Bay of Pigs, Dejavu

Venezuela and Russia have begun joint naval exercises off the coast of Venezuela.  These joint activities are the just reward of President Dick Cheney’s warped view of the globe and the times.  The neoconservatives must be just rolling in their beds thinking this is just a nightmare.  The Obama team has now seen a predictable but sobering reminder of what international relations are all about.

The Cheney/Bush era of picking on the weakest and not thinking about what always happens to a bully can be seen in their short sighted treatment of Russia.  In 2000, Russia was an economically weak country which was having its own difficulties with Islamic insurgency.  Russia was also experiencing “growing pains” in opening its country to democratic capitalism (in truth it looked more like hoodlums in suits).  At a time when the opening existed for greater ties with the largest land mass country, Bush and friends chose to turn the other cheek, the one on their back side just below their waist.

1. Abrogating the ABM treaty and restarting the “star wars” program.  This frightened the Russian right wingers and tilted the balance of power within Russia.  Soon we heard that Russian arms reduction programs would be stopped.

2. Following 9/11, there was much sympathy expressed by the Russian Government despite their concerns about the ABM treaty.  Russia supported the invasion of Afghanistan and provided over flight authority to America in supplying and supporting the invasion.

3. Deployment of the “star wars” anti-missiles.  This confirmed in the mind’s of the Russian right wingers that you could not trust the Americans.  There would be no more Mr Nice Guy.

4. No UN suport for the invasion and occupation of Iraq.  Russia advised against the invasion and did not offer any support.  Instead Russia used the opportunity to work more closely with the Iranians who were clear to become the big winners following the US invasion.

5. NATO moves east.  Not content to leave things alone, Bush/Cheney pushed NATO into expanding their members to include nations who were formerly members of the Soviet controlled Warsaw pact.  If the anti-missiles sent Russia up the wall, this sent them over the edge.  It was cold war time again.

6. Independance to Kosovo.  While this process lies somewhat beyond the US’ ability to control, once Kosovo delared their independence, there was no requirement for the US to immediately announce recognition.  The US did and the Russian were ready to get even.  This came later with the Russian invasion of the Republic of Georgia.

7. US navy at Russia’s side door.  Following the Russian invasion of Georgia (which has now been revealed to have been in response to Georgian aggression), the US sent its gunships into the Black Sea and to ports less than 100 miles from Russia.  Provocative?  You bet it was.

So now we have the interim results of this short sighted and unnnecessary foreign policy.  At a time when Russia does not represent a long term threat to the US (Russian is still too weak economically and will remain so), the US has stuck Russia in the eye so often that their reaction is a growing threat Obama must consider and deal with.  A Russian loose cannon is a danger waiting to happen.

For clarity, the argument is not that Russia is a country whose history and values are compatible with those of the US.  It is also not that our goal should be to be Russia’s best friend.  Rather, we need policies that recognize, whether we like it or not, Russia still possesses significant military power (or simply risk) due to its large stores of nuclear weapons.  World order and peace can not be the responsibility or frankly is it possible to be within the capability of one country.  World order and peace must come from cooperation of a number of countries.  The US needs a working relationship with Russia and it must adopt policies that enable that relationship to take place.

Regaining Confidence

It is finally quiet with respect to news of the financial crisis and efforts to stabilize the overall global financial system.  It could be that our American holiday, “Thanksgiving”, has injected a much needed pause, if only to allow time for eating turkey and sucking down antacids.  Internationally the tragedy in Mumbai puts a little perspective on the economic mess showing us what rule by laws is really about.  It seems to me that “economic rules” should be observed and enforced too.

We are reading more and more that the seeds of this recent melt down were sown in the 80’s.  The world of the 80’s is, however, hardly recognizable in comparison to 2008.  I certainly would not go looking for the roots 25 years ago and instead would concentrate on what exactly happened over the last three years with emphasis on the last two.  Once I understood that I might trace these causes back a few more years.  I believe we will find a few major causes and an accelerating rate of change in the causes during the last 2-3 years.  Here are my guesses

1. Degree of leveraging associated with shareholders’ demand for greater returns (in contrast to what “partners” would demand knowing they would experience the full affect of losses).  Incorporation with its legal protections may have emboldened the leaders, especially with limited regulatory rules.

2. “Cooking the books” through over rated assets undoubtedly contributed.  Firms like Standard and Poor’s and Moody’s gave out inflated security ratings like they were candy in return for hefty fees.  The actions of investment firms and the rating firms looked an awful lot like Enron and its accounting advisor, Arthur Anderson Inc.

