GREENWASHING

The convenient truth is that everyone is lobbying for green positioning. But if facts are constantly skewed and lack accurate information, finding any path to a sustainable energy policy will be impossible.

Consider this: If China continues to proliferate coal generated power plants at its current rate, by 2030 the country will emit more noxious gases and pollutants than the rest of the world combined. I doubt American hotels can mitigate this potential damage by chiding guests to use the same towels and sheets for more than a day.

The other day I read a study by the U.S. Energy Information Administration (EIA) stating that at our current rate of consumption our natural gas reserves will be tapped out within 10 years. A few days later another study by Stratfor, a prominent intelligence source, reported that with new recovery methods and new fields, we have enough natural gas to last for more than 50 years. Neither study made reference to this tidbit: We currently import at least 10% of our natural gas.

I enjoyed the video commercials by T. Boone Pickens boosting wind energy and also mentioning that Americans paid $750 billion for imported oil to countries hostile to the United States. That figure was based on crude oil prices almost a year ago and has since been cut by more than half. Canada is our largest source of imported oil. Mexico is also a primary supplier. Implying these countries are akin to Middle East nations is grossly misrepresentative, and yet I have heard numerous politicians mimicking Mr. Pickens as an omnipotent authority. 

I like the commercial extolling America’s 200-year supply of coal. That is likely true except the majority of coal mined east of the Mississippi is deemed too polluting for use in our power facilities because of the high sulphur content. Many power companies need to import higher quality coal to blend for electrical generation to remain within EPA standards. Fortunately, the United States is able to export most of this low-quality coal to India and China so that the acrid by-products remain far from American shores until a prevailing wind carries it back home.

Clean coal technology is all but impossible, but cleaner coal technology has been in place for more than two decades. Power companies have reduced emissions by nearly 50% –not ideal—but those reductions will continue.

The Cap and Trade system in Europe has had no effect on lowering pollution in Europe. Jesse Ellison of Time magazine wrote, “The similarity between sales of carbon offsets and medieval church indulgences is striking, not least because there’s about equal proof that the two actually work.”

Then there’s ethanol –it takes 450 pounds of corn to fill a 25-gallon tank not to mention the carbon footprint for processing and transportation. Incidentally, the same amount of corn provides enough calories to feed a person for one year.

What about offshore drilling? Two of the most environmentally sensitive countries, Norway and Denmark have had gas and oil rigs operating in their coastal waters for more than 30 years. It has brought wealth not pollution to these countries.

Conflicting GREENWASHING tactics not only confuse the public, but apparently confuse many in Washington. A sensible energy policy needs to be based on facts about our fossil fuel reserves and the realistic economic and environmental impact of renewable sources. 

 

 

Cap: END TRADE

I am not a scientist, but I am also unsure anyone can claim with a 100% certainty that global warming is a consequence of human behavior. I don’t think I am going too far afield stating that some pollutants, whether or not they are causing climate change, are harming world health.

A planet in orbit spinning on an axis along with prevailing winds and shifting weather patterns cause pollutants spewing from any facility to often rest far from their origination.

If there is something all nations commonly share, it is the entrapment in the atmosphere of pollutants. Airborne particles and gases, even if the concentration originates in one geographic area will, come to rest throughout the globe.

India and China together account for about one-third of the worldwide population and both countries are heavily committed to coal generation for about 80% of their current power requirements. Their needs are growing exponentially and China has recently been credited as the world’s largest polluter, displacing the United States, which held that title for decades.

The greenhouse gas phobia, particularly with respect to CO2 emissions, is largely overstated. Quoting a joint study between Zogby Associates and The Manhattan Institute’s Center for Energy and Environment: the burning of fossil fuels is responsible for just 3.27% of the carbon dioxide that enters the atmosphere each year, while the biosphere and oceans account for 55.28% and 41.5% respectively. This is statistically interesting given that 63% of people from the same survey believe human activity is the greatest source of greenhouse gases.

The current thrust toward a European Cap and Trade system also has flaws. There has not been any significant decrease in either particles or greenhouse gases since the system was enacted in Europe. In 2008 the first marginal decline was registered. A function of Cap and Trade or the results of Europe’s 19% drop in industrial production?

Ultimately, the United States must derive power from renewable energy resources. But we must also learn from past mistakes. As corn-based ethanol was quickly deemed the panacea for high energy prices, the previous administration enacted thoughtless legislation without truly examining the unexpected consequences of higher food costs and taxpayer subsidies.

The European model of Cap and Trade has apparently not worked, but it has increased energy costs and in turn increased the cost of power vital to manufacturing. Does Congress feel they can make a failed example work or will new legislation produce an even larger failure? Foreign governments are already bristling at a possible “Clean Energy Trade Policy” which could be enacted by the United States.

I fear that should our diminishing manufacturing base become even less globally competitive that we will try to economically blackmail countries that do not abide by standards we impose. Protectionist policies, regardless of how they are disguised, have never succeeded historically. The problem needs to be addressed through a partnership of private industry and government along with comprehensive global pacts.

The movement away from fossil fuels needs to be gradual otherwise the shock to our own economy may create another crisis. The worst approach is to capriciously spend trillions of dollars to reduce pollutants by a miniscule amount while fooling the American taxpayers about the legitimacy of the plan. A thoughtful, cohesive and intelligent approach is necessary and reducing pollution needs to be a global endeavor and priority.  

 

LOGIC – A Forgotten Word

In March 2009 the prestigious Kaufman Foundation did a study that identified 78% of Americans as believing innovation is important to our economic health, while indicating that only 3% of Americans feel the stimulus package will encourage innovation.

Although the stimulus package contains many provisions and earmarks, there is one item notably absent. Usually government programs set aside about 25% for small businesses to help the less-than-mighty companies compete with the corporate giants. For unfathomable political reasons, small enterprises have been overlooked for the largest economic program ever enacted by Congress.

I am beginning to see climate change not just in Al Gore’s movie, but also in government’s attitude toward business, anger spilling out in all directions and trickling down to small businesses, which did little to cause the current calamity.

Although the financial crisis has illuminated the often-deceptive and unethical methods, banks, insurance and financial companies practice, these companies have been allowed to persist and are likely to resume their old ways through the largess of Congress at the expense of the American taxpayer. The rules and regulations being contemplated to avoid a similar financial catastrophe are aimed at these large firms, but they will also affect small business.

For ranchers, charismatic shipping magnates and wealthy local newspaper editors, these regulations will require more government reports, more accounting and likely higher taxes. This time the trickle down theory is likely to work in an unexpected way.

It appears that high taxes and over-regulation cause higher unemployment. According to CEO Magazine (March/April), the three states offering the worst business environment and the highest taxes, California, New York and Michigan, are topping the list for the highest unemployment. These states are also the largest recipients of state and corporate federal welfare.

