Easy Money

At the core of the financial collapse was the overall notion of “easy money,” lenders willing to lend at low rates combined with borrowers who were encouraged and then addicted to borrowing for just about every purpose. It was this practice combined with unregulated markets and unwatched accounting methods that spawned a “valuation” mythology that justified the debt. Credit rating agencies effectively gave bad debt instruments good ratings. Consumers were told by lenders and realtors alike that the housing market had no place to go but up. And interest rates were staggeringly low compared to the not-so-distant past. Consumers have been slammed with shrinking credit, housing prices have collapsed, and except for mostly-government-subsidized loans, real estate loans are exceptionally hard to get these days.

With new financial regulatory statute pushed by Senators Chris Dodd (D- CT) and Barney Frank (D-Mass.) likely to become law – the death of W. Virginia Senator Robert Byrd (D) may slow that down, however – it is interesting to look at why Wall Street is still addicted to debt, where they can get it, and what impact, if any, the new law might have on stemming that addiction. If you fund business activities with real investment equity – the equivalent of paying cash for what you spend – the cost of capital is significant and has a permanence about it. Investors own a piece of your enterprise, have a continuing right to a share in the profits (without a cap), and they may even get some voting rights along the way.

Debt, on the other hand, is terminated when the note is paid off, the interest (which is tax deductible as well, unlike equity) is a clear calculation with a cap, and when rates are low, they improve the upside – it is the company (and hence the shareholders) who get to keep the increase in value of the company above the cost of the borrowing; the lenders just get their interest. So growing the company with debt is clearly attractive, and if you can borrow lots of money at low rates, the return for the equity shareholders can multiply significantly. The catch? If your company contracts, you can’t pay back your loans, you file for bankruptcy. But since the mantra on the Street is steady growth, and companies are in value competitions (called the stock market) with other companies to determine their worth, if you don’t borrow to grow and your competitors do, their values and returns to shareholders will outperform you by miles… and if you are running company, trust me, you will be replaced by an angry board of directors.

Without valuation and accounting mythology to support these borrowings, however, they simply aren’t possible; solid regulation would, of course, explode the myths. And as Wall Street watched as mythology-directed legislation was proposed, they launched their massive lobbying efforts figuring that average Americans could never understand the complexities involved, and if they could sell “regulation and taxation” as un-American, they could continue slorpping at the lending trough, which may have been cut off for you and me but is still very much alive in the big financial and corporate world.

The July 2^nd theDeal.com explains what happened: “American officials spread the gospel of light regulation and low inflation around the world. ‘We were exporting economists and economics theory. We trained the world’s finance ministers and central bankers, and it turned regulation into a Potemkin village,’ [says William Black, associate professor of economics and law at the University of Missouri-Kansas City, an expert in financial fraud and a former senior deputy chief counsel at the Office of Thrift Supervision.] In Europe, the Zeitgeist was embodied as ‘principles-based regulation,’ a rejection of bright-line rules in favor of loose frameworks governing accounting rules, capital levels and leverage. In the U.S., the philosophy took its form in the shift toward self-regulation. Another result was the adoption of accounting rules that allowed U.S. banks and other financial institutions to carry impaired assets on their books valued above their current trading value. Just as the allowance of off-book activities fueled the Enron and WorldCom scandals, Black says, permitting assets to be overvalued encouraged the subprime mess. The huge profits and bonuses on Wall Street are impossible with prudent lending, which is a low-margin business, he says.”

But we’re still too terrified to force financial companies to report the true value of the collateral for all their loans, allowing many companies to show paper profits, when they have staggering losses instead. What does the new legislation do about this? “Congress dodged the opportunity to mandate write-downs on the hundreds of billions of bad assets on banks' books. ‘Nobody thinks you should have to record losses as a result of some weird panic in the market,’ Black says. ‘But they studiously ignore that the losses weren’t temporary. If this was just a temporary problem due to panic, where is the secondary market in nonprime assets?’ He says, at best, nonprime assets are trading at 50 cents on the dollar, but more likely at 15 cents to 20 cents. ‘If carried on the books at their t rue value, there would be massive losses in the financial industry.’” theDeal.com.

Others fear that if Congress forced this write-down and the required less borrowing and more of down-payment, this would contract the already slender credit markets that have survived. And the rules clearly favor big players with unequal access to “the cheapest money” (loans from the Federal Reserve allotted to banks); this is why Goldman Sachs became a commercial bank – they could borrow really cheap fed funds, but instead of deploying that capital into the commercial markets, they kept (keep) most of it and use it for internal trading and investment purposes. So Congress struck a balance and left some matters unsolved by the new legislation. If we are under the illusion that the new law would create a “never again” scenario that would prevent another similar economic collapse… think again. Mythology continues.

I’m Peter Dekom, and one day America will wake up and realize that slogans born on Wall Street to be swallowed whole by voters are truly what are un-American.

Abusing Their Privates!

As in many societies, Asia tends to value the birth of boys over little girls. Whether is it is for economic reasons – sons support their birth family, daughters support their husband’s family under social custom – continuity of the family lineage or just based on long-standing tradition, that’s simply the way it is. And China has a big problem. The Asia Sentinel (March 25, 2008) summarizes the resulting quandary like this: “China’s gender imbalance, the result of the one-child policy implemented in 1979 [which generally allows couples only one child], is creating a social time bomb that may threaten the already feeble status of women, who are already losing ground. While attention is focused on disturbing problems like social instability and rising crime resulting from the gender imbalance, people appear to be forgetting the gross injustice that women have long suffered, injustice that is growing both despite and because of their shrinking numbers.

“In 2005, the mainland China sex ratio at birth stood at 118 males to 100 females, having already increased from 108:100 in 1981 to 111:100 in 1990. It is substantially above the natural baseline which ranges from 103:100 to 107:100. By the year 2020, there will be 30 million more men than women, according to a report by the State Population and Family Planning Commission… The social implications are disturbing. A recent media report says that based on a Statistics Canada survey, the rate of robbery offenses for women is just 13 out of every 100,000, versus 110 for men. The same survey shows that men are seven to 10 times more likely to commit serious crimes, including robbery, homicide, sexual assault and car theft, and that women are less likely than men to re-offend or escalate their crimes.”