3. Government inattention and intentional malfeasance were an accomplice.  The Bush Administration’s stated position was less government was good government and less regulation and oversight was even better.  With the sheriff on vacation in Crawford, the last line of protection was removed. 

As in most “boom to bust” situations there is greed and super egos involved.  And, another nice touch is using a ponzi scheme where lots of people share in the riches as long as the game lasts helped keep financial disceptions going longer.  The everyday person had his 401k as well as his home value rising nicely.  Real estate agents, mortgage brokers, builders, and laborers all had a piece of the action.  Life was good and those Bush guys really had it right about the power of free enterprise.

We have just had a President who made the job of being President look easy.  We should now know that looks and substance are different things.  President Obama must ensure that thorough investigations are conducted and the findings are made public.  As with Enron, we must not back away from criminal charges for those business leaders who misused their corporate governance responsibilities.  Whether this will be enough to restore confidence is hard to say at this point.  A thorough understanding of how we got to this spot is essential even if we are not at the bottom of the cesspool.

Why No Statesmen?

The world is a confusing place at times, and currently it is bordering on insanity.  Could it be that we really miss the good old “cold war” days where the prospect of imminent annihilation provided most everyone something to think about other than trying to kill, steal, rape, and pillage.

 

The latest absurdity is taking place in Mumbai, India.  Insurgents, still unidentified, have killed over 100 strangers, for no announced reasons, and are still trying to kill more.  Their targets have been westerners and Jews which suggests a secular mission.   But you must still wonder why people would be compelled to do something like that.  One person crazy maybe, but dozens does not compute.

 

In Afghanistan there has been an increasing level of suicide bombings which seem to have no purpose other than to make like unbearable for the general population.  In Iraq, which we have been told is so safe thanks to the “surge”, there continues to be all sorts of senseless killings.  And maybe the craziest of all dysfunctional performances is taking place off the East African coast.  There the Barbary Coast has returned in 21^st century glory.  While these pirates have so far been reluctant to kill people, they have made the international waters lawless.

 

Where are the global Statesmen who will speak up, denounce this behavior, and then take the necessary actions to seal off the flow of funds and munitions, and close the sanctuaries that house and protect these rogue elements.  We have not lacked for people who will condemn these illegal actions but talk with no action does not alter anyone’s actions.

 

President-elect Obama will do well to place priority on earning other country’s  trust as (1) first a county that can be trusted, and (2) second as a country whose demonstrated values are so clearly sound they should be followed.  Other countries must also realize that they must step up to this lawless disorder if even their own societies and cultures are to survive.  What they will need is a leader they can trust and who has earned their respect.  Today there is no one to fill that role and we must hope that President Obama can fill those shoes.  

Root Cause

Deviation is normal in everything we do, even though it is often not appreciated.  So it should be no surprise that when the nation’s economy began heading south in 2007 that the “housing bubble” burst.  The bubble was, however, not the cause but rather just another symptom of a normal economic slowdown.  Unfortunately our country does not like to think too much and a more simple “cause and effect” explaination was better for sound bites.  We are now at the door step of a prolonged recession and if we are not careful, the difference between recession and depression might just be a few letters.  We need to recognize that the economic slowdown (as characterized by the decline in new housing starts, increase in unemployment, or unsold houses) is a clear and distinctly different situation from the disgrace that is sweeping the financial services industry.

Our Government announced another resue package yesterday.  This time it size is estimated at $ 800  billion.  The money is designated to go here and go there to cover this and to cover that.  For sure, one must hope for positive results but on what should the hope be based?

The Bush Administration, after having slept for 7+ years, is now running around throwing money at the economic crisis.  If Bush’s economic advisors understand the magnitude and complexity of this economic crisis, they certainly are not explaining it to the public.  Each spending initiative, of course, has a specific target, like “toxic assets”, “frozen credit”, “mortgage backed securities”, “insufficient liquidity”, etc.  The problem is that we do not know how the banks and other financial services companies got into their current situation and because of that we have no reason to believe that the tax payer’s money will get them out, and even if it does temporarily ease the problem, what would prevent a reoccurance?

We must ask, no we must demand of President Obama in January, to explain in gory detail, who and how so many financial services companies could go so wrong that they needs so much tax payer money.  Names and deeds.  Criminal investigations should not be ruled out.  But most important is to answer the questions:

• Is the barn door now closed?
• Are there other doors or windows that should be closed?

