Stealth Takes Wealth

The military has lots of cool toys. Drones with remotely located pilots flying deadly missions like video games. Or submarines that no one can find but that can unleash a deadly barrage of cruise missiles (or nuclear-tipped big boys) at a moment’s notice. Ships that don’t show up on ocean-focused radar and of course, my fave, stealth aircraft. ‘Course all this stuff costs a lot of money, but when you are a superpower, you gotta have dem “superpower” threads. Some stuff is pretty cheap, hey, like the new Sea Wolf class subs (we have only three) run just under a billion each. Forgetting about the thousands of sailors and flyers needed to man the boat, new super-carriers are running around $6.2 billion (like the George H.W. Bush). Reminds me of a quote – decades ago – attributed to former Illinois Senator Everett Dirksen: “A billion here, a billion there, and pretty soon you're talking about real money.”

We’ve got a failed effort in Iraq – unless your sole measure of success is the removal of Saddam Hussein – winding down, and a war that is failing in Afghanistan but sucking down cash like a heroin addict (oh, and Afghanistan still is the world’s major supplier of the raw ingredient for that substance – opium) at a Vegas craps table playing for his next fix. And we have lots of toys that, well, seem to tip the balance in favor of the U.S. military against any other major power on earth, but for obvious reasons, such technology appears to be total bust on the violence that threatens us the most: small pockets of un-uniformed terrorists striking clandestinely with suicide bombs, IEDs and trying to smuggle WMDs to blow us sky high. But back to my fave toys – stealth aircraft.

It isn’t even the cost of building these super-technologically-based military systems; you’ve got to figure the down time… the new F-22 Raptor jet fighter (average cost is about $361 million to build one) requires 30 hours of maintenance for every hour it flies. Each flight hour costs about $44,000. Wow! Got deficit?! The June 10^th Los Angeles Times did a terrific analysis of the cost of refurbishing a B-2 stealth (heavy) bomber, a process which, in additional to general maintenance (each hour of flying time requires 50-60 hours of work on the ground), must be performed every seven years and that takes vender Northrop Grumman a full year – and $60 million per aircraft – to accomplish. Guess that’s cheaper than ordering the latest incarnation of that aircraf t at $2.1 billion a pop.

Trust me, a “stealth paint job” ain’t an Earl Scheib special! The Times: “The cost may be staggering, but the B-2 is no flying bus. Considered the world's most technologically advanced aircraft, it can evade radar to slip behind enemy lines and knock out air defense systems and anti-aircraft missiles… The 20 B-2s in service were built at a cost of $2.1 billion each, with many parts one-of-a-kind. Contributing to the high cost of an overhaul is the meticulous care that must be taken in restoring the bomber's dar k gray coating, known as ‘advanced high-frequency material,’ which is the key to keeping it nearly invisible to radar… Even so, the overhaul costs are a sore point with some military industry critics who have long called the B-2 a gold-plated boondoggle… ‘It's the ultimate hangar queen,’ said Winslow T. Wheeler, an analyst at the Center for Defense Information, a Pentagon watchdog group… The bomber, he said, is not useful for waging the kind of warfare being fought today against low-tech enemies. ‘It's irrelevant in the wars in Iraq and Afghanistan,’ he said.”

I really like these toys, but I guess I could enjoy the same experience by letting Jim Cameron design a large-format sci-fi adventure film around the technology without breaking the taxpayers’ back. Sure we need some of this technology, and China and Russia clear have their own war chests with technology in their cross-hairs, and yeah, our capacity to deliver destruction to some global miscreant’s doorstep has to serve as a deterrent, but when is enough enough? When do we really shift our focus from toys that can blast only the biggest nations… to functionality that truly takes “little deadly terrorists” out of action? And when, exactly, does the reality of our never-ending “recession” actually sink in to our military leadership… and more importantly, to the administration that is supposed to be in charge of them?

I’m Peter Dekom, and I thought the Commander in Chief of our armed forces was the President of the United States?

Hamas is that Doggie in the Window

But this is hardly a waggling tale. The very word, “Hamas,” is an Arabic language acronym (for حركة المقاومة الاسلامية Ḥarakat al-Muqāwamat al-Islāmiyyah) meaning “Islamic Resistance Movement.” Not a nice group of fellers, and their mandate is profoundly anti-Israel. Although this wasn’t mentioned in their 2006 election campaign where they displaced old world – and mega-corrupt – Fatah as the ruling party in Palestine, their 1988 Charter (the party was founded in 1987) demands the destruction of the State of Israel to be replaced by an Islamic government – taking over the land that is Israel today (and including the West Bank and Gaza). In 1992, they added a very nasty military component, Izz ad-Din al-Qassam Brigades, which sometimes goes well beyond the civilian party leadership in militancy. The Brigades are best remembered for the spate of suicide bombings and attacks on innocent Israeli citizens earlier this decade.

It’s true that some major factions of Hamas have backed off this extremist policy of obliterating Israel, but let’s face it, if you are prone to want to survive in Israel, do you really want to trust Hamas to accept a compromise? Wikipedia notes the “softening position”: “[I]n July 2009, Khaled Meshal, Hamas's Damascus-based political bureau chief, stated Hamas's willingness to cooperate with "a resolution to the Arab-Israeli conflict which included a Palestinian state based on 1967 borders," provided that Palestinian refugees be given the right to return to Israel and that East Jerusalem be recognized as the new state's capital.”

