Meet me in the Lobby

Running for office takes money. Lots of it. And given how we have candidates running earlier – extending the length of the campaign and multiplying the need to generate money earlier before anyone has a clear lead – the access points for special interests armed with cash have multiplied as well. People start talking about the next election the moment the last election is over.

And if you are running sooner, before the field is set, you have less to offer a contributor, because you are nowhere near the finish line… in fact, you may not even be on the starting line. So with less to offer, many nascent candidates need to offer more to special interests to get those dollars. Clearly, the populist campaign contributions that flow later in a political campaign are almost non-existent at the early stages. The more passionate your point of view (even if that passion is corporate greed), the greater your willingness to embrace candidates earlier, before candidacies are homogenized into the mainstream of generic campaign contributions.

Special interests tend to be well-organized, well-funded and able to mobilize their lobbyists and support groups into a super-coordinated effort at a moment’s notice. The can match direct contributions with contributions to parallel political action committees (PACs) and massive publicity campaigns, public demonstrations or “behind closed doors” strong arm tactics. Their agendas have slowly become the political direction of America

After all, it took Congress to deregulate credit default swaps and SEC action to allow those “too big to fail” financial institutions to remove the debt limits on their investment portfolios. Political pressure is omnipresent, a harsh fact of life. Even as our financial world began to collapse in the regulatory failures that were lobbied into ineffectiveness, cries for “ground-up” reform were heard from every quarter. After all, if the actual voting body politic were going to hold their elected representatives to task for their legislative failures, the power of the special interests was clearly suspended. But special interests knew when to back into a corner and hide; when voters’ anger and passions would subside, it would be back to “business as usual.” Nothing to worry about.

You may have noticed more polarizing politicians in elective office. More special interests pushing their agendas. Democracies don’t function well where money determines political outcomes. When the moments are right, special interests will always come back, particularly if we let them. So as you ask yourself what happened to all those promises of regulatory reform, by the tenor of this blog, I think you can figure out exactly what happened.

Look around you. Goldman Sachs, JP Morgan and host of mega-financial institutions are having record years, recording profits that exceed the pre-meltdown levels of early 2008. Bonuses at these institutions are hitting record-breaking levels. But are they investing in the future growth industries of America, helping to create the cutting edge jobs we have been promised and helping mainstream American small businesses by providing reasonable access to working capital and normal bank lending? Guess. We hear about the “jobless recovery.” We see collapses of small, medium and large businesses every day – layoffs continue unabated. Pre-meltdown focus on trading without true investing has returned with a vengeance.

So as President Obama spoke on September 14^th before the lions of Wall Street, he said: ““I want them to hear my words. We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses… those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.” But Congress is already unraveling the most comprehensive and compelling aspects of regulatory reform.

The September 15^th New York Times points out one prevalent point of view: “‘The president has offered a reform proposal that would grant broad new authorities to government bureaucrats while intruding in private markets and restricting personal choice,’ said Spencer Bachus of Alabama, the senior Republican on the House Financial Services Committee. ‘The obvious lesson of the events of September 2008 is that we need smarter regulation, not more regulation, not more government bureaucracy, and not more incentives to engage in harmful business practices.’” But don’t mistake this for being just a “Republican” point of view. Special interests, particularly those on Wall Street, have just as many Democrats in their pockets; remember they contribute a lot, often and early in the game.

We’ve already abandoned that effort to do a ground-up reworking of our financial regulatory system. We may add a new regulator here or there, expand the power of some of the existing administrative bodies, but the mega-billion-dollar Wall Street regulars have already diluted efforts against executive pay, tighter regulation of credit default swaps, the destruction of the existing regulatory bodies in favor of an entire new set of effective structures, and are fighting requirements for keeping more equity on their balance sheets (instead of debt). Take a look at who’s making real money out there… and who’s not. You can see who’s running the show; the American people sure aren’t!

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

Foreign Invaders

In December of 1979, the former Soviet Union invaded Afghanistan. It was a long (ended in 1989), drawn-out conflict that sapped Soviet resources and one that many believe led to the downfall of the USSR and its fractionalization into a number of new nations. The United States (through the CIA) began covert aid to the mujahideen in 1980, often passing weapons and munitions through Pakistan’s notorious ISI intelligence directorate to the “freedom fighters” in Afghanistan. These mujahideen, which included the Taliban, eventually evolved into Al Qaeda. The term “blow back” germinated from the shift of focus of these mujahideen from the Soviets to attacks against the Western world, notably, the United States.