Pardon Roulette

The end of a Presidential term, especially the second and final term, brings with it a game of chance… “Pardon Roulette”.   President Clinton brought us Marc Rich who was a convicted tax dodger who was on the run in Europe.  It may have helped that Rich’s ex-wife made a sizeable donation to the Clinton library.  We are all waiting to see who makes the cut this year with George W Bush. 

 

Most everyone’s favorite is Scooter Libby and although not totally necessary since Scooter already had his sentence commuted, it would be a nice touch.  Here are three who you might not think about:

 

• Donald Rumsfeld – crimes against humanity
• Ari Fleischer – lying to the American people
• Karl Rove – stealing and subverting the American Democracy

 

There are two more and you read it here first.  The justification behind these last two is the intent to keep the country focused on the huge recovery process President-elect Obama must undertake in order to correct the mess left by the out going Administration, and to begin putting America on the path to a brighter future.

 

1. The first step is to grant a full and total pardon to Dick Cheney.  Most everything that has gone wrong with US foreign policy and Government invasion of individual human rights and privacy can be traced to Cheney’s doorstep.  Historians will certainly establish that in the years to come. 

 

1. The next step is for President George W Bush to resign on January 19, 2009.  Vice President Cheney would then become the 44^th President (for one day).

 

    3. The third step is naturally for President Cheney to grant a full and total pardon to George W Bush. 

 

As disgusting as this prospect may seem, Bush and Cheney got away with most of their malfeasance and crimes in plain view, and with the support of most of Congress and the American people.  For sure the American people did not have all of the information.  Remember, however, it took almost 8 years of disaster and disaster and then the largest economic meltdown since the great depression for Americans to take note of what was happening right in front of them. 

 

My vote is not waste another breath on this group.  Let historians record their proper place in history.  Instead, let’s put our minds and backs to cleaning up the mess and restoring America to place of which we all can be proud.

Raising All Boats

During these depths of the current economic (and ethical) crisis, our minds are being bombarded with “bail out” proposals costing in the hundreds of billions.  Some even have mentioned the word trillion.  Soon we will become so used to figures this large that they will no longer get out attention.  Before that, let’s remember:

1. Regular people got us into this mess.  These were no geniuses or anyone who deserved, either by uniqueness or ability, the amount of remuneration they were receiving.

2. Capital accumulation and risk taking are two of the corner stones of what has made America a wealthy country.  There are prudent limits for both and it is the role of Government to set those limits and then get out of the way.

3. There are several major problems before us (all mixed togehter) and each has its own root cause. 

• Housing bubble – a normal result of good times.  This will correct itself.
• Sub-prime – a more complex problem partly fueled by Government borrowing and lack of enforcement of reasonable lending rules.  This too will pass but it will take some Government money to get out of it.
• Rating Agency crimes – a very serious misadventure by Standard and Poor’s, Moody’s, etc where by they provided higher ratings to financial instruments than they justified in order to capture more fees.  These companies must be penalized and potentially criminally charged.
• Collateralize debt obligations and credit default swaps – these financial derivatives require far more regulatory oversight and a thorough review with respect to their ethical use.  Criminal charges should not be ruled out.
• Bank lending reduction – this is a somewhat predictable result of the misuses described above.  This can be corrected to some degree with time.
• Financial Services company failures – these represent a huge wake up call and put the spot light squarely on completely compromised Boards, CEOs and senior executives.  There needs to be consequences and new rules that prevent the reoccurence of these “casino like” products. 
• Economic slow down – a normal event that has been exaggerated by the confusion of the financial mess.  This will recover naturally (and will respond somewhat to government stimulation).
• Underlying economic slow down – For 8 years our country has looked the other way and treated science and engineering as almost godless.  During this same time we have watched hundreds of thousands of jobs go overseas (China) and have done nothing to stimulate the creation of high value replacement jobs, as if we leave it alone, it will cure itself.  This can be fixed.

The route to solving our current dilemma is to break the overall situation into piece.  Government agencies need to study and determine clearly what caused the current problem and what could have been done to prevent it.  Government (probably Justice Department) needs also to look into whether criminal charges are warranted and those who have betrayed the public’s confidence should be charged.  Lastly, we must remember that in trying to right the economy, rescue efforts must be both short and long term in scope.  A balanced approach is most likely to raise all boats.