Quite a lovely visual, actually, of millions of angry horny men raging through the countryside with sex and/or violence on their minds. The lack of sufficient numbers of marriage partners for such a huge segment of the male population has all but squeezed the lowest paid agricultural peasants off the desirability list and hasn’t helped the bottom rungs of the Chinese socioeconomic ladder much in cities either. The one child policy has led to “gendercide” where female fetuses are simply aborted to give the family another chance… for a male child. A report from MSNBC.com dated September 14, 2004 provided the evidence of this phenomenon: “‘Prenatal sex selection was probably the primary cause, if not the sole cause, for the continuous rise of the sex ratio at birth,’ said population expert Prof. Chu Junhong… A slew of reports have confirmed the disturbing demographic trend.

• In a 2002 survey conducted in a central China village, more than 300 of the 820 women had abortions and more than a third of them admitted they were trying to select their baby's sex.
• According to a report by the International Planned Parenthood Federation, the vast majority of aborted fetuses, more than 70 percent, were female, citing the abortion of up to 750,000 female fetuses in China in 1999.”

Not a pretty picture, but one that gets worse when one particular solution – marital kidnapping – is added to the problem. MSNBC added: “The hint of ‘serious’ problems ahead can be seen in the increasing cases of human trafficking as bachelors try to ‘purchase’ their wives… China’s police have freed more than 42,000 kidnapped women and children from 2001 to 2003.” Argh!

So let’s see what China’s creative solutions might be for this nasty social problem with horrific social consequences. Well, given their official fear of the Internet, how about stopping soldiers in the Peoples Liberation Army from online dating? This would free up a pile of female marriage prospects for everyone else, and presumably the officers can keep their (armed? gulp!) soldiers under their strict command. The June 30^th Washington Post: “Rigid restrictions on Internet usage imposed this month on the 2.3 million-strong Chinese armed services are sure to cramp the already lackluster social lives of the predominantly young, male force. Online dating was given the boot, along with blogs, personal websites and visits to Internet cafes… It may seem harsh and out of touch, particularly for troops posted in remote regions of China who have little contact with the civilian world. But military experts said restraints are necessary to avoid compromising security for a Chinese military that prizes secrecy.”

While most military operations have some Web-use restrictions, China’s reaction is indeed on the extreme side. You might call this the “Don’t tell, don’t ask” policy, but for a soldier in China Match.com won’t become Match dot calm.

I’m Peter Dekom thinking about PRC soldiers who will never have that “date that will live forever in infamy.”

Obsolescence Gone Wild

Housing starts have plunged now that the homebuyer tax credit has ended. Despite a fall in the unemployment percentage (down to 9.5%), the hard numbers of folks seeking jobs or have given up looking at all are up now that the Census workers are leaving the market. Further in the month of June, consumer confidence measures dropped along with auto sales. I won’t even get into the Europe thang or the austerity campaigns that simply make things worse. But the really big story in this “maybe long seething depression” is how change – permanent change – is remaking the global economy and, in particular, the value propositions that will be required from American workers going forward. Simply, the economy has forced American industry to work in entirely new and efficient ways: businesses and business methods that were unsustainable and just fading out before the economy tanked are gone and those businesses that have continued or risen to replace the “old” just do not function in accordance with past practices. We are not and cannot ever go back to what was; that era is dead, buried and the coffin nails are beginning to rust.

Notwithstanding all of the bad economic news, change inevitable engenders opportunity and new jobs with new skills. The saddest part of the American story may be the legions of dedicated workers whose skills, developed over decades, are simply irrelevant going forward. There are tons of new jobs… but there are very few Americans trained to fill them. As our education budgets are crumbling, our community and large colleges/universities face massive budget cuts, we simply cannot keep up with the demand for the new skills that new economy demands.

When Massachusetts-based A123 Systems – the makers of advanced battery technologies – created a breakthrough technology with a more efficient lithium ion battery pack, they wanted to manufacture that product in the United States, particularly in the hard-hit Michigan automotive rust best. The problem was that there were insufficient American workers with the relevant skills to make it work, so the first new factories were all located in China. Only after a $250 million loan and some serious subsidies (including for training) from Michigan was A123 able to open a plant in the United States. As the federal jobless benefits are set to expire for millions of workers, the issue of how to migrate old world workers into new world values becomes critical.

The July 1^st New York Times: “As unlikely as it would seem against this backdrop, manufacturers who want to expand find that hiring is not always easy. During the recession, domestic manufacturers appear to have accelerated the long-term move toward greater automation, laying off more of their lowest-skilled workers and replacing them with cheaper labor abroad… Now they are looking to hire people who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker… Makers of innovative products like advanced medical devices and wind turbines are among those growing quickly and looking to hire, and they too need higher skills… ‘That’s where you’re seeing the pain point,’ said Baiju R. Shah, chief executive of BioEnterprise, a nonprofit group in Cleveland trying to turn the region into a center for medical innovation. ‘The people that are out of work just don’t match the types of jobs that are here, open and growing.’” Without training for the future, we don’t have a future. Without technical excellence and training, the sad prediction that seven of ten of the expected new jobs in the American economy will be at the bottom of the earning spectrum will come true. That’s just unacceptable!

I’m Peter Dekom and a one-note-Johnny for a new prioritized commitment to higher level training and education for all American workers.

When Governments Contract

A Pew Research Center survey (summarized in the June 30^th Washington Post) paints a pretty bleak picture of the impact of this long-standing (with many miles to go) “recession that looks more like a depression”: “Nearly half of the survey's respondents say they are in worse financial shape as a result of the downturn, which destroyed 20 percent of Americans' wealth.” I remember one comment from some inane observer: “Where did that money go; somebody’s has to have it?” I guess a “Dude, stuff is… like… worth less, you know, man” wasn’t enough of an explanation. Over sixty percent of us borrow less, maybe because no one will lend it to us, but more likely because either we don’t have it or we don’t believe enough in the future to believe we will still have it. 35% of those over 62 have elected to postpone retirement (what does “retirement” mean, again?), and 60% of workers between 51 and 62 think they will as well.