What started with a small contingent of 700 “disguised” Soviet troops (wearing Afghan uniforms) soon escalated into a large invasion force, reinforced with heavy air cover. Eventually, the Soviet force numbered over 100,000 troops. The mujahideen wore down the Soviets with hit and run tactics, well supplied with American and captured arms. The Soviet forces never seemed to gain the upper hand, and the withdrawal began in 1988, ending in 1989, just as the regional communist empire began to crumble and fall.

The Soviets were hated by virtually everybody. As their troop strength magnified, as villagers were often “collateral damage” in battles between “insurgents” and Soviet troops, any pretense by the Russians that they were there to support an incumbent government fell by the wayside. They were viewed simply as “foreign invaders.”

The recent Afghan “re-election” of Hamid Karzai – fraught with allegation of voter fraud (supported by wholesale disqualification of a number of submitted ballots – is the tip of the corruption iceberg. Karzai’s government, which Americans have hailed as “democratically elected,” is laced with greed and avarice, with bribes and “special interests” becoming the rule in one of the most corrupt governments in the region (and that’s saying a lot!).

Indeed, as U.S. troop strength reaches 68 thousand by the end of the year, supported by NATO forces adding another 40 thousand forces, we are beginning to look more like that failed Soviet invasion than an attempt to oust unpopular insurgents (like the Taliban) from the country. Villagers are often caught in the crossfire, Americans failed in their promise to upgrade the country and build infrastructure, schools, hospitals, etc., and locals are growing weary of never-ending conflict to support a clearly corrupt regime.

On September 11^th, experts gathered to discuss the future of international operations in Afghanistan over the weekend. The speeches provided dire warnings. Former Carter Administration National Security Advisor, Zbigniew Brzezinski (he was there when the Soviets invaded Afghanistan), saw the clear parallels between the Soviet failure in the 1980s and what is going on with NATO forces today: ““We are running the risk of replicating — obviously unintentionally — the fate of the Soviets.”

Americans toppled the Taliban in 2001 with 100 U.S. Special Forces, but the United States soon lost interest in the Afghan fight and turned its attention and deployed its massive forces in a questionable pursuit of weapons of mass destruction theoretically hidden by Saddam Hussein somewhere in Iraq. The Taliban and other insurgent forces returned to the Afghan countryside with a vengeance, leaving the American-supported government with little under its effective control other than the capital, Kabul (and the surrounding area). Now we will have over 100,000 troops in the country, and we seem to have lost the support of the people.

Britain’s Sir Sherard Cowper-Coles, the foreign secretary’s special representative for Afghanistan and a former British ambassador to Afghanistan, Saudi Arabia and Israel, as summarized in the September 14^th New York Times: “What is needed now is ‘the intelligent application of military force,’ alongside long-promised development strategies, Sir Sherard said, evoking what he called a dream that, by 2011, a truckload of pomegranates would be able to pass unhindered from Afghanistan through Pakistan and into India, that Western students could study Afghan archaeological ruins, and that posters in the Pashto language inviting Pashtuns to ‘come on over’ from the Taliban would be tattered remnants — unneeded rather than unheeded — on the roadsides of southern Afghanistan… ‘That,’ he stressed, ‘is the dream.’”

Sometimes dreams can become nightmares.

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

Check, It Out

In the Middle Ages, it was common to lock men and women together in a large, dank and ugly cell when they failed to discharge their debts. They rotted there until their families found a way to pay off. Wikipedia: “Debt prisoners often died of disease contracted from other debt prisoners. Conditions included starvation and abuse from other prisoners. If the father of a family was imprisoned for debt, the family business often suffered while the mother and children fell into poverty. Unable to pay the debt, the father often remained in debt prison for many years. Some debt prisoners were released to become serfs or indentured servants (debt bondage) until they paid off their debt in labor.”

Jolly Olde England wasn’t so jolly if you owed money and did not pay it. But even in debtors’ prisons, the British had a class system: “[D]ebtors' prisons varied in the amount of freedom they allowed the debtor. With a little money, a debtor could pay for some freedoms; some allowed inmates to conduct business and receive visitors; others (for example, the Fleet and King's Bench Prisons) even allowed inmates to live a short distance outside the prison — a practice known as the 'Liberty of the Rules' — and the Fleet even tolerated clandestine 'Fleet Marriages'.