Good News – The Ship Is Adrift

Our ship of state is adrift in world events awaiting a new commander to take the wheel.  Ordinarily one would worry about being “adrift” with all the worries and risks that abound.  Why our President George W Bush has often referred to our “country being at war”, or that he was a “war time President”.  In truth, our ship of state has been more like a motor boat, running at full throttle, in random directions, without a competent hand on the wheel.  So with the lameness of our duck very apparent, being adrift and not going anyplace very fast, is actually good news. 

The world is up to their ears in the blow back from the global economic slow down.  The shameful collapse of the CDOs and CDSs (credit default swaps) and the exposure of the casino like financial markets have also exposed other truths. 

• Russia without high oil prices is a bankrupt, back water, despotic regime, and while we need to recognize it possesses lots of nuclear war heads and long range missile, it is not a treat in the true military sense.  There is room for finding common ground.
• China, who has been everyone’s poster child for growth, is actually a relatively fragile country.  If there is no one to buy Chinese products, their growth rate will tumbled, and even more important, the expectations of their citizens will drop.  In countries where Democracies like we have in the US do not exist, stable government control is at risk.  In the future we need to recognize that economically competing with China is good for both countries but only with a more even trade balance.  Neither of us should depend upon the other.
• European Union contains member countries with the same greed as Wall Street.  It also depends upon an export economy to support its progressive political agenda.  The folly of calling the EU “old Europe” should be replaced with a healthy respect but not a deference to their past greatness.
• The Israeli and Palestinian issue is as real and unsolved as ever.  Bush ignored the situation for 7 years and the economic slow down seems to have had no impact.  Let’s wait until the new Administration takes office before we look for any change.
• The Iraq dilemma has also be uneffected by the slow down.  One can see, however, the enormity of the diversion of attention that the Iraq invasion and occupation has caused.  The new Administration will put an end to this smudge on the US’s reputation, and in the process, free up $ 100’s of billions and space and focus for other foreign matters.
• Afghanistan’s largest export crop – poppies is unaffected by the economic slow down.  In addition the efforts to eliminate al Qaeda seem to be going no place.  The new Administration must recognize that the Afghan issue is not simply military and a totally new set of policies are needed.
• The domestic US situation probably speaks the most.  It was Bush leanings towards no Government regulations that has lead to the Wall Street disasters.  We need a little time to see what needs new regulations and what needs enforcement of existing regulations.  January 20th, ironically, is probably soon enough to get going.

President Bush was off to Peru to another round of dinners and pictures this weekend.  At first I was disturbed that he would be trying to do anything other than to clear brush in Crawford, but seeing how little the press has reported on the trip, I began to see that this was just about as “adrift” as we needed.

They Don’t Get It

I am talking about the testimony this past week of the Big 3 CEO’s and Congress.  You may be thinking I am referring to the CEO’s, or if you listened carefully, you might think I mean Congress.  Well the right answer is “both”.  Neither one are grasping the importance of the situation or the lack of understanding by the other.

The Demcratic leadership decided there would be no vote for loans to the auto companies (for now).  Asking absolutely unrelated and inane questions like “did you fly in a corporate jet to get here”, or “why didn’t you fly together in one plane” speaks volumes about a pandering Congress lacking in the simplest of business or legal knowledge.  A private jet fully loaded is very competitive in cost to buying a seat on a commercial airline and someone needs to inform the distinguished Congress person that there are anti-competitive rules that prevent the three CEOs from meeting (and traveling) together.  Congress knows that appearance is another story and most Americans do not know these business realities.

The points that Congress should be making are

• GM – what is going to happen that has not happened in the last 25 years to end the steady decline in your market share?
• GM – how do you intend to make money with your many Brands and complicated work rules?
• GM – how do you plan to survive with your largest parts supplier, Delphi, is such a weak position and saddled with legacy costs?
• GM – why should customers buy your cars if they must visit old style dealers who regularly bait and switch and treat the customer as a nuisance?
• Ford – what is going to happen to reverse your 15 year decline in market share?
• Ford – ditto the other questions to GM (substitute Vistion)
• Chrysler – why should a privately owned company (no stock holders) receive a bail out, what prevents you from raising more capital?
• Chrysler – how can your company survive with only a 10% market share and not growing?

The parting statement from Congressional leaders was “no turn around plans, no loans”.  Tough talk and directionally correct.  Unfortunately the message was not received.

1. The markets tanked even further reflecting no confidence in the leadership of Congress.

2. The CEO’s all welcomed the opportunity that they could return in early December with their plans.  This means that the plans already exist in the minds of the CEO’s.  There is no chance that the plans will be anything more than a continuation of what each company is doing now.

