Loanly

Picture Scrooge McDuck – if you can remember those Disney cartoons – and see him bathing in his money vault, diving into piles and pools of dollars and other untold riches. Hold that image. Imagine a graduate of a top graduate school of business… a year out from that cap and gown thang… checking out having made $400,000 between salary and bonus in his first year of work. Millions a year were the expectation after a relatively short tenure with the company. Hold that image.

Private equity was a path to riches. These firms, most of them non-publicly-traded and not subject to much government scrutiny, controlled one of the largest investment segments in the United States. Their money came from mega-wealthy investors, big institutions – from legendary insurance giants to the most prestigious financial companies, pension plans and anywhere else pools of capital concentrated.

Their basic business practice was to find companies, private and public, that could be “cleaned up” (unnecessary workers laid off, new management added, a few mergers added if attractive, new financial structuring)… then buy these companies with as little of a down-payment as they could justify and borrow the rest (debt was far and away the largest component of the cost of buying the company – multiples of the equity). Debt was plentiful, cheap, and had a ceiling on the rate of return (interest, basically, but there often was a component of convertibility into common stock for part of that debt), and most of the profits stuck to the private equity managers and their investors.

But what was best about that debt? The private equity film didn’t borrow a penny! Instead, they used the cash flow of the company they were buying to borrow that money, pledge its assets, and sink or swim with all that debt. The private equity firm that set up the deal was only minimally at risk (their down-payment). So a small investment leveraged up into a very large buying ability.

After the company was “cleaned up,” it could then be sold to another corporation or, very often, flipped back out as a publicly traded corporation. The rates of return on these deals were astronomical, all predicated on lots of cheap debt and a rising stock market. From about 2003 well into 2007, these companies particularly raked in the profits. But when debt dried up and the markets crashed in 2008, so many of those over-borrowed (“over-leveraged”) acquired companies slid way down in value (often eating up most if not all of the private equity company’s down-payment), and without cheap debt (how about any new debt?), new deals could not be financed anyway. Not to mention that without a strong stock market, you can’t get rid of a “cleaned up” company to make that profit.

But there’s still a lot of money sitting around with nothing to do, nowhere to go. According to the June 9^th theDeal.com: “Buyout firms now command some $470 billion in committed but uninvested capital, according to consulting firm McKinsey & Co. Moreover, sponsors usually only dream about this sort of investment environment, with countless companies begging for capital, banks and other capital suppliers on the sidelines, and deal values way down. Prices have tumbled so steeply, one sponsor remarks, that even debt-free investments done today could bring sterling returns after the economy turns back up.” If anyone would lend you money…

For all those MBA candidates vying for those lucrative jobs in private equity, the opportunities have, for the most part, vaporized. We are unlikely to see, in the lifetimes of most of us, the ability to borrow so much (relative to the down-payment) so cheaply every again. Regulators are eying this market sector in order to assess exactly where new regulations will be imposed. Scrooge McDuck-wannabees will be frustrated.

And in a chorus of dropping shoes, there are victims among these firms, yet to be counted. theDeal.com again: “But for now, that alluring prospect is vying for sponsors' attention with a worrisome, brewing development that could lay waste private equity returns and foster an industry shakeout. Though previous downturns have forced slews of poor performers, including some well-known names, from the business, the body count this time could be great. The problem lies in the staggering amounts of equity and debt capital that poured into LBOs from 2004 to 2007. From 2012 to 2014, about $430 billion of senior debt tied to that deal spree is set to come due. And unless the leveraged loan market roars back to life by then to accommodate a mass of refinancings -- something experts consider doubtful -- an avalanche of defaults could wipe out much of the equity the buyout industry wagered on scores of deals.”

Just remember that bankrupt companies like Linen ‘n Things, Tribune Co. and Chrysler were all financed this way. And that’s just a drop in the bucket.

I’m Peter Dekom, and I thought that you might like to know.

Shoes without Soul

Phil Spektor’s wife misses the sex because of her husband’s incarceration while the rest of America is getting screwed? Whadyathink about Countrywide Financial CEO Angelo Mozilo’s getting sued by the Securities and Exchange Commission for civil fraud in connection with his alleged “deliberately misleading investors about the significant credit risks being taken in efforts to build and maintain the company’s market share”?

Private internal memos circulating suggest he had already labeled the subprime mortgage market that represented the backbone of his company’s growth as “poison” and “toxic,” while touting his stock to the world (it is now a part of the Bank of America). There were a few other executives named in that suit. Is a criminal prosecution in the cards as well? Mr. Mozilo had quite a reputation as a well-tanned clothes horse… but will there be another wardrobe choice in his future?

With unemployment numbers rising (to 9.4% of basic unemployment, over 17% if you take into consideration those who want jobs but have either stopped looking or can only get occasional or part-time work) – albeit at a slower pace – Americans are both frustrated and angry at the unregulated business moguls who took advantage of a nation’s leaders who conveniently chose to let business pretty much regulate itself and looked the other way as they cut corners. Bernie Madoff is the poster-child for a laissez-faire government that allowed hog-slop-motivated-money-gorgers create sophisticated and complex structures that the overwhelming majority of Americans could never understand but were built on the backs of completely unregulated economic madness accelerated by both bad credit ratings and a system that created almost unlimited money to borrow to feed the monster we call our “recession.”

People are finding cheer in unemployment statistics? We’re still losing jobs and will lose a pile more… but we’re not losing quite as fast as some feared. Wow, sure makes me grin, ear to ear… the thought of double digit unemployment through most if not all of 2010. And that credit freeze that was supposed to be thawing… well if you are seeing that thaw anywhere, please let me know. If you want to buy a car or a house below $500K, you might score or if you are a big corporation, you might be able to “float some debt” out there… but the rest of it still seems to be a distant dream.