“Some debtors prisoners were less fortunate, being sent to prisons with a mix of criminals. Petty criminals, debtors, vicious criminals, convicts and many more were confined into a single cell…The father of the English author Charles Dickens was sent to one of these prisons (Marshalsea Prison), which were often described in Dickens' novels…The Debtors Act 1869 abolished imprisonment for debt, although debtors who had the means to pay their debt, but did not do so, could still be incarcerated for up to six weeks.” Wikipedia

But America was also stained by this practice. “In 1833 the United States reduced the practice of imprisonment for debts at the federal level. Most states followed suit. It is still possible, however, to be incarcerated for debt, but only in those circumstances in which the court finds that the debtor actually possesses the money or means available to pay the debt, however, in the case of child support, if you are unable to pay the amount set by child support enforcement you will be incarcerated even though you may not have the actual means to pay it through no fault of your own. The constitutions of the U.S. states of Tennessee and Oklahoma forbid civil imprisonment for debts.” Wikipedia

People argued that putting debtors in prison took away their ability to work and earn money and that lenders always assumed a risk of non-payment. Further, as investors pooled money for business ventures – as a part of the evolution of the modern capital aggregation structures (like corporations and, today, limited liability companies) – business failures made punishment difficult and resulted in disruptions of commercial activity such that bankruptcy laws became the remedy for an inability to pay debt. All this is great for those legal systems that track modern commercial law, but for those nations that modeled their statutes on religious laws or simply adopted legal codes from other less-evolved legal systems, debtors’ prison remains “the way it’s done” today… even if there isn’t a special jail for that offense.

Bounce a check in that Middle Eastern, mega-growth nation of Dubai, and guess what? Yup, jail. In the States if you write a check knowing that you have no money, well, the results can be the same, but in Dubai, that “knowing” isn’t necessary. Just failing to pay a debt when due is a criminal offense. Dubai’s sophisticated financial systems fall in the arena of debt. There is zero tolerance for missed loan installments, and bankruptcy restructuring is simply not available.

The September 12^th New York Times: “The risk is compounded by Dubai’s unusually heavy reliance on checks. Banks request signed checks when giving out personal loans, and small and medium-size businesses often require them to guarantee payment for large purchases. Landlords sometimes insist on more than one postdated check from tenants as a security deposit…. Dubai’s laws are largely based on Egyptian civil law and Islamic law, or Shariah, with no real effort to encompass the tremendous volume of its commerce.”

So as we watch this crisis of debt shatter the American economy, at least we aren’t facing the need to build a whole slew of debtors’ prisons to accommodate the inability of Americans to meet their debt obligations. But the cruelty of being in hopeless debt is still a harsh sentence to so many of us.

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

Punishing America’s Children

It’s post-Labor Day! School’s in session for most of America. But for about a dozen states, with state fiscal deficits (an estimated cumulative $165 billion this year) shattering local government’s ability to sustain even the mediocre educational standards this country is becoming famous for, even the $100 billion of educational aid allocated by Congress to support our nation’s school systems is not enough to stop massive layoffs of teachers, contraction of teaching programs and school-related activities and an explosive growth in the size of the average classroom. Betraying our children, equipping them with an even worse education to survive in a world of increasing competition, is unacceptable. The impact of these educational deficits may last a lifetime… or more.

The September 8th New York Times: “In Arizona, which is suffering one of the nation’s worst fiscal crises, some classrooms were jammed with nearly 50 students when schools reopened last month, and the norm for Los Angeles high schools this fall is 42.5 students per teacher… Los Angeles Unified, the nation’s second-largest district, sent layoff notices to 8,850 teachers, counselors and administrators last spring. Bolstered by stimulus money, it recently rehired some 6,700 of them, leaving about 2,150 demoted to substitute teaching or out of work. Hundreds of districts across California laid off a total of more than 20,000 teachers, according to the California Teachers Association.”

The numbers across various states are staggering. “In Michigan, the Detroit schools’ emergency financial manager closed 29 schools and laid off 1,700 employees, including 1,000 teachers. Arizona school districts laid off 7,000 teachers in the spring, but stimulus money helped them rehire several thousand. Tucson Unified, for instance, laid off 560 teachers, but rehired 400… Florida’s second-largest system, Broward County Schools, laid off 400 teachers, but aided by stimulus money, rehired more than 100. In Washington State, many districts let employees go; Seattle laid off about 50 teachers… About half of the 160 school superintendents from 37 states surveyed by the American Association of School Administrators said that despite receiving stimulus money, they were forced to cut teachers in core subjects. Eight out of 10 said they had cut librarians, nurses, cooks and bus drivers.”

But wait, there’s more! With union rules, it’s not always the good teachers who are retained and those not as qualified let go. It’s a meat axe, where seniority often rules. Can we really afford this “plan of action”? And if we wait to find out the impact of our folly in a few years, won’t it all be too little, too late?

We have a sick educational system, a crumbled educational infrastructure… the great democratic “equalizer” – public education – has become profoundly inferior (on average) than the private school alternative. So if you’re rich and can afford that private route for your kids… If you aren’t, watch America’s new downward mobility take root.

