Friday, April 24, 2009

Government 101: If It Walks Like a Duck…

A law exists which strictly bans a particular act without exception. Deciding to break that law is not a policy decision, it is a criminal act. When the law in question comes from an international treaty which has been ratified by the government of the United States, then those who engaged in the act must be charged with crimes against humanity. If those who engaged in the banned act did so on direct orders from their superiors in the government, then those superiors also must be charged with crimes against humanity.

Changing the name of a banned act from “Torture” to “Enhanced Interrogation Method” does not turn it into something else. As George Carlin observed, “Shell Shock,” “Battle Fatigue,” “Operational Exhaustion,” and “Post-Traumatic Stress Disorder” are all the same thing. As Shakespeare noted, “a rose by any other name would smell as sweet.” And finally, as Cheech and Chong explained, if it looks, feels, smells, and tastes like shit, don’t step in it. In all too many ways this nation intentionally stepped in it and members of the former administration rubbed the entire world’s faces in it for years like the bullies they are.

Machiavelli’s nostrum that “the ends justify the means” is not how the United States operates. If we are a nation of laws, if our current administration wishes to re-establish that principle as a fact declared to the nation and the world, if Donald Rumsfeld, Alberto Gonzalez, Condolleeza Rice, Colin Powell, Dick Cheney, and George W. Bush believed they were correct by intentionally deciding to authorize, in the name of the United States, the use of techniques long-recognized as torture, against anyone, then that principle should be tested in the wide open light of day in a court of law, for all to see. Any principle worth following must be able to withstand any challenge brought before it or it should be discarded. If the notion of a former vice president and president in the dock is a bit uncomfortable, so what? No more uncomfortable than those, guilty and not guilty, who were subjected to acts deemed inhumane by civilized nations.

The rule of law is not a convenience that can be ignored at will or there is no law. By his constant TV and radio appearances, Dick Cheney is daring the current administration to put him on trial. That is what bullies do. Arrest him, try him, and the rest of the “policy makers” of the former administration, and if they are found not guilty, acknowledge it. If they are found guilty, put them in jail for the rest of their lives and let all who come again into high office know that We The People as a nation are indeed as good as the Constitution which embodies it.

Sunday, April 12, 2009

Whither Brain Drain: Where Are The Smarty Pants Guys Gonna Go?

One of the lead articles in today’s NY Times, and a topic of discussion on This Week with George Stephanoupoluffugus regarded how the limitations on compensation and bonuses for executives in bailout receiving banks is causing a brain drain in those institutions. Yes folks, the geniuses that brought you the world financial meltdown are taking their collective balls and going home. Or, if not home (to their palatial estates in Connecticut), to other banks which didn’t take the bailout funds and are thus not restricted in their modes of compensation, or to other investment entities. What are the likely results of this so-called “brain drain”?

For those who go to other, still healthy banks, the cycle may repeat unless the strict regulation necessary to reign in the aggressive risk-taking which caused the crisis is finally put in place. Here we see a potential for more real danger. The folks who engaged in these behaviors are a type which is at once needed for the functioning of the upper reaches of a sophisticated capitalist regime. But at the same time, those types are so smart and so aggressive in their desire to turn profit at almost any potential cost that serious regulation is needed together with vigilant enforcement and constant revision to keep them from running rampant as they have for the past eight years. Without it there is continued great risk of systemic threat like that which we are experiencing today. For that reason the regulations in place since the New Deal were created, and with their gradual repeal or failure to enforce, we see a return to catastrophic financial panic of a sort which was a common and expected part of the business cycle from the birth of the nation until the Great Depression. This is all easy and obvious and greatly discussed.

The interesting part is that some of these aggressive financial geniuses will go where they more properly belong. They don’t really belong in high finance and banking which, for all its potential for risk and reward, should really remain an area of relative conservatism and risk aversion in approaches to money management. Instead, I’m hoping that many of these folks return to the world of venture capitalism. Here they can invest huge risk into big ideas with the money from people who know fully the chances of failure as opposed to the average 401K guy on the street. We need big investment in big ideas to finally get done the things which need doing in this economy so we can start competing again and maintain ourselves as the location of choice for research and development. Sure most big ideas fail. For every Google and Amazon there are a couple dozen but again, the investors there know what they get into at the start. And Amazon lost ungodly amounts of money for years before turning a profit.

I’ve made reference to my belief that the current crisis isn’t one of credit but one of value. Contrary to the operating philosophy of the past generation, Wall St. does not create value, it makes promises of future value which in reality are just hopes. If the big brains leaving Wall St. do indeed go into venture capitalism, they may then be engaged in creating something of value instead of manipulation promises of a particular future size into ones of bigger potential future size. If that happens, the financial crisis will eventually shake itself out and over time, the downward slope of the banking industry will meet up with the upward slope of value creation and both can then begin again to increase and hopefully improve the value of all of our lives.