It seems propping up the too-big-to-fail multinationals is a misguided strategy for several reasons. It may be my own Darwinism or a fondness for the ‘creative destruction’ theory, but if a company has been mismanaged, like Chrysler, GM, AIG, Bank of America and others, it should be allowed to fail leaving room for others to take their place. By nature, all businesses have to commit to profit, but multinationals tend to focus in the most economical market and in the least expensive places. Conversely, small businesses in America account for more than 50% of the GDP and provide relevant innovation and employ local people.

Logically, government intervention in any form should be directed to the heart of American enterprise—the small business—and not funneled to failing companies with abysmal track records.

Piracy and Lunacy

 

The shipping industry hasn’t changed much in the last 5,000 years. Apart from natural perils at sea, ships have battled pirates across the millennia; piracy has been an ongoing issue even though it is only beginning to garner contemporary media attention. As an owner of one of the leading international shipping companies in Westcliffe, friends have asked me to opine on the subject.

 

During the swashbuckling era of the 16^th and 17^th centuries, great bounties were stolen by English, Portuguese, Spanish and Dutch privateers. Fortunes have been made and lost from captured or missing cargo, and today in shipping, fortunes are being made and lost but as a consequence of modern economic realities.

 

Piracy and the illegal boarding of ships occur regularly with vessels and their crews occasionally disappearing entirely. The Horn of Africa and the Gulf of Aden have recently captured people’s attention with the attempted hijacking of the U.S. flagged Maersk Alabama and the subsequent rescue operation by the Navy Seals. Kudos to Captain Phillips and hopefully our Navy sharpshooters will not be prosecuted by the ACLU for failing to exercise Due Process.

 

The basic laws of the sea have existed for generations, but more recently an overarching structure has been ratified, if not enforced, by the United Nations through their International Maritime Organization (IMO).

 

It has been determined by international maritime lawyers that before prosecuting a pirate proper evidence of alleged crimes must be amassed. Additionally, captured pirates’ human rights must be protected, which means they can’t be confined in a convenient location, but only in countries where these rights might be secure. There is also a quandary whether International Law, Maritime/Admiralty Law or the law of the assaulted vessel’s national flag should apply to the perpetrators of the crime.

 

In this time of worldwide financial crisis, the Somali pirates have created a low-tech but profitable business. Once a ship is captured, it is taken back to Somalia. A pirate spokesman contacts the owner and the spokesman demands the amount of ransom necessary to guarantee the safe return of the vessel and its crew. The owner then appoints a professional negotiator with pirate experience to cut a deal and eventually a final sum payable in cash gets delivered.

 

The normal elapsed time from capture to release is about two months and the average ransom is about $2 million. It is estimated during the last few years the pirates have netted more than $100 million, monies which have enabled them to purchase more sophisticated equipment and arms.

 

To the $100 million of ransoms, one can add the cost of various navy assets plying the seas trying to protect shipping lanes, the deviation of vessels from that area and the loss of revenue at the Suez Canal caused by owners refusing to sail that general region.

 

There are currently about 15 ships from various international registries and about 300 mariners in detention in Somalia.

 

Looking beyond our tiny corner of the world in the Wet Mountain Valley where animals and hay are transported by truck, we all have an interest in safe oceans as more than 90 percent of international trade is seaborne. In terms of volume, more than 20,000 ships annually sail through the Gulf of Aden or near the Horn of Africa.

 

If a ship owner arms a crew that could void the ship’s hull insurance. Armed mercenaries are another option, but that has also been rejected by most insurance companies.

 

The International Chamber of Shipping has just recommended a 600 mile safety zone off the Somalia coast. This will help, but as we have seen with other illegal or terrorist activities, if it is not stopped and punished, it will escalate or create a template for similar activities in other parts of the world.

 

Last weekend the Somalia Parliament approved a measure introducing Islamic Sharia Law as their binding legal system. One has to question the providence of pirates returned to Somalia for criminal prosecution and more importantly, one has to query about the ultimate use of ransom money.

 

 

 

NEW FRAME, OLD GAME

 

 

The book Words That Work by Frank Luntz discusses the study of framing words for political and business purposes. For example, one focus group was given the concept of welfare and the vast majority of participants voted against it. Another focus group with about the same demographics was asked about government’s responsibility to help the less fortunate. By about the same overwhelming margin, the second group voted in support of government’s obligation to aid the poor.

 

Framing has become a science and people’s reactions to an idea can depend on how it’s phrased.

 

Recently, my stock broker called and told me we should harvest my tax losses. The word harvest struck an agrarian note with me and created an image of abundance and wealth as opposed to one of privation and pain.

 

Last week I met a guy who is a Stabilization Agent. My first reaction was that he was an ingredient in yoghurt or ice cream, but he went on to explain his field of expertise. He goes in to companies teetering on bankruptcy, convinces lenders that the company is salvageable, and proceeds to negotiate debt and labor contracts as if the company has already declared chapter 11.  

 

 

On the national level, Fannie Mae and Freddie Mac have entered in to phase of “conservatorship.” I gather it means the brilliant legislators who allowed these institutions to over leverage and trade derivatives will now orchestrate their revival with the same care and expertise that brought them down. At least these two stellar institutions did not grant preferential mortgages.

 

Framing has been around for a long time and if we’re not careful, we can all fall prey to this kind of word play. One of my personal favorites is “deficit spending.” Translation? Spending money we don’t have or continually borrowing money to pay the debt we’ve created.

 

It’s only a matter of time until “toxic assets” will be reframed. Who wants to own anything deemed toxic? Soon they will be referred to as “opportunity assets.”

 

The acronym for the Troubled Asset Relief Program is TARP. One could interpret the word TARP as a protective covering or as a cover-up. The program should have been called the Selective Compensation Rewards for Executive Wastefulness or SCREW. Another option I might suggest: Continual Remorse Americans Provide–CRAP.

 

Be on the lookout next week for a few new phrases emanating from Washington.

 

 

 

 

 

Can We Buy American?

Can We Buy American?

The manufacturing base in America has been on a slow but consistent decline since the end of World War II. Creative Destruction, the theory of successful businesses being built upon failed models, proliferated within the United States; more recently our failed domestic industries have been reborn overseas.

In the era of globalization, new factories and resourceful entrepreneurs have found their way to foreign soil finding rewards in cheaper labor, tax advantages and limited government oversight. This raises the question of free competition and whether as taxpayers and consumers we should have access to the best product at the best price regardless of origin, or will ‘buying American’ actually solve our deep-seated industrial problems and encourage domestic efficiency?