There are still lots of shoes yet to fall… beyond what we’ve seen to date… more credit default swap issues (loan default insurance, in effect), credit card delinquencies and the very questionable future of the commercial real estate market, to name three. The June 5^th theDeal.com: “If a new Moody's Investors Service report is to be trusted, don't believe the hype when it comes to predictions that the worst is over for the banks. The rating agency released [June 4^th] a report predicting roughly another ‘$470 billion in [pretax] of loan and security losses and write-downs in 2009 and 2010.’” Moody says it could even go higher, to $640 billion, in 2010. Hmmm, that doesn’t augur particularly will for unthawing the credit markets. And still we see that stock market ebb and flow on the daily news. What are they drinking or… well… you know.

Unfortunately, the trend lines are still pointing down. Consumer confidence may be rising based on statistical polls, but the plain fact is that consumers are still postponing any purchase that they can. Oil prices are rising, not because we are a carefree American society driving everywhere, but because of a general anticipation of global demand, the instability of the dollar and the reentry of speculators who are betting more on commodities than currencies. And then there’s all that “other stuff” noted above.

We’re not getting out of this mess anytime soon, and so learning how to cope in a world of less as the dollar continues to sink appear to be the “new skill for the future”… assuming you get around the job thang and the credit thang and the “what happened to my retire account and house value” thang.

I’m Peter Dekom, and I have this “seasick” feeling again.

An Oily Chicken in Every Pot

For critics of Russia’s Prime Minister (and termed-out former President), Vladimir Putin, the dramatic fall in oil prices at the end of 2008, which collapsed the buying power of the ruble, contracted the GDP, destroyed jobs by the millions and devastated the Russian stock market, was “all good” news. It seems that what was perceived as Putin’s draconian hold on the source of political power was proportionately linked to the price of oil. Similar stories have been told of Venezuela ’s Huge Chávez and Iran ’s Mahmoud Ahmadinejad; with expensive oil, they had money to offer blessings to followers and sympathetic global leaders.

When oil prices fell, so did their ability to sway their followers and influence alliances. Unlike the oil-rich Sheikdoms, which have very few residents and lots of oil, these nations had larger populations with larger needs. And promises were made that no longer could be funded; foreign debts needed to be paid. People seeking political reform hoped that this economic devastation would at least motivate change.

Okay everybody, the price of oil is rising. When it fell below $40/barrel (almost to $30!), things looked pretty bleak for global leaders whose power floated on oil. But that was then, and the price of oil looks very much like it is headed towards the OPEC target of $75/barrel, still about half of its all-time high ($147.27 to be exact) in 2008 in July after some announced Iranian missile tests. With Fed Chairman Bernanke chastising Congress on June 3^rd over spiraling federal budget deficits and the likely increased cost of borrowing to finance them (which will fire up inflation), in dollar terms – even assuming the oil-rich nations continue to value oil in dollars – that cost could spiral even higher. We’re in the mid-$60s/barrel now.

Things are not exactly rosy in Russia yet – her stock market is still 44% below the 2007 market high, but whose isn’t these days – but instead of a “let’s change it all now” vector of reform, those who might have otherwise challenged the incumbents are forced to adopt a more “we have just have to wait and see” attitude. One dollar change in the price of oil translates into $1.7 billion a year according to some Russian analysts.

The June 3^rd New York Times: “‘The oil price is going up, everything seems to be in order, so why change?’ Sergei M. Guriev, dean of the New Economic School in Moscow and a board member of the state-owned Sberbank, said by telephone. ‘If oil prices go back to where there is no budget deficit, then it will be business as usual.’…State banks, for example, are rolling over loans to failing companies rather than requiring them to restructure in bankruptcy, as is the case with General Motors in the United States , on the premise that the Russian economy will quickly turn around, along with the value of oil… ‘The big problem with this crisis is it may be too short for Russia ,’ Roland Nash, the chief strategist at Renaissance Capital, a securities firm in Moscow , said in an interview.”

In the end, the price of oil is inevitably heading upwards – it is a commodity that is in high demand that is of limited supply. For those who thought alternative energy was a nice theory but hardly an immediate necessity in a time of falling oil prices, it is time to think again. The value of America ’s political and economic power cannot constantly revolve around a black or brown unctuous sticky substance. The future of great nations should not rely on the compressed rot of millennia of dead plants and animals. And it doesn’t really matter that much if that oil is found here in the U.S. – it is a commodity… demand anywhere will drive the price up everywhere. “It’s the economy, stupid!”

I’m Peter Dekom, and I approve this message.

Dressed for Distress

A friend of mine (my very Web-master) here in Los Angeles was browsing about for “buys” on houses across the U.S., since even with this meltdown, Los Angeles is still pricey by comparison… even as the State faces a nose-dive into governmental poverty hell. He found a “pretty nice” house (3 bedrooms, 2 baths, good-sized living room, dining area and family room) in Detroit for $10 grand. Pictures online looked good too. Google Earth produced a different view of that house: a solitary structure in a neighborhood that had otherwise been bulldozed into rubble. That’s “Managed Depression 2008+” Detroit style.

With General Motors and Chrysler in bankruptcy and restructuring for the next few months, the rarest assets on earth appear to be good jobs. You can’t give away for free some of the Riverside/San Bernardino housing tracts built for the subprime buyers – starter home far away from anything you’d like to do or anywhere you might have to work.

