They Ain’t Microwaivers!

The U.S. government’s Securities and Exchange Commission is our watchdog over the financial industry. They’re supposed to protect consumers but still insure that there is still a strong and viable commercial sector able to raise capital, create and market financial instruments and fuel the business of America. The SEC has substantial powers to sanction, fine, restrain and even prosecute criminally violators of this nation’s panoply of laws regulating exactly how money can be raised. On April 28, 2004, in a unanimous decision after a scant 55 minute hearing, the SEC exempted the five largest “too big to fail financial institutions” – Merrill Lynch, Bear Stearns, Lehman Bros, JP Morgan, Goldman Sachs and Morgan Stanley – from how much debt they could incur versus the amount of equity they held (their reserve ratios).

By the end of 2008, Merrill wound up in a distressed sale to the Bank of America, and, with debt representing a multiple of 30 or more times the equity – Bear Stearns and Lehman Bros. ceased to exist. This little tiny decision triggered some of the least safe, over-leveraged and irresponsible investment activity – mostly over bundles of subprime mortgages – that the country has seen since the late 1920s, the latter being a period of fraudulent and unregulated trading practices that created 1929 market crash and the ensuing Great Depression. The 2004 SEC decision followed by the 2008 collapse precipitated the biggest economic downturn the world had seen since that Great Depression.

The issue of “too big to fail” seems to have morphed into a newer mantra today, “too big to regulate.” Simply put, the sanctions available to the SEC, if applied as a result of the many, many rogue moments that occur within these financial behemoths, could shut down or seriously slow operations for the entire company because of the actions of one segment of corporate operations. So the SEC feels a huge pressure to let these mega-financial players conduct their business under a legal schema that might send you or me to prison if we attempted to mirror their behavior. Their argument is that as much as they are supposed to protect consumers, they believe it is equally important to let these big monsters ply their often-less-than-honorable-trade to keep the capital flowing in America. So they let Wall Street biggies get away with criminal or near-criminal acts in the name of expediency.

The most SEC flagrant practice is the granting of waivers and exemptions to their laws and regulations, and it profoundly commonly applied to the biggest baddies of them all. “An analysis by The New York Times of S.E.C. investigations over the last decade found nearly 350 instances where the agency has given big Wall Street institutions and other financial companies a pass on those or other sanctions. Those instances also include waivers permitting firms to underwrite certain stock and bond sales and manage mutual fund portfolios.

“JPMorganChase, for example, has settled six fraud cases in the last 13 years, including one with a $228 million settlement last summer, but it has obtained at least 22 waivers, in part by arguing that it has ‘a strong record of compliance with securities laws.’ Bank of America and Merrill Lynch, which merged in 2009, have settled 15 fraud cases and received at least 39 waivers… Only about a dozen companies — Dell, General Electric and United Rentals among them — have felt the full force of the law after issuing misleading information about their businesses. Citigroup was the only major Wall Street bank among them. In 11 years, it settled six fraud cases and received 25 waivers before it lost most of its privileges in 2010.

“By granting those waivers, the S.E.C. allowed Wall Street firms to have powerful advantages, securities experts and former regulators say. The institutions remained protected under the Private Securities Litigation Reform Act of 1995, which makes it easier to avoid class-action shareholder lawsuits…. Close to half of the waivers went to repeat offenders — Wall Street firms that had settled previous fraud charges by agreeing never again to violate the very laws that the S.E.C. was now saying that they had broken.” New York Times, February 3^rd.

We are increasingly a nation of elites governed by an entirely different set of laws and tax rates than are applied to the overwhelming majority of Americans and American companies. It’s hard enough for most small businesses to find the capital they need in a credit squeeze, and the cost of complying with this nation’s securities laws – necessary in pursuit of passive equity – is prohibitive to most of us. That these Wall Street biggies and their large clients can lie and avoid the strict applicability of such laws while still continuing to operate – when a small businessman or woman might do time in a federal penitentiary – is morally repugnant to most Americans. The biggest American political issue today is the disparity between those at the top of the food chain – once called the 1-percenters or applying the tax-rate-moniker of their spokesperson, the 13.9-percenters – and the rest of us. It’s time to level this playing field big time and apply the same laws, taxes and regulations uniformly to everybody… without exception or exemption.

I’m Peter Dekom, and if you liked the nasty economic surprise of 2008, let Wall Street continue their current practices and brace yourself for the next earth-shattering debacle.

The Incredible Shrinking Man

To justify bailout loans, the underpinning severe austerity structures being imposed by the European Union and the International Monetary Fund on nations with failing abilities to pay what is owed are predicated on the belief that if such debt can be reduced and the continued hemorrhaging of government expenditures stemmed, the offending nations will solidify sufficiently to be able to repay their remaining debt load. The measure of sustainable debt is generally measured by a ratio of the amount of the debt applied against the gross domestic product of the subject nation. Over 100% is bad, but how far over and how long that ratio remains at that level is part of the analysis and the negotiating process. For comparison, the U.S. debt/GDP ratio is about 110%, not particularly good, but at least the U.S. does produce a whole lot of economic value that can sustain growth.

But in Europe, with certain weak unproductive economies, of course, there’s a catch! The February 14^th New York Times has a pretty simple analogy that makes this conundrum exceptionally clear: “Without growth, reducing debt levels becomes nearly impossible. It is akin to trying to pay down a large credit card balance after taking a pay cut. You can slash expenses, but with lower earnings it is hard to set aside money to pay off debt.” And the problem with countries like Greece or even much smaller Portugal is that they really don’t have any value-producing economic industries that produce much. Hence, to cut their expenditures to the bone results in pain, but without spending money to stimulate growth, their GDPs actually shrink… so even with lower debt, the ratios of debt to GDP actually get worse.