A provision within the infrastructure stimulus package includes the phrase ‘buying American’ for many of our domestic regeneration projects. Cement and steel are the major components for building roads, bridges and improving ports. I wonder if anyone in Congress is aware that the largest individual cement facilities in the United States are owned by non-American companies. According to the Portland Cement Association more than 80 percent of the United States cement capacity is owned by overseas corporations. These companies not only produce cement, but in times of high demand, they also import cement to the United States from China, Taiwan, South Korea and other countries.

Some of our domestic steel mills are owned by Russians, Indians (not Native Americans) and foreign private equity firms. Plus not all domestic steel mills can produce the type of steel required for infrastructure. Steel for infrastructure can easily be routed by foreign producers through Mexico and Canada using the NAFTA Protocol and skirt any punitive measures such as the tariffs imposed by the Bush Administration. Even protectionism can be circumvented.

To go a step further, workers will often find their picks and shovels made in China, their earth moving equipment made in Japan and their engineering software enhanced by a technician in India.

This begs the question: What indeed is an American product?

This is a different economic world than the one of our parents. If subsidies or protection are allocated to domestic industries, they must truly be used for improvement to make their products competitive on a worldwide basis and not simply implemented for political advantage. Global economics have become extremely complicated and interlocking relationships make it impossible to deem anything as truly American.

Protectionism during the Great Depression (i.e. the Smoot-Hawley Tariff Act) proved to be one of the greatest disasters to the American economy. This is a time to look beyond popular political expediency and turn this crisis into an opportunity to regain our leadership in business by being creative, realistic and not insular. Retaliatory trade policies can hurt America far more than popular political rhetoric can help.

I have been involved in international shipping and trading, and for nearly 40 years I have seen newly created companies in America born through the global marketplace. Many have thrived and fostered employment. Some continue to expand in spite of the current financial crisis. The future of America is global and any hindrance to that potential will stifle innovation and leave us far behind on the international playing field.

 

 

The March Forth

Every monumental change in a nation’s future must have a name to allow the citizens to rally, make placards and chant. We had The New Deal, The Great Society, and as the mortgage bailout was unveiled on the 4^th of March, I vote for naming it The March Forth. A friend urged me to use The Great Leap Forward but research revealed that slogan had been put to better use elsewhere.

 

The blame game for our faltering economy is reaching a fever pitch with Republicans blaming Democrats (and vice versa) and the public blaming the bankers, Wall Street, the regulatory agencies, mortgage brokers and Congress. Everyone is at fault, but let’s not forget the actuaries. In spite of lower credit standards, no one foresaw the possibility of a burgeoning default rate resulting from less credit-worthy mortgage holders. Today, no one can pinpoint whether the excessive default rate caused the housing market bubble to burst, or if the bubble burst first causing the subsequent delinquency rate to explode.

 

Currently, more than 90 percent of Americans are meeting their mortgage obligations, while more than 10 million homes are in default, arrears or foreclosure. No matter how Congress may spin it, those homeowners who have been prudent with their finances, and often made many sacrifices, will be paying for the mistakes of others through higher taxes. If this is the American way, then we should all be prepared to take The March Forth.

 

An alternative might be to start thinking out of the box. Suppose the government enacted a one-time program allowing home purchases by foreign nationals able to pass a security investigation in exchange for permanent American residency. Only cash buyers would be eligible for this program with a floor of $400,000 and even those in America illegally could be candidates.

 

Or suppose the government gave returning service personnel the option for a subsidized home purchase instead of the college tuition assistance program offered by the military. The government could take an amount equal to the estimated college tuition and provide that as a lump sum down payment then finance the balance through Fannie Mae at the current low interest rates. This would allow home ownership to responsible veterans and create an opportunity that may have never been possible for them.

 

Finally, many individuals, some of whom have made billions of dollars through fraud and transgressions, should have a greater role in the bailout. Recently a number of Countrywide executives, who profited enormously throughout this financial calamity, have established a fund aimed at maximizing investments on foreclosed properties, often the same properties that were financed through their company’s sub-prime lending. Maybe some windfall or extraordinary tax should be levied on those funds?

 

It is time the lending institutions begin to bundle these foreclosed properties and selling them as packages to private investors. It would be efficient and it is the same template used during the Savings and Loan crisis. The housing market cannot recover until the overhanging malignancy of too many homes are removed from the marketplace and the banking industry cannot recover until value for these properties are established.

 

As we collectively march forth attempting to rectify many failings in our government’s regulatory incompetence, I doubt the correct path is for government to right previous wrongs through greater largess at the expense of the taxpayers.

 

 

 

 

 

 

 

Cry for me Argentina

 

I am writing from Buenos Aires.                                                            

 

Argentina is an incredible country. The northern area is a rich agricultural region and toward the west there’s Mendoza, which rivals Napa for quality wines and natural ambience. The Andes stream across the western border and places like Bariloche offer world class skiing. The furthest southern city at the tip of South America is Ushuaia, which has become a launching port for cruises to the nearby Antarctic. The Patagonia occupies the middle of the country and El Calafate, the only glacier in the world that is still growing, is a few hours by air from the capitol. Add to this several thousand miles of coastline along the southern Atlantic, a culture rich in European heritage and phenomenal cuisine.

 

At the turn of the 20^th century, Argentina was one of the five richest countries in the world. Unfortunately, past and recent policies and politics have put Argentina in danger of becoming a Third World nation.

 

The most radical change began when Juan Peron (Evita’s husband) became president in 1946. Many believe he was the most progressive leader in South America and his social policies changed the face of the country. He was an outright supporter of trade unions, which sprang up in every industry. Social security became universal. Education was provided free to all who qualified. Vast low-income housing projects were built. Paid vacations became standard. All workers were guaranteed free medical care. Worker recreation centers were constructed all over Argentina and were available to people for 15 days a year, at the cost of 15 cents per day, all services included.

 

By 1954 Peron initiated more than 45 hydroelectric plants and scores of infrastructure projects. Many new domestic industries were started with the assistance of government subsidies. Women were given the right to vote.

 

These programs were a major leap forward for a South American country during that era, but they faltered because there was no long-term plan to financially sustain these grandiose schemes. Additionally, the government became the sole exporting agency for agricultural products, historically the backbone of the Argentine economy; when farm wages were arbitrarily increased, production fell a staggering 25 percent.

 

In 1955, the government ran out of money to fund its social revolution and the military, in conjunction with the heavily taxed public, took control of the country. Peron was exiled for 18 years. (In the 1970s, he made a brief comeback as President until his death a year later.)

 

A democratically elected president, Carlos Menem, ascended to power in 1989 and reversed the nationalization process. Once again Argentina became in vogue and foreign investment poured in to the country. The peso was artificially pegged to the dollar and on paper the country looked financially sound. After the end of Menem’s presidency, the peso was allowed to float and lost 75 percent of its value almost immediately. Domestic bank accounts were frozen and Argentina repudiated more than $100 billion of foreign debt.