In my own business, media and entertainment, we’ve seen over 60,000 lay-offs with more coming. Construction cranes hover motionless over partially constructed office towers in various part of L.A. On the other “coast,” I hear you can get some quality “alone time” at mid-day on Wall Street… on what they used to call a “work” day. OK, the Goldman bankers are still raking it in, and advisors in the distressed properties business are locked in fits of smiling ecstasy.

But one of the hardest hit sectors of our economy is luxury goods. If you’re mega-rich and didn’t invest with Bernie, maybe your billion is down a couple of hundred million, but that shouldn’t crimp your style. But for those parading on the edge of “lookin’ and actin’ wealthy” while they are “livin’ on the next big deal” (let’s just call that “ Hollywood ” for short), you can’t pimp your style when the next big deal is neither big nor next. Since a huge component of high-end luxury goods are purchased by people with expectations of riding to the next level, when the ride gets shut down, the first to go are those shimmery threads.

I’m not feelin’ your sympathy, but maybe you’re not focusing on where the sympathy should, I believe, be given. It’s not to the shoppers – that’s for sure – but without their dollars, stores are folding right and left, owners are filing for bankruptcy, clerks making almost nothing are going to make even less. The manufacturers are cutting back, tailors and seamstresses are being let go, fabric orders are way down, and even top designers are folding their tents. The May 28^th NY Times: “Christian Lacroix, the French couturier whose artistic and exuberant pouf dresses propelled him to fame in the 1980s, became the latest victim of the global financial crisis …when the fashion house bearing his name filed for court protection from creditors. [the French equivalent of Chapter 11]”

Some of the “top shops” remaining on Santa Monica ’s chi chi Montana Avenue are experiencing 60% drops in sales. Dozens of empty stores line the once-impenetrable boulevard. Trendy Melrose Avenue is mirroring the process. Barney’s can get plain silent in the middle of the day. The shoppers’ll be back… ok some of them might be back.

And let’s face it, whether reasons of corporate frugality, government mandate (hello TARP!) or just ‘cause they’re not in a partyin’ mood, life’s getting’ really tough out there: “For Randy Fuhrman, a Los Angeles event planner whose clients have included Barbra Streisand, Steven Spielberg and Walt Disney Studios, business began heading south last October. Private and corporate clients canceled holiday parties that had been months in the planning, in some cases forfeiting thousands of dollars in venue deposits. Even now, Fuhrman said, some customers who have money despite the stock market dive seem too embarrassed to spend it.” June 2^nd Los Angeles Times.

In the end, the suffering of those who have fallen sends a small but very nasty shiver of delight down the spines of many who always wondered “why not me?” But when you think of all the people up and down the line, who work hard for an honest living that hardly qualifies as much more than ordinary, well… we really are all in this together.

I’m Peter Dekom, and I approve this message.

Unemployment is Job One

Conventional wisdom held that because hiring and firing is so much easier in the United States than in “socialist” Europe – where getting rid of an employee is not so simple and not so cheap – the United States ’ flexibility would always generate better employment statistics than Europe could. After all, you don’t hire folks when you understand all the fringe benefits you will have to pay, the social taxes and the severe restrictions and costs of firing anyone who has been with the company even for just a few years. As result, smart folks have said for years, job creation in Europe would always be more difficult than in the U.S.

Well, welcome to the “d”epression of 2008-???? The May 22^nd New York Times (when the numbers are adjusted, to compare apples to apples, for the way such rates are calculated): “In April, the rate in the United States rose to 8.9 percent. When the European figures are compiled, it seems likely that the American rate will be higher for the first time since Eurostat [the European Union’s official statistical bureau] began compiling the numbers in 1993… For men, the unemployment rate in the United States surpassed that of the 15 original European Union countries in December. By March, it was 9.5 percent in the United States , compared with just 7.5 percent for women. The figures for men and women in the 15 European countries, however, are close together, at 8.4 percent and 8.5 percent.” And it sure looks like the U.S. unemployment rates are just about to exceed those of Europe … and just keep on going up.

Why? The very safety nets available in Europe actually make it easier, with government support, to keep lots of people in jobs that would have been cut in the U.S. Also, normally, when work gets bad in one spot in the U.S. , workers tended to move to places where employment is brighter. Well, there aren’t too many places in the U.S. where jobs are flowing, and moving means you might have to deal with selling your old house in markets where houses just aren’t selling or where you have to sell at such a loss that moving is emotionally unavailable. And try to get a loan in a new market if you want to buy a house… when your down payment is still sitting in unsaleable real estate.

Housing booms and busts in Europe are not pandemic; places like Spain and Ireland suffered from these housing crises, and their unemployment rates trend significantly higher than the European average (making them look more like the U.S. , especially in the big housing bust states). But the rest of European housing didn’t crash and burn as in many areas in the United States .

Changes in U.S. work habits are afoot. Americans are slowly moving away from a world of corporate employment with pension and health benefits, a corporate ladder to climb, and time-with-the company benefits into a world of telecommuting or serving as independent contractors, engaged to perform specific jobs for a specific term (often extended), folks who often are left to fend for themselves when it comes to medical and retirement benefits. It just costs too much to provide these perks, and this economy has sent a pretty clear message to our workforce: don’t count on anything a company might promise you, because bad economic times can wipe it all away; take care of yourself!

The May 22^nd Time Magazine (in a series of articles entitled “The Future of Work”): “It costs the average American company more than $14,000 per year to provide coverage to an employee and her family. The employer response: shift more of that growing burden to workers. As a result, companies have seen their health-care spending rise 29% over the past five years, but employees have seen their outlays — for premiums, co-pays and deductibles — rise 40%... Retiree health care is getting whacked hardest — just when the boomer generation needs it most. Of the employers surveyed, 45% have already reduced or eliminated subsidized health-care coverage for future retirees, and an additional 24% are planning to do so or considering it.