The Post lays it on: “Four in 10 adults say they have tapped savings and retirement accounts to make ends meet. Others have sought help from friends and family. Almost a quarter say they have borrowed money from someone. And one in 10 -- including 24 percent of workers from 18 to 29 years old -- say they moved back in with their parents to weather the economic storm… Hardest hit are the 9.7 percent of workers who have been out of a job for an average of nearly six months… ‘We're going to see much lower consumption going forward,’ said Dean Baker, co-director of the Center for Economic and Policy Research. He blames diminished spending on the drop in housing prices. ‘People who thought they had equity in their homes have seen it disappear,’ he said.”

So let’s see, if governments apply austerity programs, basically raising taxes and cutting their own spending, those governments are pretty much saying that they are not going to be the segment of the economy that will stimulate growth… indeed laying off government workers (and a few vendors along the way), spending less on infrastructure repair and development as well as other governmental programs and projects, while taking away money in the private sector by raising taxes may well produce the opposite effect: deflation and contraction. And if it isn’t the government that will restart the economy, who will?

The June 29^th New York Times puts it pretty simply: “The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome… In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.”

Bottom line, it’s a bet. Obama thinks we need more in the way of government stimulus to let the nascent trends showing mild economic growth continue, fearing that excessive concern with budget deficits resulting in premature cutbacks will plunge this country into an extended drought. The stock market, reacting to the G-20 emphasis on austerity and controlling national budget deficits (the other side of the bet), seemed to agree with Obama. The markets plunged after the G-20 summit. Whatever the result, the individual choice of each nation on this issue will be a judgment call that could go either way. Treasury Secretary Tim Geithner called for a more balanced approach between austerity and stimulus, but by the time we find out which side was right, it may be too late to stop a bad trend from becoming worse.

Even some of those “attractive” employment gains we’ve seen recently were based on very temporary jobs, many relating to the U.S. Census. The July 2^nd Washington Post tell us that analysts expect the next Labor Department report will show “that employers cut about 110,000 positions in June, reflecting the loss of about 240,000 temporary census jobs. Investors will be focused on hiring by businesses because that is a key factor needed to revive the economy.” The economy is anything but stable, and the underlying markets are anything but clearly optimistic. The unemployment percentage might be down (from 9.7% to 9.5%), but the number of workers looking who are unemployed is up as is the number workers who’ve just plain given up.

My personal belief is that we are in for a multi-year downturn that will leave permanent changes in our social structure, and unless we can find new industries and technologies to replace those which are clearly being left behind – which I think requires a strong emphasis on rebuilding America’s skills and learning – the polarization of haves versus have-nots will only increase and change the essence of America. I also believe that we are entrepreneurial and creative enough to find those new paths.

I’m Peter Dekom, and building a solid foundation for the future has to be job one.

A Noble Experiment

In the fall of 2006, the School District of Philadelphia and Microsoft together opened an experimental high school – The School of the Future – in a section of the city that was performing well-below the national norm. The freshman class (called “first year” students at SOF) – which graduated on June 15^th – then began a trek through a closely monitored environment, with students placed into this environment by means of a lottery system. They were asked to wear sweatshirts from a college on their first day. The technology of the classroom was state of the art and even the lesson plans were designed mostly from the ground up, wrapped in software and presented visually with lots of interactivity. Laptops and electronics replaced traditional texts and paper. The lofty goals are articulated on the Microsoft Website:

· Practice and promote digital inclusion.

· Integrate technology into every area of the learning community, including curriculum delivery, community collaboration, office support, content creation, and sharing content and assessments.

· Generate innovative education practices and new models for learning.

· Create an environment that engages all learning community members and helps to inspire passionate, personal responsibility for learning.

·

· The school even looked different: “When the Microsoft-designed School of the Future opened, the facility was a paragon of contemporary architecture, with a green roof, light-filled corridors and the latest classroom technology, all housed in a dazzling white modern building.” NPR.org (June 15^th) But students entering this school were, for the most part, performing at a grade school level; they had a lot of catching up to do, and the earliest years at SOF were… well… challenging: “The school's first set of standardized test scores last year were dismal. Only 7.5 percent of 11th graders scored proficient or higher in math; 23.4 percent scored proficient or higher in reading.” NPR

·

· To many educators, any statistics generated from this experiment were suspect. First, students had to ask to be included in the lottery in the first place – so the school only catered to families that cared about education enough to apply. Second, with so much media and academic attention, the kids were treated as if they were special by just about everyone. Tour groups were constant: over 3,000 educators and members of the press from 50 nations since SOF was founded. Third, the school even attracted reform-minded teachers determined to make the experiment work. But many questioned whether technology was even an answer, even though basic computer literacy would seem to be the minimum threshold for any education.

More ubiquitous evidence – based on multiple schools in several school districts – provides conflicting evidence on the use of new technology in the classroom: “Increasingly, though, another view is emerging: that the money schools spend on instructional gizmos isn't necessarily making things better, just different. Many academics question industry-backed studies linking improved test scores to their products. And some go further. They argue that the most ubiquitous device-of-the-future, the whiteboard -- essentially a giant interactive computer screen that is usurping blackboards in classrooms across America -- locks teachers into a 19th-century lecture style of instruction counter to the more col laborative small-group models that many reformers favor.