 

The current government under the reigns of Christina Kirchner is described as populist. Agricultural price controls are enacted regularly often resulting in shortages. Some agricultural exports are taxed almost 50 percent while neighboring countries can compete free of export penalties. Gasoline prices are regulated by the government and exploration has virtually halted because foreign investors fear future punitive policies.

 

 

Strikes are the norm in Argentina and President Kirchner’s version of income redistribution has been a complete failure. Production in every industry has fallen and the government is fostering a program to keep workers employed with more government subsidies. Recently, private pension funds were nationalized and last week the president announced a series of protectionist tariffs. (The president is also part of an FBI investigation after an airport worker in Buenos Aires accidentally discovered $800,000 in cash smuggled from Venezuela allegedly for her election campaign.)

 

Fifty years ago, Rogelio Frigerio, paradoxically a former Communist and Argentine millionaire industrialist, defined democracy as “that system where money speaks louder than principles.” This is a fair assessment about the existing situation in many South American countries, but it’s impossible not to be seduced by Argentina.

 

If Argentina is a template, it should teach us that social change is beneficial provided it is measured and affordable. It also demonstrates that unless the powerful national elite and politicians have a personal stake in change, it is likely to come at the expense of others. Until those in power see themselves as threatened, they will continue to espouse populist programs that often promise much but deliver little. Improvements in people’s lives are essential but they can only be lasting if they are done with structured and intelligent long-term planning.

Hope or Change?

I have a hunch the change in the American landscape will not be the one envisioned by many people. I personally did not live through either The Great Depression or World War II, but if you’re reading this then you are living through The Great Recession. Joblessness, foreclosures and tight money were evident during The Great Depression while shortages characterized the period during World War Two. In each case, the American psyche was altered, as it will be again once the current crisis finds its way into the history books.

 

About 70 percent of the American economy depends on consumer spending. The last two decades have seen government sponsoring reckless credit and wealth built, not from the creation of goods and services, but from high-risk paper instruments. The party is over and I believe the American consumer will display more practical spending habits and begin to handle their financial affairs more prudently. If Congress and the Obama administration follow that lead, eventually we will have a sound economy.

 

Unfortunately, many of the same people in Congress that got us in to this mess have now become our investment advisors.

 

There are many damaged segments in our economy but two are of specific concern. First, the major money center banks have intentionally or ignorantly understated their actual liabilities. They have gone back to the trough, and they’ll likely go back again. In addition to their declared American toxic assets, all of these banks have offshore facilities that were established to skirt American tax laws or keep assets, now liabilities, off their balance sheets. These must be fully disclosed to the American public before we put our collective fingers in the dikes of these faltering institutions with our tax dollars.

 

The second area that worries me is the car-manufacturing sector. Including the foreign car assembly plants, we have the domestic capacity to produce nearly 20 million automobiles per year. Cars are being built to last longer and the stigma of having a two- or three-year-old vehicle will disappear along with countless dealerships. Credit will continue to elude less deserving buyers and yearly production of 12 million new cars may be sufficient to saturate the market. I question the logic of subsidizing an industry with a foreseen overcapacity. I also wonder about the volume of yearly sales the newly subsidized car companies have forecast to return themselves to financial stability.

 

Not to harp on the car companies, but watching General Motors borrow money at 8 percent then subsequently offer zero percent financing is not a brilliant business model.

 

If the stimulus plan is to succeed, it must address some core problems. It must provide help to those who need it. It must provide tax certainty for businesses and individuals that want to enact long-term plans. It must stabilize financial markets with capital, insist on real transparency and put competent people in charge of overseeing regulations already in place. It must bring spending under control. It must deal with government’s unfunded liabilities, mostly entitlement programs, on schedule to increase by nearly $3 trillion every year. It must address government’s ability to create jobs without pushing the private sector out of the game.

 

We are on the precipice of the most brilliant scheme to ignite our economy or the greatest financial debacle ever experienced in the modern world.

 

 

 

 

 

 

 

 

 

 

 

Israel: A line in the sand

 

In ancient times the area was known as the Land of the Philistines. The name eventually became Anglicized and evolved to Palestine. As an area without defined borders it was home to Jewish and nomadic Arabic tribes; it later served as the birthplace of Christianity and in the 7th century saw the dawn of Islam. There is no history of Palestine as a nation-state, but people born in the area are Palestinian Arabs, Palestinian Christians and Palestinian Jews, the latter known more commonly as Sabras. Palestinian became a political term in 1967, referring primarily to the Arabic population in that region.

 

From 1517 through 1918, the region was controlled by the Ottoman Empire. After World War I, because the Ottomans sided with the Germans, the area was carved up by the French and the British. Countries were artificially created as rewards to tribal groups that fought against the Ottomans during the war. Those countries’ boundaries resemble modern day Syria, Jordan, Lebanon and a British Mandate covering the area that now includes Israel.

 

Although Jewish tribes lived in the area for more than 5,000 years, other ancestries co-existed and remained there through the conquests of the Romans, Greeks, Christian Crusaders and ultimately the Ottomans. In the late 19^th century, the Zionist movement inspired a wave of Jewish immigration to the Palestine region. Another wave followed after the Holocaust, and ultimately, Israel was created from a small part of the existing British Mandate. This was done in 1948 by a United Nations’ resolution and was immediately followed by a declaration of war against Israel by her Arab neighbors.

 

Since then this land, holy to three faith traditions, has existed in almost constant conflict. In September 1970 the Hashemites, the legitimate ruling party controlling Jordan, forcibly removed the militant Palestinian Arabs, the Palestinian Liberation Organization (PLO), from Jordan and drove them into Lebanon. Later in the 1970s the Syrians invaded Lebanon intent on destroying the most radical element of the PLO known as Fatah.

 

In spite of paying lip service to the Palestinian plight, few of the Arab countries wholeheartedly support a militant Palestinian state with fanatical goals that prevent tranquility in the region. Such a state would represent an enormous threat to any balance of power, especially if that state continued to be fed with arms and propaganda from Iran.

 

The more success militant political groups like Hamas in Gaza and Hezbollah in Lebanon enjoy, the more the traditional and moderate seats of power in the Middle East, not just Israel, will be threatened. That would morph in to an even larger geo-political danger.

 

The Palestinian territories of Gaza and the West Bank are economic, geographical and social nightmares and that must change. Three generations have lived through the largess of donor countries, primarily the United States and Europe, and most of that money has either disappeared or been put to very little positive use.

 

The administrative ruling parties encompassing Gaza and the West Bank have included in their charters the destruction of the state of Israel as a primary goal. Given that these areas share the western and eastern borders of Israel, it would be suicidal for Israel to encourage these groups—sworn enemies—to pursue statehood under their current leadership and give them legitimacy. 