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

You Fill Up My Census

How has the economy impacted what Americans look like to a government statistician? Well how about some of these eye-openers released on September 10^th by our friendly Census Bureau?

People without health insurance: 46.3 million or 15.4% of the population (but fewer uninsured children: 7.3 million from 8.1 million in 2007). Rising.

2008 median family income: $50,303, a 3.6% decline from 2007 (hate to think what 2009 will look like!). The biggest decline since 1991.

People covered by employer-supplied healthcare insurance: 58.5% of the nation's population in 2008, although that percentage has been steadily decreasing.

Percentage of people at or below federal poverty rate: 13.2% (up from 12.5% in 2007) and rising. The represents 39.8 million people (14 million children). Highest in 11 years and rising.

Average size of new homes: 7% smaller in the first three months of 2009 over 2008. First contraction (to 2,065 sq. feet) in the size of new homes since 1994.

We live in a world of numbers. They haven’t been looking too good of late.

I’m Peter Dekom, and a short blog works once and awhile

China’s Number One Concern

Uighur rebellion? Nuclear proliferation? The falling dollar? Environmental pollution? Russia’s drive for political power? The price of oil? Nope. According to a survey conducted among China’s people and reported in the September 4^th New York Times, 75% of those asked cited “corruption.” China’s own most senior leadership doesn’t disagree, and we are constantly seeing stories of toppled bigwigs facing long prison sentence or even execution.

The Times noted that Huang Guangyu, an electronics industry billionaire, named the second richest man in China by Forbes last October, the 39-year-old was busted for corruption. “Soon, other prominent individuals were arrested or charged with corruption or bribery: Rixin Kang, the former head of China’s nuclear power agency; Chen Tonghai, the former chairman of Sinopec, the state-owned oil company; the head of Beijing’s Capital Airport (who was executed last month); and the former mayor of Shenzhen, one of the country’s biggest manufacturing centers.” A corporate CEO accused of using tainted milk to save money was also toast. Every year about 150,000 public officials are prosecuted for corrupt activity.

Sounds like China has got this one under control. But perhaps a closer look is in order. We’ve got our share of problems, and when we have big glaring errors as reflected in the current economic disaster, it’s because the pieces that were put in place to maintain the system simply failed. Madoff slipping through the SEC net, Congress intentionally creating loopholes to allow the questionable credit default swap market to grow with unregulated abandon and regulatory agencies being instructed by the White House to look the other way, etc. But the notion of a multiparty system with three independent branches of government (notably the judiciary) watched by a free press creates a system of checks and balances that eventually right the ship.

China’s one-party system with a controlled press does have a few advantages: central planners can unilaterally implement the kind of sweeping changes that moved China from an isolated and backwards feudalistic nation to a global economic powerhouse in just a few decades. But it also makes dealing with corruption nearly impossible. What looks like a purge of the corrupt is really a fairly thinly disguised “business as usual” – people who lose their power base are “purged” by those who have managed to squeeze their way into the system and make it work for them. When powerful friends slip from grace or retire, if those connections are not quickly and immediately replaced, those who maintain their rank and privilege are in jeopardy. It’s the way it has always been in these “communist” hierarchies. Same old, same old. Power shuffles with casualties.

It’s also the old “judge, jury and executioner” routine… inherent in a one-party system that effectively tells the judiciary whom to prosecute, who has fallen out of favor and who the new “approved” power brokers are. The newbies get the perks and the power; the old guard gets a cell or a bullet. Without a free press to report the truth, the cycle continues. Foreign companies still bribe their way into big deals, environmental laws are ignored – for a price, property changes hands (read: confiscation) without review and economic benefits and privilege are doled out to the winners, their family and their chosen circle of supporters. Each member of the cabal looks the other way in order to maintain his or her circle of corrupt advantages.

Hu Jintao, who sits are the top of the Chinese government, clearly wants to kill off this horrendous thorn in China’s side, but he only has a one party system with too many vested interests to implement this policy. The Times: “A 2007 study by the Carnegie Endowment of International Peace estimated that in 2003, corruption cost China about $86 billion, or about 3 percent of gross domestic product at the time… ‘Corruption has not derailed China’s economic rise,’ says Professor Gao at the Chinese Academy. ‘But it’s rotting the establishment of a rule of law. The Chinese government has more than 1,200 laws, rules and directives against corruption, but implementation is ineffective.’… Experts say corruption is thriving here because relatively low-paid government officials wield enormous power over business and resources. ‘The key variable is the extent to which the government gets involved in business in China,’ says Professor Pei at Claremont McKenna.”

