The Woods We’re Not Out Of

On April 14^th, JP Morgan announced its first quarter profits - $2.47 billion, up 54% from a year ago. They love the current environment, and truly want to keep things exactly as they are. The April 14^th Washington Post: “Today, no bank — and no bank leader — is showing more confidence on Wall Street or in Washington, where JPMorgan is aggressively fending off moves to create a consumer protection agency and seeking big exemptions from derivatives rules.” The biggest financial players are more profitable than e ver. And retail sales exceed analysts’ expectations, rising 1.6% in March, the third such increase in a row. The markets soared. Financial institutions were even hiring again.

How does the government view all this wonderful news? Fed Chairman Ben Bernanke was on Capitol Hill on the 14^th to testify before the Joint Economic Committee. Was he cheering wildly based on all this splendor? “‘On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters,’ Bernanke said in prepared testimony. He added later that, "if the pace of recovery is moderate, as I expect, a significant amount of time will be required to restore the 8 1/2 million jobs that were lost during the past two years.’… Bernanke also spelled out some of the remaining risks to growth… ‘To be s ure, significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments.’”

I reached immediately for my “Government – English, English – Government” dictionary. The translation: “We might see a few positive economic signs in the next year, but please don’t confuse these for a ‘recovery,’ because we are going to have high unemployment for years, real value issues and continuing foreclosures in the real estate market for much longer than anyone could possibly expect, and lots of our cities and states literally are facing bankruptcy.”

What’s going on? The playing field is clearly tilted in favor of the biggest financial institutions and against the average consumer. Recovery is taking place in this sector, and there will undoubtedly be new opportunities in market sectors that benefit directly from governmental incentives, cutting edge technology that solves real world problems in energy, agriculture and medical and pharmacological research. For old world industries facing paradigm shifts – from manufacturing to media/entertainment – the numbers aren’t so good. Encumbered by legacy bureaucracies, unsustainable pension structures, and vested interests in business models that no longer function in the changing world, many industries will not be rehiring those laid off; indeed many of these business will fail or fade out of existence, perhaps picked up f or scrap value in some obscure merger or acquisition.

You can always tell the industries that are teetering; they’re the ones asking for tougher laws against those who threaten their expired business models. Back when cars were beginning to be seen on dirt roads, many cities and towns passed ordinances against cars in downtown – didn’t want back-firing engines to scare the horses. But for displaced Americans, particularly older and less “re-trainable” workers, moving to a new field and knowing you can’t go back to the job you once held, the future is filled with fear. The house they were going to sell to retire on is worth less than the mortgage in many cases, their pension is tanked and their job prospects bleak. They’re hard-working Americans, hardly looking for a handout, but there doesn’t seem to be anywhere to go.

The economic collapse we have experienced and continue to experience is the accelerant of change. It killed unsustainable business models, decimated inflated values, crushed legions of jobs that were being pushed aside by the future and cleared the path for a huge rebuilding effort, one impaired by tight credit and exceptionally high governmental deficits looking for a source of repayment. What is happening is a highly polarized recovery: those with old world skills and old world asset values will be cruelly left behind unless they adapt or are even given a chance to adapt; the future belongs to leaner, meaner businesses, outsourced where appropriate, and workers whose skills are relevant and focused. We are polarized politically, but the big story is the complete reconfiguration of the middle class – many will fall into the lower rungs of the economy with no way out, few from the lower rungs will move up into the new world of technical proficiency (particularly as states and school districts are forced to cut back public education at every level), and those at the top and in the right medium will make more money than ever.

This is the new face of America. The engine of upward mobility – education – doesn’t seem to be poised to do what it has done for generations. Polarization with fewer people really vested in what makes America great seems to be what we will have to live with for the foreseeable future. Only time will tell if we can rediscover that dynamic force that has define us since the birth of our nation. I’d like to think we can do it.

I’m Peter Dekom, and it’s time for us to united again as Americans.

It Can Happen to Anybody

One of my dear friends went from a comfortable retirement to a zero net worth in basically one day. The reason? He had parked his retirement with a Bernie Madoff fund. Out of the work circuit and over sixty, he had some serious issues to face. The problem is that in an upside-down economy, even the rich and upper middle class can find their world’s flipped upside down, and if you’re older, the ability to “work it off” with future earnings is slammed both in terms of years left to work and an unemployment rate where there are 5.5 applicants for every job opening. If companies are going to open the “opportunity door” in a highly accelerating society, the folks least likely to be given a shot are the older ones.

Now one more nasty variable has to be taken into consideration. Not only are prospective employers checking out the social networking page of their job applicants, they’re also running credit checks. Conventional wisdom tells employers that if an individual cannot maintain good credit, they must be too irresponsible to perform in a new job. Interesting assumption, but in a world where “it can happen to anybody,” is there any real merit to this position? If you’re laid off or your company files for bankruptcy or your mortgage is way above the value of the house (and you didn’t use a subprime loan to buy the house) or you have a medical bankruptcy or Bernie made off with your nest egg, exactly where is the fault? Where is the underlying responsibility quotient? Are such individuals more likely to steal from their employers, embezzle to survive, commit fraud or pull out a gun and start killing co-workers?

The April 10^th New York Times attacked this “job filter” head on: “Screening the backgrounds of employees ‘is critical to protect the safety of Connecticut residents in their homes and offices, in their cars and in all other places they travel,’ Mr. Rosenberg testified to Connecticut legislators in February 2009, explaining why TransUnion markets its credit reports to employers… Trouble is, researchers say there is no evidence showing that people with weak credit are more likely to be bad employees or to steal from their bosses, a fact that Mr. Rosenberg himself later admitted… ‘At this point we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud,’ he said in separate testimony to Oregon legislators in January.”