To a thrifty German (who certainly doesn’t understand why his/her strong economy has to be the guarantor), this is a scenario that “doesn’t compute.” They’ve spent lots of money educating a highly-productive workforce. Their infrastructure is a model for just about everyone else, and their factories are state-of-the-art value-creating machines. Their commitment to bettering the technology of the products they create and sell – through research and quality control – is legendary. Those systems are in place, and as long as there are buyers in the world, the German manufacturing sector will continue to pump out some of the best and most desirable products on earth. Austerity? It’s a way of life for Germans, who will invest for the long term even if it takes years to get there. Why can’t those stupid Greek, Portuguese, Italians, Spaniards, etc. simply do what Germans have always done? It works for Germany!!!

Greece and Portugal are obviously way, way behind Germany in this economic value-creating world. And with huge elements of the Greek economy taking place well outside of Greece – like the shipping industry – Greece is particularly ill-suited to tax their own billionaire barons. Underpaid (officially) revenue agents are also well-paid (bribed) to look the other way, as these magnates ferret away their Euros in Swiss bank accounts far from governmental scrutiny.

But we can get a pretty good feel for the future of Greece by looking at what the same model has wrought for tiny Portugal that has already been through the austerity mill faced by Greece today: “Unlike Greece, Portugal is a debtor nation that has done everything that the European Union and the International Monetary Fund have asked it to, in exchange for the 78 billion euro (about $103 billion) bailout Lisbon received last May… And yet, by the broadest measure of a country’s ability to repay its debts, Portugal is going deeper into the hole… The ratio of Portugal’s debt to its overall economy, or gross domestic product, was 107 percent when it received the bailout. But the ratio has grown since then, and by next year is expected to reach 118 percent.” NY Times. Portugal isn’t borrowing more; its economy is shrinking! As reports are coming out about 2011 Greece, which did go through one round of austerity to qualify for a bailout, it seems too that their economy is contracting faster than most EU economists expected.

What’s worse, the other weak nations (and maybe even France in the near term) are facing shrinking GDPs, and without growth, all the EU austerity measures are just too little too late. “[E]conomists say the same vicious circle could be taking hold elsewhere in Europe… Two other closely watched countries on the debt list, Spain and Italy, now also have rising debt-to-G.D.P. ratios — even though they, like Portugal, have adopted the budget-slashing and tax-raising measures that the European officials and the I.M.F. continue to prescribe.” NY Times.

If Greece defaults, increasingly probable, the Euro will tank even more. If Greece leaves the Euro in favor of its old drachma currency, it will be instantly broke (or close to it) with little or no ability to pay for the food it needs to feed its people, industrial import to carry its plants and farm or the fuel needed to power its vehicles and generate electrical power. How are the Greek people dealing with this? According to the BBC, there has been a run on bank accounts, with withdrawals totaling somewhere between $20 and $25 billion and estimates that all of this is being horded, in dollars or Euros, in mattresses or equivalent. If Greece were to announce a withdrawal from the Euro entirely, you can expect that the run on Greek banks would indeed collapse the system. Residents are concerned that a government decree could instantaneously convert their Euro accounts into dreaded drachma. For a couple of years, a drachma-based Greece would define a new European hell. There are no good solutions.

Is there a lesson here for an austerity-driven House of Representatives, and a bevy of GOP candidates who want to cut all government spending to the bone … but not touch (with the exception of Ron Paul) “defense”? Clearly, our debt needs to be managed, but as one American economist has argued, you don’t tell a bed-ridden hospital patient that they need to go on a severe diet immediately… you wait for them to get healthy before imposing that diet. Will the American Congress follow a clearly failing European model of severe austerity, or will they figure out how not to throw the baby out with the bath water? We hardly in a strong recovery mode, and it won’t take much to tilt even us back into recession.

I’m Peter Dekom, and I truly think that this Congress couldn’t keep a car on a highway if it required a consensus on the steering wheel!

The Man from Shaanxi

Shaanxi Province is the cradle of Chinese civilization, where the first consolidation of China occurred in 221 BC and where the legendary Terra Cotta Soldiers can be found in the regional capital of Xian, once also the capital of early China. Confucius served his dukes here and wrote his famous analects circa 600 BC. The Mandarin dialect spoken in this heartland is considered to be the purest in all of China. Shaanxi is a fertile land in the middle reaches of the Yalu River, pretty much in the middle of the Middle Kingdom, the Peoples Republic. And Fuping County is in the center of Shaanxi. It’s farm country, perhaps even China’s Iowa, albeit mountainous and more verdant.

In 1953, a Xi Jinping (pronounced Zhee Jinping) was born in Fuping. “He was the youngest son of Xi Zhongxun [pronounced Zhee Zongshun], one of the founders of the Communist guerrilla movement in Shaanxi Province in northern China and former Vice-Premier. At the time his father served as the head of the Communist Party's propaganda department and later Vice-Chairman of the National People’s Congress. When Xi was 10, during the Cultural Revolution, his father was purged and was sent to work in a factory in Luoyang, and jailed in 1968. Without the protection of his father, Xi went to work in Yanchuan County, Yan’an, Shaanxi, in 1969 in Mao Zedong’s Down to the Countryside Movement.” Wikipedia.

15-year-old Xi’s work was as back-breaking as it was humiliating. He lived in a dusty cave for a while, dug ditches and labored in a processing plant that generated methane from pig waste. The stench was overpowering. Eventually, even in this harsh environment, Xi “became the Party branch secretary of the production team. When he left in 1975, he was only 22 years old.” Wikipedia. The Cultural Revolution finally unwound in the mid-1970s, and Xi was able to pursue his formal education. “From 1975 to 1979, Xi studied chemical engineering at Beijing's prestigious Tsinghua University. From 1979 to 1982 he served as secretary for his father's former subordinate Geng Biao, the then vice premier and Secretary-General of the Central Military Commission. This gained Xi some military background.” Wikipedia.

Xi rose through the ranks of the communist hierarchy, serving in four provinces before replacing a much-scandalized Shanghai Party Secretary in 2006, a powerful sign of the Party’s faith in this apparently rapidly rising star. Still Xi didn’t rock the boat and drifted upwards, getting an appointment to the all-powerful nine-person Standing Committee of the Politburo a year later. Of late, Xi has moved up even farther, traveling internationally as a spokesman for China.