“Corporate pensions, the third leg of the proverbial retirement stool (the other two being Social Security and personal savings), are also being eroded as the foundering stock market wreaks havoc on employer pension funds. At the end of 2008, employer-sponsored pension plans were underfunded by more than $400 billion, according to Mercer, a management-consulting firm.”

The values in work are changing with the generations that are moving in and up. Time again: “‘Paying your dues, moving up slowly and getting the corner office — that's going away. In 10 years, it will be gone,’ says Bruce Tulgan, head of the consulting firm Rainmaker Thinking, based in New Haven, Conn., and author of a new book about managing Gen Y called Not Everyone Gets a Trophy. ‘Instead, success will be defined not by rank or seniority but by getting what matters to you personally,’ whether that's the chance to lead a new-product launch or being able to take winters off for snowboarding. Tulgan adds, ‘Companies already want more short-term independent contractors and consultants and fewer traditional employees because contractors are cheaper. And seniority matters less and less as time goes on, because it's about the past, not the future.’”

Maybe Europe’s subsidized system will fail in the end as well, since they are competing against increasingly better-educated workers from places like India and China , where employment costs are just a fraction of what they are in the West. Whatever happens, don’t expect the future of “employment” to look anything like what it seems today.

I’m Peter Dekom, and I approve this message.

Governments Suck

Credit markets are frozen except for a rarified few who can take advantage of government programs, buy a car funded by a car company, float their own paper or have incredible banking relationships. For most of us, well… borrowing is relegated to asking a neighbor for a cup of sugar. While there is a lot of equity (okay, a lot less than before the meltdown) looking for places to go, if its credit you’re seeking, you are probably out of luck.

Hear that “sucking sound?” It’s the noise governments make when they suck global credit into their mouths to build deficits to generate stimulus packages as a substitute for dried up consumer demand. Globally, we’re looking at trillions of dollars of governmental borrowing. In the U.S., Germany, the U.K…. and the list goes on. We know the obvious problem – we have to pay rising interest costs against bigger aggregated deficit – but there is another huge elephant in the room. The global lending capacity seems to be absorbed by governments leaving individual and corporate borrowers, when credit markets unfreeze, to compete for a smaller pool of capital available for private lending, paying higher interest rates, because the big governments have used up so much of the available lending pool.

For every point that interest rates for the U.S. government rises, another $50 billion gets added to our annual payout obligation. The June 4^th New York Times: “‘It will be more expensive for everybody,’ said Olivier J. Blanchard, chief economist of the International Monetary Fund in Washington. ‘As government borrowing in the world increases, interest rates will go up. We’re already starting to see it.’… Since the end of 2008, the yield on the benchmark 10-year Treasury note has increased by one and a half percentage points, rising to 3.54 percent from 2 percent, the sharpest upward move in 15 years. Over the same period, the yield on German 10-year bonds has risen to 3.57 percent, from 2.93 percent. And British bond yields have increased to 3.78 percent, from 3.41 percent.”

For corporate and job growth, the lack of private lending capacity – even the eventual cost of borrowing based on rising interest rates – adds an additional brake on longer-term “recovery” (whatever form that might take). Fed Chairman Ben Bernanke’s warning to Congress on June 3^rd address this threat of ever-spiraling costs to service our massive deficit. At the end of 2008, our net deficit represented 41% of our gross domestic product; by the end of 2010, that number should rise to 65%. People are also assuming that we will always be able to feed at the international debt trough.

But what if the world stops buying our debt? Do we look like California and destroy the government’s ability to provide basic services? Like Argentina in the hyper-inflationary days when a suitcase full of currency might buy you a cup of coffee? With all of this government competition from many nations, we know that the old law of “supply and demand” will make interest rates skyrocket as more nations compete for international loans.

All these numbers seem confusing to most folks. So maybe some overall observations of what might happen are worth considering. If our borrowing is relatively greater than that of other countries, the buying power of the dollar will fall; everything we import (like oil) will rise in price while everything we export with rise in dollar-generating capacity. Unfortunately, we import significantly more than we export, so the net cost is huge. Further, if you are an individual or a business, and if you need to borrow money for any purpose, you can expect interest rates to rise, maybe into double digits, across the board. Companies won’t be able to grow as fast, the cost of consumers goods that require debt (cars, homes, appliances, etc.) will rise, and that's a recipe for inflation.

So what do we do? Stop the stimulus package and let the economy tank for a decade? Tough issues, but anything that is in that stimulus package that creates long-term value, like paying for better schools or funding research, is more of solution than a cost. Creating programs just to please political constituencies may be politically necessary, but the long-term cost could have a devastating impact. In the end, it is incumbent on American voters to understand the choice and the ramification of those choices.

I’m Peter Dekom, and I approve this message.

101 Years

Although once unthinkable, the inevitable finally occurred last week when General Motors, the former standard bearer for American Industry, filed for bankruptcy. Like the venerable George Burns, the company that made it to the ripe old age of 100 years, didn’t survive beyond that magical number. Oh well. The bulk of GM’s viable assets will be sold off, mostly to a newly formed operating company in which the company’s bondholders will hold a 10% stake with options (warrants) to buy 5% more.

The current collective bargaining agreement with the United Autoworkers will fall by the wayside, labor costs (wages and benefits) will drop, jobs will be cut by the thousands, plants will close, the U.S. government will infuse cash, and a new mini-behemoth will emerge to continue the tradition. Unfortunately, the “new” GM will stare into the ugly eyes of a managed depression, where consumers truly are putting off major purchases until the credit freeze ends and job markets stabilize.