 

In 2006 the residents of Gaza voted and put Hamas in power, in effect rendering negotiations impossible because of Hamas’ militant legacy. It was a clear signal the leadership in Gaza would attempt to destroy Israel before thinking responsibly about nation building.

 

Currently, the world is condemning Israel for the military action they are taking in Gaza. The perpetrators of terrorism should be stopped at every juncture and the horrible loss of civilians is a terrible causality of any military operation. But if Hamas were to experience any success, it would embolden them and other terrorist groups to engage in terrorist activities in other parts of the world. Hamas would not stop with Israel.

 

Jews and Arabs have historical eras of living together harmoniously and there have been centuries of accord in the Middle East, Spain and other regions. For now, Israel has drawn a line in the sand against terrorism, not against the Palestinians.

 

Former Israeli Prime Minister, Golda Meir, aptly said four decades ago, “We will have peace with the Arabs when they love their children more than they hate us”.

 

RADICAL CONCEPTS

  

If we’re really looking for a change in Washington politics then it must be done at the core of the cancer and not just by substituting a new face or different political party in the highest office. A number of my friends have had some intriguing ideas on how to create real systemic change:

 

My buddy Paul has suggested that a team is more important than an individual presidential or vice presidential contender. To this end he argues that each candidate name his potential team in ample time before the election. The President’s intended cabinet would be made public and voters could choose a lineup instead of an individual. Critical positions such as the Secretaries of Defense, State, Energy and Education are far more crucial in today’s world as opposed to only a few decades ago.

 

My friend Richard is compulsive about waste in government and cannot point to any program that is administered efficiently. In the sea of mediocrity that swamps government administration, we often find agencies responsible for billions of budget dollars run not by a senior, competent executive but by a party hack, a large contributor or a friend of someone in a high office.

 

Richard makes the point that distributing government dollars is a business and not a rote exercise. In spite of potentially inciting electorate revolt, he believes that hiring competent business people at commensurate salaries to run these agencies would result in huge savings by eliminating fraud, waste and introducing efficiencies. If someone is paid a salary of $1 million a year and saves the government billions, it seems this would make a lot of sense.

 

My pal Lynn is an anti-lobbying fanatic. Let’s face it, lobbying in spite of recent restrictions has become a flagrant form of corruption. Jack Abramoff may be in jail but that doesn’t mean 100 or even a 1,000 of his clones aren’t still in Washington. Lynn thinks that campaign contributions by lobbying organizations are simply bribes. No one would contribute to a Congressperson’s campaign and expect that individual to vote against the lobbying organization’s interests. We have laws in this nation that prohibit bribes to foreign government officials and yet our own system allows well-funded pimps to have direct and immediate access to our lawmakers to a far greater extent than the general public.

 

My own nemesis is the lack of term limits in Congress. Any good organization should incorporate a blend of fresh exuberance with experience. At one end of the spectrum a continual flow of new faces could foster some serious mistakes. At the other end of the range, Congress members having served for decades become encrusted in the past and can be sluggish about changing circumstances in an ever-changing world. Two current examples: Charles Rangel, age 78 (D-New York), and Ted Stevens, age 84 (R-Alaska), both of whom are coincidently embroiled in alleged cases of misconduct. Both have become imbued in the system, both have perpetuated it and both should leave their long legislative careers as a memory.

 

I believe this country would be a better place if any of the above ideas were implemented and enforced. Unfortunately, Congress would need to police itself should any serious correction be enacted to the system—an iffy proposition at best.

 

I have heard change and reform as the buzzwords in every election since I began voting. In the words of Albert Einstein, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MY ENDORSEMENT

Many hundreds of readers have asked me for an endorsement for the presidential election. I am a board member of our local non-profit community-based radio station and FCC and IRS regulations prohibit political endorsements through our station’s web site or on the airwaves. I am not nearly as clever as Rosie O’Donnell, Chuck Norris or Hannah Montana, all of whom have expressed their support for their respective candidates.

We should all accept that speeches from candidates rarely match their performance in office, and the fantasy never quite measures up to the reality.

We don’t have to reach too far back to find striking examples: Ronald Reagan’s vision of smaller government actually resulted in a bloated the federal budget.

Who could forget George H.W. Bush and his mantra of no new taxes?

Bill Clinton urged more assistance for the underprivileged but his statistical record shows quite the opposite.

I remember in 2000 that George W. Bush, the compassionate conservative, professed he would unite and not divide.

I am no longer sure which party represents smaller, more efficient government or which party intends to increase rather than decrease entitlement programs. I have no idea which party will raise or lower taxes. I know how the candidates stand on the abortion issue, but I am confident Roe versus Wade will never be overturned.  How each candidate stands on health care, energy, unemployment, education, the current financial crisis, the looming game of Russian roulette, Iran eradication or immigration is a moving target depending on which speech is given on a particular day.

I do know that focusing on the deficits of one’s opponents may mean that each candidate has very few of his own accomplishments to bring to the forum. And that may be the most disturbing thing of all.

I cannot endorse, but I can state a few things that trouble me about both contenders.

I am a third-generation Jewish American and America has been a bountiful haven for immigrants from the far corners of the world. I find Senator Obama’s long-running association with The Trinity United Church totally unpalatable. If I was attending a synagogue and the rabbi continually spewed anti-racial epithets, ranted vitriolic ethnic slurs or seethed hate about America, I would leave the church and find another house of worship. The church’s endorsement of Louis Farrakhan and support of his long-standing anti-Semitic viewpoints are tantamount to declaring David Duke a great American. This is a blight on the church and all of its parishioners. One must question the credentials of the spiritual leadership from that institution and its followers. The tolerance of intolerance is intolerable.

No one can deny the heroic behavior of John McCain during his confinement as a prisoner of war. But the Cold War era from which his experience was forged is a relic of the last century. I believe in a strong military for protection and to respond to legitimate threats, but the days of any nation’s conventional military hegemony are fading and armed solutions are likely not the answer to another region’s internal political problems. Leadership is not only a composite of experience, but consists of an astute ability to recognize change while at the same time offering a clear vision of the future. Experience matters little if one intends to use outdated solutions for problems that arise in an ever changing domestic and global environment.

Change means that we give up something now for something that is hopefully better in the future. Change can happen by circumstance or by choice. However it comes, we need to respond by intelligently steering our nation’s destiny by putting our own welfare first without losing sight of our worldwide responsibilities. Each candidate espouses change, but Alphonse Karr’s adage, “The more things change, the more they remain the same,” has never been more prescient.

My endorsement is simply to vote, and to vote intelligently. Do judicious research, listen to opposing points of view and commit to the candidate, both locally and nationally, and not to either party. There are both good and bad Republicans and Democrats. Voting is the most incredible privilege we have as Americans. It should be cherished and used wisely.