The world – and Fatah – didn’t accept the Hamas victory in the 2006 elections, and after a brief and violent struggle, Palestine broke into the Fatah-controlled West Bank and the Hamas-controlled Gaza region between Israel and Egypt. Israel began an economic blockade of Gaza, and in 2008 Hamas responded by launching major rocket attacks into Israel from Gaza, random shots that often killed innocent Israeli civilians. Egypt brokered a ceasefire, but it was an uneasy peace, often shattered as factions within Gaza continued to mount attacks. Israeli troops made a minor border crossing in November, killing four Hamas militants. Hamas resumed the rocket fire. In December of 2008, Israeli forces stormed across the border, seeking revenge, pulling out in January of 2009, but intensifying their Gaza blockade by a ir, land and sea.

Add a hard-line Likud government – hell-bent on literally drawing lines in the sand – to a volatile mix of global condemnation of perceived Israeli “excesses” in responding to Palestinian movement for autonomy with an ever-expanding and provocative construction of new Jewish settlements deep into the Palestinian West Bank to a new form of purportedly peaceful challenge to the Israeli naval blockade of Gaza – the recent “flotilla” attempting to deliver relief supplies directly to Gaza – where nine people have been killed on a Turkish vessel… and you have a perfect storm. The world press did not focus on the violent excesses of Hamas in the very recent past – the suicide bombings, the random rocket fire into civilian areas, etc. – but on the loss of life on this peaceful mission. And the world press linked the United States to Israel’s violent attack on this flotilla. Israel’s underlying motivation – to allow the West Bank to prosper as an example to an impoverished and blockaded Gaza – has backfired.

Using medical cases (especially involving children) to evoke lots of international sympathy, Hamas has been highly effective in turning the public relations vectors strongly against Israel, while Israeli Prime Minister Benjamin Netanyahu steadfastly maintains that, “There is no humanitarian crisis in Gaza.” Even the U.N. and other international humanitarian organizations are joining in the rising chorus against the Israeli blockade: “‘Look, it’s not like sub-Saharan Africa,’ said Chris Gunness, spokesman for the United Nations Relief and Works Agency, which assists Palestinian refugees. ‘We are not talking about a natural disaster or famine caused by failed rains. But Gaza is a political c risis with grave human consequences.’… So although some can argue that Gaza's mortality rates are steadily improving, others could note that more Gazans died during Israel’s 22-day military assault 18 months ago than civilians were killed in Darfur during all of 2009… Acute malnutrition in Gaza is well below the ‘emergency’ threshold. But at the same time, a higher percentage of Gazans are dependent on food aid than is true of Somalis…Health officials report no serious problems with cholera, measles or diarrhea, yet 90% of Gaza's water is so polluted that it's undrinkable, and on average two patients die every month waiting for Israeli permits to leave Gaza for treatment, according to the World Health Organization.” Los Angeles Times (June 13^th).

Bottom line: the Israeli economic blockade is a bust. It is a public relations nightmare, further isolating both Israel and the United States from the rest of the world, and Hamas is using this anti-Israeli frenzy to maximum advantage – creating a “legitimacy” to their cause, generating financial and other economic support from unexpected sources (like NATO member Turkey), aiding militants in recruiting anti-Israeli/anti-U.S. extremists into Islamist causes everywhere and generally trouncing Israel with nations that were really more neutral before the recent attacks. Hamas is firmly entrenched in Gaza: “In its three years in power, Hamas has taken control of not only security, education and the justice system but also the economy, by regulating and taxing an extensive smuggling tunnel system from Egypt. In the process, the traditional and largely pro-Western business community has been sidelined… Businesspeople in Gaza say that by closing down legitimate commerce, Israel has helped Hamas tighten its domination. And by allowing in food for shops but not goods needed for industry, Israel is helping keep Gaza a welfare society, the sort of place where extremism can flourish.” New York Times (June 11^th)

But Israel is in an exceptionally difficult position because of its past hard line: while it has a very legitimate security fear concerning the importation of weapons (notably from Iran) into Gaza, its blockade has played into the hands of local militants. What’s worse, Hamas’ political stranglehold on Gaza is even more difficult to reverse, even if somehow the traditional business community were able to restore normal commercial activities. One way or another, Israel is going to have to figure out how to restore Gaza to being a functional economic reality without allowing Hamas to rearm and resume her attacks on Israel. It’s going to take supreme patience, strong global diplomatic efforts and an understanding that there are militant factions in Gaza that will never let go of their ambitions. But for Israel to avoid a continuing and devastating global isolation – one that very much rubs off on America – this balancing process is going to have to begin… sooner rather than later.

I’m Peter Dekom, and Palestinian prosperity is probably the only genuine solution for Middle East peace on the horizon.

Been in a Bad Moody’s Recently?

One of the arenas that seems to be slipping out of regulators’ radar is the rather low level of viability that appears to attach to credit ratings given by companies like Moody’s and Standard and Poor’s. For example, as a precursor to the mega-economic collapse, creative players on Wall Street took advantage of the misnamed “free and competitive marketplace” by pitting rating agencies against each other – each vying for the lucrative contract from the issuing institution on Wall Street to rate any form of new debt including the derivatives (like subprime mortgage bundles) – by, “wink wink,” being gentle (e.g., giving a rating way above what made common sense) to the new debt.