While Xi Jinping is a man on the ascent, he has a connection to the average Chinese citizen by virtue of his marriage... and a connection to the United States by reason of his daughter: “Xi married the famous Chinese folk singer Peng Liyuan in 1987, his second marriage. Peng Liyuan, a household name in China, was much better known to the public than Xi until his political elevation. The couple frequently lives apart due to their largely separate lives. They are sometimes considered China's emerging star political couple. They have a daughter named Xi Mingze… who enrolled as a freshman at Harvard University in the Fall of 2010 under a pseudonym… He currently serves as the top-ranking member of the Secretariat of the Communist Party of China, the country's Vice President, Vice-Chairman of the Central Military Commission, President of the Central Party School and the 6th ranked member of the Politburo Standing Committee, China's de facto top power organ.” Wikipedia.

Why does any of this matter? Because Xi Jinping may well become, after the President of the United States, the second most powerful man on earth. At the end of this year, the Chinese leadership will undergo an orderly transition, and while many powerful administrators will continue to exercise great control over their allocated government and economic sectors, 69-year-old Hu Jintao will step down, and if all the tea leaves are proven correct, 58-year-old Xi will take over at the top.

He is frugal, low key and known as a problem-solver who is not particularly interested in the trappings of high office. But most U.S. officials don’t know his private views or whether he will be able to control secondary fiefdoms that have been delegated to others. As he travels across the United States as a guest of state, introducing himself across the land, America will get a first-hand look at the man who may change his country – and the rest of the world – over the next few years.

The issues bubbling to the surface during Xi’s visit include China’s apparent “proclivity to purloin” American trade secrets and intellectual property, the currency and trade imbalance, the Syrian debacle (including the PRC’s veto of UN action again the Assad regime) and likely near-term military issues involving Asian areas where China believes it has more legitimate defense prerogatives than does the U.S. The side trip to see “old friends” (from a 1985 visit) in Muscatine, Iowa helps convey a positive, down-to-earth and accessible Chinese leader, but the big gorillas in the room will continue to dominate Sino-American relations for the foreseeable future. Xi is indeed a man we all need to know and watch.

I’m Peter Dekom, and the immediate fluttering of political butterfly wings may evolve into a powerful political Gulfstream, blowing change from east to west.

I Get Your Drift

In 1989, a large oil tanker, the Exxon Valdez, bound for Long Beach, California, struck a reef in Alaska’s Prince William Sound, cracking open and discharging a massive amount of ugly black Prudhoe Bay crude oil. No one knows exactly how much, but the estimates run between 260,000 and 750,000 barrels of oil. Remote and inaccessible, but located in an exceptionally sensitive natural environment, the leak decimated local wildlife, including otters, seals, salmon and other fish, orcas, gulls and other birds. Hundreds of millions of dollars later, the mess is still not completely cleaned up. “Despite the extensive cleanup attempts, less than ten percent of the oil was recovered and a study conducted by NOAA determined that as of early 2007 more than 26 thousand U.S. gallons (98 m³) of oil remain in the sandy soil of the contaminated shoreline, declining at a rate of less than 4% per year.” Wikipedia

That was the worst recorded oil leak – until the 2010 Deepwater Horizon oil rig explosion and resulting uncapping of an under-sea wellhead into a very productive oil reserve in the Gulf of Mexico. 11 men were killed, and an estimated 4.9 million barrels of oil leaked into the Gulf and the surrounding shoreline, decimating wildlife, shorelines, undersea environments and the economic viability of those who relied on beach-driven tourism, fishing or other occupations that generated income from the Gulf. The consequences have yet to be totally tallied or understood, but the dollar costs this time around were in the billions.

That was then, and that was oil. In March of last year, the 9.0 Great East Japan Earthquake unleashed a gigantic tidal wave that crashed into northeastern Japan, crushing people and towns in its path. One of the targets was the Fukushima Daiichi nuclear power generating station that ultimately faced a full-on nuclear meltdown (actually seven meltdowns in three reactors) and contamination in the surrounding region, with life altering devastation for hundreds of thousands of people and a slam into an already trampled Japanese economy. Almost 16,000 people lost their lives from the quake and the horrific aftermath. The World Bank estimated that the overall economic cost this time around was in the hundreds of billions of dollars. Oh, and there is this one additional consequence, one that may impact the United States rather directly.

There is a huge sea of “floating damage” that has been drifting east with the Gulf Stream, heading for North American shores. The tsunami “swept up to 25 million tons of debris out to sea. That debris--including houses, gas stations, cars, and boats--is now floating around in the ocean. But where it will end up and how we will dispose of it is still up for debate.” FastCompany.com, January 26^th. “At this very moment, [that massive debris island] occupying an area roughly the size of California--is a on a collision course for the North American west coast.” Huffington Post, February 13^th.

Computer tracking (image above), done by our National Oceanic and Atmospheric Administration (NOAA), suggests that this massive debris will hit the Pacific Northwest this spring or summer, and may leave a garbage load in Hawaii sometime this winter. Maybe. “‘According to modeling and minimal observations, the debris is currently kind of sitting off the northwest territory of the Hawaiian islands,’ explains Mary T. Crowley, the founder of Project Kaisei--which studies the Great Pacific Garbage Patch [see below] -- and president of the Ocean Voyages Institute. ‘Because it’s an important marine sanctuary area with lots of reef and ocean habitat, we hope that it will not land there.’ Crowley believes that the debris could be headed to Oregon, Washington, and British Columbia next.” FastCompany.com.