 

 

 

 

 

 

 

CRY-SIS

I remember the thrill of buying my first home and the anticipation of waiting for the bank’s decision on our mortgage application. In that long forgotten era, the 1970s, buyers were required to put down 20 percent of the total loan and complete a myriad of paperwork proving their ability to pay.

During the last few years, buyers with no money, no job, no documents or no credit history received home mortgages without the kind of vetting we experienced. The most serious investment most of us ever made had evolved into an entitlement.

There are many things that converged to create the current financial crisis. We can start with the modification of The Community Reinvestment Act. This law forces banks to lower mortgage standards in depressed areas in exchange for favorable reviews by the Federal Reserve. In 1995 a sweeping change reduced the paperwork and verification process allowing less creditworthy buyers to obtain mortgages.

Sub-prime financing was off and running.

In 1999, The Gramm-Leach-Bliley Act set the stage to allow banks, insurance companies, brokerage and investment firms to cross the boundaries of mortgage limits created during the depression. This was another vital component in creating the drama unfolding today.

Following the dot-com crash and 9/11, the only part of the economy that thrived was housing and a number of people set out to make it even better. The prospect of easy money combined with easy loans propelled the housing boom. In any market, too much cash chasing too few assets will cause prices to rise.

It has been disclosed that over 60 percent of mortgage applicants lied on their applications either about their incomes or their intentions for the property. Many of these mortgages ended up covering investments and the purchases of second homes—not primary residences. Bizarre loan products allowed borrowers to pay almost nothing for a few years, allowing speculators to purchase multiple properties. The result: About one of every six homes in America has a mortgage in excess of its actual property value.

Mortgage lenders can be called predatory, and the real estate brokers criminal, but how many of us would refuse a virtually free house with the anticipation of appreciation as high as 15 to 20 percent each year?

Enter the investment banks unshackled by previous regulations. Investment banks took these sub-prime mortgages bundled them and then sold, split and resold new bundles; a derivatives market developed and credit default swaps became money-printing machines. We politely call a garbage dump a landfill, and now we have, ‘toxic assets,’ another euphemism for bad bundles that smell.

People assumed that Fannie Mae and Freddie Mac, the purchasers of many of these bad mortgages–to the tune of more than a trillion dollars during 2005-2007–carried an implicit government guarantee.

What caused this bubble to burst?

• • Greed on the part of everyone involved from the homebuyer to the investment bank on Wall Street.
• • The use of Fannie Mae and Freddie Mac by Congress as politically motivated money-laundering machines. Alan Greenspan and several departmental auditors warned the American public four years ago of improper bookkeeping and insane debt-equity ratios.
• • The failure by banks and investment firms to accurately report their real asset base and the incompetence of the bond-rating agencies.
• • Unrealistic pricing in the derivatives market based on computer models using archaic default ratios in an environment where actual defaults proved well above historic averages.

Now we will be footing the bill for idiotic legislation that lead to excesses that government chose to overlook instead of overseeing.

Here’s another bleak thought: Many sub-prime homeowners that got in early have gone on to take home equity loans and purchase cars with subsidized financing. Additionally, there are 1.5 billion credit cards currently issued in America or about nine for each family; credit card debt averages about $12,000/household. As the credit crunch becomes more acute, default will become widespread in the consumer credit market. This will affect insurance companies, banks and managed retirement plans.

On a more macro scale, states and municipalities will receive less income due to a huge drop in property tax collections and this year the federal government will receive little capital gains revenue. The $700 billion band-aid is miniscule compared to the unregulated $62 trillion derivatives markets that touches every financial institution in the world. However, it should be sufficient to allow Mr. Paulson to leave his post with dignity and foster the re-election of incumbent Congress people.

In a few weeks we will be choosing a new president. Neither candidate has any governing or global financial experience. Neither candidate has any experience running a business for profit as opposed to running a government in deficit. Neither has ever created private-sector jobs. I doubt if either candidate really understands the interlocking relationships within the global economy. Unfortunately, one of them will win, and more than likely, most of us will lose.

The final decision

With the election on Tuesday I am thankful this will be my last national political piece. I have some regrets about living in Colorado–a swing state–only because the hotly contested election races draw more money from both parties to television advertising and telephone soliciting. Even a quick finger on the remote cannot avoid the onslaught of misrepresentations, half-truths and personal attacks marring the integrity of both campaigns. This is one reason highly qualified people stay out of politics and remain in private industry.

The negative campaigning brings to mind a number of questions I need to ponder before making my final presidential selection. If you have some answers, please leave a comment at www.kwmv.org/blog.
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• Why are there 35,000 registered lobbyists in America and only 535 people in Congress (a ratio of almost 70-1)?

• Can either candidate lead us out of this financial crisis?

• Why do we chastise the Cubans for human rights violations and maintain Guantanamo prison on a tiny portion of the same island?

• If we are a racist country, why is Colin Powell one of the most respected people in America?

• Why are such a large percentage of pro-life advocates also in favor of capital punishment?

• What is the difference between Timothy McVeigh and William Ayers?

• What is the difference between Charles H. Keating and Tony Rezko?

• Do the religious leaders Jeremiah Wright, John Hagee and Louis Farrakhan really promote tolerance?

• If we have a minimum age for a president, should we have a maximum age or should there be no age requirement?

• Would formalized same sex relationships really have a profound negative effect upon communities at large?

• If there is compulsory education, then why does the dropout rate exceed 50% in most inner cities?

• If we have immigration laws in place, who decided not to enforce them?

• On election ballots, why aren’t incumbents’ names highlighted making it easier to vote them out of office?

• Why is our Congress able to legislate and determine their working conditions and compensation when we are their employers?

• If most legislators have never run a business, how can they be so arrogant as to set business policies and then delegate the oversight to underlings with even less experience?

I look forward to your answers. Send them my way at www.kwmv.org/blog.

Stick the Fork in General Motors?

 

 

In the late 1960s a friend of mine drove up to my house to show off his new car, a tiny green Datsun. In those days, we considered anything from Japan junk and this four-door sardine can did nothing to change my opinion. But Datsun eventually became Nissan, and less than 20 years later, Congress was compelled to restrict Japanese imports to protect our domestic car manufacturers.

The Japanese responded quietly but effectively by building automotive plants within the United States. Nissan has one in Tennessee while Toyota has five with another under construction. Honda followed and then along came Mercedes-Benz, Hyundai along with other foreign competitors, which located factories in rural American counties. These are all non-union facilities with comparable Big Three pay and health packages but considerably less retirement benefits.

Our own auto industry has taken its show on the road as well. General Motors and Ford have successful overseas operations, but they have managed to run their domestic operations into the ground. Our auto industry assumed that cheap fuel and easy credit would be a mainstay. Whether management was incompetent or shortsighted, they’re now seeking a government bailout, which begs the question: We have an estimated 250 million registered vehicles in America – do we need one car for nearly every person living in this country? Do we need to prop up the auto industry up by selling more cars to many people who may not be able to afford them?