As state and federal legislators propose laws to curb this clearly abusive trend, which only makes finding a path to recovery that much more difficult to those who need it most, there has been an intensified lobbying effort by companies that sell such credit checks to employers to kill this statutory reform. Bills in Connecticut, Maryland and California have stalled by reason of such push-back, even though most legislation still permits credit checking for people in sensitive financial jobs.

How do the credit report companies push their cause? “Several… large credit bureaus also suggest in their marketing materials that credit checks are an important security measure for companies. ‘Every time you hire a new employee, you put a lot on the line,’ an Experian [a credit reporting company] brochure reads. ‘The wrong decision could jeopardize your firm’s assets, reputation or security.’… Kristine Snyder, a spokeswoman for Experian, said the ability to assess risk was important for business owners, particularly those running small companies, given the level of employee fraud. She said the Association of Certified Fraud Examiners found that important indicators of potential fraud were employees living above their means and those experiencing financial difficulties… ‘Employers should have information available to them that protects their businesses from catastrophic losses so that workers can continue to stay employed and remain productive,’ she said.” Unfortunately, the correlation between these credit reports and reliability doesn’t really exist, and in tough economic times – when jobs are scarce and lives hang in the balance – the only plus on the job front is more openings at credit-checking companies.

I’m Peter Dekom, and I believe we really need to make it easier for folks to get back on their feet.

Lehman on Hudson

Here we are 19 months from the collapse of Lehman Bros. and the precipitous fall of almost every economic value in our nation, and we haven’t passed any significant regulatory reform statutes to stop or at least discourage the madness that brought us down this time. Democratic Senator Chris Dodd’s reform package is drafted, but there is staunch Republican opposition to any new governmental regulation; their bloc in the Senate believes that current laws, properly enforced, are sufficient. Notwithstanding a DOW that crossed 11,000 (there are skeptics who believe this to be unsustainable in the near term), there are experts who will not declare this “recession” to be over; they point to a credit freeze, long-term high unemployment, a real estate market in disarray from residential to commercial and sputteringly inconsistent consumer spending patterns (lots of down months with an occasional good one) and confidence levels.

The Dodd bill has drawn Republican ire, especially the appointment of a federal regulator who would have primary responsibility to protect consumers (particularly from questionable lending practices), and issues surrounding how to wind down big but failing financial institutions and how to control the complex world of derivatives. While “White House deputy communications director, Jen Psaki, wrote on a White House blog [April 13^th] that under Dodd's bill, ‘taxpayers will never be asked to foot the bill for Wall Street's irresponsibility,’” Senate Minority Leader Mitch McConnell (R-Ky.) said of legislation that recently passed the chamber's banking committee on a party-line vote…: ‘The fact is, this bill wouldn't solve the problems that led to the financial crisis. It would make them worse… This bill not only allows for taxpayer-funded bailouts of Wall Street banks; it institutionalizes them’…[The official Obama Administration response:] ‘There are no more taxpayer-funded bailouts, period,’ said Deputy Treasury Secretary Neal Wolin. ‘Insolvent firms would go away. . . . The industry bears the financial burden, and the taxpayer bears none of it.’” Washington Post (April 14^th). Obama himself countered saying: “Lo and behold, when he [referencing McConnell] returned to Washington, the Senate Republican leader came out against the common-sense reforms we’ve proposed… In doing so, he made the cynical and deceptive assertion that reform would somehow enable future bailouts — when he knows that it would do just the opposite.”

Bottom line: the pending legislation is not about bailouts (although it does have a $50 billion fund to allow the orderly liquidation of failing companies that impact the overall economy – not a large commitment by government standards); it actually is about accountability and regulation, but if you can convince taxpayers that this legislation is really hidden funding source for Wall Street – even if it isn’t – such rhetoric would make defeating such regulatory efforts appear to be noble and not simply a total appeasement to the financial sector that just doesn’t want new rules. Those aspects of the economy we fear most – unsubstantiated bubbles that burst – generate the kind of market volatility where traders can make fortunes, even as ordinary Americans suffer the economic consequences. Don’t believe me? Look at the massive profits in the last 6 months of the big trading institutions and compare that to the unemployment rate or home values. The ability to package obscure and hard to evaluate derivatives – a veritable Wall Street addiction – even creating derivatives that bet against your firm’ other derivatives (yea, play that back in your head) works better when there are no clear regulations or transparency requirements.

The evidence of malfeasance and untrustworthiness of our big financial institutions and credit ratings agencies has been hammered home for months. There cannot be the slightest doubt that unregulated, these institutions can turn “rogue” based on the simple premise that investment and merchant bankers, commercial bankers and traders are rewarded only for taking huge risks that pay off. We know that “flash trading” – using mega-computers physically located near the relevant exchanges preprogrammed to spot market trends in nanoseconds and implement advantageous trades instantaneously – has been banned, but since there are no penalties for the practice, do you really believe that our “boys & girls of greed” are behaving and letting the playing field be level? We all know about the other excesses reported months and months ago, but testimony about an abusive system continues to produce terrifying evidence of the complete lack of ethical backbone among those charged with running our major financial institutions. The unregulated derivatives marketplace has literally fractured financial credibility at the seams. Let’s look at three very recent reports that bolster the tsunami of evidence to support massive regulatory reform.

The April 13^th Los Angeles Times reports on testimony from former Washington Mutual executives: “The executives testified at a hearing by a Senate panel investigating WaMu's downfall, the largest bank failure in U.S. history. After an 18-month review, the Senate's Permanent Subcommittee on Investigations found the company had created a ‘mortgage time bomb’ by making sub-prime loans they knew were likely to go bad and then packaging them into risky securities. Many of the problems stemmed from shoddy loans originated by WaMu's Southern California-based sub-prime unit, Long Beach Mortgage Co.” In short, the bank knew what it was doing, but the ability to dump bad loans to unsuspecting buyers of bundled mortgage-back securities (a nasty derivative when it com es to sub-prime mortgages) shifted the risk to others and kept the big bonuses to bankers based on volume flowing.

