Husbanding Your Naval

I’ve blogged about how the U.S. military seems to run a cost-plus, continuing demand for change orders, system of getting new state-of-the-art planes, ships, drones, missiles, tracking and land-based weapon systems. The consistent unseen stealth factor on these systems seems to be the final cost. The government argues that at the edge of new technology is the difficultly of specifying costs when you’ve never actually built the system you think you are designing. How can you define a cost for the unknown? Kind of like building a modern house with a $500,000 budget, and paying $2 million for the finished product. And when your old “state of the art” weapons reach the end-of-days, you often look to replace them rather than questioning the entire strategic mission.

But that’s not the only hidden cost in our system. With the most expensive military budget in the world, hundreds of billions at stake as we take up over 40% of the entire planet’s military expenditures, that kind of money simply attracts folks who interpret contracts to maximize revenues every time… and more than a few who have figured out how to milk the system, often crossing the line and committing out-and-out fraud with a dash of bribery. A statement from Navy Secretary Ray Mabus at a recent Pentagon briefing says it all: ““Any time you’ve got this kind of money, there are going to be people trying to steal, people trying to defraud the government.”

Even the legitimate system is flawed. “The Navy usually awards regional contracts to the company that bids the lowest on a series of items — everything from tugboat services to trash removal — that are assigned fixed prices. But once a contract is in motion, if a supplier says that, for instance, a crane with a fixed rental price is not available, the supply officer on board has little choice but to pay a higher — or nonfixed — price for other equipment. So even if an original bid is low, costs can quickly escalate.” New York Times, December 20^th. Nonfixed costs can make up more than half the bill. But wait, there’s more.

It seems too damned delicious that even the most established suppliers seem to be participating in the heinous feast. “The serial problems with the ship-supply, or husbanding, companies have turned into one of the Navy’s most embarrassing scandals in years. The issue burst into public view in September when the owner of the Navy’s main ship supply company in the Pacific, Leonard Glenn Francis, was arrested on charges that he bribed Navy officials to help him overcharge.

“[In November], the service suspended one of its main supply firms in the Middle East and Africa, Inchcape Shipping Services, from winning new contracts because of a civil fraud investigation by the Justice Department into allegations that the company repeatedly overbilled the Navy.

“And [in mid-December,] the Navy’s largest ship supply firm, Multinational Logistic Services, which has received $346 million for port services in Africa, the Mediterranean, Central America and the Pacific, placed one of its senior executives on leave while looking into his handling of contracts at his former employer, Inchcape.” NY Times.

Having such a huge military is virtually unmanageable. We are tempted to use our power, starting too many shooting wars that are not won or lost based on military bigness… just on a willingness to stay in these theaters of action for endless decades of frustrating failure, drain our life-blood slowly but massively over time. We gain unpopularity, increasing our need to go-it-alone diplomatically because fewer nations are willing to align with our goals, as we use that bigness to get our way. The bully factor. As our drones descend on enemies who didn’t even know we existed a few decades ago, we make fresh enemies and create recruiting posters for new extremists. Our intrusive eavesdropping technologies have even alienated our traditional allies. Still our heroin-like addiction to military spending continues virtually unabated.

The Navy is taking steps: “Mr. Mabus listed several actions he had ordered to prevent and weed out fraud in the ship-supply industry. Those included collecting data about what provisions and equipment should cost at foreign ports, so the Navy will be able to fix the costs of more items in contracts. He also said the Navy was setting up a more centralized system for dealing with suppliers and would provide more support to commanding officers overseas.

“‘We’ve got to have a more centralized, more standard procedure so that we don’t put commanding officers, supply officers on ships in the position of having to make these decisions on the fly,’ he said… Mr. Mabus added that he plans to create a special Navy board, headed by a four-star admiral, to review cases of people tied to Mr. Francis’ company, Glenn Defense Marine Asia, even if they are not prosecuted, to ensure that they ‘will be held appropriately accountable.’” NY Times. The issues with our military will not go away; it’s a whack-a-mole litany of rolling and roiling invitations to engage financial shenanigans. Size does matter when you are trying to get rogue expenditures under control.

I’m Peter Dekom, and I am wondering how much worse (better?) off we would be if we only had 25-30% of the world’s military budget.

Don’t Let Your Babies Grow Up to be Lawyers!