·

· “‘There is hardly any research that will show clearly that any of these machines will improve academic achievement,’ said Larry Cuban, education professor emeritus at Stanford University. ‘But the value of novelty, that's highly prized in American society, period. And one way schools can say they are “innovative” is to pick up the latest device.’” Washington Post (June 11^th). Or try this British study, reported on Education.Gua rdian.co.UK in 2005: “Yet - apart from evidence that using the boards benefits children who struggle in English - analysis of the year 6 Sats [British evaluation tests] in 2003 found schools kitted out with interactive whiteboards only did better than those without by a very small margin in maths and one that shrank to insignificance in English. In maths the average test score was 63.93 for whiteboard schools compared with 61.75 for non-whiteboard institutions, while the figures for English were 58.69 compared with 58.09. In 2004, even those small differences evaporated.”

·

· With all this skepticism, how did the first SOF graduating class fare? “Out of the 156 students who started school in 2006, 117 [graduated June 15^th] and 30 transferred away, which leaves only nine students who dropped out. That's better than the national graduation rate of 67% (for economically challenged West Philadelphia, where most of the students are from, it's a bit lower). But there's a still more impressive stat: Of the 117 who are graduating today, all have college plans, whether it's two-year technical school or a four-year state school. ‘In an urban education setting this is really unheard of,’ says [Microsoft’s Partners in Learning executive director Mary] Cullinane. ‘Not just in Philly but across the country.’” FastCompany.com (June 15^th).

·

· So take away the highest tech, the media and academic spotlight and focus on the rest: families who prioritize education enough to apply to the best programs, kids who feel special who are given enough resources and attention and teachers committed to reform for the general good. These would seem to be essentials that each and every school district in America should accomplish; America’s priorities really can’t be that hard to set.

·

I’m Peter Dekom, and I guess you can tell where I place education on the priority ladder.

Keep the Faith, Baby!

Tea Parties. Immigration legislation at a state level. De facto segregation of schools and neighborhoods. But is America slowly becoming tolerant of diversity, notwithstanding these trends? In my May 28^th blog, I provided this quote from the May 17^th NY Times, suggesting that younger Americans, those less vested in material possessions than their elders, were less likely to support the recent Arizona legislation requiring folks to carry valid residency documents: “This emerging divide has appeared in a handful of surveys taken since the [Arizona] measure was signed into law, including a New York Times/CBS News poll this month that found that Americans 45 and older were more likely than the young to say the Arizona law was ‘about right’ (as opposed to ‘going too far’ or ‘not far e nough’). Boomers were also more likely to say that ‘no newcomers’ should be allowed to enter the country while more young people favored a ‘welcome all’ approach.” The Times. Will these younger folks retrench into exclusionary feelings as they get older or is there something else going on?

We’re seeing a parallel “tolerant” trend in marriage patterns; inter-faith marriages are increasing rapidly: “15 percent of U.S. households were mixed-faith in 1988. That number rose to 25 percent by 2006, and the increase shows no signs of slowing. The American Religious Identification Survey of 2001 reported that 27 percent of Jews, 23 percent of Catholics, 39 percent of Buddhists, 18 percent of Baptists, 21 percent of Muslims and 12 percent of Mormons were then married to a spouse with a different religious identification. If you want to see what the future holds, note this: Less than a quarter of the 18- to 23-year- old respondents in the National Study of Youth and Religion think it's important to marry someone of the same faith.” Washington Post (June 6^th).

Love and mobility, heterogeneous colleges/universities and workplaces plus lots of online dating sites (one fifth of recent marriages – including my own – emanate from this social phenomenon) have displaced neighborhoods and places of worship as the “place where you meet your mate.” But bringing up junior is frequently a sticky issue. Some with strong faith marrying someone with less powerful but different beliefs may require a religious conversion as a condition to marriage. Sometimes this works, but frequently, the tug of the original religion often pulls the converted party back after some of the fire and passion subside. Guilt and fear can replace that love and passion. Usually, raising junior is simply and peacefully determined. Sometimes, this decision tears families apart.

For the person marrying into a family where faith is a driving force, the results can be difficult, to say the least: “[T]he effects on the marriages themselves can be tragic -- it is an open secret among academics that tsk-tsking grandmothers may be right. According to calculations based on the American Religious Identification Survey of 2001, people who had been in mixed-religion marriages were three times more likely to be divorced or separated than those who were in same-religion marriages.

“In a paper published in 1993, Evelyn Lehrer, a professor of economics at the University of Illinois at Chicago, found that if members of two mainline Christian denominations marry, they have a one in five chance of being divorced in five years. A Catholic and a member of an evangelical denomination have a one in three chance. And a Jew and a Christian who marry have a greater than 40 percent chance of being divorced in five years… More recent research concludes that even differing degrees of religious belief and observance can cause trouble. For instance, in a 2009 paper, scholars Margaret Vaaler, Christopher Ellison and Daniel Powers of the University of Texas at Austin found higher rates of divorce when a husband attends religious services more frequently than his wife, as well as when a wife is more theologically conservative than her husband.” The Post

Where these marriages hold, tolerance of differences rises, and with a few notable exceptions, most communities are increasingly accepting of interfaith marriages. Yet surprisingly, most couples don’t even talk about religion before they marry; they usually believe that love does conquer all. But given the above statistics, is staying within your faith bigoted or practical? Shared experiences clearly do enhance a marriage, but is it necessary for a family to pray together to stay together?

I’m Peter Dekom, and the complexities of modern living never cease to amaze me.

Tight Belts and Broken Promises

It's a story that will be repeated in every corner of the Western world where people were promised social benefits and government workers were pledged fringe benefits: sorry, they will be severely reduced if not eliminated. Economist Paul Krugman calls what is going on in global finance a “third depression,” one that looks more like the one that began in 1873 and dragged on for years (the Long Depression"): “We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression (of the 1930s). But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.” Writing for the New York Times (June 27^th). Krugman fears austerity programs of government around the world as a trigger for more deflation and believes, as the Obama administration has recently announced at the G-20 meeting in Toronto, that excessive governmental austerity might backfire and sink the world into a deeper malaise. Unfortunately, Mr. Krugman, austerity is the name of the game, and the G-20 nations even set a three-year timeline for deficit reductions of at least 50% for member nations (including the U.S.).