The June 10, 2010 DailyFinance.com provides the absurd results of this standard practice: “Recent studies of rating agencies have been quite damning -- showing that they assigned top ratings to scads of securities that either defaulted or performed poorly, and such ratings played a large role in the financial crisis. One recent congressional investigation by Senator Carl Levin (D-Mich.) found 91% of AAA-rated, residential mortgage-backed securities issued in 2007 and 96% of similar securities issued in 2006 have since been downgraded below investment grade to so-called junk status…‘The miss was huge,’ said Phil Angelides, chairman of the Financial Crisis Inquiry Commission at a rece nt hearing. ‘Ninety percent downgrade. Even the dumbest kid gets 10% on the exam.’”

Corporations often borrow money in non-banking lending structures such as corporate IOU’s called commercial paper that are floated in the open marketplace to the general public. Financial institutions typically bought up aggregations of debt – picking up thousands of mortgages and bundling them into one package – selling fractions of those bundles (derivatives) into the market as well. But for stock brokers and fund managers looking at new debt instruments to buy for their own account or sell to customers, they really need to be able to assess the risk to determine both pricing as well as whether or not they really want to buy or recommend such instruments to clients. It would be close to impossible for such a potential buyer or trader of such instruments to do the massive examination of all the underlying loans in the bundle, particularly if they are involved in many such bundles, so instead they rely on the relevant rating agency that is supposed to be neutral and accurate in their assessment.

Unfortunately, under current practices, the company or institution that creates the debt and puts it out into the market gets to pick the credit rating agency. And the credit rating agency makes money by charging such companies/institutions for the service. But let me ask you a question… if you can place debt only if you get the right rating, would you pick an agency that is generally known to overrate debt or one that is known as strict? A little conflict of interest. There are several clear solutions to this problem, but effective lobbies at every level have managed to keep this aspect of financial reform out of pending legislation. One obvious solution is to take the right to choose the rating agency away from the issuing company. A better solution would be to have a federal agency certify the rating agencies to new standards and require issuers to enter a blind pool of potential rating agencies and get stuck with a random choice over which they have no control. It makes absolutely no sense to let the entity placing the debt have the right to shop around for the most lenient rating agency.

But the flaws in the credit rating schema in this country run deeper than what is illustrated above. Clearly, the financial markets no longer believe the ratings themselves. After all, if two companies are rating exactly the same, logic would suggest that their commercial paper would therefore carry the same interest yield. An “A” should have the same meaning for both, but that clearly is not how the market operates – at least when the issuing company is well-known and well-covered by analysts at the big financial institutions… which may not be the case for bundles of massive micro-debt. In these situations, trading banks and big institutional buyers do not rely on the credit rating agencies and assess the risk based on their own analysis.

DailyFinance.com provides a clear example: “Indeed, as investors found out during the financial crisis, they might buy debt from two companies with the same rating and yet be exposed to two completely different risk profiles. It's an expensive imbalance. To wit: McDonald's debt currently yields 2.43%, while [Bank of America]'s debt yields 4.97%-- more than double that of the hamburger company's. On a $1 billion loan, that translates to about $25 million more in annual interest payments for BofA… ‘These spreads are indicative of the fact that the ratings are wrong and that the markets are further ahead of the curve than the rating agencies,’ says James Camp, managing director of fixed income at Eagle Asset Management in St. Petersburg, Fla., with $17 billion in assets under management. ‘While I don't rely on ratings, you can't ignore the fact that the market trades off those ratings, which it shouldn't because the ratings methodologies are proven to be flawed.’”

One of the biggest issues in our recovery is confidence, which includes trust in the accuracy and fairness of the system. “According to the new NBC News/Wall Street Journal poll, just 35 percent now believe that ‘the stock market is a fair and open way to invest one’s money’ compared to 58 percent who do not believe the stock market is now fair and open due to ‘corporate corruption and broker practices.’” AmericanProgress.org (May 17^th) On May 13^th, in my Wall Street’s No Hitter blog, I noted: “‘Despite the running unease in world markets, fo ur giants of American finance managed to make money from trading every single day during the first three months of the year." Their remarkable 61-day streak is one for the record books. Perfect trading quarters on Wall Street are about as rare as perfect games in Major League Baseball. [On May 9^th], Dallas Braden of the Oakland Athletics pitched what was only the 19th perfect game in baseball history… But Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase & Company produced the equivalent of four perfect games during the first quarter. Each one finished the period without losing money for even one day.’ [NY Times, May 11^th] Morgan Stanley missed the cut; it had four net loss days during the same period.”

There’s a good chance that the rating agencies most identified with the subprime debt won’t survive the spate of litigation directed at them; Moody’s and S&P might disappear, but the underlying problem still needs to be addressed now. Congress and the administrative agencies in the Executive Branch have a duty to the American people to try and level the playing field and right the obvious wrongs in our financial system. Lobbyists and special interest groups – ultra-powerful in a world of cash-starved election campaigns – press for their advantage in the near term. They believe that that can do what they have for decades… run this country to their maximum advantage regardless of the consequences for everybody else. But history teaches us invaluable lesson: there comes a point where such special interests are crushed – sometimes violently – and the system that supports them replaced. Nothing is forever, and Wall Street may be hastening an alternative ending which I doubt they really understand. Remember what happened to Marie Antoinette – a member of the imperious French monarchy who responded to the people’s cry for bread, “Let them eat cake”? Yeah, that one.