A hoity toity Juris Doctor Diploma sure looks good on your wall, smiles back you on your resume and makes you feel warm and fuzzy all over. Unless you got that sheepskin in the past few years, when the American Bar Association (yes, I am a member) tells us that more than half of recent grads have failed to generate jobs in their chosen field within two years of graduation. Law school applications continue to fall through the floor, and enrollments reflect the damage. “Law school enrollments nationwide are down 11 percent this year from last year and 24 percent from 2010, new figures show.” ABA Journal, December 17th.

Professional schools (notably, law, MBAs and medical schools) are notorious for according financial aid pretty much only as student loans, and with tuition at private schools in the $40-$60K/year range (state schools are not too far behind!), graduates are facing repayment obligations in the very significant six figure range, with no job to pay off that debt and bankruptcy laws making discharge almost impossible. Even where jobs are found, pay levels are falling to reflect the reduced demand for lawyers, except that the highest and most heavenly level.

Online DIY kits and folks taking to represent themselves have taken their toll. Having learned how to “cost control” during the severe recession years, big corporations have continued to apply their Grinch-mode policies right into the present day. Some will not allow Big Law to charge anything for first or second year associates (we’re not paying for your training efforts), while others cap fees, create benchmarks for fixed payments and generally challenge the hourly structure that has supported the traditional Big Law pyramid (partners at the top feasting on the hourly billings of overworked associates at the bottom).

In fact, except for the older lawyers still holding senior positions at Big Law who have the client base to take them through to retirement, the mega-firms that dominate Washington, DC and New York are feeling the shifting sands of the new business environment. When they leave the profession, there may be a very big next-level change that alters the economics of practicing law even worse. The old models of Big Law are drying up.

“The percentage of associates in the nation’s top 250 law firms was at its highest point [in 1988], comprising more than 60 percent of the lawyers, Indiana University law professor William Henderson has found. Beginning in 2008, there have been fewer associates than partners in large firms… Henderson discusses the issue in a monograph, in a post at the Legal Whiteboard and in an interview with [the ABA’s] Above the Law. ‘Large firms are not going extinct,’ he writes at the Legal Whiteboard. ‘But as a matter of demographics, they are greying. If Big Law were trading on the Nasdaq, the analysts would be very critical of this trend.’

“The pyramid has been replaced by a diamond, Henderson says in the monograph, with ‘a relatively small number of entry-level associates, a growing bulge in the non-equity and counsel ranks, a sizable but largely invisible group of permanent staff attorneys, and a proportionately smaller equity class of partners who grow and control valuable client relationships.’ In the short-term, the result is higher partner profits.

“But Henderson sees the current leverage ratio as shortsighted and unsustainable in the long run. He cites a 2012 survey by American Lawyer Media in which 74 percent of managing partners forecast an increase in lateral hiring over the next five years, but only 15 percent foresaw hiring more first-year associates. ‘These numbers suggest that the market for lateral associates is in the process of thinning out,’ he says, ‘and thus will not be a reliable source for high-quality legal talent.’” ABA Journal, December 16th.

I admit to convincing my son not to follow in my footsteps. He’s an overworked associate investment banker with a hoity toity MBA instead. And I do remember that old adage that old lawyers don’t die, they just lose their appeal.

I’m Peter Dekom, and as society changes so do the peaks and valleys of economic opportunity.

They Live in a Different Country

The reality of America is a story of polarization, a colossal fall in the standard of living for most of us, a collapse of free educational standards when compared to the rest of the world just as the costs to individual families to educate their children is soaring… and a new ability for our government, no matter which party is in control, to pretend our lives are good by hiding behind statistics that are wildly misleading and profoundly self-serving. The fact is that like too many third world banana republics, there are two Americas living on top of each other… and the gap between them is widening rapidly. We don’t even live in the same “space” any more.

“Across the United States, more than 10 million housing units are in gated communities, where access is ‘secured with walls or fences,’ according to 2009 Census Bureau data. Roughly 10 percent of the occupied homes in this country are in gated communities, though that figure is misleadingly low because it doesn’t include temporarily vacant homes or second homes. Between 2001 and 2009, the United States saw a 53 percent growth in occupied housing units nestled in gated communities.” New York Times, March 29, 2012. Some put the number a tad higher. A “The growth of gated communities in the United States, to the point where such developments now account for roughly 11 per cent of all new housing and provide housing for about 4 million people…” (according to a report – Gated Communities: A Systematic Review of the Research Evidence – from the University of Glasgow).