The impact of the first stages of the weakest European economies imposing austerity has already produced strikes and deadly riots in Greece; Ireland is falling on its face, and Spain is grappling with the lending requirements imposed by the EU Central Bank. Things are looking pretty grim for the locals. "'Europe is in a tough bind,' said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a Harvard professor. 'If you want to escape default, the Irish path is the only way to go. But the Ireland experience points to the profound challenges that the current strategy implies.'… Politicians here have raised taxes and cut salaries for nurses, professors and other public workers by up to 20 percent. About 30 billion euros ($37 billion) is being poured into zombie banks like Anglo Irish, which was nationalized after lavishing loans on developers… [Ireland's] budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year — worse than Greece. It continues to deteriorate. Drained of cash after an American-style housing boom went bust, Ireland has had to borrow billions; its once ultra low debt could rise to 77 percent of G.D.P. this year." New York Times (June 29^th).

Spain's no better. Taxes are going up across the board and services have been slashed. Infrastructure projects are freezing in their tracks, spitting off even more jobless souls. Where jobs aren’t being eliminated, government salaries are dropping, fringe benefits contracting, pension benefits are freezing (even where the law requires cost of living increases!) and the retirement age increasing (and it is not entirely clear that there will ever be enough money to support the requirement contributions to fund these retirement pledges). Subsidized day care for civil servants, once a point of pride for the government, is going to cost participants a lot more, and look to interest-free mortgages to qualified government employees to slide into the abyss. The baby bonus, $3,300 per birth, is vaporizing. They took lower-paying government jobs for the stability and the benefits, and both seem to be slipping away.

The government continues to struggle to find new cuts to make and new taxes and fees to hike: “With each new proposal, the popularity of the Socialist government has plummeted. One recent poll found that more than 50 percent of the population wanted Prime Minister José Luis Rodríguez Zapatero to call early elections, which he would lose by more than 10 percentage points… When Mr. Zapatero announced a move to stimulate the economy last week — an overhaul of the country’s labor laws, which make it virtually impossible to fire older workers — unions, traditionally his allies, called for a general strike in September, the first one in nearly a decade.” The New York Times (June 28^th). The “cradle to grave” web of European social benefits – that big safety net in the sky – is no longer sustainable.

A typical impacted government worker reacts: “He would like to see the bankers he considers responsible for the country’s problems taxed and prosecuted. He does not think much of government officials, either. The day the first austerity measures were announced, he saw the mayor of Madrid and his minister of public works on television attending a sporting event in Germany… ‘If we have no money, why are they there?’ he said. ‘I don’t understand why we are making social cuts. Look at the [Spanish] monarchy. What is that worth? Why are we paying for that? And there is a lot in the public service that could be cut — official cars, official trips.’” The Times. Right behind the euro economies of Greece and Spain are Ireland, Italy and Portugal, but all European nations have announced austerity measures, and if this “recession/depression” rolls on for years longer, France and Germany may well join Greece with strikes and riots. Is austerity the right path? How sure are you?

I’m Peter Dekom, and perhaps I can get a job as an aging domestic in a Shanghai household someday.

Hello, Mister Big Shot!

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed. The Second Amendment to the Constitution of the United States of America

Read those few words – without reading anyone else’s opinion about what they mean – and think about what you believe it to say. Done? Add the historical facts that immediately preceded the American Revolution… think British soldiers breaking into a house and terrorizing the occupants. Picture a revolutionary army with no guns. Read the words again. Does it matter that that classes of weapons available at the time were limited to single shot pistols and muskets, swords and knives, spears, bow and arrows, a few explosives and primitive cannon? Did our forefathers believe that the final check and balance on our system of government was violent overthrow? Was it more about having a citizen-soldier to be ready in case of attack? Was it about the rights of individuals to hunt or defend themselves or states’ rights to protect themselves from harm with a civilian militia or both?

Back then, there were armed robbers – highwayman was a popular term in those days – and pistols were a common method of “involuntary wealth extraction” (sounds like taxes, but at least we voted for those who legislated taxation). There weren’t street gangs with Uzis and AK-47s escalating a violent drug trade and depriving lower class urban neighborhoods of the one commodity they really cannot live without: hope. There were ranchers, farmers and hunters – a rifle was simply one more tool of their trade.

People collect guns. Hunters display trophies or cook and eat what they kill. Whatever your feeling about animals, omnivores and carnivores have been killing to eat and survive since life began. And if you have leather shoes or a leather purse, even if you choose a less cruel vegetarian path, you are a source of demand for animals to die. 99% of all animals on earth die violently; only some human beings (and their pets) live long enough to die of old age.

Where am I going with all this? Well, if reading the above stirred any emotions – negative or positive – then you understand the passionate battles that have been fought over the years in the interpretation of a constitutional edict that was created centuries ago. You understand the gang-plagued neighborhoods living in fear every time they step out the door. Should they have guns to defend themselves or is that the reason for the problem? You might understand the seventh generation of a farming family, raised on hunting and marksmanship… a point of pride and history, of family. But when you talk to a European about the United States, when the subject of guns comes up, they usually cringe. Most street cops in London don’t carry guns. While legitimate hunting rifles and shotguns are common, sophisticated anti-personnel weapons and pistols are not. They see us as a violent and dangerous society, and their newspapers often feature sensational reports of grizzly American crimes involving guns.

Back in the 1930s, when violent street crime was on the rise, the federal government imposed a requirement to register sawed-off shotguns (clearly not a hunting weapon!). The individuals arrested for failing to register claimed “individual rights” under the 2^nd Amendment, but in 1939 (U.S. vs Miller), the U.S. Supreme Court focused on the word “Militia,” upholding the registration law, “'[w]ith obvious purpose to assure the continuation and render possible the effectiveness of such forces the declaration and guarantee of the Second Amendment were made. It must be interpreted with that end in view.'' Basically “civilians primarily, soldiers on occasion,” called upon and “capable of acting in concert for the common defense.” Two years ago, the Co urt ruled that the Second Amendment allowed citizens to keep firearms in their homes for self-defense (District of Columbia v. Heller), and on June 28^th – in a narrow 5-4 decision – the Court ruled that this right to bear arms applied to local and state laws as well (McDonald v. Chicago): “Justice Samuel A. Alito Jr., who wrote the opinion for the court's dominant conservatives, said: ‘It is clear that the Framers . . . counted the right to keep and bear arms among those fundamental rights necessary to our system of ordered liberty.’” The Washington Post (June 28^th).