On the other hand, it could just join a massive accumulation of trash (some estimate 100 million tons) right smack in the middle of the Pacific Ocean known as the Great Pacific Garbage Patch, “The Patch is characterized by exceptionally high concentrations of pelagic plastics, chemical sludge, and other debris that have been trapped by the currents of the North Pacific Gyre. Despite its size and density, the patch is not visible from satellite photography, since it consists primarily of suspended particulates in the upper water column. Since plastics break down to ever smaller polymers, concentrations of submerged particles are not visible from space, nor do they appear as a continuous debris field. Instead, the patch is defined as an area in which the mass of plastic debris in the upper water column is significantly higher than average.” Wikipedia

So what do you do with this mess? “It’s hard to say exactly at this point how large pieces of tsunami debris can be cleaned up, but Crowley speculates that barges, cranes, and excavators--"ocean construction kind of equipment," she says--will be used… The Rozalia Project, meanwhile, is already at work removing ocean debris with a combination of nets, remotely operated underwater robots (they come equipped with a manipulator to grab trash), and sonar. But without giant robot manipulators and huge, ultra-strong nets, this won’t be enough to gather up at least some of the tsunami debris.” FastCompany. And then? Some say create a “recycled island.” Others want to turn at least some of the debris into fuel. But that big ugly mess in the Pacific is increasingly absorbing stray patching of oil as well. One big question remains: who’s going to pay for all this? Man and the environment – an uncomfortable duo.

I’m Peter Dekom, and as the world economy teeters, tyrants and rebels kill each other, greenhouse gasses accumulate, and as potential Iranian nuclear weapons dominate the headlines, we also have to think about garbage?

Out to Launch

In 1988, in the Mykolaiv Shipyard in southern Ukraine (then part of the Soviet Union), a keel was laid for a 1,000 foot medium aircraft carrier, the Varyag. It was to be an Admiral Kuznetsov-class boat with a 65,000 ton displacement, an upward sloping deck for short-takeoffs, and would have carried fewer than a dozen helicopters and/or a small contingent of vertical take-off jets. $100 million later, the USSR fell apart, and in 1991, the new nation of Ukraine inherited a very incomplete boat, lacking an engine, electronics, etc. They had little need for a ship of this kind. In the military community, it was widely known that the naval skeleton was for sale.

I remember joking to the wildly successful King Brothers, television syndicators who are famous for programs like Jeopardy and Wheel of Fortune and were equally well know for throwing lavish parties at the annual National Association of Television Programming Executives conference (often held in port cities), that they should buy and complete the carrier. I argued that while many production companies and studios could invite the jet set to their big event, if they owned that boat, they could one-up them all by having those rich players “land on your boat”!

While the Varyag was a nice add to any navy, it was hardly representative of the much larger, American Nimitz class (and so many preceding generations of American carriers), which displace around 100,000 tons and with a long flight deck can launch around 70 longer range aircraft. And Ukraine decided to put the carrier up for bids rather than scrap the effort entirely. One Macau-based Chinese entrepreneur offered to buy the ship, tow it out of the Black Sea, through the Mediterranean and all the way around to China, where he would retrofit the boat into a magnificent Vegas-style casino. Hey, King Brothers!

The entrepreneur, who suspiciously had spent ten years as an officer of the Peoples Liberation Army (China’s army), “insisted he had only tourism in mind. According to the South China Morning Post, he denied that he was planning to hand the ship over to China’s military. He told the Post in November 1998 that his company would spend $200 million to remake the Varyag into a water-borne resort “with 600 hotel rooms, a conference center and various attractions, including a nightclub and ‘children’s military playground.’” Through his travel agency, he bought the boat. BusinessWeek.com, January 25^th. The U.S. tried to get Turkey to block passage through the Bosporus but Turkey relented, and in 2001, the Varyag sailed into the Mediterranean, where a storm almost capsized the vessel. In 2002, the Varyag arrived… not in Macau as expected… but in the northern ship-building PRC city of in Dalian.

With a rather large but mostly older navy of about 500 vessels, the Peoples Republic of China had always suffered from “carrier envy.” The Varyag was a natural, and the PRC couldn’t resist. The cost and technology inherent in carriers, and the exceptionally long time-line to develop and build them, had always pushed China to buy older boats that no one seemed to want anymore, hoping to refurbish them into functioning carriers, a symbol of national military prestige to the PRC: “The ex-Soviet ship was not the first used carrier China had purchased. In 1982 Beijing bought the smallish (15,000-ton) Majestic-class carrier Melbourne from Australia; it was dismantled for study and then scrapped. In 1998, the Russians sold China the much larger carrier Minsk, and, two years later, one called the Kiev. After undergoing similar scrutiny by Chinese ship designers, the Minsk and Kiev were turned into floating amusement parks…

“In April 2011, Xinhua [News Agency] heralded the slope-decked vessel’s imminent debut, posting photographs on an official website. ‘Huge warship on the verge of setting out,’ the state news agency declared, ‘fulfilling China’s 70-year aircraft carrier dreams.’ Beijing rechristened the ship the Shi Lang, after a 17th century Chinese admiral who served the Ming and Qing dynasties. The symbolism could not have been lost on historically minded government officials in Taipei. In 1683, Admiral Shi led a force of 300 ships in the amphibious conquest of Taiwan.” BusinessWeek. She’s ready now (see above).

With PRC claims over Taiwan and the Spratly Islands, and as China launched this almost symbolic carrier, the U.S. announced its own containment efforts for Southeast Asia: “Despite impending budget cuts, the U.S. has signaled its intent to reinforce its presence in the Asia-Pacific, where there is some trepidation over China’s rising military capabilities. In recent months it has announced plans to station troops in Australia and dock Navy ships in Singapore. That has fueled speculation the U.S. could seek to re-establish the permanent military presence it had in the Philippines until the early 1990s…

“State Department spokeswoman Victoria Nuland said the U.S. is interested in increasing training and cooperation in areas including search and rescue, freedom of navigation, countering terror and countering piracy… ‘The idea that we are looking to establish U.S. bases or permanently station U.S. forces in the Philippines, or anywhere else in Southeast Asia, as part of a China containment strategy is patently false,’ said Cmdr. Leslie Hull-Ryde, a Defense Department spokeswoman… The Philippines has turned to Washington for military hardware after accusing Chinese ships last year of repeatedly intruding into areas it claims in the South China Sea’s disputed Spratly Islands and disrupting oil exploration in its territorial waters.” ABCnew.go.com, January 27^th. Hmmm…. No base… yet.