In short, too many folks are joining the PRC government specifically because of these not-so-secret economic opportunities. They are willing to take the risks to reap the huge rewards afforded to those on the inside who stay in favor. Without a truly independent police force and accompanying judiciary, without a free press to watch the judges, it just doesn’t seem likely that this on-going, resource-sapping and public-frustration-building practice is ending any time soon. China is a key partner with the United States in trade, global policies and regional stability. What happens in China clearly impacts us here at home.

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

Get in My Belly!

America’s agricultural machine is as efficient as it may be cruel. In 1966, the average American family spent 18% of their gross income on food; today, that number is just 10%. We love meat and cheap food. Gorge on it. Animals may be fattened in confined pens for efficiency (called “concentrated animal feeding operations,” or CAFO for short) – immobilized cruelty living in their own squalor – but boy do we eat inexpensively. Beef. Chicken. Pork. Yum! The fuel for this incredible growth? Corn. Tons of it. Subsidized corn ($50 billion in federal monies over the last decade). Water-resources-sucking corn.

Up from 4 billion bushels in 1970 to a staggering 14 billion today. 153 bushels an acre (from 118 bushels in 1990). 10 million tons of fertilizer (out of 23 million tons for all crops). The Midwest is drowning in it… and as rain washes all that fertilizer off the land and down finally into the Gulf of Mexico, there is a 6,000 square mile “dead zone” with almost no oxygen and no sea life. This kills off the “it’s healthier protein” sea life that might otherwise feed us.

The cheapest calories aren’t necessarily good for you. The August 31^st Time points out that $1 will buy 1,200 calories of potato chips, 875 calories of soda, but merely 250 of vegetables or 170 calories of fresh fruit. Our efficiency produces increasing calories with less money. And we wonder why Americans are getting heavier.

With animals shoved into close proximity, we anticipate the spread of disease and add antibiotics to the feed mixes (70% of our antimicrobials are used on farm animals). This creates new antibiotic-resistant diseases that add new threats to our environment. And some of those diseases find their way directly to us. So we fat, sick, and get even sicker with cancer, heart attacks…. Maybe my blogging about our future shouldn’t really be my concern.

Want more stuff to float off into our ecosystem? Pig farms are great. A pig will produce four times the waste, pound for pound, than a person. And that waste has a nasty (and I do mean nasty) habit of find its way into local lakes, rivers and streams... which flow… well you get it. In the end, these practices are simply unsustainable.

Time cites a University of Michigan study that notes: “A transition to more sustainable, smaller-scale production methods could even be possible without a loss in overall yield [per acre]…, but it would require far more farmworkers than we have today. With unemployment approaching double digits – and things are especially grim in impoverished rural areas that have seen populations collapse over the past several decades – that’s hardly a bad thing.”

It’s that “organic” vs. “conventional” farming thang. 1% of all cattle are raised the old fashioned way… graze and walk around, move from field to field to let the grasses grow back naturally… and 99% are brought to market through industrial feed lots. Efficiency like this is hard to change. But think about the consequences of growing demand for meat all over the world, and the impact of these industrialized farming techniques on our environment.

You might like this note from the September 10^th Washington Post… on those organic gaucho’s in Argentina: “Cattle once ruled the seemingly endless grasslands here, delivering decades of prosperity for Argentina and producing a brand familiar to the world -- natural, grass-fed beef... But a quiet revolution has arrived on the famously fertile pampa, a swath of plains bigger than Texas… Instead of roaming freely and eating to their hearts' content, a growing number of Argentine cattle are spending a third of their lives in U.S.-style feedlots. There, crammed in muddy corrals, they are pumped with antibiotics and fed mounds of protein-rich grain, which fattens them up fast but hardly conjures up the romantic image of the Argentine cowboy, the iconic gaucho, lassoing cattle on the high plains.” Yee ha! Said the chief financial officer. Bring on dem diseases and dead zones! Yee ha!

Sure, organic produce costs more; it’s more labor intensive and more dependent on nature… at least in hard dollar terms. But in terms of human life expectancy and environmental quality, it just might be the lowest cost approach.

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

$23,186

Two thirds of all U.S. college students borrow to pay for their educations. According to the September 3^rd Wall Street Journal, the “average” debt on graduation number above is increasing at an alarming rate. The “new” economy has accelerated debt into the 2008-2009 academic year over the previously year by a staggering 25%, a whopping total of $75.1 billion dollars. Undersecretary of Education, Robert Shireman, noted that his growth in debt was “definitely above expectations… But we’re also in an economic situation that nobody predicted.”