This doesn’t count the mega-estates with private guards or single-family fortresses, the uber-expensive cooperatives and condominiums in cities like New York, Boston and Washington D.C., where the well-heeled are protected from the hoi polloi by stern doormen and very sophisticated security systems, sometimes enhanced with armed guards. The one percenters have insulated themselves from the rough and tumble reality of life in the streets. Pricey restaurants, where the tab for a single evening easily rises to the average monthly cost of rent in the lives of many non-homeowners in our dwindling middle class, are thriving.

We already know that the tax code favors those who make their livings buying and trading securities (capital gains taxes and the “carried interest” rates for those who run the funds that service that top level of earners, the ability to “tax plan” to keep earnings off-shore and out of the tax collector’s reach), that the financial industry has tilted the playing field so that 90% of the post-2008 income gains have positively impacted only 10% of all income-generators, and that the top 1% continues to own 42% of the nation’s wealth, a statistic that threatens to grow bigger in the current “recovery.” People who earn wages, salaries and commissions (outside of that carried interest exception) pay taxes at much higher rates.

We also know that the most of the metrics that our government uses to determine that we are in “recovery mode” are totally skewed to avoid the pain that continues to impact the middle and lower classes and over emphasize variables that only measure the performance at the top. Much touted are the rise in the stock market and the fall of raw unemployment, without looking at the fact that real buying power continues to fall for most Americans, the news jobs created are primarily at the bottom of the economic ladder with little opportunity for advancement and too many Americans have just given up looking for work.

The manufacturing and lower-end service sector is slowing growing… and being run by robots. Forget about the threat of outsourcing to other countries; that is old news. The new threat to semi-skilled and unskilled American workers comes from within. The future suggests that this trend is accelerating, providing more income to those who own the robots as opposed to the workers who might have once performed those tasks.

“Robert Hof, Forbes: "Google ... has bought a military robot company called Boston Dynamics. ... Unlike the other robot-makers, this company makes machines by the names of BigDog, Atlas and Cheetah that can variously outrun Usain Bolt and hurl cinderblocks 17 feet. ... Google, like AT&T, IBM and Xerox in previous decades, has monopoly-like profits that it can use to do research into areas that go far beyond its current business. Whether robots or self-driving cars or wearable computers become significant businesses for Google is less important than the fact that today, it's willing to spend the big bucks to push forward in these seemingly unrelated areas.” USA Today, December 16^th.

The polarization has become so pronounced that private aviation is considering new alternatives so as not to be inconvenienced by crowded public airports. Giant Google, for example, has so many Silicon Valley executives on private aircraft that they need their own brand new, state of the art airport (artist rendering above).“Google may get to experience every Fortune 500 company's wildest travel dream next month: A $82 million jet center dedicated to executives' private planes.

“In January, groundbreaking is expected to take place on a 29-acre facility featuring approximately 270,000 square feet of hangar space. The huge swath of space will effectively become a separate airport for Google executives and other tech muckety-mucks; private aviation support firm Signature Flight Support has a 50-year lease on the facility and will operate it with a partner named Blue City Holdings. In a statement, airport executives described San Jose-based Blue City as a ‘corporation representing the personal aircraft of the principals at Google’ and explicitly said they would grant private airport section access to ‘other figures in the Silicon Valley business community as well.’" FastCompany.com, December 17th.

When you read about keeping tax rates low, understand that unless you are in the very highest income bracket, a few points up or down in tax rates really will have almost no impact on your life. But the net impact to the mega-wealthy can result in tens if not hundreds of thousands or even millions of times more in hard dollar savings to each individual at the top of the food chain. To those who claim that these are the job creators, another way of phrasing the much-discredited “trickledown” theory of economic wealth, know that this is a myth (a polite way of saying “a lie”). “A study from the Congressional Research Service — the non-partisan research office for Congress — shows that ‘there is little evidence over the past 65 years that tax cuts for the highest earners are associated with savings, investment or productivity growth.’" CNBC.com, September 17, 2012.