I’m Peter Dekom, and I guess history is not a prerequisite to getting an MBA.

The American Dream on a High School Diploma

The kind of high-end-job-creating invention that America is famous for appears to be on a boat somewhere headed for Asia. I’ve blogged on China’s purchase of technological expertise – literally hiring a top engineering professor, for example, out of prestigious Princeton University and bribing him with research money beyond his wildest expectations. I’ve written how China is requiring technology transfers and underlying patent information for companies that want to sell in the Peoples Republic. Growth is leaving our shores for the BRIC nations (Brazil, Russia, India and China)… and technological research – not just building Western designs and providing cheap labor to do that – is now leading the way. The impact on American jobs is devastating.

The June 11^th Los Angeles Times: “The Bureau of Labor Statistics projects that seven of the 10 employment sectors that will see the largest gains over the next decade won't require much more than some on-the-job training. These include home healthcare aides, customer service representatives and food preparers and servers. Meanwhile, well-paying white-collar jobs such as computer programming have become vulnerable to outsourcing to foreign countries.” When we are watching any kind of job growth, maybe we need to focus a whole lot more on the quality of those employment opportunities and what they mean for our longer-term expectations. After all, low paid workers don’t buy houses or consume at a level that would make retailers hopeful; this kind of employment actually kills the notion of a “recover y” and plateaus the American lifestyle at a much lower level than we have enjoyed in decades. The resultant polarization of haves and have-nots is a nation-killer as well; can America, the nation we all love and care for, survive in this mix? Add a few environmental disasters – like we have in the Gulf now – and where does that take us?

This job trend also brings into question the value of an American college education, including even advanced degrees in law and business. Is education really worthwhile when the likelihood is that a recent grad is only going to get a relatively unskilled and lower paying job regardless of schooling? Doesn’t that notion make trade school and community colleges (when they teach real blue collar skills) more valuable? The Times continues on this theme: “After spending tens of thousands of dollars on higher education, often taking on huge debts along the way, many face a job market that doesn’t seem to need them. Not only is the American economy producing few new jobs of any kind, but the ones that are being added are overwhelmingly on the lower end of the skill and pay scale.

“In fact, government surveys indicate that the vast majority of job gains this year have gone to workers with only a high school education or less, casting some doubt on one of the nation's most deeply held convictions: that a college education is the ticket to the American Dream… ‘People with bachelor's degrees will increasingly get not very highly satisfactory jobs,’ said W. Norton Grubb, a professor at UC Berkeley's School of Education. ‘In that sense, people are getting more schooling than jobs are available.’” I can tell you that the number of unemployed law school graduates is staggering, and unless you have a degree from a really top business school, there are an awful lot of MBA who have learned to make a great espresso… while stressing out about repaying massive loans to cover past tuition that often crossed the $40-$50,000 a year mark for professional school. This sounds like the Philippines, Latin America and India – where college-educated people work at call centers or as processing clerks in some outsource center – but not the United States of America.

It tough being college bound right now: “According to the National Assn. of Colleges and Employers, increasing numbers of students are reconsidering majors and career choices based on projections of who's hiring, not their interests… It's understandable. They're surrounded by bleak statistics: The unemployment rate for young job-seekers is close to 20%. Only one in four college graduates reached commencement with a job in hand, compared with more than half three years ago. The dearth of jobs and depression in wages may stunt their incomes for a decade to come.” LA Times (June 12^th) Young grads are acutely aware that starting with low pay as the base upon which future raises and promotions are built suggests a massive reduction in expected lifetime earnings. We have a crisis, but American can and must rise to the occasion; we’ve done it before.

When the Russians sent Sputnik into outer space (before we got there) in the late 1950s, the United States kicked into gear, upgrading its scientific and engineering skills, pushing math and science at every level within the educational system, from top to bottom. American productivity and creative output soared; we kicked some series butt! We landed on the moon in 1969! Well folks, it’s that time again. We need to stop taking apart our education system and refocus our priorities to a new and future-relevant curriculum … or we won’t be toasting our future; we will be toast.

I’m Peter Dekom, and we really shouldn’t be going down without a fight!

Breaking China

If you are a city or town in China, you must rely on the central government for the money you need to run things in a centralized economy… unless you find a BIG LOOPHOLE in the way economic value can be generated – on the side. What if you could buy (take actually) land in areas that you think could be valuable for residential and commercial property if developed, bring in some entrepreneur with access to cash and the knowhow to build, and flip that land for a massive profit? The old “buy low, sell high” maxim?

The loophole is precisely existing Chinese law that allows municipalities to confiscate peasant land, compensate or “relocate” the residents at clearly substandard levels, and then develop the “taken” land for profit. Not exactly the eminent domain concept that allows U.S.-based governments to take land at fair market prices for the greater social good. More like letting high profile financial institutions – like Goldman Sachs – borrow money from the Federal Reserve at close to zero interest so that they can speculate on their own account and make bazillions of dollars of profits. Folks in China turned out of their homes sometimes turned to suicide (some pretty nasty self-immolation included), but that made little difference. Municipalities bestowed lucrative development agreements with favored sons – clearly the politically we ll-connected – and built a class of real estate millionaires and more than a few billionaires along the way. The cities too prospered, often building massive architectural wonders into the local city hall. If you are ever in Shanghai, check out the amazing building with a pearl at the top.