I’m Peter Dekom, and this historical moment appears to be “déjà vu” all over again.

Squeeze Play

With Europe’s banning Iranian oil purchases and Americans putting the squeeze on Iran’s ability to function in the global banking community, life in Tehran and the rest of the country is getting pretty nasty, particularly for the Iranian middle class. Will these sanctions push Iran into bargaining away their potential for nuclear weapons? Recent forays by a delegation U.N.’s International Atomic Energy Agency that visited Iran produced evidence “of experiments with detonators that strongly suggested Iran might have worked on technologies to turn its nuclear fuel into working weapons and warheads,” but were also “told that they could not have access to Mohsen Fakhrizadeh, an academic who is widely believed to be in charge of important elements of the suspected weaponization program, and that they could not visit a military site where the agency’s report suggested key experiments on weapons technology might have been carried out.” New York Times, February 3^rd. We squeeze harder.

The squeeze also limits exports into Iran, which is particularly effective since a lack of refineries results in oil-rich Iran’s importation of about 40% of their gasoline and other refined petroleum products. Even before the new sanctions settle in, Iranians are girding for what could prove to be the most difficult time since their war with Saddam’s Iraq decades ago, wrenching an already decimated economy down one giant notch. “One measure of the profound anxiety now coursing through Iranian society can be seen on [Tehran’s] Manouchehri Street, a winding lane at the heart of this city where furtive crowds of men gather every day like drug dealers to buy and sell American dollars.

“The government has raised the official exchange rate and sent police into the streets to stop the black marketeers, but with confidence in Iran’s own currency, the rial, collapsing by the day, the trade goes on. … ‘Am I afraid of the police? Sure, but I need the money,’ said Hamid, a heavyset construction engineer who was standing by a muddy patch of greenery amid a crowd of other illicit currency traders here. ‘Food prices are going up, and my salary is not enough.’ Glancing nervously around him, he added that he had converted almost all of his assets into dollars. Like many Iranians, he had also stockpiled months’ worth of rice and other staples.

“The fuel for this manic trade is not an actual economic collapse — the new European oil embargo has yet to take effect, and there is plenty of food on the shelves — but a rising sense of panic about Iran’s encirclement, the possibility of war and the prospect of more economic pain to come. The White House announced a further tightening on [Feburary 6^th] aimed at freezing Iranian assets and constricting the activities of Iran’s Central Bank. .. Already, the last round of sanctions on Iran’s Central Bank has begun inflicting unprecedented damage on Iran’s private sector, traders and analysts say, making it so hard to transfer money abroad that even affluent businessmen are sometimes forced to board planes carrying suitcases full of American dollars.” New York Times, February 6^th.

A deep and widening schism has developed between Iran’s conservative religious leaders and conservative members of parliament, on the one hand, and President Mahmoud Ahmadinejad and the Revolutionary Guards, on the other. Criticism on both sides, each castigating the other for the economy and the failed efforts in foreign affairs, is leading to a big showdown. Called by the Supreme Religious Leader (the Ayatollah Ali Khamenei) over some “inappropriate” high level firings by Ahmadinejad in a recent confrontation, Ahamadinejad now faces a new threat from parliament.

For the first time since the 1979 revolution, the Iranian parliament has mustered the 25% of the membership need to compel the President to testify and explain himself before that elected body, testimony that could come as soon as March: “Questions for Mr. Ahmadinejad are likely to touch on a range of concerns about the economy, which in the view of many critics in Iran has been weakened and mismanaged by his administration, and has now been made worse by Western sanctions. In addition, hard-line clerics devoted to Mr. Khamenei have long harbored accusations that Mr. Ahmadinejad leads a ‘deviant current’ that would challenge their primacy in all aspects of Iranian society.” NY Times, February 7^th.

All of this is occurring during an undercurrent of threats by Ahmadinejad against the U.S. naval presence in the Gulf, further threats to shut down the Strait of Hormuz (pictured above) through which a huge amount of Europe-destined oil passes and recently discovered Iranian plots to mount attacks inside of the United States – all in response to the mounting pressure from international sanctions. That Israel has been restrained by the U.S. from mounting a surgical strike against Iranian nuclear research facilities is hardly a secret. Will the sanctions produce the desired result? Will we be required to live with one more crazy nuclear power, one that even makes North Korea look tame, or will there be a confrontation that sends oil prices through the roof, ending the sputtering global economic recovery?

I’m Peter Dekom, and we are all connected to each other by a series of fragile strings.

America as a Legal Back Water

The United States of America pioneered the modern constitution, particularly that wondrous Bill of Rights – the First Ten Amendments. After the French Revolution in 1789, the U.S. effort formed the basis for the French constitution, and right up until the 1960s and 70s, as new countries were born, they inevitably looked to the structure provided in the U.S. Constitution for guidance. But the modern global civil rights movement, the movement of ethnic groups among and between different countries, new amalgamations, from the European Union to the reorganization of post-Soviet bloc nation, have created a demand for a more updated constitutional structure. When our constitution was first drafted, slavery was accepted, there were no modern forms of communications , and everything took days or weeks to transmit. The document that was drafted then still governs, albeit with a few – very few – post-Bill of Rights amendments.

And as much as our founding fathers believed that the Constitution would be a living and breathing document, one that could be amended as times changes or, as the 1803 case of Marbury vs. Madison gave the U.S. Supreme Court the power to interpret and enforce the constitution, could be applied to modern changes as technology and social structures evolved, the document was effectively drafted centuries ago and would be better if revised to reflect the modern digital era where people are just hours from any other country on earth.

Indeed, even one of the great contributors to our constitution, Thomas Jefferson, believed that the document should be revisited once in every generation, vetted and re-passed. The amendment process is cumbersome and in this day of super-polarization, it extremely unlikely that anything remotely controversial could ever be approved to alter that document. Hence, courts are forced to apply a horse and buggy constitution to a break-the-speed-of-sound jet/rocket enabled era. Strict constructionists – meaning people who don’t want the courts to interpret anything in the document which should forever be read exactly as written – might be stunned to learn that under their view, there is no basis for the United States Air Force, since the document only allowed us to raise a standing army and a navy.