Even as GM will have to arrange credit for car loans, average consumer FICO credit scores are plummeting; there are simply going to be fewer people willing to buy cars and even fewer qualified to pay for them. With the job market expected to stay down through most of 2010, and with residential and commercial real estate still tumbling, how is GM going to rebuild sufficient volume to survive? Filing Chapter 11 is a restructuring; it does not mean that the new company can actually compete in today’s environment.

AOL’s Daily Finance (May 28^th): “GM's long-term problem is still sales. The domestic vehicle market was over 16 million units four years ago. This year that number may drop to 10 million. GM is still losing market share and that figure dropped below 20 percent in the company's last reported quarter, the first time in memory that it has been that low.” Think Toyota , Ford and Hyundai want GM to expand their market share? That they will just roll over and play dead as GM’s new union concessions make their products more affordable?

There are fewer willing buyers out there, and the car companies are going to have to convince those willing to buy that they provide value, sustainable long-term service capabilities (and that parts will be there), that their warranties are solid, that quality has not suffered (in fact that it will be better) and that resale values will sustain. Perhaps the car makers can convince a few consumers who are on the fence to jump down and take advantage of the bargains.

But the same consumers are in the same crosshairs of each of the car manufacturers, and with the economy in a long-term stall, perhaps the world really doesn’t need as many automobile manufacturers as exist today. Does the U.S. really need three domestic companies? Does it help that Japanese automakers have lots of plants here in the U.S. ?

Daily Finance: “If the Japanese and Korean imports and a relatively healthy Ford … push GM's market share toward 15 percent in the US , the Chapter 11 will not have meant much.” Auto parts manufacturers are beginning to fall by the wayside too. Visteon and Metaldyne Corp, companies that supply components for U.S. carmakers, have just filed for reorganization under U.S. bankruptcy laws as well.

Will Fiat-Chrysler and General Motors, in any configuration, still be around in five years? Ford, which has side-stepped most of the disasters that have bedeviled its U.S. competitors, also has to survive in this contracted economy. It’s a complex puzzle, but without a steady stream of consumers with cash (or access to credit), what will the America automobile manufacturing landscape really look like when the dust settles?

I’m Peter Dekom, and I just wonder.

Islam Dunk

Interesting to gauge international reactions to President Obama’s address to the Muslim world from Cairo (and not from the usual beach resort hotels where international leaders normally make such speeches). You could hear pro-Obama cheers and chants in the audience, and clearly most moderate Egyptians, still a little skeptical, were swayed in the right direction. I could feel Israeli teeth-gritting as the President addressed heavy handed Israeli tactics, denounced the expansion of West Bank (“Palestine”) Jewish settlements and actually addressed Hamas (and hence recognized them), even though he admonished them to accept Israel as a legitimate country and stop their military attacks against that nation. Obama also called the bond between the U.S. and Israel “unbreakable.”

It was a pretty long speech at Cairo University – 55 minutes – but it was important shift in U.S. policy. Notably absent were mentions of “terrorism” and “terrorists,” a profound line of demarcation from just about every vector of the Bush administration. As former Vice President, Richard Cheney, justified to the press now-banned interrogation tactics and his wars in Iraq and Afghanistan, calling for a continuation of the American hard line, his voice seemed to slide into the pages of “what was then” – ever so much more an historical reference. Even the architect of a significant amount of Bush-administration “toughness” (particularly the Iraq war), Paul Wolfowitz, noted in the June 5^th NY Times: “I could have used less moral equivalence, but he had to get through to his audience, and it’s in America’s interest for him to get through.”

The President, as predicted, described his father’s Muslim faith and his time living in Muslim nation (Indonesia). He uttered “mea culpas” for many American missteps in the Middle East, but he also spoke of “Palestine” as presently existing entity instead of a possible future nation. He noted the suffering of the Palestinian people (which drew come criticism from strongly pro-Israeli factions). He called on Americans to change their stereotypes of Arabs – a post 9-11 reaction he noted – and for the Islamic world to stop looking at the U.S. as a conquering nation. He asked Muslims to show their faith by strong beliefs and positive actions, not by destroying or denigrating the beliefs of others and destroying historical truths like the Holocaust.

It was a good speech that requires follow-up action evidencing intent, new consistent peace-directed forays in the region and some clear steps in the Israeli-Palestinian debacle. The words were the easy part. For Americans espousing “he’s closet Muslim coming out of the closet,” Obama’s entire presentation was clear evidence that he wasn’t who he said he was… that they were right all along. But when Republican and Democrat alike embraced his effort, some with doubt and a desire to placate our perennial ally Israel, it was a very good step forward.

After spending some time mending fences with Germany’s Chancellor, Angela Merkel, President Obama took some time on June 5^th to emphasize America’s bond with Israel by visiting the site of the infamous Buchenwald concentration camp. Among his words: “To this day, there are those who insist that the Holocaust never happened — a denial of fact and truth that is baseless and ignorant and hateful... This place is the ultimate rebuke to such thoughts, a reminder of our duty to confront those who would tell lies about our history.” But Obama’s earlier words have created some significant distance between his conciliatory and Israel’s hard line positions. Some even wonder if the President’s Egyptian speech will really make a difference. Was it worth the negative reaction from Israel’s staunch supporters?