The WaMu experience is hardly unique. The April 16^th Washington Post noted that fat-cat Goldman Sachs may finally get some comeuppance for their participation in the “greed is good” times preceding the big economic fall: “The Securities and Exchange Commission announced [April 16^th] civil fraud charges against Goldman Sachs and one of its vice presidents. The agency alleges that the company marketed complex sub-prime mortgage securities and failed to disclose to investors that a major hedge fund had bet against the securities.” Yeah, there’s no ethical lapse when you bet against the success of the very same financial instruments you sold your clients!

But wait, there’s more. Apparently, Lehman Bros. (remember them?) had a controlled company (they actually owned 25%, and they controlled the board of directors), Hudson Castle, that they could use to transfer risky asset off their books to make their balance sheet look better, a loophole that was perfectly legal. The April 13^th New York Times: “Critics say that such deals helped Lehman and other banks temporarily transfer their exposure to the risky investments tied to sub-prime mortgages and commercial real estate. Even now, a year and a half after Lehman’s collapse, major banks still undertake such transactions with businesses whose names, like Hudson Castle’s, are rarely mentioned outside of footnotes in financial statements, if at all.”

One observation: Wall Street’s no fool. Whom would you hire if you wanted the best lobbyists with the greatest insight as to how to defeat the regulators and turn back legislative efforts for financial reform? How about the very government workers, former Congressmen, staffers… well: “From anonymous mid-level workers to former House and Senate majority leaders, more than 125 former Congressional aides and lawmakers are now working for financial firms as part of a multibillion-dollar effort to shape, and often scale back, federal regulatory power, data shows. Indeed, some of the biggest players in Washington politics are lobbying now on the regulatory bills that are making their way through Congress.” New York Times (April 13^th). Satisfying, huh?

For those who oppose regulatory reform, I ask a simple question: if enforcing current statutes and regulations are more than sufficient without new rules, how do you explain the legally-sanctioned fraud and lack of transparency that continues into the present day? It’s just plain unacceptable!

I’m Peter Dekom, and it’s time to deter the rogues that tanked our economy!

Patently Obvious

Assuming you are a medical researcher working for a biotech company looking for a cure for breast cancer. Your company knows that to create an effective cure, it would be necessary to isolate and identify genes that would reflect a predisposition to such cancer, a process inquiry that would take years and require the expenditure of millions of dollars. Assume that your company elects to bite the bullet, spend the money, resulting in a discovery of that precise gene sequence, now identified as “Breast Cancer Susceptibility Genes 1 and 2” (or as they are effectively known in the biotech world, BRCA1 and BRCA2). Naturally, with all this effort, your company files a patent, that governmentally-permitted monopoly that allows inventors to enjoy the fruits of their efforts.

Now assume you are a thirty-year-old woman (or friends with or married to such a wondrous woman) with a very strong family history of breast cancer. You want someone to tell you if you have BRCA 1 and/or 2 so you can take appropriate steps. But, you are told, there is a company that controls anything linked to those two genes and without their consent, you cannot find out or you have to pay some serious dough to have the right to find out about your own body, well beyond the mere costs of the procedure. There’s no special process involved, other than pre-existing gene tracking procedures that can work for any targeted gene, just the mere existence of that DNA-aggregation, the identity of which was discovered by a purported patent holder. It’s your body!

With millions of dollars invested in highly-specialized technology plus highly-paid researchers holding serious academic credentials required to ferret out so many of nature’s mysteries, what is the incentive to do needed research if you can never patent your work to get paid back? But if all someone is doing is discovering a fact of nature that is there regardless of the researcher’s work, is a patent really viable? That’s the issue that was recently decided (unless a more senior court, probably the Supreme Court, decides differently) in a federal district court in New York in Association for Molecular Pathology vs. U.S. Patent and Trademark Office. In an opinion released on March 29^th, the court ruled against the patenting company, Myriad Genetics (and other defendants) and invalidated the underlying patents for several reasons: 1. There is a legal prohibition against patenting the products of nature and 2. Under patent case law, there was no “machine or transformation” steps inherent in the discovery. The researchers just found out something that already existed. The biotech companies, however, are definitely appealing the decision.

Will this decision hold? Will it apply only to small efforts regarding just a few isolated DNA/genetic efforts and not to greater “mapping” efforts? Time will tell, but the arena of genetic mapping has an interesting history that antedates the above decision. Some medical problems are so massive and obviously impossible to solve that they invite a massive collaboration effort, often spurred on by the government. So was the case of the DNA-focused Human Genome Project, begun in 1990 led by James Watson at the U.S. National Institutes of Health, with the goal of identifying all of the individual genes that make up the human species. Battles over the right to patent such discoveries by individual contributors increased the complexity of the task, even though a completed research project was essential to enable the future of medical research.

By the mid-1990s, about 20% of gene research was covered by private patents (would they how muster after the above ruling?). In 1995, one holder of many of these patents, Merck Pharmaceuticals, realized the magnitude of the blockage that such private research meant for the entire process and released 15,000 human gene sequences to the general public through its Merck Gene Index. In 1999, a non-profit consortium of eleven pharmaceutical companies opened up collaboration to create “a public biological blueprint for all human life.” By 2003, the basics of the entire genome had been identified, and in 2006, the significance of the Human Genome Project reached a new plateau as the sequence for the last unmapped human chromosome was published. With this profoundly complex body of knowledge, the pharmaceutical and academic worlds were empowered to develop an entirely new body of medical solutions for the benefit of all of us. Or maybe patent law might stop the process?

I’m Peter Dekom, and it’s getting really complicated out there!