For many cities, this build out did in fact generate the wealth that cities and towns expected. Add a transaction fee to the local government when land changes hands, and municipal revenues can soar. The new construction – much of it pretty shoddy since many cities had no real experience with solid building codes – sold like hotcakes. But then, there are the vast housing developments in outlying regions that lie empty; the plan didn’t always work. And with so much development and so many people borrowing to buy these properties – many purely for speculation and not actually to live in – there was this quivering sensation that a housing bubble was about to burst.

China promptly required larger down-payments – 30% for primary residences and 50% for additional homes – to help stem the tide towards bubbling… and to stop a growing populist backlash against such clearly unfair municipal practices in seizing land. Protests were building. The markets reacted: “May home sales in Beijing and Shanghai plunged 70% compared with April, while transactions in the southern boomtown of Shenzhen were down 62% over the same period, according to government statistics.” Los Angeles Times (June 8^th). And China is even thinking about instituting an annual property tax to make it harder for people buying and holding spec homes.

Clearly, the people want to correct the process and compensate people at more economically justified rates. The New York Times (May 26^th): “China is not a good setting for a Frank Capra tale, but people do have influence over their autocratic masters. Top officials are worried that the property rush — which has led to soaring prices for urban real estate and low prices for old homes and farmland seized for development — is enriching local governments and well-connected developers at the expense of ordinary people and social stability… Effective confiscation of land nominally owned by the state, but farmed or lived on by the poor, has been a major source of unrest for the past two decades… In a provisional move… [based on legislation passed two years ago by the National People’s Congress,] China’s cabinet issued an ‘emergency notice’ in recent days demanding that local governments hold officials accountable for ‘vicious incidents’ and, by the end of June, publicize ‘reasonable’ standards of compensation… But the question is whether that and the newly proposed regulations will be tough enough, or come soon enough, to make much of a difference.

“In China’s 70 biggest cities, government land-sale revenues leaped 140 percent in 2009, to $158.1 billion. Land sales provide up to 60 percent of local government revenues, by one semiofficial estimate — and much more by some private ones… The losers have been ordinary citizens, ousted from their homes with cut-rate compensation and scant legal recourse. The existing loophole-ridden land rules, dating from 2001, give developers wide leeway to clear property.” The Times. Local Chinese are skeptical that this reform will actually take place or that the politically connected will be deprived of this now-accepted path to riches.

If the bubble begins to burst, the central planners in Beijing may be faced with having to buy up many of these shoddy and unsold neighborhoods and empty commercial buildings in order to avoid a total real estate market collapse, like that experienced in many nations – the United States included – around the world. To do less would be to admit the error of this clearly egregious policy and show that China is no different from the other nations on earth… except they actually can afford to buy the properties, even if that is a wasteful use of sovereign wealth. “Central planners will be under tremendous pressure from city and provincial officials not to stifle the housing boom, said Andy Xie, an independent economist in Shanghai. Local governments rely heavily on revenue raised from real estate transaction fees. He said many have accumulated significant debt in recent years to finance infrastructure projects and need those property sales to continue.

“‘They don't want the bubble to pop,’ Xie said. ‘The government is leaning against the bubble, not popping it. Nobody believes this policy is sustainable.’” LA Times. Can central authorities afford to let those municipalities suffer the agony of misplaced development or will they finally come to the rescue? Or will they let a few cities and the developers that love them fall as a lesson to many others… before they step in and stabilize the market.

I’m Peter Dekom, and it is strange to watch what a government with too much extra cash will do next.

The Burning of Osh

63.6% percent of Kazakhstan is made up of a Turkic, Islamic people – the Kazakhs – who write in either an Arabic or Cyrillic script; they even have a certain look: “Fair to light-brown skin tends to be the norm. Among physical traits are aquiline noses, epicanthic fold and high cheekbones. Hair colour among Kazakhs varies from prevalent jet black to red and sandy brown. Hazel, green and blue eyes are not uncommon. These nomads roamed in the Altai Mountains (and thus are known as Altaic peoples) in northern Mongolia and on the steppes of Central Asia.” Wikipedia. While the Kazakh language is making resurgence, Russian is still the primary language, particularly in the northern regions. The next largest ethnic group in this sparsely-populated vast country of just over 16 million is Russian (over 23%), and one of the smallest minorities are another Turkic peoples – who write in a Latin script, are more religious, speak a different tongue, dress differently and are more closely related to the Chinese Uyghurs – are the Uzbeks with less than 15% of the population. Uzbekistan borders on the south, and the second largest city in Kazakhstan is Osh (also a southern town), which has a significant Uzbek presence.

There is no love lost between the ethnic Kazakhs and their Uzbek minorities. In 1990, ethnic riots broke out between these factions and then stabilized into an uneasy truce. The government has been playing a dangerous game, trying to cozy up to the West while not completely alienating its former Russian master. They game hasn’t worked. Kazakhstan is the only country in the world that has military bases from both Russia and the United States, but the country’s political future is anything but clear.

Kazakhstan is ostensibly a democracy, but political instability and authoritarian rule have marked most of this nation’s short post-Soviet Union history. When Kazakhstan President Kurminek Bakiyev recently renewed the lease on an American base – a critical support system for the Afghan war – against the wishes of those in Moscow, Russians seemed to lend increasing support to local protests that led to a coup that toppled Bakiyev in April of this year. A fragile interim government, led by the former foreign minister Roza Otunbayeva, has tried to walk the narrow line between those favoring Russia versus those seeking closer ties with the West and has tried to steer this struggling nation into a new governmental structure.