Think of exactly how many American workers were involved in the manufacture of that Ferrari, BMW or Porsche, or that Armani suit or that Gucci handbag! So the next time you hear a politician talking about reducing taxes or keeping the tax rates low (to stimulate the economy or create jobs), or that regulation is un-American, think about the impact of those policies as directly and immediately coming out of your economic hide, that same economic hide that has resulted in 12 consecutive years of uninterrupted decline in the buying power and quality of life for the average American.

I’m Peter Dekom, and I wonder if the fall in our academic standards has also resulted in our becoming one of the most gullible electorates on earth!

President Setting

When you think of a university president, what do you think they are worth, compensation-wise? Their institutions are not generally profit-making oriented, but they often deal with huge sums of money… frequently reaching into the billions of dollars.  Is it academic excellence? Placement of their graduates into the highest levels of the work-world, public service or other leadership positions? Running a sports program that generates lots of excess cash for the academic part? Fixing a scandal that racked the school? Building a national reputation? Attracting the best and the brightest? Attracting enough to make the financial realities tolerable? Raising donations from alumni and other major donors? Depends on the school?

Okay, let’s look at what colleges at the top of the food chain pay their coaches for a hint at what a college president might be worth:

Highest Paid College Football Coaches in 2013 (per BleacherReport.com)

1.      Nick Saban: Alabama, $5,545,852

2.      Mack Brown: Texas, $5,453,750

3.      Bret Bielema: Arkansas, $5,158,863

4.      Butch Jones: Tennessee, $4,860,000

5.      Bob Stoops: Oklahoma, $4,773,167

6.      Urban Meyer: Ohio State, $4,608,000  

7.      Les Miles: LSU, $4,459,363

8.      Brady Hoke: Michigan, $4,154,000

9.      Kirk Ferentz: Iowa, $3,985,000

10.  Charlie Strong: Louisville, $3,738,500

How about basketball coaches? Duke’s Mike Krzyzewski’s (pictured above) 2013’s pay is $7,233,976. Rick Pitino at Louisville gets a base package of $4,078,327 with additional compensation to a total of $4,973,343, and state coaches likes Kansas’ Bill Self grabs $4,750,763 and Ohio State’s Thad Matta takes in $3,194,000. USA Today. Does any of this impact your decision of what’s fair for a college president?  

“Forty-two presidents of private colleges were paid more than a million dollars in 2011, up from 36 for the previous two years, according to the Chronicle of Higher Education’s annual analysis of the colleges’ latest available tax forms… The three top earners were Robert J. Zimmer, University of Chicago ($3,358,723); Joseph E. Aoun, Northeastern University ($3,121,864); and Dennis J. Murray, Marist College ($2,688,148).

“According to the Chronicle, Dr. Zimmer’s pay doubled in 2011, Dr. Aoun’s nearly tripled in the same time, and Dr. Murray’s almost quadrupled from the previous year. Although their base salaries all remained under $1 million, the top three, like many other highly paid presidents, earned much more from retirement packages, bonuses or deferred compensation…The Chronicle found 180 presidents earning more than $500,000 in 2011, compared with 50 in 2004.” New York Times, December 15^th.

“[Last year, t]he nation’s highest-earning public university president in the 2011-12 fiscal year was Graham B. Spanier, the ousted [and subsequently indicted in the wake of the child sexual abuse scandal that resulted in the conviction of Penn State football coach Jerry Sandusky] head of Penn State University. While his base pay was $351,000 and his deferred pay was a generous $1.248 million, it was his severance pay of $1.225 million that propelled him to the top of the list, with total compensation worth $2.907 million.…

“After Spanier, three other presidents enjoyed pay packages that came to more than $1 million. Jay Gogue of Auburn University in Alabama earned $2.543 million. E. Gordon Gee at Ohio State made $1.899 million and Alan G. Merton of George Mason earned $1.869 million. Merten left George Mason in June 2012 after serving 16 years as president. His package included a hefty $1.193 million in retirement benefits.” Forbes.com, May 13^th.

All this is coming in a period of severe cutbacks in scholarship and general educational support from the federal government as well as most states and local governments. Is this money well-spent? Are we more competitive globally today? Are our colleges and universities just getting better or are we kidding ourselves into believing that this is how money for education should be spent? Are colleges there to educate/conduct research or to provide mass entertainment? How do you feel about all this?

I’m Peter Dekom, and it certainly gets interesting when you look at how our college compensation practices reflect this nation’s true priorities.