Unemployed, Sort Of

The face and structure of American labor is changing. Job security has become a myth, retirement benefits unreliable and subcontracting is becoming the new surge in trends in the workforce. You can call them “contractors,” “contract employees,” “part-timers,” “short-timers,” or “freelancers,” but the story is the same: no fringe benefits, no long-term expectations or guarantees for work, more likely to be engaged to perform on a project basis with nothing expected when the project is completed, and since these workers are often not carried on the company payroll, but provided by outside subcontractors or on a freelance basis, no unemployment insurance is required.

As companies have laid off millions of employees, and with 5.5 applicants for every job opening, the world of the freelance worker or the outsourced “task oriented vendor” has exploded; businesses can maximize their workflow flexibility – contracting when orders show down, ramping up when work justifies more bodies – and minimize their costs, with folks often working from home saving even more cash. But there are obvious consequences: “But when full-time jobs go away, so does the safety net that helps so many Americans survive dire economic times. The lack of a fail-safe for the nation's 42 million freelance workers, accounting for 30% of the U.S. workforce, has left them vulnerable to financial ruin, says a report released [April 13^th] by Freelancers Union, a Brooklyn, N.Y.-based advocacy organization.” DailyFinance.com (April 13^th). People will take what they can get, and with a bleak recovery projected for American jobs, a period of expected and sustained high levels of unemployment for years, American labor apparently doesn’t have the bargaining power to fight the trend.

Indeed, the survey by the Freelancers Union of a sample of 3,000 such “freelancers” showed that 80% were either unemployed or under-employed in 2009, a staggering number. Because these folks work occasionally, they are often excluded from the unemployment statistics provided by the Department of Labor. It’s bad enough between gigs, but sometimes, it’s even worse for those who actually worked: “Thirty-three percent of survey respondents said that at least once a client failed to pay for work performed last year, resulting in the loss of an average $6,000 in wages. Thirty-nine percent reported they had to cancel or cut back on health coverage. And 37% relied on savings, credit card debt and food stamps to get through lean periods.” DailyFinance.com. As a “recovery” takes place – whenever that may occur – how many employers will resort to freelancers and “contract employees” instead of bringing back the laid-off workers?

And it’s not like there are powerful unions able to buck the trend. A January 10, 2010 report from the Bureau of Labor Statistics (looking at 2009) notes that while unions are well-represented in the public/government sector (37.4%), the private sector is experiencing a contraction of union membership down to a meager 7.2% of all private workers. Blended, that means that 12.3% of workers, public and private, were unionized; compare that to a blended 20.1% back in 1983, when such numbers were first compiled. And as age-related trends suggest, union membership (overall) is on a steep downhill decline: “By age, the union membership rate was highest among workers 55 to 64 years old (16.6 percent). The lowest union membership rate occurred among those ages 16 to 24 (4.7 percent).” The above BLS report.

Because this “freelance” structure is increasingly the “way Americans work,” our laws and labor statistics need to be reformatted to reflect this new reality. Unemployment statistics that do not deal with part-timers and freelancers is becoming misleading and irrelevant. Not providing safety nets – comparable to unemployment contributions – and not having healthcare pooling is no longer a viable choice. Hopefully, the healthcare legislation that is being implemented will not be amended to eliminate this option. And we really do need to rethink Social Security and pension reform from the ground up for any number of reasons: 1. we want folks to retire to open up the job market to access the recent additions “fresh out of school.” 2. older workers often literally reach a stage in life when they really cannot work anymore for health reasons, and they need to be able to retire with dignity.

I’m Peter Dekom, and mega-trend changes require mega-readjustment in government statistics.

Better Fred than Dead

But if your name is Fred Leeb and you live in Pontiac, Michigan, there are lots of locals who would prefer the latter. The name of the town says it all – maybe once a notable Native America name but more recently associated with a General Motors product line which, like the town, is pretty much over. Unemployment and the demise of GM have saddled this Detroit suburb with about $100 million in debt, a completely eroded tax base, and an impossible task of surviving. You see, Mr. Leeb was appointed by the State of Michigan to supervise all things financial in this economically devastated town. It seems the fiscal crisis pushed Michigan to designate a state of financial emergency on Pontiac and impose a financial caretaker on the small city.

The March 17^th Los Angeles Times caught up with Mr. Leeb shortly after a Pontiac City Council meeting where the following epithets were hurled at Freddy the Financier: “‘Municipal monster,’ shot one man. ‘Arrogant racist,’ declared another. ‘Theft on the highest level,’ called a third. ‘Somebody needs to go to jail.’” Fred is busy selling off assets, cutting salaries and pushing government workers and vendors out the door. The City Council doesn’t have much of a voice in these matters, now that the state has taken over.

What assets, you ask and for how much? Will how about this little gem: the Silverdome. Yeah, where the Detroit Lions (kittens?) NFL Franchise once played. 180 seat covered arena on 145 acres. Even the Pope held mass there. Must’ve sold for millions, you exclaim. Not exactly. Would you believe $550,000, about the price of a moderately expensive single family home in most of the United States… although you can buy a fair-sized home in Detroit for under $15,000 these days. The city could no longer afford the $6,000 per week in security or the $1.5 million a year in maintenance costs. Leeb, a 58-year-old bureaucrat, responded to queries as to the efficacies of the sale of this landmark. “No regrets,” he replied.

Leeb’s job description might become an entirely new, mainstream government job since Pontiac’s problems are clearly spread to almost every nook and cranny of these United States: “Now Leeb signs off on every dollar spent by the city, making the Wisconsin native something of an unelected king. Though the sale of the Silverdome at a price lower than many Los Angeles homes prompted national headlines -- and a brutal lampooning on ‘The Daily Show’ -- Leeb has no plans to shy away from selling other city properties. And he's not alone... In Arizona, officials in Tucson floated the idea of mortgaging City Hall. California Gov. Arnold Schwarzenegger proposed selling properties as notable as San Quentin State Prison…. Still, few wholesaling government officials have drawn the ire Leeb has in Pontiac. He recalls one resident of the predominantly African American city calling him ‘the white boy master sent from Lansing,’ the state capital.”