From my own years in the Middle East, as an American teenager – the step-son of a U.S. diplomat – in Beirut, I know that the most import part of this presentation was evidence of respect. Since the underlying issue for many in the region is hundreds of years of humiliation by Western powers, using a little Arabic, talking about regional history, admitting mistakes and empathizing with local concerns were essential starting-points in what will still be a long, drawn-out process with many bumps in the road. Israel is anything but on board with much of this agenda. Progress is most certainly is not an Islam dunk.

I’m Peter Dekom, and I approve this message.

Down in the Mouth

If you are lucky enough to get into medical, law or business schools (graduate level), you will find that the tuition in such “professional” graduate programs is often double or even triple the cost of undergraduate tuition. To make a bad situation disgusting, scholarship grants in these bastions of higher learning are pretty low to non-existent, so students are encouraged to borrow themselves silly to pay for school. We’re not talking $10-$20K per year; we’re looking at $60K or more per year! These loans are costing more and their availability in a credit-impaired marketplace, with limits to total government loans, is beyond challenging.

With jobs getting scarce and an economy contracting, exactly how are these folks supposed to pay off loans that were assumed to be “easy” because the graduate was entering a “well-paid profession”? Add really low-paying internships and residencies required of doctors followed by “managed care” fees and skyrocketing, often six figure-a-year cost of malpractice insurance, and its gets downright skanky. Okay, maybe you’re not feelin’ it for the lawyers or the business grads (they’re hurting! Some of them do public interest law, become public defenders, represent the poor or run charitable organizations. And their parents were once proud!), but maybe you’ll be feeling in where it really hurts the most – in your body or in your mouth!

The economics of professional school are getting pretty bad, and young bright minds wanting to be medical practitioners, from medical doctors to dentists, are making “other choices” because of costs. There are large parts of the United States where there simply aren’t enough doctors to deal with the issues, dentists are so rare that there might not be one for hundreds of miles. Shortages affect urban areas too, and with a national healthcare system, we are simply going to have to create parallel financial support for medical aspirants at every level.

So you already probably know of the shortage of doctors, particularly family and general practitioners, but I stumbled across a little article in the May 29^th Los Angeles Times, about dentists… not a very sexy topic, but if you’ve ever had a toothache, well… this bud’s for you!

While the study was about California, the story applies all across this great land. There’s one area in the state, Hollister, San Benito County, where a UCLA survey shows five working dentists for about 58,000 people! And there are several counties where there is one dentist for every 4-5,000 people.

The Times: “The shortage situation may worsen in some already-underserved areas because new dentists are not keeping pace with those retiring… Because dentists often leave school with between $200,000 and $300,000 in loans, setting up practice in areas where patients rely on government-sponsored insurance that pays only 30 to 40 cents on the dollar can be hard, said Cathy Mudge, chief administrative officer of the California Dental Assn.”

In California, there is already talk of programs where folks who used to get student loans forgiven by doing stuff like “teaching public school” or “public service law” are going to be hacked to financial death in the current budget crisis… oh, and that state university tuition is going up to make up for the big budget deficit; the only news seems to be bad.

In a world where North Koreans are testing nukes, the Pakistanis are making more nukes as they are attacked by Taliban, as home prices continue to reinvent the “floor,” as jobs disappear faster than gamblers during a police raid and credit is frozen like a polar ice cap in winter, stuff like who will take care of you even if you have health insurance can fall between the cracks of global despair.

I’m Peter Dekom, and I’m here to remind you once and a while about stuff, important stuff.

Allah & Me

The Islamic world is a vast ocean of diversity and intensity. Contrary to popular belief, most Muslim’s are simply trying to live their lives, find a way to survive or prosper, and are hardly mired in the extremes we associate with tribal brutality, car bombing and seemingly indiscriminate violence. The extremists, experts in mass media, scattered throughout the Muslim world and exceptionally well-financed by “guilt money” from many quarters, have been adept at turning American reaction to the 9/11 attacks, our misadventures in Iraq and our failures in Afghanistan, into recruiting devices and propaganda machines. And these extremists are among the most dangerous people on this earth.

On June 4^th, President Obama, speaking from within Egypt, will address the Muslim world, undoubtedly repeating his we are not and never will be at war with Islam mantra. Indeed, it is hard for a man whose father was both a Muslim and an African, who spent time during his childhood in the largest Muslim nation on earth, Indonesia, not to personalize this message, through anecdote and his own experience. The June 2^nd Los Angeles Times: “‘The fact is that the president himself experienced Islam on three continents before he's been able to visit, really, the heart of the Islamic world,’ said Denis McDonough, Obama's deputy national security advisor for strategic communications. The president sees a fundamental need, McDonough said, to change ‘how we engage our allies.’”

Clearly, our efforts in Iraq and Afghanistan have been both polarizing and nothing short of disastrous for the American economy (we tried to lower taxes while escalating our military expenses, a spiral of borrowing that has only accelerated as time has passed). We need a graceful out from two nations for whom stability and peaceful internal co-existence have been and are likely to be elusive for the foreseeable future. These nations are far too fractionalized to flow naturally into the future as cohesive nation-states. So whatever we do as we leave, our own expectations, indeed those of the rest of the world, need to be managed accordingly. Indeed, even though the instability would have been there with or without our presence, undoubtedly, we will shoulder much of the blame for the inevitable.

The blame game is a global pastime. Americans are popular targets, because our shadow casts far and wide. Our economic meltdown, as bad as it is in this country, has rolled into international catastrophes that dwarf our own financial fall. And there is one more risk. For the significant pool of Americans who have been wary of an African-American president with Muslim roots, the attempt to woo the Muslim world is met with fear and distrust. For those who see Israel as our only hope in the region, Obama’s battle with the Israelis over the expansion of West Bank Jewish settlements and the divergence of how to restart the dialog process with the Palestinians is of deeper concern. Does Obama win the battle of global perception at the expense of domestic distrust?