The fact is that young folks are borrowing more to get the same level of education. Twelve years ago, the average debt was $13,172 and only 58% of students borrowed. Add to this horrific mix a job market that defies description and you can most definitely see these recent grads postponing marriage, having kids, buying houses or generally participating in our consumer marketplace. With older folks not able to retire in this meltdown, savings at levels that most certainly have delayed if not eliminated retirement for so many, the job prospects and the opportunities for advancement haven’t been this bad in half a century. 39% of “indebted” students surveyed (the above WSJ article) tell us that it will take them a decade or more to pay off their educational debt. In this economic environment! And six figure debt for those in professional school is all too often the norm.

Debt is what got this nation into the depths of economic catastrophe. Education is the only path we really have to being a nation of value-producing workers. Linking education to debt of necessity limits opportunities and choices. And as states face new levels of local deficits, two-year community colleges and four-year and graduate-level state colleges and universities are cutting the levels of service and increasing total student costs to cover the difference. The net impact is a reduced quality of education, reduced American competitiveness and a decreasing ability to generate the earning power to deal with the massive federal deficit that, one way or another, is going to have to be repaid.

We are dealing ourselves a bad poker hand of bad future inflation, a continued decreasing standard of living, and a slide down the comparable scales of economic well-being enjoyed by our Western brethren. In short, we are accelerating the decline of the America I grew up believing in. It’s time to understand where we invest – infrastructure and education – and where we waste. Tell me where our incursions into Afghanistan and Iraq have actually improved our security and boosted our economy? Explain to me why executive bonuses structures paying top corporate managers vast multiples of their international counterparts have increased American competitiveness and value-building for the nation as a whole?

The cost of education is going up, even as the economy is sliding into a sustained period of limited if any real growth, especially in employment and the quality of available American jobs. It’s time for us to look at alternative mechanisms for paying for post-high school education. For those unable to pay the required tuition, room and board, it’s time for government to design an “education tax,” based on the type and cost of the education delivered, where a fixed percentage of a person’s income for life (adjusted gross income for those who care), is paid in exchange for covering the cost of the underlying education, with forgiveness to those who opt for true public value service jobs (like teaching in public school). It’s time to rethink the system.

I’m Peter Dekom, and what are we doing to ourselves?

“ America 's executive pay bubble remains unpopped”

The Institute for Policies Studies is a Washington , D.C. populist think tank, just published their 16^th annual “Executive Excess” report. The above quote, from lead author Sarah Anderson, is kind of the snap shot headline that says it all. But looking at the polarized nation we are becoming, the actual numbers are indeed frightening – how we reward our senior executives absolutely defines American values in the eyes of the world.

Try these snippets from the report summary

(http://www.ips-dc.org/reports/executive_excess_2009):

Ten of the top 20 financial bailout firms have revealed the details of stock options pocketed in early 2009. Based on rising stock prices, the top five executives at each of these banks have enjoyed a combined increase in the value of their stock options of nearly $90 million.

From 2006 through 2008, the top five executives at the 20 banks that have accepted the most federal bailout dollars since the meltdown averaged $32 million each in personal compensation. One hundred average U.S. workers would have to labor over 1,000 years to make as much as these 100 executives made in three.

Since January 1, 2008, the top 20 financial industry recipients of bailout aid have together laid off more than 160,000 employees. In 2008, the 20 CEOs at these firms each averaged $13.8 million, for a collective total of over a quarter-billion dollars in compensation.

These 20 CEOs averaged 85 times more pay than the regulators who direct the Securities and Exchange Commission and the Federal Deposit Insurance Corporation. These two agencies, many analysts agree, have largely lacked the experienced and committed staff they need to protect average Americans from financial industry recklessness.

Made you feel really good about this financial meltdown, didn’t I?

I’m Peter Dekom, and my head is shaking too.

An Export We Can Be Proud of?

Hope you had a blast this past Labor Day weekend. For lots of folks, having a blast is based on one of America’s top exports – one of those “manufactures” that we actually make here at home – a source of local jobs and a long term sustainable industry. Arms. Weapons. Killing machines. Sophisticated ships, aircraft, missiles, tracking devices and lots and lots of “secret stuff.” And garden variety “guns.”

Congress recently did a study to see where we fit in the world of arms sales. Noting that the recession has dropped the overall military weapons market by 7.6%, the U.S. is still the overwhelming global supplier. The September 7^th New York Times: “The United States signed weapons agreements valued at $37.8 billion in 2008, or 68.4 percent of all business in the global arms bazaar, up significantly from American sales of $25.4 billion the year before.” Woo hoo!

We’re good at making and exporting something. Sure we have the world’s biggest military to supply – our own – but this is hard dollar export stuff. So what if tons of this category of exports falls into the hands of our enemies, drives the Mexican drug cartels, keeps dictators in power at the expense of their people… If we didn’t supply it, someone else would step into the void.