The aging tenets of our constitution seldom form the basis for the anchor documents of nascent and rising new nations anymore, many born of the recent Arab Spring, who no longer choose to use the United States for a model of government workability. “In 1987, on the Constitution’s bicentennial, Time magazine calculated that ‘of the 170 countries that exist today, more than 160 have written charters modeled directly or indirectly on the U.S. version.’ … A quarter-century later, the picture looks very different. ‘The U.S. Constitution appears to be losing its appeal as a model for constitutional drafters elsewhere,’ according to a new study by David S. Law of Washington University in St. Louis and Mila Versteeg of the University of Virginia. … The study, to be published in June in The New York University Law Review, bristles with data. Its authors coded and analyzed the provisions of 729 constitutions adopted by 188 countries from 1946 to 2006, and they considered 237 variables regarding various rights and ways to enforce them.

“‘Among the world’s democracies,’ Professors Law and Versteeg concluded, ‘constitutional similarity to the United States has clearly gone into free fall. Over the 1960s and 1970s, democratic constitutions as a whole became more similar to the U.S. Constitution, only to reverse course in the 1980s and 1990s.’ … ‘There are lots of possible reasons. The United States Constitution is terse and old, and it guarantees relatively few rights. The commitment of some members of the Supreme Court to interpreting the Constitution according to its original meaning in the 18th century may send the signal that it is of little current use to, say, a new African nation. And the Constitution’s waning influence may be part of a general decline in American power and prestige. …

“The rights guaranteed by the American Constitution are parsimonious by international standards, and they are frozen in amber. As Sanford Levinson wrote in 2006 in ‘Our Undemocratic Constitution,’ ‘the U.S. Constitution is the most difficult to amend of any constitution currently existing in the world today… These days, the overlap between the rights guaranteed by the Constitution and those most popular around the world is spotty. Americans recognize rights not widely protected, including ones to a speedy and public trial, and are an outlier in prohibiting government establishment of religion. But the Constitution is out of step with the rest of the world in failing to protect, at least in so many words, a right to travel, the presumption of innocence and entitlement to food, education and health care…. It has its idiosyncrasies. Only 2 percent of the world’s constitutions protect, as the Second Amendment does, a right to bear arms. (Its brothers in arms are Guatemala and Mexico.)…

“Many foreign judges say they have become less likely to cite decisions of the United States Supreme Court, in part because of what they consider its parochialism… ‘America is in danger, I think, of becoming something of a legal backwater,’ Justice Michael Kirby of the High Court of Australia said in a 2001 interview. He said that he looked instead to India, South Africa and New Zealand.” New York Times, February 6^th.

Perhaps the stalemate in our own two-party Congressional system – contrasted with the parliamentary system where the legislature effectively elects the head of state – or the unrepresentative Senate (where low population and high population states have the same two senators) are partially to blame, but mostly it’s because the more recent constitutional documents have incorporated changes in human rights that have become global standards and which are unrecognized in our rather ancient document. As the current imbalance and polarization in our current American society reflect, the older structures are badly in need of updating, but we are likely going to have to rely on that centuries-old bastion of democracy for a long time to come. Others are not saddled with that choice.

I’m Peter Dekom, and unless Americans are blessed with open minds and free thought, they will cling until the end of the United States that everything we have is better than anything else anyone could possibly create.

It’s All Greek to Me

Among the non-Eastern Bloc countries, Greece has always lagged economically behind the rest of Europe. And Greeks have a reputation – apparently deserved – of playing fast and loose with numbers, avoiding taxes and living beyond their means, often paycheck to paycheck, smiling at the social safety nets and healthcare supports that define modern Greek life. Mega-billionaires don’t even think twice about evading taxes, making sure their numbers and investments fall far outside the reach of inquiring Greek tax collectors… when those inquiring minds haven’t been sated with “incentive compensation.” To become true stylistic Europeans, without the supporting exports and industry, Greece and Greeks needed either to maintain a “Spartan” lifestyle or borrow against “expected” future growth. Guess which direction they chose.

The global financial institutions, looking for new customers (particularly one who could be talked into credit cards and easy lending standards), hit pay dirt. Greeks with credit cards! European finance ministers, who feared that Greece’s deficits would pull them under, were assuaged when Greece presented statistical evidence that their perpetually slow economy and growing deficits were vestiges of the past. Greece joined the European Union and embraced the euro in 2001. However, it became clear that the Greek government had been less than candid in the numbers they presented to the EU. In November of 2004, the truth came out: “Greece admitted … that the budget figures it used to gain entry to the euro three years ago were fudged. The Finance Minister, George Alogoskoufis, said the true scale of Greece's budget deficit was massively understated enabling Athens to dip below the qualification bar and into the EU's single currency.” The Independent (UK), November 16, 2004.

So we now look at an angry Greek electorate, with a failing economy and government borrowings that have absolutely no realistic chance of being paid off on time and in full, who have watched at EU-imposed austerity measures that have dropped wages and pushed the unemployment rate to 20% and cut social programs everywhere. And since this is an imposition from the outside, Greeks feel that their democratic rights have been trampled. The EU130 billion bailout wasn’t enough. The 50% haircut to private lenders to the Greek government wasn’t enough. And the very recent agreement to drop the minimum wage by 20% and cut another 15,000 government jobs – even more austerity – wasn’t enough. Another EU325 million needed to be cut before the European Union would consider a further EU130 million bailout, plus some additional proof that Greek leaders would actually implement the additional cuts amid a firestorm of local protests.

Had Greece retained its drachma currency, the solutions would have been tough but more directly implementable. The Greek currency would simply inflate to reflect the reduction in true economic values. Greeks would live less well, but they wouldn’t be taking pay cuts. Instead, their currency would simply buy less in the international market. Unsympathetic Germans, pushing their Chancellor to “just say no,” are the bulwark of European value that would support an additional bailout. They want the Greeks to learn their lesson, downsize their lifestyles and drill down and work harder to earn back economic credibility. In Greece, Chancellor Angela Merkel is pictured as a modern-day Hitler, and anti-German sentiments are raging in the streets. Unions and more than a few political leaders are leading strike and other protests. Austerity is making life in Greece simply miserable.