Healthcare and foreign policy are extremely important areas for the new Obama Administration to tackle but there is nothing bigger than straightening out the fundamentals of our economy.  Obama must give direction to Congress and the Country that a brighter future begins with “back to basics” and the Big 3 need to move to business models that look more like other successful International Car manufacturers operating in the US.  Political pandering should be over, and bureaucratic corporate mumbo-jumbo should be too.

Automotive Dilemma

Yesterday the top executives of the Big 3 were grilled for the second day in a row by Congress.  It was embarrassing to hear the quality of the questioning and if that alone caused the stock market to dive in the last 30 minutes, I could understand.  The questions were designed for purposes that suited the questioner only and were unworthy of even the smallest of school board meetings.  No wonder there is a lack of confidence all around.   It spoke volumes about what a total change is needed.

 

The issue is not whether one should be for the loans or against them on principle.  It is totally rationale to think that Chapter 11 is the best way, and it is equally responsible to favor an emergency loan, even knowing that probably more loans will be necessary.  The issue is what should be responsible and fact finding questions that Congressman can ask (and should ask) in order for the American public to know the depth and breadth of the situation facing the automotive industry.  What means of air travel is irrelevant to the question at hand. 

 

These hearings have been false theater from the “get go”.  Republicans are not going to vote for the loans and there are not enough votes to pass the measure over Republican opposition.  Once the Obama Administration takes office the shoe will probably be on the other foot.  Barney Frank at least had the common sense to point out that it seemed a bit odd to bail out “white collars” on Wall Street, but then let “blue collars” on Main Street go down with the ship.

 

If you look at North American market share figures for the period 1982 until today, you see GM’s trend line steadily decreasing (mid 40’s to mid 20’s).  You see Ford’s peaking in 1995 and then decreasing in step with GM since.  Chrysler’s interestingly is flat in comparison with a peak in 1996.  Chrysler’s market share, however, is only about 10% and you can more easily see that they would be more susceptible to a slowing of the economy.

 

The message in these numbers is that the business model and the method of management of the Big 3 is not, and has not been working.  There is plenty to explain this performance:

 

• Restrictive work rules  (in UAW contracts)
• To rich pay and benefits  (both management and union workers)
• Brand image out of touch with new car buyers
• Dealers who do not care about their customers
• Top Management that is too comfortable.
• We/they relationship between Union and Management

If one is honest and compares Big 3 automobiles today with their international competitors, they stack up very well.  But there is no “sizzle” left and unless the Big 3 give away their products the demand for them does not compare to consumers’ interest in Camray, Accord. Outback, etc.

 

The message to the Big 3 leaders should be

 

• Hold on to January
• Expect a bridge loan
• Get ready for new management and restructuring

Speedy Withdrawal

Over the weekend, Joint Chiefs of Staff Chairman Mike Mullin was quoted as saying he did not favor a quick pull out from Iraq and that the withdrawal timetable should be determined by events on the ground.  I wonder where Admiral Mullin has been for the last year?  President-elect Obama has campaigned on withdrawal.

Let’s begin with two facts

1. It will require at least 18 months to withdraw if the US puts its mind to it.  Safe redeployment to a port city and decontamination take time.

2. The US just signed an agreement that requires the US to pull back onto bases and to be out of the Iraq by 2011(36 months from now).  What does he think we can do in a year that we have not been able to do in the last 6 ?   There simply is not much time for the US to do anything different regardless of “conditions on the ground”.

President-elect Obama apparently is encouraging those who advise him to express their own views.  I am sure, however, that once a decision is made, Obama will expect his subordinates to follow the decision regardless of their own personal views.  We must not forget that defining foreign policy lies with the President and the execution of that policy lies with his staff.  Admiral Mullin reports to the Commander in chief.  He needs to be thinking hard about how to get out of Iraq safely and how to run the military on $ 200 billion less each year. 

The current economic mess we are experiencing in the US is fortunately global in nature.  Coupled with the steep decrease in oil prices, all of the worlds major countries are strapped for money.  Since “guns and butter” is still true, the US has fortunately gotten a breather where we can put on hold all sorts of “national defense” developments and not jeopadize the nation’s security.  Reducing the Defense Department budget by $ 200 billion and significantly reducing the Iraq and Afghanistan costs by $ 100 billion are right in front of us for the picking. 

If we were to use these funds for infrastructure and alternate energy development investments, and loans to US financial services and key industrial companies (like automakers), we could get the US economy humming again quicker than other countries.  An economically strong US is the best defense to the unknowns that may lie ahead.