In the second week of June, the country seemed to split apart at the seams as ethnic rioting in Osh – where Kazakh gangs rooted out Uzbeks and engaged in killings and burning of their homes and commercial buildings until vast sections (Uzbek neighborhoods) of the city were set ablaze – shattered any semblance of a functioning government. The death toll was anything but certain, low end three figures were reported; even the stampede that crushed children as Uzbekistan opened their northern border to allow ethnic Uzbeks to find sanctuary against the Kazakh storm added to growing list of fatalities. Tens of thousands have purportedly crossed the border to safety.

The Russians watched as seemingly pro-Russian gangs pushed back against this ethnic minority. On June 12^th, Otunbayeva begged the Russians to send forces to stop the violence: “The situation in the Osh region has spun out of control… Attempts to establish a dialogue have failed, and fighting and rampages are continuing. We need outside forces to quell confrontation,” she said. Ash from the burning city rained down on the entire region. The Russians held back: “A spokeswoman for President Dmitri A. Medvedev of Russia said that no decision on providing military aid would be made until at least [June 14^th], when Russia will consult with other members of the Collective Security Treaty Organization, a regional security alliance of former Soviet republics…. ‘A decision about deploying peacekeeping forces to Kyrgyzstan can only be made collectively with all members of the [Cooperation and Security Treaty Organization – a regional coalition of former Soviet nations] the spokeswoman, Natalya Timakova, said Saturday evening. She also said that Russia was continuing to ship humanitarian assistance, including medicine, to Kyrgyzstan.” New York Times (June 13^th). The rioting and burning continued unabated.

Clearly, the deployment of Russian forces in a country with a significant American military base isn’t exactly a scenario that favors U.S. policy. A strong Russian presence not only makes operating in this theater difficult but also suggests that the new government may reconsider the American lease retroactively. This would give the United States a very difficult choice: leave or insist that the earlier lease was and remains legally binding and stay despite local opposition. But U.S. forces cannot force a peace, the local government has already requested Russian help, and while neighboring Uzbekistan is deeply concerned and embroiled in the diplomacy of it all, it cannot intervene either if this effort might bring Uzbek and Russian forces into a thoroughly unpleasant zone of confrontation. But genocide has once again reared its ugly head, and however this must be accomplished, the lives of innocents must be spared and the violence stopped.

I’m Peter Dekom, and as we read of this distant violence, how many of us actually see how any of this is truly connected to our own choices and political realities?

Rising Power in Latin America

As Mexico shudders from declining oil reserves and a virtual civil war based on the drug lords perfecting their routes into gringo-land expands and as Venezuela enjoys the broken promises of President Hugo Rafael Chavez who has placed his repressive leadership ahead of his once reformist ways, there is a new power rising on this side of the Atlantic, and not a Spanish-speaking one at that. Portuguese is the national language of the world's fifth largest (land mass and population) country on earth, Brazil. With almost 200 million people, Brazil is only recently recovering from its image of one of those inflation-driven, Latin American failed economies. In 2002, it required a $30.4 billion rescue loan from the International Monetary Fund, promising to repay that debt by 2006. The fact that Brazil repaid that note a year early probably didn't show up on your radar.

You may have read about the country's massive use of ethanol in its automotive fuel fix, cheap sugarcane generated alcohol (almost 38% of the earth's production of ethanol); Brazil mandates that gasoline-powered cars use a mix of 25% of ethanol. The majority of Brazil's automobiles run on some form of flex-fuel. The U.S. Environmental Protection Agency has designated ethanol as an advanced biofuel because of its 61% reduction in the lifecycle of greenhouse emissions. But you may not be aware of the massive new discoveries of oil, much of it unfortunately off-shore, this South American country, is known more for its beaches, celebrations of Mardi Gras and its unique solution for racial harmony (the "coffee-colored compromise") than for its technological achievements and abundance of natural resources. But make no mistake; Brazil is rapidly taking its place as one of the most powerful and fastest-growing economies on earth, along with China, India and Russia.

We're not used to looking for such economic miracles in Latin America, and Brazil knows that. There is a simmering resentment among its citizens that the United States simply takes for granted that its global policies that, except for minor objections from Bolivia, Cuba and Venezuela and their populist leaders, speak for the entire Western Hemisphere. Brazil is becoming a global political force by reason of its growing economy (even as much of the rest of the world continues to reel from the recession) and is trying to make it clear to the earth that it will set its own policies and expects to be taken very seriously as one of the greatest powers on the planet.

Brazil's President Luiz Inacio Lula da Silva is fighting back, setting his country's new path and making it clear that it will be a course very independent from that big kid in North America. Why else would Brazil want to serve as a broker for a nuclear fuel deal that includes one of our sworn enemies? "Lula stepped front and center into one of the most sensitive of diplomatic debates, featuring the toxic relationship between Iran and the United States, in helping broker an agreement announced this week under which Iran will ship much of its nuclear fuel to Turkey in exchange for fuel rods. The announcement was accompanied by photographs of Lula with Iranian President Mahmoud Ahmadinejad and Turkish Prime Minister Recep Tayyip Erdogan joining upraised hands. For some, the deal and the images represented refreshing diplomacy. Others, such as those who favor U.S.-led efforts to impose more economic sanctions against Iran, remained concerned about Iran's nuclear program." Los Angeles Times, May 22^nd.