Leeb slashed city council salaries by two-thirds, and he wanders the town looking for assets to sell: “Cruising around town, Leeb called out properties he says need to go, or at the least have their operations outsourced. The Oak Hill Cemetery, where massive tombstones poke out from a blanket of snow, costs the city more than $500,000 a year. The Phoenix Center, an outdoor pavilion, has never met its potential, and would be better served run by an outside entertainment company, he says.”

How many other cities and towns face the same debacle? Cities in Riverside and San Bernardino Counties in California have direct unemployment rates well north of 20%. Los Angeles faces a nine figure shortfall, pension obligations that literally cannot be funded, an underperforming investment portfolio and sports an ex-mayor – Richard Riordan – who believes that city leaders (in LA and other California cities) may have to consider bankruptcy as the realistic solution. But if that happens, there goes another appointed financial administrator for the relevant city. Who will their assets off? Who will decide which municipal services to eliminate and which salaries to cut? With 39 states in deficit, who will bail them out? Where exactly will these governmental services come from when the cities go under?

I’m Peter Dekom, and yes, I actually do lose sleep over this.

A Blast that Would Last

We’re unfortunately used to conventional explosives in terrorism, but the scenarios that really “terrify” speak of weapons of mass destruction: chemical and biological attacks as well as the chilling prospect of nuclear weapons. We’ve seen examples of chemical terrorism such as the use of sarin gas, a nerve agent, in a Tokyo subway: an apocalyptic cult, “Aum Shinrikyo first began their [series of five] attacks on June 27, 1994. With the help of a converted refrigerator truck, members of the cult released a cloud of sarin which floated near the homes of judges who were overseeing a lawsuit concerning a real-estate dispute which was predicted to go against the cult. From this one event, 500 people were injured and seven people died.” Wikipedia

While the use of “germ warfare” in terrorism has been sparse – probably due to the difficulty in handling sufficient quantities of deadly toxic viruses and bacteria – we’ve had an ugly taste of this form of attack here in the United States: “In September and October 2001 ... [l]etters laced with infectious anthrax were delivered to news media offices and the U.S Congress. The letters killed 5. Tests on the anthrax strain used in the attack pointed to a domestic source, possibly from the biological weapons program.” Wikipedia.

The Department of Homeland Security describes the use of a so-called limited nuclear device: “A dirty bomb, or radiological dispersion device, is a bomb that combines conventional explosives, such as dynamite, with radioactive materials in the form of powder or pellets. The idea behind a dirty bomb is to blast radioactive material into the area around the explosion. This could possibly cause buildings and people to be exposed to radioactive material. The main purpose of a dirty bomb is to frighten people and make buildings or land unusable for a long period of time.” While such a device could cause death to those in the immediate vicinity of the device, aside from some contamination issues, the notion of such a b last is more frightening than the bomb itself would be devastating.

None of the above examples shows a weapon of mass destruction, but where we really begin to shudder is at the prospect of a full-on nuclear blast from a terrorist bomb, particularly in a major urban center – like New York or Washington, D.C. – where there are great concentrations of people and operational centers of vital parts of the American economy or body politic. One such blast could change the face and character of the United States in a single moment. As leaders from around the world gathered in Washington, D.C. at a major nuclear summit, President Obama laid it on the line (April 11^th): “The central focus of this nuclear summit is the fact that the single biggest threat to U.S. security, both short term, medium term and long term, would be the possibility of a terrorist organization obtaining a nuclear weapon… This is something that could change the security landscape in this country and around the world for years to come. If there was ever a detonation in New York City, or London, or Johannesburg, the ramifications economically, politically and from a security perspective would be devastating.”The President added that He added that “organizations like al-Qaeda are in the process of trying to secure nuclear weapons or other weapons of mass destruction, and would have no compunction at using them.”

With nuclear weapons proliferating, rogue nations seemingly committed to becoming nuclear powers, nuclear scientists like Pakistan’s Dr. A.Q. Khan having spread the detailed knowledge of “how to build bombs” to Iran, North Korea and who knows where else, the earth has a very strong interest in tracking the ingredients for bomb-making and penetrating the black market in such materials. It’s good that the United States and Russia have agreed to dramatically reduce their nuclear arms stash. It’s terrific that China’s President Hu is attending the D.C. event. But the risks are probably not with the great powers; it is the maniacal leaders of extremist groups that threaten the most. The summit should make a difference, but this is one instance where a single mistake can change history. On Tuesday, April 13^th, President Obama opened the summit and called for concerted and joint action by all nuclear powers to secure their stockpiles, reduce or destroy nuclear materials that were most vulnerable to theft and take action as a part of an integrated global effort to control this threat: “[T]he problems of the 21st century cannot be solved by nations acting in isolation — they must be solved by all of us coming together.” I hope the gathered leaders were listening. 47 leaders all seemed to agree, signed off in principle, but the lack of specificity is a tad troubling.

I’m Peter Dekom, and yes, I worry about this a lot.

It Ain’t Thanksgiving in Turkey

At one time or another, the Ottoman Empire (1299-1922) ruled the lands in the Middle East and most of the countries on the eastern and central Mediterranean and north into the Balkan region from their capital city of Constantinople (now modern Istanbul, Turkey). As Sunnis, these Caliphs were the “protectors” of Islam and their power stretched into the 20^th century. Corrupt and decadent in the last century of their rule, Ottomans watched helplessly as Western powers took over effective command of their territories allowing the Ottomans to rule in name only. Having erred by having German officers train their dragging armed forces in the early years of the 20^th century, the Ottomans found themselves on the losing side during World War I, and they were finally stripped of their holdings everywhere as a result.