With the recent announcements of further austerity, the traditional response from the markets has been an immediate upward tick. But the opposite happened, and markets fell at the news. Why? There is this harsh underpinning reality that the more austerity is imposed on prodigal Greece, the harder it will be for them to turn their economy around because there is no investment or incentive that would push them to greater productivity. The February 10^th Los Angeles Times tells it like it is: “The constantly changing news illustrates again just how many actors there are determining the future in the European drama, and just how many chances there are for it still to go off the rails. In rejecting the Greek agreement [on February 9^th], European leaders have said they want all three Greek political parties to sign off on the deal so that they cannot back out later.

“Greek economy itself is likely to go to shambles. A large proportion of the cuts are expected to come from the pensions of workers, to ensure that international bond-holders get paid… The anger was visible [February 10^th] when Greek workers went on strike, and, more unexpectedly, the Greek police union said they would issue warrants for the arrests of the European leaders who had approved the deal, according to Reuters. As if things weren't bad enough, Greek hospitals are dealing with a deadly super bug that nurses are unable to treat with medicine, when they are lucky enough to have medicine.” And despite assurances from the Greek government that a further bailout should do the trick, you can’t wonder why European leaders are still skeptical. Very, very skeptical.

Increasingly, the global economic community is beginning to believe that a Greek default is inevitable and that the country would be best served by going it alone outside of the Eurozone… that Greece should go back to its dreaded dreary drachma. That default would take the global recovery down a notch, impacting the U.S. as well, but with 11 million people, it won’t have nearly the impact that a comparable default from Spain (45 million) or Italy (60 million) might have. But the markets just told the world: brace for a Greek default. Living in Greece is not for the faint of heart these days.

I’m Peter Dekom, and we are anything but clearly heading in the direction of a strong near-term recovery.

Barreling with the Porkers

“It’s the economy, stupid!” “All politics is local.” Aphorisms that ring in the hollow minds of elected officials… at every level. Congressmen and women who deliver (remember the Alaskan “bridge to nowhere”?) for their districts have a better shot at reelection, and generating the campaign dollars from those who directly benefit from such delivery, so the rhetoric of fiscal discipline is often redefined to mean: the targeting local federal spends in other Congressional districts is pork (pork = waste), but the elements statutorily specified for improvements (“earmarks”) in a home district are just smart politics. “In March 2010, the House Appropriations Committee implemented rules to ban earmarks to for-profit corporations. According to the New York Times, approximately 1,000 such earmarks were authorized in the previous year, worth $1.7 billion.” Wikipedia. But not all the expenditures are to for-profit corporations, are they?

Try closing a military base in a powerful Congressional district, and watch the sparks fly. People don’t feel national economic pain; they experience hardship at the local level. How would you ever vote against a Congressional representative who has delivered prosperity in your district while the rest of the nation suffers? There is a lot at stake, so the representatives who know how to bend the rules and find the loopholes are often those who get the votes. So how has the Congressional moratorium on earmarks fared? How are we doing in containing the local delivery virus that aggregates to a serious budgetary menace if the contagion continues to aggregate by infecting most of the districts? And are they benefiting constituents… or themselves… or both?

The Washington Post investigated public records tracking Congressional earmarks since 2008, focusing particularly on projects located near the elected representatives’ own holdings: “A U.S. senator from Alabama directed more than $100 million in federal earmarks to renovate downtown Tuscaloosa near his own commercial office building. A congressman from Georgia secured $6.3 million in taxpayer funds to replenish the beach about 900 feet from his island vacation cottage. A representative from Michigan earmarked $486,000 to add a bike lane to a bridge within walking distance of her home…. Thirty-three members of Congress have directed more than $300 million in earmarks and other spending provisions to dozens of public projects that are next to or within about two miles of the lawmakers’ own property, according to a Washington Post investigation… Under the ethics rules Congress has written for itself, this is both legal and undisclosed.” Washington Post, February 6^th [emphasis added].

Want a little more? “Some members of Congress send tax dollars to companies, colleges and community groups where their spouses, children and parents work as salaried employees, lobbyists or board members, according to an examination of federal disclosure forms and local public records by The Washington Post… [The Post found]16 [Congressmen and women] who have taken actions that aided entities connected to their immediate family… The examination uncovered a broad range of connections between the public and private lives of the nation’s lawmakers…. Lawmakers said in interviews the actions they took were not intended to directly benefit their relatives or themselves. Instead, they say, the largesse was meant to assist corporations, educational programs and community organizations that employ, educate and help residents in their congressional districts.” Washington Post, February 7^th. But Congress has mandated a 2010 moratorium on many such allocations and/or earmarks? Is this still really happening?

“A coalition of budget watchdog groups says that in the absence of the age-old practice of Congressional earmarks, the legislative tools that let members attach pet projects to bills, lawmakers appear to have found a backdoor method: special funds in spending and authorization bills that allow them to direct money to projects in their states… The latest example, the groups say, is the recently passed budget for the Army Corps of Engineers. Budget documents show that Congress included 26 different funds — totaling $507 million — for the corps to spend on various construction, maintenance and other projects that were not included in President Obama’s budget or the final spending bill.

“The funds were financed by reducing money for projects included in the president’s budget request and adding $375 million to the corps budget, documents show… Congress also gave the corps criteria to use in selecting projects and instructed it to report within 45 days about how it intends to spend the money from the funds, according to the budget documents…Critics say the special funds in the corps budget are the latest example of members of Congress trying to circumvent the earmark ban to funnel money to their districts, in the form of corps engineering projects. In the absence of earmarks, lawmakers have tried pressing agencies for money or in some cases threatened to tie up Congress if projects are not financed… For example, in 2010, Senator Lindsey Graham, Republican of South Carolina, threatened to block Obama administration appointments unless money was provided for a harbor dredging project in his home state.” New York Times, February 6^th.