But without repairing the damage to American credibility in the Muslim world, the ability to implement policies of military disengagement and détente with such a large segment of the earth is materially hampered. The LA Times: “‘In the Middle East and the wider Muslim world, the ratings took a sharp dip after the invasion of Iraq,’ said Dalia Mogahed, executive director of the Gallup Center for Muslim Studies. ‘They never permanently recovered anywhere during the Bush years. Now we're seeing them recover in 2009.’ …‘Our image in the world, particularly in the Muslim world, has, over the course of many years, not been what it needs to be in order to accomplish, for instance, peace in the Middle East,’ said Robert Gibbs, White House press secretary and a top advisor.”

As the President landed in Saudi Arabia for a meeting with the King, a stop en route to Egypt, our perpetual nemesis, Osama bin Laden, released an audio tape stating that Obama was simply following the prior administration’s anti-Muslim policies: “[T]elevision network Al-Jazeera aired a new audiotape, reportedly from al-Qaeda leader Osama bin Laden, saying Obama was planting seeds for ‘revenge and hatred’ toward the United States in the Muslim world… and warned that Americans should be prepared for the ‘consequences’” June 3^rd Washington Post. Clearly, Obama’s embracing ordinary Muslims in a personal way world is a huge threat to Bin Laden.

The key is to allow that vast pool of moderate Muslims to deal with their own fear of extremists. It wasn’t American pressure to fight terrorism that moved the Pakistani army to turn against the armed extremists in the Swat Valley or in the Western Tribal District; it was extremism itself. “They” are never going to fight extremists for us, but we need to stop giving extremists a reason why that moderate majority should embrace the militants’ use of America as a rallying point to secure their own power. The balance that Mr. Obama faces in his June 4^th speech is exceptionally difficult to achieve, and how we actually disengage and dialog after that speech becomes of even greater significance.

I’m Peter Dekom, and I approve this message.

When Driving a Cadillac Was a Sign of Success

I’m picturing that scene in the movie Poltergeist when the little girl mutters ominously, “They’re here.” In this case, it’s a legion of bankruptcy lawyers, representing car dealers, parts-makers, bond holders, banks, shareholders, unions and various arms of the federal and state governments, to name a few. The filing documents speak of numbers – $172.8 billion in debt, $82.3 billion in assets – but just looking at the plant closings, the massive layoffs and the ripple through the American… the global… economy, I feel a shudder creeping down my spine. It looks like a giant subprime borrower living beyond its means in a world of denial and the assumption of infinite growth.

I’m also picturing my distant youth – we actually couldn’t afford a car, and my mother was terrified of that gasoline-burning beast anyway – with splendiferous tail-fin-invested models from Detroit that cruised the streets in my home town, Washington, D.C. We used the busses and street cars, no magnificent subway system yet. “Woodies” actually had wood siding. No Mercedes or BMWs. No Ferraris. Cadillacs, T-bird and Corvettes were the stuff of dreams, and every kid knew every make and model. People bought cars every two to four years, if you had a car. And kids and hobbyists alike worked on the minimalist complexities under the hood; you didn’t need a computer diagnostic system to make your own repairs.

I remember former Ford President, Robert McNamara, that number crunching “Whiz Kid” from the 1960s, the first non-Ford family President, who grew that company like crazy. He was such a genius that he was eventually elevated to Secretary of Defense under President John Kennedy. McNamara figured out that since Americans bought cars with such frequency, cars really didn’t need to be built to last that long. A little thinner metal here, a little less machine tolerance there, and you could raise profits significantly. Wow! Brilliant! GM and Chrysler saw the light and joined into this “planned obsolescence” parade. To hell with “fit and finish.”

That was about the time that the idea of an import became more than buying a VW bug or van, or buying an exotic British car… The Japanese were coming. Toyota and “Datsun” (later reverting to the Nissan label). Even in the days of 20-30 cents-per-gallon of gasoline, these Asian carmakers focused on efficiency, on value and building something that might just outlast their American competitors. Once “made in Japan” was the “you know it’s crap” standard… That label shifted to the McNamara-inspired American automobile.

We never recovered that quality feeling, even as Buick recently topped the list of well-built automobiles, outpacing German superstars and Japanese engineering. When Lehman Bros. collapsed in September last year, the “joke” photographs showed hundreds of Ferraris pouring out of the building. Not a Corvette or Cadillac in sight. Cadillacs were for the post-boomers, a worn out image of years past… or pimped out rides of giant Escalades, their spinners gleaming in the noon-day sun.

The symbols of cool and success were Mercedes and BMWs, even among the well-heeled college kids whose parents were able to provide the excess of the “new era.” Or super-fast, super-expensive German, Italian or British sports cars. The notion of “buying American” was still not so cool in the modern era. Mustang regained some luster; Corvettes were somewhere in that mix, but Hummers were seriously déclassé in an “almost” environmentally conscious world. And for folks worried about gas mileage, Detroit was hardly a leader of the environmental movement. Toyota and Honda were way ahead of that curve. With Hummer division being spun off and the government oversight of the new configuration forcing even tighter mileage requirements, can GM reinvent itself as the “green” carmaker, launching that new image with the release of the Chevy Volt?