Friday, April 10, 2009

The Biggest Travesty of Capitalism

I just got done watching this 12 and a half minute video on you tube and wanted to see if I could encourage my readers to take a look and comment. There are as many ways to slice and interpret the numbers as there are people attempting to do it. That said, this is a pretty negative review of the current version of the government's plan to deal with the toxic assets on banks' books. As far as I can tell, it's a more sophisticated, complicated (nefarious?) means of doing what Hank Paulsen's TARP plan was originally intended to do. I think it's important to keep in mind while watching this or giving attention to anything involving "toxic assets" is to remember that these things aren't abstractions, but at the most basic level are real things which we can all relate to, namely, home mortgages on houses which are worth more than the houses themselves are worth now, the same with commercial loans on office buildings and malls in the same spot as the home loans, and car loans, school loans, and credit card bills belonging to people who can't afford to pay them back.

I hope to get some thoughtful responses from you.

The Biggest Travesty of Capitalism

Friday, April 3, 2009

Capitalism 101: Chinese Drywall

This is a story that will probably be huge very soon but since I’m in the real estate business I’m hearing about it just before it breaks big. It seems since at least 2003 the real estate building boom resulted in a shortage of domestically produced drywall for home interiors. As with so many products, alternative economical sources were found in China.

Well guess what, like pet food, and children’s toys, and baby formula, the product was substandard to the point of functional inadequacy. It seems the Chinese drywall contains an excess of sulfur compounds which are having some rather serious effects after a period in the homes where it was installed. Sulfur, for those of you familiar with rotten eggs, the stench of hell, or the atmosphere while crossing the bridge over the Savannah River in the 1970s because of the paper mills (don’t know if they’re still there but it’s one of the intensely remembered experiences of my youth as the family drove back and forth from New Jersey to south Florida), is extremely unpleasant to say the least. Folks with the Chinese drywall are now subject to that smell always and throughout their homes because of the seeping fumes from the degrading poor product. As well, studies are underway to determine if the fumes are also causing damage to metal inside the walls themselves. Electrical wiring and plumbing are said to be eroding from the emanations from the walls.

While discussing this with a fellow traveler yesterday, he declared that the Chinese are at war with us already and we just don’t know it. It’s a delicious and nefarious conclusion to draw; deeply conspiratorial, but way too subtle to be of any value whatsoever. The truth, more than likely, is much more mundane and therefore uninteresting to anyone not fascinated by arcane matters of political and economic history.

China is a nation in the very early stages of an otherwise rapidly expanding manufacturing and capitalist economy and political landscape. Until twenty or twenty-five years ago, China was a desperately poor, overpopulated, agrarian society which flung around communist ideological statements from time to time usually to the grave detriment of its own citizens. But in the past couple of decades China has been in a headlong rush to modernize and with its command structure in government, together with the unfathomable human resources it has available, China has become the manufacturer of choice for cheap, mass-produced items at most non-heavy material levels for the United States.

Much of the growing commercial relationship between the US and China occurred under the radar during the 90s but has come out in the open in an ever-increasing level in this decade. We’ve noticed mostly when we’ve heard reports, which seem to happen more often these days, of dangerous or tainted goods coming from there which should never have been tainted in such ways much less at all. But I reject the notion that this is a war because that suggests some level of intent in a coordinated effort to destroy an enemy. My historical understanding tells me instead we are simply witnessing what happens when commercial productivity outstrips the institutional ability or philosophical desire of governing bodies to oversee that productivity.

China now is where the US was around 1890 in relative industrial development. The place is just so incredibly large that in this era it has been able to bloat even faster than the US did 120 years ago. Industrialists rush headlong into the activity that anyone in commerce does, they try to make as much money as quickly as they can. This is done by manufacturing and selling as much of their product as quickly and efficiently as possible at the lowest possible production cost so as to maximize the profits. If there aren’t any rules or no one available to check to see if inexpensive industrial chemicals are mixed in with baby formula to give the appearance of higher nutritional values, then an unscrupulous capitalist will do it to improve the bottom line.

Sure he probably gets caught down the line but by then it’s too late for the babies who have died, or the homeowners whose homes smell like a giant egg fart. Enforcement is for after the crime has been committed. Regulation prevents it from happening in the first place. In the absence of rules, the most aggressive will work the hardest to make the most money. That’s human nature. That’s capitalism. Nothing can change that. It can be tempered by a well-conceived regime of regulation followed by a stringent code of law which is rigorously enforced. When things like that happened in the US often enough at the end of the 19th century, efforts to create minimum standards and inspect for them came into effect. The degree to which they are brought to bear defines the politics within which that capitalism functions. From Communism on the left to totalitarianism or fascism on the right, and everything in between, capitalism is the way of man. China needs to do a better job of controlling its capitalists and our capitalists need to be better controlled before bringing Chinese crap over here which can be made just as easily at home. And the same goes for folks selling false financial promises from Wall Street throughout the world and peanut butter at home.