Creating policy to make a point versus policies that actually have a local benefit has its obvious dangers, but it does seem as if we need to be aware that ignoring this giant to the south cannot be in America's best interests. "Brazil, with a large and stable economy and a host of vital commodities, has formed alliances with emerging powers such as South Africa and is a key member of the BRIC group of developing nations. It craves a permanent seat on the Security Council and wants a reform of the IMF and World Bank. Under Lula, Brazil has gradually abandoned its non-interventionist foreign policy and is taking a more hands-on role. For Lula, the Iran thing isn't important as such," said Oliver Stuenkel, a visiting professor of international affairs at the University of Sao Paulo. He's making a broader argument that current structures of global governance are unjust, and that emerging powers should have a greater say. "Critics counter that Lula has delusions of grandeur and say his successful presidency and high approval ratings have led to hubris." The Times. Whatever the analysis or the conclusion, it's time to pay some serious attention to this powerhouse in the south.

I'm Peter Dekom, and playing card games all over the earth is really complicated.

How Many Contractors Can You Fit on the Head of a Pin?

The June 1^st Washington Post did a profile on Ed Harrington, Deputy Assistant Secretary of Procurement, Department of Defense. I know, I never heard of him either, but he does get to spend about $132 billion of our military budget, overseeing how the U.S. Army pays its vendors and contractors. An interesting chart graces his office, one that tells you the ratio of government contractors per U.S. soldier since the Revolutionary War: “The government's contracting out for services is nothing new, as Harrington's office notes. Its ‘Contractors on the Battlefield’ chart outlines the number of contractors compared with the number of soldiers since the American Revolution. Back then, the ratio of contractors to soldiers was 1:6. World War I, 1:20. Vietnam, 1:6. Gulf War, 1:60. Iraq, 1:1. Afghanistan, 2:1.” Two soldiers for every contractor in Afghanistan?!!!! Wow!

I could drone on… ooops… about how we are slowly moving into a robotic and mechanized military force. But then, there are lots of military and civilian casualties that say otherwise. Some folks – like United Nations official Philip Alston – don’t like these impersonal killing systems, particularly when they are administered by clandestine spy agencies that bury their mistakes (quite literally) versus military operations which are openly accountable: “With the Defense Department you’ve got maybe not perfect but quite abundant accountability as demonstrated by what happens when a bombing goes wrong in Afghanistan,” he said in an interview [with the May 27^th New York Times]. “The whole process that follows is very open. Whereas if the C.I.A. is doing it, by definition they are not going to answer questions, not provide any information, and not do any follow-up that we know about.”

And then we have the modern day Hessians – like the Blackwater (now Xe Services LLC) guards that generated so much notoriety with their Iraq War shoot-em-ups – contractors with guns that often replace military troops in specific functions. Xe today provides the “guards” to U.S. embassies all over the world; 90% of their income (2/3’s coming from no-bid contracts according to Wikipedia) comes from government contracts.

Okay, someone has to supply the table settings along with the surface-to-air missile systems that the Army needs, and someone has to supervise that procurement and all the generals and their supply officers pounding the table and asking, “More! More!” Fact is that military conflict is good business. Nothing like an arms race to stimulate the economy… of our military-industrial complex. We may be laying off teachers, cutting back our police forces and deferring the much needed maintenance on our dams, bridges and roads, but we will continue to hire lots of soldiers, enriching tons and tons of military suppliers to fight in theaters like Afghanistan and Iraq. So what if the Iraqi government is unraveling even as our troops are departing? Who cares if the Taliban are actually retaking towns almost as fast as our troops leave to take another strategically-important region?

Looking for wars to fight, reactions to strikes begging for retaliation in the minds of angry voters, and sending troops – without invoking a military draft that would require a public re-think of their initial desire for revenge – seems like such a non-starter these days, particularly fighting wars that we cannot win: Vietnam, Iraq and Afghanistan… combat that requires decades, millions of soldiers over time and – today – at least a trillion dollars in financial resolve. Frankly, we ain’t got it anymore. There are too many problems back home that need attending. Not that I am advocating isolationism in a modern era; that doesn’t work either. But this “go it alone” or “go it with the primary burden on the U.S. soldier and taxpayer” is no longer within our financial ability to bear. We need to stop subsidizing our military contractors and vendors just as much as we need to level the marketplace to weed out Wall Street favoritism; we need to get real!

I’m Peter Dekom, and wasting money (and lots of lives) is a luxury we can no longer afford.

Is NATO an American Turkey?