A legendary Ottoman military commander, Mustafa Kemal Atatürk [pictured above], was the only undefeated leader in the Ottoman armed forces. “Following the defeat of the Ottoman Empire, he led the Turkish national movement in the Turkish War of Independence. Having established a provisional government in Ankara, he defeated the forces sent by the Allies. His successful military campaigns led to the liberation of the country and to the establishment of Turkey. During his presidency, Atatürk embarked upon a program of political, economic, and cultural reforms. An admirer of the Age of Enlightenment, he sought to transform the former Ottoman Empire into a modern, democratic, and secular nation-state. The principles of Atatürk's reforms, upon which modern Turkey was established, are referred to as Kemalism…

“Mustafa Kemal's private journal entries dated before the establishment of the republic in 1923 show that he believed in the importance of the sovereignty of the people. In forging the new republic, the Turkish revolutionaries turned their back on the perceived corruption and decadence of cosmopolitan Constantinople and its Ottoman heritage. For instance, they made Ankara the country's new capital. A provincial town deep in Anatolia, it was turned into the center of the independence movement. Ataturk wanted a ‘direct government by the Assembly’ and visualized a representative democracy, parliamentary sovereignty, where the National Parliament would be the ultimate source of power.” Wikipedia. In short, democracy replaced the corrupt Ottomans, and religion and state were separated; the Caliphate was abolished, and Turkey entered the modern age.

Why is any of this remotely relevant in today’s world? Because Turkey actually sits on the border of Europe (3% of its land mass) and Asia (the balance), but straddles many other “borders” as well. As primarily Sunni Muslim nation, it has maintained its secular government where the separation of mosque and state was perpetually enforced by a very powerful military… with aspirations of becoming a member of the European Union (after several years as an associate member, Turkey was recognized as qualifying to apply for full membership in 1999). However, powerful forces within and without Turkey have voiced skepticism at an Islamic country that is only slightly in Europe fitting into the EU. The battle rages, even as there has been a distinct growth of Islamic power into the elected government. There is even fear that the current leaders hip of Turkey, led by Prime Minister Recep Tayyip Erdogan, is secretly harboring a desire to turn the country into an Islamic republic.

The military has lost its traditional control over the ability of religion to creep backing into the political infrastructure: “But now, battered by allegations of corruption and scandal, the authority of the once-unchallenged military is being whittled away by an increasingly assertive and confident public. The critics are a diverse array of democracy advocates, head-scarf-wearing Muslim women, journalists and others who complain that the military's grip on power has largely benefited wealthy and secular elites.” April 11^th Washington Post. After putting down a potential military coup, the government is now moving strongly to contain and isolate military power in the country. Plots and conspiracy theories abound.

Turkey, a member of N.A.T.O., has been a key ally to the United States in the containment of Muslim radicalism. Its border with Iraq provides key strategic value to the U.S., although they have problems with a Kurdish population that seeks independence from Turkey and possible alliance with the Kurds in northern Iraq. Control of access between the Black Sea and the Mediterranean via the Bosporus is also of profound importance. In a world of shifting identities, where religion and politics have never been more dangerously blended in the modern world, the changes in Turkey may be harbingers of continued erosion between the Western world and Islam, as a powerful and once clearly secular nation moves slowly towards a religious bent that might just make American policies that much more difficult to implement in the years to come.

I’m Peter Dekom, and it’s often the little movements that eventually change the earth the most.

Are We Having Fund Yet?

Here’s trick question: in 2009, out of the list of the nation’s top hedge fund managers, what was the annual compensation for the CEO of the fund ranked 25^th? $10 million? Wrong! $50 million? Wrong, and remember there are 24 managers who made more! The guy who’s last on that list pulled out a mediocre $350 million!!! How can you live on that?! OK, according to the April 1^st New York Times, the top fund manager, David Tepper who bet heavily on financial institutions that were crashing through the floor in 2008 believing that the government would be forced to bail them out, dragged down $4 billion!!! There are whole countries that don’t even have GDPs at that level. A lot of these funds lost piles in 2008, but they bet right on what was going to move in 2009.

And while that extreme level of pay exceptionally rare in the general industrial corporate world, the notion of paying senior managers excessive compensation that is not linked to performed appears to be standard operating procedure in the hallways of large publicly traded companies. The pressure from the government and even activist shareholders to connect executive pay with performance ain’t workin’ folks. The April 1^st Washington Post: “‘I see no indication whatsoever that the business community is paying any attention to the administration's suggestions,’ said Nell Minow, co-founder of the Corporate Library, an independent corporate governance research firm. ‘On the contrary, I think pay is worse this year than it's ever been.’… American Express, for example, shifted much of chief executive Kenneth I. Chenault's compensation to cash. Even though his overall pay for 2009 dropped from the year before, Chenault received $11 million, or two-thirds of it, in cash. By contrast, more than two-thirds of his compensation in 2008 was in stock and stock options. His cash payout was $7 million… At Wells Fargo, the company more than tripled the cash salary this year of chief executive John Stumpf, and Corning, a glass and ceramics maker, restructured its long-term incentive pay program -- previously centered on stocks and stock options -- to focus more heavily on cash.”

While the Obama administration is not trying to cap executive pay, they clearly would like to see some reality to how pay is determined. “Kenneth R. Feinberg, President Obama's special master for compensation, wants to change pay incentives, giving executives a greater stake in the long-term performance of their firms. That would mean, for example, smaller up-front cash salaries and fewer perks, more compensation in the form of company stock and a longer wait to receive it.” The Post. Lots of luck, stud-muffin, but executive recruiters are telling boards of directors everywhere that you can’t get top managers without the cash, the perks and whatever else the spoiled children demand. And boards succumb to that sweet talk, because “everybody’s don’ it.” Corporate jets. Club memberships.

