officials on Iran's nuclear programme… Leaning out a hand, the motorcyclist attaches a magnetic explosive device – sometimes called a ‘sticky bomb’ -- to the door nearest the man he is trying to kill and then speeds off. Seconds later, the bomb is detonated by remote-control. It is so sophisticated that only the target is killed. Those sitting next to him, or in front or behind him, escape with just cuts and bruises.

“[The January 11] target was Mostafa Ahmadi Roshan, killed in his vehicle in front of a university campus in east Tehran. A chemist by training, he was a deputy director at Iran’s main uranium enrichment plant at Natanz, a role given to him because of his expertise in gas separation technology, a technique vital to the enrichment process.

“He was the fifth Iranian nuclear scientist to be targeted in the past two years and the fourth to die. The only survivor was the biggest prize of all. In November 2010, Fereydoun Abbasi, now the head of Iran's atomic energy organisation was well trained enough to recognise what the clicking sound on the door of his car meant. He and his wife leapt clear just in time. That same day, on the other side of the Iranian capital, Majid Shahriari, one of Mr Abbasi’s colleagues, was less fortunate as he fell victim to another motorcycle assassin.” The Telegraph.

“Iranian officials immediately blamed both Israel and the United States for the latest death, which came less than two months after a suspicious explosion at an Iranian missile base that killed a top general and 16 other people. While American officials deny a role in lethal activities, the United States is believed to engage in other covert efforts against the Iranian nuclear program… ‘The United States had absolutely nothing to do with this,’ said Tommy Vietor, a spokesman for the National Security Council. Secretary of State Hillary Rodham Clinton appeared to expand the denial beyond Wednesday’s killing, ‘categorically’ denying ‘any United States involvement in any kind of act of violence inside Iran.’… The Israeli military spokesman, Brig. Gen. Yoav Mordechai, writing on Facebook about the attack, said, ‘I don’t know who took revenge on the Iranian scientist, but I am definitely not shedding a tear,” Israeli news media reported.” New York Times, January 11^th. Yeah, well…

Iran is clearly a rogue nation, a Shiite republic trying desperately to impress the antagonistic Sunni world that by baiting Israel and the West (particularly the United States) that it should assume the top leadership position in the Islamic universe. The complexity in a strong Israeli or American military response – well beyond the elements set out in my Risk of Confrontation blog – is that the vast majority of Iranians, particularly their middle class, are extremely pro-American and resent their theocratic regime as much as we do. Undoubtedly, Iranian functionaries have made damned sure that some of their facilities are located in regions where there would be lots of civilian “collateral” casualties, human shields who don’t even understand their own risks.

I’m Peter Dekom, and in a situation with no clearly wonderful solutions, these escalating tensions appear only to accelerate.