When Germany and France fomented the European Union, the not-so-secret agenda was to counter the seemingly monolithic economic, military and political power of the United States through the combination of Europe into a single national force. Today, both such nations are watching their economies undermined by the weakest members of that union – countries like Greece and Spain whose financial woes are dragging down the euro and the fiscal integrity of the entire continent. Japan veered severely away from towing the American line – as recently elected Prime Minister Yukio Hatoyama pledged to terminate the U.S. military base on Okinawa – but were forced to reverse such negative policies and accept a continuing military presence on that Japanese island following the increased militantism of North Korea. Hatoyama resigned on June 2^{nd because he broke his election promise. Brazilian President, Luiz Inácio Lula da Silva, to show his independence from the overly-domineering American policy umbrella cast over Latin America, recently brokered an agreement between demon Iran and the Turkey over spent nuclear fuel rods.}

^{See the trend? Not only are the traditional powers – China and Russia – tugging away at U.S. political preeminence, so is absolutely everybody else. As our economy portends a longer-term erosion of everything we have built and stand for, as the precipitous decline of our educational standards suggest that the United States cannot continue to provide global leadership even in the not-so-long term, our enemies and allies alike are pulling away and leaving us increasingly isolated. There are lots of nuclear powers these days as well as many countries (like the BRIC nations – Brazil, Russia, India and China) with stellar growth – even with momentary blips and bubbles – in their future. Even with 30% of the global economy, the U.S. value proposition is apparently dropping like a stone tossed off a high mountain.}

^{To make matters increasingly worse, America is linked to every move or transgression that Israel foments as its exceptionally hard line Likud government plays a very rough game. Israel, even more isolated than the United States, is surrounded by hostile neighbors – some with menacing nuclear weapons near final development – who would like nothing more than to drive her into the sea. The United States has been there for this tiny nation, through thick and thin, and frankly, for the most part, Israel has been our most reliable ally in an otherwise tumultuous region. Israel’s recent policies – from harsh military action to permitting the construction of even more Jewish communities in the middle of the Palestinian West Bank – have driven a deeper wedge between the United States (which is blamed for everything that Israel does) and the rest of the world, most of which has condemned these hard line trends.}

<sup>Israel’s May 30th violent interception of a relief convoy headed for Gaza (which departed from the Turkish section of Cyprus) – where 9 people (including an American) perished on a Turkish ship (the Mavi Marmara) – is a diplomatic nightmare, particularly for the United States. The mourning is particularly and obviously intense in Turkey, where Palestinian sympathies are on the rise as is a general expansion of a huge pro-Islamic political faction in what was once a highly-secular nation. The big loser in all of this is the United States… Turkey has been America’s highly strategic NATO ally in its heavy engagements against Middle Eastern Islamist militancy. The June 5th AolNews.com: “The 2009 Pew Global Attitudes Project found that only 14 percent of Turks viewed the United States favorably, the lowest percentage of any of the 25 countries surveyed. In comparison, 19 percent held a favorable view of Iran…

“As Turkey furiously mourns its dead from the Israeli commando assault on the Mavi Marmara, the political transformation the country has undergone in recent years has never been so apparent. Once prized as NATO's stalwart eastern flank against the communist threat, Turkey now sees its red flag raised by thankful Palestinians in Gaza and its diplomacy praised by Iran. … Though materiel for U.S. troops in Iraq still arrives from a base in southern Turkey, the NATO member increasingly seeks its own solutions for international issues instead of toeing the line set forth by the West. Last month Turkey joined Brazil in negotiations with Iran over its uranium enrichment program, a move that ran counter to the sanction-seeking U.S… [The political transformation of Turkish attitudes] has been under way for many years, of course, wrought by the end of the Soviet Union, two unpopular U.S.-led wars in neighboring Iraq and the 2002 election of the pro-Islamic Justice and Development Party, or AKP. But the current crisis underscores the depth of Turkey's alienation from the West, which goes far beyond righteous outrage at the plight of the Palestinians.”</sup>

^{On June 5th, another relief ship – this one of Irish registry – was bordered by Israeli sailors and diverted from Gaza to an Israeli port, this time without bloodshed: “On [June 4th], the Israeli and Irish governments reached an agreement to unload the vessel’s cargo in Ashdod, in southern Israel, and transport it to Gaza, but the group sponsoring both this ship and the Turkish flotilla, the Free Gaza Movement, rejected the deal.” NY Times (June 6th) . The cargo was off-loaded, the passengers detained, but the goods will eventually make their way over land to Gaza.}

^{As Turkey cozies up to Iran and embraces the Palestinian movement, Americans squirm nervously. “‘The Americans, no matter what they say, cannot get used to a new world where regional powers want to have a say in regional and global politics,’ said Soli Ozel, a professor of international relations at Bilgi University in Istanbul. ‘This is our neighborhood, and we don’t want trouble. The Americans create havoc, and we are left holding the bag.’… It is Mr. Erdogan’s confrontation with Israel, which he accused of ‘state terrorism’ in the flotilla raid, that raised the loudest alarms for Americans. Many see his fiery statements as a sign that he has not only abandoned the quest to join the European Union, but is aligning himself with Islamic rivals of the West.” New York Times (June 8th). With overwhelming popular support, there are a few in Turkey with a slightly different perspective: “‘The world hasn’t changed in 48 hours just because a boat was raided,’ said Asli Aydintasbas, a columnist for the Turkish daily Milliyet. ‘Ankara thinks it is remaking the world, but in the long run this could backfire.’” Or not…}

^{We’re used to dictating our political needs by sheer force of military and economic power; those days are slipping away. Can we adapt to this transformation, accepting divergent opinions and avoiding attacking sensibilities of those who are different, as a tolerant and diplomatic country in partnership with others… or are we destined to remain cowboys in a world where cows are no longer in vogue? Houston, we have a problem…. Yee ha? Do we really enjoy being the number one target on earth?}

^{I’m Peter Dekom, and we better figure out this sympathy/empathy thing before we are truly isolated with no one but our deficit-inducing military budget to get our way.}