The more powerful the Congressional representative – and that means have the seniority to be members of and even preside over key committees and subcommittees through which most legislation must pass – the greater that representative’s ability to deliver. Graham sits on the Senate’s Appropriations, Armed Services, Judiciary and Budget Committees, for example. And what constituency wants weak representatives, so even in times of strong “do-nothing” incumbents showing very disappointing poll numbers, these powerful incumbents have the edge over their opponents for this very reason. Some suggest strict term limits, but for House members, whose term is a mere two years, is the measure total time in office (10 year limits would still push through 5 elections!)? And isn’t horse-trading just part of the political process, the reason folks get elected anyway?

National priorities, even with so many of us on the ropes, struggling to restore economic order, consumer confidence and even growth take a back seat to local politics. Notwithstanding that appropriations bills must originate with the House, with two senators from each state regardless of population, small states tend to receive more in federal expenditures per capita than the tax dollars they contribute… and South Carolina is most certainly in that category (8^th on the list of states with the worst ratio of dollars contributed to dollars received according the April 4, 2011 Daily Beast). Mr. Graham’s seat is probably pretty safe.

I’m Peter Dekom, and it is truly sad that the priorities that need to be addressed in our efforts to restore our economy must take a back seat to local politics.

Up in the Sky, It’s a Bird, It’s a Plane, It’s a Super-PAC!

A little over a year ago, the United States Supreme Court opened a Pandora’s Box in its decision in Citizens United vs. Federal Election Commission. Essentially, it ruled that neither Congress nor the States could enact laws to limit spending on political opinion messages by unions and corporations that were not directly affiliated with a specific candidate (since candidates for office can be so limited). The vehicle where such public messages are funded – political action committees (the really big ones are “super” political action committees or Super-PACs) – were simply unleashed. The PAC might embrace that candidate or what he or she stands for, as long as there was not an actual agreement between the candidate and the PAC.

The Court analogized a corporation or a union to status of being a person or citizen with full protection for free speech under the First Amendment of the Constitution, an unbelievable stretch and about as far a move away from “strict constructionism” as I have ever seen. Writing the majority opinion, Justice Anthony Kennedy (pictured above) said: “If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.” Corporations, NGOs, trade organizations, sugar-daddy billionaires with an agenda, unions and mysterious and unidentified sponsors hidden behind anonymous post office boxes leapt into the fray, and elections seemed to move from a vote of the people into a spending frenzy by power elites seeking to press their causes by electing the “right” candidates.

While Democrats clearly have benefited from contributions to friendly organizations supporting their causes and candidates – such as the contributions to one PAC by the Service Employees International Union – the bulk of the expenditures where donors were identified, according to government filings, were clearly coming from organizations focused on strongly right-of-center Republican causes and candidates. That corporate and wealthy-individual America might be able to buy its way out of paying meaningful taxes (and closing the huge loopholes they lobbied so strongly to create in the first place) or face environmental or financial-integrity regulation put a big smile on a lot of country club faces. Their PAC contributions were chump-change compared to the costs they would be saving if they could elect candidates that wouldn’t really tax or regulate them.

Besides, in the 2008 presidential election, Obama had outspent McCain almost two-to-one, and that was never going to happen again: “President Obama continues to outraise all of the candidates seeking the Republican nomination by large margins when it comes to money that goes directly into campaign coffers. But the money race is increasingly focused on outside groups that are legally not allowed to coordinate directly with campaigns but pay for advertising and other activities that support particular candidates… Most of the money disclosed [in government filings] went to independent groups supporting Republicans, giving them an enormous money advantage over similar Democratic groups in the first phase of the 2012 election cycle…

“[Republican-supporter] Restore Our Future raised at least $5.8 million from corporations during the last six months of last year, along with $12.2 million from individuals. American Crossroads raised $4.6 million from corporations and $7 million from individuals. Priorities USA and two other Democratic-leaning super PACs raised about $1,835,000 from individuals, $1.3 million from political action committees affiliated with labor unions and other groups, and about $415,700 from other organizations.” New York Times, February 1^st.

The patterns have been pretty routine in this primary season. A favored son would appear to be falling behind – evidenced by Mitt Romney’s loss in South Carolina to rival Newt Gingrich – and PAC money would accelerate and pour into the next major primary. Florida is a case in point: “Both candidates and the super PACs supporting them have spent millions of dollars in attack ads, but the former House speaker is far outweighed by his chief rival when it comes to spending… Romney’s campaign spent nearly $7 million on television ads leading up to the primary, more than six times that of Gingrich, whose campaign spent about $1 million… The super PACs have even outspent the campaigns. The group supporting Romney, Restore Our Future, spent a whopping $8.5 million on ads in Florida, while Winning Our Future, the super PAC backing Gingrich, spent about $2.2 million.” ABCNews.go.com, January 31^st. Romney creamed Gingrich in Florida. But then, Santorum creamed everyone in Missouri, Minnesota and even Colorado. Standby for PAC-financed attacks on Rick!

Can the impact of Citizens United be blunted somewhat by clear disclosure rules; the Supreme Court has not decided that issue. We just don’t know where some of that money is coming from, because not everyone has to disclose: “But the full scope of such giving is impossible to ascertain from federal campaign filings: Much of the money raised by the leading Republican and Democratic independent groups went into affiliated nonprofit organizations that are more restricted in how they can spend the money but do not have to disclose their donors… [S]ome checks came from sources obscured from public view, like a $250,000 contribution to a super PAC backing Mr. Romney from a company with a post office box for a headquarters and no known employees.” NY Times.

Aside from the fact that Citizens appears to be wrongly decided – but it is the law of the land now – putting our elections up for bid, it would seem obvious that some very tight and clear disclosure laws are necessary. Or we could just kill our deficit woes buy putting all elected offices up for bid, dispensing with this old-world election thang.

I’m Peter Dekom, and I’m hoping that some of these newly minted corporate/union-people/citizens will volunteer to give blood to the Red Cross really soon.