And where there are circumstances where shareholders are demanding a vote on executive compensation for the top earners, companies like General Electric, IBM and McDonald’s are fighting to prevent such outrageously – reasonable – demands. In the financial world, federal administrators were trying to discourage high-risk-taking (the kind of risks that aren’t risks when the government bails out your failures, but the kinds of risks that tanked our entire economy) as the primary driver of pay for revenue-generating senior managers. Yeah, right, that worked! And we still don’t have any real body of new statutes aimed at curtailing insane derivatives trading, stupid risk-taking, stopping serious real conflicts of interest or even credit rating veracity! So let’s see, Wall Street has taken over and run Washington, D.C. at the expense o f the voters for how many years now? Oh, did I say years? I meant decades.

I’m Peter Dekom, and if ever wonder why this country’s a mess, remember, it isn’t being run for your benefit, so shut up!

Clinging to Power – The Art of Blackmail

Hamid Karzai is our guy, the head of the government we created in Afghanistan, and the only horse we have any bets on. Our success in the region hangs on this mega-corrupt leader of a dangerous narco-state, the hotbed of radical Islam dedicated to the total destruction of Israel and of course, the United States. After all, it was the launching platform for the devastating 9/11/2001 attacks on the Pentagon and the Twin Towers. The re-election effort that continued Emperor Karzai’s reign was so plagued with mud that almost everyone familiar with the process believes the results to be completely bogus – false balloting, fictitious voters and corrupt election officials; Karzai missed nothing in railroading the results. His pockets, and those of his cronies and relatives, are heavy with siphoned and purloined cash – revenue sharing with those who are hated by the local people, bribes of the worst kind. NATO allies have pushed for a clean-up; Karzai has rejected their entreaties.

Karzai sees the writing on the wall. With NATO forces clearly destined to leave in the not-too-distant future, Karzai has cards to play to fight his way to sustaining his revenue flow before, sooner or later, he and his family will be forced to flee to sanctuary somewhere else… somewhere else with a few very fat Swiss bank accounts. The players: the United States and its NATO allies, China, Iran, Pakistan and the Taliban.

Citing Karzai’s verbal threats against the West (“If you and the international community pressure me more, I swear that I am going to join the Taliban”), the April 5^th New York Times summed up the situation: “There are no good options on the horizon, many analysts say, for reining in Mr. Karzai or for penalizing him, without potentially damaging Western interests. The reluctant conclusion of diplomats and Afghan analysts is that for now, they are stuck with him… Many fear the relationship is only likely to become worse, as Mr. Karzai draws closer to allies like Iran and China, whose interests are often at odds with those of the West, and sounds sympathetic enough to the Taliban that he could spur their efforts, helping their recruitment and further destabilizing the country… ‘The political situation is continuing to deteriorate; Karzai is flailing around,” said a Western diplomat in Kabul with long experience in the region. “At the moment we are propping up an unstable political structure, and I haven’t seen any remotely plausible plan for building consensus.’”

For NATO, threats and diplomatic pressures have had no results whatsoever. The attempt to create grassroots democracy as a counter to Taliban and Karzai dictatorial efforts has fallen flat on its face, as local tribal cabals (often under threat of Taliban violence) simply ignore this Western notion of government. The only viable path remaining is the withdrawal of NATO forces, which, of necessity, will surrender the embattled country to a mixture of warlord (and that now has to include Karzai himself) and Taliban control. They win; we lose, but unless we are prepared to multiply both the number of NATO troops in the region by double or triple… and commit to a very, very long presence in Afghanistan, this is not a country that we can realistically expect to control or stabilize.

So what are we actually doing? Continuing to pressure Karzai and threatening to leave? Not exactly. The April 10^th New York Times tells us that the new administration policy is to try a “softer approach” with Karzai: “After more than a year of watching America’s ability to influence President Hamid Karzai ebb, Obama administration officials now admit privately that the tough-love approach Mr. Obama adopted when he came to power may have been a big mi stake… ‘There is a realization that public remonstrances and temper tantrums don’t work,’ said Bruce O. Riedel, an Afghanistan expert at the Brookings Institution who has worked with the administration on Afghan policy. ‘It brings out the worst in Karzai, while undermining support for the war effort in Congress, in the media, and in the public. If you disparage Karzai, you’re in effect saying the war cannot be won.’” Yeah, I guess we’re pretty good at catering to corrupt regimes that don’t reflect genuine popular support (just the virtual vote of a stuffed ballot box)… and painting ourselves into a “no-win” corner.

Meanwhile, the United States remains the high-profile target in the entire region. A blast outside the U.S. consulate in Peshawar, Pakistan (a very dangerous town) killed six and wounded 20 on April 5^th. The Pakistanis also arrested a high-ranking Afghani Taliban at the behest of the U.S. – a token gesture – and immediately got assailed as hindering the Afghan peace process. And then there is this “other” news: as one Taliban operative is captured, the ISI (the Pakistani Inter-Services Intelligence directorate), which is notoriously sympathetic to Muslim fundamentalists, releases two other senior Afghan Taliban leaders. “The ISI wants ‘to be able to resort to the hard -power option of supporting groups that can take Kabul,’ the Afghan capital, if the United States suddenly leaves, said a U.S. military adviser briefed on the matter. The ISI’s relationship with the Afghan Taliban was forged under similar circumstances in the 1990s, when the spy service backed the fledgling Islamist movement as a solution to the chaos that followed the Soviet Union's withdrawal from Afghanistan.” Washington Post, April 10^th. Pakistanis hate being in the middle of what they see as an American “war on terror” (despite Mr. Obama’s avoidance of this terminology), even as Taliban operatives threaten the Pakistani government as well.

So it comes down to the concept of throwing good money after bad at a time when domestic needs for money would seem to trump fighting a war backing a super-corrupt and hated government that has no loyalty to us anyway. We are not even putting ourselves into an enhanced bargaining position with the Taliban with our efforts, as some would have hoped. And yes, we know that if we withdraw, whatever chaotic governance remains in Afghanistan will probably be hostile to the United States, but if they believe that they can launch attacks against Americans and American assets without recrimination, they should remember both our capacity for mass retaliation (although nuclear weapons are now officially off the table for nations that comply with the Nuclear Nonproliferation Treaty) and our capacity to remove threats with surgical precision; those drone strikes have truly sapped al Qaeda forces in the Tribal District of Pakistan. We just cannot let these dark forces destroy or degrade us by a constant drain on our economy, the lives of our soldiers… and mostly, a drain on our spirit.