The National Rifle Association was founded in 1871, and while it fosters safety and proper training in the civilian use of firearms, it also has a powerful political mandate: “Its political activity is based on the principle that gun ownership is a civil liberty protected by the Second Amendment of the Bill of Rights, and it claims to be the oldest continuously operating civil rights organization in the United States. According to i ts website, the NRA has nearly four million members.” Wikipedia. Clearly, that view of individual rights, espoused by the NRA, is not really consistent with the holding in Miller, but it is an exceptionally common view of millions of Americans. And as the President discovered during his campaign, it is a very, very hot political button that can kill candidate’s career deader than a rifle shot to the head.

Nice academic stuff, Peter, but why this and why now? Because in a country falling apart because the law seems only to be concerned with those able to lobby the most, contribute to campaigns the most and mount massive public relations offensives the most, a bitterly divided U.S. Supreme court, in a January decision (Citizens United vs Federal Election Commission) that effectively repealed two decades of campaign reform legislation restricting unions and corporations from unbridled political contributions, opened the floodgates for special interests seeking further to influence the political process. And one of the most powerful institutions that has constantly battled against candidates that favor “gun control” is the National Rifle Association.

So how does a Democratic Congress deal with re-setting campaign reform back into our legislative process – possibly facing another Supreme Court challenge? How do they challenge the dangerous ascension of special interests in controlling the vectors of our legislative process? By creating a loophole to benefit a special interest! The New York Times (June 18^th): “Congressional Democrats are pushing hard for legislation to rein in the power of special interests by requiring more disclosure of their roles in paying for campaign advertising — but as they struggle to find the votes they need to pass it they are carving out loopholes for, yes, special interests… In a deal that left even architects of the legislation squirming with unease, authors of a bill intended to counter a Supreme Court ruling allowing corporations and unions to pour money directly into campaign commercials provided an exception this week for the National Rifle Association, one of the most powerful lobbying groups in Washington.” Of course the NRA should be able to express their political views… but why do they get their own exception to the proposed law? Political pragmatics? Isn’t that the definition of a special interest that we are trying to reel in to protect individual rights? Oy! I want my mommy!

I’m Peter Dekom, and I am watching it all slowly drifting away.

A Trillion Reasons to Cry

The June 20^th Washington Post: “The obligations of state and local governments have doubled in the past decade, to $2.4 trillion, according to a recent Federal Reserve report, a figure that excludes more than $1 trillion in unfunded pension and retiree health-care liabilities.” Back in January of 2008, long before the world’s economy melted, the Government Accountability Office described the pre-crash problem in seemingly gentle terms: “Still, many [state and local] governments have often contributed less than the amount needed to improve or maintain funded ratios [for retiree benefits]. Low contributions raise concerns about the future funded status. For retiree health benefits, studies estimate that the total unfunded actuarial accrued liability for state and local governments lies between $600 billion and $1.6 trillion in present value terms. The unfunded liabilities are large because governments typically have not set aside any funds for the future payment of retiree health benefits as they have for pensions.”

And then the state and local property tax, income tax and sales tax base blew up as home values collapsed forcing many into foreclosure, unemployment and economic contraction pulled back income and people just stopped buying! While some states – like Arizona – have begun changing the retirement benefits for current workers (which will become the rule across the nation in the near term) by extending the retirement age, for those fractured cities and states dealing with workers who have already retired with vested benefits, the only exit may be bankruptcy. And the situation is only getting worse; on April 19^th, the Franklin Center for Government & Public Integrity figures that by 2013, that $1 trillion of unfunded state and local benefits pushes out to $1.2 trillion. And when bankruptcy hits, there are a lot of pensioners (happy with the defined benefit retirements plus cost of living escalators) in for a very rude shock, a betrayal on the order of magnitude faced by a Bernie Madoff investor.

We’re going to see cities, towns and states hit walls a few at a time… until there is a flood. The signs are out there. A few have already fallen recently: Pontiac, Michigan, Vallejo, California, Central Falls, Rhode Island and even Jefferson Country, Alabama’s largest county. Since 1980, there have been 245 Chapter 9 (municipal) bankruptcy filings. An example of one more that is about to trickle is the insolvent capital of Pennsylvania, Harrisburg. “The debacle is pushing the 150-year-old state capital toward default. The fiscal crisis has shaken the city, which over the past decade has spruced up its riverfront downtown and created tourist attractions in large part through low-cost financing afforded by municipal bond sales. In one notorious example, former mayor Stephen R. Reed spent nearly $8 million from the public authority tha t owns the incinerator to buy wagon wheels, rifles and other memorabilia for a Wild West museum that never opened. And like a homeowner who binged on cheap financing, this city is underwater financially. ‘The truth is, we are already insolvent,’ City Controller Dan Miller said.” The Post.

They have a $68 million loan due at the end of the year, a sum that exceeds the entire city budget for the year, and no clear path to find a substitute lender. They borrowed to spruce up the city, pay for a new garbage incineration system that went way over-budget… well they acted like lots of Americans who could only see a rising economy as far as the eye could see. Even with massive tax and service fee increases and tons of layoffs and cutbacks, Harrisburg is unlikely to survive without filing for some kind of official bankruptcy or insolvency protection.

But the bigger picture is what happens to municipal bonds in general. Picture a few defaults and how investors, who have always thought tax free munis were safe and efficient, will react. What happens to the ability to place school and infrastructure bonds? What happens to the ability of state and local government to construct new and replacement roads, bridge, dams, mass transit, senior housing, parks, libraries, playgrounds… well the list is endless? Paying off bondholders has been sacred; failure to honor those debt obligations could easily spell the end of a state’s ability to build larger, longer term projects.