Blowback? Collateral risk. It’s a source of jobs… just like private mercenaries… er… contractors… that the U.S. government uses to fight where it isn’t exactly right or where we can shift stuff out of our military budget into “other categories.” Face it, the parties at the U.S. Embassy in Kabul, Afghanistan would have been the same boring festivities of old… no drunken nude bashes… without those “contractors.”

And exactly who are our major competitors in this global arm’s market? Well, we used to have more of them, but according to the Times: “Italy was a distant second, with $3.7 billion in worldwide weapons sales in 2008, while Russia was third with $3.5 billion in arms sales last year — down considerably from the $10.8 billion in weapons deals signed by Moscow in 2007.” I’m picturing a Ferrari staff car here, but I suspect I have this image all wrong.

It’s interesting to note exactly how much of that export list is to our major Western allies and how much is to what we still call “developing” nations. “The United States was the leader not only in arms sales worldwide, but also in sales to nations in the developing world, signing $29.6 billion in weapons agreements with these nations, or 70.1 percent of all such deals… The study found that the larger arms deals concluded by the United States with developing nations last year included a $6.5 billion air defense system for the United Arab Emirates, a $2.1 billion jet fighter deal with Morocco and a $2 billion attack helicopter agreement with Taiwan. Other large weapons agreements were reached between the United States and India, Iraq, Saudi Arabia, Egypt, South Korea and Brazil.” Times.

Even forgetting about the moral questions, think about how America is perceived overseas. Most believe we precipitated, if not directly caused, this global “recession” by unsound financial practices led by the corporate greed of Wall Street. They have watched our “war on terrorism” – however legitimate it may have been at some level – as an excuse to bully nations and force our point of view into nations who want no part of “America’s problems.” And our massive military, with airstrikes and civilian casualties along the way, shows a nation that does not inspire by an example of democracy but rather one that instills fears by sheer military brute force. “Made in U.S.A.” needs to have a powerful mark that instills “awe” … not “shock.”

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

Inconceivable?

As China relaxes its “one child” policy, and nations in Western Europe facing population declines, can anyone beat these exciting offers?

Sail with Germany’s TUI Cruises on Mein Schiff (“My Ship”) for your honeymoon cruise.... and if you get preggers (better be a woman, right?!), Das Boot will pay for your trip (a full refund)! Good to know that Germany has a plan to deal with their declining population.

Have a kid in Japan, and the newly elected government is proposing to pay you $3,400 per year until junior graduates from high school. Let’s see if this new “stimulus package” can pass the legislature!

Japan is struggling with an uncooperative citizenry, noting that raising a little one in a land of small living spaces and an exceptionally high cost of living has resulted in an expected overall population contraction (sorry, bad pun) of 15-20% within the next decade or two. Not exactly open to immigration – Japan prides itself on its homogeneity – the nation is developing a whole slew of new “service capable” robots to replace the expected shortage of workers in the next generation; they even have one that can feed the elderly at the old-folks home!

The Sept. 7^th DailyFinance.com notes: “At present, approximately 25% of the country's population is above age 65; by 2050, it could reach 40%. This dynamic could strain medical and social services, limit the employment pool and constrain economic growth.” Sex is patriotic! “Serving” your country!

Meanwhile, the earth’s population is soaring, mostly attributable to birth rates in the developing world. The most popularly held beliefs are that these “primitive peoples” just don’t know how to limit births, are promiscuous and otherwise short-sighted. Yeah well, try this concept on for size – where size truly matters: where there are no “retirement programs” or “social safety nets,” people take care of their “golden years” by having lots of children to support them. Where infant mortality rates are particularly high, it’s good to have a “few extras” to make sure you are covered.

And since in developing nations, females tend to marry and support their husband’s family, better have even more kids to make sure you have enough sons! You’ll notice in places like India and China, there are more males than females in the birth statistics… parents are literally terminating female births for economic reasons, and as young men in these countries grow older, unless they can make enough money to support a wife, there really aren’t enough “wives” to go around.

So I thought you might want another view on this Labor Day. And remember, practice makes perfect.

I’m Peter Dekom, and I conceived of this message.

A Jobless Recovery

That’s what the pundits are calling the “end to the current recession.” 9.7% of direct unemployment (up from 9.4% in July) with the prospects of a few years at abnormally high levels of unemployment and underemployment. The “alternative measurement” of unemployment – looking a people who want full time jobs but have given up looking or can only find occasional or part time work – is inching up towards 17%!!! Want your kids to have some spare cash? Learn a work ethic with a summer job? The Sept. 5^th NY Times:“This August, the teenage unemployment rate — that is, the percentage of teenagers who wanted a job who could not find one — was 25.5 percent, its highest level since the government began keeping track of such statistics in 1948.”