Talibandages

As the United States left Iraq, squarely in the hands of a 60% majority Shiite government, the Iranians (over 90% Shiite) cheered, and the dethroned Sunnis started blasting and shooting away at Shiite targets, venting their rage and frustration. If where Iraqi sensibilities lie after the war might suggest, with folks like the brutal Assad regime in Syria and as a rather clear political satellite to the Ayatollah-led Iranian theocracy, the United States and its allies clearly lost this one. But at least the new Shiite-led Iraq and theocratic Iran are powerfully anti-Taliban (Sunni mega-extremists, to put it mildly, who hate Shiites).

And so, as we negotiate with Hamid Karzai, a lame duck in in final months, undoubtedly making sure all his piles of cash and other “benefits” are carefully squirreled away safe from prying eyes, we are going to find ourselves – whether Afghanistan accepts some U.S. presence after the main withdrawal or not – on the political losing end of this conflict as well. The Taliban may have occasionally slipped into “remission,” but the Afghan body is still deeply Taliban-infected, with the resulting rash well-planted into Pakistan as well.

It’s not as if the Taliban have a lot of friends in the countryside. They are brutal, intolerant and their call to primitive austerity is a life of minimalism and denial. They shoot little girls in the head. Still, a Taliban-controlled land may not have much in the way of a future for the people, especially females who are denied just about anything, but it does create enough stability and peace to allow farmers to tend their field and flocks without fear of shelling, mines or gunfire. It is level of existence that is better than a life of “duck and cover.”

The Taliban have every intention to maximize their power in this region and have little to deter them once the Western troops leave, and sooner or later these forces will go. Time is only on their side, and for every Taliban leader we kill, there are many to take his place. While I could drone on about our misspent war efforts in this unforgiving land with infinite patience that the infidels will eventually leave, things are already conspiring on the ground. Local warlords are loath to trust the incumbent Kabul regime to protect them when the NATO troops depart. Most have other plans, and some of them, even while still in the “elected” government, are already in implementation mode.

In the most intransigent Taliban strongholds, power-sharing seems to be a rising tide, even though no one really trusts that the Taliban will stand to share much of anything for long. Take the Sangin District, north of Kandahar in the southern border area in ultra-violent Helmand Province. The local Afghan military commander, possibly on his own (or was this a trial balloon?), worked out a cease-fire and power-sharing arrangement with the local Taliban. Sound the alarm! The United States is expendable! Did we waste too many lives and too much money only to become The Biggest Loser?

“The alarm was in part because of what Sangin has come to symbolize. It is one of just a few areas of Afghanistan where the Taliban have never been dislodged, and it was one of the deadliest battlegrounds in the country for American Marines and British troops who waged several offensives there over the years. It was handed over to Afghan security control early this year, and any appearance that the Afghans would be willing to essentially give back hard-won gains to the Taliban would be politically problematic, at best.

“According to several people familiar with the details, including the deputy district governor and the local police commander for Sangin, the deal involved a company commander’s ceding at least two checkpoints to the Taliban. It was unclear whether more senior officers in the area condoned the move… As part of the arrangement, which local officials said excluded the police force and other militias, the commander even drove the insurgents into the district bazaar to introduce them to the people, according to officials and witnesses.

“The Afghan Army has vehemently denied the existence of any deal with the insurgents, as have the Taliban themselves. Coalition officials referred all questions about the alleged incident to the Afghans… At least one official said that the top army commanders in the region reported knowing nothing about the plan and vowed to keep fighting.” New York Times, December 18th.

So assume the central government controls little more than Kabul and its environs with sporadic and shifting control of towns and villages far away depending on the strength and density of available military forces, already stretched pretty thin as NATO troops depart. Assume you want a shot at not getting shot, perhaps even keeping the nasty stash you have hidden away somewhere, what would you do? Trust the Kabul government to take care of you… or make some rather obvious new allies?

How many Americans really believe that after our departure, this will become a land of functioning democracy, economic stability and prosperity, free from the vicious government of totalitarian Taliban or the evil corruption of politicians who govern solely for their own coffers? Anybody? Anyone? Didn’t think so. So why exactly did so many have to die, why did we have to lift our deficit into the stratosphere and what did we think we were going to accomplish? If W was the miscreant who got us there, Obama was the miscreant who kept us there way, way too long.

I’m Peter Dekom, and I wonder how much of this history lesson will stick with us down the line.