Even where cities have gone under, states have stepped in to make the bondholders whole: “In the past, the bond market's importance motivated officials to do all they could -- including raising taxes and cutting services and personnel -- to make payments. If cities miss payments or show severe fiscal stress, their bond ratings are cut, significantly increasing borrowing costs and making it more difficult to emerge from debt. Even when municipalities file for bankruptcy, ‘the tradition is that bondholders get paid in full,’ said James E. Spiotto, a Chicago lawyer specializing in public financing. ‘The reason is that without access to the bond market, cities can't function.’ When municipalities couldn't help themselves, their states usually stepped in. Cleveland defaulted on more than $15 million in bonds in 1978 but was able to refinance them not long after. Also in the 1970s, New York was lifted from a financial hole with state help. More than a decade later, Pennsylvania bailed out Philadelphia.” The Post. But today, there are 39 states with their own deficits to bear; the luxury of paying off the debts of a defaulting city may no longer be in the cards.

As we look out the window and warily eye European defaults and a moribund domestic real estate market, as we watch the unemployment needle staying in place and the future job picture focus on the lower paying end of the employment spectrum, it’s easy to miss the elephant in the room: the rapidly deteriorating state and local economic options. The feds can increase the money supply (print money); the states and local cities just go under. The impact can shatter any hope for a foreseeable recovery, and only the federal government has the tools to begin to deal with this mega-crisis.

And when you read this little ditty on the federal government that appeared in the June 22^nd Los Angeles Times, you’ll feel so much better: “As the Senate scrambles to scale back a $140-billion recession relief bill, the poor, the elderly and the unemployed are bearing the brunt of the squeeze. But NASCAR track developers, movie producers and other special interests are likely to escape unscathed… Those businesses stand to gain $32 billion in tax breaks as part of the bill, which has been stalled for weeks because of rising complaints about deficit spending.

“In the hunt for ways to cut costs, neither party has proposed curbing the panoply of narrow tax preferences, which Congress has routinely extended each year… Instead, Senate leaders have proposed a $25 cut in weekly unemployment benefits; temporarily allowed a 21% cut in Medicare fees for doctors; and are planning to withhold or scale back $24 billion in payments many states expected to help pay for Medicaid for the poor.” Yeah, I didn’t think so!

I’m Peter Dekom, and sometimes the obvious can kill you.

The War of 1812, Meet the War of 2010

Clearly, the United States and England did not start out on a good note. Between the Revolutionary War and the War of 1812, we were shooting at each other, and I am sure more than a few vituperatives were hurled back and forth in the process. But as the decades swirled by, the common language, culture and ancestry brought our nations back together. Two alliances during the major world wars, joint causes over several conflicts (like Korea, notwithstanding a momentary glitch over a conflict over the Suez Canal in 1956, and later… maybe, Afghanistan) cemented what appeared to be unbreakable ties. Until now.

If crisis is a measure of the reliability of friendship, then a combination of al Qaeda-inspired conflict (and a couple of failing efforts thereafter), a collapsed global economy and an environmental disaster of unprecedented man-made proportions might just have forced a transition from UK-US lockstep friendship to a clear parting of the ways… that isn’t horrible, but it sure isn’t buddy-buddy anymore. The latest rift appears to have been a growing part of Europe’s attempts to aggregate economic power to neutralize the apparent hegemony of the American financial empire with a countervailing force – the European Union (and we know that France and Germany are having serious second thoughts about that, as their relative superior financial status is being dragged down by weakness in other euro economies like Greece and Spain).

But England isolated herself from the collapse of the euro by maintaining its own, and now equally underperforming, currency, the pound sterling. The U.K.’s growing rift with the United States is more than a dissatisfaction with her football (read: “soccer”) team’s abysmal performance in their recent World Cup appearance. With a new Conservative Party government replacing the Blair-Brown Labour Party governments that preceded, newly elected Prime Minister David Cameron seems hell-bent on undoing the perceived lackey status of London’s relationship with Washington on many levels. The June 26^th Washington Post: “In supporting President George W. Bush's decision to invade Iraq, then-Prime Minister Tony Blair created the perception that his country was America's ‘poodle.’ The ongoing British inquiry into the Iraq war has kept the perception alive, making it harder for Blair's successors to fully embrace American policy, even when they have wanted to.” Cameron’s new policy on Afghanistan – announced in the wake of a change in senior theater commanders and a growing belief that the war in that region is unwinnable – will withdraw all British forces (the second largest behind the U.S.) from Afghanistan within five years.

But the most recent rift has come in the Obama administration’s justifiable slam on British Petroleum’s massive ignorant and negligent destruction of the environment and the accompanying economies reliant on Gulf resources through its failed and massively leaking Deepwater Horizon rig in the Gulf of Mexico. That the Americans have pressured BP to cease dividends and establish a massive $20 billion escrow to begin to cover the damage has threatened the rather large contingent of U.K. pensioners who have relied on BP dividends and appreciation for the retirement.

The Post provides this typical British reaction: “In a recent column in the Daily Mail, Amanda Platell, a former aide to now British Foreign Secretary William Hague, wrote that ‘the way Tony Hayward has been vilified is a joke,’ referring to the BP chief executive who infamously noted that no one wanted the spill to end sooner than he did because he ‘want[ed his] life back.’… ‘If you don't recognize the special relationship is special to you, and if you don't know loyalty goes both ways and you've never had a better friend than Britain, then send our 10,000 troops home from Helmand immediately,’ Platell wrote, referring to a region of southern Afghanistan where British and American forces are fighting the Taliban.” Funny that notwithstanding al Qaeda attacks in London, the Afghan war effort seems to be perceived as simply an “American” conflict.