Is what we are witnessing the rubble of the stupid dog tricks of Detroit’s leadership, a decline that dates back to the decisions of the 1960s? How will the phoenix rise from the ashes of the Motor City… or will they? How will Detroit recapture the trust and confidence of the American car-buyers? What will they do to destroy the image of overpaid workers and executives trying to dictate outmoded cars to an unwilling public… not really caring about what the consumers really needed, would absolutely need in the future and actually wanted? If they don’t, the current bankruptcies of GM and Chrysler won’t be the last. In the end, consumers no longer just “buy American,” since a car is the second greatest purchase in their lives (after a house), they buy “smart.” Maybe the next generation of American carmakers will get the hint. Maybe not.

CNNMoney.com (June 2^nd) presented some numbers that suggest that the fall in car sales might be “bottoming out”: “From early tallies, it appears that the auto industry's May sales, as a whole, beat analyst forecasts.” Ford did best among the top car companies that market in the U.S., but believe it or not, now-bankrupt GM was a close second. Was it dealers shutting down and dumping inventory, or was it a real turnaround? Time most certainly will tell.

I’m Peter Dekom, and I approve this message.

Foolin’ with Schoolin’

Welcome to America’s “hot” button. Whether it’s about making sure that your child receives a proper [Catholic, Jewish, Christian, Muslim, Evangelical Christian, Hindu, Orthodox Jewish… well you get the point] education, America has always cherished its right to offer a religiously-based education to its children as an alternative to secular schooling. Some people have carried that notion to another level with home schooling (although some home schooling is just a way for a parent to ensure a gifted child isn’t bored).

Even at the college level, whether it’s the academic wunderkind of Jesuit learning, Georgetown University, the Mormon superstar, Brigham Young University, or the more recently recently created and controversial Evangelical institutions of lesser academic repute, Liberty University or Oral Roberts, Americans do like the religious alternative, even if some of such colleges and universities no longer require adherence to their underlying creed. It’s our right under the First Amendment.

While most advanced countries in the world have a nationally-controlled public school system at the primary and secondary level, the U.S. struggles with 13,000 autonomous school districts, often with conflicting values, always with costly additional layers of local bureaucracy, where battles over the requirement of teaching religious precepts – the “intelligent design” versus “evolution” battle – often occur at the expense of collapsing academic standards that make our children particularly uncompetitive in a world where many developing nations are building educational systems with far more effective curricula than ours. But will we give up “local” control? It’s our right under our federal system of government.

Is there any hope for our schools, despite the critical failure of the No Child Left Behind Act (which allows states to set their own internal standards for what constitutes “success”)? Perhaps a touch (I’ll believe it when I see the results). On June 1^st, 46 states and the District of Columbia, through the National Governors Association and the Council of Chief State School Officers, have agreed to attempt to set national standards for primary and secondary public education, focusing on creating “internationally competitive” students.

The June 1^st Washington Post: “Once the organizers of the effort agree to a proposal, each state would decide individually whether to adopt it… The nearly complete support of governors for the effort -- leaders in Texas, Alaska, Missouri and South Carolina are the only ones that have not signed on [notably states where the obligation to present “intelligent design” as an “alternative theory” to evolution is still one of the highest priorities] is the main issue -- is key.”

In some countries, however, religious schooling is the backbone of local literacy. Without the involvement of religious institutions, for all practical purposes, many of these nations would see education virtually disappear except for the elites; literacy rates might plunge back to the level last seen during the Dark Ages. One such country is the much-troubled Pakistan, where Muslim schools, based on a thorough understanding (and even memorization of the 77,701 words of) the Qu’ran, are quite prevalent.

No, most of these schools (approximately 20,000 “Muslim seminary” schools according to the May 29^th Los Angeles Times) are not hotbeds of Jihadism, but many do in fact teach a pretty fundamental brand of Islam. On the other hand, Pakistan does have a few hundred such schools that do seem to live up to their reputation as Jihadist processing plants. These madrasas represent about 2% of such student populations, but they seem to have the tacit support of the Pakistani military, who see these bearded and fundamentalist young warriors-in-training as potential recruits in the underground battle to take India’s Kashmir, a state with a large Muslim population (the major of India is Hindu). India still looms as the huge mythical beast that is Pakistan’s mortal enemy, even though India most certainly has other priorities.

But these same madrasas provide recruits for terrorist activities all over Pakistan, Afghanistan and even participate as “freedom fighters” in campaigns thousands of miles from their native land. Taliban leaders are revered in many schools, and many students find their way into that vitriolic organization after “graduation.”

“‘The madrasas are a symptom, not the cause,’ said C. Christine Fair, an analyst with the Santa Monica-based Rand Corp. think tank.” LA Times. A corrupt and feudalist government has led many factions to build their own private religious armies and apply their own religious laws to fill the vacuum that exists in this explosive and unstable nuclear nation. It isn’t these schools that have generated the fairly strong generally anti-American feeling within Pakistan; our alliance with a corrupt government and our constant perceived “manipulation” of that government to implement “American policies” against “terrorism” (not viewed as much of a local problem) has bolstered that feeling.

But in the end, the few “terrorist” schools and universities that do exist in Pakistan have created new violent anti-American leaders and recruits willing to kill, maim and destroy Westerners and Western values, to attack and train others to attack… it is their sacred mission, not just a right, but a mandate from Allah. The passion of religious fever is a difficult power with which to negotiate peace, harmony or even détente.

The initial step in defending ourselves against this “holy” onslaught is to understand the problem. The second is to understand how the conflict with India is Pakistan’s main focus, not indigenous “terrorism.” The third is to let the inherent suspicion of Pakistan’s masses to react to the internal extremism that finally has got their attention. The Taliban went one giant step too far in their recent attack outwards from the Swat Valley. Tolerance of extreme religious views is an American right; other countries express their own version of that right. It is a very complex world.

I’m Peter Dekom, and I approve this message.