The Hummer, muscle cars and the Yukon XL are only some examples of how companies clung to their fuel hogs while their competitors saw the gas fumes in the ether and got it right. (The 2009 Ford F-150 is rated at 16/MPH on the highway. If the government lends a helping hand, shouldn’t stricter mileage requirements be part of the package?)

Government is under a lot of pressure from many corners. The UAW has about 200,000 active members building cars and another 400,000 members in ancillary-related industries. To this amount, add spouses, children, and retirees. This is an enormous voting block. It would be nice to imagine that offering Motown a helping hand is an apolitical act, but we all know better.

I truly believe management is culpable although the union has contributed to the industry’s woes. (On a personal note, I was a Teamster for several years and later a shop steward for the Machinist’s Union at JFK International Airport.) Many fine people would potentially lose their jobs and an enormous segment of our economy would collapse at the worst possible economic moment should these giant corporations go under.

The federal deal that’s supposed to get the engine humming again is this: Automakers are about to receive $25 billion in subsidized loans to retool and now want another $25 billion on the same terms to fund retiree health benefits. I consider the lack of adequate funding for the retirees as absolute mismanagement. We have already arbitrarily bailed out banks, insurance companies and investment firms. With this precedent, we can expect many other businesses, both small and large, to line up at the trough. (And let’s not forget the billions loaned to the airline industry after 9/11, a move that did little to stave off bankruptcy for several carriers. It is not hard to guess who has paid for that small dalliance.)

We need to discern if this potential bailout is an investment or gift. At the very least, stockholders, bondholders and executives should not benefit at taxpayer expense. Even with the loans, there are no guarantees that the domestic car industry will be any healthier in the future—or that the U.S. taxpayer will remain the responsible party for the debt.

We should also not lose sight that the foreign automobile manufacturers in the United States are profitable and they pay taxes, as opposed to our hallmark companies, which do the opposite.

We’ve come a long way since the days of those clunker Datsuns when “made in the U.S.A.” was almost a religion. But the game is bigger now and we’re playing on a complex global playing field and this requires a different strategy.

In the case of the automakers, we have ailing American companies operating overseas, and healthy foreign companies operating in America. If foreign investment in America is not treated evenhandedly, or if American companies are allowed to live on life support through subsidies, the ultimate consequences will be more far reaching than sticking the fork in General Motors.

Democrats were smarter than Republicans

In 2004 Howard Dean dampened his political career by giving the Dean Scream after his third-place finish in the Iowa caucuses, but he also changed American politics. He pioneered the use of the Internet to raise campaign money and to encourage younger voters to participate in the election process. During this election cycle, our new president-elect brought Internet and cellular communications to almost unimaginable heights.

The Democrats were smarter this November and may prove smarter for the foreseeable future. In 2008, two out of every three voters under 30—a huge demographic group–voted for Obama. I personally have some trepidation about our new government being determined by so many voters who have never had to make a payroll and some who have never been on a payroll. On the other hand, 52% of voters with yearly incomes of at least $250,000 went for Obama (compared to 46% who cast ballots for McCain), demonstrating that Obama not only played well with the young; he sold those most likely to experience tax hikes.

I was chatting with a notable Valley Republican recently who remarked that the pseudo-intellectual axis of evil stretching from the East Coast through Boulder, Colorado to Hollywood was the clear winner. They combined forces to execute a flawless and well-funded campaign.

In addition American demographics have changed and Republicans were well behind the curve.

The Democrats registered new voters, created a wave of excitement on college campuses and provided sophisticated messages across different media. They did their homework and they got it right.

The suburbs that were vital to Republicans have now morphed into neighborhoods with minorities, high-tech professionals and more liberally educated young couples. In Florida, the financial crisis swayed Baby Boomers with plummeting retirement accounts, so the Sunshine State went blue.

In the last decade over 2 million Californians have fled that state with many of them resettling in Colorado and Nevada, the same for residents of New York and New Jersey, who have found congenial retirement in North Carolina. This phenomenon helped put Colorado, Nevada and North Carolina in the Obama column.

Culture War issues like abortion, stem-cell research, same-sex unions and creationism held little appeal for those who had lost their jobs or were losing their homes. 

In the seven years since 9/11, many Americans grew complacent about national security. This Republican selling point moved far down the list for voting priorities. The collapse in gasoline prices just before the election erased that worry from consumers and the cry of “Drill, Baby, Drill” was reduced to a whimper.

The Republican image as the party supportive of big business, less regulation and market-based economies has been bruised and damaged. The party of less government has created more and the party of fiscal responsibility has lost their way.

Future elections in America will be decided by the swing or Independent voters. We will always have an element, like our illustrious local newspaper editor, www.wetmountaintribune.com, who would vote for Daffy Duck if he were on the ballot as a Democrat. Unfortunately, the same is true for some diehard Republicans. I personally feel more comfortable with elections determined by the middle instead of the fringes. If the Republican Party survives, it will need to address the concerns of this growing voting block. It needs to persuade average voters that markets and the economy can work for them with judicious oversight and that Republicans can provide it.

There is a huge amount of excitement about the first African-American president and a great deal of speculation about his administration’s ability to follow through with its campaign promises. He and his party will be judged in 2010 and again in 2012. But with some hope, prudent change and a real effort to build unity, the greatest country in the world will not only survive, but also prosper.

 

 

CARBON FOOTPRINT

We have all driven through affluent neighborhoods with driveways full of new cars. In some areas, a car older than three years stigmatizes the owner. In many cases, it’s easy to identify family status by car count. Two cars in a driveway indicate a young or empty-nest family. Four cars point to two children at home – likely a high school senior who received his or her first car in anticipation of graduation and a second child visiting from college.

 

Americans are obsessed with cars. For Americans, cars symbolize money, style, romance, sex and freedom. They embody the American spirit and national ego in shiny paint and steel.

 

That’s not to say other countries don’t have their own relationships with the automobile. But in terms of sheer numbers—according to a 2006 Department of Transportation report there are about 251 million registered passenger vehicles in the United States—the U.S. is far and away the largest consumer of automotive technology. On average, Americans keep their new cars for less time than citizens of any other country.

 

TATA, an Indian conglomerate has begun manufacturing the NANO. It is a minimalist automobile priced around $2,500. These cars are targeted to less-developed countries and enable people to live their version of the American dream or join us in the unfolding American nightmare.

 

For those of us interested in preserving the environment, a recent study revealed a startling fact. The carbon footprint used to build a new automobile is greater than driving an outdated SUV for a period of at least 10 years. The results included the pollution savings even on more-efficient new vehicles.