I’m Peter Dekom, and I know that the time to withdraw is now.

Looking Down the Mine Shaft

Nobody is ever going to make working in a mine safe. Gasses release, some toxic and even fatal, cave-ins occur, water floods in, fires rage, equipment crushes and maims, coal dust destroys lungs, explosions malfunction – all of this often a mile or more away from the point of entry. Picture the faces of anxious and grieving relatives that you’ve seen around even mine disaster story ever reported. Early April wasn’t a good time for miners. Two stories made the headlines, proving the point beyond all doubt.

China: “From the start, China’s latest coal mine disaster seemed likely to end as so many others had in a country where an average of seven miners die every day: a failed rescue effort, grieving relatives, few if any survivors… But then, more than a week after the half-built Wangjialing mine in northern China was flooded with millions of gallons of water, rescuers heard taps on a metal pipe. They furiously pumped water out of the shaft and sent glucose injections down through a pipe. By late [April 6^th], rescuers had dragged 115 men up to safety, though 38 others remained missing… Survivors said they had strapped themselves to shaft walls with their belts so they would not drown, hung there for days, then jumped into a mine cart that floated by. Others said they ate bark from the pine pillars used to construct the mine.” April 6^th New York Times.

West Virginia: “Dangerous gases forced rescue crews to abandon the search [April 8^th]for four coal miners missing since an explosion killed 25 colleagues in the worst U.S. mining disaster in more than two decades... Rescue crews had been working their way through the Upper Big Branch mine by rail car and on foot early Thursday, but officials said they had to turn back because of an explosive mix of gases in the area they needed to search… ‘We think they are in danger and that's the whole intent of evacuating them from the mine,’ said Kevin Stricklin of the Mine Health and Safety Administration… The rescuers made it to within about 1,000 feet of an airtight chamber with four days worth of food, water and oxygen where they hoped the miners might have sought refuge. They did not make it far enough to see the bodies of the dead or determine if anyone had made it to the chamber.” April 8^th AolNews.com. The next day, smoke and fire stopped rescuers again. Hope faded for any survivors.

Demon coal is usually the culprit – and as I have blogged before, “clean coal” remains a myth – but our constant need for vital metals and minerals reminds us that this dangerous occupation is likely to remain with us for continuing generations, even as we advance technology and employ more robotic machinery and fewer miners. The harsh reality is that to mining companies, their miners are simply expendable. To the owners, it’s simply a balance of how much they are willing to pay for safety against the fluctuating price of coal on the open marketplace. In much of the world, it is cheaper to bribe a mine inspector (or higher-ups not to pass or enforce safety legislation) than to fix the problem. In the United States, “King Coal” uses a legally sanctioned bribe, particularly in states where mining is one of the leading employers and sources of tax revenues; we call this “campaign contributions.” The results are the same.

The April 8^th Washington Post supplies some of the numbers: “Mining companies and related trade groups have sharply increased their lobbying efforts in recent years, tripling their spending from $10.2 million in 2004 to nearly $31 million in 2008, according to a review of lobbying disclosures by the Center for Responsive Politics (CRP), a watchdog group… Mining firms and their employees have also donated more than $13 million to federal lawmakers since 2005; 74 percent of that money went to GOP candidates and about half came from industry political action committees… The United Mine Workers of America, by contrast, donated less than $1 million to federal candidates during the same time period, according to CRP data. All but 1 percent of that went to Democrats.”

The West Virginia mine was a part of huge Massey Energy, a company with a checkered past of numerous safety violations and strong anti-union efforts: “The mine… was shut down temporarily for safety violations 29 times last year, some of them for ventilation infractions, Stricklin said. Massey was cited for 515 safety violations at the mine in 2009 and 124 so far this year.” Los Angeles Times, April 9^th. Plus this from the April 9^th Washington Post: “A surge in the number of challenges to mine safety citations has clogged a federal appeals process, allowing 32 coal mines to avoid tougher enforcement measures last year, government safety officials said [April 9^th]… View Only Top Items in This Story Five of those mines are owned by Massey Energy, which is contesting more federal safety fines than any other coal mining company in the nation, according to data and federal officials. By contesting the citations, the 32 mines were able to avoid falling into a ‘potential pattern of violation’ category, which would have brought closer scrutiny and moved regulators a step closer to the ability to restrict or shut down operations.”

But Massey’s willingness to “pay the price” politically is anything but ambiguous: “The company's chief executive, Don Blankenship, is a highly active GOP fundraiser and bankroller who is known for his outspoken opposition to labor unions; the Upper Big Branch Mine [the site of the above disaster] is not unionized… CRP calculates that individuals and PACs connected to Massey Energy have contributed more than $300,000 to federal candidates in the past two decades, 91 percent of which went to Republicans. Top recipients include current Senate Minority Leader Mitch McConnell (R-Ky.), who has collected $13,550 from Massey-connected contributors, records show.

“Blankenship contributed the federal maximum of $30,400 last year to the National Republican Senatorial Committee, and he has supported Sen. James Inhofe (R-Okla.) and GOP Senate candidates Pat Toomey of Pennsylvania and Rob Portman of Ohio… The Massey Energy chairman garnered national attention in 2004 when he contributed $3 million to the campaign of a West Virginia judicial candidate, who later played a pivotal role in overturning a $50 million judgment against Massey Energy. The U.S. Supreme Court later ruled that the judge should have recused himself from the case.” The April 8^th Post. But then again, miners are expendable… Profits appear not to be.

I’m Peter Dekom, and the America I know is about equal justice under the law.