A black President is seen as lacking the connective tissue found between former U.S. Presidents and England: “The British press has also written that Obama has a special antipathy toward the country because his paternal grandfather was mistreated by British troops during Kenya's fight for independence. Then along came the oil spill… The polling firm YouGov reported earlier this month that 64 percent of the British people believe Obama's handling of the BP spill has weakened the countries' relationship. The poll was conducted as Hayward faced scolding questions on Capitol Hill.” The Post. But wait folks, there’s more.

Brits blame Wall Street, notwithstanding the clear complicity of U.K-based financial institutions (through which flowed 70% of major European deal traffic), for the global financial collapse. And the Obama administration’s attempt to balance its alliances globally has been met with cold resistance from the U.K. body politic: “But Obama, too, came into office with a foreign policy philosophy that sought to treat all countries equally under a shared set of international ‘rights and responsibilities.’ The approach has left not only the British among U.S. allies feeling less special than they once did… Earlier this year, the House of Commons’ foreign affairs committee issued a report concluding that the special relationship has lost its relevance.” < /SPAN>The Post.

In the G-20 talks in Toronto, the rift grows wider: the Brits want to contract and impose austerity measures to reduce debt; U.S. Treasury Secretary Tim Geithner thinks austerity could derail a nascent recovery and is pressing for more government spending, seeking a middle ground. “We have to find the right balance, and that balance is going to differ across countries. But I think you're going to see a strong commitment again by these major economies to do what is necessary to make sure that we are supporting recovery and getting that balance right,” Geithner said to the gathered world leaders on June 26^th.

The British PM’s “on-the-side” meeting with President Obama at the sequential G-20/G-8 meetings may have produced some platitudes about U.S.-U.K. relations, but without the slightest doubt, these two nations no longer have remotely the same global alignment that most Americans have assumed. When PM Cameron makes his first official visit to the United States, currently slated for July 20^th, it will be most interesting to see how he addresses that relationship to his own people and the British press. I suspect “warm and fuzzy” is no longer in the cards, replaced by serious pragmatism and a rougher alliance that we have had with England for a very long time.

I’m Peter Dekom, and nothing ever seems to stay the same!

When the Americans Withdraw

I have often blogged that Pakistan is one of the most dangerous nations on earth. Politically unstable and ripped apart in an almost feudalistic class war, this seeming democracy has never fulfilled the role of “American ally” in regional peace as the U.S. has claimed. Not only have even the most pro-American factions made unholy “we’ll look the other way while you run militant Islamic madrassa schools and recruit heavily on our college campuses” agreements with the most threatening Islamic fundamentalists, but the military and the intelligence services have always leaned heavily against U.S. anti-terrorism policies in the area. The general consensus of the people – who almost in lockstep continue to see India, followed by Israel and the United States as enemies – is profoundly anti-American.

The military is one of the few ways for impoverished and disenfranchised Pakistanis – the demographic segment where fundamentalist Islam has planted its deepest roots – to move upward into positions of influence and power. And it precisely the military – in control of at least 70 nuclear warheads with the means of delivering them – that is at the core of anti-American policies in the region. The June 24^th New York Times: “Washington has watched with some nervousness as [the head of Pakistan’s Army] General [Ashfaq Parvez] Kayani and Pakistan’s spy chief, Lt. Gen. Ahmad Shuja Pasha, shuttle between Islamabad and Kabul, telling [Afghan President] Mr. [hamid] Karzai that they agree with his assessment that the United States cannot win in Afghanistan, and that a postwar Afghanistan should incorporate the Haqqani network, a longtime Pakistani asset.” Karzai and Kayani are pictured above.

There’s a tiny little problem with that “Haqqani network”; it is run by “Sirajuddin Haqqani, an ally of Al Qaeda who runs a major part of the insurgency in Afghanistan.” The Times. And what Pakistan is pushing for is a power-sharing alliance between Haqqani and Karzai that would also involve brokering a deal with the Afghan Taliban and one or two of the other factions in the region. If the entire American mission statement for its recent wars in both Iraq and Afghanistan has been to deny al Qaeda a platform to gather strength and expand its global power base, this result could be catastrophic. Unfortunately, that the Americans cannot even control the few Afghan Taliban strongholds they have been able to capture – like Marja – has led to a general regional feeling the Americans will fare no better in Afghanistan than did the Soviets in their the ill-fated, decade long attempt by in the 1980s. If anything, Taliban forces have never been stronger in Afghanistan than they are today.

For the Americans and their NATO allies to prevail, the military commitment must be elevated well above the 100,000 troops currently involved (some believe that it would require a multiple of that number), willing to remain for decades with the blind hope that some form of economic prosperity (perhaps mining versus opium) will stabilize the region and unify tribes who have fought each other since history recorded their efforts into a functioning nation. We have neither the will nor the financial wherewithal to generate this result. Welcome to the lose-lose. With Karzai having an alternative to his American support system, his corrupt government will be even more difficult to control. Since he “knows” the American cause is long gone, his survival instincts will push him farther into the Pakistani-al Qaeda-leaning nest.< /o:p>

The stage is clearly being set for the Pakistan plan: “Pakistan has already won what it sees as an important concession in Kabul, the resignations this month of the [Afghani] intelligence chief, Amrullah Saleh, and the interior minister, Hanif Atmar. The two officials, favored by Washington, were viewed by Pakistan as major obstacles to its vision of hard-core Taliban fighters’ being part of an Afghanistan settlement, though the circumstances of their resignations did not suggest any connection to Pakistan.” The Times. Is Haqqani willing to sell out his long-time al Qaeda allies – maybe even handing over Osama bin Ladin and Ayman al-Zawahri to the Americans – to garner U.S. support? Is this remotely possible? Or is this a game that might look good on paper but literally will have a longer term effect that is quite the opposite? Does bringing al Qaeda out into the open in a new nation give the U.S. a more clearly-defined geographical target? Welcome to Afghanistan, General David Petraeus. All yours.

I’m Peter Dekom, and wars built on rage without the willingness to do what it takes over a very long run have become an unfortunate American tradition.