 

The main component of a car is steel. Steel for American cars originates from some domestic but also many global sources. The world’s major steel producers are China, South Korea and Japan and these countries have minimal natural resources. Accordingly, raw materials for steel production are shipped from sources halfway around the world in quantities of hundreds of million tons. Ships used for transportation burn a lot of fuel.

 

The main component of steel is iron ore. The ferrous material is leeched from the ore using an enormous amount of fresh water and energy. The steel-making process produces vast amounts of pollution while at the same time requires a huge amount of energy normally supplied by coal.

 

Plastics, another major component of automobiles, are petroleum-based. Car computers may contain trace amounts of heavy metals, while the process of converting natural rubber to tires spews an abundant amount of toxic gases into the atmosphere.

 

At a dire time for our domestic car manufacturers, I have to question if America needs to produce a surplus of new cars each year? Perhaps our efforts might be better spent partnering with low-cost producers in Third World Countries offering sustainable alternatives to manufacturing at full bore?

 

Since we have confused consumerism with capitalism, should we continue to entice buyers with zero percent financing, teaser leases and other schemes to make cars affordable to people who can’t afford them or those who have no need for a new vehicle?

 

Would the $50 billion dollars being targeted for the Big Three American car companies be better spent on light rail or other public transportation options?

 

We are destroying our environment by mining raw materials and producing new cars in an already saturated domestic market while the automobile is proliferating worldwide. At some juncture this will cause another acute fuel shortage or higher prices at the pump.

 

The energy saved by producing fewer vehicles will easily compensate for the poor mileage standards of older cars remaining on the road. This does not indicate that more efficient vehicles need to be brought to the market, just not in excess amounts or as immediate replacements.

 

At the confluence of environmental sensibility, political maneuvering and exacerbating economic circumstances, we can only hope that practicality will return to the American consumer and that Washington will look two decades down the road instead of just peeking around the corner.

 

 

MUMBAI

A few weeks ago I sent a note to a friend who lives in Mumbai. Here’s an excerpt from her reponse:

I arrived on the night of the 27th in Mumbai from NY (the attacks ended on Nov. 29). I wasn’t sure whether to take the flight back home— not knowing if the chaos had spread all over the city or not. My family is ok— but some dear friends and acquaintances we knew died in this horrific siege. These hotels and restaurants are ones I frequent and it could have very well been me on a given day. There is public outrage and anger towards the politicians and the government.
 
People want to see some concrete action and change from the way things are conducted here. I don’t think this time around life will be the same— it has struck a deep cord.
 

In America, each day we look at television news and see examples of innocent people slaughtered by terrorist attacks, ethnic wars and despotic regimes. As far as our own Middle East conflict is concerned, we view the loss of our valiant young service men and women sympathetically and then we go on with our lives—detached from the rampant gunfire halfway around the globe.

In the United States we have enjoyed uninterrupted safety since the 9/11 catastrophe. And for now we enjoy relative security in our shopping centers, our public transportation, our houses of worship and our school buildings. That could change in a split second.

Our holiday season started with Thanksgiving, a time to be thankful that the direst situations in America pale compared with the trials most face around the globe. Genocide and starvation are not part of the American way of life.

As we approach the winter holidays and the New Year we shift from a time of thanks to a time of giving. Considering the economic and foreign policy challenges we face, it’s easy to take for granted or even ignore the gifts we enjoy on a daily basis – that of safety, freedom and opportunity.  

Generosity can take many forms. It is not just an expensive gift exquisitely wrapped. It may only be a token, but it can have enormous consequences for the recipient.

In our community we have over 50 non-profit organizations all working with dedicated volunteers to make the valley an incredible place to live. It is the time of year to show our appreciation and support the organizations and the people who make our daily lives better, in whatever ways we can afford to do so. We may also want to extend our gifts to places around the world where hunger, disease or terrorism are making normal life all but impossible.

 

 

$1,000,000,000,000

There are certainly a lot of zeros in a trillion dollars.

The other day an accomplished CFO told me that our government could borrow an additional 20 percent of the national debt and not incur any increase in debt service over that paid in fiscal 2008. This was calculated on the extraordinary low interest rate for government bonds offered in the current market.

The problem with this reckoning is our government is becoming a sub-prime borrower. We are making teaser loans to bond buyers, which include the American public, with low interest rates up front and little discussion about the burgeoning principle that will eventually need repayment at more market-oriented fees. The only way to sensibly meet these new obligations will be to raise taxes, cut government spending, print more dollars, or some combination thereof.

I consider myself a fiscal conservative and living through the last eight years of reckless government spending has been a nightmare to watch. In spite of our government’s largess in the form of stimulus payments and entitlements, few of us consider ourselves better off than we were in 2001.

Now the new administration, rife with a highly respected economic brain trust, is hinting at a $1 trillion stimulus package to create 3 million jobs. Do the arithmetic and you’ll see that the cost of each new job exceeds $250,000. Hopefully the final price tag would include engineering and materials that would leave us with improved roads, bridges and ports. (A word to Obama’s highly respected economic brain trust: The story of the hedge fund Long Term Capital Management offers a cautionary tale of how two brilliant Nobel Laureates nearly caused a financial market meltdown. Academics must not only be theory-wise, but also street-wise.)

Obviously something needs to be done to assuage the pain and hardship of the unemployed. But are massive government programs the answer? New studies about The Great Depression have shown that the New Deal Era did not have the dramatic rehabilitative effect on the economy as once thought. Government spending and excessive taxes squelched private industry until the war effort jolted our manufacturing sector back to life. The stock market wouldn’t recover and begin trending upward until 1954. 

The prospect of massive New Deal programming in the 21^st century begs the question: What type of jobs does government intend to create or preserve? Manufacturing in America has been on a steady, almost unabated decline since the end of World War II. Do we prop up inefficient or outdated industries or do we embark on programs that create more technology-oriented jobs that include necessary training for displaced workers? Building or renovating infrastructure is necessary, but what happens to these workers once the programs are finished?

Big government does not operate cheaply or efficiently and both political parties tend to cater to their voting blocks. In times of crisis these programs garner universal appeal and may have short terms benefits, but often the cost or damage they create is not fully understood until decades later.

If America wants to remain a leader in the global economy, it must treat private capital fairly and enact policies that encourage investment. We need to provide enhanced tax incentives for research and development. And, given that more than 50 percent of American employees work for companies of less than 500 people, let’s avoid punitive taxes disguised as stimuli on small businesses.

International financial boundaries no longer exist; investment will flow in to countries that offer the safest and best returns. We should not eliminate our legacy steel and automotive industries, but it is clear that the country, which encourages technology, originality, and plans for the next decade instead of the next day, will achieve global economic preeminence. If we’re going to spend a trillion dollars, I hope that Washington can guarantee some bang for our bucks.