Even without the teenagers, it’s getting really close to one out of every five employable Americans being on the bad side of unemployment. We’re already well-past that horrific level in places like Michigan and California. We haven’t seen numbers like this in a quarter of a century. So if the stock market goes up and CEOs of big companies are making tens of millions of dollars in pay packages and stock benefits, that’s a “recovery” we all can be proud of? The rest are “trailing economic indicators” that will trail for years?

The NY Times (August 4^th) put this situation in the proper perspective: “After years of borrowing against the soaring value of homes, tapping abundant credit cards and harvesting stock market earnings to live in excess of their incomes, millions of households are being forced to pare spending. That casts a shadow over consumer spending, which makes up 70 percent of the nation’s economic activity… ‘Household balance sheets are shot,’ [Alan Ruskin, an economist with the Royal Bank of Scotland] said. From here, spending ‘has to come from income, and income has to come from employment, and at this juncture it looks like employment will only improve very slowly.’”

Well “shiver me timbers,” if the pirates’ loot remains in tact… but if you look to your left and you look to your right… at those empty desks, missing people on the manufacturing line, those retail clerks who have new free time, the abandoned homes in your town, the filings in bankruptcy court, the “for lease” signs everywhere… maybe that word “recovery” really needs to be purged from descriptions of what is happening. Words without concomitant changes in how Americans actually live, how they look at their futures and their ability to earn a living, are not helpful. It makes those who are still mired in economic fear – and that’s most of us – feel that somehow we missed out on this new-found economic pattern of growth. But there is no real growth, and exactly what are those companies with new rising stock values going to do to keep those values shored up without customers?

Why am I profoundly skeptical that this recession has ended, that even a “jobless” recovery has begun, and that good times are just ahead? I had this same feeling when I approached the “is there an Easter Bunny/Santa Claus” controversy. I was younger then, but I reached the same conclusion.

I’m Peter Dekom, and yes, I am wondering what “they” are smoking.

Floor Plan Financing

Small businesses are going south faster than the stock market was going up. Simply put, most smaller, regional banks are short on the capital necessary for them to access the Federal Reserve’s cheap cash (at or near prime), and they are definitely tighter on the standards they apply to borrowers. Particularly hard hit are auto dealerships, even those with incredibly good payback records. These dealers need money to buy at least the cars in their showrooms and on their lots (“floor plan financing”) – nothing to show, nothing to sell. The few customers who come to buy will leave without cars.

But hey, would you lend money to a car dealership? Really? And at what rate? The August 31^st CNNMoney.com: “‘There's been no progress in freeing up credit,’ says Scott Gorden, principal in charge of dealerships at LarsonAllen, a Minneapolis-based accounting firm that works with 600 dealers across the country. ‘Far and away, it's still the biggest issue faced by dealerships today. If you cut credit to them, they'll be closing. If they can't get the floor plan financing, they will shut down.’

“Auto dealers' credit troubles started almost a year ago, as banks tightened their credit standards for small businesses in response to the deepening recession. But a bigger problem came when industry-specific lenders like Chrysler Financial, General Motor Acceptance Corp. and Ford … Credit began to pull back.

“‘They first became protective of their brand. So a Ford-Subaru-Volkswagon dealer would only get financed from Ford Credit for the Ford brands,’ Gorden says. ‘But then they started taking a look at the less profitable dealerships, and we had a number of clients who got notice from the [lender] or the bank that the financing would end in 30, 60, 90 days.’”

Recently the Small Business Administration offered a 75% guarantee to lending banks on these floor plan loans (as the dealers sell the cars, they pay off the loan), but the problem still doesn’t want to go away – seems that lots of banks don’t want a thing to do with the words “car dealership” involved, even where the government takes the risk! They’re avoiding the auto industry as if it carried an incurable social disease, and perhaps it does. Maybe that explains why the SBA has only processed one floor plan loan so far. No loans, sales staff gets laid off. No sales, eventually the dealership shuts down as well. And as Americans develop long-term, “spend very carefully and only when you have to habits,” an awful lot of retail will continue to exist only as a distant memory.

“Cash for clunkers” only went so far; there is the longer-term livelihood of folks in the car business to consider. Time is not on their side, and so whatever needs to happen to get direct loans into these dealers hands, let it be…. And then we need to add to that list the hundreds of thousands of other small businesses who are on life support, and who will shed their remaining jobs permanently without ordinary credit lines.

If the government can bail out those “too big to fail,” can it lend a hand with those who are too small to show up on the national radar screen, but who actually supply the bulk of American jobs? Or are we getting comfortable with the prospect of long-term high unemployment rates?

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